Protectionism

200 over years ago....or less...anyway, here's how the story goes:

US ship commander: "You Japanese, I demand that you open trades with us. You have much to gain and I have much to gain. It's a win-win situation. Being protectionist is no good, and I have my economists to prove you wrong."

Japanese shougun: No, you white monkey! I know your intention. You want to invade our national security and colonize us as what the other white monkeys have done to other asian countries!"

US ship commander: "You fool! It is unwise to go against our big modern cannons and guns. Surrender!"

Japanese shougun:"Nonoooooo...!"

And the rest, is history. Similar occurrences includes the British-China Opium war. Japan became a semi-colonized country, modernized itself, and began a series of horrific imperialistic expansionist war in Asia. Turning back the clock to year end 2007/ start 2008.

Asian/Middle East investors:"Dear americans and europeans, I see that you have much trouble in your sub-prime issue lately. Let us offer our friendly help to you poor white monkeys."

Americans/European battled bankers:"Oh yes please i beg you, help us!"

Other Americans (like, say Hillary Clinton?)/Europeans:"No! These sovereign funds are only out to purchase our nice bank stocks on the cheap! It's an infringement on our national security! Boycott these asian/middle eastern investors!"

Asian/Middle East investors:"Oh no no. We are most kind. We won't interfere in anything. We are just passive investors who wants to invest in a good stock."

Other Americans (like, say Hilary Clinton?)/Europeans:"Boycott! Reject! Protectionism rules!"

Americans/European battled bankers:"Noooooooo...!" (and they fight out with their own countrymen.)

It's funny how things turn out. Even some american/european economists wants to retain their banks' sovereignty by saying no to outside investments. Well, if the west do not welcome investments, there's always China and India to turn to. I'm sure the Chinese and Indian politicians won't mind it at all. Although protectionism is never a good thing (since it will just generate more dead-weight loss and decrease social benefits), people play on their emotion (and thus nationalism) more than anything else.

Take the recent roller coaster ride of the stock market. Anyone knows it's irrational. And yet, hordes of people sell when prices are dropping (and buy when the market was so bullish a couple of months ago. In other words, stock prices aren't cheap then). Ok, maybe those that went into 'margin call mode' doesn't really have much choice but to sell their remaining stock, but then, it's their bets. Whatever happen to the basic investment principle of 'buy low sell high'? It's more of 'buy high sell low' if you ask me.

Middle East and Asian funds Zooming into cheaper US Bank Stocks

Mega US Banks, once proud and arrogant and rich and powerful are now bowing towards the Middle Eastern and Asian countries for crucial helpline in saving their reckless dump into the sub-prime mortgage crisis. For a record of the helplines thrown in, adapted from bloomberg:

http://bloomberg.com/apps/news?pid=20601087&sid=anjGWhqi0PSE&refer=home

Firm         Infusion    Investor                       Stake

Citigroup      $6.8      Government of Singapore         3.7%
                        Investment Corp.

               7.7      Kuwait Investment Authority;    not
                        Alwaleed bin Talal; Capital    specified
                        Research; Capital World;
                        Sandy Weill; public investors.

               7.5      Abu Dhabi Investment
                        Authority                       4.9%

Merrill Lynch   6.6      Korean Investment Corp.;        not
                        Kuwait Investment Authority;   specified
                        Mizuho Financial Group

               4.4*     Temasek Holdings                9.4%**
                        (Singapore)

               1.2      Davis Selected Advisors
                        (U.S.)                          2.6%**

UBS             9.7      Government of Singapore
                        Investment Corp.                 10%
               1.8      Unidentified Middle Eastern
                        Investor                          2%

Morgan Stanley  5        China Investment Corp.          9.9%

Barclays        3        China Development Bank          3.1%

               2        Temasek Holdings                2.1%

Canadian Imperial 2.7    Li Ka-Shing; Manulife           not
                        Financial; others             specified

Bear Stearns    1        Citic Securities Co.              6%***
                        (China)
             _____

TOTAL         $59.4

*    Temasek has an option to invest an additional $600 million.

**   Estimate based on purchase price of $48 a share.

***  Citic has an option to increase its stake by as much as
    3.3 percent.

It's amazing how Singapore's GIC and Temasek were involved in capital infusion into 5 out of the 7 mentioned banks, and the amount of money pumped into the banks easily surpass any other funds. This gives one an indication of how rich the Singapore government is handling.

The mortgage crisis has provided ample opportunities for funds around the world to buy into the cheap otherwise expensive US bank stocks that will be hard to come by. And the Singapore government is certainly not going to miss these opportunities. The large infusion of capital into the United States will help to alleviate some pressure off the declining US dollar. In a way, this will and can avert the scenario of further weakening of the greenback, which would spell trouble for countries holding large reserves of US dollar denominated deposits, currency and other investment vehicles.

Although no negative figure, the US economy had shown signs of slowing. How long can the Fed continue to bail out the economy through interest rate cuts before the economy tumbles into recession?