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Jerome Vitenberg warned, in an article dated December 25, 2013, about the consequences of excessive oil dependence. He questioned the economic sustainability and the underlying assumptions, supporting the nation’s $837 billion sovereign wealth fund (2015). Paal Bjørnestad, the Norwegian State Secretary replied in an article published January 9, 2014, that Norway’s wealth was well managed and discounted some of Vitenberg’s assertions. Vitenberg followed up with an article dated February 11, 2014. He advocated for increased transparency regarding Norway’s debt obligations against The Fund’s balance. What happens if, on Norway’s rainy day, The Fund’s value is much less than expected, because there is also a global crisis? The Fund’s allocation is mostly in North America and Europe and spread across equities and fixed income with some real estate allocation. Therefore, considering recent IMF warnings about the state of the global economy, I share these concerns. Moreover, the amount of debt, worldwide, both personal and public is alarming.

Digging into the data, especially the changes from 2014 to 2015, the crisis may already have arrived. We are starting to see key figures like exchange rates, unemployment, capitalization rates and dwelling prices relative to income break out of normal ranges.  Personal debt also continues to grow, dampening purchasing power further.  It is also important to note that Oslo’s population is around 30% immigrants, many of whom came to work, one of the key factors driving housing demand.

Key Indicators Dashboard (KID)

Screen Shot 2015-10-08 at 20.54.00
Source & Methods: Salary, unemployment, and debt figures are from SSB.no. Oslo-Bærum rent and price for 2-3 bedroom flats taken from SSB. 2015 Rent figures were derived by adding 2.4% to 2014 rent, based on my CPI adjustment, living in West-Oslo, from a professional landlord. Based on various articles and OECD data, 80sqm was assumed as the average flat size for a household of 2.1 in Oslo-Bærum. Interest rates were taken from Norges Bank, 2015 is YTD average.

Norway’s central bank made a surprise rate cut on September 24, 2015, trimming 25 basis points to 0.75%. They stated support for the slowing economy due to oil’s rapid descent as the reason.  They even warned that more cuts may be coming, further averting recession. Rate cuts are not something governments do when all is good. They are a quick fix, stimulating a sagging economy. They encourage consumers to borrow while discouraging savings, pushing more cash into the economy but do nothing to address the structural issues.

The paradigm shift in oil production is real and Norway needs a new economic engine. Encouraging borrowing and spending, especially on imported goods and vacations, increasing the trade deficit, is shortsighted. Easy money policies could even exaggerate existing problems, inflating bubbles more, making the day of reckoning worse.

The Norwegian Economy

Norway’s main source of wealth is oil and gas, accounting for over 64% of exports. They mostly import machinery and transportation equipment (cars, buses and locomotives) and (finished and manufactured) goods made abroad.  From the street level, this is easy to see. People buy Chinese made goods from Swedish based retailers like Clas Oslon, IKEA, and H&M. Tesla’s Model S is Norway’s bestseller.

The Oil Cloud & An Iranian Comeback

Looking at the KID above, it is easy to dismiss the current situation as temporary, especially with The Fund’s current $827 billion (October 4, 2015) acting as a buffer. Norway did come back stronger than before from the 2008-2009 crisis. They even recovered from the toxic US mortgage-backed securities (MBS).  However, the current crisis is not only from slowing demand, like in 2008, cyclical in nature but also from technology change. In addition, the Iran Nuclear deal, potentially adds more supply.

Fracking on the American Great Plains is like cloud computing. Many wells were drilled, breaking even in the $50-$60 range. Some even as high as $80, accounting for exploration. The current price route, causing consolidation, allows cash rich players to buy up existing assets and exploration knowledge at substantial discounts, lowering their cost basis. This is still playing out as price hedges expire. (Source: Interview with an Explorer at a major energy company)

Fracking wells can be turned on and off with relative ease. Therefore, just like Amazon Web Services (AWS) and storage, when demand rises, more rigs will come online, and when it falls, goes offline.  Hence:  “The oil cloud.”  Traditional vertical wells, when restarted after a shutdown, yield far less output than before.  Moreover, the underlying technology continues to improve, driving down operating costs. Software improvements optimize and automate production.  “Re-fracking” or upgrading existing equipment increases existing well output, saving on costly exploration. Some sites are seeing operating costs dropping to $25 per barrel!  This is well below $60-$70 per barrel, required to balance the Norwegian state budget. Therefore, it is not safe to assume that this is a fad, passing with time.

