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This is a defining event of our century. It challenges the very premise of democracy. It adds a new thrust to a chain of events thats transforming the Middle East, the Persian Gulf and the entire Muslim world. And these events threaten to drive oil prices skyward, simultaneously generating grave risks and great potential for investors. The Entire World Is in a State of Shock. The leading nations of the Western world didnt see this coming. They even financed and supervised the elections that, inadvertently, made this disaster possible. Now, theyre reeling in a state of confusion and shock. But as a reader of Money and Markets, you should not be surprised. Three weeks ago, in Break Points, I alerted you that the Palestinian elections would swing heavily toward Hamas candidates. I wrote:
Now it has happened. And we must recognize the likely outcomes: Likely outcome #1 Todays conflict between Israelis and Palestinians began when many of us were born, nearly six decades ago. Its presence has been so constant in our lives, we tend to forget its importance. We treat it like background noise in our day-to-day existence. But few other forms of complacency could be more dangerous. Indeed, theres a line of cause and effect that connects Israel and Palestine to some of the most explosive conflicts in the world today. For example … Irans nuclear ambitions: While Iran has defied the world by plowing ahead with its nuclear program, it has also been one of the leading financial sponsors of Hamas. And like Hamas, Irans new president questions the very existence of Israel. Israel, in turn, has threatened military action against Iran to destroy its nuclear capabilities. The war in Iraq: The conflict between Israel and Iraq goes back at least as far as the first years of Saddam Hussein. And although Saddam had no love for al Qaeda terrorists, he was always an ardent supporter of Palestinian terrorists. That was before and after the first Gulf war. Now, here we are, fighting a second, far more difficult, war. And just this weekend, a prominent Sunni leader in Iraq was among the very first in the Arab world to support Hamas. I bless Hamas and congratulate them for their great victory, he declared. Saudi Arabia a facade of power: Not long ago, the Soviet Union seemed stable; the iron curtain, unbreakable. But it was a fragile facade. After three generations of repression, Mikhail Gorbachev tinkered with democratic reforms and opened up a small fissure of tolerance that cracked the worlds largest nation. About a decade earlier, something similar happened this time in Iran. After years of iron-fisted rule, Mohammed Reza Pahlavi the Shah made a token effort to democratize the country. But he opened a leak in a dike of discontent. The discontent spurred a massive Shiite revolution. And that Shiite revolution continues to threaten the world today, this time with the prospect of future nuclear bombs. Saudi Arabia is not immune to a similar outcome. Indeed, when I look at Saudi Arabia today, I see the same fragile facade of stability that I saw in the final days of the Shah … during the last gasp of the Soviet empire … and in the surging popularity of Hamas earlier this month. Today, Saudi Arabia is a country thats torn between its hatred of Israel and its alliance with the United States. It is a nation of advanced technology … and a kingdom of public beheadings. Its a country of high-tech communications … and a haven for religious police. Yes, the Saudi royal family is soothing Western sensibilities with token steps towards so-called democratic reforms. But as in the late-day Soviet Union, as in pre-revolutionary Iran, and as in todays Gaza Strip, this apparent ray of hope could be a lighted match to a powder keg. The rise of Muslim fundamentalism: Many Westerners blame traditional Muslim beliefs for todays troubles. But traditional religion is not the issue. Rather …
Hamas is at the forefront of this ideology, and its conflict with Israel is at the symbolic core of fundamentalism in the entire Muslim world.
Thats why Mahmoud Zahar, a prominent Hamas leader, declared on Friday that they have no intention of doing anything of the kind … and why Khaled Meshal, the Hamas leader exiled in Syria, promised they would not disarm. And thats the reason I belive any escalation in the Israeli-Palestinian conflict is likely to inflame Islamic already-dangerous, on-going revolutions from the Western Sahara to eastern Indonesia. How do these dots connect to oil? Very simple: Likely outcome #2 The Persian Gulf including Iran, Iraq, Saudi Arabia and other oil-rich nations is the site of the worlds most dangerous fault line in this spreading conflict. And its also the site of nearly half the worlds oil reserves.
Iraq, already torn by war and civil strife, holds 7.5%. Qatar, the United Arab Emirates (UAE), and Oman have another 7.4%. And Saudi Arabia, the largest of them all, controls 17.1%. All told, thats 46.2% of the oil reserves on the planet. Nearly half of the worlds oil lies below the ground thats likely to be shaken by the political earthquakes Ive told you about this morning. The last time that we saw a major upheaval in the wake of the Iranian revolution crude oil surged to the equivalent of $91 per barrel in todays dollars. Now, any one of these tremors could shake the balance of supply and demand for oil in a similar way. They will disrupt production. They will hit transportation and sabotage key supply routes. And even before any of these events actually take place, they will drive oil markets as fearful investors begin to see the pattern Im outlining for you here: A new, worldwide, East-West conflict thats worse than the cold war. Likely outcome #3 The same political upheavals that are likely to drive up oil will also boost gold and silver.
