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Iraq’s Dinar: Still Stuck in the Wild West of Currencies


Published February 22, 2012

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While most investors realize Iraq is still a dangerous place to travel to, they may not fully grasp the financial risks tied to trading in the nation’s currency, the dinar.

Worried about the dinar’s illiquidity, the threat of currency fraud and still-unstable situation in Iraq, Wells Fargo (WFC) issued a warning this week urging investors to steer clear of the currency.

“Considering that Iraq remains a dangerous place with an uncertain future, we strongly advise investors against taking the risk of buying Iraqi dinar as an investment,” Paul Christopher, chief international investment strategist at Wells Fargo Advisors, wrote in a note in response to investor curiosity about the currency.

Introduced as Iraq’s new currency in 2004 after the fall of Saddam Hussein’s regime, the dinar, which recently traded at about 1,165 dinar per U.S. dollar, is still only available in paper form because most U.S. banks decline to deal it.

That means the dinar is still very much a part of the Wild West of the currency world, an area most investors should probably avoid funneling money to. 

Yet investors are clearly curious about the dinar, largely because of yet-to-be-realized hopes that the Iraqi Central Bank will revalue the currency by resetting its exchange rate at a more favorable value. They point to similar economic rebounds and currency revaluations in West Germany after World War II and in Kuwait after Saddam’s 1991 invasion.

Yet Christopher spells out four main risks to buying into the dinar now: the threat of future violence in Iraq, illiquidity, risk of fraud and historical precedent.

While Iraq has clearly made great political strides in recent years, the political unity between Iraq's three competing ethnic groups remains extremely fragile. Plus, foreign influence, especially from that of Iran, threatens to further inflame political tensions. 

“Iraq’s post-war experience shows much stronger ethnic divisions than was the case in Germany or Kuwait, prior to their currency revaluation,” Christopher wrote. “While the economy grapples with violence, the prospect of a currency revaluation seems remote.”

But even if the political and violence situations didn’t cast a pall over the dinar, the illiquid nature of the currency makes investment impractical.

Because few of the world’s banks outside the Middle East work with Iraqi banks, most investors are forced to buy actual physical dinar banknotes (rather than the electronic form of the currency like a euro investor would). Dealers in banknotes charge customers for the cost of shipping, handling and buying/selling the dinar in a wholesale market, Christopher said.

“The costs for buying or selling the dinar may absorb most or even all of an investor’s return,” Christopher said.

Without any banks to work with, investors in the Iraqi dinar are often forced to work with Internet trading companies and potentially shady dinar dealers that aren’t closely regulated by the U.S. government. That leaves investors open to the risk of fraud.

Christopher pointed to the fact that the Iraqi dinar trade ranked No. 6 on the Utah Department of Commerce’s list of top 10 frauds of 2006.

“We suggest many [currency] recommendations that we believe have much less liquidity, fraud and principal risk,” Christopher said.

  You're looking at 16 of the most unusual minerals in the world.

     They may not look like much, but without them, you can say goodbye to the modern way of life.

     No more flat screens... no more computer hard drives... no fiber-optic cables... no digital cameras... no MRI machines. No more satellites... no more GPS.

     They're called the "rare earths" -- a collection of chemical elements clustered at the bottom of the periodic table.

     Here's a peek at a few of these freakishly useful elements and what they do for us...
Neodymium makes the strongest magnets in the world.  It's in every iPod Apple makes. Neodymium now fetches $105 per kilogram, twice what it did last year... and five times its price in 2009.
Cerium is used in catalytic converters to lower CO2 emissions. It is also vital for flat screen televisions, PCs and smart phones. Its price has tripled since last year.
Lanthanum is crucial for wind turbines, hybrid-car batteries, disk drives and guided missiles. The price is up +511% since last August.
Then there's gallium, which converts electricity to light in LEDs... gadolinium, used for lasers and computer memories... and thulium, necessary for portable X-ray machines.

     I'm not going into detail on every rare earth element here. Suffice it to say that there's a lot of money in these little-known minerals. The battery in the new Nissan Leaf costs $15,500 -- and without rare earth minerals, you won't be able to buy it at any price.

     Considering how vital they are to our national security and way of life, you'd think the United States would have a deep strategic reserve of these metals.

     You'd be wrong. We barely produce any at all.

