I will be joining Fox News’ Cavuto on Business Saturday morning. Needless to say, one of the things on everyone’s minds will be the reaction of the Dow to terrorist events.
We don’t need to kill or capture Osama for the Dow to reach 11,000 and beyond. We need to ignore him. (Or better yet, use our government’s newly enhanced powers of eminent domain to seize his house.) The stock market will see 11,000 this year based on strong performance of companies and low interest rates.
Osama bin Laden is actually a technology story. Advances in communications technology over past 10 years have turned on the lights around the world and given all of us real time looks at everything happening on Fox, CNBC, and CNN right in the comfort of our living room. This has increased the return on terrorist acts big time—the entire world watched the World Trade Center fall; we heard live gunfire when the Chechnyan terrorists invaded a Russian grade school; and we saw the dead and injured in the recent London bombings. It is much more ‘profitable’ to be a terrorist today. But this is a side show.
What’s more important is that people in the U.S. and other rich countries can now see, real time, how poor and violent the rest of the world is. This makes it more difficult for governments to do bad things to their people in the dark. (e.g., mass murders in Sudan). Sometimes that provokes us to take positive action. For example, American money and investment was the driving force behind the Easter Accord in Northern Ireland; they actually ‘bought out’ individual members of the core IRA and relocated them around the world. This is very good.
Also important is that poor people around the world have uncensored televisions now. They see how rich we are and they have reached the conclusion that it is not our intelligence, our work ethic, or our good looks that are the reason for our wealth. They want some of this wealth, too, and are pressuring their governments to deliver. These governments know the only way to do this is to attract capital. Capital is the source of growth; it is the key to raising their peoples’ productivity. Since the capital is all located here in the U.S. (as well as EU and Japan), these countries (like China, Korea, India, and Russia) are systematically changing their rules to attract foreign (mostly U.S.) investors, reducing investment risk. The resulting reallocation of capital has created the huge growth stories in China, India, and Russia. We are struggling with the side-effects of this growth now with high oil prices, trade deficits, and outsourcing, but it is an immensely positive story for capital owners all around the world, including U.S. investors.
To the extent that we allow terrorist acts to frighten us, we are throwing in the towel. Throughout history, people have adjusted to whatever challenges they faced. I think America is ready to hoist a single finger to bin Laden and get back to work. When that happens, a ton of cash will be invested in the stock market.
Conclusion: Terrorism is an unavoidable sideshow to the greatest investment story of our lifetimes. When bad things happen, as they did today in London, and stock prices fall, invest more, not less, in the stock market. It’s time for America to exhale, unclench their buttocks and buy stocks.