Break Points: An Urgent Update

One day, a few years before Dad passed away, we took a long walk while we debated the critical break points that could change the course of history.

And last month, I identified several more. Some of those have come to pass. And some are now upon us:

Iraq is tumbling headlong toward a full-scale civil war. The Palestinian crisis has exploded. The bird flu is spreading with surprising speed. And natural resources are getting ready to surge again.

Each of these is related to the powerful, underlying forces that Larry told you about yesterday too many people on Earth vying for too few resources.

Each has untold consequences for investors. And each mandates your urgent attention …

Break Point #1
The Iraqi Civil War

This conflict is not just about one country or one time. It threatens to drag most of the region into violence … disrupt Persian Gulf shipping lanes … shut down some of the worlds largest oil production facilities … and change the course of economic history for the entire globe.

And it didnt begin yesterday. Month after month, weve been warning you about Iraqs sickening slide into civil war, hoping wed be wrong, praying that reason would prevail over hatred.

Unfortunately, however, the latest events are telling us that the only prayers answered so far are those by the zealots and fanatics:

Al Qaeda of Mesopotamia, seeking to transform the civil war into a launching pad for worldwide terror …
Iraqs Shiite rulers, turning a blind eye to Shiite death squads …

And now, this week …

Iraqs Sunni insurgents, who have bombed the sacred Golden Dome Mosque in Samarra, near Baghdad.

The Bombing of the Golden Dome Mosque Could
Go Down in History as One of the Most
Damaging Events of the Entire Iraqi Conflict!

Why is this break point so critical?

Because the mosque contains the tombs of two revered imams, considered by Shiites to be among the successors of the Prophet Muhammad.

Because, for most Shiites, the bombing of the Golden Dome Mosque is the last straw. Its the tipping point that threatens to transform a mostly patient, passive, Shiite population into uncontrollable, often violent mobs.

Because, in the last 24 hours, Shiites have already retaliated, with dozens of attacks on Sunni mosques, and with over 100 people killed in revenge attacks.

Because the bombing of the Golden Dome Mosque is not just an affront to the Shiite majority in Iraq. Its also viewed as a direct attack on the millions of Shiites in Iran and Yemen, where they constitute the largest single ethnic group … and to the millions more in Saudi Arabia, Qatar, Kuwait and the United Arab Emirates, where there are large Shiite minorities.

And because all of these countries also happen to be among the largest producers of petroleum in the world.

That alone connects the dots from this conflict to the gas station near you.

Juan Cole, a University of Michigan professor of Middle Eastern and South Asian history, agrees. In an interview with Metro Times, he puts it this way.

There is a problem, and I don’t think people have any idea how much of a tightrope we’re walking in the Gulf region. If Iraq did go to a conventional civil war; if it drew Iran, Saudi Arabia, Jordan, Syria, Turkey into it; if you have generalized guerrilla war among countries; and if they started hitting pipelines the way they’re hitting pipelines in Iraq, you could really send the world into another Great Depression.

Our view: Long before a decline in the economy, youd first see a massive explosion in the price of oil, gold and virtually every other commodity.

But this is just one of the break points we described here in our Money and Markets of January 9. Here are some of the others, with an update on each:

Break Point #2
The Rise of Hamas
In Palestinian Elections

What we wrote in January:

The armed Palestinian terrorist group Hamas has emerged as a leading political force …

Most worrisome of all for American efforts in the region, Hamas is also the organization with the most direct financial support from Iran …

Right now, Palestinians are campaigning for legislative elections on January 25, and those elections are expected to swing heavily toward Hamas candidates.

At the very minimum, that would be the coup de grace for the already-dying road map for peace. At worst, it could be the spark of an outright war between Israel and a new, Hamas-influenced Palestinian Authority.

Mark January 25 on your calendar … the elections could be another major break point in the chaos now spreading throughout the region.

The outcome: Worse than we feared. A landslide for Hamas. A new Hamas-controlled Palestinian Authority. And the road map for peace? Dead.

Latest events: Retaliation by Israel freezing large cash payments owed to the Palestinian Authority.

Coming soon: More sanctions by Israel and Western powers, further enraging already-angry Arab and Muslim populations around the globe.

Possible consequence: War.

The first fighting would be between Hamas and Israel. But later it could escalate into a broader conflict, involving Iran and the United States.

Hamas already receives financial aid from Iran, and last week Hamas officials went to Tehran asking for more.

