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World's Largest Sovereign Wealth Fund Is Forced To Begin Liquidating Assets
One of the biggest stories of this summer, as previewed originally here in November of 2014, has been the dramatic shift in the direction of capital flow from toward emerging markets (and China), to away from emerging markets (and China). The reason for this has been the double whammy of the soaring dollar, and the collapse in oil prices which as we said one year ago, would lead to the first negative global petrodollar export balance in 18 years...
... a topic which the IIF finally picked up and expanded on last week when it likewise calculated that capital outflows from emerging markets are on track to exceed inflows this year for the first time since 1988.
We first dubbed this phenomenon Reverse QE, a name which Deutsche Bank subsequently "reverse-engineering" into Quantitative Tightening, a different name for the same thing - the removal of excess liquidity from the market by way of obtaining liquidity for existing reserve assets, also known as "selling."
However, while Reverse QE, or QT, or whatever one wants to call it has become traditionally associated with Emerging Markets and petroleum exporters, nobody had linked it with one of the most advanced Developed Markets in the world which also happens to be an oil exporter, the market with the largest sovereign wealth fun in the world: Norway.
That is about to change because as Bloomberg reports, "the future may already be here", a future in which Norway's gargantuan $830 billion sovereign wealth fund, the product of two decades of capital accumulation courtesy of Norway's vast petroleum reserves and oil trade, is forced to begin liquidating its vast assets.
According to Bloomberg, Norway could as soon as next year start making withdrawals from its massive $830 billion sovereign wealth fund, which is a nest egg for "future generations."
The start of asset sales marks a historic shift for said "nest egg" which was not supposed to be tapped for many more years. Unfortunately for Norway, which has already spent recent years using a growing chunk of its oil revenue to plug deficits while at the same time building the wealth fund...
... tax revenue from petroleum extraction are down 42% which means budget spending in 2016 will outstrip income.
The real problem for Noway is simple: the very procyclical plunge in oil prices.
As Bloomberg calculates, taxes collected on petroleum extraction reached 138 billion kroner in the first three quarters of the year, down over 40% from 238.2 billion kroner in the same period a year earlier, according to Statistics Norway. But while oil-linked revenues are plunging, spending is going nowhere but up:
The government said in May its non-oil budget deficit, or spending in real terms, would be a record 180.9 billion kroner ($21.6 billion). With its crude output waning and prices falling, the government saw petroleum income dropping to 251.6 billion kroner this year, almost 30 percent lower than its October projections. Those estimates assumed oil at about $69 a barrel.
Brent crude has averaged $56 so far this year, and has been below $50 for the past several months, presenting a huge challenge: how to tap the revenue shortfall.
The answer is simple, if unpleasant: break open the piggy bank, or in this case, start selling the securities held in the Norwegian sovereign wealth fund.
“We have reached a point where we will from now on see that the oil-corrected balance will be above the cash flow -- that’s based on oil prices increasing slowly in the future,” said Kyrre Aamdal, senior economist at DNB ASA in Oslo. Tapping the fund’s returns marks a turning point that wasn’t expected to come for “several more years,” he said.
Tapping the fund to cover budget needs comes at a time when the managers of the fund, set up to safeguard the wealth of future generations, warn that it also faces diminished returns ahead amid record-low interest rates.
To be sure, government officials, terrified of revealing the unpleasant truth to the people, are pretending that the funding shortfall can be covered only with dividend and interest income:
Government officials and economists contend that only investment returns from the fund will be used for the budget, meaning it will not actually shrink in size. By using interest and dividends to cover the deficit, “no one will ever need to break the piggy bank,” said Knut Anton Mork, senior economist at Svenska Handelsbanken AB in Oslo. Oeyvind Schanke, chief investment officer for asset strategies at the Oslo-based fund, said in an interview last month it will be able to use the cash it gets from dividends and bond interest payments to make shifts in the portfolio, rather than having to sell assets.
