Norway Government Forces Sovereign Wealth Fund To Buy $100 Billion More In Stocks "To Safeguard The Country's Riches"

As we reported late last year, the Norwegian government ordered its Sovereign Wealth Fund to increase its equity allocation to 70% to try and paper over what’s expected to be a 70 billion kroner ($11.1 billion) drawdown – the first in the fund’s history.

That money was needed to plug a budget hole created by falling oil prices, and it seems the brilliant minds at the Norwegian Ministry of Finance and the Norges Bank figured they could easily recoup the fund"s losses by upping its risk exposure. Indeed, they’ve already raised the fund’s expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent previously.

Eight months later, the MoF is still planning to make the shift, which would result in it buying about $100 billion in global stocks, though prices have risen considerably in the interim. Despite the fund’s rush to raise its 10-year earnings forecast, fund officials said worries about a near-term market slump played “little part” in their investing plans," according to Bloomberg.

“Norway’s $970 billion wealth fund has been ordered to raise its stock holdings to 70 percent from 60 percent in an effort to boost returns and safeguard the country’s oil riches for future generations. Any short-term view on growing risks will play little part, according to Trond Grande, the fund’s deputy chief executive.

‘We don’t have any views on whether the market is priced high or low, whether bonds and stocks are expensive or cheap,’ he said in an interview after presenting second-quarter returns in Oslo on Tuesday. The decision to add stocks ‘was made at a strategic level, on a long-term expected excess return that we’re willing to take risk to achieve. And parliament has said that they wish to spend some time to phase in that increase.’”

According to data cited by Bloomberg, the fund held 65.1 percent in stocks, 32.4 percent in bonds and 2.5 percent in properties during the second quarter. Its mandate is now to keep about 70 percent in stocks, 30 percent in bonds, with about 7 percent in real estate that’s now separate from the main portfolio.

However, Grande says he’s keeping a “close eye” on market indicators.

“It doesn’t lead to anything in concrete terms, other than the fact that we’re keeping a close eye on the indicators that could indicate whether there’s a risk there, and what they’re saying,” Grande said. “Some risk indicators have actually not shown underlying risk -- take growth for example. So you should be a little cautious when the skies are all blue.”

While the fund has said little about its investment preferences, Bloomberg reports that the fund has recently been expanding into emerging markets.

“Owning 1.3 percent of global stocks, the Norwegian fund largely follows indexes but is allowed some active management of its portfolio. It has been expanding more into emerging markets and recently got permission to raise its stock holdings after Norway last year started withdrawing cash from the fund for the first time.”

Sovereign wealth funds have like Norway"s have benefited immensely from a virtuous cycle of central bank buying. So perhaps Norges Bank Deputy Governor Egil Matsen, the official in charge of the fund’s oversight, has some special insight into the thinking of central bankers, the primary engineers of the global post-crisis market rally. 

Central bankers like Thomas Jordan and his colleagues at the Swiss Central Bank, which earlier this month revealed itself as the “mystery buyer” that kept US stocks afloat during the second quarter while retail and institutional investors headed for the exits.

 

Whatever it is, the rest of us will have to wait to find out.

Norway Removes Greenpeace Ship From Statoil Arctic Drill Site

Authored by Zainab Calcuttawala via OilPrice.com,

Norway’s coast guard has removed Greenpeace protestors from a safety zone near Statoil drilling operations in the Korpfjell field of the Barents Sea, according to a new report in the Maritime Executive.

The protestors used kayaks to infiltrate a 500-meter exclusion zone around the Songa Enabler on Thursday in order to attach a large globe to the rig. On it was a statement from environmentalists calling on Norway to end its drilling in the Arctic.

Statoil called the stunt “illegal and irresponsible” before summoning the authorities to remove the protestors’ vessel, Arctic Sunrise.

On the other hand, Greenpeace Norway argues the coast guard’s actions were unlawful.

“The Norwegian coast guard doesn’t have the right to board or remove our ship,” said Truls Gulowsen, head of the local branch of the environmental group.

“Protest at sea is an internationally recognized lawful use of the sea, related to the freedom of navigation. We are taking action against Arctic drilling in an area where our rights to protest are protected under international law. The Norwegian government cannot unjustifiably interfere with that right.”

So far, the government maintains that it acted within its rights when it removed the ship due to the clear establishment of the exclusion zone.

To this claim, the group retorts:

“While Greenpeace recognizes that Norway has the right to establish a safety zone around a fixed offshore installation, there should also be room to exercise the right to protest in a safe and peaceful manner.”

Environmentalists continue to protest drilling in the Arctic and the potential opening of the Lofoten islands to exploration.

Greenpeace is suing Norway in a trial set to begin in November, arguing that “granting licenses to open a new oil frontier breaches the Norwegian Constitutional right to a healthy and safe environment for current and future generations and contravenes the Paris Agreement.”

The Arctic Doomsday Seed Vault To Save The World... Has Flooded Thanks To Global Warming

Having first been used in 2015 to save Syrian biodiversity, the Arctic stronghold for the world’s seeds - designed to rescue humanity in case of doomsday - has flooded after permafrost melts due to global warming. While no seeds were lost, The Guardian writes that the ability of the rock vault to provide failsafe protection against all disasters is now threatened by climate change.

