This is D-Day for Iran — the day of deadline … debate … decision … and soon, potentially disastrous consequences.
Iran’s deadline to freeze its nuclear enrichment is today. Today is also when the UN’s atomic energy watchdog reports on Iran to the UN Security Council, and the Council begins what’s likely to be a heated session on sanctions.
But already, even before the session opens, the scathing and venomous verbal attacks are flying on both sides:
- On Wednesday, Iranian President Mahmoud Ahmadinejad vowed to resist any UN Security Council appeal for a halt to the Islamic republic’s nuclear program. “We won’t back down one iota on our lawful and inalienable rights,†he declared in defiance of the UN just 48 hours before the deadline.
- Also on Wednesday, the British Ambassador to the U.N. announced that Britain and France will jointly submit a legally binding draft resolution calling on Iran to stop its uranium enrichment activities as early as May 2.
- Yesterday, Iran’s official press weighed in, attacking the U.N. the U.S., beating their chest with this inflammatory statement: “America shouldn’t forget that the suspension of uranium enrichment is impossible … any violation towards Iran will meet with Iran’s firm and decisive reaction.â€
Clearly, the drumbeat of war with Iran is quickening. And equally clear is the fact that the impact on your money could be dramatic.
This week, oil prices have paused temporarily, giving new investors a brief, fleeting time window to take advantage of the continuing surge in oil and other natural resources. But it won’t last for long.
No Waiting.
No Turning Back.
No Easy Escape Hatch.
Until recently, most U.S. diplomats and military strategists thought they had the luxury of time to resolve the Iran crisis.
No more. Now, a consensus is building that time is running out far more quickly than anyone had anticipated.
Richard Armitage, the Deputy Secretary of State in President Bush’s first term, believes a covert nuclear program is well under way.
Meir Dagan, the head of Israeli Intelligence, says Iran is close to the “point of no return — one to two years away, at the latest, from having enough enriched uranium for a bomb.â€
Even Iran’s president Mahmoud Ahmadinejad has declared that Iran is an “atomic state,†boasting of advanced enrichment technology that was likely shipped to Iran by Abdul Qadeer Khan.
Khan was the man who ran Pakistan’s nuclear program, successfully tested its bomb in 1998, and then became a national hero, worshipped by Pakistanis of all ages.
But he will be most remembered as the man who spread nuclear technology to more rogue states than any other person in history, especially, it seems, to Iran.
Now he’s in jail. But it’s too late. Everything indicates that Iran already has, or can easily buy, nearly everything it needs to make the ultimate weapon of mass destruction.
Pre-Emptive Strikes
Now in the Works
U.S. officials are talking diplomacy. But they’re thinking military action.
The only major question: By whom? The U.S. or Israel?
Back in June of 1981, when it was feared Saddam Hussein was developing the capability to build a nuclear weapon, Israel launched a preemptive attack and destroyed Iraq’s nuclear reactor in Osirak.
The Israelis said they had no choice. They could not tolerate the bomb in the hands of Saddam Hussein.
Then, three years and thirty-five days ago, on March 20, 2003, the U.S. invaded Iraq based on a similar war cry against the same madman. And …
Today, we face another lunatic in the same region, but with some key differences:
Key Difference #1.
Saddam’s Weapons Were Primitive.
Iran’s Are Far More Advanced.
Iran has up to 550 missiles with a range of 200 to 1,300 miles, capable of hitting virtually any target in the Middle East and beyond.
Iran also has chemical weapons, according to U.S. officials, including the ability to produce 1,000 metric tons of sarin gas, mustard gas, phosgene, and hydrocyanic acid per year.
Most important, Iran has at least 23 sites dedicated to nuclear technology: Its own uranium mines in Nargan, Saghand and Zarigan … purification and enrichment sites in Arak, Darkhovin, Ardakan, Fasa, and Natanz … nuclear reactors, weapons development facilities, plasma physics centers, and more. Not even in his wildest fantasies did Saddam come close to this level of weapons development.
Key Difference #2.
Saddam’s Terror Was Mostly Domestic.
