Why Love "All The Little Children of The World?"       

 "Nationalism: One of the effective ways in which the modern man escapes life's ethical problems."
                             Reinhold Niebuhr

One of the ironies of Wall Street these days is that many investors hoping to avoid the economic problems of Europe are bunkered down in money market funds. That reminds me of two things: 1) how the ancient Hebrews seeking to avoid the giants of the Promised Land wandered the desert for forty years, and 2) how so many investors during the nineties who feared the federal debt would bankrupt Washington were also encouraged by fear-filled prognosticators to invest in treasury securities. Of course, those securities were the federal debt that was to be defaulted. Seems we humans continue to be tempted to turn our worst fears into reality. That is why true religion turns fear, as well as greed, into prudence.

As the above chart demonstrates, though the percentage has been falling, the ten largest money market funds in the United States still have nearly forty percent of their assets in Europe. That's nearly four times the amount they have invested in the United States. Obviously, the reason is that European assets pay a higher interest rate due to their problems. And because of the Federal Reserve's policy of keeping U.S. interest rates as near to zero as possible, largely so our banks can recapitalize their past mistakes, money market funds have needed more interest than our securities pay in order to earn their management fees and have any interest remaining to pay investors. European securities have kept our money market funds from "breaking the buck," or earning negative returns for investors. Should a major fund do so, and the industry not prop it up, it could have a dramatic effect on the psychology of the markets if investors lose faith in even money market funds.

That's only one reason that no one, including the most nationalistic of American politicians, like Pat Buchanan who once wrote an editorial in The Wall Street Journal that we should only invest in America, should experience any happiness over the economic problems of the world, even if it does send hot money to America in search of a "safe haven." In the short-term, that can seem good for Washington as it can borrow from around the world for nothing, especially when inflation is considered. But in the long-term, nationalism can only be harmful to America's economy.

The following charts show just how important the European markets are to U.S. companies. The charts were tied to an article about our corporations sitting on two trillion dollars of cash in case another credit freeze should occur. I don't completely agree with that rationalization but it's a factor. Obviously, a lot of us have been hoping that cash might create some jobs in the United States, which would not happen if our money market funds got in trouble. In turn, the unemployment rate promises to play a major role in the next election. So our economy and politics are very much like the Bible describes the Body of Christ: separate fingers that had better be working together for the common good.

Source: The Wall Street Journal, November 7, 2011

Pragmatically, there's no way for anyone with a pension fund, mutual fund or endowment fund to avoid the interconnections of our world, which is one reason I've always detested Wall Street promising anyone "financial independence." The Franklin Templeton mutual funds have published this chart about how much of their profits America's major companies earn overseas:

Source: 2020 Vision, March 2011

I mention all this as the December 10, 2011 issue of The Economist contained a lengthy article entitled "There Could Be Trouble Ahead." It was about the parallels between the Great Depression and the problems in Europe. It said: "For in two important--and related--areas, the rich world could still makes mistakes that were also made in the 1930's. It risks repeating the fiscal tightening that produced America's 'recession within a depression' of 1937-38. And the crisis in Europe looks eerily similar to the financial turmoil of the late 1920s and early 1930s, in which economies fell like dominoes under pressure from austerity, tight money and the lack of a lender of last resort."

As the article featured the following chart comparing today's Greece with the America of the 1930's, The Economist is obviously concerned about the new fondness for fiscal austerity among politicians:

Source: The Economist, December 10, 2011

The article concluded: "The situation is not yet beyond repair. But the task of repairing it grows harder the longer it is delayed. The lessons of the 1930s spared the world a lot of economic pain after the shock of the 2008 financial crisis. It is not too late to recall other critical lessons of the Depression. Ignore them, and history may well repeat itself."

That's simple affirmation of our spiritual perspective that God obviously knew there were giants in the Promised Land when God promised the slaves it was a land of milk and honey. The slave mentality of the Hebrews, and the ten fear-filled spies who told the people the giants were too fearsome to handle, simply never understood the real plan all along had been for the children of an omnipotent God to handle the giants, as David did Goliath. So be prudent out there; but keep the faith.

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Gary Moore is a Sarasota-based investment counselor who has authored many publications and articles on the morality of political-economy and personal finance. He is a registered representative of, and offers securities through, National Planning Corp (NPC), member FINRA/SIPC, but opinions expressed here are his alone. The Financial Seminary and NPC are separate and unrelated. His comments are included in the More Good $ense newsletter in an effort to expand stewardship leaders understanding of broader economic issues.