     Instead, China is responsible for an astounding 97% of the world's rare earth production.

     And Beijing is getting stingy about sharing with the rest of the world. For the past 10 years, China has been tightening its grip... allowing fewer and fewer supplies into the market.

     Late last year they announced they would stop exporting rare earths altogether. After an international outcry, China backed off, but the noose is tightening. Last month, China's Commerce Ministry announced plans to slash shipment quotas by 35% in the first half of 2011.

     Needless to say, China's hoarding has pushed prices sharply higher. Neodymium has more than doubled over the past three months alone. Samarium has jumped +1,697% since last year.

     I think we'll see even worse supply bottlenecks going forward.

     China has ambitious green energy initiatives and will always give preference to its own manufacturers.

     General Electric has already shifted its wind turbine manufacturing from the U.S. to China to ensure access to rare earth supplies.

     What's more, China's own rare-earth supplies are dwindling. China has already mined 65% of its largest reserve, the Bayan Obo mine in Inner Mongolia.

     If the supply from China is dwindling even as the world demands more of these metals... the supply-demand crunch is obvious.

     The race is on by non-Chinese companies to develop new rare earth resources and get them to eager buyers.

     The metals are out there. In fact, nearly two-thirds of known reserves are outside China.

     If you're the kind of investor who looks for the big scores... the kind that could set you up for years... this is where you need to be looking.

     One of my top choices is a mine in California. It owns one of the largest rare earth deposits on the planet. It's a rich one too -- with some ore body concentrations more than double those of Bayan Obo. That gives the firm a huge edge in terms of costs.

     Last quarter, it sold 1.2 million pounds of oxides, up from 800,000 a year before. Better still, the average sales price has tripled from $2.45 per pound to $7.31. As a result, revenues skyrocketed +329%.

     How much of an upside do you have in this stock? I'm not putting a limit on it. When raw materials are jumping by 1,000%, as we've seen happen already with these must-have minerals, there's no reason the stocks can't do the same.

     But take care. There are a lot of fledgling start-ups jumping into the rare earth gold rush that you'd be wise to avoid. I've sifted through two dozen of the new crop and picked out my few favorites in The Most Promising Rare Earth Metals for Investors. You can get a free copy right now.

     Look at these nine widely used rare earth metals. Their prices are soaring in a way that you rarely see anywhere.
hina may produce 97% of all rare earth oxides. That's not because China has a resource monopoly -- it just happens to have almost all of the world's operating rare mines.

     As you can see below, more than half the world's deposits are outside of China. So there are plenty of rare earth oxides -- we just need to mine them.

China's Rare-Earth Supplies Are Actually Dwindling

     China has already mined 65% of its largest reserve, the Bayan Obo mine in Inner Mongolia.

     If the supply from China - which controls 97% of the market for rare-earth minerals-- is dwindling even as the world demands more of these metals... the supply-demand crunch is obvious.

Source: Lynas Corp

The Oil of the 21st Century

     No other metal in the world can do what this one does. It's light enough to float on water and soft enough to be cut with a knife.

     Industry is willing to pay hundreds of millions a year for these eccentricities... because it is a key ingredient in everything from pharmaceuticals to rocket fuel.

     It's a lubricant, a propellant, and a nuclear reactor coolant. It's also found in fireworks, airplanes, glass cookware and even medicine cabinets to treat bipolar disorder.

     But its real magic is that, pound for pound, this featherweight metal can store more electric energy than just about any other material. That has made lithium the battery maker's best friend.

     Rechargeable lithium-ion batteries have twice the energy density of yesterday's outdated nickel-cadmium technology. So they are becoming mandatory in everyday products from digital cameras to portable video game consoles.

     You've probably got some lithium within reach right now. If you own an iPad, iPod, or iPhone, you definitely do.

     But electronic gadgets aren't why I'm so excited by lithium.

     The real action is in cars -- electric cars to be specific.

     President Obama wants to put one million electric cars on the road by 2015, and 10 times that amount by 2018. The government is bankrolling the transition with some heavy incentive dollars.

      By July of last year, more than 3 million hybrid electric vehicles had been sold around the world.

     GM is going electric with the Volt. Ford is planning a battery-powered car based on the Focus. And of course Toyota has the Prius... Honda the Insight... and Nissan the Leaf.

