Sunday, July 28, 2013

Dirty Float

Since I started this blog nearly two years ago I've heard this repeated assertion from the gurus that Iraq is holding the value of the dinar down via a dirty float, and presumably someday soon they'll reveal the true value and "we'll all be rich".  I know many people listen to these guys and buy into this nonsense, so I felt compelled to respond with a brief tutorial on dirty floats a.k.a. managed floats.  (This is by no means an exhaustive study of the subject.  I'm only scratching the surface for the purpose of this discussion.)  First of all "dirty" doesn't mean that there's anything sinister going on.  It simply means it's not a free float.  It's managed via manipulation of the money supply to maintain a certain amount of stability. 

The oil based economies of the Gulf region have to have a managed float because oil by its very nature has a volatile price structure.  As we've seen over the past four years a barrel of oil has sold for over $120/bl and below $40/bl.  Since these economies are so dependant on oil, a free floating currency would be very unstable and it would make it virtually impossible to conduct business.  Thus, the managed float. 

Let's take a look at some of the other oil based economies of that region.  We'll start with Qatar.  Their reserves took a dip in late 2011 but they've grown pretty consistently since then.

Now according to the gurus, if their foreign currency reserves grew and they're backing their currency with their reserves, the value should have grown too, right?  Wrong.

Their exchange rate has remained very stable, with the value around $.275.  Now, how could that be?  Doesn't make sense, does it?  Well, yes it does.  You see, the growth is seen in the money supply, not the value.  The chart below shows that the money supply declined at the same time the reserves declined in late 2011, and then it started growing again as the reserves increased.  (I'm using M0, M1, and M2 figures in these examples because these were the charts provided by Trading Economics.)

Now let's look at Saudi Arabia.  Notice the consistent growth in the money supply and reserves, while the exchange rate remained stable.


Now let's look at Oman.

As you can see, they all saw a growth in the foreign currency reserves but maintained stability with the exchange rate by increasing the money supply.  That's what a dirty float (or managed float) does.  It prevents the currency's value from being subjected to the volatility that it would experience with a true float.  Are all of these currency's values being "held down"?  Well yes, I suppose they are in a way.  They're being stabilized so that these countries can conduct business.  Are they going to quit holding the value down and revalue their currencies to the point that anybody in possession of their currencies will become rich?  Fat chance.  They're going to keep managing these exchange rates and keep them right about where they are.  Why?  Because they need a stable exchange rate to plan, to budget, and to attract investment into their countries.  Raising the value would do more harm than good. 

A quick check of the financial report at the CBI website shows that Iraq's M1 has grown from 37 trillion in 2009 to about 70 trillion today.  The M2 has gone from 45 trillion to about 80 trillion.  The foreign currency reserves have similarly grown from around $40 billion to almost $80 billion.  And the IQD's rate has been remarkably stable going from 1170:1 to 1166:1.  We can see from these figures that Iraq is essentially following the same approach in maintaining exchange rate stability.   

Often when gurus talk about the dinar floating they seem to think of it like a tennis ball floating from the bottom of a swimming pool to the surface, where the value would grow exponentially.  That's the wrong visual in my opinion.  A better way to think of it is a tennis ball floating on the surface of that pool, bobbing up and down but remaining relatively stable.  You can see from the charts above that some fluctuation is involved with those currencies, but over the years they maintain stability.  And even if Iraq does eventually move to a more flexible exchange rate scenario, you're still talking about a much more stable arrangement than any of these gurus are talking about.  It would probably be no more than 10% a year.  Currencies don't float up 100,000%, or 10,000%, or even 1000% a year.   

This is how the dirty float works, and with these oil based economies it's a must.  That's why the CBI has kept increasing the money supply as their foreign currency reserves grow, rather than raising the value.  And it's why these douchebags who are telling everybody that Iraq is going to RV or float to ten cents, a dollar, $3.44 or whatever are either lying or terribly misinformed.  Iraq is on a managed float and will remain that way as long as their GDP is 90% oil revenues which in my opinion will be for many years to come.

