Fortis (Brussels:FORB), the Dutch bank that already suffered the humiliation of being propped up by, not one, but three different governments, just lost its deal with one of China’s largest insurers. And the company’s commercial banking sale to Deutsche Bank (NYSE:DB) has been put on hold by regulators until further notice.

Earlier this week, Fortis had to go begging to the government, but it didn’t just get aid from its native Dutch government. It also sold itself to the Belgian and Luxembourg governments. Each of the trio bought 49% of the bank’s units inside their respective borders. And now it has three masters, four, if you count the investors who drove up its price 12% today.

We saw the result of this action ripple through Fortis’s joint venture partners on Monday, when it shook down Royal Bank of Scotland (NYSE:RBS) for 24% of its stock price.But that wasn’t the end of it. Today, Fortis had to cancel the sale of half of its asset-management wing to Ping An Insurance (Pink Sheets:PNGAY) (you may remember it from it’s IPO) for 2.15 billion euros ($3.03 billion).

Ping An has designs to become a full-service financial company, but the deal was made in March, before Fortis became a bargain-basement seller, and would have required an immediate writedown on Ping An’s part.

Fortis has also been thwarted by the Dutch Central Bank in the sale of it’s commercial banking assets to Deutsche Bank.

And despite the fact that Fortis can’t even give itself away, the stock is up nearly 12% today… I wouldn’t trust that gain too much.

Source: Fortis (FORB) up 12%, despite setbacks

Justice Litle isn’t fully sold on the bailout. But he says it isn’t an option to let Mr. Market sort himself out this time: the US is too leveraged to follow Andrew Mellon’s “liquidationist” approach during the Great Depression.

That’s why the feds will do whatever it takes to prop up the system… and run the dollar into the ground. And that’s why you should buy gold now.

This from Taipan Publishing:

The problem, in a word, is leverage. Rightly or wrongly, we all got leveraged up to the eyeballs these past few years. Not just the Wall Street banks (though they were the worst offenders) but everyone, including U.S. consumers.

As we all know by now the offending financial institutions – be they bought out or bankrupted or absorbed – were leveraged by as much as 30 or 40 to 1. That’s the equivalent of making a $100 bet with two or three bucks in your pocket, declaring yourself “good for it” if the bet goes bad.

So now, thanks to the laxity of Greenspan, Bernanke, the SEC, Congress and others, we’re saddled with “capitalism on the upside and socialism on the downside,” as some have aptly put it. Wall Street’s stupidly big bets have become everybody’s problem.

But you know what? Joe Sixpack got himself nicely leveraged, too.

Spengler of the Asia Times observes, “Leverage is the secret of American wealth. The average American family in 2004 had a net worth of US$448,000 on an income of $43,000, according to the Federal Reserve’s survey.”

When Americans talk about their net worth, they are largely talking about two things: the value of their homes and the value of their investment portfolios. Both those numbers are greatly inflated by the built-in leverage of the system.

For example, what is a house worth? Whatever someone is willing to pay for it… the “multiple” of which depends greatly on a few key things. (Like functional credit markets, for one.)

And what is a stock worth? Whatever multiple someone is willing to pay for the company earnings stream… again based on a handful of key factors.

The upshot is that the average American is leveraged, too, by a factor of 10 to 1 or more. And we’re only talking about Americans with positive net worth here — not to mention the trillions in pension funds.

If the financial house of cards comes crashing down, it doesn’t just crush Wall Street. It crushes Main Street, too. This is what the Cool Hand Lukes who want to say “screw the system” don’t understand: We as a country are too deep in the system to survive its sudden demise. When you’re in up to your neck, you can’t walk away.

The Mellon Plan: Not an Option

Andrew Mellon was the only Treasury secretary to have served under three U.S. presidents. He held office from 1921 to 1932.

After the crash of ’29, as the Great Depression got underway, Mellon made his position known as a “liquidationist.” Mellon’s famous advice in response to the budding ‘30s crisis: “Liquidate labor, liquidate stocks, liquidate farmers.” In short, liquidate everything in sight. Let the weak fail… and let God sort them out.

That’s simply not an option today. Our entire system is built on leverage. That is the Achilles’ heel of modern financial markets.