Populist rhetoric aside, the SWF will have no choice but to sell: "capital coming into to the fund has already started to dwindle. Inflows were just 17 billion kroner in the first half of this year, compared with a quarterly average of 60 billion kroner over the past 10 years. Central bank Governor Oeystein Olsen, who oversees the fund as head of the bank’s board, said in February that oil around $60 would mean transfers to the fund "may come to a halt."
Oil is now nearly 20% lower, and as goes the price oil, so go the inflows into the fund. Which means that any month now, if not already, Norway will shift from net buyer of global financial assets to a net seller, in the process joining the Emerging Markets and, of course, China in soaking up even more liquidity, mostly USD-denominated, out of the market, in the process removing much of the liquidity injected by the Fed and its peer central banks.
This situation will only deteriorate that much further, and force the wealth fund to sell even more assets should the Fed hike rates, pushing the dollar even higher, and sending the price of oil crashing below. In fact, the coordinated selling of US-denominated assets will be precisely the catalyst that sends the global stock market tumbling, and ultimately serve as the catalyst for NIRP and/or QE4.
The only question is whether Yellen has finally figured this out and will proceed straight to the NIRP/QE4 part or whether she will subject the market to 6-9 months of gut-wrenching volatility as the world's largest sovereign wealth fund realizes what it means to try to sell billions of assets into an illiquid, bidless, market.
In the meantime, and completely independent of what Yellen does in the near future, what was until recently a parabolic move higher in assets...
... is about to see its first ever decline.
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They bought some 100 year bonds if I remember correctly...they should have a good market out there for those...
Norway's Sovereign Fund is run by idiots.
Bloomberg (2Feb2009)In 2008, they compounded their losses in plunging global stock markets by putting out $1 billion to refinance six U.S. and European banks, including the now defunct Lehman Brothers Holdings Inc. Those bets cost about $500 million.
Slyngstad also held on to U.S. mortgage-backed securities, including about $16 billion of bonds issued by Fannie Mae and Freddie Mac, the home lenders U.S. taxpayers bailed out last September.
Adding to the upheaval, Slyngstad increased purchases of riskier assets as part of a government-backed strategy to boost returns.
http://www.bloomberg.com/apps/news?sid=aBMkhtkUBEds&pid=newsarchive
When I see them selling the kitchen sink on FleaBay, I'll panic. But my guess is while the Managers took big risks with OPM, none of them will miss even one 7-course dinner. Plus, the Norwegians are too busy deciding which mass murderer the next Piece Prize should go to.
Or, the world could conduct oil transactions in some currency other than the US$...SDRs, perhaps.
Awwww..how cute. A rainy day fund for a hurricane
Now they get to find out, that none of it was real. It was just a bunch of digits in a computer file.
OH NO NOT THE PONZI SCHEME! WE NEED THE PONZI SCHEME!
Slyngstad: "I want my phone call to my broker. I know my rights!"
Agent: "Tell me, Mr. Slyngstad. What is a phone call good for if your broker is unable to sell?"
THE MATRIX
and the collapse in oil prices
But, but, but.......gas prices are back on the rise. The 94 million unemployed have places to go....
https://www.youtube.com/watch?v=dAkxR9T01pw
israel to the rescue.
Line up for the great ponzi scheme, paper promises for everyone, just no time to spend them.
"Now they get to find out, that none of it was real. It was just a bunch of digits in a computer file. "
Oh, it was real alright. The petroleum that is.
They sold it all for what will seem like a pittance when compared to what it will cost in a few generations -and a few became insanely wealthy doing it who's families may be insanely wealthy and able to afford it for a few generations..
The real costs of an resource are it's long term costs which are almost never computed.
How much does it cost to remediate a dammed river?
Was the energy cheap? Was the project profitable? For Who?
How much does it cost to remediate an exhausted gold mine?
Was the gold valuable? Used for what? For Who?
How much does it cost to remediate a nuclear power plant?
Was the energy plentiful? What was it used for? For Who?
What is the cost of removing all of the plastic garbage floating in the oceans?
