Ron Holland lives at Wolf Laurel Resort in the NC mountains near Asheville & he is a real estate agent with Wolf's Crossing Realty. In addition, he writes articles and edits financial newsletters and economic reports designed to help Americans preserve their wealth and liberties. Click Here To E-mail Your Questions or Comments to Ron or request a listing of mountain lots at Wolf Laurel where prices begin at under $20,000 per lot.
Our American Foreign Policy Can Threaten Your Investment Portfolio
by Ronald Holland
Speech given at the Third Annual Global Investment Seminar in Vienna, Austria, 09/30/2002
Thank you for the introduction. It's always great to visit here in Vienna, where the greatest economist of the 20th Century, Ludwig von Mises, spent much of his early career. As we have toured the elegant palaces, museums and government buildings of the "former" Austrian-Hungarian Empire, I think it is important from an American investor perspective to remember who paid for all of this. Quoting Ludwig von Mises, "Public works are not accomplished by the miraculous power of a magic wand. They are paid for by funds taken away from the citizens." So remember, here in Vienna every palace and building was paid for by government plunder, just like our Federal buildings and government monstrosities back home.
Today I will be talking about the Washington's threat to your liberty, wealth and investment portfolio. In this regard, I believe American investors should diversify a portion of their wealth offshore, in addition to repositioning U.S. based investments out of the dollar and American financial markets. Although I'll briefly mention the usual reasons for international and European diversification, this is not the focus of my talk as you can read this information in most global investment materials from any financial advisor.
The usual benefits include how international markets may benefit from the relative out-performance of international equities to U.S. stocks and the opportunity for U.S. investors to benefit from currency fluctuations on foreign stock returns expressed in U.S. dollars (in other words the currency gain). Also, most of you know how international diversification can reduce portfolio risk, and finally, how sophisticated U.S. and overseas institutions have four times the international allocation as the average U.S. individual investor.
Here at the conference you'll learn more about the asset protection benefits of having a portion of your wealth offshore in legal jurisdictions and vehicles that can provide the wealth protection that the U.S. legal system—that, in fact, our government— should provide, but doesn't. While our Federal Government was originally established to protect us from enemies both foreign and domestic, as well as our wealth and property, sadly this is often no longer the case in the United States.
Many Politicians & Lawyers Plunder Productive Americans At Will
In America today, both our politicians and the legal system have become the major plunderers of our wealth. I know this is certainly evident to most freedom-loving Americans and why many of you are here today. Government theft is nothing new for empires and the world has seen all of this many times before. Quoting Frederic Bastiat from several hundred years ago under an earlier empire in France, "When plunder has become a way of life for a group of people living together in society, they create for themselves in the course of time a legal system that authorizes it, and a moral code that glorifies it."
This is increasingly America today when it comes to your wealth and liberty. But there is another major change in the United States; how it directly impacts your personal freedom and civil liberties, as well as your wealth and property, is what I want to address today. While most of us here from the U.S. and other nations would probably somewhat agree with the slogan about how "we love our country but fear our government", big government tyranny certainly is not a new threat to our wealth, property or liberty. This has been going on since 1913 and the creation of the Federal Reserve and the income tax. This is not where I'm heading in my talk this morning.
From Republic to Empire
The problem facing many productive, wealthy Americans is that we are no longer the constitutional republic with limited federal powers, where state governments and individuals were sovereign in most things which America's founding fathers established back in 1776 when we seceded from the British Empire. Today, America has fallen from a republic to a world empire with troops and dominion over a far larger portion of the world than the British Empire ever did. Yes, America is an empire with troops in over 100 nations; and, while we may be well intentioned like an earlier British Empire, the effects on your liberty and wealth will, in the long run, be identical to all earlier empires. The risk here is compounded by the growing terrorist threat to our nation.
No, we are certainly not an evil empire, but America is often heavy handed in this new 21st Century world. More importantly, 9/11 has shown how we are in a world weapons environment where those who hate us have the opportunity to take out their frustrations with our foreign and diplomatic policies with relative ease and little downside risk; frankly there is little we can do about it. We have come a long way from the time of George Washington when he said, "The great rule of conduct for us, in regard to foreign nations is, in extending our commercial relations we have with them as little political connections as possible. It is our true policy to steer clear of permanent alliances, with any portion of the foreign world". Can the United States today follow the advice of George Washington? Apparently not, but for years, many nations from Switzerland, Austria, Ireland and Sweden, have followed this wise counsel to the benefit of their economies and financial markets.
