How to Invest When Terrorism Is Imminent

Keith Fitz-Gerald Nov 18, 2015
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Today we need to have one of the frankest discussions we’ve had to date – what terrorism means for the markets and your money.

It’s not a pleasant topic by any stretch of the imagination and the horrific events in Paris last Friday evening make that abundantly clear. Yet, it’s necessary simply because War, Terrorism and Ugliness are growth industries.

Whether we agree or not is moot.

My job as Chief Investment Strategist is to guide you through what’s happening, help you protect your money, and insulate your financial future from anything or anybody who threatens it.

No hype, no conspiracies, and no nonsense.

Why Another Attack is Inevitable & What You Can Do About It Before It Happens

ISIS may be the most serious threat to humanity in 2,000 years.

According to various intelligence agencies, the organization controls an area roughly the size of Great Britain and may have 200,000 fighters under arms – every one of whom is inspired by a strict interpretation of the Koran and a desire to return the world to a warped vision of purity that existed when the Prophet Mohammed was alive.

The horrific events of Paris are, sadly, only an opening gambit in a long line of smaller attacks that are gradually upping the ante.

The world’s political leaders have been shamefully naïve to date. Worse, they’re totally outclassed. Whether that’s because of arrogance or ignorance, I’ll leave to you. Either way, the West is woefully unprepared to deal with the challenge ISIS represents.

Making matters worse, the very technology we’ve created, ISIS exploits. The savagery is slick, unrelenting and broadcast around the world in seconds thanks to the Internet. Individual fighters maintain profiles on Facebook, Twitter, and other popular social media services. They’re “liked” by millions. There’s a glossy monthly ISIS magazine in several languages and – get this – even a 24×7 “help desk” staffed by senior combatants to help with recruitment, encryption and attack planning.

President Obama is calling Paris a “setback” even as other nations take the fight to ISIS. Russian strongman Vladimir Putin has come in from the cold to work with the French as allies. But again, that’s NOT the debate here.

There are two key takeaways that are far more important.

First: Terrorism Is a Catalyst for Innovation AND Profits

Most investors are preprogrammed to run from chaos and that’s entirely understandable. They fear the unknown terrorism represents.

The better course of action is to engage, especially now.

I say that because at its very core terrorism is a catalyst for change. No doubt it’s very scary; I’ve traveled in areas where I was a target literally and figuratively so I can vouch personally for just how unsettling this can be.

But that doesn’t change the fact that catastrophic events introduce change. Many scientists actually would tell you that they accelerate it.

I know that’s clinical and cold but that’s also the unfortunate reality of the situation.

Contrary to what the media would have you believe, terrorist events do not weaken the global economy. In reality, they’re highly localized events which means, by implication, the markets will bounce back over time.

That’s why you want to do everything you can to resist the temptation to head for the hills when the next event happens.

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Again, I know this is not an easy concept to come to terms with. But it’s an important perspective to develop now, ahead of the next attack, because that way you’ll know how to put whatever horror surfaces into perspective.

History shows beyond any shadow of a doubt that buying when “there’s blood in the streets” is prudent. Warren Buffett, the legendary Jim Rogers, and the late Sir John Templeton have all made billions building positions with strong fundamentals at times when others are selling.

My paid subscribers have also had the opportunity to rack up gains by exploiting Templeton’s “maximum pessimism” strategy, including profits of 204.5% from Gilead Sciences Inc., profits of 333% from ProShares UltraShort Yen (YCS), 186% from Raytheon, and more.

I want you to do the same.

And brings me to something else that’s important to understand before the next terrorist event grabs headlines.

Second: Capitalism Creates Opportunities Faster Than Terrorists Can Destroy Them

ISIS practices a theology of destruction based on an “untamed Wahhabism,” according to Princeton scholar Bernard Haykel. That makes it very different from using terrorism to redeem Muslim nations as practiced by Al Qaeda. ISIS uses violence in a drive to purify Islam. There is no means to an end… just the end.

The biggest irony of all here is something no terrorist understands – when terrorists issue threats to unravel society by unleashing bioweapons in the world’s major cities, detonating nuclear weapons, hacking planes or simply slaughtering anyone who gets in their way, their targets respond by channeling trillions of dollars into companies needed to combat the menace.

