War is the health of the state, whether it's the War on Drugs (which, I suspect, has already killed as many Americans and cost as much money as the Vietnam War), or the military type. The military and economic implications of a War on Islam are horrendous. But the societal implications are even worse.
Proposals are already being made for the long-awaited national ID card. How many new federal agents will be hired with the $20 billion the Congresscritters are setting aside as a reaction to the WTC event?
Freedom has been rapidly diminishing in America for many years, but this will put a near-final nail in its coffin. The hunt for the perpetrators, sympathizers or even potential sympathizers has the potential to turn into a witch hunt unlike anything we've seen in either World War or the Cold War. You can already read and hear plenty of arguments about how we're going to have to give up some freedoms to counter this new threat.
Privacy of any type will become suspect. Membership in "fringe" groups will become suspect. Not being a solid citizen toeing the line will be suspect. And the standard distribution of 2 to 3 percent of all people, everywhere, who are sociopaths are going to come out of the woodwork. Who would have guessed there would have been all the volunteers for the SA, the SS and the Gestapo in the Germany of the '20s? Who would have guessed that so many Russians would join the NKVD and other secret police in the '30s, and that the average citizen would tacitly or actively support Stalin? Most of them were people who liked kids and dogs, had hobbies and respectable jobs. But when the times changed, their true natures came to the fore. If you think we don't have the same distribution of people here, you're dreaming. Except, it could become a real nightmare.
Investment implications
Stocks – Let's skip over the commonplaces that you'll hear touted in the media. They'll include buying security firms like Wackenhut. Or "defense" stocks, like Northrop Grumman, Raytheon and General Dynamics. These things may, or may not, go up. But this incident seals the fate of the bear market that's been in motion for several years now. And in a bear market, with very rare exceptions, you just don't want to own stocks. That's entirely apart from the fact that things everybody thinks they know simply aren't worth knowing.
Even though it's a bear market, I'm also disinclined towards obvious shorts like the airline stocks. They were already in trouble with the recession. Now you've got a huge segment of the population that's afraid to fly. And another huge segment that's loathe to be questioned and processed like someone on their way to jail every time you board a plane – entirely apart from the huge time penalty. I recommend using any and every rally as a selling opportunity.
Bonds – So far, bonds have been an excellent place to be. But I continue to see them, especially with interest rates at these levels, as a triple threat to your capital. First, interest rates are just as likely to rise as they are to fall further. Second, the dollar is almost certainly started on the path to reaching its intrinsic value. Third, the creditworthiness of most issuers, not least of which is the U.S. government, is likely to come into question.
The dollar – This floating abstraction, an IOU nothing on the part of a government which relies completely on new tax revenues just to pay the interest on its debt, is an accident waiting to happen. It rests upon nothing more than the world's confidence – and confidence can blow away like a pile of feathers in a hurricane. The only thing that can save it is a massive deflation. But the Fed is creating new dollars frantically to prevent that. See International Speculator for the whole story. I suggest you not look to the dollar as a haven.
Domestic real estate – Partially driven by the long bull market, crowned by a historic mania, in stocks, U.S. property, especially in upmarket locations, has done extremely well. Unfortunately, property prices will reflect the purchasing power of the people who own it. They're likely to suffer asset meltdowns, loss of their jobs and the consequences of a gargantuan amount of debt. Prices stand to drop dramatically, certainly in real terms.
Foreign real estate – I've said for years that there's every reason in the world to have a crib abroad, and almost no reason not to – as long as you're in a financial position to do so. I think it's no longer just smart; it's critically important. My favorites? Longtime readers know that I'm partial to New Zealand and Argentina, and both places are very, very cheap at the moment.
Gold – There's little I can add to what I've already said. Buy it. If not now, I guess it'll be never.
Commodities – Absolutely everything that's traded looks very, very cheap. To me, the situation resembles that just before the first dollar devaluation in 1971.
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