Get Out of the Fool’s Game

Rodney Johnson | Tuesday, January 1, 2013 >>


Buy the Iraqi Dinar.

Right now.

You will make a 10,000% return. I promise.

Okay, okay. Strike that last part. As a matter of fact, strike it all.

Don’t by the Iraqi Dinar, don’t give your bank account number to an Ethiopian Prince trying to flee the country and don’t count on economic growth coming back with a vengeance. They are all pipe dreams and a great way to lose money.

You’re better than that and your money is worth conserving.

Buyer Beware

Right now there is a scam going around that has just enough elements of truth to be enticing. Of course, I’m talking about the Iraqi Dinar again. It is pegged at about 1,165 per U.S. dollar.

Yes, the country has experienced wild inflation which has recently subsided.

Yes, the country is growing its GDP, largely due to rising oil revenues as supply comes online.

Yes, the country will lop a few zeros off the currency to ease the burden of essentially carrying around millions of Dinars.

So when the country ends the “peg” of Dinars to U.S. dollars, won’t the Dinar fly in value?

Hmmm. Not so fast…

Risky Bet

Because Iraq’s main export is oil, an appreciating currency is a good thing. It means the state-owned asset is going up in value. However, it also means that foreign investment is more expensive, which deters foreign companies (like oil companies) from pouring more money into the economy.

At the same time, Iraq is always one step away from a major geopolitical terrorist attack that can, and probably will, disrupt its economic growth.

This knife’s edge of benefits and violence makes the entire gambit worth passing up.

And then there is the exchange market itself.

The Dinar is not traded on major exchanges in digital form, so investors must take physical delivery. When the new currency is issued, both will trade … for a while. Eventually holders of the old currency will be forced to sell to protect their value as that currency is retired.

Right now, when everything is supposed to be sunny, the spread between the bid and ask is about 20%. What happens when holders of the old currency are “required” to sell? The spread will open up like the Grand Canyon.

Stay away from this.

Slow Burn

The same can be said about the soothsayers that point to the developed world and tell us that things must be wonderful simply because we are not in chaos … yet.

Really?

Every major central bank on the planet is printing fiat money with abandon while forcibly holding interest rates at record lows — and that’s not chaos?

The cost of living goes up while the reward for working – wages – goes down. That’s not chaotic?

The populations of the developed world are moving toward retirement age at light speed, but there aren’t enough funds or workers to provide them with pension and health benefits — and that’s okay?

We don’t agree.

Simply because the train hasn’t yet jumped the tracks doesn’t mean the train is not out of control. There will be a train wreck, and as a writer in the Wall Street Journal said years ago, a train wreck in slow motion is still a train wreck.

Words of Wisdom

So our first piece of advice for 2013 is this: avoid the schemes and gimmicks that sound too good to be true. They’re exactly that.

Stick to the reality you see and comprehend with your own sound judgment. Prepare for the “what-could-be” while profiting from the “what-is” today. That’s what we do in our Boom & Bust portfolio and we enjoy streams of income and gains while also holding positions that will do well when things break apart. It’s not easy. It takes work. And that’s okay. It should leave you in a much better position than you would be at year’s end with a fist full of Dinars.

Happy New Year!

Rodney

 

 

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Categories: Purchasing Power

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.