Were the materials necessary or convenient? For Who?
Certain people got rich off of the era of industrial developement in the US.
Detroit was a place of great wealth.
Now it is home of dozens and dozens of highly contaminated Superfund sites.
The money ran away to enjoy itself and the toxic waste is left for someone else.
Private profits. Social costs. For Who?
Future generations will pay the costs of remediation one way or another or suffer the debris and pollution left behind: and there won't be any Sovereign wealth funds left to pay for it the lot having been wasted by the short sighted and greedy that think in decades and not in centuries.
It all began with the smelting of copper. The cave men had no social conscience. All they wanted was immediate gain.
Why can't Norway just stop spending money?
Governments spending LESS MONEY would solve (or partly sole) many problems. Maybe that's why they don't want to do it...
They, like most of the globe, is heading straight into a wicked Deflationary Shit Storm that is almos tinevitable after more then 10 years of massive QEs. Many assets have already reset -- like PMs, retail, oil -- but the lingering overpriced ones that the CBs are propping up -- maily RE and stawks --- will take a yuuuuuuuuuuuuuuuuuuuuuuge drubbing to the tune of 50% or more downward correction to catch up to reality.
Both the Nowegians and the Swedes (who give out the Peace Prize) would be offended that you confuse them, but hey, who can tell one blonde from the next? oops is that raciss of me?
Great link Junction, looks like they doubled down on the Arab sping, I bet they're all over the Ukraine team Kiev too.
oh pity them
don't worry....when all these funds, and debt bubbles start to unwind....it won't put downward pressure on debt or equity markets at all.
They might have to get back into the Viking business.
http://news.yahoo.com/latest-un-agency-chief-wants-getter-muslim-western...
Norway can boost its GDP by letting 800,000 refugees in, right?
"Norway can boost its GDP by letting 800,000 refugees in, right?"
It will be even better if they let in 8,000,000 refugees. And they better start making more girl babies for the demand soon to follow.
Claims of humiliation are classic Fascist rhetoric, used to drum up hatred.
Sucks when it comes "home" to roost.
The last time far-right types attempted to gain ground in Norway, this was the response they received:
https://en.wikipedia.org/wiki/Norwegian_resistance_movement
Far right.
That's funny.
My maternal grandparents are among the give or take 1500 resistance members who were killed or executed by far-right criminals during the 1940s. I am not under any illusion as to who the "fifth column" is. They are not a group of desperate people fleeing from civil war and religious extremism.
Many of the refugees try to reach Europe not only in hopes of giving their sons and (especially) their daughters a chance at a better, more prosperous life, but also one that is free from the religious oppression and conservative bigotry which is suffocating their native culture. It it were my daughter's future at stake, I'd do the same.
Solidarity.
Uh.........National Socialist German Workers Party?
Maybe they could hold a bake sale......oh wait.......that's now illegal in America.
Yeah.....they hate us for our freedomTM.
A start. How about many more?
Mutti wouldn't be too happy about that
Norway's gargantuan $830 billion sovereign wealth fund...welcome to the "new normal" .....in a few years this to shall pass..and we will be talking about $100 oil ...in the meantime if you can't hold on..well just hold on...
New Mexico has America's 3rd largest sovereign wealth fund at ~$22 billion. It's dedicated soley to their failing public education system, with an 80%+ union membership. The fund's source is state owned oil & gas royalties; it distributes half the take, appx $60 million a month, and reinvest the other half.
We will know if the USA is really coming "under new management" if they ever stop spending tens of $$ billions there for a genuinely worthless population of barely 2 million, a full 70% of whom (men-women-children) are on some form of direct federal subsidy.
Reminds me of the Pension Fund at Ontario Power Generation. Had a 30% surplus back in 2000 and stopped the pension contributions from the employees as they would never be needed again they had so much. Fast forward less that 10 years and they had a 30% deficit. How can incompetence like that even exist. Needless to say the employees are being squeezed again. Norway is toast by that measure. Sad to see.