In normal times, it’s a good thing that a young couple with a promising future can buy a house on 20% down. In normal times, it’s a good thing that a single mother can get a low monthly payment on a car so she can drive to her new job. In normal times, it’s a good thing that an entrepreneur can get a loan to start up a small business.

But all those good things require debt and leverage… on at least one side of the equation, if not both.

Leverage, like debt, is not an inherently bad thing. It’s a tool that can be used or misused. The ability to use leverage efficiently has played a large part in our current prosperity. But as a result, the use of leverage has become too common and too widespread to just say, “liquidate.” We’re in too deep… we no longer have access to the “Mellon plan.”

The Nuclear Option

This is why I think the powers that be will go “nuclear” in a way we haven’t yet seen.

That is to say, when the depth of the danger really hits home… when it sinks in that the viability of the entire system is at stake, and that we are all at risk of being sucked into the deleveraging vortex… the public and political resistance to a full-blown, no-holds-barred rescue will evaporate.

We haven’t seen the full-blown response yet, only shades of it. But it is coming.

On Monday we got news that Wachovia (NYSE:WB), another major American banking institution, would disappear. The Fed took great pains to clarify it was “not a failure” like WaMu (NYSE:WM)… but another giant bites the dust nonetheless. We also got word that Fortis (EBR:FORB), a Belgian bank, is on the brink. (Welcome to the party, Europe.)

In response to all this, the Fed announced plans to pump $630 billion into the global financial system, according to Bloomberg. By the time you read this they may well have pumped a lot more. (Tell me again why $700 billion is supposed to a big number?)

The plumbing of our global financial system is rotten. Pipes are bursting left and right. A bunch of fat-cat bankers may be the ultimate culprits, but we all played a part… and it’s the only system we’ve got.

Really, what other option is there?

We cannot just “ride this out.” We cannot just “let it pass.” Full-on liquidation would be the equivalent of economic and political suicide. It is going to keep getting worse until the powers that be come up with the most dramatic response they can muster.

We haven’t gotten to that point yet. The “nuclear” option — in terms of flooding the system with enough dollars to flood the Panama Canal, or even writing outright checks for U.S. equities a la Hong Kong in 1998 — has not been tried.

It’s going to get worse from here. And so the government is going to do more. And they will keep doing more until things have been turned around, at least on paper.

“This Sucker Could Go Down”

“This sucker could go down,” as President Bush so eloquently put it last week.

The U.S. electorate and Congress did not really believe the Commander in Chief, seeing as how he has been so dead wrong on so many other things. They thought the crisis could be handled with a helping of provisos and quid pro quos — a little urgency with a little temperance, too. They didn’t really believe that the entire global financial system as we know it was at stake.

But, like it or not, it is at stake. As much as I find it surprising to agree with Dubya, this “sucker” really could “go down.” I view this not as a moral assessment, but a structural assessment… like an engineer testing the joints on a suspension bridge and finding it in danger of collapse. It doesn’t matter whether the situation is fair or unfair, or who screwed up the bridge or built it poorly in the first place. It just is what it is.

When the truth sinks in, the powers that be will do all they can to prevent collapse from happening. The blame game will by sidelined by emergency the task at hand.

And how do I know Washington et al haven’t “done all they can” yet? Because the dollar, heading into its twilight days as the world’s reserve currency, has not yet been destroyed.

That’s the final outcome of the von Mises prophecy… the final reality of the Austrian Endgame. And it’s where we are headed. When the dust clears, it may be recognized that we had to pass through this panic point, to reach the height of realization of what’s at stake, before the true “nuclear” measures were implemented.

Gold Shines Here and Now

There are few areas where I’d be willing to buy with both hands right now. There are some incredible bargains out there to be sure. But as the market bleeds, they are just becoming even more incredible.

I still think the “stocks in the stratosphere” scenario as laid out last week is likely to play out, as the flipside of a U.S. dollar meltdown plus hyperinflationary stimulus.

I think that, with the Dow in full-blown crash territory, we are closer to that “nuclear” trigger point now than we were before. It’s a bit of a counterintuitive thing… before we get paper asset lift-off, things have to get bad enough to panic the powers that be into creating the inflationary conditions that fuel lift-off.

