TARP: The World's Largest Sovereign Wealth Fund

What's the largest Sovereign Wealth Fund in the world?

Your first response was probably China, Saudi Arabia, or Singapore, but you would be wrong. The largest SWF in the world is the TARP. Yes, Uncle Sam has just hung up a shingle. And the the first quarterly return is officially on the books. All I can say is, "Wow!" With a 4% clip in Q4, this annualized out to 16%. So what is the government buying? Bank preferred and MBSs with a ton of warrants for an upside kicker. To all the hyperinflation gold bugs, how do these profitable returns work into that scenario?

The biggest beneficiary of the government's successful venture into money management business is the U.S. Dollar. The greenback has begun a multi-year move toward 120, and I can hear all my little gold bug friends screaming. But time will tell, and if the trend is your friend, the dollar is headed in a nice direction. Folks, the government is buying assets for pennies on the dollar. And now the Federal Reserve wants to pony up to the bar with a 500 billion dollar checkbook. Are they wanting to buy some risk free assets? No sir, "I'll take all those risky mortgages please, says Mr. Bernanke. To all those printing press people, commodities have had the big run, inflation is behind us. Let's try it this way - in economics savings equals investment, S=I. So is the government spending or investing? Your answer to that question is key to your portfolio allocation.

I think investing, and this will have a profound impact on savings. The dollar will strengthen, and domestically oriented corporations will prosper, while commodities and multi-nationals will be fighting a head wind. It will look just the opposite of the past 20 years, and America will shine magnificently. The greatest country in the world is being formed before your eyes, and America is investing in herself.

One of the fears of TARP is the forcing out of private investment, but look at some of the recent deals with Citigroup (C), Indymac, and Flagstar (FBC). The prototype public/private partnerships are forming in front of you. I'll quote George Soros, "The worse a situation becomes, the less it takes to turn it around, the bigger the upside."

Would you like to know the latest investment of Mr. Soros? He is one of seven parties to the new IMB, formerly Indymac Federal Bank. And did these guys steal these assets or what? So while assets from around the world are frozen for various reasons - Lehman's bankruptcy, Raymond James Financial (RJF) denying access to its clients' ARS funds, or hedge funds in lockdown mode - the smart investors are buying distressed assets. Who would have guessed, the smartest man in the room is the US taxpayer.

To all of you piled into US Treasuries and gold, it's time to be greedy not fearful. There are many reasons not to wait to buy risk, the biggest is the multitudes who have no access to their funds. This is the greatest opportunity of 10 lifetimes, and I want to be on record to have been a buyer. The news is filled with tragedies, but triumph can be wrestled from the jaws of defeat. Paulson, Bernanke, and GW may go down in history as legends. If these investments work as they should, the national debt may be manageable.

Disclosure: No positions in UUP, GLD, C, FBC, RJF.

Comments

[sdavid0419:]

This might sound plausible and I don't want to imply that I haven't considered this angle myself. However, the problem I have with this is not unlike the problem I had with the market that collapsed. No one can tell you what the government owns or doesn't own and most of the banks they are helping don't want them to know. The reason for the market collapse was because even the insiders were kept from knowing the truth about any asset. I used to put my trust in Moody's the centuries old watchdog. Needless to say I took a big hit on a false Moody rating. With all of the government handouts nothing has been done to correct the accounting and trading practices that have caused the problems. I liken it to paying off your relatives bookmaker and not putting your relative in rehab. I'm sorry GOLD is still the only answer I can come up with until trust is restored in the market. Just keeping the game going doesn't fix any of the problems I have.

Jan 07 10:30 AM

[lance sjogren:]

Great, the government is getting a 16% return on TARP funds.

Who believes there is any credibility in that number? Nobody knows what all that crap is worth, so how is it possible to have any idea whatsoever what gain or loss the government will have on those "assets".

Indeed, how can one possibly know what mortgage backed securities are worth. It depends greatly on the depth of the economic downturn, which will determine the unemployment rate, which will have a huge impact on the foreclosure rate.

Plus, with direct government intervention in renegotiating individual mortgages, something likely to be much more prevalent under the new administration, the government itself is manipulating the mortgage market directly.

Does that mean that the government will salvage value in a lot of underwater mortgages, or will it renegotiate mortgages downward to the point where the homeowner can now hang on, but the creditor has to write down the mortgage to a much lower asset value?


Bottom line is, with all the screwups that the Treasury and Fed have made, it is absolutely absurd to take at face value any claim regarding a return on investment for the TARP funds.

The strongest case the author could make is that with the system so screwed up, it is presumptous for the gold bugs to think they have any better handle on the situation than those who believe in the tooth fairy or Santa Claus or the Treasury Department or the Fed.

Jan 07 11:39 AM

[HBWOW:]

IF, MARK, THESE INVESTMENTS THE GOVERNMENT HAS PURCHASED ARE SO VALUABLE, THEN WHY DID THE BANKS SELL THEM ? ? ? IN REALITY, AS PROPERTY VALUES ARE EXPERIENCING SIGNIFICANT DECLINES AND FORECLOSURES ARE ON THE INCREASE, THESE "INVESTMENTS" WILL TEND TO LOSE VALUE.

AS FOR BANK STOCK POSITIONS PURCHASED, WHEN OUR MAJOR BANKS' POSITIONS IN OTHER DERIVATIVES, ON AND OFF THE BALANCE SHEETS, TEND TO SOUR, WHAT THEN WILL BE THE VALUES WHICH APPEAR ON THE FED BALANCE SHEET ?

Jan 08 11:35 AM

[Allan Frain:]

There is a difference between investing real savings and exchanging newly created dollars for something. This concept is lost on the author.

There is also a difference between investing in tangible capital (such as a factory) and taking posession of a dubious entity that the market has deemed as worthless (such as a CDS). This is also lost on the author.

Jan 08 12:46 PM

[Ying & Yang:]

So Mark Caffee -You get off watching Central Bankers and the Federal Reserve- Big Banks & Soros & Paulson*&* Gang operate-?

This is called a Facist-Big Gov't-Big Banking-Ruling "America" thru out & out Fraud-Thief-Stealing--... good French revolution with the Gillutine is in order-!!!!!!!!!!!!!!!!...

Bascially "Traitors to America"
Built by Men *&* Women willing to give everything-up to escape their predcessors in Europe *&* around the World.

Ask Soros why her does not vacation in Indonesia-?He "HELPED them too

Oh and opps none of these "GENIUS" helped create the subprime meltdown -?-Were not smart enough?

Funny President Thomas Jefferson said when if ever America got a FED ---that thru Inflation and Deflation the Central Bank would ROB & Pillage the Ancestry of "America" tii they were "Broke"

And that we would never fall by a foreigner but the BIGGEST THREAT were the Banker

And President Andrew Jackson has on his Tombstone "I killed the Banks" ---Because he took people like the above and Jailed -Shot and closed those Banks in his TIME (He is my "HERO")

Do not make men like Jefferson *&* Jackson today so YOUR Buddies probaly will RAPE-PILLAGE-*&* STEAL &ROB-"AMERICA"

Then create their Dictatorship---

Apr 16 10:48 PM