I've heard rumours that OPG would match employee contributions five-fold. Is this true?
Of one thing you can be sure: The fund administrators still collected their fees.
http://finance.yahoo.com/news/meehancombs-hedge-fund-shut-down-194857244...
Another "winner" in barry's robust recovery!
Still holding on to my Solyndra......I want to believe.
hey vince; hope you saw The Jerk wherein steve martin used the term 'special purpose' for a body part; i assume that is what you mean when you say 'holding on to my Solyndra"
Good thing the people of Norway saved all that money. Now they have a flood of muslim "refugees" to spend it on. The locusts won't be leaving anything for Norwegians who thought they had been saving for their own rainy day. Their government will give it all away.
Ya, the price tag will come in at $161,925 for every man, woman and child in Norway...meanwhile, the Banksters are smoking the finest cigars, drinking the finest wines, having one last meal and party at taxpayer expense. All the while, thumbing their noses at the plebes and serfs...
The Northern European sure put up a nice veneer: very stoic, sterile. You think that they would be as smart as they act.
well... they have a wealth fund with nearly a trillion euro's in it... America...
has a papermill where they print their "wealth" and even that costs to much because they want to ban cash.
America has had a deficit for all the years but 1 for the last 5 decades.
So calling the Norwegians stupid...
Now do they invest it wise? Hell no, a fund that size just can't. The only sollution is to cut it up in pieces of 500 million with seperate management for every branch and a growth factor that only needs to be 1% above inflation.
No hate, no fear.
This sort of riposte is what you are reduced to Eriik?
You must be under new management.
Looks like a few countries want to get some of their seed corn back before others figure out that most of the silos (banks) are full of only popped-corn. Especially countries funded from oil. Look out when the supply of seed-corn runs out and the popcorn scheme gets exposed. What happened in France will look like child-play.
I built a home out in the boonies 20 years ago.
It was quiet and peaceful for a time, but lately they've all moved in here all around me... building they bunkers, shootin' they guns... target practicin' all the time, and tellin' me with they threatenin' statements about who they gonna shoot when the hoards come for they shit.
Yes, it really was peaceful and quiet here for a time.
The "future generations" are Muslim and are moving in now, let the scoalist liquidation begin.
"thanks for the asset accumulation Christian, praise Allah"
Idiots.
Time to kill the king, they got a king right?
Europe is committing suicide, and the politicians are doing it by taking in the hoards of refugees.
Just adding more to welfare. Maybe Merkel can give them free Volkswagen diesels as a welcoming gift since their sales will take a hit.
Very significant resistance to all the immigarants is growing rapidly. The right wing parties who's main platform is shutting off immigration are gaining a tremenous amount of support.
Largest fund liquidating on a downward slide whilst everyone else and their brother is liquidating too, eh. So, on the bright side it does not look good for projections of future growth, and on the dark side it looks like nothing looks good for projections of future growth. We can collectively conclude that there shall be no future growth in the foreseeable future. Class dismissed.
Ah yes. Good ol' growth. If only we could get back to positive growth everything would be just peachy in the garden.
"The Greatest shortcoming of the human race is our inability to understand the exponential function" - Dr Albert Bartlett
https://www.youtube.com/watch?v=u5iFESMAU58
101 Class failed.
Better to liquidate now rather than ride it 50% down.
So far every central bank action has led to more debt and less ability to pay it back.
Oh what problems. Only at ZH could tapping a 800 billion sovereign wealth fund be written up as an "oh noes" story.
Start telling us about all the countries who pissed everything up the wall and have the luxury of nothing to tap.
Well that would be every western country for sure you fed the parasitical politicians and bankers.
If anything do we need them because I reckon they would be the easiest to replace with robots.
Finding a rational voice on these forums is a bit like finding an oasis in the desert. Thank you.
Maybe doing a bit too much rationalizing but it seems to me they are suggesting that if Norway can be facing liquidation, that can't be good news for all those "lesser thans". Not to mention that a fund of that size attempting to liquidate into the "market" could have some nasty effects.