In other words, you don’t walk the path of Zimbabwe and Weimar Germany if you can avoid it. A big part of my thesis is that America’s path is predestined — and we’re being forced onto that path now.

Being a trader at heart, I prefer to buy when the prices of things I like are going up, even when I’m buying for long-term investment purposes.

Today, what’s going up is gold.

Gold stocks aren’t following suit in the short term, but that’s because frightened hedge funds continue to dump assets left and right. We are witnessing a fire sale of epic proportions. I believe that hard on the heels of this we will see a stimulus injection of epic proportions, and that will push a lot of hard assets higher.

So you could do far worse now than to get your hands on gold: physical gold, gold ETFs, gold stocks. That’s the general ranking in order of safety vs. risk. I like them all now. Gold and gold stocks also make a compelling case for a trade from the technical side.

On the fundamental side, as the reality sinks in of what’s ahead of us, I believe gold will punch through its old highs and keep going (and going… and going… and going…).

Keep a cool head, and I’ll do my best to keep you informed.

Source: Why the “Nuclear” Response to the Crisis Is Still Coming… and What to Buy Now

The dollar held up remarkably well, considering the 777-point crash in the Dow—history’s largest in raw numbers—after the big Paulson bailout was rejected by Congress. Unsurprisingly, that body was sharply divided along re-election rather than party lines. With members getting an earful from angry constituents, those in tough fights for their seats voted against, those in safe seats for.

In any case, the bailout is DOA for the moment, even as the administration plots how to resurrect it, or to free up money in ways that don’t require Congressional approval. Whither the buck as the Paulson proposal lies in ashes is anyone’s guess, but it’s suffered little so far.

“The U.S. dollar weakened against the Japanese yen, but its strength against the euro and British pound indicate that the concerns for those currency pairs now shift to the prospect of further bank failures in Europe,” said Kathy Lien, director of currency research at GFT Forex.

Lien’s concerns are well taken. The day saw European governments step up to help Fortis, Bradford & Bingley and Icelandic bank Glitnir recapitalize. Brussels-based Fortis got an 11.2 billion euro injection from the Netherlands, Belgium and Luxembourg; the UK Treasury will nationalize most of Bradford & Bingley; and the Icelandic government has bought a 75% stake in Glitnir.

“At this point, debating whether the euro area is in recession or not is simply useless,” said Aurelio Maccario, chief euro-zone economist at UniCredit MIB in Milan. “With financial markets experiencing a serious risk of seizure and the real economy continuing to lose momentum, we think that the outlook is getting gloomier by the day.”

Source: Bailout Plan DOA, Investors Pummel Stocks, but Dollar Rallies

Good day… And a Terrific Tuesday to you! Well… Guess who was wrong AGAIN! That’s right, King Henry Paulson, he of the U.S. Treasury Sec. throne… He told the world on Friday, that the bailout package was a “done deal”… And he told us again on Sunday that it was a “done deal”… The markets rejoiced, the stock jockeys danced in the streets, the karma flowed and all the stars were in alignment… And then… A (not so) funny thing happened on the way to the forum…

King Henry’s men revolted, and the bailout package did NOT have the votes to pass it, and the “done deal” was “undone”! Once again this man has led investors down the wrong path. I’ve documented the wrong statements by this man in the past year, and still, investors hang on every word by King Henry… When will they ever learn? When, will, they, ev-er learn?

The Dow posted its biggest one point drop ever… 777 points… It wasn’t the biggest percentage drop in one day ever, that belongs to the Crash of October 1987, but still, that was enormous! There needed to be a tourniquet to stop the bleeding, and not one was given to the stock market. The S&P 500 suffered too…

And… Was the bailout package the “only” reason stocks dropped like a rock? Difficult to say… But let me say this so you can hear me now and listen to me later… Even in the face of the other bailout plans (remember Bear Stearns, Fannie & Freddie, AIG, the mortgage bill?) stocks had a difficult time putting together a rally that would last a couple of days… There’s an underlying problem here folks… And if you ask me, and I know you didn’t, but you’ll get my answer anyway! I think it’s the recession we’re in, but no one wants to admit it. We’re so deep into a recession that the NBER doesn’t know their way out, much less call it for what it is!