     But the big winners aren't the car makers. I'm looking at another way to make even more money from the transition to battery-power.

     The epicenter of this profit play is 4,630 miles from Detroit in a windswept desert in Chile. It holds the world's largest deposits of this rare metal needed in every new electric car rolling off the assembly line. It's the Saudi Arabia of lithium.

Why Even Higher Lithium Prices Are Coming

     We're at an interesting junction in terms of the big picture for lithium investors. Here's why...

     As you've probably noticed, gas prices are creeping back up again. In San Francisco, premium was selling for $4.25 a gallon last week.

     Oil analysts are predicting that crude oil prices will return to their old record of $147 a barrel later this year -- and eventually go much higher.

     The last time crude oil prices went through the roof like this, something remarkable happened: Lithium stocks went crazy.

Rockwood Holdings - Up +497% in eight months
First Lithium Resources - Up +1,250% in nine months
Rodina Minerals - Up +1,420% in nine months
American Lithium - Up +761% in five months
Lithium One - Up +3,217% in nine months.

     The oil-lithium connection is obvious. When gas prices get too high, drivers gravitate toward hybrid and electric vehicles. Every one of which is powered by a lithium-ion battery.

     So if you get into lithium stocks before oil makes a big run, your profits can be epic. If you had invested $25,000 into Lithium One at the right time, just nine months later you could have been sitting on $829,250!

     Now I don't expect you to get in right at the bottom and sell right at the top. But with moves this dramatic you don't need to.

How I'm Playing This

     As we see the return of higher oil prices, I bet we're going to see a second opportunity for spectacular lithium profits.

     There is no direct play on lithium itself. There are no lithium trading pits, no futures contracts, and no way to take physical possession. The metal is so volatile that it's stored under a protective coating of petroleum jelly.

     So I'm simply buying the world's #1 miner of the stuff. Because it is always sunny and dry in the Chilean desert, this company can operate year-round while its competitors must shut down their plants in bad weather.

     Even better, its ore is extremely concentrated. So it can produce lithium at a cost of $1.10 a kilogram. That's 33% lower than one rival and 55% lower than another. That is undoubtedly part of the reason its stock is up +429% in the past five years.

     There's a lot more I'd like to tell you about this great company. Rather than go on and on right now, I've put everything you need to know in a report I just released. It's called The 3 Biggest Supply and Demand Crunches on the Planet. It gives you my overview of the lithium industry... why I think lithium prices will continue to soar... and the name and symbol of my top pick in this arena. 

30x Rarer Than Gold

     If you think gold is rare, think about platinum for a minute. You could fit all the platinum ever mined into a racquetball court.

     The stuff is 30 times rarer than gold in nature. And it's a real headache to mine. It takes 12 million tons of raw ore to produce a single ounce of this metal.

     But miners keep digging because platinum is so critical to so many industries. The metal is extremely hard, non-corrosive and highly conductive. It's perfect for products ranging from disk drives to fiber-optic cables to LCD displays.

     But above all, we need it for catalytic converters. Millions of internal combustion engines would spew tons of noxious pollutants without these miraculous devices. Platinum group metals are the catalyzing agent -- and try as they might, automakers have never found a substitute.

     Unlike many metals, there is almost zero above-ground supply of platinum. In 2008, the world consumed 7.3 million ounces of platinum but produced just 7.0 million ounces.

    Problem is, there aren't any new discoveries to boost the supply. South Africa (which produces most of the world's platinum) saw output dip -1.6% last year.
Carmakers aren't the only buyers standing in line for more platinum.

     Demand from the jewelry industry spiked +40% last year. Investors are piling in too, putting even more pressure on the metal. Less than a year after it launched, the new platinum ETF had already attracted $800 million in assets.

     Against this backdrop, I've found a platinum miner that's in a fantastic position.
It's sitting on the highest-grade ore body on the planet -- and it's right in our own backyard. This 28-mile stretch of Montana is a treasure trove of rich deposits. And it carries none of the risk of South Africa.

     The company sold 516,000 ounces of platinum and its close cousin palladium last year. And it extracted it at an average cost of just $360 per ounce -- a healthy margin considering the company collected $644 per ounce from buyers.

     Revenues jumped nearly +60% last quarter. I expect profits to jump more than fivefold this year and then almost double again next year. With 20 million ounces in reserve, the well isn't running dry anytime soon.

