The most important investment analysis, in terms of outcomes and forecasting, relate to inflation and deflation. Low and stable inflation removes one of the greatest uncertainties confronting investors, and uncertainty is the greatest headwind to investment returns. The distinction between “real assets” and “financial assets” hinges upon inflation and deflation. In a broad portfolio sense, the inflation environment certainly trumps the success or failure of individual CEO’s or companies. It even trumps, in terms of driving investment returns, the underlying economic growth of nations and the globe. Historically, war is the single biggest driver of inflation globally and in the US.
The implications of war for inflation, and for financial markets are profound.
Therefore, I want to tap the wisdom of historians and military experts to shed some light on the Syrian entanglement. First is President and General Dwight D. Eisenhower. Second is Secretary of State and General Colin Powell. Third is commissioned officer in US Navy and Cato Institute Scholar Christopher Preble. These military leaders, better than civilians, understand the cost of war both in terms of personal cost and sacrifice for military personnel, and the implications for domestic and foreign civilian populations.
Though Eisenhower was anything but a pacifist he understood that securing America’s leadership and prestige pivoted on “how we use our power in the interest of world peace and human betterment (1).” During his presidency, the major threat was Soviet expansion and destabilization of sovereign states on the edge of the Soviet sphere of influence.
He sought to limit U.S. involvement to those cases where the United States was invited by democratic, or at least non-communist, leaders to provide military assistance. He was instrumental in the winding down and transitioning the WWII military economy of U.S. and Europe to a peacetime economy, and for example launched the Atoms for Peace program.
In his Presidential farewell address, he warned his successor to guard against the ”unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
Over the subsequent 50 years, and to this day, his warnings went largely unheeded. He suggested that at our universities, government contracts had become “virtually a substitute for intellectual curiosity,” and that we should remain alert to danger that “public policy could itself become the captive of the scientific-technological elite.” Prescient! In the closing paragraph of his address he expressed words that ring true to this day:
We pray that peoples of all faiths, all races, all nations, may have their great human needs satisfied; that those now denied opportunity shall come to enjoy it to the full; that all who yearn for freedom may experience its spiritual blessings; that those who have freedom will understand, also, its heavy responsibilities; that all who are insensitive to the needs of others will learn charity; that the scourges of poverty, disease and ignorance will be made to disappear from the earth, and that, in the goodness of time, all peoples will come to live together in a peace guaranteed by the binding force of mutual respect and love.