I had a reader chastising me because his currencies aren’t going through the roof. Hmmmm… Let’s look around the bar room, and take stock of what’s going on here… Currencies are performing better than stocks… Bonds… Mutual funds… Housing… Commodities… I wonder where it would have been better to have money? I’m sure there’s somewhere… But, for the most point, Currencies may be down… But they are outperforming most other investments!

OK… I had to get that off my chest! So… As I left you yesterday, the dollar was rallying… But that rally was stopped in its tracks early in the U.S. session, as it looked as though the votes would not count up in favor of a bailout package passing. The rally by the euro and other currencies was strong for about an hour, and then range trading set in. However, as I turn on the currency screens this morning, they are back to trading in yesterday’s clothes, with the dollar swinging the hammer again.

Some of euro’s problem in maintaining a well bid rally the last few days is the rot that’s being found in European Banks. As I said yesterday, I thought the Fortis (FORB) problem wasn’t going to be a one and done, but I thought the rot on the vine wouldn’t be as bad as in the U.S. Well, this morning there’s another one Dexia (DEXB)…

The Big Boss, Frank Trotter, sent me a story he found that was quite interesting, as the German Finance Minister was interviewed regarding the financial meltdown… This was a great story, and I can’t give you all of it, but, I’ve put in the highlights… Here we go!

SPIEGEL spoke with German Finance Minister Peer Steinbrück about the roots of the US credit disaster, whether Germany is in grave danger and what the future has in store for world banking.

Steinbrück: We are experiencing the most severe financial crisis in decades, although one should be careful about historic comparisons with 1929. One thing is clear: After this crisis, the world will no longer be the same. The financial architecture will change globally.

SPIEGEL: And is the United States completely to blame?

Steinbrück: The source and focus of the problems are clearly in the United States. There are many causes. After 9/11, a great deal of cheap money was tossed into the market. Apparently some of that money went to people with poor creditworthiness. This led to the growth of the real estate bubble. The banks embarked on a race over profit margins. Then speculation spun completely out of control…

SPIEGEL: The German government is unwilling to participate in America’s $700 billion bailout package. Is this your final word?

Steinbrück: I see neither the need for nor the possibility of taking on the responsibility for American banks. Besides, our situation is more robust.

So… There you go… Some statements from the German Finance Minister, who did say at one point regarding the AIG bailout… “We were all staring into the abyss”…

Long time friend and colleague, Ed Bonawitz, sent this note to me yesterday… “Given today’s events in Washington and on Wall St.; the winner of the presidential election will probably ask for a re-count!”

Yes, funny… But oh-so-true! The bailout package, if passed, was going to leave a lot of important decisions in the hands of the next president. I can’t imagine why anyone would want that job!

Looks like the Senate will try to revive the bailout package, after watching the carnage in stocks yesterday…

The Japanese yen pushed the envelope VS the dollar yesterday while stocks were circling the bowl, yen was in favor… This is a classic example of risk trades, like the Carry Trade, getting unwound during times like this… And when Carry Trades get unwound, the Japanese yen rallies. I would think that we should expect more of this… But then, I’ve thought that for almost a year now… Last November, speaking at the New Orleans Investment Conference, I emphasized that I expected risk events to be in play in 2008, and that would unwind Carry Trades. This was repeated in February at the Orlando Money Show, and every speaking engagement since…

Yesterday… Personal Income and Spending data was a little skewed, but here it is anyway… Personal Income for August “jumped” .5%, gaining back some of July’s -.6% loss… Personal Spending failed to rise, and July’s number was revised down…

Personal Income is still volatile due to the stimulus checks, etc. but the spending figures are encouraging and disheartening at the same time… Encouraging because maybe, we, as Americans, have stopped spending what we don’t have or shouldn’t be buying… But disheartening, because consumer spending makes up a huge chunk of GDP… Without consumer spending, economic growth is left with Government spending… That’s no way to grow an economy!

Today, we’ll see the color of July’s S&P CaseShiller Home Price Index, which is expected to continue its fall. The Chicago Purchasing Manager Index (Manufacturing) will show a weaker print… And Consumer Confidence for this month is expected to weaken… Shoot Rudy, this data should fall through the trap door of falsely supported data! We’ll have to see if the markets pay attention to the data today… I kind of think they will continue to be focused on the bailout package.