Washington Today
So today, I want to talk with you about the new threat to your wealth, financial freedoms and civil liberties from the cause and effect actions of a new world empire, the Washington Empire. It is neither just a problem of big government nor some secret cabal or conspiracy. The problem is the threat that all empires and their policies create for their citizens and is as old as recorded history. I believe this is creating a reason for global diversification that far exceeds every other benefit—including investment return, investment opportunity or reduction in risk from diversification or asset protection.
For a modern day discussion about what to expect from the Washington Empire, we first have to look back at world history and earlier empires and the risks to their citizens' wealth, economy and freedoms. For this discussion, there is no better or more appropriate location in the world than here in Vienna, Austria, the former capital of the Austrian-Hungarian Empire. Now we are going to have a little history quiz, and this is one the modern day bureaucrats, politicians and others living off your tax dollars would rather you not participate in.
A History Quiz
First, I want to walk back in history to show you how politics, world affairs, and propaganda have changed little over the period of the last 400 years. Name the aggressor country and year based on a headline I'm paraphrasing. I'll give you a hint, this headline occurred in September . "We will defeat the enemy quickly with new forms of technology, lightening war and propaganda." What was the year and who said this? 1939 and Adolph Hitler? No! Actually it was a headline from the Bush Administration on the 9/27/02 front page of the international edition of USA Today in an article outlining our plans for the invasion of Iraq. So you see, even propaganda rhetoric doesn't change much from century to century.
Second question. We all know that September 11, 2001 will go down in history as the last time Moslem extremists made war on a western nation's capital and center of finance and commerce because they viewed it as a threat to their expansionist dreams. The question is "when was Islam's previous attack on a national capital and center of commerce that also failed?" I'll give you a hint: it also occurred around September 11. Another hint, it is considered the turning point in European history, and without the West's victory, we would probably all be praying toward Mecca. The answer is right here where we are today with the old city walls just a block away, where now we have the Ringstrasse Road. On September 12, 1683, the Battle of Vienna stopped the Moslem invasion of Europe by 140,000 Turkish soldiers here in Vienna.
Now let's review the damage of the 9/11 terrorist attack, looking at it from the risk-reward ratio of the Islamic terrorists. First they spend somewhere between $200,000 and $500,000 to attack New York and DC. Maybe 20 terrorists give their lives to kill 3,000 New Yorkers, perpetrate $30 billion in property damage and way over one trillion in stock market losses, the bankruptcy and threatened bankruptcy of much of the airline, tour and cruise industry. Did the 9/11 attack pay off from their point of view? Of course it did!
The Washington response, in addition to attacking Al Qaeda and Afghanistan, was further assaults on civil liberties and unreasonable search and seizures at airports, complete with an entirely new Federal bureaucracy of incompetent airport security personnel. In addition, further restrictions on our financial privacy at home and offshore against tax havens and jurisdictions all in the name of "The Patriot Act" (a misnamed bill, if there ever was one) and national security have taken place. Press reports indicate that Osama Bin Laden stated he wanted to turn America into a "police state". In my opinion, our reaction to 9/11 has certainly increased the move of the United States in this direction. Other press reports state this was the most successful terrorist attack in world history in terms of damage, political fallout, etc. I disagree, but let's go on to the last question in the quiz.
Gavrilo Princip, An Unknown Who Most Changed Our 20th Century World
What individual has had the greatest impact on world politics during the 20th century and today? No, it's not Franklin Roosevelt, Woodrow Wilson, Winston Churchill, Lenin, Mao or Stalin, or even Austria's Adolph Hitler or Ludwig von Mises. Who here has heard of Gavrilo Princip? So none of you have heard of the man whom I believe most impacted and changed the world in the 20th Century?
Consider the following terrorist attack and resulting changes in the world. On June 28th, 1914, there was another terrorist attack by one man, the result of which dwarfs the "worst case" impact of 9/11—unless the Islamic terrorists can obtain and use a weapon of mass destruction against the U.S. I will discuss more on that risk later, and why it is the prime reason you should diversify both offshore and out of the U.S. dollar and our stock market.
