Home   |   Research & Knowledge   |   Contact   |   Careers   |   FAQs
Smart Intelligence
The Communique
In the Spotlight
Investment Ideas
News Headlines
< Back to Archives
February 02,2010
Attention, American Investors: Abandon Ship!
If you hadn't already abandoned hope that our government can stop itself from driving our economy into a debt-induced crisis, now's the time to do so. That~s the message prudent investors might take away from the news Monday that President Obama is proposing to plunge us even further into debt this year than he did last year, amid the worst the financial crisis in generations.
Our president eloquently talks the talk of bipartisanship and deficit reduction, but he~s clearly walking the walk of bare-knuckled Chicago machine politics. Basically, Obama is mortgaging America~s financial future with a record deficit ($1.6 trillion for the upcoming fiscal year) in exchange for a giant jobs bill aimed at propping up his sagging poll numbers and preventing the Democrats from suffering large losses in the November mid-term elections.
You could blame this all on shameless tax-and-spend Democratic politics, but that would be wrong. It was, after all, Obama~s immediate predecessor, George W. Bush, who cut taxes while simultaneously ramming through a Medicare drug benefit that represents the government~s biggest new entitlement liability since the days of Franklin Roosevelt.
With nobody in Washington willing to make tough financial decisions anymore, the chances become ever greater that Uncle Sam will max out his credit card at some point. Early signs that he~s getting close are likely to include increasingly credible warnings about, and then actual downgrades of, America~s debt ratings by credit agencies like Moody~s and Standard & Poor~s.
If, as seems likely, that doesn~t prove enough of a rebuke to Washington, the market~s next discipline may include a plunge in the value of our currency and stock market. Or, if the Chinese get fed up with our profligate ways first, a drying up of demand for our debt, a jump in borrowing costs for the entire U.S. and the nasty economic tailspin that would follow. America~s ability to shape international events would diminish as well, given that beggars don~t get to drive policy. Such events, of course, have a way of unfolding in a manner we~ve never imagined, as was the case with the bursting of the housing bubble.
For U.S. investors, the implications are profound. Employees of Enron, WorldCom, Lehman Brothers (now a unit of Barclays PLC) and Bear Stearns (now a unit of JPMorgan Chase) all learned the hard way the perils of investing their savings in the same places they earn their salaries. Americans who keep all their investments at home are assuming similar risks.
The prudent move is to spread your bets by going abroad. That doesn~t necessarily mean chasing the BRICs (Brazil, Russia, China and India) or some other country that~s been red-hot lately and may in fact be over-heating. Instead, consider buying a broadly diversified foreign mutual fund, like the Vanguard Total International Stock Index Fund, or the iShares MSCI EAFE ETF.
Another possibility is to buy several narrowly focused ETFs, such as the iShares MSCI Japan Index Fund, Vanguard European ETF or iShares MSCI Australia Index. If they go up, take some profits and rebalance. If they go down, you can cut your losses and offset taxes on gains from winners elsewhere. Another way to go global is to buy shares of U.S. companies that rely on overseas markets for a big chunk of sales. These include firms like Caterpillar, Coca Cola, McDonald~s and Altria.
< Back to Archives
January 20,2018
EQ India Fund Newsletter
January 20,2018
EQ India Fund Newsletter
July 11,2014
Force Motors | Rs.475
July 25,2016
Govt set to start talks on merging 13 oil companies to create behemoth
Home   |   The Company   |   Portfolio Management   |   Research & Knowledge   |   Privacy & Security
© 2011, Equity Intelligence Pvt. Ltd.       Developed & powered by CMOTS Infotech (ISO 9001:2015 certified)