Gold sure shot up yesterday, gaining $30 and going back over $900… But that was short-lived… The shiny metal has given back $15 in the London market this morning. Profit taking? I would certainly think that has something to do with it. I just keep coming back to the conversations I hear on the desk every day from our metals traders, Kristin and Jen… They can’t find coins or bars in Gold or Silver anywhere! There’s a shortage folks… And there’s no price adjustment in Gold or Silver going on! This has the all the makings of the PPT keeping the prices low…

I know, I don’t like thinking that this isn’t a “free market” any more than the next guy… But that’s exactly what’s going on, eh? There’s no such thing as a shortage, it’s merely in need of a price adjustment… And if there’s no price adjustment, then it’s being held down artificially… But by who? There’s only one choice… The Plunge Protection Team… PPT…

This is no solace to Gold & Silver holders… They want their holdings to rise in value in a free market environment! Our free market, as we know it, may be the thing going into the abyss in my opinion… Think about what’s happened since March… And then tell me if you think this is a free market, or one that is controlled by the Gov’t…

OK, I’ll get down from my soapbox now… Just think a little about that today, OK? Wow! I can really get off on tangents, eh?

So… Wachovia (WB) actually went to the highest bidder, Citicorp (C)… Yesterday morning, the Wall Street Journal was reporting that Wells Fargo was the “winner”… Well, that fell through, and Citicorp came riding in on the white horse. Citicorp bought Wachovia’s banking operations… I wonder what happens to the old St. Louis Brokerage, A.G. Edwards, that was purchased by Wachovia last year? I know people that work at the brokerage, so this hits home a bit.

The dollar has gained another 1/2 cent VS the euro since I’ve been here this morning, so this is getting ugly… Something has to turn this around and get this ship headed in the right direction again!

And… Finally… Don’t look for this to be reflected at your gas station any time soon… But the price of Oil has fallen below $100!

Currencies today 9/30/08: A$ .8065, kiwi .6760, C$ .9550, euro 1.4325, sterling 1.7990, Swiss .9080, ISK 102.20, rand 8.30, krone 5.80, SEK 6.8325, forint 169.60, zloty 2.3780, koruna 17.22, yen 104.90, baht 33.88, sing 1.4290, HKD 7.77, INR 45.97, China 6.8460, pesos 11, BRL 1.9630, dollar index 78.20, Oil $98.89, Silver $12.92, and Gold… $894

Chuck Butler

Source: King Henry Was Wrong Again!

OK… The data on Friday was the stuff that should have sent the dollar to the woodshed, but like all the data lately, it just gets swept under the rug, as the market movers are myopic with the Bailout package. Lawmakers worked all weekend to iron out the details of the package, and King Henry (U.S. Treasury Sec.) has announced again that the package has been agreed on by Congress. The vote doesn’t actually take place until tomorrow or Wednesday, but that hasn’t stopped King Henry from pounding his chest over his latest victory. I like what I heard from former Fed Gov. (and Mark Twain Bank economist) Laurence Meyer, who said: “This has a reasonable chance of pulling back from the brink and having some success, but it’s far from certain that will be the case.”

And that’s where the spanner is in the works folks… And I don’t see how it can be the case! Not with trillions of toxic waste bonds on the books of lenders, and no clear indication of how the Gov. will pay prices that not only help the taxpayers but keep banks from failing… But again, we’re singing the Grass Roots hit… Sha, la, la, la, la, la, live for today, and don’t worry about tomorrow, yeah…

But all these questions haven’t stopped the dollar bulls from coming back in force… The dollar has rallied hard since Friday morning, and throughout the Asian and European overnight markets. The euro is now trading with a 1.43 handle, and… It just keeps moving downward. Does this make sense to anyone? The U.S. Gov’t is planning on pumping dollar after dollar into the system. They are planning on taking on $700 Billion in more debt, that will most likely become at least $1 Trillion and more. And it still won’t prevent lenders from failing. But the dollar rallies… Sounds like currency intervention, smells like currency intervention, and walks like currency intervention… It must be currency intervention!

