MorningWord 3/9/16: Viking Quest

by Dan March 9, 2016 9:29 am • Commentary

The stock market volatility in January and February was largely the result of investor fear that the deflationary pressures of crashing oil and industrial commodity prices would move the global economy closer to a recession.  Adding fuel to that fire was desperate global central bank monetary stimulus measures that widely diverged from the that of the United States. Commodity dependent countries started selling whatever they could to raise cash. And the fear of higher rates in the U.S. and a stronger dollar caused massive capital flight from these regions. Mayhem ensued.

A lot of that selling had been attributed to sovereign wealth funds in emerging markets and the Middle East, raising cash after 7 years of U.S., Fed ZIRP induced gains.  But it’s not just Arab oil producing states that parked a ton of cash in U.S. stocks during the commodity super cycle expansion (since the financial crisis) There were others. Like Norway.

It may surprise you that the world’s largest sovereign wealth fund is in Norway. It’s Norges Bank, with $830 billion under management. This morning, Bloomberg news ran a story, quoting Norges’s CEO (Norway Wealth Fund Isn’t Joining Global Stock Selloff, CEO Says) where he basically said that all’s good in Europe’s Great White North as they are not selling:

“We have not been participating in the selling, and we don’t foresee” that a change of strategy will be necessary, Slyngstad said at a presentation of the fund’s 2015 results on Wednesday in Oslo.

But as Mike Tyson might have said, “everybody has a plan until they get punched in the mouth”:

The $830 billion Government Pension Fund Global returned 2.7 percent in 2015, its worst result in half a decade, after rising 7.6 percent the previous year. Stocks gained 3.8 percent, bonds rose 0.3 percent, and real estate investments grew 10 percent. The fund’s holdings overall gained 334 billion kroner ($39 billion) last year.

And as the article highlights, Norway made its first ever withdrawal this year to the tune of nearly 10% of its existing assets to fund a budget deficit :


The bounce in oil in the last month alleviates some near term funding concerns, but I suspect that a re-test of the prior lows could cause some forced selling.

Looking at Norges’s largest holdings, you get a sense that it may not just be mom and pop investors selling our stocks who regret their fear of missing out buying in the S&P 500 (SPX) at 2000 if we do go back and test the prior lows at 1810:

From Blomberg
From Bloomberg