July 2, 2011


 
It’s 4th of July week-end and I thought we would change the subject this week to something a little more appropriate.

 

Government’s first and most important job is national defense. That, along with its duties of establishing laws and standards, and a court system to adjudicate disputes regarding those laws and standards, is the only legitimate reason for a Federal Government to exist. We need laws that protect life, liberty, and property; and we need armies to defend against aggressors.

 

That makes a President’s number one role that of commander-in-chief. And that is the first thing I look for in a candidate to determine who I will vote for. What are the candidate’s qualifications to be commander-in-chief? The next thing I ask myself is "what is this candidate’s foreign policy?" Foreign policy is going to occupy much of the news as we move into election season.

 

There is one big question I hear being asked a lot more today: “is America moving toward isolationism?" Many years ago I developed a personal philosophy on foreign policy. Existing thinking on the subject was unsatisfactory to me. The Libertarian view was very isolationist. A common Libertarian view is that we have no business engaging in wars around the world, protecting other countries, or meddling in their affairs. Our involvement overseas, as they see it, is simply a “trip wire" that can only serve to get us into trouble. It is their view that we need to bring home our troops, close our bases, and only respond with force if attacked.

 

Then there are those who believe the opposite, that we must be the policeman of the world. As the strongest nation in the world, they insist that it is our moral duty to protect our neighbors. It has been said that we are the only nation on earth that can fill this policing role, and therefore it is up to us to keep the peace.

 

The only thing I can see that both sides agree on is that the guiding principle that determines whether we should take action—military or otherwise—should be determined by what is in our national interest. The disagreement of course is in what constitutes our national interest. Libertarians would draw the line at retaliation against force, with no other involvement in a nation’s affairs. “Hawks,” people who favor military force be used to carry out foreign policy, are quick to intervene, and are even in favor of preemptive strikes when necessary

 

I have never been satisfied with either position. My own guiding principle as to what determines a good or bad foreign policy can be summed up this way:

 

We have the right to intervene within another nation to defend ourselves or others;

but not the obligation to do so.

 

This guiding principle rejects outright isolationism, but also rejects the hawk’s moral obligation argument imposed by interventionists. This principle allows for choice.

 

What makes that choice even more interesting in regards to foreign policy is that it is revocable. We live under a form of government where any foreign policy decision can only survive with continued bipartisan support. Further, it must be ratified by popular support. Otherwise the people will vote out the incumbents that make that choice and replace them with representatives whose stance on foreign policy is more to their liking.

 

Iraq

 

Based on my principle, I supported our move into Iraq, and did so long before the issue of weapons of mass destruction was brought up. Saddam Hussein was a brutal dictator. He suppressed individual rights, tortured and killed those he disagreed with, and threatened to close down the Suez Canal to deprive the west of oil if we interfered with his dictatorship. He then used chemical weapons to wipe out a large portion of the Kurds. This to me was sufficient moral grounds to intervene on behalf of the Iraqi citizens, and in our nation’s interest.

 

I believed that it was in our interest, and the world’s, to replace a dictatorship in one of the most brutal areas of the world with a more modern and democratic government. This accomplishment would, I thought, be a shining example of what was possible when people were allowed to be free, and this has in fact come about. In fact, I believe that the Arab Spring is the direct consequence of Iraq's neighbors seeing the new freedom and prosperity that developed in Iraq due to our intervention. The communications revolution made possible by Facebook and Twitter has allowed Iraq's neighbors to see the fruits of freedom. Is it a surprise that the rest of the Arab world now want the same for themselves?

 

Afghanistan

 

Afghanistan is a completely different story. I have heard many of the finest minds give numerous reasons for why we have sent a hundred thousand troops into that country, and I still don’t have a clue why we are really there.

 

We went into Afghanistan after 9/11 to kick the Taliban out of power and destroy their bases. I was for this incisive action. We chased the Taliban into the hills and replaced the 14th century philosophy that ruled the Afghan people with an iron fist with a more modern and peaceful government. Women were no longer treated like chattel and to an extent have been liberated. Children can go to school and learn pertinent information, rather than the teachings of the Taliban. Torture, rape, and murder have been outlawed, where before they were almost an institution. This is all good.

