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Friday, September 21, 2007

Sovereign wealth funds

Yesterday the dollar was weak against the euro and yen, as Saudi Arabia was balking at the dollar peg. So we get selling by sellers and shorts afraid of their shadows. Longer terms rates have risen modestly, causing the Cassandras to say the Fed was wrong to cut 50 basis points. Give me a break. Longer term rates reflect a shift from the sovereign wealth funds into equities, and a better economy going forward. Just look at the action in LSE and OMX and the Nasdaq.

Dubai said it would take a 19.9% stake in the Nasdaq exchange, and the 28% stake in the London Stock Exchange (LSE); then NDAQ would get the Nordic exchange (OMX). But during trading yesterday Qatar spent $1.37 billion buying 20% of the LSE, and $470 million to take down 10% of the OMX, trying to scuttle Dubai's plans. Do you think these sovereign wealth funds are buying stock exchanges if they're not bullish?

Abhu Dubai's investment arm, Mubadala Development Co. picked up a 7.5% stake in Carlyle Group for $1.35 billion. Those that think the money from oil just flows into gilded palaces better reasses this global economy. And consider the impact of this money on equity prices around the world.

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