What it means to be a debtor nation

[ESRBob]

Did anyone catch this business story about the Chinese oil company, CNOOC bidding 18.5 Billion in cash for Unocal?
http://money.cnn.com/2005/06/23/news/international/cnooc_offer.reut/index.htm?cnn=yes

Hilarious thing for me was the followup parts of the WSJ story on the topic where US politicos are up in arms about how awful this is, and how they must stop this venal effort by Chinese to take prized American assets.

I guess this is the first time those guys realized that running all those federal deficits means more than just jotting IOUs to China down in a big ledger. Now it means something a little more like a family selling off pieces of furniture and paintings in order to keep living beyond our means.

Oh well, there are lots of prized assets here to sell off to foreigners in the decades ahead. Still it makes you think.

I know China is motivated by its needs for secure access to energy, but this also marks an interesting departure that individual investors might note, too. Should we all be bulking up a bit more on Commodities and Oil & Gas instead of Treasuries?

 

[unclemick]

Are these the same guys from back when Japan was going to buy America back in the late 80's - or is this a new crop of ding dongs.

Hmmm - maybe they(the Chinese are more astute buyers) - at least it's not golf courses and real estate.

 

[Jarhead*]

Are these the same guys from back when Japan was going to buy America back in the late 80's - or is this a new crop of ding dongs.

Hmmm - maybe they(the Chinese are more astute buyers) - at least it's not golf courses and real estate.

Unclemick:

Oh yeah. Japanese investors bought one of national golf treasures, during that time frame.
(Pebble Beach). They paid far too much for it at the time, so it's returned to it's rightful owner.
(Somebody that can afford it).
During that period of time, they had a "hammer" in their hand and every half-way real estate situation looked like a "nail" to them.
Don't think any of the hundreds of golf courses they bought during that time frame is still under their control.
I remember every marginal real estate developer, etc. etc. that was upside down in their projections was waiting for a Japanese group to bail them out.
Interesting time

 

[Mountain_Mike]

I do think this may be a significant turn of events. Think about it...what doesn't come from China these days? What are the Chinese getting in return for all these goods? Paper and promises. Now, they are wanting to turn these into hard, practical assets. And they can and will. If not Unocal, then something else. How long can we expect them to sit on stacks of paper

 

[unclemick]

Heh, heh, heh

I can hardly wait for Hollywood to crank out the requiste crop of movies - comedy's and serious wise.

 

[Nords]

... how they must stop this venal effort by Chinese to take prized American assets.

Heck, let's sell them Rockefeller Center, the Chrysler & Sears towers, and even most of Los Angeles. If they'd buy Donald Trump too then we could throw in a couple of free Brooklyn Bridges.

I wonder why China is buying American assets from us instead of buying their American assets from the Japanese?

 

[Eagle43]

Heck, let's sell them Rockefeller Center, the Chrysler & Sears towers, and even most of Los Angeles. If they'd buy Donald Trump too then we could throw in a couple of free Brooklyn Bridges.

I wonder why China is buying American assets from us instead of buying their American assets from the Japanese?

Clever, Nords! Clever!

 

[cute fuzzy bunny]

I wonder why China is buying American assets from us instead of buying their American assets from the Japanese?

Same thought I was having as I read. This isnt the first time we had a significant foreign interest buying stuff up ... and later taking a bath on a lot of it.

 

[ESRBob]

I'm not sure the Chinese can be counted on to take a bath on things they buy from us. I've seen an incredible array of astute, hard-working, patient, intelligent behavior from the hundreds of Chinese people I've known and met -- both from the mainland and already here.

I'm not saying they are warren buffet or that we should all be buying oil companies -- they have their own reasons for wanting to secure energy sources -- but my experience is that matters with the Chinese will be a completely different experience than things were with the Japanese a few decades back.

 

[cute fuzzy bunny]

If they want to secure an oil source, they should be investing in our military. Its done wonders for keeping rogue nations that need democracy oil sources well taken care of...

