The Great Depression Online




Great Depression Online Archive Issue:

The Magic Reversible Currency

Great Depression Online
Long Beach, CA
September 02, 2008

Inside This Issue You Will Discover…

*** Spanning the Globe
*** The Magic Reversible Currency
*** September and Stocks
*** And More

Spanning the Globe

U.S. markets were closed yesterday for Labor Day, but still we labored on.  For the world keeps on turning…even on holidays.

Spanning the globe we see that over in the U.K. the FTSE fell 13.57 points and in Germany the DAX fell 0.50 points.  But the real carnage of the day came in Japan, where the Nikkei dropped 238.69 points.

Too, we see that stupidity didn’t take note of the holiday in the Middle East…where it labored on in Iran.

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~~~~~~~~~~~~~~~~~~~~~~~~~

The Magic Reversible Currency

Iran is considering lopping three to four zeros off its currency, a top official said Monday, in an apparent effort to fight out-of-control inflation that many critics blame on the country’s hardline president,” reports Ali Akbar Dareini for AP.

“The Iranian rial is now traded at 9,600 rials to one U.S. dollar.  That compares with 70 rials against the dollar in 1979, the year an Islamic revolution toppled the pro-Western Shah Mohammad Reza Pahlavi.

“In June, Iran’s government put the inflation rate at a whopping 26 percent.  Independent economic experts say the actual inflation rate is even higher, at more than 30 percent.  Prices for vegetables have tripled and housing prices have doubled since last summer.”

In just under 30 years the Iranian rial has lost 13,714% of its value against the dollar.  But what’s more, the dollars hardly been a stable store of value over this period.  According to the BLS inflation calculator it takes $3.03 in 2008 to buy what $1.00 did in 1979.  In other words, $1.00 in 1979 is worth $0.33 in 2008.

So to combat the inflation problem the Iranian government’s been issuing a reversible currency with high values on one side and low values on the other.

“In recent weeks, Iran has issued higher-denomination notes to try to ease transactions, which can be complicated and time-consuming with smaller-denominated bills.  The central bank issued 500,000 rial and one million rial notes that carry the figures 50 and 100 on their backs, prompting speculation that the rial might lose four zeros.”

So if something seems too expensive you just turn the rial note over and it magically costs 10,000 times less.

We appreciate this sort of twisted logic the way we appreciate a smiling politician.  We take consolation in the expectation that somewhere nearby money is being transferred from those who earn it to those who spend it.

Still, we don’t have much confidence in this harebrained scheme to control the country’s inflation problem.  But for the sake of the residents of Iran, we hope it works.

And we’ll close with this little tidbit…

September and Stocks

September has historically been the worst month for stocks.

“On average since 1896, when the Dow Jones Industrial Average was created,” declares Mark Hulbert of MarketWatch, “September has been the worst performing month.

“It’s not even been close, in fact.

“The Dow during the average September has lost 1.13%, which compares to an average gain among all other months over the last 112 years of 0.75%.  That works out to an average spread between September and all others months of 1.88 percentage points per month -- which is impressively large.

“Nor is September’s awful record the result of just a few years in the sample.  The pattern in fact is remarkably consistent: September was among the worst performing months in all but one of the decades of the 20th century.  Only between 1911 and 1920 was its performance above par, when its average performance for the decade came in second.”

Something to consider if you’re looking to buy.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Of course September isn’t a wash for everyone’s portfolio.  Especially those that buy stocks at half-price.  I know this sounds simple enough, but if you’ve ever tried it…you know it’s not.  That’s where Nathan Slaughter and his Half-Priced Stocks Newsletter can help.  Learn everything you need to know here: Half-Priced Stocks.

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