Crisis Indicators

Trade Balance

Currently, Norway runs a trade surplus, supporting a strong currency while building reserves. However, when oil prices started to route early last year, the trade surplus declined. It almost reached a deficit. Even the weakening Krone could not offset (boosting other exports) the weakness in the oil markets. Although trade deficits boost exports, they also weaken a currency, inflating import prices. The trade balance deterioration is moving in line with falling oil prices.

Exchange Rates

The most visible indicator, validating Vitenberg’s article, are foreign exchange (FX) rates since Christmas 2013. Moreover, gold appreciated 31% against the NOK whereas it has fallen 5.6% against the USD.  Since most trade activity is with neighboring European countries (NOK declining 8-14%), the effects are not too noticeable – yet.  As price hedges expire, we can expect inflation soon, increasing the cost of vacations, clothes and consumer goods.

Norway: The Silent Crisis
Source: Central Banks

The greater problem is that FX rates are not resting. They are still moving with the oil story. At first, economists thought that the decline was temporary, however, this time being different, it is structural in nature. If this trend continues unabated, Norway will slowly become more or less like other European countries, perhaps worse. If The Fund were to take a major hit Norway may appear more like Greece, if they do not cut government spending in-line with declining oil revenue.

Inflation Vs Interest Rate Policy

Since 2013, the inflation rate is higher than the benchmark interest rate. The government is trying to stimulate the economy, using policy tools discussed earlier. Most Norwegians have their wealth tied up in housing, using floating interest rate loans. Hence, the rate cuts will boost consumer spending, potentially pushing up inflation rather than future investment. We can see that after the 2008 inflationary spike, the central bank abruptly raised rates to compensate. Housing prices and the corresponding payments at lower interest rates are higher than before.

Norway: The Silent Crisis
Source: Norges Bank

Jerome (Dan) Vitenberg brought to my attention another issue. DnB (Norway’s leading bank) stated that the falling krone is scaring off investors, creating liquidity issues. If this persists, they may have to raise rates, assuring bond investors. Recently, Russia and Ukraine have raised rates, amid the crisis, defending their currencies and enticing investors. However, once the crisis is underway and investors lost confidence, the rate becomes irrelevant, no matter how high.

The United States is the only country that can cut rates to near zero, holding them there since 2009, and then seeing their currency hold or even rise. The US Dollar enjoys world reserve currency status, backed by 10 Nimitz class aircraft carriers, a diverse population and economy, innovative culture and ultimate safe-haven perception. The rest of the world, including Norway, when selling bonds, must offer a return on investment exceeding inflation. Therefore, if (Norwegian) rates were to spike to quell inflation or address liquidity concerns, the effects for everyday people will be detrimental.

Consumer Debt & Housing

The central bank cut rates before and yet the Norwegian economy is still moving slowly. This is due to personal debt dragging on the real economy. The Nordic consumers are among the most indebted in the world, even more so than Americans.  The Norwegian Financial Supervisory Authority warned that cutting rates to save housing could risk severe deleveraging in the future. Morten Baltzersen, head of the Norwegian Financial Supervisory Authority, questions how much higher housing prices can go. Although these ratios are high, they are not out of line when compared to Switzerland or the UK. However, those countries’ finances are also coming into question.

Employment: Housing’s Main Support

Stagnating salaries and rising unemployment, combined with rising import costs, could precipitate deleveraging. Employment and population growth generally drive housing prices. The Norwegian petroleum sector employed around 240,000 people or 9% of the population in 2014. They earn well. There used to be shortages in this sector, filled by skilled immigrants who not only earned well but also increased the population. They created new demand in housing and consumer sectors, therefore, any damage to this sector affects the overall economy.