 

[Honkie]

This isn't the first, and certainly won't be the last, instance of Chinese companies (both privately held and those still state controlled) buying overseas assets, including US Corporations. It is noteworthy however, that the buying of an oil company has raised such heckles - I didn't notice such an uproar (more of a mild squeak) when Lenovo bought IBM's pc business or when Haeir bid for Maytag from Hoover only a couple of days ago. Maybe the outcry over UNOCAL is more reflective of the personal motivations/interests of the US Administration (heavily leaning towards the oil and energy sector) than anything else.

As for comparisons with the Japanese spending spree in US assets back in the 80's, the similarities are precisely NIL. The Japanese predominantly bought "trophy" assets, big names and landmarks, more out of hubris,ego and abundance of cash than from a rational ecomomis or business perspective. The Chinese on the other have and will continue to buy long term, sound and strategic assets that specifically catered to their domestic needs and securities issues - note that the overwhelming majority of UNOCAL's reserves are in South East Asia, right on China's doorstep.

Lastly, the earlier analogy with the family selling off the farm is accurate. Asia as a whole, and China and Japan inparticular are massive holders of US federal paper. The US has had it's cash and has spent it. The Administration was happy to take the Chinese / Japanese / Asian / Foreign cash when it wanted to blow out the federal budget, selling off the future tax revenues of generations to come (i.e. the family farm), so it now seems a little churlish to be complaining when those debts come home to roost.

Rather a serious topic for a first post, I know. I promise a few more light hearted post in future!

 

[Whakamole]

I dunno... oil companies are richly priced right now (with oil at $60 and all the talk of "peak oil.") Unocal has gone up by over 50% just this year.

Commodities in general have been on a huge tear recently. There are rumors that this is what the Chinese are focusing on - primarily to have access to raw materials.

Of course, if these is a global recession that hurts consumption (like, Americans stop buying crap for whatever reason - like a recession), then not only will the Chinese have overpaid for those commodity producers, but commodity demand will drop. They'll get taken to the cleaners.

 

[cute fuzzy bunny]

Commodities in general have been on a huge tear recently.

Huh...isnt that odd...commodities, which are a very good measure of inflation...off on a tear...yet the CPI says inflation is tame. How weird...

 

[Whakamole]

Huh...isnt that odd...commodities, which are a very good measure of inflation...off on a tear...yet the CPI says inflation is tame. How weird...

So, you're saying commodities are in a bubble?



Many think that we'll see either inflation or a huge rush for commodities. So did I a few years ago when I invested. Now I think otherwise - they've gone way up, but commodites only have value if they're used to produce things.

Stephen Roach and his gang have written about this.

 

[cute fuzzy bunny]

Look at short, mid and long term cd rates and bond yields. From the intermediate to long term range it appears the banks and financial institutions expect rates to start coming back down after 2-3 years.

Rates arent coming down in the face of high inflation and a booming economy...

Commodity bubbles? Over the last few months, yes, no, yes, yes yes, no, no, no...one hell of a volatile asset class that sure isnt very tax friendly...

 

[Nords]

Look at short, mid and long term cd rates and bond yields.  From the intermediate to long term range it appears the banks and financial institutions expect rates to start coming back down after 2-3 years.

Is it possible that banks are afraid to raise their long term interest rates in the same way that airlines are afraid to raise their fares?

I don't know how rates are set, but I've read that the finance industry is "resisting" the Fed's short-term rate increases. Is it possible that the banks fear that raising their long-term mortgages will kill their business? Are they all locked in a mortgage-dealing death spiral that only could benefit the consumer's IO-mortgage lust until the banks collapse?

 

[REWahoo]

Is it possible that the banks fear that raising their long-term mortgages will kill their business?

Absolutely. Pricing pressure in a highly competitive environment is keeping a lid on mortgage rates, airfares, auto prices, not to mention many other consumer goods. Hard to believe this can continue with the pressure from increasing oil costs. If (when) the dam bursts and prices do start going up, things will get very interesting.

REW

 

[Whakamole]

Andy Xie over at Morgan Stanley thinks oil is overpriced.

http://www.morganstanley.com/GEFdata/digests/20050616-thu.html

Basically, oil is being traded for profits - kind of like housing prices.