This week, gold barely paused in its virtually non-stop blast-off to higher prices. Right now, its hovering near the $560 level amid widespread talk of an overdue correction. Granted, no market ever goes straight up, and sharp corrections are to be expected. But in the gold market, they have been and should continue to be buying opportunities. One sign of continuing power in these markets is how one precious metal leapfrogs the other.
The driver: The plan by Barclays Global Investors to introduce a new, exchange-traded fund (ETF) that invests in silver … plus news that its getting regulatory approval. The result: A spike in silver prices to levels not seen in over 19 years. Likely outcome #4 Since the first edition of Money and Markets months ago, we have warned you of the dangers and alerted you to the new opportunities. So if youve been reading our issues from the beginning, you got advance notice. If not, its not too late to protect your nest egg and make it grow. The boom in oil, gold, silver and other natural resources is still in its initial stages. Most of the profits to be made are still to come. And now … To help you ride the next wave, we have just launched Visit www.moneyandmarkets.com to get any issue you may have missed. Go there to read the current issue when youre away from home … or when your Internet service provider has failed to deliver it to you. Use our search function to find the specific information you feel you need right now. Or click over to Weiss Watchdog for a rating on your stocks, mutual funds, banks and insurers. Explore and you will find a wealth of investment ideas.
Every one of these natural resource investments has been surging virtually nonstop. Even Alcoa Aluminum, which had been beaten down in recent years, broke out of its downtrend and has been zigzagging higher ever since. On Friday, it closed at $31.30, up 8.7% for the week. Also dont miss the opportunity in Seans recent report, Chinas Biggest Investment of All, where he introduces you to iShares Brazil (EWZ), the exchange-traded fund based Today, iShares Brazil has literally gone through the roof, with no end in sight. I wouldnt chase it. But any dip could be a buying opportunity. These are just a few illustrations of the investment ideas and forecasts you can find right now at www.moneyandmarkets.com. Likely outcome #5: The Fed meets tomorrow to decide on its next rate hike. But the explosion in oil and other commodities is already far beyond its control. So even if the Fed decides not to raise its official rates this time around, bond investors, who abhor inflation, are bound to flee. End result: Falling bond prices and rising long-term interest rates. Moreover, as Saturdays Op-Ed in The New York Times points out, when the new Fed Chairman takes over next week, he will come face to face with economic monsters that are far more challenging than just the next interest rate decision: The huge budget deficit, the biggest U.S. trade deficit in history, spiraling federal spending, plus looming Medicare and pension disasters. To each of these, the natural government response is more supplies of money … and more fuel for inflation. Likely outcome #6: In my recent report, GM Headed for Bankruptcy, I warned you, with no punches pulled, what the final outcome of this crisis could be, and I told you how surging gas prices would play a pivotal role. Now, the company has just announced a staggering $8.5 billion in loss in 2005, its worst since 1992. But the pain does not end. With fuel prices rising again, its sales are on the verge of yet another, even steeper nosedive. But this isnt just about one company or even one industry, which leads me to … Likely outcome #7: Last week, the government surprised economists with the news that the nations GDP took a big hit in the fourth quarter mostly due to sinking auto sales, which was primarily due to higher energy costs, which, in turn, are about to be aggravated by spreading turmoil in the Middle East. See how the dots connect? Separately, more observers are finally coming around to our view that the housing boom is over, a bust could be getting under way, and it will be another big drag on the U.S. economy. Ironically, though, despite all this, Wall Street celebrated last week. They ignored Hamas, Iran and Iraq. They scoffed at rising oil prices, skyrocketing precious metals and inflation warnings. They ignored Detroits nightmare and pooh-poohed slumping housing. They even welcomed the weaker economy, viewing it as a sign that the Feds rate hikes might soon come to an end. My recommendations to them and to you: Take a Good, Hard Look Click over to …
| Photo 1 | Photo 2 | Photo 3 | Photo 4 | These images are my way of sharing with you my prayer for a better world. Despite any difficult challenges we may face, ultimately, I am confident we will survive and thrive. 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. 2006 by Weiss Research, Inc. All rights reserved. |
State of Shock
For the first time in history, a terrorist group, Hamas, has risen to power in a free election.
Thats why Hamas cannot abandon its charter that vows the destruction of Israel, as some observers are now hoping. 
Iran, now on a collision course with the West, has 7.8% of the worlds reserves. 
Investors run to precious metals to guard against the inevitable inflation that comes with surging energy costs. And they run even faster when the safety of their wealth is threatened.
This week, it was silvers turn: While gold was holding steady, silver was leaping higher, heading for $10 per ounce and beyond. 
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