     You've got three major catalysts working in your favor with this stock: dwindling Russian stockpiles, surging auto sales in emerging markets, and a possible merger with a major shareholder.

     I go into the full story in my report The 3 Biggest Supply and Demand Crunches on the Planet. But more on that later...

Silver Scarcity Play: Better than Gold?

      Mention precious metals and gold springs to mind. I'm all for owning gold. But when the precious metals run, silver ultimately tends to rise more than gold.

     In fact, silver usually climbs twice as high as gold during a bull market in precious metals. True to form, it's doing twice as well this time, too.

     Unlike gold, silver has a host of critical industrial uses.

     It has the highest electrical conductivity of any element so it is ideal for electrical contacts and conductors. It's also needed in mirrors, disinfectants and microbiocides.

     So silver users can't simply stop buying when prices get high. They have to keep on buying. And silver inventories are critically low right now.

     Silver has more than doubled in the past 12 months... but I think it has a long way to go yet.

     The last time it started a run-up in conditions like this, it soared +1,435%.

     The gold market is also sending off bullish signals for silver. Gold has historically traded at around 16 times the price of silver. Logical enough, since silver is about 16 times more common than gold.

     That means with gold at $1,400, silver should cost around $87 ($1,400 ÷ $16). But silver now trades at $32 an ounce. That means silver will almost give you a triple from here if historical norms hold.

     I just wrote up my favorite way to profit from silver in a new report, Better Than Gold. I'm dying to send you a copy. It won't cost you a penny, either. But before I get to that...

Will You Be Making Money When Oil Hits $150?

     You can debate peak oil all you want. But you can't argue that the world is growing more oil-hungry every year.

     In just 150 years we have burned through oil reserves that took millions of years to form.

     The last truly huge discoveries occurred in the 1970s. In 2003 the top 10 oil companies spent $8 billion on exploration, but found less than $4 billion of oil and gas.

     By 2015 the global economy will need an additional 18 million barrels per day.
According to the U.S. Energy Information Administration, our energy needs will soar a staggering +54% by 2025.

      In 25 years, the world will need the equivalent of five new Saudi Arabias to meet demand.

Source: GEBWEB

     Where will this extra oil come from?     

     That's the problem. It won't come.

     Output from aging conventional oil fields is declining by 4% to 6% a year. The world's wells are running dry and they are already pumping at capacity. What's more, for the first time ever, Saudi officials have admitted that OPEC will not be able to meet Western oil demand in 10 to 15 years.

     Oil prices have risen over +200% since 2004, but oil production last year was about the same as it was in 2004. Normally, a large rise in prices would mean much more oil produced. That didn't happen.

We're Seeing the Consequences Right Now

      John Hofmeister, ex-president of Shell Oil, says we're looking at $5 a gallon gas in 2012.

     Says the ex-Shell president: "We're right back to where we were in 2007 and 2008, in terms of U.S. demand. What's different this time, however, is that Asia's demand is much, much higher than two years ago. And the world is having a very difficult time getting past 85 million barrels-a-day of production."

     "In the U.S., we use 20 million barrels a day. We produce about seven. We're going to produce about six a year, year-and-a-half from now. That means we have to import more oil, while the whole rest of the world is also importing oil. It's going to put tremendous upside pressure on the crude oil price."

     I agree with Hofmeister. The last time I was bullish about this sector was in March 2009 -- right after the price of oil bottomed out at about $30 per barrel. I urged my readers to "back up the truck" on Conoco Phillips. Today that stock has already delivered a gain of 115.2%.

     I've written up my favorite ways to profit from this move in my new report, 3 Best Stocks to Own if Oil Hits $150. It's another one of the series of reports that I'm sharing with you today.

Why Should You Listen to Me?

     I'm obviously bullish on natural resource stocks right now.

     But why should you listen to me?

     Good question. I suggest you ask the investors I've been advising for the past 15 years.

     Most know me as the editor of StreetAuthority's flagship Market Advisor service. This letter's "Top Growth Picks" portfolio has tripled the S&P 500 since it started in 2002.

     Here's what some subscribers have had to say about me:

     Besides that, my natural resource picks have blown everything else away...