The oil industry expects 40,000 layoffs this year. This could be just the beginning if oil settles below $70 per barrel, considered the break-even point by the Norwegian Central Bank. Loss of well-paid jobs affects other sectors also from loss of consumer spending. Moreover, this has affected skilled immigration, starting to recede after years of strong growth. Hence, overall unemployment in Norway is starting to tick up as skilled immigration declines. On a positive note, unemployment remains below 5%, considered a labor shortage. Immigration continues at historically high levels, pushing housing. Although the figures are not alarming now, the trend, showing deceleration, signals difficult times ahead.

The Sovereign Wealth Fund

The Norwegian Sovereign Wealth Fund, created for a rainy day (or decade), could be in a precarious position. The portfolio contains 60% equities, 35% fixed income and 5% real estate. Geographically allocated at 39% Europe, 39% North America, 18% Asia and 4% everywhere else.  Currently, they run on the classic asset-allocation model assumption.  If one stock or bond market is down, another will be up, offsetting the loss.  We have seen in 2008 that a crisis can go global, hitting everything at once. Lately, the Global Dow, representing the world’s largest companies, with similar geographic allocation (47% USA, 29% Europe, 16% Asia and 8% everywhere else) decided to take a break on the back of worldwide pessimism. Global stocks have a habit of giving up gains just when you need the money most.

Norway: The Silent Crisis

Many experts believe that the risks to the global economy have actually increased since then. Debt levels are higher than ever before while countries are doing one stimulus after another, moving into uncharted territory. If rates were to rise, responding to an inflationary spike caused by almost a decade of easing and stimulus, these types of holdings, irrespective of location, would tank. Stocks, bonds and real estate today generally thrive on low-interest rates.

If this happens, while oil prices remain subdued, the fund could be hit twice:

  • First, with oil-related income trickling to a halt. We are already seeing some evidence that capital inflows into the fund have fallen off sharply, injecting only NOK 17 billion in the first half of 2015 versus an average of NOK 60 billion per quarter.  Norges Bank started selling NOK 700 million per day in foreign exchange since September, covering the oil revenue shortfalls deposited into The Fund. In October, they made their first purchase of NOK, covering the government’s budget deficit.
  • Second, if The Fund’s net asset value (NAV) drops. Much of it could just evaporate while policy makers sit and wait for the future. This would drastically change sentiment, leading to the feared massive deleveraging. The Fund declined in value by NOK 53 billion (around $6.7 billion) in Q2-2015.

Proactively Stabilize the Economy

The Norwegian government has the opportunity, money, and intellectual resources to engineer a “soft landing.” They can deflate the economy, in a controllable manner, to sustainable levels. By allowing bankruptcy, forgiving debt, they could bring down housing prices to ones associated with higher interest rates. This would quell potential run-away inflation, encouraging savings while reducing consumer debt. The banks, regulated by the government, through aggressive advertising, encouraged the public to borrow beyond their means.  The government should be leading the effort, working with the banks, taking them over as needed, solving the problem before reaching a crisis point. Taking money out of housing encourages growth in other sectors. When people are not overly indebted, they tend to get creative, opening businesses, driving new industries.

The Fund, while high, should be used to invent a new economy, an industrial level alternative to making holes in the ocean floor. Walter Qvam, Kongsberg Gruppen CEO, stated that Norway must re-invent itself, inviting Guy Kawasaki to challenge their thinking. Kawasaki stated that Norway should think of itself as an energy nation instead of an oil one. Hence, they should be solving energy problems instead of just pumping and selling oil.

The Next Big Thing

After securing the population from a near-term crisis, Norway should do something big. Hydropower supplies 99% of Norwegian electricity. However, instead of exporting oil, they could export sustainable and green power generation solutions. Thorium nuclear power will take the country to the next level, ensuring their wealth for future generations. Thorium is abundant in Norway, holding 15% of the world supply. It cannot be weaponized. It produces less waste than Uranium while having a higher melting point, making it less prone to meltdown. The reactors can be mounted on ships, making them portable. Moreover, the excess heat can be used to safely desalinize ocean water (just like US Navy nuclear ships and submarines), refilling drought-stricken areas. Hence, they would also be solving the world’s fresh water problems. Offshore drilling and shipping industry knowledge could be leveraged, building this new industry, in the same manner as Kongsberg converted mining expertise into weapons manufacturing 200 years ago.