Iran’s Is Mostly International.
Iran’s operatives have far more influence in the region than Saddam’s even dreamed of having.
They’re all over Iraq, directly supporting the leading Shiite politicians, including Jawad al-Maliki, just appointed premier this past Friday. They’re embedded in embassies throughout the Middle East and the world. And they have a quarter-century history of terrorism in Lebanon, the Palestinian territories and other hot spots of the Muslim world.
Key Difference #3.
Saddam Had Little Hope of Ever
Dominating the Arab World.
Iran, in Contrast, Has The Mission to
Become THE Power of the Muslim World.
To achieve this goal, their vision is to cause a chain of Shiite revolutions in Muslem countries with Shiite majorities or pluralities … support the rise of fundamentalist Islamic states all the way from West Africa to Southeast Asia, and … unite hundreds of millions of people under the single-minded goal of rejecting Western culture, values and hegemony.
In sum,
Iran is the WMD-armed, rogue, terrorist state Iraq turned out not to be. So while U.S. officials give lip service to diplomatic solutions, they’re dusting off contingency plans for a preemptive attack on Iran’s nuclear facilities.
Four Very Likely
Consequences
Consequence #1. $100 crude oil — or more. Although Iran’s oil output has been declining, it can still sustain production of about 4 million barrels per day. Even if Iran merely threatens to withdraw some of that oil from the world market, the impact on prices is bound to be explosive.
Consequence #2. Worldwide scarcity of natural gas. Iran has the second-largest natural gas reserves in the world — an estimated 940 trillion cubic feet. That’s more than all the natural gas in the U.S. and Canada combined. So any conflict with Iran is bound to ricochet back through the various natural gas markets around the world, helping to drive prices back toward their recent peaks.
Consequence #3. A vastly enlarged Iranian nuclear program. In the event of an attack on its nuclear facilities, Iran could argue that it now requires nuclear weapons to “guard against aggression†and “protect its sovereignty.†Result: It would withdraw from the Nuclear Nonproliferation Treaty, allocate even greater resources to its nuclear programs and greatly expand their scope.
Consequence #4. Counterattacks by Iran. Back in 1981, when Israel launched its preemptive attack against Iraq, Saddam Hussein was busy fighting his war with Iran and he lacked the military means to retaliate. In contrast, Iran is fully capable of launching a counter-attack. And Iranian leaders have already promised to do just that.
What to Do
First and foremost, pray that we’re wrong; that a diplomatic solution, however elusive, will be found … and will stick.
Second, make sure you’re fully prepared for a continuing escalation in the crisis.
That includes keeping a large chunk of your money out of harm’s way, in instruments like 3-month U.S. Treasury bills or money market funds dedicated to short-term Treasury bills and equivalent.
My favorite is the Weiss Treasury Only Money Market Fund. But before investing, be sure to check out others as well, using our list of recommended money funds.
Third, allocate a substantial allocation to investments likely to protect you from inflation or a falling dollar, such as:
- streetTRACKS Gold Reserve (GLD), the exchange-traded fund that’s based on gold,
- U.S. Global’s Global Resources Fund (PSPFX), consistently one of the top performing funds in its category, and
- Enerplus (ERF), our favorite Canadian royalty trust with a substantial interest in oil and natural gas properties.
Fourth, for funds you can afford to invest more aggressively, consider Larry’s strategy to control $193,000 worth of oil shares for just 3.2 cents on the dollar. On Monday he’s going out with his recommendations aiming for nearly $40,000 in profits. So if you’re interested, he needs to hear from you by this coming Sunday at the latest. (877-719-3477 for Larry’s latest report.)
New Explosions
In Geopolitics And
Major World Markets
by Larry Edelson
A loud explosion rocked my Bangkok hotel earlier this week.
My immediate thought: A terrorist attack.
So I hurriedly called the front desk, and they told me not to worry. “Everything’s fine,†they said. “It was just the gas tank in a taxi that blew up.â€
But I was curious, and I headed downstairs. Sure enough, the culprit was a taxi driver that had jury-rigged an extra gas tank in the trunk of his car.
