The Biggest Threat to the Global Stock Markets that You Haven't Heard About Yet
Here is why you absolutely should consider the almost certain weakening of the dollar in the future regarding your stock investments. It’s the reason Warren Buffet just consummated the largest foreign investment deal in Israels’ history a U.S. $4,000,000,000 purchase of 80% of Iscar. The real tension right now between the U.S. and Iran, I believe, has little to do with Iran's nuclear enrichment program. I believe that Iran is probably is still years away from the development of tactical nuclear weapons and this whole “nuclear crisis” is a smoke screen for tense economic negotiations happening behind the scenes.
If there is one thing I learned from attending one of the best public policy graduate programs in the U.S., where I had the chance to hear former Secretaries of Defense and former Presidents speak, is that politics and economics are forever intertwined, and that the politics of war is never what it appears to be as presented to the public masses. So that’s why I think the nuclear tensions between the U.S. and Iraq are for the most part largely fabricated beyond reality and any military tension that exists is more likely due to the IOB and not to Iran’s alleged uranium enrichment program. Don’t get me wrong, it’s not that I believe Iran doesn’t have an uranium enrichment program. I just believe that the stage they are at in their program is a far different reality than what is being presented to us through the media. The real military tensions that exists, those between Israel and Iran, are hardly even discussed. And just a couple of days ago, on June 4th, Iranian leader Ayatollah Ali Khamenei said that the U.S. could ``seriously endanger energy flow in the region,'' supplier of about a quarter of the world's oil, by acting against Iran.
Ah yes, oil. This is what I believe is the true cause of tension between Iran and the U.S.- the I.O.B. or the international Iranian Oil Bourse. It is the first oil bourse in the world that plans to trade in a currency other than U.S. dollars, electing to trade in Euros.
The IOB already has the support of China, as well as prominent Latin American trading partners that are anti-American such as Venezuela. The IOB in fact would like to trade exclusively in Euros, not U.S. dollars. If this situation materializes, this could potentially spell disaster for the U.S. dollar and send it into free fall. I think a dollar crash is unlikely, but it is still possible over the next couple of years. What is more likely is a gradual steady decline in the dollar. Why? Right now, one reason every central foreign bank holds U.S. dollars is because they must buy oil in dollars. Every country in the world has to pay for oil in U.S. dollars, no ifs ands or buts. The IOB will change all this. This is a real threat as already foreign central banks all over the world are taking note.
The Financial Times reported this month that for THE FIRST TIME IN SIX MONTHS, central banks all over the world were net sellers of U.S. treasuries instead of net buyers. In March, Japan, the world largest holder of U.S. dollars, sold $18.2 billion worth of Treasuries. Sweden's central bank cut its dollar holdings in half, also in March. South Korea has also moved away from the dollar, diversifying its assets in foreign currencies.
Some people say Iran is not that big of a player in oil, so even if this situation materializes, it will not weaken the U.S. dollar that much. Iran accounted for 15% of all oil exports from the Middle East in 2003. But that’s the small picture. And 15% is still a significant chunk of Middle East exports. The big picture is what kind of domino effect the IOB might trigger. If Iran takes this bold stance, who will follow? Hugo Chavez in Venezuela, Evo Morales in Bolivia, China’s Hu Jintao? And if all these events happen, then what happens to the value of the dollar? That’s the big picture that I believe the U.S. is considering in their negotatios with Iran over the IOB, I mean, nuclear enrichment program.
The IOB was supposed to open in March but its opening has been delayed. Then it was supposed to open last month, and it was delayed again. Most likely due to behind the scenes negotiations between the U.S. and Iranian governments about the effect the IOB will have on the U.S. dollar. Ironically, the Federal Reserve in the U.S. reported that it will no longer report M3 figures anymore. M3 measures U.S. dollar supply and this figure is necessary to know how much foreign government holdings of U.S. dollars are decreasing or increasing. The Fed has reported the M3 supply for a long, long time. The IOB was supposed to also open in March though it didn't. You can interepret this how you want.
Already following Iran’s lead is Russia, or vice versa (I’m not positive which country introduced the concept of an oil bourse trading in foreign currency other than U.S. dollars). Russia is one of the world’s largest players in oil and gas. Why do you think last year that the most of the new billionaires on Forbe’s wealthiest people in the world list came from Russia. While most of the world ignored Russian oil stocks, many Russian oil stocks returned 300%, 500%, 1000% over the past several years. Gazprom is the largest natural gas company in the world. Russia's Gazprom is warning Europe that it will divert natural gas exports elsewhere if European governments don't allow the company to establish significant outposts inside their respective countries. And guess what? Russian President Putin has announced that his country will create an oil and gas bourse that will trade solely in roubles. This development is even more significant the the IOB.