You don’t have to stretch your conspiracy thoughts too much to come to that conclusion… The dark storm clouds are forming over the dollar, and it miraculously rallies?

Looks like Wachovia (WB) is in advanced talks to sell itself to Wells Fargo (WFC), according to the Wall Street Journal this morning… Better that, than to have the FDIC have to come in and seize the bank… Not that I know that was what was going to happen, I’m just saying it’s better to sell while you can.

Overseas… Fortis (FORB), the Dutch-Belgian Bank whose roots date to the 1800s, is on the verge of becoming the latest target of a government rescue. The governments of Belgium, Luxembourg and possibly the Netherlands, the three countries in which Fortis operates, were planning late Sunday to offer the bank a lifeline after failing to find a buyer, also according to the Wall Street Journal…

So… The rot on the U.S. vine is spreading… This won’t be a one and done, but the rot shouldn’t be the same kind that killed the golden goose here in the U.S.

I just finished an article for my new paid letter, The Currency Capitalist, on how the Nordic countries were faced with a banking crisis in the early 90’s, and how they dealt with it in a completely different manner…

But in the end, it all comes back to the problem that I’ve been harping about for over a year now… The Financing the deficit problem… I just can not get my arms around the idea that foreign investors are going to keep footing the bill for the U.S.’s indiscretions. A financing of the deficit problem has been, is, and will continue to be the Sword of Damocles hanging over the U.S. and the dollar…

I’ve explained this before, but for new readers… When a country faces a deficit financing problem they only have two choices… They can raise interest rates aggressively to attract foreign investment, but run the chance of bringing their economy to its knees… Or… They can opt to allow a general debasement of the currency. With a cheaper currency, foreigners then get to buy U.S. assets at a discount… So, given the choice, a country will always choose what’s behind door number 2!

But… The country (the U.S. in this case) can’t allow a “run” on the currency… They want it weaker, but can’t allow currency traders and investors take big chunks of the currency causing it to slide too far too fast. That would scare the bejeebers out of the foreign investors that buy our assets to finance the deficits… If they feel as thought they are going to continue to lose money on the currency exchange, eventually, they will say, “No Mas”!

So… We start the week with the dollar in the driver’s seat, against all currencies… Even the Canadian loonie is seeing some weakness, albeit not the kind of weakness the euro is seeing, as the loonie still has a 96-cent handle!

The data on Friday was not good… Here you go… 2nd QTR final GDP came in weaker than the preliminary number of 3.3%, falling to 2.8%… The export number of that 2.8% was still the major driver, thus the GDP number is a house of cards… U of Michigan Confidence fell from 73.1 to 70.3… But as I said, the data just gets swept under the rug…

So… Back to the bailout package… I read that King Henry’s original bailout package consisted of 3 pages, and has now grown to 110 pages now that lawmakers have had a chance to deal with it! That’s so typical isn’t it? Anyway… There will be 3 tranches of payments $250 Billion as soon as it’s passed, $100 Billion after a progress report to Congress, and the remaining $350 Billion, only if needed… Yeah, right! Like it’s not going to be needed!

Anyhoo… The stock jockeys will be dancing in the streets today, you bet your sweet bippee! I guess, we’ll just have to hunker down again on the currency side, and let all this slide by and play out… The currency euphoria we saw earlier last week has slipped away… Maybe, these are more buying opportunities… Maybe… You never know!

Today, we’ll see Personal Income and Spending, and the Personal Consumption Expenditures (PCE), which is “THE” inflation indicator that the Fed uses. Tomorrow we’ll see the S&P/ CaseShiller Home price index, Chicago Purchasing Managers Index (manufacturing), Consumer Confidence, and so on… More later in the week as we turn the calendar to October, and we’ll talk about those at that time.

And before I head to the Big Finish… The goings on in Gold and Silver are really making one scratch their heads (in my case, bald head) We have major precious metals wholesalers world, out of Gold and Silver, except in sizes nobody wants. So… If there’s a shortage of the Gold and Silver, why aren’t the prices of these two just kicking rear and taking names later?

