Buy America Now!

Good news (but for whom?)! The dollar's decline and the booming economies abroad have intensified a land grab of "prized American assets." (Emphasis marks are mine.)

The hunt for the great American trophy asset is on. The global commodities boom and the dollar’s decline have unleashed a wave of big money buys of prized American assets by newly flush foreign investors. From $100 million mansions in Palm Beach, Fla., to $23 million modern art confections, to multibillion-dollar stakes in once-venerated Wall Street banks, the number of flashy acquisitions by Russian and Ukrainian oligarchs, Qatari sheiks and large government-sponsored funds in the Middle East is growing. And now Abu Dhabi, which already owns a 4.9 percent stake in Citigroup, has expanded its portfolio of choice American assets to include the Chrysler Building, whose thin spire and Art Deco styling make it an indelible feature of New York City’s skyline. The government of Abu Dhabi bought a 90 percent stake in the landmark building Tuesday for $800 million from a German real estate fund managed by Prudential Real Estate Investors. The 1,046-foot (319-meter) tower was designed by William Van Alen and completed in 1930 for the Chrysler Corporation and its founder, Walter Chrysler. The foreign purchases, especially the Chrysler investment and Middle East involvement in the recent sale of the General Motors building in New York, recall a similar financial plunge by Japanese investors into marquee American properties like Rockefeller Center and the Pebble Beach golf course in California in the early 1990s. That foray ended badly — many of the investments were unprofitable — and a more insular America, just beginning to worry about its stature as a global economic power, reacted with suspicion. Now, with the dollar down more than 40 percent against the euro and the economy hamstrung by a credit crisis, a less-assured America has become increasingly reliant on foreign capital. While there has been some scrutiny of these investments from Congress, there is also recognition that these funds, which maintain passive investment positions, will perform a crucial petrodollar recycling function. “This is the natural outgrowth of us exporting a huge amount of dollars through high commodity prices to countries that have to reinvest it somewhere,” said Douglas Rediker, a sovereign fund expert at the New America Foundation, a research and advocacy organization. “These countries have to extend beyond Treasury bills, and that means equities and real estate.” Abu Dhabi, Kuwait and other gulf countries rich with oil revenue have taken advantage of falling prices to invest in real estate and financial companies around the world. Middle Eastern investors have spent $1.8 billion this year on American commercial property, according to Real Capital Analytics, a New York property research firm. As with the Japanese, much has been said about the losses incurred so far by these funds. Abu Dhabi’s main fund, the Abu Dhabi Investment Authority, or A.D.I.A., invested $7.9 billion in Citigroup last year when the stock was trading at $31. Now Citigroup trades at $17, and while the fund still has more than two years before its bond converts into stock, Citigroup’s troubles cast doubt on whether the investment will ever be profitable. Unlike pension funds, hedge funds or mutual funds, however, sovereign funds, and in particular Abu Dhabi’s, do not face any claims on their assets in the form of liabilities, redemptions or domestic investment requirements. As a result, their investment outlook is very long term in nature. With oil hovering near $140 a barrel, analysts expect countries in the gulf to generate yearly cash surpluses of $300 billion — Abu Dhabi’s share is said to be more than $50 billion — with sovereign funds in this area forecast to reach a size of $15 trillion by 2020. Abu Dhabi, a producer of oil, can invest only a small portion of this surplus in its tiny economy, already plagued by inflation from aggressive government spending, and as a result has set up a series of investment funds to redeploy these assets overseas. Traditionally the main vehicle for these investments has been the authority, a 30-year-old fund with a size that is said to be $600 billion to $700 billion. To handle its surplus, Abu Dhabi has set up two smaller investment funds, the Mubadala Development Company and the Abu Dhabi Investment Council, or A.D.I.C., which bought the Chrysler Building stake. Like the authority, the investment council operates behind a veil of secrecy. It does not disclose the amount it manages and gives scant detail of its investment holdings. People who follow the fund say its size could be $5 billion to $15 billion. Set up by a former executive of the authority, Khalifa al-Kindi, the fund has deployed a more nimble investment approach. While the Chrysler Building and other assets like art may bring a form of prestige, they also appear to be holding their value better than financial institutions and the broader stock market. In the art market, this relative strength has been tied to foreign buying. Victor Pinchuk, a Ukrainian steel magnate, recently bought the sculpture “Hanging Heart” by Jeff Koons for $23 million. In another trophy purchase, a Russian fertilizer billionaire, Dmitry Rybolovlev, bought Donald Trump’s Palm Beach mansion for about $100 million. Abu Dhabi’s investment in Chrysler may have a more sober investment thesis, but it still makes for quite a bang. And for the publicity shy Al Nahyan ruling family, which for years has operated in the shadow of its more brazen neighboring emirate Dubai, the investment may signal its willingness to strut. “This fits the broader pattern of them looking to increase their profile,” said Brad W. Setser, a sovereign funds analyst at the Council of Foreign Relations. “Buying an iconic building is the most visible of visible things to do. ”An earlier version of this article misstated the percentage of the stake in the Chrysler Building acquired by the Abu Dhabi fund. It is 90 percent, not 75 percent.

