I have recently purchased a subscription to BUSINESS WEEK for the sole purpose of further educating myself on subjects of finance. I don’t consider myself ignorant regarding the economic climate prevalent today or ignorant to the ways of corporate America. However, when it comes to global and even governmental investments; I often find myself perplexed. There are many on this site whose knowledge far surpasses mine and I’m not the type who is content with “limited knowledge.” I suppose my competitive nature is responsible for that and it is also what drives me to better understand subjects that confuse me. Unlike some; on matters that I don’t feel qualified to comment on-I refrain from doing so. I have learned a great deal from writers on this site regardless of political ideology and I’m grateful for that. OK-enough of my introduction.
In the July 27th issue; an article on China’s investment philosophy provided me with a better understanding of our national debt. Our reliance on China to purchase U.S. Treasury notes has helped our economy remain afloat-barely. This practice now appears to be in serious jeopardy. “Why would we want to keep subsidizing irresponsible U.S. behavior that will inflate the dollar and hurt us?” This question was posed by Wenran Jiang, a political science professor at the University of Alberta. Because of this; there is a growing trend to purchase hard assets (yes-I know what that means) as opposed to purchasing relatively worthless pieces of paper. China presently owns $2.1 trillion worth of “low-yield, inflation sensitive U.S. Treasuries.” Scary!!
While China is yet to call in those markers; they are beginning to take a different course. Just in the last two months, China has either purchased or shown interest in such diverse foreign companies as GM’s Opel in Germany, an appliance manufacturer in New Zealand, as well as oil fields in Iraq. Allow me stray a bit and ask this question: Considering the money and, more importantly, lives we have sacrificed in defense of the Iraqis-shouldn’t they be negotiating a sale with us? Just a thought. According to BUSINESS WEEK, China’s overseas investments last year doubled to a total of $52 billion. This brings their overall foreign investment total to $170 billion which equates to 1/30 of U.S. overseas investments. I’m not even going to attempt the math but that’s a shitload of investing. Next question: What happened to OUR investments?
Recently, I posted an article citing profits reported by such companies as Bank of America, Citigroup, and JPMorgan Chase. Though many have explained this with examples of government incest and other “smoke and mirror” explanations; there may be another one. China is considered to be relatively new to the world of mergers and acquisitions so they have sought advice and counsel from outside sources. This is where my confusion comes roaring back. “The mergers-and-acquisitions craze is good news for lawyers, accountants, and investment bankers. JPMorgan Chase and Morgan Stanley have both worked on high-profile China bids.” WHAAAAT? Aren’t these the same idiots who were involved in ridiculously speculative investments that have contributed to our financial demise? I can tell you this much: If I’m going to stake someone in a poker tournament-it won’t be someone who just busted going all-in with deuce-seven. (How do you like that analogy?)
From what I can see; should China continue to venture into the world of mergers and acquisitions, we’re going to need someone else willing to gamble on us. Given our current situation; that is not going to be an easy task.