It’s Uncle Sam on the Line

In my earpiece I could hear what many people around the world were watching. US Congressional leaders lined up in front of a “political scrum” to tell everyone that they were making progress on a $700 billion rescue package. They wanted to both illustrate their unity while at the same time declare their disdain for having to go to their constituents for money. This inter-play came before the first bill was voted down in the US House of Representatives.

My eavesdropping followed a 30-minute plenary speech and Q&A session with Chinese Premier Wen Jiabao at a gathering of the so-called New Champions of the World Economic Forum. If one wanted to find a starker contrast of ascent and decline, you saw it in person and heard it through the earpiece. Washington legislators were crunching together a package to restore confidence while at the same time burdening the next president with a massive debt burden.

Mind the growth gap

These are the new realities of today’s economy. The Chinese Premier hosted a meeting in his hometown, while the US begins a hard road back after years of borrowed time after bankers sold products few understood. In the halls of the vast conference center, many were talking about the “tilt to the east”.

CNN cameraman Charlie Miller and I travelled from Tianjin to Beijing to capture the post-Olympic mood and reaction to the banking legislation that was stalling on Capitol Hill. We went to Tiananmen Square on Chinese National Day to tape a segment. Visually the energy of the economic expansion underway hits you.

The US is still growing a respectable 2.8 per cent; Europe a less respectable 1.5 per cent and the Middle East to Asia 7 per cent. China is worried about slowing down to 9 per cent. This growth is the primary reason business leaders from this new belt of growth are looking to each other for opportunities. It is why Airbus for example unveiled its assembly plant in Tianjin during the meeting, has an operational support hub in Dubai and is building a plant in Tunisia.

While this is the future, the New Champions cannot divorce themselves from the past. In a panel that I chaired, business leaders talked about financing infrastructure in the Gulf, while raising the sensitive issue about a co-dependency with the United States. All told, foreign investors and governments have an estimated $3 trillion invested in US assets — bonds, buildings and banks. As the dollar sank over the past three years, so too did their portfolios.

These investors want the rescue package to help restore confidence, but at the same time, they are not eager to jump bank into the US market in pursuit of value. In an interview, Sameer Al Ansari, Executive Chairman of Dubai International Capital said he has held reservations about the financial sector in the U.S. for months. In his words, “It just feels to us that things are going to get even worse, so it is time to be careful.”

The bottom line? Many who do not need to add political considerations into their investment decision making are keeping their powder dry.

This leads us to the role of the sovereign funds. They have an estimated $2.5 trillion to invest. That is vast liquidity pool that could buffer the downturn that is coming on both sides of the Atlantic. Victor Chu of First Eastern Investment Bank called them the super-nationals, government funds that have to look well beyond their borders to in some cases to serve as lenders of last resort.

“They are the people with the capacity. They can act with speed and they can act with financial and strategic returns”, adding, “Sovereign wealth funds have a super-national interest to try to make sure that international markets are back on the right track otherwise we will see a domino effect of major failures.” We all know the worn out phrase, money makes the world go around. It is fitting today as we witness how inter-connected everyone is at 
this level.

As one Gulf banker concluded in our session, if Uncle Sam calls, 
they will have to pick up the phone.

John Defterios presents Marketplace Middle East on CNN

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