This was nothing new to me. I started seeing these funky gas tanks a couple of years ago, and they’re now all over Asia.
Initially, it wasn’t so widespread. Independent cabbies were installing the extra tanks to increase their driving range and reduce the time lost in refueling.
But now a lot more people are doing it — and for another reason: To buy as much gas as possible before prices go higher. And like in the U.S., that’s something which is happening practically every day.
In a word, it’s hoarding. And soon, I suspect you’ll see the next phase: Long lines of cars at gas stations all over the globe as the energy crisis starts to go full tilt.
The Energy Crisis Is Here.
It’s Happening. And It’s
Going to Get Much Worse.
Oil retreated a bit this week in a continuing response to President Bush’s attempts to hold it down. But oil is still sitting firmly above its post-Katrina highs. Right now, we have:
- The greatest demand the world has ever seen …
- The tightest supplies ever, and …
- Most urgently, the geopolitics of oil, now sizzling in a frying pan.
Martin and I have told you about Iran. But also don’t forget …
Venezuela’s Hugo Chavez:
Proposing to Effectively Nationalize Foreign Oil
The Venezuelan Congress — made up almost entirely of Chavez’s cronies — is seriously considering slamming foreign oil companies with big increases in taxes and royalties.
That move could push international oil majors to leave the country … reduce the country’s oil production … put still more pressure on global supplies … and drive oil prices even higher.
The big problem: The new royalties and taxes would hit companies operating in the Orinoco River basin, Venezuela’s richest oil fields.
And we’re not talking about gradual increases: Chavez plans to jack up royalties to a whopping 30% from 17%. Meanwhile, he also wants to raise taxes to a mind-boggling 50% from 34%. Shocking!
Nor is Venezuela a small player. It’s the world’s fifth-largest oil exporter, holds the world’s biggest oil reserves outside the Middle East, and is the number three supplier of crude oil to the U.S.
Result: Chavez could put a second strangle hold on global oil supplies.
A Great, New Buying Opportunity
— Especially in the Silver Market
by Sean Brodrick
I’d wager there are veterans of the trading pit in New York who would rather be locked in solitary confinement with a serial killer than try to trade silver right now.
But why go crazy trading silver? Just investing in silver for the medium and long term can generate more than enough profits. So unless you like straight jackets, it’s not worth messing around with the short-term ups and downs. Plus, when others are afraid, that’s your opportunity.
In fact, just last week, I asked you to think about what you would buy when silver pulled back. Then, guess what: Silver pulled back.
But the sell-off hasn’t even dented the long-term uptrend for silver — and that means great buying opportunities are within reach.
The Silver ETF Cometh
Investment funds like to play it safe, and considering how the gold ETF is driving both price and demand for the yellow metal, it’s a safe bet the silver ETF will do the same. And they’re not just buying gold and silver: Fund investments in commodities will rise 38% this year to $110 billion, according to Barclays Capital.
The real question is what the silver ETF — and other sources of demand — will do for the price of silver longer term. I’ll get to that in a moment. But first, an update on …
The Silver Supply/Demand Squeeze
Last week, I told you how above-ground stockpiles of silver were dwindling, from over 220 BILLION ounces years ago to probably less than 300 million ounces today. I also told you that mining couldn’t keep up with new demand.
Now consider this: Despite rising prices, U.S. silver output keeps falling. The price of silver soared 30% in 2005, but U.S. mine output actually fell 2%.
And the rate of decline is getting worse:
- In December, U.S. mines produced 98,400 kilograms of silver — down 16% from a year earlier.
- In January, U.S. mine production of silver fell yet again, down 10% to 89,000 kilos, off a whopping 25% from a year earlier.
- February’s production numbers aren’t in yet. But what we do know is that U.S. silver exports fell 66.1% in February from January, and slipped 37.3% from a year earlier. That’s symptomatic of falling production, a surge in demand, or both.
Do you think, with silver prices soaring, that U.S. miners aren’t pulling out all the stops? Of course they are. At these prices, they want to get every last ounce they can to market. And yet production keeps falling!
