Let's point out the obvious, when SWFs (no, that's not your next date) invest in the US by buying real esatate or stakes in financial companies which need infusions of cash to maintain liquidity ratios, they aren't protecting themselves from US dollar exposure, at least not directly.

Yes, a stake in Morgan Stanley is (probably, and only probably) worth more than holding some structured debt obligations (SDOs) Morgan Stanley sold you, but it isn't the same thing as reducing dollar risk. Reducing dollar risk would be if SWFs took their trillions of US dollars and started getting rid of them, buying up other currencies.

The problem with that, as we all know, is that it would precipitate a crash in the value of the dollar and because they own so many dollars, they couldn't sell fast enough to outrun the crash and would probably wind up losing more from dollar devaluation than they'd save in whatever they managed to offload before the crash started.

Which is why you hear everyone and their mother talking about "rebalancing" their portfolios, which is fund manager for "edging towards the door slowly, hoping not to set off a panic that will trample me to death."

Buying up shares in US companies now is either about trying to buy when things are cheap or it's about trying to prop up the US financial industry so it doesn't collapse. I'd say it's more of the second than the first, because if you want to buy cheap, there are good odds there will be better opportunities down the line -- this financial crisis hasn't played out yet. But when you're a big player it's not just about guessing what the future holds, it's a question of asking yourself "what can I do to change that future to one better for me?" And if you run a SWF you've got to figure that anything you can do to keep the US financial sector from collapsing, which you know will shortly be followed by a dollar rout, you have to do. So sure, you can pick up some shares in various financial firms and other assets for less than you could have last year, but that's not really what this is about. Instead your key motivation is keeping the value of your current assets--still mostly dollar denominated, from crashing out with the US economy.

Sovereign Wealth Funds will grab what they can while it's cheap, but their main goal isn't that, their main goal is to make sure US assets don't get too cheap, because if they do, most of their holdings will be at cents to the dollar--if they aren't already, which they may well be.

Central governments are responsible for the US dollar having not taken a precipitous plunge in the early 2000's, they are now doing what they can, through the SWFs they control, to try and stave it off one more time. The dollars they hold are worthless if the system that printed the dollars (the Fed, Fannie and Freddie, Wall Street) goes under, so they're doing what they can to keep that system's head above water.

We'll see if they succeed. If they do, it winds up looking like a bottom fishing expedition that went well. If they don't, a lot of the nominal value on their books will go away anyway. So they've got nothing to lose by trying.