New Protests, Riots and Revolutions: 5 Lessons for Investors

The disasters in Japan may be fading from the headline news, but not from the daily life of my family.

While Anthony is helping with a food drive in Tokyo, we spent Sunday at a Red Cross fund-raising drive organized by parents of our Weiss School in Palm Beach Gardens.

Nanako, a proud second grader, encouraged folks to donate and gave a stand-up interview to Channel 5 News. Her friends and their parents from other schools also pitched in. It was a busy day for us all.

So please forgive me if I’ve had less time today to talk to you about world events on my Facebook page this weekend — because a lot is happening and it’s not pretty. My key point:

Natural Disasters Are Often the Lesser of the Evils. It’s
The Man-Made Disasters That Can Cause More Harm!

The people of Japan will overcome their tragedy. They will rebuild. They will put their lives back together. And in the process, they will become even stronger.

Unfortunately, however, the same cannot be said about the man-made disasters now on the near horizon — in the Middle East, Europe and even the United States.

In the past, these man-made disasters were largely hidden from the naked eye — only trained observers were aware that they even existed: Corrupt government policies were ignored. Wild government spending was covered up. Debts, deficits, and excess risk-taking in nearly all realms of life were pooh-poohed or even cheered on.

But just in the last few months, all that has changed dramatically. Now …

The Egregious Blunders of Government Leaders
Are Exploding Onto the Streets of the World in the
Form of New Protests, Riots, and Revolutions.

In London, more than 250,000 people poured onto the streets this past Saturday to protest government cutbacks. They then descended into a “ferocious melee” as smaller groups of “violent mobs” destroyed shops, attacked banks, and vandalized Trafalgar Square. At least 211 people were arrested and 66 were injured, including 31 police officers.

In Syria — a tightly controlled police state where State Department experts thought protests would be next to impossible — the violence is suddenly worse than in any Arab country outside of Libya.

On Friday, not only were dozens more anti-government protesters killed by police in the southern city of Dara’a (where the movement first began), but the violence also spread to other cities and even to the capital, Damascus, where thousands poured onto the streets demanding reforms.

In the capital of Yemen, one of the largest-ever crowds of anti-government protesters demanded the resignation of President Ali Abdullah Saleh on Sunday. Meanwhile, militants seized control of a weapons factory and a nearby town in Yemen’s south, as political turmoil caused security to unravel around the country.

Jordan, another key country thought to be among the “least vulnerable” to turmoil, has now also erupted into mass demonstrations. Just yesterday, mourners buried 55-year-old Khairi Saad, the first person to die in the protests, marking a critical new turn for the worse.

Bahrain is virtually under martial law, and yet, this weekend protesters continue to brave the streets. Even in Saudi Arabia, protesters in one of its oil-rich eastern regions demanded the withdrawal of Saudi forces from Bahrain.

My view: As an investor and as a citizen, it’s not enough to simply sit back and watch these dramatic changes from afar. If you haven’t done so already, it’s time to wake up, smell the coffee, and take defensive action. I suggest you begin with:

The Five Important Lessons to Be
Learned From These Man-Made Disasters

The first lesson is the one I stressed here five weeks ago:

Upheavals, revolutions, and wars inevitably disrupt or destroy the normal flows of goods and resources.

They block shipping routes. They freeze or even gut production facilities. They create a domino-effect of supply shortages around the globe.

The second lesson, also in my earlier report, is about oil and energy:

More than 860 billion barrels, or about 63 percent of the world’s petroleum reserves, are held by countries that are suffering from — or vulnerable to — political upheaval.

For a sense of how far and wide the crisis has spread, see the map above. And to get a glimpse of the consequences, just check the price of gasoline in your area!

The danger — surging inflation in the United States.

The opportunity — major profits to be made in natural resources.

The third lesson should be self-evident:

The masses, if desperate or determined enough, can ultimately rise up to overthrow almost any regime, anywhere.

No despotic government on Earth — no matter how well financed or heavily armed — can forever avoid its own collapse or overthrow. We saw this with the fall of the Berlin Wall, the demise of the Soviet Union … and, earlier in the 20th century, with the end of the British Empire.

We’ve seen recent examples not only in the Middle East, but also in Ireland, and, just this past week, in Portugal as well.

Fortunately, in Western countries, most rebellions are channeled through democratic processes. But to blindly assume we are somehow invulnerable to political turmoil is to ingeniously ignore history.

The fourth lesson is also clear: Although social movements rarely exclude ideological or religious overtones, the underlying driver is almost invariably economic — and that is especially true of the most recent upheavals in Europe, the Middle East, and North Africa.

People are angry or anxious because they feel
— or fear — the utter desperation of poverty.

But it’s the fifth and last lesson that I believe merits the closest scrutiny right now:

• The revolts on the streets of London, Dublin, Lisbon, and Athens have been a reaction to massive government deficits and cutbacks. They are common symptoms of a deflationary crisis.
• In contrast, the revolts in the Middle East have been largely triggered by surges in the cost of living. Among other causes, they are consequences of an inflationary crisis.

These are very different kinds or revolts, mandating very different protection or profit strategies:

• The deflationary crisis can lead to a fundamental resolution down the road, especially if the sacrifices are shared by the rich and powerful. In this scenario, the best place for investors to find protection is in long-term Treasury bonds.
• The inflationary crisis merely prolongs the agony, destroys the middle class, polarizes society, and leads to far greater political upheavals. And unfortunately, right now, that’s the path our government is on. The best place to find protection is in gold, silver, the world’s strongest economies and short-term Treasuries for cash.

Fiscal Armageddon in the United States?

Senator Mark Warner (D-VA) says, “we’re approaching financial Armageddon.”

Representative Allen West (R-FL) says, “the economic situation here in the United States of America is a fiscal Armageddon.”

And Senator Joe Manchin (D-WV) declares, “we cannot ignore the fiscal Titanic of our national debt and deficit.”

These are timely warnings, especially given the fact that the Congressional Budget Office (CBO) just released a new report showing that President Obama’s budget will drive the budget deficit UP an additional $2.3 TRILLION over the next 10 years.

And never forget: The CBO is infamous for grossly UNDERestimating budget deficits. Just a couple of years ago, in fact, the CBO said this year’s deficit would be less than one-fourth as large as it actually is!

So what is Washington going to do about it? Ultimately, there are two choices …

• Like Ireland or the UK, Washington could slash spending to the bone and risk the kind of political backlash we saw on the streets of London this past Saturday. That would set off a deflationary crisis. Or …
• Reminiscent of some countries in the Middle East, which have allowed inflation and poverty to destroy the trust of their citizens, we could pursue the path Washington is now on — “austerity be damned,” no sacrifices by the rich, more money printing, and rising inflation.

Which one would you choose? Or is there a third choice?

If you’re my Facebook friend, let me know on my personal Facebook page by clicking here. If not, it’s easy to sign up and send me a friend request, which I’ll gladly accept right away.

Good luck and God bless!

Martin