Tuesday, July 16, 2013

Don't Listen to Gurus

Most dinar investors have trouble understanding this investment that they've put hundreds, thousands, or even tens of thousands of dollars into.  They're new to the world of currency speculation and are looking for somebody knowledgeable who can guide them through the process.  Well one of the rules for success in life is "find a need and fill it", so many dinarians have volunteered their services over the years and have taken on the role of intel providers, armchair economists, and researchers or "newshounds".  These people have become known as "gurus". 

The problems with gurus are numerous.  First of all there's the accountability factor.  Most gurus are anonymous and if Iraq ends up redenominating as they've stated they will the gurus can just disappear or move on to the next scam.  A real currency/investment expert will state their name and be sure to state the risks of any investment as well as the potential upside.  You'll never hear a true investment expert say things like "this is a winning lottery ticket" or "quit your job and pack your bags - this baby is done!"  If they're a true professional they'll plan on being around for many years and will take that into consideration with every investment they analyze.  If their track record is poor it could jeopardize their career, so they take every precaution to thoroughly examine each opportunity and assess the pros and cons.

Next is the lack of credentials.  Some gurus have degrees in other fields but none that I know of have degrees in economics or finance.  (A few of them say that they have traded on forex which I don't really get, because a forex trader would understand that the way you make money trading currencies is to make large leveraged purchases electronically with a spread of less than 1% and look for a profit of usually no more than 2% rather than paying a spread of up to 20% to buy paper currency and wait for it to RV 1000% or more.  But I digress.)  Rudy Coenen claimed that he was a VP at JP Morgan Chase, and that gained the confidence of many dinar investors for awhile, including me.  But he was indicted for fraud and that claim was one of the lies he was charged with and pled guilty to.  A true currency professional will be happy to provide you with their credentials to prove their qualifications.

And finally there's the simple grasp of facts.  A true professional won't be caught in constant misstatement of facts that are easily debunked.  Here are a few examples of what I'm talking about from the month of June. 

On Sunday June 9 Jester said:


All you have to do to see through this tosh is conduct a few minutes of research on revaluations and redenominations. No new currency symbol is needed for revaluations.  The exchange rate is simply adjusted and it's over.  Think back to January 2012 when the rate in Iraq went from 1170 to 1166.  That was a revaluation.  The currency symbol of IQD didn't change.  All that changed was the rate.  No new currency was required either, because revaluations are just small adjustments that easily fit into the parameters of the existing currency.  Redenominations do require a new currency symbol however, as well as a new currency preceded by an educational campaign to prepare the people for the currency change.  What happened in Mexico was a redenomination.  They lopped three zeros off of their currency and issued 1 new peso for 1000 of the old.  Sound familiar?  That's what the CBI has stated that they intend to do with the dinar.  Jester is confusing the concepts of redenomination and revaluation.  Whether he's doing it intentionally or not I don't know, but what he said is flat out wrong.

On Thursday June 13 Breitling said:

"I know for a fact that the dinar is undervalued."  (21:44 in)

Really Tony?  How do you know this for a fact?  From your contacts at the IMF or the CBI?  Well I don't have any contacts at either one, but here's what the IMF has stated. 

The CBI [Central Bank of Iraq] will continue to aim at keeping inflation low, predominantly by maintaining a stable exchange rate. The low level and the relative stability of inflation do not suggest any significant over- or under-valuation of the Iraqi dinar. Also, a stable exchange rate continues to provide a solid anchor for the public’s expectations in an otherwise highly uncertain environment and in an economy with a very low level of financial intermediation.

Stryker repeated this misconception a couple of weeks later when he said:

"I am using my educated guess and saying that Iraq has the most undervalued currency in the world and that they and we want the CBI to show us the real value and I believe they are close to do this."

Breitling, Stryker, and other gurus assume that the dinar and dong are undervalued because their value is so low in comparison to the US dollar, but all you have to do is look at the bloated money supplies (in the quadrillions for Vietnam) for both countries to see the reason behind those low valuations.

