Still Number One
“Don’t worry, my government will pay for the damage.” The Defense Department always included this essential phrase in its foreign language phrase books. These were originally created before the landings in Normandy and later expanded from calming a French farmer for the loss of his barn to use in other parts of the world from Korea and Vietnam to the Balkans and the Middle East.
As the world’s surviving superpower after World War II, America undertook a generous assistance program beginning with the Marshall Plan that sparked rebuilding in Europe and Japan. Its aid was amply repaid through trade with resurgent nations. It broadened its ambitions into nation building as perceptions of its vital interests expanded into opposing Communism, protection of overseas energy supplies and retaliation for terrorist attacks.
This combination of idealism and self-interest led to a dominance that peaked twenty to thirty years ago as the bipolar Cold War world shifted to a unipolar world order. While still the world’s leading economic and military power, the inevitable rise of other countries, many with greater growth rates than ours, demands a realistic adjustment to the present in order to enjoy a prosperous future.
The current debt ceiling hysteria is a result of trying to stretch our position to accommodate two overseas wars while reducing taxes. These would have been easier to cover earlier in the post-WWII period or if the financial crisis had conveniently not happened. Sadly, their bills must now be paid.
One bloated area is the Defense Department budget. As a Vietnam combat veteran, I yield to no one in my commitment to supporting the men and women in the armed forces but I doubt that we need military expenditures almost equal to the combined total of every other country in the world. President Eisenhower warned us of the dangers of the “military-industrial complex,” saying “we must learn to compose difficulties not with arms, but with intellect and decent purpose.”
America still has the leading companies, a dynamic and open society, the leading universities and even, despite all the current fuss, the world’s best credit. As CNN’s Fareed Zakaria, writes in The Post-American World, the world’s tallest building is in Dubai, the largest oil refinery is in India, the richest man Mexican, the number one casino in Macao, the biggest Ferris wheel is in Singapore and of the ten largest shopping malls in the world, only one is in the U.S. Even India’s “Bollywood” outdoes Hollywood in movies made and tickets sold.
Zakaria warns that America is slipping in education, building a competitive workforce and investing in new energy and digital infrastructure. While our politicians pander for votes by attacking government involvement in the economy, the Chinese government is promoting almost all its industries while the South Korean and German governments are vigorously promoting their manufacturing sectors.
Germany, an example for the thoughtful, is a high-tax, high regulation economy that exports more than America does with a quarter of its workforce. Its government ensures funding for technical training and research. It also more generously funds foreign aid and support for culture.
Fortunately, the American spirit of innovation flourishes and successful investors will insure it is reflected in their stocks. My largest position, Apple (AAPL-$387), has just passed PetroChina to become the second most valuable company in the world by market cap. I expect it to overtake Exxon Mobil for the top spot within a year or two. It remains a reasonably valued buy on its surging earnings.
Current tensions from fiscal dysfunctions in our political system have strained investor nerves to the point where some of my clients wanted to sell out. I can understand their feelings but I am confident that the current economic recovery will survive. Aided by the policies of the Federal Reserve and the agile management of companies in the tech, biotech and manufacturing sectors, I am still expecting double-digit stock market returns for 2011.
Unsettling news makes it difficult to avoid wanting to leave the field but the reasonable valuations in the stock market today provide a margin of safety. It will probably be even more difficult in a year or two, after the market really gets going again, to resist the contrary temptations to push through to the crowd to the bar and order doubles. Then, not now, will be the time for reaping profits.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. email@example.com (949)494-1376/ (800)697-2622 www.crowellroberts.com