Brad and Daniel's Excellent Adventure

Brad Setzer and Daniel Gross follow the money, and it takes them a long way from home. First, Setzer (link):

In 2007:

China’s government added $430b to its foreign exchange reserves.

Russia’s government added $150b to its foreign exchange reserves.

China’s state banks likely – this is the only point here where there is some real doubt – added around $150b to their foreign portfolio, or would have, had China not made it harder to borrow from abroad and thus forced them to pay down some of their external debt. The state banks' dollar purchases reduced the central bank’s need to intervene in the market (apparently the exchange rate risk remains with the government). The central bank basically told the state banks to hold more of their required reserves in dollars.

Brazil’s government added a bit over $90b to its reserves. Brazil’s Treasury holdings are up close to $70b for through November, in another kind of reverse bailout.

India's government added a bit under $90b to its reserves, almost none of which seems to have been invested in US Treasuries.

The China Investment Corporation likely had about $17b to invest abroad – as the majority of the funds it raised in 2007 were used to buy the central banks’ stake in the state banks and to recapitalize China Development Bank. It will get something like $105b early in 2008. Maybe $45b to $50b of that is already committed to the recapitalize the domestic banking system, leaving up to $60b more to invest abroad. But the CIC is still the smallest official investor among the BRICs.

Sum it up and the BRICs added just a bit under $800b ($760b) to their formal foreign exchange reserves (the total would top $800b if I counted China, Russia and India’s valuation gains) even without counting the Chinese banks. Counting the state banks and the CIC, the total is more like $900b. I was conservative back in July.

Goldman started dreaming of the BRICs well before energy traders started dreaming about $100 a barrel oil. The Gulf can hardly be left out of the discussion today.

The Saudi Monetary Agency’s foreign assets likely increased by $75b in 2007 -- they were up over $60b through November (Table 8a, in Saudi riyal). Saudi pension funds added another $5b.

The Gulf's other central banks likely added close to $50b to their reserves – though we are still waiting for data from the Emirates for the second half of the year.

The big existing Gulf investment funds – the Abu Dhabi Investment Authority (which, incidentally is likely to be bit smaller than the $875b to $1 trillion total that is commonly cited; see Mohsin Khan’s statements in the FT), the Kuwait Investment Authority, the Qatar Investment Authority and the confusing jumble of Dubai investment funds (some belonging to Dubai, run by Sheik Mohamed, and some belong to Sheik Mohamed, ruler of Dubai) – likely added around $100b to their assets. The $100b total doesn’t count any additional funds that they borrowed to finance some of their more aggressive strategies, or the capital gains on their existing holdings. $100b is what the funds got from their countries surplus oil revenues and the interest on their existing holdings.

Meanwhile, Daniel Gross finds trouble at the other end of the pipe—the filthy rich aren’t spending their money here, either (link):

The latest investment trends similarly lead me to think you may not be acting in the national interest. America's private-equity firms are plowing cash into India, China, and Latin America, and private bankers are urging clients to drop the home bias. (Don't think condos in Palm Beach and ski chalets in Aspen; think beachfront property in Thailand and ski resorts in the Alps.) A Spectrem Group survey of people with more than $500,000 to invest found that 31 percent are putting more capital to work internationally than in the past. "The rich are investing a larger share of their capital overseas," says Richistan author Robert Frank.

Just when the economy has started to take on water—and we don't know if we've just sprung a leak or we've hit an iceberg—you are racing for the lifeboats. Please, don't abandon us. Ski at Sugarbush instead of Gstaad. Invest in P.F. Chang's China Bistro instead of China. It might not be as rewarding, financially or psychologically. But your country needs you now, more than ever. And after all we've done for you, it's the least you can do.

Update: Thank heavens for those overseas markets (link)!

Update II: Guess it goes both ways (link).