Recently I've been watching some of the nightly Stryker broadcasts just to see what insights he has on the dinar.  On Monday June 17 he said the following:

"We bought stock in their country.  Their stock happens to be their currency.  Just like ours.  Currency is perceived value of what a country is worth.  Stock's the same way." (27 minutes in)

He repeated this misconception on June 24, referring to dinar investors as "stockholders" providing the funding for them to back their currency.  (24 minutes in)

I've stated several times in the past two years that one of the most common misconceptions dinar investors have is that currency is like stock.  It isn't.  If a company is growing and profits are increasing the stock's value will reflect that growth over time.  With currencies however, an economy can grow by leaps and bounds and yet the country's currency can (and often does) lose value against other currencies. 

In the following chart I've listed the 20 largest economies in the world.  Then I listed those same countries by currency valuation.  You'll see that there is no correlation.  Every country's currency is as unique as the nation it represents, and is valued according to a number of factors including money supply, GDP, political stability, their history of inflation .... etc.  Japan, for example has the third largest economy in the world, and yet the Japanese yen is valued slightly over a penny.  South Korea's economy is ranked 15th but their currency is valued about where Iraq's is at a tenth of a penny.  In the third column I've listed countries by GDP per capita.  You can see from this that Kuwait has the 6th largest GDP per capita even though their currency is worth nearly three times that of Luxembourg (the euro at $1.34) who has the highest GDP per capita.

GDP in trillions of dollars

1.     USA   $14.991
2.     China   $7.203
3.     Japan   $5.870
4.     Germany   $3.604
5.     France   $2.775
6.     Brazil   $2.476
7.     UK   $2.429
8.     Italy   $2.195
9.     India   $1.897
10.   Russia   $1.857
11.   Canada   $1.736
12.   Australia   $1.515
13.   Spain   $1.478
14.   Mexico   $1.155
15.   S. Korea   $1.116
16.   Indonesia   $.846
17.   Netherlands   $.836
18.   Turkey   $.774
19.   Switzerland   $.660
20.   Saudi Arabia   $.597
Value of currency

1.    USA   $1
2.    China   $.16
3.    Japan   $.011
4.    Germany   $1.34 (euro)
5.    France   $1.34 (euro)
6.    Brazil   $.46
7.    UK   $1.57
8.    Italy   $1.34 (euro)
9.    India   $.017
10.  Russia   $.031
11.  Canada   $.98
12.  Australia   $.95
13.  Spain   $1.34 (euro)
14.  Mexico   $.078
15.  S. Korea   $.00089
16.  Indonesia   $.0001
17.  Netherlands   $1.34 (euro)
18.  Turkey   $.53
19.  Switzerland   $1.08
20.  Saudi Arabia   $.27

GDP per capita

1.     Luxembourg   $88,797
2.     Qatar   $88,314
3.     Macau   $77,079
4.     Singapore   $60,688
5.     Norway   $60,392
6.     Kuwait   $54,283
7.     Brunei   $51,760
8.     Switzerland $51,227
9.     Hong Kong   $50,551
10.   USA   $48,112
11.   UAE   $47,893
12.   Netherlands   $42,779
13.   Austria   $42,172
14.   Australia   $41,974
15.   Sweden   $41,484
16.   Denmark   $40,933
17.   Ireland   $40,868
18.   Canada   $40,420
19.   Germany   $39,456
20.   Belgium   $38,723

My point here is that a currency's value is no indication of a nation's worth, wealth, or standard of living.  If Iraq was somehow magically transformed into the world's largest economy overnight it doesn't mean that they will have the world's most valuable currency.  For that matter it doesn't mean that their currency would increase in value at all.  

Now let's take a look at stocks.  (Market cap is derived by multiplying the stock's value by the number of shares of that stock.)