Sure, there’s some new production coming online in other parts of the world — Mexico for example. But it’s just not enough. It can’t keep bridging the gap between accelerating demand and swooning production at the older mines.
As of 2004 (the most recent data), China had the world’s sixth largest silver reserves and was the world’s fourth largest silver producing country, churning out 63.4 million ounces annually. Although its production is fragmented — coming from a bunch of smaller mines — it grew rapidly in the 1990s.
Problem …
China’s Silver Consumption Is Growing
A Lot Faster Than Its Silver Demand
Chinese imports of silver were up 200% year-over-year in both January and February. So …
Soon — probably this year or next — China is going to become a net silver importer.
China’s silver consumption may rise 10% this year from 2,550 tons in 2005, according to China state analysts. That’s probably a low-ball forecast; it may have to be adjusted upwards mid-year. Plus …
Industrial Use of Silver
Is Booming in China
If you want to see heavy use of silver, go to China’s Jiangsu Province, a booming industrial center.
Just in January alone, and just in this one province, imports of silver surged to 25.5 tons — a nearly 20-fold increase over the year-earlier period.
Reason: To weld its electronic components in a way that meets EU standards, the electronics manufacturing industry in Jiangsu is switching from lead-bearing tin rods to silver-bearing tin rods.
Sound like an inconsequential change? Far from it: This single event in a far-away Chinese province can have a very noticeable impact on silver markets all over the world.
Newsflash: It’s not just China
China gets a lot of attention, but other nations are also doing their part to shift the precious metals sector into overdrive. Some prime examples:
India: The Securities and Exchange Board of India has already passed new regulations allowing mutual funds to launch precious metal ETFs. Indian mutual funds seem to have been caught flat-footed by the decision, but it’s only a matter of time before new silver and gold ETFs debut in India.
As in China, a growing middle class with a strong affinity to precious metals, is rushing to buy gold and silver in a myriad of forms.
Britain: The London Stock Exchange is introducing a silver ETF this month. Unlike the U.S. ETF, it won’t be backed by physical silver. Instead, it will track the price of silver using futures contracts. Still, it’s one more way people can trade silver, and, in my view, it can only add to demand.
Dubai: The Dubai Gold and Commodities Exchange (DGCX) introduced its silver futures contract on March 28. Since gold trading on the DGCX has taken off like a rocket, it wouldn’t be surprising to see silver do well, too.
It’s only fitting that Dubai have a silver contract because that’s where some of the staggering oil profits reaped by Persian Gulf countries are likely to go.
And the oil money is pouring in: Middle East oil exports hit $685 billion in 2005 — a 44% jump from 2004. And now in 2006, it’s even larger.
So the fat-cats of the Middle East are
- swimming in money, and, at the same time …
- terrified of Islamic revolution spilling over the border from Iraq or across the Strait of Hormuz from Iran.
Two Fast-Lane Vehicles
For the Silver and Gold Rush
Here are two funds I personally like:
American Century Global Gold Fund (BGEIX) is a no-load fund that has a total expense ratio of just 0.67% (less than half the category average). It’s up 11.2% in the last three months and 76.8% in the last year. Its portfolio is stuffed with gold companies, but many of them produce silver as well.
U.S. Global Investors World Precious Minerals (UNWPX) is another no-load fund. It has a total expense ratio of 1.48% and holds companies that produce not only gold, but also platinum and silver. It’s up 26.4% in three months and 98.99% in the past year. Wow.
Want More Leverage for
Money You Can Afford to Risk?
OK. For a modest $6,200, you can effectively control $193,000 in the shares of three major oil companies that we think are about to explode in value. That gives you some of the best leverage in the oil market you’ve ever seen or are ever likely to see.
Your potential gains: 591%, 682% and 1,163%.
Your risk: Strictly limited to your $6,200 investment plus any commissions you pay your broker. Never a penny more!
If you’re interested, call 877-719-3477 for more information.
Yours for trading profits,
Sean Brodrick
For more information and archived issues, visit http://legacy.weissinc.com.
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 Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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