News

JULY 7, 2010

A perspective , Good read

Comment – I thought it might be appropriate to talk about our investment at this time while the political mess unwinds itself. I know there are some of you out there that do not understand nor do you believe in the potential of what is happening to this investment. How is it that a currency can go from no value (no international value) to all of a sudden have a value worth many times our initial investment that is recognized worldwide. I ask you to consider the following:

First lets examine the down side of this investment as all investments have a down side. What we are invested in is the future democracy of Iraq through it’s currency. The reason we have been allowed to invest in this currency is because Geo. Bush gave us this right through legislation passed in 2003 that “allowed US citizens to invest in the future of Iraq”. At the time (2003) Geo. Bush also stated to the American people that “this is a war that will pay for itself”. Up until December 2008 any US bank that dealt in foreign currencies and wanted to participate could freely buy or sell Iraqi dinar to the public. Chase, Bank of America, Regents, Wachovia and Wells Fargo were just some of the banks that were dealing in Iraqi dinars. On the 20th of December 2008 almost all banks discontinued the sale of dinar at the same time under the interpretation of the US Treasury OFAC laws which states that any State or any organization, or individual deemed a hostile to the United States or any civilized western government, through money laundering or terrorism, or other activities deemed illegal, that the US government would not allow any business or any organization or bank to do business with. The OFAC list is universal and honored by almost all civilized western governments. Iraq remains on this list even today. This list is produced by the US Treasury and enforced by the US government. The muscle in Ofac is that if a country violates this law that the US will retaliate by not doing business with it and potentially exclude that country from the international banking system. The US has recently used this muscle with the Swiss bankers and as a result they are for the first time in their history releasing lists of US tax evaders to our IRS and Treasury departments. This same law still applies today and also applies to countries like Iran and North Korea. If you were to walk into a western bank today any where in the world, you could not purchase or sell these currencies under the OFAC law. This leaves only currency dealers like Dinar Trade, Safe Dinar and a handfull of other registered currency dealers with the ability to buy and sell dinars. Somehow they are able to operate outside of OFAC when dealing with Iraqi dinars. Today I bought another 1,250,000 dinars at a cost of $1349.00. The buy back is $880 per million dinars. This means my downside risk is 17%. My biggest risk is that Iraq will disintigrate from where it is to anarchy or there will be a secular civil war. I believe that the international community will not let this happen and I don’t believe Iraq will let this happen either. IMO there is just too much at stake as the future energy supplies are needed desperately because resources from countries such as Saudia Arabia and other oil producing nations are now and in the future going to be going down as the “easy” oil is depleted. What I bought today is the currency of a country sitting on an ocean of oil. A country that is economically on the rise. What I bought was currency from a country that is predicted by all to be the biggest producer of the most in demand product both now and for the next 20 years and again my downside risk IMO is only 17%. My personal belief is that this is a no brainer investment. I have made many investments in my life in stocks, land (most of which I’m still sitting on) and businesses. Many of which turned out to be bad with no bottom. All of you who have known me for a long time have heard me say at different times of my life, ” I would rather have the money I’ve invested and lost rather than the money I have. I would be better off”. With Iraqi dinars I feel that my investment is known, safe, and has a bottom while the upside potential is unlimited. So to me this is a once in a lifetime opportunity as an investment goes. In my lifetime I will never see this kind of investment opportunity again and I can assure you nether will you. If you are following this investment closely then you will agree with me. Iraqi dinars are not going down from here.

Since March 7th when Iraq held its’ elections all of us have been on hold. The elections were suppose to be held in January 2010 so it goes back even before March. The political mess has been less than interesting to me. I would just like to see them get settled. We are in month seven if you figure they should have held the elections in January and still do not have a clear resolution to this political mess. Seven months seems like a lifetime as we sit and wait. By now anybody following this closely has been brought to the point of utter frustration as each day of new meaningless meetings seem to drag one month into the next. I am hopeful that this process is coming to a close so that we can all move on from here. The UN is finally involved in a hands on way so there may be a light at the end of this tunnel and there is a backstop to this madness on July 14th, the constitutional deadline. Also the US is also now stepped in as Joe Biden and 4 congressmen are in Iraq as I write this on Sunday July 3rd, trying to urge the process along. Beyond July 14th Iraq runs the risk of the international community stepping in taking control again and solving this problem. If this scenario comes to pass that the UN has to take control of this situation then the outcome will once again be unknown to us as to the effect on our investment. Probably it will delay the change in monetary policy once again but for how long I don’t know. It will just have to play itself out. My belief is and has been that the outcome to this is a foregone conclusion and that the Iraqi’s will not and can ill afford to let it get to this point. They will form a government with assistance and without international interference, albeit last minute and very late.

