Why Sovereign Funds Are Buying U.S. Financials

As the debate now "roars" about whether or not U.S. equities are headed for a general bear market, we all know that the financial sector has been there for some time now. Indeed, the Financial Sector SPDR (XLF) ETF is down some 25.7% from January 1, 2007 through January 16, 2008.

This week's news once again features prominent and sizable liquidity facilities provided to our U.S. banking institutions by foreign sovereign funds. As shown below, from the foreigner's currency adjusted perspective, these securities are an even better "bargain", with the XLF down more than 30% when stated in Euro and Yuan, respectively.

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If you believe foreign central banks will soon start lowering their lending rates along with ours, and that the U.S. is closer to a price floor than our relatively high flying foreign market counterparts, it is easy to see the attraction. This is especially true with choice preferred stock dividend rates approaching 10% on the bargaining table.

Who would have guessed just a few short years ago that our securities would become the global "value-play"? Billions of U.S. investment dollars are reported to have moved into overseas equities during the last several years. I wonder if the ultimate "put" for the U.S. markets will end up being the reversal of that flow?

Comments

[Kunst:]

Financials is one of the few areas where America really, truly still dominates. Financials is the fulcrum of the world economy. He who controls it has his hands on the gate through which everything else must pass. There is no more strategic industry for the future. That's why the SWFs are buying, even if they take a loss in the short term. In the long term, they are right.

2008 Jan 18 12:41 AM

[Kunst:]

US financials are an incredibly stategic resource. After the current disaster unfolds, they will be cheap. US financials are they gateway through which most of the world's economic activity must pass. SWFs are going to buy them up precisely because of this stategic value.

It is getting close to time to invest in US financials to benefit from that upswing. Yes, they are a value play.

2008 Jan 18 01:54 AM

[Vegasjoe:]

There is no better Buffett like way to get in the game than these juicy high dividend preferreds. Since most executives are only out for themselves, the sovereign funds enter through a back door desparately cracked wide open.

2008 Jan 19 06:44 PM