by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
Wednesday, January 23, 2013: Issue #1954
It doesn’t happen often, but every once in a while, you open up your email inbox and find a message that makes your day.
In my case, it was a note from Dr. Mark Skousen, who I’m sure you know from his frequent contributions to Investment U and his many books. I have enormous respect for Dr. Skousen and was glad to hear that he agreed with my column that Israel is a market investors should not ignore – especially considering it’s outperformed the S&P 500 by 1,305% since 1999.
“From: Mark Skousen
Sent: Wed 1/16/2013 12:55 PM
To: Marc Lichtenfeld
Subject: Fwd: Don’t Ignore This Emerged Market
I just got back from a one-week, fact-finding tour of Israel with Sen. Rand Paul and was going to write up Israel as an investment choice! Sic transit gloria mundi!
Since I beat Dr. Skousen to the punch (probably only due to jet lag), I asked him if we could talk about his trip for the purpose of a follow-up article. He generously agreed.
Marc Lichtenfeld: What was the purpose of your trip to Israel?
Dr. Mark Skousen: A group of us went over with Senator Rand Paul on a fact-finding mission. Senator Paul met with Israeli Prime Minister Netanyahu, the mayor of Jerusalem, the King of Jordan. He was just appointed to the powerful Foreign Relations Committee. That’s quite a coup for a junior senator.
ML: What was your impression of the country?
MS: There’s still a lot of divisiveness. I was in the Old City of Jerusalem and wanted to buy some rosary beads. I went into a shop and said to the guy, “I don’t want beads made in China, I want some that were made in Israel.” The shopkeeper said to me, “We don’t have any. We have some made in Palestine.”
There were other stories that I heard about how divisive it is there, but it’s hard to argue against their economy.
ML: What do you mean?
MS: This was my third trip to Israel. My first was in 1980. The economic progress over the last 30 years is shocking. Especially when you consider the lack of progress in many of the other Arab countries that surround Israel. Egypt, for example, has had no change in their economy for over 30 years. But in Israel, there’s construction everywhere you look.
We stayed at the Mamilla Hotel in Jerusalem. It’s a really nice hotel. Right behind it is a huge shopping mall with first-class stuff from all over the world, and it’s in walking distance of the Old City.
ML: To what do you attribute the success of the Israeli economy?
MS: Israel used to be a socialist country. But now due to privatization, incentives and deregulation, it has grown tremendously.
I stayed at a kibbutz…
ML: You stayed at a kibbutz?! I have a hard time picturing you staying at a place that’s the epitome of socialism.
MS: Well, that’s just it. It’s really interesting how it’s changed. They told us how in the past everyone was paid the same no matter what the job was. It was socialism at its purest, but it just didn’t work. And they couldn’t keep the younger generation. So now they’ve moved to a being a private organization. They had to provide incentives, and those incentives worked.
ML: Does Israel’s problems with its neighbors discourage you from investing there?
MS: There’s certainly more risk, but no, I think there are some great companies there. They do really well in technology. They lead the world in biotech.
But there’s an arms race in the Middle East. If the United States sells 20 F-16s to Egypt, Israel believes it has to buy 25. The prevailing thought is that the arms race keeps a balance of power.
Additionally, we give more foreign aid to non-Israeli Middle East countries than to Israel, much of which is used for hate propaganda against America.
Senator Paul has introduced legislation to stop this and to eventually phase out aid to Israel and its neighbors.
I’m very excited that he’ll be speaking at this year’s FreedomFest. You can go to www.freedomfest.com for more details.
ML: Any companies that you want to mention?
MS: I’m still doing my research, but I think the ones you mentioned last week are a good start. Also, there are many laboratories engaged in agriculture research. I think that’s very interesting.
ML: Thanks for your time, Dr. Skousen.
MS: My pleasure. Thank you.
Interesting to note that yesterday Prime Minister Netanyahu was re-elected. Surprisingly, however, a new centrist party captured many more seats in Parliament than anticipated. It was believed that if Netanyahu was re-elected with a right-wing Parliament as expected, it’d be seen as a green light for war with Iran. Now, with this centrist party grabbing power, it should serve as a stabilizing force in the Israeli government – which would certainly be good for the economy.
As I mentioned last week, I am leading a biotech tour of Israel in April and will be staying at the gorgeous Mamilla hotel mentioned by Dr. Skousen. We will visit with innovative companies that are both publicly traded and private. We’ll also have an exclusive meeting with the Deputy Governor of Israel’s central bank.
MarcLessons Learned From Traveling With Senator Rand Paul,