I believe that the Iraq’s first attempt to revalue their currency was in Nov of 2009. Whatever shut this process down is and probably always will be unknown to us but the facts of November are what they are. The MOF in documents provided to us by Scooter stated that their intention was to have this done by the end of 2009. Then we have both the CBI and the MOF recently saying that they intended to do this on the last big holiday, Oct, Nov 2009. In Nov 2009 Forex’s starting in France and going across Europe showed one Iraqi dinar at $1.49 USD. This was the value as predicted by all at the time to come in at on about the value of the Euro. I have said on many occasions that yes the start date might have been an accident (somebody pushed the button to soon) as witnessed by the fact that the RV was shut down after 4 hours and reverted back to 1170 dinars per 1 USD. A total of 7 – 8 European sites came up showing this rate, $1.49. The fact is the rate was already loaded on the Forex systems. Forex does not make up the rate they trend it. It was scheduled to come out at $1.49, on or near the Euro value as predicted in Nov 2009. Today, 8 months later it is a different time and I believe now a different rate. One, the oil contracts are already in place to take Iraq to over 10 million barrels a day. If they never let anymore contracts out the 10 million barrels will still be there with the contracts that have already been let assuming no catastrophe. Two, the CBI has removed at least 70% of the liquidity in Iraq and surrounding countries or so they have stated. This was just confirmed in IMF documents in the last couple of days. Three, at the end of the year (2009) Iraq was producing approximately 1.5 million barrels per day and today they are producing 2.5 million. All of these facts mean if Iraq so decides to do it they can bring their currency out at a much higher level than last November. That is yet to be seen obviously but if the IMF allows Iraq to monetize the oil in the ground, and that is an IMF call, they are instantly a wealthy country. Iraq literarily is sitting on trillions and trillions of dollars in oil and gas with what conservatively today is called the second largest oil reserves in the world and at present the 10th largest gas reserves. When all is said and done IMO, Iraq will be first in both categories as they are just now starting to explore their oil potential. Remember Iraq has not done any true exploration since Saddam came to power. Also Iraq at present is burning off most of the gas due to lack of delivery systems. There are many who are now agreeing with Frank26 that Iraq will ultimately surprise us all with a higher rate than expected when they become international.

Why are currencies being adjusted all across the globe? When the G-20 met in 2008 one component on the agenda was to decide whether or not the IMF (a part of the UN) still had any capacity to play a useful role in monetary policy in the world given the current financial circumstances. Geo Bush was still in office at the time. It was decided during this meeting that yes, the IMF was important and was potentially the only organization who could make a difference in what was becoming an imbalanced world trade situation. The IMF needed to continue it’s mission but the mission would have to be refocused, strengthened and given teeth. It was obvious to the G-20 that the IMF would have to be reinforced with trillions in new money infused by all G-20 members and given broad new powers in order to readjust world currencies to level the playing field. China and a handful of other countries were and still are interfering with the global balance of payments system that had been in effect since just after World War II. China in particular is taking advantage of the system by keeping their currency at a rate that is far less than what is true value and is therefore placing themselves in an uncompetitive/unfair trade advantage over the rest of world. In essence China was and is sucking up all the money from Europe, the US and many parts of Asia with artificially low cost labor. This is precisely why we have become a debtor nation to China owing 800+ billion in USD that they are holding and 1.2 trillion in US Treasuries Notes they have purchased. If something is not done about raising the value of their currency and soon, you can bet either we will go broke as a nation or there will be a major trade war between the west and east. Europe is not far behind us as are most countries in Asia. China is finally starting to understand this and are beginning to join the world community having come to the realization that if your trading partners are broke, they no longer are going to be reliable trading partners. In addition China has yet to develop it’s domestic markets and cannot afford to have a trade war with the west. That would mean economic suicide for all. For the first time China has started to do something about the value of their currency. It remains to be seen how far they will go but I believe they will do a true revalue of their currency. China will be close but will never hit the mark. In other words China will raise the value of their currency some but not as much as the IMF (US) and the rest of the world would like in a continuing attempt to have an unfair trade advantage on the world. I don’t blame them. They are masters of this game. China is also leading the charge to knock the US out of the saddle as the world’s premier currency reserve but estimates by all experts say it will be at least 10 years before China is considered a reliable currency reserve or will have any real effect. China will eventually be a currency reserve as enjoyed by the Yen, Euro, USD and Sterling pound but now realize this will not happen anytime soon. So for now China is lobbying the IMF to change the makeup of currency reserves from USD to SDR’s but again this is not a concern today or for the foreseeable future. I can assure you that when the dinar revalues, all of China’s fears and concerns about the US Dollar will immediately go to the back burner for the foreseeable future. Until then China will continue to worry about the value of their USD.