Largest Companies by Market Cap (in billions)

1.   Apple   $500
2.   Exxon   $400
3.   PetroChina   $265
4.   BHP Billiton   $250
5.   ICBC   $240
6.   China Mobile   $235
7.   Wal-Mart   $230
8.   Samsung   $225
9.   Microsoft   $220
10. Royal Dutch Shell   $220

  Approximate Current Stock Valuation

  1.   Apple   $432
  2.   Exxon   $91
  3.   PetroChina   $109
  4.   BHP Billiton   $63
  5.   ICBC   $5
  6.   China Mobile   $50
  7.   Wal-Mart   $75
  8.   Samsung   $1200
  9.   Microsoft   $35
  10. Royal Dutch Shell   $66

These are all approximations since stock prices fluctuate on a daily basis.  As you can see Samsung's stock is selling for almost three times the price of Apple's stock despite the fact that Apple's company is worth over twice as much.  So we can see from these charts that a stock's price doesn't tell you what a company is worth any more than a currency's price tells you what the country is worth, so in that sense I would agree that currencies and stocks are similar.  But there is no perceived value of a country based on the currency's valuation as Stryker stated.  And there is certainly no reason to assume that a growing economy would result in a higher currency value either.  Any time you hear a guru saying that a currency is the stock of a country you know it's time to stop listening. 

Then on Tuesday June 18 Enorrste said:

"... the CBI is stating that their CURRENT money supply of 33 trillion dinars, which is worth about $30 billion, is covered by 2.5 times with their $80 billion in reserves. In other words, their current money supply has 250% coverage. Having said that, let's assume that Iraq does what it says it will do and withdraws the large denominated notes beginning in January of 2014. We can reasonably suspect that about 7 trillion dinars are outside of the country. This would mean, then, that they would withdraw about 26 trillion dinars from circulation. Of course these dinars will have to be replaced, as they have said (otherwise they would have NO dinars in the country) and they have stated that they will issue 25 Billion dinars to replace the 26 trillion that they remove. Now, let's go one step farther...

The new money supplied within the country will amount to 25 billion dinars. If, as they say, they allow the VALUE of the dinar to rise to "about $1), then if they have $80 billion worth of reserves at that time, then they will have over 300% coverage of their money supply, in country. Furthermore, they could allow the dinar to go to $3 per dinar and still have over 100% coverage of their money, keeping them as the strongest currency in the world.

So what happens with the 7 trillion dinars outside the country? They are cashed in by speculators and end up as reserves by the countries that cash them in. Just as their are trillions of dollars sitting as reserves around the world (i.e., not a concern to our country), similarly there will be trillions of dinars sitting as reserves around the world and Iraq will not need to be concerned about them. In short, they will never return to haunt Iraq any more than our dollars have returned to haunt the US...They will announce a float and draw in the dinars within the country during the next 6 months to 2 1/2 years, and replace them with new small denominated notes as the value rises and the smaller notes become necessary for commerical activity within the country. They are on record that this will take about 2 years beginning in 2014.

Furthermore, they are on record that the issuance of the NEW currency will occur in January of 2014. IF they need small denoms between now and then (the next 6 months), assuming the float is announced shortly, then they will use the ones that were printed in 2003 and that are sitting at the CBI for that purpose (existing small denoms of the same currency we hold.) Bottom line: this is talking about the final stages in preparation to unfold the plan. This is ALL GOOD!"

First of all, they didn't say that the foreign currency reserves now equal $80 billion.  Turki predicted that they would have that much in the FCR by the end of July, and that was disputed by the economic committee.  But let's just assume that it is now $80 billion.  All that would mean is that their money supply would probably just expand that much more, because their policy is a stable exchange rate.

After that he says that Iraq announced that they will replace 26 trillion dinar with 25 billion.  This claim is more accurate because they have said that they will remove three zeros from their currency which would mean that the value would go from $.00086 to $.86 and the money supply would go from a figure in the trillions to one in the billions, but they have always stated that in the context of a redenomination rather than a revaluation as Enorrste is suggesting.  Also, the figure of  26 trillion was the total cash outside of banks at the time which has now grown to over 33 trillion.  Enorrste is apparently subtracting the amount that they said they would remove from circulation in a previous statement from the current amount in circulation and concluding that the 7 trillion difference is dinar outside of the country that they're not concerned about, but in a redenomination all currency in circulation is demonetized no matter where it is. 

