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Summary
- Discussion of sub-$50 crude oil on SWFs (Sovereign Wealth Funds) and the resulting reversal in flows to equity, bond, commodity, capital and asset markets.
- Brief discussion of the Euro/Dollar (ED) liquidity.
- Brief discussion of the effects of a potential dollar melt up.
Excerpt:
In brief, this is the second chapter in a series of thematically-related missives which will attempt to identify the macroeconomic forces with the potential to adversely affect capital, commodity, equity, bond and asset markets.
From Jeffrey P. Snider's That 'Other' Non-Investment Stock Bid:
"Funded by oil revenues, mostly, it is estimated that sovereign wealth funds have amassed at least $7 trillion in assets, and quite likely significantly more than that…. That sets up a sort of petro-stock flow, operating in an almost direct manner exactly as the wrongly characterized petro-dollar is thought to. Oil revenues are recycled back into the world's asset markets… it raises a more fundamental question about the state of affairs in 2015. What might happen, then, if oil prices didn't just sail along into the 2020s on Bernanke's QE debasement, instead suddenly collapsing by more than 60%?"
A related non-trivial question from a friend:
"National Wealth funds will be forced to sell assets sooner or later in the next months, a portion of the last year's bull trend was powered by Qataris, Saudis, etc. Is there any scenario of how that might affect the 2016 market?"
With energy, oil and commodities getting gutted concomitant with a contraction in global economic conditions, there are far less petrodollars to invest or go around. So, the short answer to the question posed, a resounding yes. With oil under $35 today, and certainly under $50 for the near term, the effect on markets of the reversal in the sovereign wealth fund, or SWF, investment flows will not be trivial.
Truth
With oil above $100/bbl, since 2008, over $3T in petrodollars which SWFs invested were windfalls for equity and bond markets. In 2015 alone, because SWFs actually withdrew more than they put in for the first time in over two decades, it is estimated that $500B in annual AUM growth vaporized. Perhaps explaining why since the May S&P 500 high of 2,135, that markets have continually failed to make new highs and are trending lower.
Continue reading Petrodollars And Sovereign Wealth Funds here >