If you need further proof that the dollar has a high probability of moving further downward, and perhaps significantly, besides all the world's central banks moving out of the dollar, look to the actions of two of the greatest individual investors of all time, Warren Buffet, George Soros, and one businessman, Bill Gates. All have been tremendously short against the dollar (billions of dollar worth) this year and continue to be. Although Soros and Buffet have been spectacularly wrong at times in their bets, in this case you’d not only be betting against them, but you’d be betting against the smartest bankers in the world, those responsible for the decisions at the world’s central banks, and you’d be betting that the huge trillion dollar U.S. trade deficit would suddenly disappear, and you’d be betting that world political stability would suddenly happen.
The IOB and the Russian oil bourse would mean that the world's central banks would no longer have to hold as many U.S. dollars as they currently are. If they chose to sell off U.S. dollars in larger quantities than they already have, the dollar could weaken sharply. Then finally take into account the U.S. federal reserve’s position. First of all there’s so much speculation right now about whether the feds will raise interest rates or not. They will. At least I believe that they almost have to. Rising interest rates protect a weakening U.S. dollar. Only problem is that for the massive U.S. trade deficit to close at all, the dollar will have to weaken not just a little bit more, but considerably.
So if the dollar weakens considerably, the U.S. feds will continue to rise interest rates, inflation will increase sharply, the rest of the world will continues to lose what little confidence they still have in the U.S. dollar, and one of the wisest investors on this earth,Warren Buffet, will start investing heavily outside of the United States into foreign markets. Oh, sorry, this last event has already occured.
So what does all of this all mean? Number one, if you hold lots of dollars, buy euros and an asian currency basket sometime in the near future. It will serve as nice hedge and should provide some decent gains over the next year.
This article may be freely reprinted on another website as long as it is not modified, changed, or altered in any way and as long as the below author byline is included along with the active hyperlink exactly as is.
J.S. Kim is the Managing Director of SmartKnowledgeU™. He has over thirteen years of experience in finance and financial services, and has earned a BA in Neurobiology from the University of Pennsylvania, a Master in Public Affairs from the University of Texas at Austin, and an MBA with a concentration in finance from the McCombs Business School, University of Texas at Austin. He is the inventor of the revolutionary MoneyPing™ investment strategies, a novel approach to learn how to build wealth, not just dreams.
Here is why you absolutely should consider the almost certain weakening of the dollar in the future regarding your stock investments. It’s the reason Warren Buffet just consummated the largest foreign investment deal in Israels’ history a U.S. $4,000,000,000 purchase of 80% of Iscar. The real tension right now between the U.S. and Iran, I believe, has little to do with Iran's nuclear enrichment program. I believe that Iran is probably is still years away from the development of tactical nuclear weapons and this whole “nuclear crisis” is a smoke screen for tense economic negotiations happening behind the scenes.
If there is one thing I learned from attending one of the best public policy graduate programs in the U.S., where I had the chance to hear former Secretaries of Defense and former Presidents speak, is that politics and economics are forever intertwined, and that the politics of war is never what it appears to be as presented to the public masses. So that’s why I think the nuclear tensions between the U.S. and Iraq are for the most part largely fabricated beyond reality and any military tension that exists is more likely due to the IOB and not to Iran’s alleged uranium enrichment program. Don’t get me wrong, it’s not that I believe Iran doesn’t have an uranium enrichment program. I just believe that the stage they are at in their program is a far different reality than what is being presented to us through the media. The real military tensions that exists, those between Israel and Iran, are hardly even discussed. And just a couple of days ago, on June 4th, Iranian leader Ayatollah Ali Khamenei said that the U.S. could ``seriously endanger energy flow in the region,'' supplier of about a quarter of the world's oil, by acting against Iran.
Ah yes, oil. This is what I believe is the true cause of tension between Iran and the U.S.- the I.O.B. or the international Iranian Oil Bourse. It is the first oil bourse in the world that plans to trade in a currency other than U.S. dollars, electing to trade in Euros.
The IOB already has the support of China, as well as prominent Latin American trading partners that are anti-American such as Venezuela. The IOB in fact would like to trade exclusively in Euros, not U.S. dollars. If this situation materializes, this could potentially spell disaster for the U.S. dollar and send it into free fall. I think a dollar crash is unlikely, but it is still possible over the next couple of years. What is more likely is a gradual steady decline in the dollar. Why? Right now, one reason every central foreign bank holds U.S. dollars is because they must buy oil in dollars. Every country in the world has to pay for oil in U.S. dollars, no ifs ands or buts. The IOB will change all this. This is a real threat as already foreign central banks all over the world are taking note.