At the end of 2009, I went out on a limb and chose my single top pick for 2010. I picked a silver producer then trading at $17.40. It's currently at $42.89, for a gain of +146.5%.
Last July, I singled out a platinum and palladium producer as my Stock of the Month. It was selling at $13.19. It's already almost doubled, now trading at $24.93, up +89.0%.
On August 7th, I sent out a bulletin called "Whatever you do, buy this fund." I singled out a global commodity fund then trading at $37.72. It's already at $53.16, a gain of +40.9%.
This past October, I told my clients about a commodity that "could be the oil of the 21st Century." My featured pick has since jumped from $18.44 to $23.55 -- up +27.7%.
In early September, I added a big Australian miner to my real-money portfolio. On February 15 it reported a +71.5% jump in profits, thanks to record prices for iron ore, copper and other metals. My shares are now up +35.0% in a few weeks.
Last November, I picked "The One ETF to own for 2011." I featured an agriculture ETF, which has since climbed +21% in three months.
On January 28th, I told my subscribers about a new oil play that could be bigger than Alaska. Every stock I recommended is already up nicely -- some by double-digits in less than three weeks.

     Right now, I have 10 resource stocks in my Market Advisor portfolio. Even though I bought most of them less than a year ago, they are up an average of +49.0%.

     That +49% gain actually understates the gains my readers have been making in commodities... because it doesn't include the resource stocks I've recently sold.

     Here are a few that I closed out last year alone....

SOLD: Silver Wheaton for a +106.4% profit...
SOLD: Kinder Morgan Energy for an +86.6% gain...
SOLD: Magellan Midstream for a total return of +119.4%...
SOLD: PetroChina for a +107.4% gain...
SOLD: MV Gold Miners for a +125.3% gain in six months.

     ETFs are a great way to focus in on and profit from specific natural resources...

A silver ETF I recommended 15 months ago is now up +80.0%
An oil and gas exploration ETF I recommended 24 months ago is now up +115.8%
A hard asset ETF I recommended 24 months ago is up +98.3%
An energy ETF I recommended 24 months ago is now up +152.3%
A water ETF I recommended 24 months ago is now up +96.1%
Another energy ETF I recommended 24 months ago is now up +152.3%
Another water ETF I bought 24 months ago is now up +80.6%
A third energy ETF I recommended 24 months ago is now up +121.7%
A Canadian gold fund I recommended 22 months ago is now up +71.2%
An Australian resource ETF I recommended 23 months ago is now up +120.0%

Let Me Give You All My Current Recommendations -- Now

     I've tried to present the facts as I see them today.

     There's nothing fancy about my premise. It's basic Economics 101.

     When the world wants more of something -- and there is already less than enough to go around -- the smart thing is to be on the selling side of the equation.

     That means throwing your lot in with the suppliers and buying natural resource stocks now.

     With so many forces converging to drive commodities higher, this is an almost effortless way to invest. When you get the big picture right, profits follow like day follows night.

     After all... it's not just surging demand in the developing world... or a growing scarcity of easy to access supplies. It's not just the decline in the U.S. dollar. Resource stocks aren't just an inflation hedge or a bet on global political instability. Rather, it's all these things.

     Demand for every critical resource in the world is growing faster than supplies. Emerging nations are already using more than half the world's resources. And their per capita consumption is still a fraction of what we use in the West. Imagine how hard prices will be squeezed as their use approaches ours!

     Bottom line: Companies that can deliver the raw goods the world so desperately needs will enjoy constantly rising revenues -- and their stock prices will go along for the ride.

     If you have any discretionary capital at all, I'm convinced that investing in the right resource stocks now will make you more money in the coming decade than you'll make anywhere else.

     I'm not just talking about stocks that outpace the market by a point or two. In Scarcity & Real Wealth, we'll be digging for real life-changers. They're out there, in droves.

     Over 75 natural resource stocks in Canada, Australia and the U.S. have shot up 10-to-1 in the past year alone.

     Look at how these mining and energy stocks have moved in the past 12 months:

Source: Bloomberg


Tradestar Resources is up +2,430%...
Exploration Orbite VSPA is up +2,300%
China Opportunity is up +2,200%
Tamija Gold & Diamond is up +2,080%
Great Quest Metals is up +2,000%
Eagleford Energy is up +1,980%...

     ... and so on down the list.