Franz Ferdinand—the apparent heir to the throne of the Austrian-Hungarian Empire—and his wife Sophie were shot and killed by a Serbian, Gavrilo Princip, while they were riding in a motorcade through Sarajevo. Apparently Ferdinand wanted to reorganize the Austrian-Hungarian Empire into a Third Kingdom of Croatia, and this is why the Serbian nationalist killed him; and the Austrian government believed Serbia was behind the terrorist attack and declared war. By the end of this incident, which became the first World War, the Austrian-Hungarian Empire with its capital of Vienna was no more and Austria was reduced to a tiny area, comparable to as if Washington D.C. were to become the capital of Maryland instead of the United States.
The total cost of this war resulting from the terrorist incident was 10 million dead, 11 million injured and a Communist revolution, helped by Germany, that had taken root in Russia—which became the Soviet Union. The peace treaty, known as the Treaty of Versailles, which ended the "War to End All Wars" (a phrase coined by Allied propaganda experts), actually was so unfair to the central powers of Austria and Germany that it led in turn to the rise of Hitler, National Socialism and the horrors of the Second World War.
Most important for our discussion and Washington's planned war against Iraq and our involvement in the Middle East, was the little-known fact that Turkey was the third "Axis of Evil", (to borrow a current propaganda term) in World War I, along with Germany and the Austrian-Hungarian Empire. The Versailles Treaty took most of the Middle East away from Turkey, known then as the Ottoman Empire, and gave the territory to the victors—primarily Great Britain, with Syria and Lebanon in a kind of French sphere of influence. New nations were created in the Balkans, just as has been done today after the fall of Yugoslavia and our later attack and defeat of Serbia. My point here is that most of the problems in the Middle East even today stem from the Versailles Treaty.
So here we are, almost 90 years after the start of the World War I, still paying the cost in a world totally changed by one terrorist attack. Now I'm not debating who was right or wrong in World War I, as most historians even today are unable to say which side had the moral high ground, and it really doesn't matter. The victors always get to write the history, and that is why the winners are always shown on the side of right in all official histories. From the American version of the War of Independence, to the War Between the States to World War I, this is just how all history is recorded and written by every nation.
Beware: Global Empires Are Subject To Risks Other Nations Are Not
So you might ask, "These are interesting facts, but exactly what does any of this have to do with why I should diversify a portion of my wealth out of U.S. investments and the United States?". History clearly shows how empires always have political, terrorism and military risks that regular nations do not. Today the United States is at extreme risk, because although we are the major economic and military power on the earth, our Achilles heel is the extreme risk of our financial infrastructure and investment markets to future terrorist attack. Our enemies know this fact. Here we are almost defenseless, and this is the real unstated reason why the new Bush doctrine of "Preemptive Military Action" has just been instituted.
Few competent foreign policy experts really believe Iraq is a threat in regular military terms to the United States. Also, whether Iraq was involved with Bin Laden and Islamic terrorists is not really important, although it would help the Washington case for war. Our problem is that since 9/11, all the world and our enemies now know our weakness—and whether it is Saddam Hussein, Bin Laden or another enemy, we really have no defense against another terrorist attack by extremists on a target like the World Trade Center or our financial system.
The old MAD "Mutually Assured Destruction" worked well against the Soviet Union because they had everything to lose in an exchange of weapons of mass destruction. This policy also works well against China, because they are taking the long view of what they want in Asia. Again, they have too much to lose in an all out exchange with the military might of the United States. But against Islamic extremists who hate their own governments almost as much as Israel and the United States, a major attack on us and an American response is the best of both worlds for them. If there is a weapon of mass destruction attack against Wall Street, it matters not to our enemies if we move against Iraq, Iran or any other existing Arab government, as war would likely bring down existing moderate Arab governments in Jordan, Egypt, Saudi Arabia, and this is their goal.
Wall Street Is The Real Terrorist Target
Just as Islamic terrorists have targeted New York and the World Trade Center twice in the last ten years, my view is that the real target has been Wall Street and our financial system all along, which run so counter to the beliefs and views of the Islamic fundamentalists.
