Sovereign Funds Become Big Speculators
By - August 13, 2008

Sovereign wealth funds, the massive investment pools run by foreign governments, are now among the biggest speculators in the trading of oil and other vital goods like corn and cotton in the United States, according to interviews with brokers who handle their investments at leading Wall Street banks, veteran traders and congressional investigators. Some lawmakers say the unregulated activity of sovereign wealth funds and other speculators such as hedge funds has contributed to the dramatic swing in oil prices in recent months. The agency regulating the market said it had not picked up on this activity by sovereign wealth funds. In a June letter, the Commodity Futures Trading Commission told lawmakers that its monitoring showed that these funds were not a significant factor in commodity trading. But the CFTC is not detecting the growing influence of foreign funds because they invest through Wall Street brokers known as "swap dealers" who often operate on unregulated markets, sources familiar with the transactions said. – Washington Post

Dominant Social Theme: it was inevitable that these big rogue pools of money become "speculators." Pox on ‘em.

Free-Market Analysis: We've written numerous articles about these sovereign funds and the funny little countries from which they emanate. Almost all are seemingly Western protectorates, from Saudi Arabia to Kuwait to Dubai and the Arab Emirates. And the money flows are terrific – from West to East, we mean. Money mostly from Big Oil. Thus, any way you slice it, this is Western money being spent to manipulate and buy up commodities made valuable by Western demand. But it's not just commodities.

How about this one from …

Foreclosure by bulk – sovereign funds are buying cheap bulk foreclosures. With US home markets plummeting deeper, bulk foreclosure purchases by the cash rich sovereign funds are reportedly on the rise. These funds belong to the governments of oil rich countries, anywhere from Norway and Abu Dhabi to Russia and Singapore. For them, the still depressed value of the US dollar makes these foreclosed homes and strip malls a bargain. Then of course there are a few hedge funds here and there, which also like the idea of buying foreclosure homes by bulk.

Doesn't this seem more and more to resemble some kind of high-level money transfer? Trouble is, it's so complex and occurs with so much money that regulators will probably never get around to figuring it out. Or more likely, everyone upstairs has already figured it out, but nobody is going to do anything about it.

After Thoughts

What are we really on about? We'll try to explain in a simple way. Look, what if you could establish that Big Oil could drill anywhere – and apparently it can – to discover oil. But, say, that it chose to find most of that oil in … the Middle East! And maybe a quid-pro-quo was thrown in … Something along the lines of some kind of participation in whatever it was that these funny little countries would do with the money.

And what are they doing with it? For decades, these countries spent oil wealth in weird Middle Eastern ways – on yachts, palaces and hunting falcons, mostly. But now all of a sudden, their spending has become very Westernized. They're even setting up funds, not transparent ones, of course, and investing in distressed American properties.

The American Congress is said to be ready to look into all this. We won't hold our breath.

Share via
Copy link
Powered by Social Snap