What Type of Investors are SWFs

News today that QIA and another Qatari SWF will become Barclay's largest shareholder. Close behind are the SWFs of Singapore and China.

This really represents the nexus between my latest Idle Shareholders blog; my recent discussion about SWFs in Follow Up #3: You've heard of the Illuminati, right? and my coverage of Boone Pickens' concern in Follow Up #3: Power. Perhaps we've found the epicenter of my own personal blogosphere.

The action, itself is nothing earth-shattering. SWFs have been on the prowl for quite some time. The intensity of their hunt has grown just as rapidly as the price of oil. Banks have been on the rocks for over a year. Not surprising, but it calls our attention to interesting questions:

What type of investors are SWFs? Will the QIA be absentee like your average mutual fund manager? Will they be politically activist? Will they quietly drive the company? If so, toward what goals? Stability? Sharia Law? Profitability? Long-term or short?

Will the US be the next England or Rome? If $5/gallon gas isn't enough incentive for us to get off foreign oil, how about the realization that we're giving other countries the money they're using to buy up our (economic) treasures. Middle Eastern and Central Asian countries are getting rich off our insatiable demand for oil. They're awash in Dollars and Euro and must find a productive place to invest. Hence the SWF boom. Happy serendipity for them: US stocks are all on fire sale. If they own our most productive enterprises ... they own the future revenue streams which those enterprises produce. We labor and they profit. Meanwhile we exhaust our remaining wealth to maintain our world influence. One day we wake up as England circa 1950: Broke and Inconsequential.

Will we be able to respond? Hopefully, arguments like mine above will scare many people into looking for a solution. I'm chronically optimistic about the US and our ability to respond in the face of challenge. We have resources of all kinds ample for the effort. Being a democracy, though, we have to go through a period of cacophony and debate where suggestions are raised, debated, and informally voted on.

One popular inclination will be to suggest we take our toys and go home ... hiding behind a wall of protectionism and xenophobia. Prevent them from coming here. Prevent them from owning our shares. Unilaterally refuse to recognize their ownership of our assets. This is Iran's favorite trick. Only if we want to end up like them in 50 years should we pursue such an option.

Another popular inclination will be to hand the whole problem over to governments. Socialism for everyone. In fact, let's make a single worldwide communist state so that we can steal China's and Qatar's wealth to feed our starving faces.

Surely many will say "that's capitalism!" and roll over on their backs to show subservience to the inevitability of the markets. This would be nothing more than an excuse. Capitalism is not Imperialism. Empires fail when freedom is removed (more on this coming soon to a blog near you!). Capitalism is survival of the fittest ideas; it's a framework for making decisions (another blog coming attraction!). The true capitalistic response to a challenge like this is counter-attack with better ideas. This shouldn't be hard. Countries like Qatar, Saudi, Russia, Iran, and even Chile are not becoming wealthy on the backs of a million citizen-entrepreneurs with a hundred million value-creating ideas. To the contrary - their wealth comes from the lucky happenstance of living atop a commodity we all want.

As I am wont to do, I'll leave you to cogitate on these for a bit. I'll be back shortly to share my thoughts.