Now are we supposed to be glad they found somewhere (here) to invest their (ill-gotten) gains? I hope not. Suzan ____________________________

"Buy America"

It's really nice to know that the Pentagon has given Boeing another chance to bid on the "$35 billion contract for midair refueling tankers, allowing Boeing to continue its effort to wrest the business from a partnership of Northrop Grumman and the European parent of its rival Airbus." Or so says The New York Times of today. My favorite sentence of this tasty military equipment (click here for a demonstration) report (how's that for irony?) is "Howard Rubel, an analyst at Jeffries & Company, said that the announcement meant 'that both companies will have an equal opportunity to abuse each other for a while longer.'" This is the same Boeing that was previously found with its hand in the candy jar of fraudulent contract bidding and jail time for its employees. Also the Boeing who has handily subsidized most of the candidates (and every Rethuglican) for the Presidency (and many, many congressional offices) of the US. And John McCain's championing of the Airbus team must have really hurt Boeing's feelings. Now I'm pretty sure that the Air Force wasn't trying to punish Boeing (one of its best customers) by giving the contract without reason to the Grumman-EADS consortium, only get the best (ahem!) deal. But still . . .

The Pentagon announced on Wednesday that it would reopen bidding on a $35 billion contract for midair refueling tankers, allowing Boeing to continue its effort to wrest the business from a partnership of Northrop Grumman and the European parent of its rival Airbus. Defense Secretary Robert M. Gates said that the tanker contract, which was won by the partners Northrop and the European Aeronautic Defense and Space Company in February, would not be awarded until the Pentagon reviewed the rival bids again. The companies have battled fiercely to land the Air Force’s largest contract, with a potential value of $100 billion. The struggle has been caught in issues of national pride, trans-Atlantic relations and even presidential politics. Mr. Gates’s action was a public rebuke to the Air Force, which had selected the offering of Northrop and EADS, the parent of Airbus. Shortly after the Air Force made its selection, the Government Accountability Office, acting on a protest from Boeing, said that the Air Force’s decision-making process was flawed and that the tanker contract should be reopened. In his announcement on Wednesday, Mr. Gates said that a special committee operating out of his office and headed by the Pentagon acquisitions under secretary, John J. Young Jr., would make the final contract selection, not the Air Force. “I’ve concluded that the contract cannot be awarded at present,” said Mr. Gates, citing the “significant issues” pointed out by the G.A.O. The contract, in its first phase alone, would provide for 179 aerial refueling tankers to replace the Air Force’s aging fleet, which is being strained by wars in Iraq and Afghanistan and has planes that date to the Eisenhower era. The Northrop team was offering a variation of its A330 plane, while Boeing was offering a modified 767. The tankers are used to refuel military planes while in the sky. There was no clear winner or loser between the two companies in Mr. Gates’s decision. But it was another blow to the Air Force, whose ability to manage huge weapons-buying programs has been questioned. Two of its top officials were recently fired because of security breaches. “Clearly, this is a vote of no confidence in the Air Force,” said Loren B. Thompson, a military analyst at the Lexington Institute, a Washington research group. Howard Rubel, an analyst at Jeffries & Company, said that the announcement meant “that both companies will have an equal opportunity to abuse each other for a while longer.” Mr. Rubel added that until the Pentagon issued a modified request for proposals from the two companies, it would be difficult to determine which might have an edge. The Pentagon will not reopen the entire contracting process, but will focus on eight problem areas cited in the G.A.O. report, and Mr. Gates said the final decision might be made by December. But many analysts said that timetable might be overly ambitious. Even Mr. Young, the acquisitions under secretary, said on Wednesday that the decision-making schedule might slip. Both Boeing and Northrop issued news releases praising Mr. Gates’s action. A Senate committee is to begin hearings into the tanker contract and the G.A.O. report on Thursday. . . . Northrop said that it applauded Mr. Gates’s decision and added that “the United States Air Force has already picked the best tanker, and we are confident that it will do so again.” Ralph D. Crosby Jr., chief executive of EADS North America, said the company welcomed the rebidding and said it was “ready and anxious to get back to work” on the project. One of the central players in the tanker contract is Senator John McCain, the presumptive Republican presidential nominee. Several years ago, Mr. McCain stopped the contract from being granted to Boeing, after the terms of a tanker lease arrangement between the Air Force and Boeing were revealed. Some have seen him as favoring a European company over an American one, an impression was not eased by the fact that several of his top campaign advisers had worked as lobbyists for Airbus. In a statement on Wednesday, Mr. McCain praised Mr. Gates’s decision as a step toward “full and open competition.” European military suppliers have long thought that the Pentagon has encouraged other nations to buy American military goods, while closing the door to purchases of military equipment made by European suppliers. And European countries thought the Airbus proposal finally gave them a shot at landing a major Pentagon contract, especially after both the British and Australian air forces picked the Airbus tanker. In London, Alexandra Ashbourne, who heads Ashbourne Strategic Consulting, an aerospace analysis firm, said Mr. Gates’s decision “was probably the best of all possible outcomes,” but added that EADS felt “very raw” over the whole process, given the amount of effort and expense that went in to putting in a bid, only to see it slip away. “On this side of the Atlantic,” she said, “there is concern that politics will be allowed to take hold and that Congress will get involved. Then you have pork barrel politics and it is an election year. The timing is very bad.” In Congress, “Buy America” sentiment fueled outrage at the initial selection of Airbus. But that was also tempered by a fierce political battle on behalf of the European supplier by the delegations of the States of Alabama and Mississippi, where EADS promised to build most of the tankers and create jobs. Members of Congress on both sides of the issue released statements on Wednesday praising Mr. Gates, but promoting their own positions. Representative Duncan Hunter, a California Republican who is an outspoken advocate for Boeing, said that he wanted to make sure the “mistakes made in the original competition are not repeated.” Senator Richard C. Shelby, an Alabama Republican who is in the Airbus camp, said that the Pentagon rebid decision was “an appropriate solution.”

So, back to business as usual. Or as a friend of mine says, "Nothing new here. Move along!" Suzan ____________________