The Financial Times reported this month that for THE FIRST TIME IN SIX MONTHS, central banks all over the world were net sellers of U.S. treasuries instead of net buyers. In March, Japan, the world largest holder of U.S. dollars, sold $18.2 billion worth of Treasuries. Sweden's central bank cut its dollar holdings in half, also in March. South Korea has also moved away from the dollar, diversifying its assets in foreign currencies.
Some people say Iran is not that big of a player in oil, so even if this situation materializes, it will not weaken the U.S. dollar that much. Iran accounted for 15% of all oil exports from the Middle East in 2003. But that’s the small picture. And 15% is still a significant chunk of Middle East exports. The big picture is what kind of domino effect the IOB might trigger. If Iran takes this bold stance, who will follow? Hugo Chavez in Venezuela, Evo Morales in Bolivia, China’s Hu Jintao? And if all these events happen, then what happens to the value of the dollar? That’s the big picture that I believe the U.S. is considering in their negotatios with Iran over the IOB, I mean, nuclear enrichment program.
The IOB was supposed to open in March but its opening has been delayed. Then it was supposed to open last month, and it was delayed again. Most likely due to behind the scenes negotiations between the U.S. and Iranian governments about the effect the IOB will have on the U.S. dollar. Ironically, the Federal Reserve in the U.S. reported that it will no longer report M3 figures anymore. M3 measures U.S. dollar supply and this figure is necessary to know how much foreign government holdings of U.S. dollars are decreasing or increasing. The Fed has reported the M3 supply for a long, long time. The IOB was supposed to also open in March though it didn't. You can interepret this how you want.
Already following Iran’s lead is Russia, or vice versa (I’m not positive which country introduced the concept of an oil bourse trading in foreign currency other than U.S. dollars). Russia is one of the world’s largest players in oil and gas. Why do you think last year that the most of the new billionaires on Forbe’s wealthiest people in the world list came from Russia. While most of the world ignored Russian oil stocks, many Russian oil stocks returned 300%, 500%, 1000% over the past several years. Gazprom is the largest natural gas company in the world. Russia's Gazprom is warning Europe that it will divert natural gas exports elsewhere if European governments don't allow the company to establish significant outposts inside their respective countries. And guess what? Russian President Putin has announced that his country will create an oil and gas bourse that will trade solely in roubles. This development is even more significant the the IOB.
If you need further proof that the dollar has a high probability of moving further downward, and perhaps significantly, besides all the world's central banks moving out of the dollar, look to the actions of two of the greatest individual investors of all time, Warren Buffet, George Soros, and one businessman, Bill Gates. All have been tremendously short against the dollar (billions of dollar worth) this year and continue to be. Although Soros and Buffet have been spectacularly wrong at times in their bets, in this case you’d not only be betting against them, but you’d be betting against the smartest bankers in the world, those responsible for the decisions at the world’s central banks, and you’d be betting that the huge trillion dollar U.S. trade deficit would suddenly disappear, and you’d be betting that world political stability would suddenly happen.
The IOB and the Russian oil bourse would mean that the world's central banks would no longer have to hold as many U.S. dollars as they currently are. If they chose to sell off U.S. dollars in larger quantities than they already have, the dollar could weaken sharply. Then finally take into account the U.S. federal reserve’s position. First of all there’s so much speculation right now about whether the feds will raise interest rates or not. They will. At least I believe that they almost have to. Rising interest rates protect a weakening U.S. dollar. Only problem is that for the massive U.S. trade deficit to close at all, the dollar will have to weaken not just a little bit more, but considerably.
So if the dollar weakens considerably, the U.S. feds will continue to rise interest rates, inflation will increase sharply, the rest of the world will continues to lose what little confidence they still have in the U.S. dollar, and one of the wisest investors on this earth,Warren Buffet, will start investing heavily outside of the United States into foreign markets. Oh, sorry, this last event has already occured.
So what does all of this all mean? Number one, if you hold lots of dollars, buy euros and an asian currency basket sometime in the near future. It will serve as nice hedge and should provide some decent gains over the next year.
This article may be freely reprinted on another website as long as it is not modified, changed, or altered in any way and as long as the below author byline is included along with the active hyperlink exactly as is.
J.S. Kim is the Managing Director of SmartKnowledgeU™. He has over thirteen years of experience in finance and financial services, and has earned a BA in Neurobiology from the University of Pennsylvania, a Master in Public Affairs from the University of Texas at Austin, and an MBA with a concentration in finance from the McCombs Business School, University of Texas at Austin. He is the inventor of the revolutionary MoneyPing™ investment strategies, a novel approach to learn how to build wealth, not just dreams.
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