Another Potential Crisis for Investors

Money and Markets Thursday, March 8, 2007


Dear Subscriber,


There’s a heck of a lot happening right now! The markets have been volatile, so I want to give you a quick update on where I see things heading next. And I also want to tell you about a looming threat that many investors are still ignoring. Let me get right to it ...

First, with rare exceptions, my indicators on the U.S. markets are turning south. It appears that my warnings are coming to pass — investors are finally starting to notice weak real estate markets, too much debt in the country, peaking corporate earnings, and the weak dollar. So don’t be surprised one iota if U.S. stock markets start to yo-yo like crazy, or even fall sharply.

Second, in direct contrast to the U.S., and despite all the scary things you’re hearing, Asia is booming. There’s been no change in the spectacular fundamentals underlying China, India, Singapore, Vietnam, Malaysia, or Indonesia. All of these countries are exploding with economic growth. Their stock markets, while a bit more volatile right now, are in strong long-term bull markets.

Third, largely as a result of Asia’s growth, most of the natural resource bull markets are also very much intact. I’m talking about oil, gold, base metals, and foods. There is huge demand for all of these items.

Having said all that, it’s imperative that you stay on top of these markets to make sure you’re on the right side of the trends. You also need to use discipline to manage your risk.

And there are still plenty of powder kegs out there. Here’s just one force that nearly everyone else is underestimating ...

The Iranian Nuclear Controversy
Could Soon Explode Back on the Scene,
Catching Investors by Surprise


In “War Scenarios and Your Portfolio,” I told you that Israel would take the lead and make a pre-emptive strike against Iran to take out the country’s nuclear facilities. It seems that my prediction is about to come true ...

According to London’s Daily Telegraph, Israel is already on a “war footing” and is negotiating with the United States for permission to fly over Iraq as part of a plan to attack Iran's nuclear facilities.

The objective: Surgical air strikes that will set Iran’s nuclear program back at least 10 years. To conduct the strikes, Israel needs to co-ordinate the plan with the U.S. so that an “air corridor” over Iraq is cleared.

But there’s more evidence Israel is planning an attack ...

Israeli Prime Minister Ehud Olmert recently persuaded Meir Dagan, the head of Mossad for the past six years and one of Israel's leading experts on Iran's nuclear program, to defer his retirement until at least the end of next year.
Olmert has also given control of the military aspects of the Iran issue to Eliezer Shkedi, the head of the Israeli Air Force and a former F-16 fighter pilot.
Former Israeli Prime Minster Benjamin Netanyahu has stepped up his public appearances dramatically increasing the rhetoric and heat against Iran, comparing the country to Nazi Germany.
The Kuwaiti newspaper Al-Siyasa recently reported that Qatar, Oman and the United Arab Emirates have all told the United States that they would not object to Israel using their airspace, despite their fear of an Iranian response. Turkey is also considering opening its airspace.

As I’ve said all along, the U.S. will not stage the attack. Thus, Washington can continue saying it’s “not going to war with Iran.” But they will do everything in their power to help Israel stage the attack.

Keep in mind that Washington has already substantially turned up the rhetoric against Iran. It has also sent into the Persian Gulf the Fifth Fleet of aircraft carriers, including the Nimitz class nuclear powered USS John C. Stennis, and its accompanying destroyers.

At the same time, Washington has not removed the option of a military strike, and has not quelled any of the rumors that Israel will lead a strike.

Moreover, because of the North Korea fiasco, I believe Washington now realizes ...

Economic Sanctions Do Nothing
But Hurt Innocent Citizens

As history has shown us, isolating a regime with economic sanctions does nothing but impoverish a country, causing millions to die of hunger and disease.

Want examples?

The U.S. economic embargo against North Korea began 46 years ago. It’s failed to prevent North Korea from developing nuclear weapons.
The U.S. embargo against Cuba started in 1962 ... and has failed.
Economic sanctions against Iran in 1979 failed to prevent the country from furthering its advances in terrorism or nuclear enrichment.
Sanctions against Burma have done nothing to force regime change there, or free Burmese citizens from a military dictatorship.
I could go on and on about sanctions in places like Zimbabwe, Syria, and the Sudan. All of them have failed to force regime change. Instead, tens of millions of innocent citizens have become victims.

Why sicken and kill innocent people when you can accomplish a military mission with surgical precision today? Why try to force social anarchy and regime change by harming millions of innocent citizens?


I fully believe the Bush Administration is now acutely aware of this. And I believe that’s another reason Washington will fully back Israel’s attempt to squash Iran’s nuclear efforts dead in its tracks with an upcoming air strike.

When Could the Attacks Happen,
And What Will They Mean for Investors?

In my opinion, we could see the attacks within the next two months. If you’re still skeptical of an attack on Iran, consider the following ...

Iran has trained secret networks of agents across the Persian Gulf to attack Western interests and incite civil unrest in the event of a military strike against its nuclear program, according to Adel Assadinia, a former career diplomat who was Iran's consul-general in Dubai and an adviser to the Iranian Foreign Ministry.

These sleeper cells were trained by Iranian intelligence. And they’re recruiting Shiites from all over Iran, preparing them with munitions, including anti-aircraft and surface-to-arm missiles. In other words, Iran is expecting the air attacks.

Here’s another interesting anecdotal tidbit that solidifies Iran’s intent to become a nuclear nation: The country just issued a 50,000 rial note (equal to about $5) that sports a picture of the standard nuclear insignia of electrons in orbit around an atom.

So don’t kid yourself: An attack against Iran’s nuclear facilities is likely to come from Israel.

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STAY PREPARED!

I think you should keep most of your money in safe, short-term money markets or Treasury bills. For the money that you’ve set aside for riskier investments ...

1. Consider lightening up on U.S. stocks, unless you’re in a trading program that can wind and weave its way through the bumps that lie ahead. Or, take a look at my favorite natural resource plays in Real Wealth Report. I think those stocks are perfectly positioned to buck the trend, and capitalize on geopolitical uncertainty.

2. Look toward Asian markets for even more opportunities. As I said, the recent volatility in these shares doesn’t change the strong underlying fundamentals.

3. As I have said many times before, use market dips to load up on gold! Gold is the only real form of money, a role it’s played for over 5,000 years.

Right now gold is trading at about $650 an ounce. It might dip back to $615 before it takes off again, but I don’t think you should try to catch the exact bottom.

In my view, the most convenient way to get a stake in gold is through the streetTRACKS Gold Trust (GLD). Each share represents 1/10 of an ounce of gold. When you buy this fund, it’s kind of like buying a mutual fund, but one that holds only physical gold. The best part is you don’t have to worry about storage and shipping because the gold is held in trust for you.

Alternatively, if you want a diversified stake in gold companies, you can buy a good mutual fund.

Stay prepared, safe, and cautious,

Larry


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