For example, the terrorist attacks taking place in 2001 heralded a major shift in U.S. defense spending. Nobody faded away in fear nor did society collapse despite the fact that’s exactly what Al Qaeda wanted.

Instead, defense spending contracts jumped more than 12%, from $356 billion to $400 billion in little more than a year. By 2010, spending had risen 86% even as the U.S. prepared to wind down two Middle Eastern wars.

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Savvy investors who “engaged” at the time did very well.

Boeing, for example, has returned more than 448% since September 11, 2001. Northrop Grumman is up 507%. Lockheed Martin, 629%. The S&P 500, by comparison, has turned in only 98% over the same time frame.

The other thing to understand here is that it’s not just defense companies that benefit. In fact, post-terrorism related spending goes way beyond traditional bombs, bullets and bayonets.

For example, the Energy Independence and Security Act signed into law by President Bush in 2007 mandated a 500% increase in the use of renewable fuels by 2022 as a way to lessen America’s reliance on foreign oil and tyrants with spigots. President Obama has also signed initiatives to boost renewable energy for the same reason. The result has been a boon for renewable energy companies like SolarCity (up 131% in less than three years) or First Solar Inc., which soared 727% in the months after President Bush signed green-energy legislation into law.

A 2006 study on the effects of terrorism on foreign direct investment, conducted by CEO Daniel Wagner of Country Risk Solutions, found that foreign direct investment actually tripled in the developing world between 2000-2004 – a time period which became known as the apex of the global war on terror.

FDI to developing countries increased as a percentage of global investment, climbing from 18% to 36% in the same time frame.

I know that’s counter intuitive but, again, there’s a good reason.

Capitalism is about the future. It’s a vote for resilience, not cowardice and certainly not for the dystopian vision that ISIS is peddling.

Few people remember this, but 9/11 resulted in a 4.9% drop during the first day of trading four days after the planes hit the World Trade Towers. Losses culminated at 11.6% eleven trading sessions later. Thirty one days later, however, the markets were back to pre-event levels.

The median losses for such market events as Pearl Harbor, President Kennedy’s assassination, 1987’s Black Monday, Lehman Bros collapse and even the 2010 Flash Crash were 2.6% according to S&P Capital IQ’s Sam Stovall.

Globally, the situation is much the same.

Table: Impact of Four Major Terrorist Attacks on Reference Indices over Time

Location Date Reference Percentage Index Change at…..
Index Low on Attack Day Subsequent low Year End
New York/Washington. September 11, 2011 S&P 500 -5.0% -13.5% 5.1%
Madrid, Spain March 11, 2004 IBEX 35 -3.1% -7.6% 9.5%
London, U.K. July 7, 2005 FTSE 100 -4.0% N/A 7.4%
Mumbai, India November 26, 2008 Sensex -0.4% -2.6% 10.9%

Investopedia, Bloomberg

The world will go on.

That’s why I’ll be dedicating upcoming columns to the special perspective, skills, tips, tactics and investments you can make to defend yourself and your future from those who seek to destroy it.

I’ll be with you every step of the way.

Until next time,

Keith Fitz-Gerald

 

10 Responses to How to Invest When Terrorism Is Imminent

  1. Elizabeth Miranda says:

    when will we learn how to defend our assets? What will happen to the seniors who depend on social security? what will happen to medicare and medicare? Amy predictions that are truthful?

    • Keith says:

      Good morning Elizabeth.

      That’s a very important question. I believe the government will go to every length to protect those programs and print money until the end of time to ensure they continue. It’s the youngsters, ironically enough, who will be left without a safety blanket unfortunately.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. l.mendelssohn says:

    Not only are our leaders naive but we are lacking a Churchill .
    President Obama gave a rambling lecture in Turkey emphasising that his first priority was to keep America safe.No thinking person would disagree.But when he is reluctant to commit troops to protect the nation fearful that he would risk losing a soldier or having to visit injured soldiers in hospital,then he has the solution…Disband the arm serviices then no soldier would be harmed.When U.S. becomes vulnerable so what!
    No wonder terrorists are thumbing there noses at us worldwide.
    Read what the chairman of Homeland Security said today.

    • Keith says:

      Good morning.

