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Just yesterday, we were talking about how institutional investors are taking some profits on U.S. stocks, regardless of investor expectations. Good timing for that discussion, as The New York Tines ran an article yesterday discussing the gains sovereign wealth funds made as they bailed out troubled banks at the height of the financial crisis.
Kuwait’s sovereign wealth fund invested $3 billion in Citigroup (NYSE:C) in January 2008. That was well before the crisis hit – in fact, it was before Bear Stearns failed. Citigroup was around $25 a share at the time.
Kuwait just announced that it sold its stake in Citi for $4.1 billion, a 37% gain. The article didn’t mention how much it made on Bank of America (NYSE:BAC). But it did note that Kuwait wasn’t alone. Abu Dhabi doubled its money in Barclay’s. Qatar reportedly did well with Barclay’s, too. Sovereign wealth funds form Norway and Singapore are reportedly having good years after investing in distressed financial companies.
My point here is not to point out that foreign wealth funds got even wealthier from the financial crisis and recovery. Domestic pension funds were buyers, too. The point is that many of these investors, who got absolute sweetheart deals for putting up cash in the early stages of the crisis, have now sold their investments.
*****Germany reported a drop in industrial production for October. Greece and Ireland both received downgrades on their debt. Economic growth in Europe is not strong. In fact, I think the potential for a double-dip recession for Europe is high. And that’s a big reason why the U.S. dollar has been rallying lately.
When push comes to shove, global investors will seek the safety of the U.S. dollar and Treasury bonds. Of course, a stronger dollar will not be good for stock or commodity prices.
Gold is down today, as well. But I think gold is the one asset that can overcome the strength of the U.S. dollar. That’s because, like the dollar, gold is a safe haven investment. If the global economy continues to show signs of weakness, then I expect gold will resume its advance.
And I just recommended what has to be the cheapest gold mining stock on the planet to my SmallCapInvestor PRO readers. It’s only $1 a share, it has 1.5 million ounces of gold reserves, and the market cap is just $189 million. That’s $1.7 billion worth of gold selling for just $189 million!
Not only that, but this little beauty may even make the jump form the obscurity of the OTC market to the NYSE! I’ve got a $2 price target for the stock, but it could easily do even better than that. Click HERE for more.
*****Oil prices are also lower in response to the rising dollar and global growth concerns. At $73 a barrel, it’s time to start identifying some oil stocks to add to your portfolio. There’s no need to rush out and buy oil stocks today. But the time is coming soon…
Over the long term, oil prices are headed higher. If we get an opportunity to buy oil stocks with oil prices in the mid-$60s, we should take it.