The Index of Economic Freedom: Where There's Freedom, There's Money To Be Made Especially In This Fund

by Mark Skousen

The Index of Economic Freedom: Where There's Freedom, There's Money To Be Made Especially In This Fund

By Dr. Mark Skousen, Chairman, Investment U

Monday, January 23, 2006: Issue #505

Every year for the past 12 years, the Heritage Foundation and The Wall Street Journal come up with their "Index of Economic Freedom." I watch this index carefully. Using the most current data available on taxes, tariffs, regulations, monetary policies, the rule of law, and other key information, the Index ranks 161 countries by degrees of economic freedom.

Based on 10 indexes of economic freedom, the Economic Freedom Index divides countries into four categories, illustrated in the world map below:

  • Free: Blue
  • Mostly free: Green
  • Mostly unfree: Orange
  • Repressed: Red

Index of Economic Freedom Distribution World Map

Map published courtesy of the Heritage Foundation

The Latest Findings from the Index of Economic Freedom:

1. Economic freedom is gradually increasing around the world! (This will come as quite a surprise to doomsayers and those who think the world is headed toward imminent disaster.) For the first time, the world's average level of economic freedom has tipped from "mostly unfree" to "mostly free." Free markets are actually expanding!

2. There is a strong correlation between economic freedom and prosperity. Countries with the highest level of economic freedom have the highest level of per capita income. And vice versa. Nations with severe restrictions on investors, businesses and consumers struggle financially. See the chart below. Note that the more economic freedom a nation enjoys, the higher average per capita income goes up.

Economic Freedom and Per Capita Income

Chart published courtesy of the Heritage Foundation.

3. The greatest growth recently in economic freedom has been in emerging markets, especially in Europe (the Baltic States and other new members of the European Union), and Asia, where economic freedom improved in 10 countries. Even China and India, both still in the "mostly unfree" category, have improved in their economic freedom ratings. Latin America has also seen marginal improvement.

4. Beware the Middle East: Look at the World Map of Economic Freedom, and you'll see that there's still a lot of "red" (repressed) in this unstable region of the world. Closed societies are breeding grounds for intolerance, fanaticism and terrorism.

How can the Economic Freedom Index help Investment U investors? Heritage is planning to come out shortly with a report on how investors can profit from the Economic Freedom Index. Generally, it is believed that stock indexes tend to rise sharply in countries where economic freedom is improving. That has clearly been the trend in emerging markets recently.

Recommendation: Best way to profitBuy the iShares Emerging Markets Fund (EEM). It's hot and going higher.

Good trading, AEIOU,

Mark

P.S. Thanks to all Investment U readers who signed up for the "Live Chat" interview with Dr. Franklin last Tuesday night. It was a big hit, and you can read the entire script of the interview with Ben Franklin here.

Today's Investment U Cribsheet

  • Some of you may have caught me on Kudlow & Co. last Tuesday, where I talked about the markets and my new book, The Compleated Autobiography by Benjamin Franklin, in honor of Franklin's 300th birthday. I will also be on C-SPAN Book TV over the next few weekends. Check http://www.cspan.com for details.

  • For a closer look at emerging market stocks - and what they have to offer in the coming months - check out Investment U # 497: Stock Market Predictions: A Huge Bull Market in Foreign Stocks!

  • Emerging markets haven't been the only bulls A year ago, the price of gold hovered in the $430 range. Today, it crossed $560 an ounce! Check out Investment U #476, Rare Coins: My Favorite "Old Money" Investments, and look into your available options for adding the precious metal to your list of assets.

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