Making “killer apps”, hosting servers or fishing will not compensate enough for the declining oil industry. Despite conventional wisdom, the IT sector, although important and an economic driver does not actually contribute significantly to GDP. It is a necessary industry, but it cannot support an economy alone. For example, although growing fast, IT is only 6-7% of the Indian economy. The number for the USA is similar. Software and systems engineering enables other industries, making them more competitive, rather than an industry in of itself. IT has made manufacturing, agriculture, services and retail more efficient. Improvements in those industries significantly add to the GDP.

Conclusion

As long as Norway is a “one-trick pony,” depending on oil for the majority of prosperity, we should be concerned. The threats to offshore oil by new technologies and changing supply and demand fundamentals are very real.  Jerome Vitenberg was right back in 2013. Today we can see that the crisis is already unfolding. The exchange rate against most currencies has fallen, almost collapsing against the US dollar. The immigration and employment supports for housing are weakening, and the central bank, using rate cuts, is desperately trying to prop up the housing market. They are muting the effects for now, but production and employment fundamentals will eventually prevail.

From eye level, walking the streets of Oslo, most are not feeling it. Norwegians earn in Kroner and spend in the same. In other countries, it is felt more because they borrow in one currency, Swiss Francs or Euro, then pay back in their local currency, getting hit hard when exchange rates move against them.  Nevertheless, many think, deep down, that something is wrong but unwilling to discuss it.  Others still say everything will be ok because of the “rainy day fund.”

All signs point to a fundamental change. Cutting interest rates and drawing from The Fund (around $827 billion) to meet budgetary shortfalls does not solve the underlying issues.  It may actually make or even exacerbate an eventual crisis, boosting borrowing in an already over-leveraged economy.  No one warns you the day before a crisis. In fact, they tell you that it has “never been better.” Sitting on a pile of cash, mostly invested into stock and bonds, tied to a more unified international economy, driven on debt, while global fundamentals deteriorate, is somewhat irresponsible. It is time for Norwegian policy makers to step-up, doing more than manage.  More importantly, the people living, voting and paying taxes in Norway should demand more honest talk from their politicians. They must demand leadership.

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Alexander Grover
Alexander Grover is an American Nuclear Engineer and Business graduate. He served in the US Navy and formerly worked for a top US Wall Street Firm. He is the Author of two books and writes regularly for the financial commentary and analysis website, Seeking Alpha.
  • Steven Simonsen

    There are many things one can say about this article, amongst others:

    If the oil price is USD 50, we will continue to have oil industri for a long time, thus most oil-related jobs will continue to be occupied.
    Why – because the oil industry has a long planning period, construction period etc – so when they actually start producing oil and gas a large portion of the cost is allready sunk – project cost, constructing rigs, getting them in place, all the paper work. To actually run them cost way less then USD 50. Thus all that is in production, and most of the projects allready decided on will go on as before.
    What we will see is that new activity in form of exploiting new areas etc will decline.But people working on rigs, on vessles supporting them, onshore people involved in running the operations will continue for many years. Thus only a limited portion of the oil industry is at risk so far. Also most people will keep their jobs – as will the vast majority of those that does not work in the oil industry.

    The oil price is low, but F/X rate is high. Since oil revenues are in USD, the relative NOK value decreases less than the price of oil. As an example – at USD 100 a barrel, with a USD/NOK rate at 6, we will get NOK 600 pr barrel. If the price is USD 50, but the exchange rate is 8 (currently 8,3) we will get NOK 400 a barrel. As will our government wealth fund increase in NOK value.