Last Friday, I was asked about gold as an investment by JS a friend of the family. During this year in particular this question has been asked a lot. People are trying to figure out what do I do with money? Where do I put it that is safe? I get asked this question a lot because of the business I am in, …… Gold and Silver. I would say this to all. Gold is a hedge to economic insecurities, stress and problems. If all things were as they seem today I personally would buy gold but things are not always as they seem. Since the democrats took office, and maybe just before, the US government has been non stop printing USD. Everybody knows this and feels that there will be a price to pay at some point. Mostly out of fear gold has gone through the roof as of recent settling well over $1200.00 per ounce. This astronomical rise from $800 per once to where it is today is a direct result of both governments and individuals buying in the face of what we all know has to be a declining dollar. Gold is paired against the dollar as is all commodities and currencies. As the dollar goes down, gold will go up. As the dollar goes up gold goes down. As the dollar goes down oil and other currencies will go up. Almost 70% of all countries in the world hold their foreign currency reserves in US dollars. You can easily see how important the US dollar is to the stability in all facets of the world economy. If the USD drops in any significant way it will drag everyone else with it. If the dollar drops foreign currencies around the world will have to be adjusted down with it as they are backed in part by the US dollar in their foreign currency reserves. This is also why central banks have been buying gold out of fear of the US dollar. The USD is almost deemed too big, too important to fail. That is why the IMF is revaluing other currencies up against the US dollar in lieu of reducing the value of USD. This is why they have raised 11 currencies in the middle east and about 20 other currencies around the globe so far. It is why they have scheduled another 17 – 19 currencies to be raised this year. The world has over 100 different currencies that will be affected before this rebalancing of currencies is done. Back to gold. Both Gietner and Obama have stated they intend to balance the budget in the next 2 – 3 years. IMO the only thing that can possibly do this is the revaluing of the dinar. If the dinar revalued $1 – to $2.00 these statements would be close to accurate. First the USD would strengthen immediately. Gold which is based on the dollar would drop as the dollar went up. Currencies around the world would strengthen along with the USD they are holding in currency reserves gain in value. This is just the opposite of what we see is happening today. As fear of the dollar dropping threatens the system, gold is going up as are most hard assets. It is rumored that the US is the largest holder of Iraqi dinar outside of Iraq. If you google the US treasury and look under the category “Iraq”, it tells a story about the treasury doing an initial currency swap with Iraq to fund their government and Ministries. It does not say how much was swapped but does make reference to billions of USD traded to Iraq. Rumors of 747’s landing in DC with pallets of dinars persist. I have been all over the treasury site but they only list currency holdings of international currencies like the Euro and Yen. The initial value of the “new Iraqi dinar” was 4000 to 1 US Dollar and the rumors are that the US government received 4 trillion dinar or there abouts. If this is even close to true and Iraq revalues their currency 1 dollar to 1 dinar then George Bush’s statement of “this is a war that will pay for itself” will be true 10 times over. Gietner’s statement while doing the few “town hall meetings” he did, that “this government intends to balance the budget in three years” will also be true. You and I will become part of the spark that reignites the world economy as we squander our new found wealth. Governments around the world will at least temporarily be relieved of the stressful economic situation they are in as most western government have Iraqi dinars in their currency reserves. Gold will also drop because the global financial picture would stabilize and fear of value of the USD would dissipate. Both governments and individuals would stop buying gold as a hedge against “the dollar”. It would not be as important for governments to hoard gold as a reserve supporting their own currency. Most governments would ultimately begin to liquidate their positions in gold creating a glut on the markets. So one can assume that if Iraq revalues their currency gold will drop. Of course this senario is wholely dependent on the dinar revaluing. If it does not, I personally will load up on gold as the outcome of the world economy is dubious at this juncture. I hope this gives some insight on gold. Also when the Iraqi dinar revalues I suggest hold off buying gold until it finds it’s bottom. Then buy what you feel comfortable with. If you already own gold, you might consider selling upon the announcement of the revalue of Iraq. As you can see there is nothing simple or sure about world economics and all of the above is my simplified opinion only. But it appears to me that much of what is happening was foreseen and a plan was put in place in 2003 by much smarter, well informed people than you and I. IMO there is coming a new asset class to the world, Iraqi dinar.