 | The Investment U E-Letter: Issue # 553
Monday, July 3, 2006 The Anti-Terrorist Portfolio…How To Protect Your Portfolio during the War on Terrorism
by Dr. Mark Skousen, Chairman, Investment U
"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: 1. Continue to invest in foreign stocks and emerging markets. 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. Good investing, Mark
Today's Investment U Cribsheet - Oxford Club Investment Director Alex Green has put together an Anti-Terror Portfolio as well… The portfolio consists of eight stocks, all which are profitable - six are currently up by double digits, and two by triple digits… learn more about the Oxford Club.
- International Living has been writing about Nicaragua for over a decade now, yet it remains one of the cheapest places in the world to buy beautiful waterfront property. Both tourism and development are booming and for those looking to invest, relocate or retire, Nicaragua is ideal. International Living's Live and Prosper in Nicaragua conference, August 16-18, will give you the lowdown on the best opportunities in today's Nicaragua. You'll get the "ins" and "outs" of how to buy property, and start a business and a new life there. You'll be introduced to the movers and shakers… the folks you need to know in Nicaragua. More than a dozen experts and expats are on the lineup and they'll share both the pros and cons about living in Nicaragua. And you can bet there will be plenty of lifestyle and real estate opportunities to explore. The conference is being held at the beautiful Real InterContinental Metrocentro Managua Hotel - a modern and truly first-rate hotel that offers exceptional service and amenities. Find out more about the event here.
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