As a reminder, on a remote island that is just 800 miles (1,300 km) from the North Pole, the Norwegian government has built a failsafe in the freezing cold that protects thousands of the most vital crops from extinction.

Officially called the Svalbard Global Seed Vault, it already holds close to a million samples of crops around the world, with each sample holding about 500 seeds. The following infographic, from Futurism, has more on this Doomsday Vault that could one day help to save civilization:

However, as The Guardian reports, while it was designed as an impregnable deep-freeze to protect the world’s most precious seeds from any global disaster and ensure humanity’s food supply forever, the Global Seed Vault has been breached after global warming produced extraordinary temperatures over the winter, sending meltwater gushing into the entrance tunnel.

When it was opened in 2008, the deep permafrost through which the vault was sunk was expected to provide “failsafe” protection against “the challenge of natural or man-made disasters”.

But soaring temperatures in the Arctic at the end of the world’s hottest ever recorded year led to melting and heavy rain, when light snow should have been falling. “It was not in our plans to think that the permafrost would not be there and that it would experience extreme weather like that,” said Hege Njaa Aschim, from the Norwegian government, which owns the vault.

“A lot of water went into the start of the tunnel and then it froze to ice, so it was like a glacier when you went in,” she told the Guardian. Fortunately, the meltwater did not reach the vault itself, the ice has been hacked out, and the precious seeds remain safe for now at the required storage temperature of -18C.

But the breach has questioned the ability of the vault to survive as a lifeline for humanity if catastrophe strikes. “It was supposed to [operate] without the help of humans, but now we are watching the seed vault 24 hours a day,” Aschim said. “We must see what we can do to minimise all the risks and make sure the seed bank can take care of itself.”The vault’s managers are now waiting to see if the extreme heat of this winter was a one-off or will be repeated or even exceeded as climate change heats the planet. The end of 2016 saw average temperatures over 7C above normal on Spitsbergen, pushing the permafrost above melting point.

“The question is whether this is just happening now, or will it escalate?” said Aschim. The Svalbard archipelago, of which Spitsbergen is part, has warmed rapidly in recent decades, according to Ketil Isaksen, from Norway’s Meteorological Institute.

Aschim said there was no option but to find solutions to ensure the enduring safety of the vault: “We have to find solutions. It is a big responsibility and we take it very seriously. We are doing this for the world.”

“This is supposed to last for eternity,” said Åsmund Asdal at the Nordic Genetic Resource Centre, which operates the seed vault.

An Epic Trading Take From Norway

Authored by Kevin Muir via The Macro Tourist blog,

We all know Buffett’s line about sitting around the poker table, but too often, we fail to apply it in our day to day trading or investing. It’s easy to fall for the latest story sweeping Wall Street without thinking about the next move, or who the narrative benefits. I am by no means immune.

The other day one of my astute new readers sent me a note that demonstrated a keen understanding of how markets really work. He didn’t bother with the headline news, but had already calculated the next move. Like a grand chess master, he wasn’t worried about the obvious noise right in front of him. Instead he had accepted that portion of the story, and figured out what that meant for the markets further out in time.

It reminded me so much of one of my favourite stories about trading, I had to share it with you. For those who know me well, they will have heard me tell this tale before, so I apologize in advance. This fable was recounted to me by another trader at my old shop, and I have never been able to verify its legitimacy, but I take refuge in the old line that one should never let the truth get in the way of a good story…

In the mid 1960s, Norway was a regular Scandinavian country, subsisting on an economy centered around agriculture, timber, and fishing. Life was good, but by no means out of the ordinary (apart from all you can-eat-cod buffets).

Then in the summer of 1969, while the rest of the world was focusing on hippy love, a Norwegian off-shore oil driller named the Ocean Viking struck oil in the North Sea. In the next six months, before the decade concluded, it became obvious Norway was sitting on a massive oil resource.

There was a mad scramble to buy off-shore drilling rights. Money poured in, chasing the untold wealth that would be created. Oil company share prices exploded higher. Visions of riches filled the minds of investors. It could be described as the original DotCom boom, only this time with oil companies. The Norwegian government was able to auction off the remaining oil drilling blocks for massive amounts. After all, the market realized Norway was about to become a world leading oil producer.

Into this frenzy, most traders focused on buying companies which would best benefit from this massive wealth creation. However, the market had discounted this new information, and before long, the excitement had created an environment where it was difficult for companies to meet heightened expectations.

And this is where the hero of our story enters. This wise sage sized up the situation, and instead of chasing the headline news, spent some time thinking about how this transformational discovery would affect the Norwegian economy. Practically overnight, Norway had created a raft of millionaires that had been lucky enough to get in early (back then, a million meant something).

Realizing the big money had already been made, and that the market had taken prices to levels that were more gambles than investments, our patient investor decided to focus on the second order trade. He thought about what all this new found wealth would mean for Norway.

And he concluded that once these millionaires became less focused on oil, and more interested in spending some of their new wealth, they would want to buy things. Of course they would buy real estate, maybe some flashy cars, and most definitely some yachts, but they would also buy art.

