Petro Dollars & World Economy

The ever increasing prices of oil has strengthened the hold exercised by petro dollar holders on the world economy.High oil prices are a sort of tax on oil importing nations but they generate windfall revenues for the oil exporting countries specially in the gulf region. In 2006 petro dollars were the single largest source of net global capitalin flow. A major chunk of these revenues are recycled into the global market , making petro dollars a strong player in the market.
Where are these petroldollars used ??

Central Banks
Part of petrodollars end up in the cenral banks ,which invest in foreign assets to stablize foreign currencies against balance of payment fluctuations.

Sovereign Wealth Funds
These are state owned investment funds , used to invest oil surpulses into the global financial markets.

Goverment Investment Corporations
Increasingly, oil exporters channel some of their wealth into smaller, more targeted funds, such as Dubai International Capital (DIC) and Istithmar. These entities invest directly in domestic and foreign corporate assets, shunning the portfolio approach of the sovereign wealth funds.

Goverment Controlled Companies


Fueling Liquidity
In fixed income markets this increased liquidity has significantly lowered the interest rates.
Its estimated that total foreign net purchases of US bonds have brought down long-term rates by about 130 basis points.Taking into account the allocations of GCC investors,it is estimated that each year equity markets receive $200 billion in petrodollars, accounting for about $2 trillion—or 4 percent—of their capitalization
Some observers worry that this new liquidity is having an inflationary effect on asset prices, perhaps fueling bubbles.

Concern Is ....
Despite the many beneficial effects of petrodollars in increasing global liquidity and spurring the growth of various financial-asset classes throughout the world, the rise of investors in oil-exporting countries has created concerns.
One worry is that the huge size of petrodollar sovereign wealth funds, coupled with their relatively high appetite for risk, could make global capital markets more volatile. The limited transparency of these funds amplifies the anxiety.
A final concern: the long-term economic impact of higher oil prices. In the 1970s their rise sparked inflation in the major oil-consuming economies and sent global banks on a petrodollar-fueled lending spree in Latin America

SatyamWay

Found this interesting piece of info while reading an interview of Mr.Ramalinga Raju , founder and chairman of Satyam Computers.This is something which happened in 1991 ,when the west wasn't very sure of outsourcing work to India.And its then that Satyam got its first fortune 500 client in India.This happened in US Midwest where in Satyam took up a rented house , across its customer's software development centre .Ten satyam engineers field tested the benefits of Global IT offshoring by pretending they were in India.They worked nights to simulate the time difference and for 6 months never met their customers across the street in person , communicating only through a dedicated satellite link"In the end the team worked better from this place called Little India as compared to working onsite"....

That was a really different way of proving ones's credentials.
From then on Ramalinga Raju an commerce graduate & an MBA has been on the path of trying out new things .Currently they are working on a new business model which they call the "Satyam Way".
will write abt the satyam way in my next post .....

Ref : Mckinsey Quaterly

MicroSoft Bids for Yahoo

Yahoo offlate has been in troubled waters where in there shares have lost 30% of their value over the last one year.They also decieded to lay off around 1000 employess.

Now they have found an interested partner in the form of Microsoft who beleive that MS & yahoo as such would be the right combination to deliver maximum value to the share holders.

Microsfot's $31 a share offers a 62 percent premium for shareholders.

This acquisition if successfull would create a ruckos in the field of online advertising, currently worth $40 billion and expected to grow to $80 billion in next three years .

Google was early to understand the power of Internet , MS though late on this , is trying to catch up pace with this acquisition..