    The article seems to indicate that 30% of Oslo’s population is high paid, highly skilled foreign oil workers. Stavanger is the oil capital of Norway and host the wast majority of foreign highly skilled oil workers. Some of them will loose their job, not all. However the majority, in particual those working offshore, are Norwegians, still highly paid, and still in work for many years to come.

    Out of the 30% living in Oslo – most are here to stay for ever – they have left Asian, African or low income European countries and being unemployed in Norway is still better than being employed in most parts of the world. Not to mention that they have nothing to return to – many of them being refugees or having lived her for many years allready.

    We also have quite a few “guest workers” in Oslo – in general low or medium educated Swedes – working in bars, shops, and just about everywhere, these and construction workers from Poland and the Baltics are more likely to move back – provided that there is a better alternative for them elsewhere.

    However the foundation of the article also seem to indicate that we at the same time will have a general economic crisis and thus the value of the Fund will decline substantially in value. It is not unlikely that we will have a more stress scenario in the world economic. But in general economic theory a large fall in share values will lead the money to be invested elsewere – called bonds – so the increased value of the bonds will pick up some of the decline in stock prises – and do we really believe that all shares will be valued at zero? If 50% or so of the Fund will loose 50% of its value – it is still 75% left (+ whatever the increased value of the bonds). What then happens is that the Fund increases its portfolio of shares – as it mandate stipulates it to re-balance the portfolio. When the stock market again rises the fund will have more shares – purchased at a low value and will thus come of more wealthy than ever.

    And we will use many decades to spend all of the Fund – as there is a policy of not spending more than 4% of the Funds value. So far we have rearely spent 4%, for 2015 it was around 3%. All years since the establishment in about 2002 we have out more money into the Fund than what has been taken out. Next year might be an exception.

    The last several years the governments has avoided spending oil money in order not to overheat the economy. Having a minor crisis is a golden oppertunity for any government to spend money on their pet projects and gain political support for spening money as well. Allready the maintanance programs for schools, hospitals, roads, railway, enviroment etc seems to be increased – and thus it will keep the unemployment rate low.

    It is not that many years ago we had oil prices below USD 10 (1980-s)- oil was produced, people kept their jobs etc.

    So yes – we will eventually run out of oil, and there is a definite shift in the oil industry – but show me a country that is better equipped to handle such a transformation? And if there is global economic decline – it will not last for ever – and I will definetly feel more secure living in a country that can run several years with absolutely not public income, than in countries that are more or less in debt all ready.

    Appologies for my English, and sorry that I do not dicuss all issues in detail, and thanks to those that read this far…

    • Alex

      In response, adding more insight:

      I moved to Norway two and one-half years ago from the USA,
      gained skilled employment as an IT manager, took 300 hours of Norwegian
      language and social studies (completing my requirements for long-term
      immigration). I dutifully paid my taxes, giving me a voice and say. I am even
      for the NRK TV tax and believe in high consumption taxes, keeping the
      environment clean and the people healthy.

      I really like it here and plan to settle, taking the
      Norwegian passport, giving up my US one. Hence, I embrace the system and do not
      want to see my benefits or privileged lifestyle taken away. I like having a
      strong NOK, giving me purchase-power when I go abroad, reaping the fruits of my
      labor. However, that does not mean that I should be a “good guest” and just
      keep “drinking
      the kool-aid” served by Norge’s Banks, Stortinget and the mainstream media.

      Norway has to make a decision soon to keep the system in a
      sustainable state. They must raise either revenues or cut spending, otherwise
      run deficits that will require drawing down the pension fund. This
      is already predicted to happen very soon! Moreover, it cannot be assumed that
      The Fund will always go up. It recently had
      a monthly loss. Drawdowns can go on
      for a long time. It is a rich economy afterall. However, losing the forward
      momentum will change perception. I like feeling good and confident, not
      cautious and pessimistic. Therefore, I prefer they look to raise revenue,
      keeping our standard of living intact.

