Recently a discussion about the likelihood of a lop or an RV was held including dinar personalities like Tenmillion, JayP, Kaperoni, and Enorrste. During this discussion Enorrste, the biggest windbag in the dinar world in my opinion, broke down the math for Iraq's projected oil income. He was explaining that when Iraq reaches 5 million barrels a day in production their oil revenues are going to skyrocket to the point that they will easily be able to cover a $3 RV, and in fact could very well see their currency float on up to $5, $6, $7 or more as their economy grows. Here's how he broke it down.
"Let's just say it cost a dollar instead of a buck and a half ... to make it simple ... a dollar to create a barrel of oil. And they're gonna double from two and a half to five million barrels. Take that times a hundred dollars per barrel today, that's five hundred million dollars a day. Take that times 365 ... you're looking at 1.825 trillion dollars a year in income, and now you have to take off five million dollars a day for your cost ... of a dollar a barrel. So what you're gonna end up with is about a million ... I mean a trillion eight NET! Net money per year. You think they can't afford a three dollar currency?"
Currently Iraq is producing about 2.5 million barrels a day for a total of $80 billion a year in oil revenues (averaging about $87/bl) which is roughly 2/3 of their GDP. Steve (Enorrste) anticipates that after the RV their production will double to 5 million barrels a day and their oil will sell for about $100/bl. According to his calculations their revenues will therefore increase from $80 billion a year to $1.825 trillion a year.
Now if you have a calculator handy you might want to run through these numbers with me to check what he's saying. I can assure you that a GDP approaching $2 trillion a year would change my opinion about this investment drastically, and I doubt that I'm alone on that. So what numbers do you come up with? Here's what I get.
5 million barrels a day
x $100/bl
= $500 million a day
x 365 days
= $182.5 billion/year
That's right. $182.5 billion a year, not $1.825 trillion a year. It seems that Enorrste accidentally added a zero into his calculation. Now I understand that anybody can make a mistake. I make them all the time, and so do you. But when you are presenting yourself as somewhat of an authority on the dinar and using numbers to support your premise, I think it's pretty important to check your math first. And this wasn't a typo or a written error. This was an emphatic statement that he made in a discussion, and he said the word "trillion" twice. Yeah, it's just one zero off, but that zero throws the total off by over $1.6 trillion a year. That's a damn big zero, wouldn't you say?
This isn't the first time that Steve has produced some incredibly fuzzy RV math. Last year he presented a case for the RV that prompted a dinarian named expat to respond:
As Enorrste points out, the CBI has $53 Billion in foreign currency reserves, which as he states is 700% (7 times) the value of the IQD in circulation (7.5 trillion according to him). Then he points out that the US only has 15% in reserves to back up the dollar it has out, Now, he points this out as if it is the proof in the pudding.
If all that is true and the CBI RVs to a rate of 1:1 to the USD…then they will have $53 billion to back up $7.5 trillion. That is less than 1% (0.7% to be precise) compared to our 15%. At $3.33 you can triple the difference, which makes it even more unlikely. These are his numbers, not mine.
Here is my question: Enorrste points out that the Iraqis all say they want a stronger currency– a point with which I agree — however, how is this accomplished by setting a rate that reduces the percentage of foreign currency reserves they have to back up the Dinar from 700% to 0.0021%, which is what will happen if they RV to $3.33 as Enorrste states they will?
I don't post these things to ridicule Steve but to establish a very important point. Many people are swayed by guys like Frank Villa, Checkmate, and Enorrste because they are gifted in the art of elocution. They have a smooth speaking style that gives the unsuspecting a false sense of security about the information they're receiving. But when you break down the actual content of the information the substance is sadly lacking. I would be delighted to find out that the new IQD lower denoms are in fact already loaded into the ATMs in Iraq as Checkmate says. I would love to believe that Frank's Arabic translator Delta has the lowdown on the impending $.86 RV. And of course I would love to believe that Iraq's oil revenues will soar to $1.82 trillion a year when they double their production, but the facts just aren't lining up behind these statements folks. It's time we stopped listening to these guys and started doing some honest due diligence for ourselves. After all, it's our hard earned money we're talking about. Do we really want to entrust it to the expertise of these internet armchair currency experts who most of us will never meet face to face?