Think about this. Let's discuss a very taboo subject in both the financial and regular establishment press. We have heard over and over how Islamic terrorists targeted the World Trade Center because the building was a symbol of American strength, pride and capitalism. Yes, maybe it was, but why the WTC and not the Empire State Building, the Statue of Liberty, the U.S. Capitol, the Washington Monument, the White House or the Golden Gate Bridge? Also, since they had this capability, why did they not wait for the Salt Lake City Olympics and hit the games on national TV, or bide their time until a national political convention where they could have taken out most of the leading politicians of either party?
Actually, I believe the real targets of both attacks on the WTC have been Wall Street and the U.S. financial system, rather than just some tall buildings. They could have been trying to bring down the WTC on the New York Stock Exchange, which is within the range of the building's collapse. Now, they know all of our counter measures and back up systems defending both the NASDAQ and the NYSE.
Now I have no idea as to timing or if the Islamic terrorists have access to a weapon of mass destruction and the ability to get it to New York City. Still, I believe they will try it again; and this time—thanks to the information about our redundant back-up and operational systems, crisis re-location and computer records storage of both the NYSE and NASDAQ trumpeted around the world by Wall Street and our politicians to build confidence in our financial system after the 9/11 market shutdown—they may well succeed. This could be catastrophic to your U.S.-based stock market portfolio, the U.S. dollar and your investment liquidity, not to mention your civil liberties and financial freedoms if they can hit us again.
The threat is that a properly placed biological, nuclear or chemical weapon detonated in eastern New Jersey, just north of the Newark Airport during the fall or winter could take out all the market backup systems in New Jersey, Manhattan and on Long Island with a West-to-East wind flow. This action could close the markets for quite some time, at least for several months—not to mention the horrendous cost in lives and property damage. Please understand: this is not a prediction, just a concern that neither the press, our politicians or the financial establishment have dared discuss, and I believe your investment wealth is threatened by their lack of discussion or warning about the threat.
This is a concern and risk you should factor into your decision as to whether to go offshore and out of U.S. stock markets and the dollar with a larger portion of your assets. Unlike diversification, asset protection, more investment opportunity and risk reduction, this threat is not just another benefit or a risk reduction from international diversification. It will either be a non-event if it doesn't happen, or a total financial catastrophe to every U.S. stock market portfolio if it occurs. This is, of course, your decision, but for me, I'm factoring the potential terrorist threat into my personal investment planning as well as for my investment clients.
The Terrorist Risk Of A Weapon of Mass Destruction Attack Is Only Against the United States
Understand, there is little risk to Vienna, Zurich, Paris, Berlin, Dublin, Tokyo, Hong Kong, etc., as almost all of the risk of future terrorist attack falls on New York City and our financial infrastructure. This is because, in the eyes of the terrorists, we are their enemy. Only the U.S. has troops in the Middle East, and we are siding with Israel and the so-called moderate Arab states. All the Arab governments—even our friends—promote this extreme point of view, because most Arab nations, except Iran and Egypt, are basically just lines drawn on a map by the British following the Treaty of Versailles. The national boundaries of these nations have no relation to religious differences in Islam, tribes, landmarks or geographical differences.
Then you have an artificial nation not based on the similar beliefs, values, goals, ethnic origin and culture that bind most real nation states together, you end up with a hodgepodge of competing groups like much of the former Soviet Union and the vast majority of countries in Africa and the Middle East. Each of these nations and national boundaries was created by European outsiders; and the only way for politicians and governments to remain in power in this artificial situation is usually by creating a police state, which exists to one degree or another in all these nations, and a common enemy if one doesn't exist. In Africa, the common enemy is the legacy of white rule; in the Middle East, it's the nation of Israel.
So I believe we must add the risk of future terrorist attacks against Wall Street and our financial infrastructure to the other normal benefits of global investment diversification and offshore jurisdictions when deciding how much of our wealth and investment portfolios should be outside of U.S. investments and our markets. As to timing, I don't have a clue about the timing of a potential future terrorist attack, but their past actions have shown them to be patient and that they strike based on their time frames, not ours. Also to quote, Edith Flynn, professor of criminal justice at Northeastern University and an expert on terrorism, "Terrorists have not only long memories, they have infinite patience. They certainly learn from their mistakes."