      I think every Western leader is hesitating simply because there’s a collective guilt/memory stemming from thousands of years of bloodshed in the name of politics. They have wanted to create the appearance of action and convince the world they is doing their jobs rather than make the tough decisions that are so desperately needed at the moment.

      Ironically, the more pressure expended on making decisions, the more determined they are to resist.

      While we can chalk this up to simple stubbornness or party politics, there’s actually a scientific explanation – echo chambers.

      The term means a situation where people tasked with making decisions surround themselves with information they want to hear and block out the balance. The problem is that this allows minority opinions to be repeated and amplified which then, in turn, changes their perspective. ObamaCare, Germany’s refugee decisions initially, the Keystone Pipeline, TPP, and now ISIS…the list is endless.

      Usually that mindset breaks with a stunning clarity as it has in Paris.

      Best regards and thanks for being part of the Total Wealth Family,

      Keith 🙂

  3. Sheila says:

    History has shown us that many of us don’t wish to see what will happen. Prior to WW2 many people
    protected themselves and their assets. Others did not. I want to be one of the persons who
    protects my assets and will appreciate any help you provide.

    • Keith says:

      Good morning Sheila.

      Your comments are well taken – very few took the time to protect their assets leading in the conflict. But even fewer used the situation to their advantage.

      The best known story of the era is that of billionaire investor, the late Sir John Templeton who famously bought 100 shares of every stock trading on the NYSE in 1939 for under $1, some 104 companies in all 34 of which were bankrupt. Only four years later he sold them for a gain of over 400%.

      Templeton would go on to become one of the world’s greatest investors. Every $10,000 invested with him in 1954 was worth more than $2 million in 1992 when he sold the fund to the Franklin Group.

      Like us, he believed in calculated risk, deep value, and buying at points of maximum pessimism.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. fallingman says:

    Host Stuart Varney asked me why the stability when he, like many others, was expecting a knee-jerk sell-off.

    I replied it was because we will not cower to terrorism.”

    Here’s an alternate explanation. Oversold conditions attractive the buy the dip crowd and a little well-timed buying of S&P futures by the President’s Working Group … the PPT … to get the ball rolling. It’s been going on for years.

    And please, gold is down for one simple reason … massive naked short selling by the “commercials” on the Comex. They aren’t really commercial interests in the sense that they’re producers, mind you. This isn’t hedging by miners to lock in a price for future production.

    This is naked short selling by the bullion banks … JPM, HSBC, Citi, etc., almost certainly at the behest of … and as agents for … the Fed, the Treasury’s Exchange Stabilization fund, and the Bank for International Settlements.

    In a world where currencies are being relentlessly trashed as an overt policy measure, the Powerz that Be can’t exactly have people fleeing to gold and silver, now, can they? That would blow the whistle on the Ponzi scheme.

    So, they suppress the price by selling massive amounts of “paper gold.”

    They’re selling contracts representing the obligation to deliver actual gold, but they don’t HAVE the gold.

    How is that possible? Isn’t that illegal? It sure is in the amounts we’re talking about. How do they get away with it? The bankers OWN the US government, figuratively speaking, which looks the other way.

    The bankers created and completely control the Fed, which is NOT a part of the US government. It was established by Congress, but it’s a private institution. They LITERALLY own the Fed, which is nothing more than a banking cartel. The CFTC, which is supposed to be the cop on the beat at the “Crimex” has been corrupted. It’s feckless.

    But don’t the banks have to deliver if the buyers ask for the gold? Yes, but the people on the other siode of the trade are mostly speculators. They’re making bets to make money. They don’t actually want the gold.

    The Comex is a casino. Almost no actual delivery takes place, so JPM, et al can simply keep selling “gold” they don’t have to drive the price down. There are now roughly 300 … yes 300 … contracts outstanding for every ounce of gold in the vaults in the “registered” category at the Crimex, ie., available for actual immediate delivery.

    That’s fraud on it’s face. If only one ounce can be delivered and there are another 299 people thinking they own “gold” and that gold doesn’t exist and they ain’t ever gonna get it, what do you think might happen in a bona fide currency crisis when a whole lotta people are keen on getting their hands on gold and it becomes crystal clear the cookie jar is empty and has been for years?

    I believe GLD is complicit in the fraud, making it a very bad choice for “owning” “gold”, because I don’t think they have what they say they have.