But Irans support for Hamas would be just one of the reasons for a war with Iran. There are also three other rationales:

Irans nuclear showdown with the West,
Irans growing, heavy influence over Iraqs leaders, and
Irans outrage about the plight of their fellow Shiites throughout Iraq, especially in the wake of Golden Dome Mosque bombing.

Only time will tell what the next phase will bring. But one thing is certain: The worlds most sought-after commodity crude oil is going to be caught in the fray.

Your actions:

Keep a big chunk of your money tucked away in Treasury bills or money market funds investing exclusively in short-term Treasuries and equivalent. Example: The Weiss Treasury Only Money Market Fund (800-814-3045).

Stick with energy-based investments like Enerplus (ERF) or energy-heavy mutual funds. And for funds you can afford to risk, seriously consider going for the 16-to-1 profits that are possible with long-term options on undervalued oil companies. (Call 877-719-3477 for more information.)

Break Point #3
Avian Flu Pandemic

Our analysis in January:

The break point that could spark a worldwide pandemic will come when the most deadly strain of the avian flu virus, known as H5N1, develops the capacity to transmit itself from human to human.

Fortunately, this has not yet happened. But it will. Its only a question of when. … Scientists agree that the fateful day is approaching. When it comes, investors, heretofore oblivious to the threat, will suddenly wake up to its economic consequences.

Result: Panicky explosions in the price of agricultural commodities [and] an even greater flight to gold …

Latest events: The advance of the disease has caught health experts by surprise. They expected it would be slow, like in Asia, where it lingered for years. Instead, its spreading like wildfire in the Middle East, South Asia, Africa and Europe, with at least 15 countries now reporting outbreaks.

Coming soon: Avian flu in North American birds and poultry.

Biggest danger: One individual anywhere on the globe perhaps in sub-Saharan Africa, perhaps in India catches both the seasonal influenza virus and the avian flu virus at approximately the same time. The two viruses exchange genetic material. A new, human-to-human contagion is born. And the pandemic begins.

Your action: Read Larry Edelsons latest report right away. Then, stay in touch.

A few hours from now, I will be meeting with the Weiss Group Avian Flu Task Force here at our headquarters in Jupiter, Florida. We have two goals:

Goal #1. To establish a contingency plan for the Weiss Group, including work-at-home systems to guarantee continuing operations during a pandemic.

Goal #2. To develop a special free publication to share with you information about our own steps toward better preparedness … and to help keep you up to date on any financial implications.

At our meeting this afternoon, we will take thorough notes. I will review them this weekend. And Ill give you the details first thing Monday morning. In the meantime, I urge you to read Larry Edelsons latest report detailing the investment dangers and opportunities he sees right now, before a pandemic begins.

Break Point #4
Golds Next New High

Our analysis in January:

Gold reflects all these crises … Once the yellow metal blasted through the critical barrier of $500 per ounce, the die was cast …

Last week, it challenged its quarter-century highs. In the weeks ahead, it could blow right through them.

The outcome: Gold surged through its 25-year highs and beyond, opening up a new phase in its bull market.

Seans latest analysis:

First, world events are driving money into gold. Just look at the action in the streetTRACKS Gold Trust (GLD)! This exchange-traded fund was launched in November of 2004. By the end of 2005, its assets swelled to $4.9 billion. And just recently, the trust announced its assets had ballooned to more than $6 billion.

Second, investors are buying the yellow metal fearing that inflation is rearing its ugly head. Gasoline rose 6.4% in the past month, and crude oil surged 9%, with much of that coming in the past few days as rebel attacks knock out a fifth of Nigerias crude oil production. But those pale compared to the price of gold, which is up 28% in the past month.

Third, gold demand is rising. We saw some weakening in fourth-quarter demand for gold as high prices and volatility scared some investors to the sidelines. But year-on-year physical demand is roaring up 7% to 3,754.3 metric tonnes, according to the World Gold Council. In dollar terms, demand jumped over 16% to $53.6 billion, a new record. And nothing outpaced investment demand up a scorching hot 26%.

(For the full details, dont miss Seans latest update.)

Your action: Stick with the gold investments weve been talking about here, including GLD, the DWS Gold Fund (SCGDX), US Globals World Precious Minerals Fund (UNWPX), and others.

Plus, be sure to get a copy of Seans Great Gold Rush of 2006. Todays your last day to purchase and download it.

Good luck and God bless!

Martin

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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