Lower Valuations + Weak American Dollar + Desperation = Foreign Buying Bonanza of American Companies

I remember back to the late 1990's when the US dollar was a pillar of strength. I remember hearing about the speculations and conspiracy theories that the US government was keeping their dollar strong and other currencies weak so that American corporations could buy up other international corporations for next to nothing.

Now, the complete opposite is happening. The US dollar has plummeted. Valuations of American companies have dropped in many cases. And American companies, especially those stung by the subprime credit crisis, are desperate for cash.

Put these three things together and you have a foreign buying bonanza of American companies.

Morgan Stanley, Merrill Lynch and Citigroup - three very powerful and influential brokerage firms - have all accepted major foreign investments in their businesses over the past few weeks. The interesting thing to note is that much of these investments are coming from "sovereign wealth funds" - government controlled pools of money from countries ranging from China to Dubai. So we have a situation in which countries such as China are buying sizable stakes in very well-known American companies. The reason?

Lower valuations, a weak American dollar, and panic. American companies are sitting in the bargain bin right now. Some countries, who many people might be uncomfortable taking money from, are casting a wide net and investing heavily in American companies. During the first two weeks of 2008, $22.6 billion dollars was pledged for investment in the US from foreign investors.

If the dollar continues to drop and a recession becomes a reality in the United States, then look for the amount of foreign investment to increase.

My question to our American readers is - how do you feel about this heightened pace of investment in your country by "foreigners"? Are you glad that foreign investment is picking up, or are you worried about exactly who is investing in our country and what that will mean over the long-term?

Filed under: The Economic Meltdown | General Market News | General Knowledge