The Anti-Terrorist Portfolio… How To Protect Your Portfolio during the War on Terrorism
by Dr. Mark Skousen, Chairman, Investment U
Monday, July 3, 2006: Issue #553
“The policy of America is commerce with all, and war with none.” ~ Ben Franklin
As we enjoy the July 4th holiday, we must ask ourselves two questions:1. Are U.S. stocks languishing because of the high cost of fighting a lengthy war on terror?2. Should Americans look abroad for better investment opportunities?
For the past several years, as the United States has carried the main burden in fighting the war against terrorists in the Middle East, international stocks have far outperformed Wall Street. Take a look at the chart below, comparing the performance of the S&P 500 Index with the Schwab International Stock Index Fund (SWINX).
As you can see, both domestic and foreign stocks were hurt in the first couple of years after the terrorist attacks, but since the recovery began in 2003, clearly foreign markets (including emerging markets) have far outperformed the U.S.
I believe this trend will continue, despite the recent selloff in emerging markets. Here’s why
America’s Warfare/Welfare State Is Getting Very Expensive
The War on Terror is an expensive war. NATO allies have cut their defense spending for terrorist activity, while the Pentagon’s defense budget has skyrocketed since 9/11. Countries such as Britain, Canada, France, Italy, Poland, Spain and Germany have cut their active-duty forces, according to statistics compiled by the London-based International Institute for Strategic Studies. At the same time, the U.S. increased its ranks from 1.37 million to 1.42 million.
Moreover, the U.S. share of GDP spent on defense has gone from 3% to 3.7% since September 11, 2001, while other NATO nations collectively have declined from 2% to 1.%, according to the Pentagon. Twelve years ago, NATO, excluding the United States, devoted 2.5% of GDP to defense.
For fiscal year 2007, the U.S. will spend $440 billion on defense, a 50% increase over the 2001 budget. This amount alone explains the skyrocketing federal deficit, although we cannot forget that the U.S. has also dramatically increased its welfare state, especially the costs of education, Medicare, Social Security and prescription drugs.
The national debt has ballooned to $8.4 trillion, and we are now spending more than $350 billion a year in interest on the debt – and it could increase faster now that the Fed has raised interest rates to over 5%. But here’s what to do about it
Build An Anti-Terror Portfolio
Fortunately, there are several ways you can protect yourself in this Age of Terrorism. Consider two of them:
2. Establish an “Anti-Terror Portfolio.” Several years ago, I made a list for my subscribers that included investments that might benefit from terrorism. They are:
- Defense stocks, such as Boeing (NYSE: BA), General Dynamics (NYSE: GD), and Lockheed Martin (NYSE: LMT)
- Commodities, such as oil, gas, copper and aluminum
- Gold and silver
- So-called “vice” companies that specialize in alcohol, tobacco and gambling
- Inflation-Indexed Government Bonds (TIPS)
So far, my “Anti-Terrorist Portfolio” has beaten the U.S. market index handily, and is up over 80% since 9/11. I have every reason to believe this trend will continue.
I suggest you add these “anti-terrorist” investments to your portfolio.