The only reason it's important is because Norway acts like their model of socialism is somehow correct, and everyone else is a fricking idiot for not figuring out how to make it work when in reality they're the fucking Beverly Hillbillies. They didn't figure out shit; they're just able to monetize massive natural resources. Until they're not.
Sour grapes syndrome.
Judging by their national balance sheet/standard of living/access to decent healthcare/any-reasonable-metric Norway's model of 'mixed-economics' has worked out very well for Norwegians, regardless of your disparagement of their success.
The fact is lots of nations have/had "massive natural resources", unfortunately most of the rest of them long ago gave it all away to a handful of plutocrats for pennies on the dollar... so so much for the 'Norwegians just got lucky' repeater.
Even if the oil ran out tomorrow at least they would have something to show for their troubles other than national debt-slavery; so very unlike where yer to, b'y.
The Norwegians may not 'have figured out shit' in your fancy's estimation, but by any reasonable standard they are far ahead of, well, pretty much everyone else.
The spleen vented envy on this thread is grotesque.
"....a future in which Norway's gargantuan $830 billion sovereign wealth fund, the product of two decades of capital accumulation courtesy of Norway's vast petroleum reserves and oil trade..."
" ...the world's largest sovereign wealth fund realizes what it means to try to sell billions of assets into an illiquid, bidless, market."
Shhhhhh, don't tell anyone but Norway's Schrodinger's cupboard is really bare. Can you believe the stupidity of generating $830b in wealth through hard work and then handing it to a bunch of banksters for "safe-keeping". If the Norweigans discover their wealth fund is gone...
Aaaand It's Gone .... https://www.youtube.com/watch?v=-DT7bX-B1Mg
There may be a run on piano wire and lamposts. One can only hope.
"If the Norweigans discover their wealth fund is gone..."
It happened in 2008 when this same sovereign fund plus several Norwegian municipalities and pension funds were told by the bankers 'it's just gone'. http://news.bbc.co.uk/2/hi/business/7937360.stm
Was that 'loss' calculated after oil revenues (a major portion of the fund's portfolio last time I checked) were included in the mix?
Ans: Not. a. chance.
They should have invested in Zimbabwe bonds. Would have made a killing. Could have been a Gazidrillion sovereign wealth fund.
A lot in Zimbabwe did invest in "bonds" called US dollars. So far, it's working out. But not for much longer. You know, it's that "promise to pay" thing. We're starting to see just how valuable promises are from non-moral, non-ethical leadership.
The Norwegian Wealth Fund managers are not idiots. However, little Norway has to play the game and use the Fund to buy crap from the banksters. 830 billion USD is a lot of money for 5 million people, the banksters should get their cut.
Once the Ponzi starts liquidating for real, then you will see the Fund managers doing real "stupid" shit to save the asses of the bankers.
That's $166,000 per person. Reality is it doesn't go that far when you spread it out over time. Over 20 years, that's only $8,000 per person per year.
Yeah pffft, what a pittance, the Norges could have done so much better if they had gone the way of the UK, or Canada, or Australia, or etc. and privatized their non/renewable resource industries completely
(/sarc)... just don't look at a chart comparing national balance sheets
Can you solve the following syllogism for me?
If No debt is better than lots of debt
And a surplus is better than no debt
Is a surplus better or worse than lots of debt?
"The answer is simple, if unpleasant: break open the piggy bank, or in this case, start selling the securities held in the Norwegian sovereign wealth fund."
Surely, burning capital to fund current expenditure is wrong? They need to spend less.
Are bits of paper really Capital?
Sell all the bits of paper and buy "Things", mines , road/railway companies, food production energy geration etc etc.
Turn the paper into things you can use to make things, because no one else will.
A large amount is already invested in shares of such companies. It was estimated that Norway owns 2.5% of the shares in Europe with a plan to increase that to 5%. The main thing they got wrong was the timing, stepping up their purchases this year.
