The Other Iraq Surge

Editorial of The New York Sun
December 27, 2007

It's no front-page news that Iraq is a dangerous place. But a capital magnet? The presses have stopped for less. According to the not-quite-closed record book for 2007, Iraqi sovereign bonds, the Iraqi currency, and the Iraqi stock market have each logged astounding, not to mention politically provocative, gains.

Not many would have predicted that Iraq's long-dated, dollar-denominated debt would have proven a safe haven during a worldwide credit crisis. But the 5.8s of 2038 did just that. Since the subprime mortgage meltdown began in August, these evidences of indebtedness of the government in Baghdad have gained no less than 18.3%. With a salute to General Petraeus and the doughty GIs under his command, one might say they surged.

So has the dinar, up 10% against the dollar this year. Now the dollar, admittedly, is no monetary fortress, and the dinar is one of the few Middle Eastern currencies left free by its issuing government to float in value (the exchange rates of most of the region's scrip are lashed to the dollar). The price of a barrel of oil, of which Iraq is a leading producer, has had a pretty good year itself. Still, during the 2007 New Year prediction season, how many guessed that the dinar would outperform the communist Chinese renminbi (up 6.3%) or the Russian ruble (up 6.8%)? The name of no such monetary prophet jumps to mind.

As for the Iraqi stock market, it is as much a hope as an institution. Trading is spotty, financial information is scarce, and the state-of-the-art technology is a white board. Yet the prices scrawled in marking pen have been in a strong uptrend. At last report, they were ahead by 36.8% on the year. For the plucky foreigner who got in at the lows, the total return — stock-price gain augmented by currency appreciation — would have topped 50%.

Markets give, and markets take away. The financial future is forever a closed book. Yet, to quote a Wall Street proverb that we first read in Grant's Interest Rate Observer, which has been ahead of other publications in respect of what might be called the other Iraq surge, "Money may be mis-informed, but it is never insincere." Something bullish would appear to be afoot in a most improbable place.

The Other Iraq Surge

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