Second, since they hate the secular Iraqi regime almost as much as us, the risk of a terrorist attack during our planned invasion of Iraq does increase, as then the attack would probably be blamed on Saddam rather than the Islamic terrorists, thus possibly sparing them from the violent retribution and attacks following their earlier World Trade Center attacks.
So What Is My General View on Markets and Investments Forgetting This Possible Terrorist Threat?
First, I believe the NASDAQ may be within 10% of the low while the NYSE still has much further to fall, maybe as much as another 30% or more down. I also believe the dollar has entered a long-term bear market that reverses the seven year up-trend that began when the dollar last bottomed during the fall of 1999.
The Euro and the Swiss franc, which the Swiss Central Bank has unofficially locked into a trading range with the Euro, should move upward over the next few years—with the Euro possibly reaching as high as 1.40 to the dollar. Remember, it started at $1.18, fell to around 85 cents and is now close to 99 cents. The Swiss franc could reach as high as 90 cents. (NOTE, the Swiss Franc subsequently hit 89 cents in December of 2004) ( It was 89 cents in 1995, fell to as low as 55 cents during 2001, and is now around 67 cents. The upward move in the Euro and the shift of other national central banks and large investment managers to move some of their money out of the dollar and into this new Euro Reserve Currency, as well as a continued move by foreigners out of the U.S. stock and bond markets, could well mean a bull market in European stocks and a continued bear market here in the U.S. for some time to come. When one adds the Washington foreign policy risk and terrorist threat, I believe many concerned investors should increase their portfolio allocations outside our markets and the dollar.
Why I Like Austria and European Markets for Global Diversification and Offshore Investing and What About Switzerland?
Yes, I've advocated, created and marketed Swiss investment products and services registered and available for the U.S. market for over 12 years. I love the country, I love the people, and it is still the leading financial safe haven in Europe. I believe the Swiss franc will generally move upward with the Euro, and Swiss annuities still have some good asset protection built into their insurance laws. There is still real value and benefits from Swiss investment advisor as well as the asset protection benefits of the Swiss insurance industry.
But be aware that Switzerland's success in banking and finance have made the nation a target of special interests: Washington and other nations are out to destroy Switzerland as a safe haven. Sadly, the Swiss people still love liberty, but the Swiss politicians look more and more like what we have over here. Just consider the following changes in Switzerland over the last few years, and you'll see why I also like Austria as a financial and banking jurisdiction. Consider the following recent events:
The Swiss voted to join the United Nations.
There is a debt overload by many Swiss banks and other corporations, including the bankruptcy of Swissair.
Switzerland has ended the gold reserve requirement backing the Swiss franc.
The Swiss Central Bank has "unofficially" linked the value of the Swiss franc to the Euro against the will of the people in referendum.
The once independent Swiss National Bank is now just another central bank marching under the lead of the U.S. Federal Reserve System.
Swiss financial privacy and banking confidentiality are weakening along with every other nation in the world.
Finally, Switzerland is a target of politicians and special interests, and their leading politicians have been shown to be rather cowardly when standing up to Washington.
Consider the Austrian Alternative
Austria is not a target, few investors use it as a platform for international investment and diversification, yet its financial institutions and leading banks often have the expertise I need, and many of you need, to globally diversify in a legal but low profile way in this post 9/11 world. Plus they are a lot more fun than the Swiss.
Products & Services You May Want To Consider For Your Portfolio
First, if inflation returns due to a financial panic, a Federal Reserve response to a major terrorist attack or further declines in the U.S. dollar or investment markets, then consider the new inflation-protected government bonds offered by a number of mutual fund organizations. Second, although I like gold bullion as a core holding for investors, I believe the price of this commodity has been controlled by both a coordinated central bank intervention and the gold producers for almost two decades. So gold at least for now is more of a manipulated, controlled investment and real profit potential will not return until it is again a free-market investment.
Second, I like the Euro and the Swiss Franc and feel both could further appreciate versus the dollar, both because of weak investment markets here in the United States and a weakening dollar. There is growing evidence the long-term upward trend in the U.S. dollar and stock market have been reversed. CD's, bond funds and managed portfolios, both in the U.S. and offshore, when diversified out of the dollar may be attractive additions for your portfolio if you believe the dollar will continue to trend down.
