Saudis take their money and run

By WND Staff

Editor’s note: The following is a guest commentary from one of WND’s sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.

In the ’90s, our stock market was an investor magnet, and not just for investors in the good, old U.S. of A. Virtual silos of foreign money got converted into dollars to secure possession of hot U.S. equities, and that influx of capital ultimately led to a staggering sum. Some economic talking heads put the figure at several trillion dollars.

That’s the good news. Or was, at least. Now for the bad: Since the market has deteriorated to a pale shadow of what it used to be, that same foreign money is suddenly wanting out. That means we’re now witness to the reverse process unfolding – U.S. stocks are presently being liquidated, and the ensuing dollars are getting converted into euros or whichever particular currency a foreign investor prefers holding.

It hasn’t always been a gradual process, either. Case in point: The Saudis have just yanked $200 billion out of Wall Street and promptly converted it into euros and placed it into European stocks.

Were these enigmatic desert folks intimidated by how increasingly wimpy our stock market has become? Were they alarmed at their mounting paper losses? Probably. But that wasn’t their stated reason for the sudden withdrawal. The British daily Financial Times reported that the Saudis reallocated this virtual sea of money out of fears that the Bush administration was quietly planning to freeze it.

It seems that a good many survivors of 9-11 have been filing suit against the Saudis ? based on charges of secret Saudi funding of the al-Qaida organization and the fact that most of the hijackers were of Saudi origin ? and these cases, aimed at recovering over $1 trillion in damages, have at least a reasonable chance of victory. That being a sound assessment, the Saudis may not be through quite yet. Depending on which analyst you listen to, that reallocated $200 billion may represent a mere third to a quarter of the total Saudi investment in American stocks.

So, should the outcome of these suits against Saudi Arabia, three members of the Saudi royal family and various banks, charities and citizens in that country (filed by some 600 U.S. survivors to date) look inevitable, Saudi money managers may have no choice but to reallocate their remaining $400 to $600 billion into European investments to avoid the recovery tactics of the U.S. justice system.

This would be a devastating swing in the financial balance of power. As it was, the shift of that $200 billion from dollar-denominated investments into those denominated in euros accounted for an immediate weakening in the dollar versus its chief competitor, the euro. This is especially significant because a weakening dollar and a dropping Dow only adds to the momentum of all that foreign investment capital rushing for the exits.

Add to that the likely prospect of war with Iraq and there’s a good chance we’ll see other countries step up their otherwise orderly withdrawal from Wall Street, too, which will have the effect of kneecapping Wall Street … and of billions of U.S. dollars suddenly getting repatriated to our shores. This will have an undeniably inflationary result, a dilution of our present dollar-denominated spending power. But that’s one scary downward cycle that none of us need be vulnerable to – not as long as there’s gold.

Keep in mind that gold is an historic storehouse of value and is proven throughout the centuries to maintain its value during times of economic stress and emergency, although the currencies that purchase it may fluctuate wildly. By owning a healthy percentage of the precious metal in your portfolio, you are effectively safeguarding your holdings, virtually insuring them against the consequences of more defections of foreign capital and even more of those repatriated dollars. This is gold in its finest hour – as your safe harbor against any of the many storms that may rage.

Even a new desert storm.

Special for WND readers, Lear Financial is making available free information on investing in precious metals.

With more than 20 years of industry experience, Kevin DeMeritt is president of Lear Financial, one of today’s fastest growing and most successful precious metals investment firms.