      The offshore oil industry, from my understanding, can even run
      at $40 per barrel, but the state
      budget requires around $70 per barrel to balance. $40 oil would mean substantial
      cuts to employment, which in turn would lead to drops in tax revenue and
      consumer demand. Life would go on, but
      it would not be as good. Then to avoid a currency crisis, which
      the PM already warned, requires raising rates, further hindering consumer
      spending, especially housing. The possibility of oil going
      below $30 is very real. Fracking
      has not been fully realized, especially outside the US. $50 is expected to
      be the new high, not low. Moreover, US
      oil reserves, with new technology, have never been higher.

      The statistic about Oslo’s population being 30% immigration was
      not meant to imply that they all work in the oil industry. It was meant to show
      that they compose a substantial part of overall employment and demand. Immigrants
      come to a country seeking a better life than what they had before. If Norway can’t
      offer a better life, they will look elsewhere. This article about rates of
      change rather than the static situation. It is about extending the developments
      of the last few quarters to the next few years.
      Many of the immigrants who are here will stay, but we will not get the
      new ones needed to keep the growth and appreciation going. If the momentum in immigration is lost, it
      will show up in home rental and purchase demand. We are already seeing telltale signs of a real
      estate slow down.

      If the government “invests” the fund into a new industry
      versus “spends” it on running costs, they will create the right kind of inflation,
      controlling future outcomes. They will be decided the future with a loaded
      wallet, not responding to a crisis with a half-empty one.

      Just like fatty acids, there are good
      and bad types of inflation. Low currency creates supply side inflation
      where, regardless of the economy, the price of goods go up because most of them
      are imported. Spending on a new economy and infrastructure, improves efficiency
      and creates a new revenue stream, creating jobs which creates demand side
      inflation, which can be controlled with higher interest rates.

      Reference Links:

      http://www.urbandictionary.com/define.php?term=drink+the+kool-aid

      http://www.bloomberg.com/news/articles/2015-10-05/norway-seen-plundering-its-wealth-fund-to-ward-off-oil-risks

      http://www.bloomberg.com/news/articles/2015-08-27/norway-s-wealth-fund-lost-more-than-5-in-past-month-ceo-says

      http://www.bloomberg.com/news/articles/2015-10-03/weak-norwegian-krone-only-offers-short-term-help-solberg-says

      http://www.bloomberg.com/news/articles/2015-09-11/-20-oil-possible-for-goldman-as-forecasts-cut-on-growing-glut

      https://theconversation.com/low-oil-prices-are-here-to-stay-as-the-us-shale-oil-revolution-goes-global-48100

      http://www.forbes.com/sites/judeclemente/2015/04/02/u-s-oil-reserves-resources-and-unlimited-future-supply/

      http://www.dn.no/privat/2015/10/06/0841/Boligmarkedet/eiendomsmeglere-frre-folk-p-visning-n-enn-tidligere

      http://www.economicshelp.org/blog/2656/inflation/different-types-of-inflation/

      • Steven Simonsen

        Seems like we agree on many items, but we may have a different understanding of the timeframe/severety.

        Yes, we will run out of oil, the price might stay low (but more steam in India and/or China – or other economies, might change this again). As a result we need to change to other things than oil related industries – and we will. The Norwegian has a rather long tradition in changes – especially in the western part.

        It is also true that in order to keep the economy growing we need to import more people – as do most of the Western world. Japan may go from 120 mill to 90 mill in a few decades. Likewise China will have huge generation problem due to its one child policy, and a preference for boys… Why do Germany embrace refugees? Due to moral conscious – and also because they need more workers to keep the economy going. And even if the once that come may not prove to have the right skills, they will be able to work as unskilled labour, whilst their children will get the relevant education and thus provide what is needed… It will be the same in Norway.

        The real estate market in Norway cannot continue to grow into heaven, and we are observing a decline in real estate values around Stavanger and a stagnation most other places – but still the prices has increased substantially in Oslo in 2015.

        If there is a global economic crisis I am not at all concerned that skilled labour will flee Norway, because there is nowhere else to flee that will be better off – and where they will be welcome.