The next claim that Enorrste makes is that Iraq said they would begin removing the large denominations in January of 2014.  They have never said that.  They have always referred to removing the zeros and replacing ALL of the IQD with a new currency at a ratio of 1000:1 old for new.  The idea that they are only referring to the large notes when they talk about removing the zeros is guru BS.  I've written about this in "Deleting the Zeros" and included eight examples of other countries who issued statements about removing (cutting, lopping, chopping, slicing, deleting .... etc.) zeros from their currency and not once did it refer to larger denominations only.  In every case ALL denominations were demonetized and replaced with a new currency at a higher value with a smaller money supply.

In the next paragraph Enorrste claims that they said they would allow the dinar to rise to about $1.  Wrong.  Their currency reform plan is a redenomination that would replace the current dinar valued at $.00086 with a new dinar worth about $.86 which is close to $1, but there's no rise here.  No float.  No increase.  Just a neutral exchange as has happened dozens of times over the years with currencies all over the world that experienced hyperinflation as Iraq's currency has.

Juest a few examples, ladies and gents, of why you shouldn't listen to gurus.   

7/20/13 ... UPDATE!!!

Guys, we have a good discussion going here.  One that is free from rumors and intel and that gets to the heart of this investment - what is the currency reform plan coming from the CBI?  You won't find this on most sites so I'm going to leave the comments unmoderated.  All I ask is that everyone try to keep it civil and focused on facts.  Thanks.


Wednesday, July 3, 2013

Happy 4th!

Happy birthday America.  237 years ago we declared our independence from tyranny and it's been a struggle ever since to maintain that independence.  Hopefully the American people will remain vigilant enough to preserve our hard earned freedom for some time to come.    

In the dinar world many have yet to declare their independence from guru hype and have chosen instead to remain under the tyranny of the emotional roller coaster brought on by RV fantasies.  Hopefully they'll catch on soon.

The removal of UN Chapter 7 sanctions caused quite a stir as most of the gurus viewed this is a direct precursor to the RV.  As the days elapse it is becoming apparent to many that this was just more guru BS.  The fact is the CBI has raised the value of the IQD several times through the years that those restrictions were in iplace.  Chapter 7 had nothing to do with any RV or lack thereof.

One dinar dealer that I have written about named Marshall Wayne sent this notification out in a recent email. 

"Today is a good day.

The UN Security Council voted to remove Iraq from Chapter 7 bankruptcy."

This is yet another example of why you don't want to listen to these guys.  Why would the UNSC be dealing with the issue of bankruptcy?  This isn't a US bankruptcy court.  This is the UN Security Council that imposed restrictions on the use of Iraq's oil revenues following the Gulf War of 1990.  Those restrictions have now been lifted which means that Iraq can use those oil revenues as they deem fit.  However, it also means that other countries can come after Iraq for its debt obligations. 

I think the logic behind some of the spin is that the $11 billion owed to Kuwait can only be paid via a substantial revaluation of the IQD, but I can assure you that Iraq isn't going to destroy their economy to pay off a debt that they could pay off over the next couple of years with increasing oil revenues. 

Also in June another dinar douchebag was convicted.  This time the charges were illegally operating a money service business, failure to report on exporting and importing monetary instruments, and unlawful structure of transactions to evade reporting requirements.  Nice to see somebody else being held accountable.

About a year ago I quit awarding Douchies to the pumper/guru who did or said the most despicable thing for the week, but I reserved the right to issue Douchies on an ad hoc basis for future cases of dinar douchebaggery.  Such is now the case with Eagle1, the RV/currency basket intel guy for Frank (Frank26) Villa.  During the last week of June he offered this priceless explanation for the delay in the release of the basket of currencies.

"We were initially advised to watch for this release to take place Sunday Night/Monday Morning on FOREX, with a 24-hour delay before the currencies became tradable.

Obviously we saw nothing. We expected that the delay might have been pushed to Tuesday in order to comply with normal international banking policies, and in fact were told that might be the case.

All of you have heard about the NSA leaker issue in the news, the fact that he fled to China, and that both China and Russia have cooperated in hiding him or preventing the US from finding the young man's whereabouts.

Not in our wildest thinking did anyone consider that this event might have a bearing or interfere in any way with the release of these currencies.

