Portfolio strategy update: A war footing

David Gottstein

Editor’s note: The following column was written Nov. 4. David Gottstein is with Dynamic Research Group in Anchorage.

Never before have Americans born after the Second World War faced such daunting challenges currently confronting America.

Taking nothing away from the heroism of our soldiers in Korea, or the lack of public support in Vietnam, the menace of a global network of terrorism will likely be a supreme challenge for our armed and intelligence forces for years, and perhaps decades to come.

Even though there are claims that we are not fighting Islam itself, the fact that so many Islamic countries are swayed and or controlled by extremist elements means that as a bloc, they represent a most formidable adversary. The fact that they control a majority of the worlds producing oil fields only complicates matters.

Even Saudi Arabia is suggesting it is time for them to split with its western partners for fear of losing power like that of the late Shah of Iran.

With the potential of the House of Saud falling, and Pakistan suffering greater internal threats, it is likely that a whole new paradigm is beginning to form.

To balance that — because it is an imperative that we persevere in our fight against terrorism — it is growing more likely that an alliance and shift in geopolitics is beginning to take shape (the likes of which has never been seen since Roosevelt, Stalin and Churchill mapped out the post world war world in Yalta). The United States, Great Britain, Russia, China and even India are beginning to see that only by working together may we be able to legitimately confront the terrorist menace that is facing us all.

What this equally means for the U.S. economy is that we are unmistakably headed for a deficit ridden war footing.

Already headed into a recession, we are not going to be able to manage this war from our armchairs and remote controls. It will affect all of us directly. It already has. For the first time in 10 years we are going to head back to guns versus butter.

There will be significant dislocations. Unemployment has already jumped up to 5.4 percent. Six to seven percent is not out of the question as we move forward.

There is a limit to what the fed can do, with interest rates already being so low. The congressional stimulus package winding its way through both houses will pass, but politics will mute its effectiveness.

At best we will see a late and slow recovery.

We will survive. We will persevere.