Mark O’Byrne, of Gold and Silver Investment, Ltd. Had this to say about this scenario… “Bullion shortages and the confluence of unprecedented demand and limited supply in conjunction with macroeconomic, inflation and systemic factors is leading to extremely bullish conditions for the gold market – probably even more bullish than in the 1970s when gold rose some 3,000% from $35 to over $850 in just 9 years.”

Currencies today 9/29/08: A$ .8150, kiwi .6750, C$ .9610, euro 1.4325, sterling 1.80, Swiss .9030, ISK 99.75, rand 8.24, krone 5.7825, SEK 6.7630, forint 169.50, zloty 2.3690, koruna 17.20, yen 106.20, baht 34.04, sing 1.4340, HKD 7.7640, INR 47, China 6.8450, pesos 10.88, BRL 1.8450, dollar index 78.23, Oil $103.50, Silver $12.98, and Gold… $880.35

Chuck Butler

Source: Bailout Package Is Ready…

Ambitious new projects to develop the steel and natural gas sectors will dramatically boost production. China and Russia are rushing in to secure supplies. But sanctions prevent the US from investing in Iran.

Sara says ongoing suspicion over Iran’s nuclear program will keep it off the investment table for much of the Western world…

Over the past several months, the investment world has turned its ever-roving eye on the Middle East and North Africa.

Since July, four new exchange traded funds have hit the market focusing on these regions. They are the WisdomTree Middle East Dividend Fund (NASDAQ:GULF); the Market Vectors Gulf States Index ETF (NYSE:MES); the PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA); and the SPDRs S&P Emerging Middle East & Africa ETF (AMEX:GAF).

But the one thing lacking in these investment vehicles is Iran.

Of course, the U.S. has decreed it will not make investments in Iran, who it considers a state-sponsor of terrorism. That’s nothing to fool around with.

While much of the Western world stands firm, other nations, like China and Russia aren’t quite as righteous. Russia has repeatedly stood against strong sanctions in response to Iran’s nuclear program… as has China, but for different reasons. Iran and Russia have a history that goes back to before the Cold War. But China…

Iran is the world’s fourth largest oil exporter, and China, in early December 2007, signed a $2 billion deal with the country to secure oil supplies.

Deals like this have been a welcome balm to Iran’s struggling infrastructure. U.S. and UN sanctions have taken their toll, and foreign investment has been nearly non-exsistent.

But things may be changing in Old Persia… The country just announced that it will increase its annual steel production to 15 million tons, representing a jump of 50% from current levels.

The steel industry hasn’t had a boost this big since March 2005 when a group of European and Iranian banks funded the Hormuzgan Steel project with $800 million. With imported steel accounting for about 40%-50% of demand, and demand across the Middle East rising significantly with the region-wide building boom, rising prices are creating a real problem for infrastructure expansion.

Iran has eight new major steel projects in the works.

It’s also planning on spending $30-billion to expand the South Pars natural gas field. This investment could reap as much as $22.3 billion a year by doubling annual production to 68 million tons.

Without a doubt, Iran is a major player in the Middle East, and will continue to be. It has a $13-billion sovereign wealth fund created from its oil wealth. And some of its major investments have been in financial institutions in the Middle East.

But will Western investors ever get a chance to make money off Iran’s growth, as it they have in Dubai, Egypt and Israel? And should they, for that matter?

It’s a philosophical question that I can’t answer. And it gets even harder when you hear that Iran is sharing its nuclear technology with Nigeria… A technology that the country repeatedly insists is for peaceful power generation while refusing to halt its uranium enrichment and submit to the International Atomic Energy Agency’s full inspections. (Though the IAEA does have Iran’s Natanz facility under video surveillance.)

In late August, Iran announced it had 4,000 centrifuges working on uranium enrichment, and another 3,000 being installed.

The whole situation, for investors and politicians alike, is scary. And while there may be opportunities in playing companies investing in Iran, like Sinopec (NYSE:SNP), the Chinese firm that inked the $2 billion oil deal, and Fortis Bank (Brussels:FORB), who helped finance the Hormuzgan Steel project, danger still abounds.

That will keep Western investors (most, anyway) on the sidelines, and pure Iranian plays off the investment table.

Source: Emerging Iran: Danger or Opportunity?