Third, I believe the European equity markets could appreciate with a stronger Euro and further weakness in the U.S. economy and investment markets. Investors can invest for this possible scenario through funds, variable annuities and investment advisors. Remember, if I'm right about another terrorist attack against the U.S. investment markets, you'll appreciate every dollar you have globally diversified, should this happen.
International Diversification May Reduce Your Washington Foreign Policy Investment Risk
The problems and risks of weakening U.S. markets, our economy and the dollar as we work through the excesses of the market mania, bubble and subsequent collapse should make you and other international investors and advisors consider more portfolio weight to be placed on international investments outside the United States. When this is added to the additional costs, possible lost liberties and terrorist risk from the American foreign policy both at home and abroad, it should suggest that prudent investors move more of their funds out of U.S. stock market investments, the dollar and even the jurisdiction of the U.S.
While we hope and pray Washington's planned move into Iraq and the Middle East, not to mention our current occupation of Afghanistan, does not result in either an expensive, long-term occupation of the region or additional terrorist attacks, the risks are there. Will they use a weapon of mass destruction against the U.S. and specifically against our financial infrastructure? They will if they are able to, but frankly, I doubt they really have weapons of mass destruction.
Still, few would have thought Islamic terrorists could have pulled off the horrendous attack of 9/11. One point is for sure, Iraq will be a pushover and the war should be over in a couple of weeks, but once the dogs of war are unloosed in the region, few can guess where it will end. Just remember World War I and the catastrophic long-term effects on the entire world from that earlier terrorist attack.
A look at the history of wars of empires far from their home base, regardless of the reasons given for the action, does not bode well for the United States or our economy. The list of dead empires is endless from the Soviet Union, Nazi Germany and the Empire of Japan to earlier empires in Europe, the British Empire, the Austrian-Hungarian Empire and others going all the way back to Rome. History shows us the long-term economic and military costs of empires tend to destroy liberty and the economy at home, while other nations not burdened with these costs tend to prosper and move ahead. This is what we see for Europe, where both countries and politicians just might have finally learned the expensive cost of empire through numerous wars, economic dislocation and conflicts. Be sure to contact me if you would like more in-depth information on the terrorist threats to our financial system, Switzerland and the Swiss franc and the many advantages of Austria and the European markets.
Finally, Am I Right Or Wrong About the Foreign Policy & Terrorist Risk To Your Portfolio?
Remember none of us "so called" experts here speaking this week in Vienna have a crystal ball to peer into the future. But in closing, I'll quote a paragraph from my speech given last May, 2001, in the Middle East to a conference of American investors much like you here today—just four months before the 9/11 attack. The speech has been online since that time and I was talking about the Middle East. "Be aware there is always the risk that Middle East terrorist activities could impact the U.S. financial infrastructure. It isn't a big risk, but something to keep in the back of your mind. What if the Arab terrorists had targeted the New York Stock Exchange instead of the World Trade Center." Note I was talking about the original 1991 attack. You decide if this risk is real and whether you should take additional steps to protect your investment portfolio from this risk.
I want to close with two quotes. Remember, the political leaders in Washington ncluding the establishment press, politicians and financial industry—will never publicize the threat of this new terrorist risk to your wealth. My counter to this is the unthinkable has happened before and long before our recent 9/11 attack. If you ask your financial advisor, they will probably say "Well, don't worry about it. It's nothing." Let us not forget that Lt. Kermit Tyler (Duty Officer of Shafter Information Center in Hawaii) said the same thing to Private Joseph Lockard when he picked up a radar signal of what appeared to be at least 50 planes soaring toward Oahu at almost 180 miles per hour on December 7, 1941. Another excellent quote is from George Washington: "If we are wise, let us prepare for the worst." I could never say it better than George Washington.
I'll close with one final short history lesson about American involvement in the Middle East. What do all of these peoples have in common? The Greeks, the Romans, the European Crusaders, the Knights Templars, the Ottoman Empire, the Italians, the French and the British? The answer is that all have invaded the Middle East, none are still there today and all of these former empires are just faded glories and memories one reads about in history books.
I urge each of you here today to ask yourself one final question. "Why should the long term outcome of a Washington invasion of the Middle East be any different from all earlier empires?" Then answer the question and invest according to your perception of the threat to our U.S. investment markets and our remaining freedoms from the Washington foreign policy risk!