$2 Trillion of Petrodollars Needs a Home This Year

A staggering figure in this article from the UK Telegraph.... "reverse colonization" looks to continue, and this is the type of money that *WILL* put a floor beneath equity market as Sovereign Wealth Funds go hunting for prey. Even if only 20% ever makes it into equity markets that an astounding $400 Billion. Even in this day and age of $8 billion write offs, that is some serious change. Think US stimulus plan x 2.5. Yet another reason I could see a "decoupling" in equity markets vs real economy later this year.

And just think... this tax on the world...will continue next year... and the next... and the next... and the next... all while we dither away, not willing to even fathom a Manhattan Project for Alternative Energy. Maybe crude $120 will wake us up? $150? $3.75 gas at Memorial Day 2008? I don't know what it will take, but nothing for this current administration I suppose.

• The surge in the price of oil is set to unleash a tsunami of petrodollars onto financial markets, according to Morgan Stanley.
• With the price of crude oil skirting the $100-a-barrel mark, strategists at the investment bank reckon as much as $2 trillion of petrodollars earned by the world's oil exporters will need to be invested this year.
• Petrodollars are "big, and getting bigger," according to Morgan Stanley's Stephen Jen.
• While Mr Jen estimates that oil exporters, particularly the Gulf states, will choose to spend about 10pc of the petrodollars upgrading their infrastructure, "a tsunami is coming."
• At $100 a barrel, Morgan Stanley estimates that the value of the world's proven oil reserves stands at $121 trillion. That compares with Russia's gross domestic product of $1.2 trillion, Britain at $2.7 trillion and the US at $14 trillion.
• Mr Jen writes "The financial arguments for transforming underground oil wealth into above-ground financial wealth are quite compelling."

Again this was part of my 13 Outlier 2008 Predictions; that equity markets would confound bloggers (like myself!) and finish relatively flat for the year based on a 2nd half liquidity surge, combining Fed induced printing of dollars shoved into the system, along with foreign infusions. However, at the time I did not expect 125 basis point to happen within 9 days, so maybe my time line needs to be moved up... these numbers are simply staggering.

This also makes yet another case for global inflation - this world is awash in petrodollars and they will drive up the costs of finite assets the world over. Oh what a conundrum!