 

But we did all this year’s ago. Why didn't we pack up and leave then? Our mission was accomplished. The argument is that if we had left, the Taliban would retake the government. Maybe they would have, maybe not. But if they did, we would know exactly where the enemy was and be able to hit them again, instead of playing hide and seek in the mountains of Afghanistan. And if they built a base to train terrorists, we could easily spot it and destroy it with a drone or two. Why do we need a hundred thousand US soldiers there?

 

The worst case scenario was that the Taliban would return and massacre the opposition, which while pure theory, is still a possibility. I still wouldn’t send in a hundred thousand troops to prevent it. I would prefer that no more lives be spent on that particular nation. We did what we set out to do.

 

That is my opinion. It may not be yours. But we will be able to express all our opinions at the ballot box next November. And, Once again, that is my point: choice and consensus is needed to pursue any foreign policy. My position in the debate that will surely ensue is to argue my case based on both national self-interest and choice. I will not accept that we as a nation should be either isolationist, or the policeman of the world. To me both of these alternatives ignore the reality that each foreign policy decision needs to be inspected and decided based on its own merit. It is a matter of judgement.

For example, I am for closing bases abroad, but not all of them. I am against spending tax payer’s money on defending countries that are able to defend themselves. But I believe helping certain nations can pay dividends to us in the long term. I believe we should only use force as a last resort, yet I think preemptive strikes have their place. And finally I believe that if we decide to use force, we should go all in, with the goal being to win; and to do so quickly and decisively.

 

Choices must be made in all things. You can’t get away from that responsibility. The goal of both the isolationists and those with the “police the world" mentality is to eliminate choice in favor of doctrine. But doctrines usually fail, or become obsolete. A foreign policy based on choice and consensus, consistent with individual rights, freedoms, and our nation’s interest, I believe is the best policy.

 

Market Update:

 

The quarter has come to an end and the results are in: The stock market is flat, the bond market up, interest rates down, the dollar up and commodities down. We may have put in a bottom in most markets, as we have rallied impressively off previous lows. Personally, I hope so. I feel comfortable that I bought at the recent low's, and very comfortable with my RIET's, two of which just raised their dividends about 10%. The cash portion of my portfolio is now returning about 12%. 
What did go down conspicuously last week were the AGS. Corn was down 10% in just one trading day, and wheat fell 25% this month. Yet my Verde Potash moved up over 11% on Thursday alone. The CRB has fallen from 370 the first of May, to touch the 50 day MA at 336 today. The momentum trade in commodities is definitely over.
RBY was a casualty this week. It reported drilling results less than the "mother load" quantities and quality expected by speculators and investors. It was not a bad report, simply disappointing. RBY now appears to be just another gold stock rather than the next Gold Corp. I sold my position at a very small loss.
As the week closed, the stock market continued to move up -- an impressive 650 points. I pulled the trigger on Humana, a stock I have had my eye on for some time. Unless something changes within the company, this is a stock that should do well long term. As the aging of America continues, managed care is going to be in more need than ever. HUM is positioned to profit from this inexorable demographic trend. HUM rose about 3% on Friday.
It was just a couple of weeks ago that I wrote: "The air was thick with pessimism this week, and we may have hit an interim low on Wednesday. Just in case it was the low, it may be a good time to do a little shopping for beaten down stocks".
Copper went up to 4.30 in a sudden move, diverging from most other commodities. At the same time gold moved down. This divergence may be validating my view that the second half of the year may bring a better economy and lower inflation rate. This may be a head fake or it may be that we did see the bottom in at least the stock market. Either way, I'm in and all stocks are in the green. And I still have a little cash on the ready for another buy or two.
Portfolio:
Cash and cash equivalents, CXS, MFA, & TWO
(Average yields are about 12%)
 Verde Potash
 Copper Fox
 Nevsun Resources
 US Sliver Corp
Humana