Turns out that because of the administration's demands on China for the return of this individual, they decided to throw a temper tantrum and provide a short delay in the release process by fussing over the revaluation of the Vietnamese Dong."

I've heard some imaginative excuses before but this one takes the cake.  The whole global reset currency basket story is absurd, and the idea that this "solution" to the world's economic woes could be held up by a dispute over the fate of Edward Snowden is beyond absurd.  Even diehard believers in the RV were calling BS on this one.  If there was ever any doubt that Frankie Frankie and his team are world class liars this should dispel it henceforth and forthwith. 
Think about it folks. Dinar investors are wondering what the holdup is for the RV of the IQD that was introduced in 2004.  Well the war in Vietnam ended nearly forty years ago and they haven't gotten around to RV'ing yet.  Is that due to an incredibly long string of unforseen events, snags, glitches, and delays or could it possibly be that perhaps they don't intend to RV?  Yeah, I think that's what it is.  I think Vietnam has concluded that they can function just fine with a currency valued at $.000048 or whatever.  
So congratulations to Eagle1 for winning the first Douchie of 2013.  It was well deserved. 

One man who has written and spoken out about the dinar scam is Jay Adkisson.  He's the author of the August 2012 Forbes Magazine article entitled "You Can't Fix Stupid: The Iraqi Dinar Scam Lives".  As you might imagine he took a lot of flack from hopeful dinarians for writing that, but he stood his ground.  In fact he's gone beyond that, and is actually taunting his bashers a bit.  He's been updating that post on a monthly basis since he wrote it.  On May 31 he wrote:

Another month, and another month where the Dinar did not massively appreciate but more suckers bought into the scam thinking that it would. But we are starting to approach the one-year anniversary of the date that I wrote this article, after which I received numerous e-mails from folks telling me to basically, “Just wait, you’ll see! Within a few weeks I’ll be stinking rich and you’ll just be a sad commentator for Forbes.” Well, at least they got the stinking part right, and so now own to the monthly update:
(1) As mentioned, the Dinar did not massively appreciate.
(2) There are no signs that the Dinar will ever massively appreciate.
(3) I did see that I had missed this article on the Dinar by John Wasik – John is more diplomatic that I am; he can call folks “stupid” without using that word. As for myself, I have no patience for people who can’t figure out that they were suckers.
(4) Self-Annointed “Dinar Guru” Blanche Bonet put out this “amazingly” list of Iraqi Dinar “experts” who predicted that the Dinar was about to soar in value –  Trouble is, they were all wrong. The list does pretty much prove, however, that the “Iraqi Dinar community” is just a bunch of suckers trying to convince each other that they made good investments. As just mentioned, the trouble is that they are all just wrong.
(5) This video posted on YouTube discussed predictions that the Iraqi Dinar was about to appreciate upwards on May 11, 2013 –  Those predictions were wrong.
(6) Meanwhile, back to the real world, news came out that the Iraqi government is struggling mightily to try to keep the Dinar from DEvaluation, i.e., going down in value –  In the words of Homer Simpson, “D’oh!”
(8) And finally, a new book has been released, “The Iraqi Dinar Scam: Why Buying The Dinar Is For Dummies” by John Jagerson  at
Talk to you again on June 30, when the Iraqi dinar still will not have revalued upwards (but maybe has gone down, again).

I love this guy!   

Taking a cue from Jay, back in January I made my own predictions for the dinar in 2013.  Well, the year's half over so let's see how I'm doing.
  1. The value of the dinar will not increase by more than 10% in any given month or by 50% this year unless there's a lop.  The same goes for the Vietnamese dong.     So far the IQD is unchanged and the VND is slightly lower. 
  2. We will see another indictment of one or more of the douchebags I've written about in the past.    The conviction above was the result of an indictment from 2011 so technically no new indictments yet, but we have seen two convictions this year including Rudy who plead guilty in April.
  3. Iraq's M2 will end the year at more than the current figure of 72 trillion unless they redenominate.   Last I checked it's around 78 trillion. 
  4. Obama and Maliki will both end the year without being removed from office.    Both have managed to survive physically and politically, although it hasn't been pretty for sure.

See you soon.