The art market is a funny thing. There are the renown artists that transcend all countries. That is an international market. But when it comes to smaller countries like Canada, Australia or Norway, the art market is dominated by locals. Few outside of Canada know about the Group of Seven, but there are a couple of dozen wealthy Canadians who compete to own these iconic painters. The prices of these art pieces are directly correlated to the wealth of these elite few.

And our Norwegian investor realized that the same thing would happen in his country. Instead of trying to compete buying oil companies, he quietly started accumulating a large position in Norwegian art. He bought all the best pieces while everyone else was focused on the headline news about the latest oil find.

Of course, in the coming years, the Norwegian art market exploded higher as these new found millionaires competed with each other to own the best of the best. And our shrewd investor was there to show them an offer. After all, by this time, news about Norway’s unbelievably strong art market was all over the papers, and our investor was already thinking about the next trade.

Trading is a tough game. You are competing against some incredibly smart people. I have by no means figured out the formula, but I do know that chasing the obvious headline news is not the answer. I try to always keep my mysterious Norwegian trader’s tale in the back of my mind, and ask myself, what would he do?

Inside The World's "Doomsday Vault"

Imagine that the unthinkable has happened. A massive asteroid impact triggers a “nuclear winter” effect, or one of the world’s most dangerous supervolcanos erupts. Maybe Donald Trump gets in an epic Twitter feud with Kim Jong-Un that initiates World War 3. Either way, things are going sideways, and the fate of human civilization itself is at stake. Will everything be lost? Visual Capitalist"s Jeff Desjardins explains...

ENTER THE ‘DOOMSDAY VAULT’

Well, besides the fact that the world’s cities have been replaced by smoking craters, there is some good news for the humans that survive a potentially apocalyptic scenario.

On a remote island that is just 800 miles (1,300 km) from the North Pole, the Norwegian government has built a failsafe in the freezing cold that protects thousands of the most vital crops from extinction. Officially called the Svalbard Global Seed Vault, it already holds close to a million samples of crops around the world, with each sample holding about 500 seeds.

Today’s infographic, from Futurism, has more on this Doomsday Vault that could one day help to save civilization:

Norway Wealth Fund Gains $53 Billion in 2016 On Trump Rally

After previously announcing plans to withdraw at least $15 billion to fund 2017 budget deficits, the $860 billion Norwegian sovereign wealth fund announced last December that it would change it"s portfolio allocations to try to make up for the withdrawals.  The change would eventually result in 75% of the fund"s capital being allocated to global equities, up from the previous 60% allocation...you know, because equities never go down so more is always better.

Now it seems that, at least for now, that bet has paid off to the tune of about $53 billion or 6.9% of the fund"s AUM.  Meanwhile, the fund"s CEO, Yngve Slyngstad, attributed the gain to the Trump rally saying that "after the presidential election in the U.S., markets priced in higher growth and inflation in the global economy."  Per Bloomberg:

The $900 billion Government Pension Fund Global returned 6.9 percent in 2016, after rising 2.7 percent the previous year, the Oslo-based investor said on Tuesday. Stocks gained 8.7 percent, bonds rose 4.3 percent, and real estate investment grew 0.8 percent.

“The fund returned 6.9 percent after a year of political events and uncertainty,” Chief Executive Officer Yngve Slyngstad said in the statement. “All of the fund’s asset classes generated positive returns, but it was the strong equity return in the second half of the year that drove the fund’s results.”

“After the presidential election in the U.S., markets priced in higher growth and inflation in the global economy,” Slyngstad said.

Of course, the gains came after the Norwegian government was forced to withdraw capital over the past two years to fund budget deficits that are expected to reach over 8% of GDP.

The withdrawals accelerated just as the heavily oil-dependent economy of Norway started to absorb the impact of lower oil prices.

In a previous interview with Bloomberg, Egil Matsen, the Deputy Governor at Norway’s Central Bank, said the withdrawals were starting to impact the manner in which the fund manages its risk profile.   

"Relevant for how we think about the risk-bearing capacity of the fund.  Say you have a decline in the equity market, and these returns have been partly funding the government, do you want variations in international financial markets to have a direct impact on fiscal policy?”

But Finance Minister Siv Jensen dismissed criticism of the withdrawals saying that the administration is using the fund as was intended noting that withdrawals remain below the fund"s annual return target of 4%.   

“Now that we are in an extraordinary situation, hit by the biggest oil price shock in 30 years, it would be crazy if we didn’t have an expansionary fiscal policy,” she told Bloomberg. Jensen rejected suggestions that the fund was “vulnerable.” She described it as “rock solid.”

The fund’s managers have warned it’s getting harder to live up to a real return target of 4 percent. It has returned 3.44 percent over the past 10 years. For now, planned withdrawals aren’t big enough to force the fund to sell assets. It estimates income from dividends, real estate and bonds will reach 207.5 billion kroner next year, almost double the amount the government plans to withdraw.

But there is no risk in equity investing, right?  In fact, we just found another $40 billion that will be pumped into the global equity bubble promptly.