John Jagerson Videos (6/18/13)

It’s been awhile since I talked about these, but it’s always a good idea I think to go back to basics from time to time. Every time I watch these videos I get something new out of them. I only wish that I’d grasped what John was saying when I first watched them.

Now I’d like to offer a few observations.  John created these videos four years ago, and since then he has been subjected to name calling, threats, ridicule … etc.  He’s been accused of everything from reverse pumping to hypocritically owning dinar while he’s bashing the dinar investment.  And yet since 2009 the IQD’s official value has only increased about a third of 1%.  Meanwhile according to the financial report on the CBI website, the amount of currency in circulation has gone from 21 trillion to 31 trillion dinar and the M2 has gone from 45 trillion to 75 trillion dinar.  Also during this time banks have quit handling the dinar, the CBI has announced their “delete the zeros” currency reform plan which is a redenomination (lop), cease & desist orders have been issued on at least four dinar dealers in Colorado, Illinois, and Arkansas, and five men have been indicted (two of whom have now plead guilty) for dinar fraud and other related crimes.

John has pretty much been vindicated at every turn, unlike the gurus.  That’s because he’s a professional and he knows what he’s talking about, unlike the gurus.  And he offers his real name and his credentials, unlike the gurus.

In these videos he makes several valid points.  He starts off by addressing the difference between real investing principles and common denominators in all scams.

1. Fraud, misleading information, and no disclosure of risk

a. Dinar dealers are marketing an investment without proper registration (thus the cease & desist orders above) which would require equal emphasis on risk and potential returns.  How often do you hear dealers or gurus honestly discussing the history of redenominations and the obvious potential of a redenomiation with the dinar?  How often do they discuss the potential for civil war or a coup or a failed state scenario?  No, it’s usually just “we’re almost there … everything’s in place … looking good!”

b. The German deutschmark didn’t revalue or appreciate after WWII.  It replaced the previous currency the reichsmark in a redenomination.  The Kuwaiti dinar didn’t revalue or appreciate after the first Gulf War.  It was reinstated as the official currency at the same pre-war valuation and has since been replaced with a different currency on two occasions.  How many times have we heard about Germany and Kuwait as justification for buying dinar?  “Millionaires were made overnight with the Kuwaiti dinar!!!”  Really?  Prove it.  Give me one name.  Just one!

c. The $3+ value of the dinar before the first Gulf War was set by Saddam Hussein, and it wasn’t the result of market forces.  Even prior to Saddam’s reign the dinar’s value wasn’t the result of market forces but was established by policy.  As John states it’s possible to establish a high value for your currency but it’s very expensive to do so, and the trend toward globalization since the pre-Saddam era has caused most countries to prefer a lower value which helps them with developing exports and paying debt obligations.

2. Risks

a. Illiquidity – You can’t spend the dinar outside of Iraq.  Banks are no longer handling it so your only options for exchanging it (outside of flying to Iraq or Jordan) are dinar dealers and public trading sites like Ebay or Craigslist.  If Iraq redenominates like they say they will, those trading sites will no longer be an option and the dinar investors will be at the mercy of the dealers.  If the dealers disappear the investors are screwed with a capital S.  And as John mentioned the spread has been around 20%, so if you are able to exchange for the new dinar or USD you have to add the new spread to the old spread to determine your total cost.

b. Currencies aren’t stocks.  The idea that the dinar’s value will increase as Iraq’s economy grows is based on the flawed view that currencies behave like stocks.  They don’t.  People who make money speculating on currency do so with electronic currency on Forex and profit off of the slight fluctuations with high volume, leveraged purchases.  They don’t make money by buying physical notes and waiting for them to increase in value by more than 20% because currencies rarely do that.  In fact the largest revaluation in history was less than 40%.  If the dinar increases in value by 27% as it did from 2006-2009 you’d be lucky to make any profit at all going through a dealer.  And since the CBI’s policy is a stable exchange rate the likelihood of even a 27% RV seems fairly remote.  The fact is currencies that have depreciated due to hyperinflation either retain their lower value post-hyperinflation or they redenominate. They never appreciate back to their former value. It would destroy the economy.

c. Inflation – Developing economies like Iraq tend to have problems with inflation.  While the effort to bring inflation down is responsible for the only increase to the dinar’s value since 2006, a resurgence of inflation could send the dinar’s value into a downward spiral.  I’ve heard dinar investors say things like “how much lower could the dinar’s value go?  It’s already a tenth of a penny.”  Well look at Turkey’s old lira.  Prior to redenomination it was worth less than that.  A lot less.  In fact it would have taken almost 1500 lira to buy one Iraqi dinar.   When Zimbabwe redenominated they removed twelve zeros from their currency. It would have taken over 250 billion Zimbabwean dollars to buy one IQD.  So yes, the dinar could go quite a bit lower in value.  As of now inflation is relatively low, around 2%.  But as John points out it wouldn’t take much in an unstable country like Iraq to trigger another round of hyperinflation, and if that occurs they won’t be able to do much to control it.

John has stated that he made these videos because he saw so many people being misled about the potential for the dinar’s value.  He witnessed countless military personnel returning from Iraq and Afghanistan who had purchased dinar, believing that it had the potential to make them millions.  Since he wrote the article on the dinar scam and published these videos literally thousands have been spared the financial and emotional devastation that comes with being defrauded.  One day the dinar world will have to acknowledge John’s foresight and superior assessment of the dinar “investment”, but I’ll gladly do so now.  Kudos, JJ.