    If you want to own gold, you have to own actual gold, as in coins and bars … not a paper promise.

    So, will gold get sold in a liquidity crisis? Yeah, probably. It IS the most liquid asset there is. But not very many speculators have profits in it or even positions in it anymore, so maybe not.

    And yeah, a stronger dollar plays a role, but come on, those are mostly convenient covers … easy, simple-minded ex post facto explanations … than true reasons for downdraft in price over the last 4 years. Gold and silver are down because they been PUSHED down and HELD down.

  5. Keith says:

    Hello Fallingman.

    To your point, the oversold conditions create the buy which, in turn, expresses the confidence.

    Interesting take on the balance. There are a few nuances based on the actual mechanics of trading but you’re in the right ballpark. Well done!

    Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Martin Hughes says:

    Hi Keith,
    Sorry to join the discussion rather late.

    I am British living in France, 150 miles from Paris.
    A number of observations.
    Life in the French provinces are a bit like the markets. Life goes on with very little disruption, to date.

    I would like to know what your take is on investing at this time.
    You make your recommendations.
    Question.
    Do we go into the market now on your warm/hot tips or wait for the inevitable market crash, [when?] when the stocks could be cheaper.
    I know one should never time the markets.
    Third option take a position now, wait for the crash and effectively take a further position later when the stock could be down, but may be even, so no gain in that method.
    I am kicking myself that I did not buy Barclays in the crash. Would have made 400% in, was it, 18 months.

    PS A further thought which could get me crucified. President Obama [notwithstanding his reluctance to commit ground troops to eradicate the caliphate] could go down in American history as one of your great leaders. Unlike a certain brain surgeon who I see was asked who he would call first on learning of the Paris massacre, didn’t know, or another Republican hopeful [too many names to remember, I am almost as confused as Carson, oops]who said you could tell a Christian but couldn’t say how, and so the list goes on. And don’t get me started on Trump. Please keep him your side of the Atlantic.
    Anyway, my premise is this:
    Obama has actually seen that America’s interference in the politics of the world since the WW2 has actually achieved very little, save to destroy the lives of many families, either through death, or even worse badly wounded servicemen who have needed a lifetime of care at enormous cost. And all at huge cost to your economy and the economies of the world.
    I accept the argument that a government’s first duty is to protect its citizens, WITHIN THE CONFINES OF ITS BORDERS. Unfortunately America has extended the principal to secure it’s economic safety outside its own borders all around the world. Even though it is rich in most natural resources.
    Cuba in a few years time will probably be the great American holiday getaway, now there is a bit of hypocrisy.
    More and more American goods are being manufactured in VietNam.
    America has been importing its oil from the Middle East for decades, not being sure which unpleasant bedfellow it should be sharing with today.
    The turmoil in the Middle East is in the main caused by America and its allies [UK anyone – Tony Blair, ex peace envoy to guess where] toppling dictators who were keeping the lid on things. Which is worse. Saddam/Gaddafi./Assad or ISIS?
    9/11 was a terrible tragedy, and I see that this last week 5 Greeks were arrested in, was it Honduras. Their Greek was non-existent but their Syrian was pretty good. So I think ultimately you will see another tragedy on American soil.
    The main thrust of my thoughts are this though. Has America [i.e.its politicians and gun ho Industrial/Military leaders] ever stopped to think which peoples are going to really suffer over the next 10-20 years. I respectfully suggest the ordinary people of the European and Middle Eastern nations and I include in this group Israel which I have a bad feeling will turn into a terrible Zionist/Financier experiment in resurrecting a 2000 year old state.
    PPS I have a special interest in Nicaragua where I currently have a daughter on a charitable 3 month project, giving advice to rural communities on how to help themselves. She is currently very unwell living on a typical Nicaraguan subsistence diet of tortillas and pulses and has contracted a parasitic condition which may well not be totally curable. So far three lots of antibiotics have not worked. Luckily she is back in England by Christmas when I shall be visiting them all [4 children].
    Nicaragua is another failed state whose left wing government was deposed by you know who where the government is high on the world wide corruption charts. And who would want to live in a country where 7 out of the 8 TV channels are controlled by the President or his family. So tongue in cheek extrapolate that to the States – 1400 Fox News stations! Bring on the Nicaraguan canal [possibly] and probably about time you had a second revolution.

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