        If there is just an “oil crisis” relevant oil labour might go elsewhere – which is natural. But again most are Norwegians and will stay – and they can be retrained, and fitted into new industries. I agree that it is very important to focus on the transformation from being a large oil exporter to new industries. If you have listened to the politicians they have taken a note of this as well. They – and the industry as such will have to transform regardless if they like or not.

        If one take into account the large differences with us coming from a rich country and those less fortunate – it might be an illusion that we will be able to keep all our “goodies” within welfare etc. The world will – and should – level out. It can be down by us lowering our standards – or at least slowing the move forward in order for more to catch up. And more and more people do catch up – look at China and Brazil – a lot of people have entered into the middle classes. This will continue.

        The oil revenue fund – with Norway being at a slower pace (I will not call it even a mild crisis so far – but there are some warning flags waving in front of us) – the Minister of Finance proposed to use 2.8% of its value in the Norwegian economy for 2016. In % less than the year before, in NOK more than ever. The value of the fund will shift from day to day, and month to month, and year to year – assuming one does not put in or take out any money. Why – because of fluctuations in the underlying value, and in the exchange rate. But even if the value changes the fund will have income – interest on the bonds, dividends from the shares, and rent from the real estate. It may not become as high as the 4% as previously stipulated – but 2-3% is realistic for quite some time – if measured over 5-10 year periods. So even if we run at the same pace as today – the annual gain from the investments – not the oil – will keep the budget more or less in place – as of today. and as the share prices fluctuate we will automatically re-allocate more funds to shares, and when the share prices rise again – we will again have a substantial increase in its value – as we have had before.

        All in all – today’s situation is a “breather”. Stop running a bit, breath, consider where to go next. This is healthy from a national perspective (but naturally a potential personal disaster for those that loose their jobs etc). All economies does this – some with more success than others. US being a rather good example – and Japan being a rather bad one – for the time being…

        • Alex

          I think its risky to take assumptions for 10 years on a majority of assets that you don’t have controlling interest. I will share something with you that I learned in my Norwegian course. It was an American company that did not give up, making the dream a reality. Perhaps, once again, our persistence will benefit.

          • Steven Simonsen

            The fund does not have 10 year horizon. The fund has eternity as horizon for their investments – since there are no owners it needs to pay (regular) dividend to. The owner puts in money and may take out money, and from time to time adjust the mandate, but the fund will still invest with an eternity as horizon. In other words it will not try to maximize an investment in say a 10 year period. The strategy of having small parts of companies instead of a controlling interest is due to the strategy of diversification and also it takes of lots of resources assuming you would want to add something as an owner, and basically it does not believe it can run Apple, Exxon, GE or IBM. If they are not satisfied they may sell off. Being a majority owner also means that it is hard to sell on a rainy day, as it will move the market price. It does however take a stand in some ethical questions, in transparency and corporate governance.

            We are indeed lucky we had (and still have I believe) Philips. Also we had luck with an Iranian fellow who basically set up the structure whereas Norway owns its own oil resources instead of selling it off once and for all, they established a government owned oil company – Statoil, and eventually the government wealth fund.

            I still maintain my main argument – I’d rather still be in a country with a fund, then without, but one can always discuss how to maximize the benefits of such structure…

          • Alex

            I would rather be here too, but vigorously participating in the building of the new industry rather than watch “them” try to figure out what to do next. I work next to Aker Solutins and Statoil in Fornebu. The buses are not as crowded as they used to be. We need to advocate for investment, building the future, rather than prolonged spending, gradually lowering our standard of living, when paradigm shift takes full effect.

          • Steven Simonsen

            I understand that the busses are not as crowded as they used to be – and that is natural in a down period. And I agree we need to figure out what to do next. But that will take time. We have had “low” oil price for a year. We will probably have it for several years, but shifting to a new industry takes even longer…

            And meanwhile – just this morning it was announced another billion NOK contract to a Norwegian ship yard in order to construct part of an oil rig that is to be used at an offshore oil field – Johan Sverdrup – that has not yet started to produce anything. Which goes to prove my point that we will continue to produce oil, even if USD 50 is the new high – for a while – exploring new options will be pushed out in time.