Friday, November 16, 2007


The markets have been in rally mode the past hour or so after looking rather precarious.

The news today
  • FedEx sees slower growth ahead as freight demand weakens.
  • US Industrial output declines as auto and appliance sales decline.
  • The Fed says further interest rate cuts are unlikely.

The two most important news items though would be the Abu Dhabi government taking a 8.1% stake in AMD and the rejection by the Saudis ,of Iranian and Venezuelan demands to discuss pricing oil in currencies other than the US Dollar.

The stake in AMD by the Abu Dhabi governments investment arm shows that the US equity markets have a floor built into them by foreign governments especially Middle Eastern ones flush with cash. Keep in mid that Middle East oil producers like Saudi Arabia, Kuwait, and the UAE ( Abu Dhabi, Dubai etc) are benefitting heavily from high oil prices. Between them they produce over 10 million barrels of oil a day. They need about $25-30 a barrel for their governments to balance the budget. With the price of oil over $90 these guys are flush with cash. Take their yearly oil production ( 10 million barrels/day X 365 ) and multiply it by their surplus $60($90-$30 ) and you have over $200 billion dollars a year in money that is available for investment. As of the end of 2006, these Middle Eastern oil producers had estimates reserves of over $500 billion. A lot of that money is being put to use by investing it in foreign countries including the US. They need a place to invest that money and the US equity markets are by far the safest place to invest them and the returns are far better than Treasuries. If the US markets drop any further you will have continues buying by Middle Eastern oil producing countries.

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