Perhaps, like TPTB they are already liquidating and this is a 'spoiler' floated to put the market off the scent.
Its certainly a rich society here, he says as he looks out of the window over a small harbour packed with very expensive boats. Lovely weather atm. As elsewhere, the Viking sheeple have no idea what's coming.
Boats full of young Islamists looking for some white women.
http://ghi-dc.org/index.php?option=com_content&view=article&id=405&Itemi...
Worked for Red Brigade.
Article says the gov is keeping this from the Norwegians. Perhaps they should send each Norwegian a monthly account statement showing their individual share of the Fund. Let them see the value of their share declining, as the government spends, spends, spends.
You know how much that'd cost?/s
Just a simple website would work
Yup, sorta like our Debt Clock.
http://www.usdebtclock.org/
Still broke.
"Yup, sorta like our Debt Clock."
...but in reverse.
Yeah just look at that fund 'shrink'; it must have been KILLED in the 2008-09 crash right?
http://www.finfacts.ie/artman/uploads/3/Norway-sovereign-fund-Oct202010.jpg
(wrong)
or since then, mb?
http://online.wsj.com/media/norwaymktvaluePNG.jpg
(not)
that despite all the 'spend spend spending', hunh. And I found those numbers with a simple search, so it appears the Norge gov't isn't doing a very good job of 'hiding' info from the rest of the world, let alone Norwegians themselves.
Your comment smacks of envy spawned wishful thinking, I am thinking.
You can only sell when there is a buyer. Who is going to buy? The FedRes? Ha ha. They got a lot of Chinese held paper to buy.
That's the key word, Moe. Paper. People are going to start to look at it and wonder just WTF they've been thinking.
How much silver do you think they have, zero or none?
And how much is in gold, or gold mining assets?
everywhere we look, we are running out of other people's money.
So who actaully owned the oil that built that fund then? I'd like to know so I can offer my condolences to those it was 'stolen' from.
The entire Norwegian oil industry is nationalized.
right... so even though they are enjoying the benefits, Norwegians stole that wealth from... themselves?
Wow, the nay-sayers really have to smash at those square pegs to get 'em into those round holes, hey?
I liked what must be a typo: "...the market with the largest sovereign wealth fun in the world: Norway." Well, it used to be "wealth fun". Not anymore.
I've seen this movie, it's called Social Security
What the Norwegians should do is to pump less crude, and keep their wealth under the seabed rather than in paper assets that can disappear at the whim of a corrupted (or threatened) fund manager. And preferably only pump the crude when the price is high.
They can't slow down production. If they pump less crude, their entire ponzi scheme of an "economy" falls apart. In fact, they need to pump MORE oil to get more profits to float their economy. Without that extra oil, jobs will disappear. so far declining oil prices has shut down exploration and has cost tens of thousands of jobs in Norway.
And your comment about a "corruped" fund manager? ALL of Norway's oil is NATIONALIZED. The oil industry and their fund is simply an extension of the government.
" A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator."
<emphasis mine>
'sell oil, earn profit, distribute profit to investors' does not a 'ponzi scheme' make.
Yes it's nationalized. In other words, it's completely corrupt to the core.
Yes it's nationalized. In other words, for decades now it has been profitably run by the people for the people, as the record clearly shows.
138 billion kroner
That's a boatload of kroners.
Imagine the cheese and crackers you could buy with 138 billion kroner.
Imagine the lutefisk!
Nations with SWFs that monetize their assets are extractice economies. Extractive for their 1%. So much for Central Control that now has the rug beneath their feet being pulled with deformed markets and at the same time collapsing consumption. EMs in Asia are largely Crony economies and the fund outflows should in fact be far greater. Just another wake-up from the snake oils (the EM Growth Tales) that have been pandered by the Banksters.
"Nations with SWFs that monetize their assets are extractice economies. Extractive for their 1%"
So Norway=Saudi Arabia?
What a load of malarkey.
You need to do some research before making any more such ignorant, sweeping generalisations.