Third, and patently obvious to anyone who trots the globe, our country’s finances are a shambles compared with just about everyone else’s. The federal government is spending far beyond our nation’s means at a time when most countries are practicing some sort of Clinton-like fiscal sanity. You buy U.S. stocks in U.S. dollars. Most foreigners fear a dramatic decline in the dollar because of our profligacy. In the end, skeptical managers worldwide know we will pay back our bills with the printing press. They would rather keep their money home or invest in gold as a hedge against a weary, diluted greenback. Historically, we have had huge inflows of foreign currencies buying our stocks; that’s no longer true. Could you argue that the contempt with which our stocks are held is a sign of the global unpopularity of our government? Let’s put it this way: We didn’t see this kind of underperformance under Clinton. It’s true that other governments, particularly in South America, were far more reckless than ours during the nineties. But those nations seem to have gotten financial religion at the same time as we’ve simply gotten more religious. And this administration would sooner be impeached than cut spending or raise taxes.
Nations more reckless than ours have gotten financial religion, while we’ve simply gotten more religious.
Given the three-headed beast we face, I expect the U.S. stock market’s underperformance versus the rest of the world’s equity markets to last not just to the end of 2005, but through 2006. What can you do to protect yourself? I suggest trifecta wagering here. One, be part international. I’m bullish on Latin America and Africa, so I’d consider América Móvil, the Latin American wireless company, and Anglo American, the diamond, copper, and gold company of South Africa. The latter is breaking itself into pieces, and the parts will be worth more than the whole; the former is one of Latin America’s best-run companies, and cell phones are booming in Mexico and South America. Two, be part natural gas, because that’s what we’re really short on. Chesapeake Energy and Southwest Energy (both American companies) have massive natural-gas reserves and enough of the stuff not currently under contract to take advantage of spot price spikes if the winter is cold. Three, be part defensive against a U.S. slowdown. Try Unilever and Procter & Gamble. Both are traditionally recessionproof, so you’ll make money even if we fall farther behind France, Germany, Mexico, and Brazil.