Addressing the hype surrounding the Iraqi dinar to prevent more people from being misled about this investment.
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Actually Sam, you are wrong and exagerating also.But I doubt you'd admit it. You see... the difference between a Trill and a Billion is not 1 zero, it's 3 zero's . So if I had a douchie to award this week, it would go to you Sam, you'd be the Douchie of the week.
ReplyDeleteThanks for visiting and commenting, Fatso. I wasn't talking about the difference between a billion and a trillion. Read it again. I was talking about the difference between $182.5 billion and $1.825 trillion. To simplify, let's just say the difference between 100,000,000,000 (100 billion) and 1,000,000,000,000 (1 trillion). 100 billion has eleven zeros and 1 trillion has twelve. That's a difference of one zero.
ReplyDeleteOil production levels don't matter, and I'll tell you why. If Iraq doubled their production, it would cause the price of oil to drop, and at that level it could fall below $50 a bbl, which would net Iraq no new revenue, but double the production costs. The world has adjusted to the current levels of production, and you can't have a major increase in supply without a like effect on price. Another "oil solves everything" lie the pumpers like to tell is how the bug RV will be paid for by the US Treasury buying Iraqi oil on the cheap and exchanging cashed in Dinar for it blah blah blah. Flaws with that fairy tale include the fact that the US Treasury doesn't buy oil, oil companies do and most of the oil in Iraq is now bought by companies that are not even US Based (BP, Citgo and Shell. Another little fly in the ointment is that the US doesn't buy much oil from Iraq now and much of what they do is used to supply the US Military mission in Iraq, which ends in 2 weeks. US refineries are set up to process very specific blends of crude oil, and you cannot run Iraqi crude through refineries set up to run Canadian, Mexican and Venezuelan raw crude. Haven't you ever heard of how much is involved every year in just converting the refineries to winter blends and such?
ReplyDeleteIraq is a poor country. Don't fall for the "one of the richest nations on earth" lies, they aren't even middle class. Countries that have economies that rely on selling their natural resources are like people who have yard sales to make the rent every month, they don't produce any value added income they just sell their stuff. the "rich" nations are those that use all or most of their natural resources to run economies that produce income and have industrial and commercial bases that enable them to buy from the poor countries, whose major economic impact on the global commerce is to "sell their stuff" to the rich countries who can afford to use it.
And another thing! If the US auto fleet adopts LNG, or electric hybrid to about double what it is now (and this will happen in 10 years or less) the US total crude oil demand will drop by 30%, even if total energy used for transportation grows by 4% a year. This would cut US oil imports by more than half, which, if China follows the example could cut global non domestic produced oil by 30-40% and may drop international oil prices back below $20 a bbl unless OPEC cuts production by a like amount. The USA has more natural gas in BTUs that Iraq and Saudi Arabia and Iraq COMBINED have in crude oil, eventually our auto industry and the domestic energy companies are going to convert the auto fleet to this resource and when that happens, the entire Middle East could become irrelevant. The smart countries in the region realize this and are working real hard to get their own economies out of dependence on oil exports.
ReplyDeleteWhat i find both amusing and alarming about the Dinar phenomenon is how simple minded the supposed "experts" are and how gullible the people who listen to them are. Any number of real economists try to explain how absurd the whole scenario is and the "dinar community" finds every way from Wednesday to dismiss it, and then they start quoting Oakie Oil Man, Adam Montana or some other guru as a trusted source.
My favorites are the fools at Dinar Vets who hold themselves out as the "smart ones" because they make fun of the more outrageous pumpers. In fact, they don't in substance believe any differently than the gurus, they just think the date and rate may be different. Saying they are the smartest investors of all the ones in Dinar may be true, but if it is it's still like saying they won gold medals at the Special Olympics. They are, at best, the All Star Team of Stupid.