May 31 2006
Equity Retreat: Just Nerves, or Something More?
The Washington Post is running a decent article on the current investor retreat from global equities, covering some of the reasons they suspect the markets are reacting the way they have been. Obviously, regular readers of Vigilant Investor knows that there is a lot more than meets the eye to the current environment, and that it is our belief it is only a matter of time before we hit a tipping point where everyone else catches on to the massive shifts taking place under our nose. Leaf through our past few month’s articles if you are interested on catching up on what you need to be watching.
Meanwhile, the Bush administration is continuing its policy in Iran, rooted in the belief that it is the prerogative of the U.S. to police the world, and that every country ought to kowtow to U.S. interests. As such, the U.S. is now urging financial sanctions on Iran to pressure it to become more subservient to U.S. interests.
While we tend to agree more with the founding fathers of the U.S. on the deleterious effects on liberty and wealth of interventionism, for the purposes of vigilant investing, we’ll only note that meddling in other people’s business will build foreign resentment and will lead to blowback. For example, while it may be popular to suggest that 9/11 was a terror reaction to the U.S. ‘having too many freedoms’, a far more realistic reason is that the U.S. has been steering foreign policy in the Mid East for the better part of 50 years, and some radical Islamists decided to send a message. Many will tell me that such an opinion is unpatriotic, but I am merely using basic logic. Just as it is doubtful that many Texans would much be pleased if their next governor received winning support from a foreign nation, more than a few Iranians were displeased with the U.S. involvement in propping up the Shaw of Iran. While U.S. citizens may be ignorant of their own government’s history in Iraq, Iraqis are all too familiar with their own history which includes foreign meddling from both Britain and the U.S. regarding who runs the country. After all, the U.S. helped install Saddam Hussein. So feel free to blame us for being un-American if you wish, but we are merely observing realities of human nature. Be careful what you wish for, America.
That said, should our meddling in the internal direction of Iran continue, the U.S. is very likely to create the response Bush’s “preventive policies” are intending to avoid. You make enemies when you deputize yourself as global cop, and other resource rich nations are growing tired of U.S. intervening in the internal affairs of other countries. So are many nations that hold hundreds of billions of dollars of U.S. debt, who could easily cause the U.S. massive economic complications by curtailing further lending. After all, the U.S. is a debtor nation with hat in hand to balance its federal budget and trade deficits.
Such are the risks of pursuing policies where the U.S. acts as not only global cop, but more often now global judge and jury. And, it is why great thinkers like Washington, Adams and Jefferson constantly warned against entangling alliances and to avoid going abroad in search of monsters to destroy. They understood that you make your allies’ enemies your enemies, or you create your own enemies seeking revenge. With troops in over 100 nations across the globe, and tens of $ billions in aid all over, and dropping bombs in the Mid East, the U.S. will merely reap the seeds that she sows.
That said, vigilant investors know to keep one eye on the geo-political, while avoiding strategies that allow you to get sucked into whatever vortex the “Official Policy” class manages to create with its many missteps.
In closing, we remind our readers of Thomas Jefferson’s thoughts on the future of the country he helped found: ” I hope our wisdom will grow with our power, and teach us, that the less we use our power the greater it will be.”
