Tuesday, November 13, 2007

Invest in "Disaster Capitalism"

How to invest in the new 'Disaster Capitalism'

It's easy to invest in "Disaster Capitalism" and the new economy. See the Spade Defense Index (DXS) of defense, homeland security and aerospace stocks. Klein says it "went up 76% between 2001 and 2006, while the S&P 500 dropped 5%." You can trade the Spade Index as a PowerShare Aerospace and Defense ETF (PPA) .

In addition, the Fidelity Select Defense & Aerospace Fund (FSDAX) offers another opportunity. According to Morningstar data, there are similar stocks in both, including: General Dynamics (GD) , Raytheon (RTN) , Rockwell Collins (COL) , Boeing (BA) , Harris (HRS) , Northrop Grumman (NOC) and United Technologies (UTX) .

"The Shock Doctrine" is one of the best economic book of the 21st century because it reveals in one place the confluence of cultural forces, the restructuring of a world economy as growing populations fight over depleting natural resources and the drifting away of America from representative democracy to a government controlled by multiple, competing, well-financed and shadowy special interests. Here's an overview of trends from the book and related ideas:

1. Free market competes with government

In the past when major catastrophes resulted in economic disruptions and human losses governments responded with "New Deals" and "Marshall Plans," says Klein. Today, "Disaster Capitalism" companies see government agencies (like FEMA) and nonprofits (Red Cross) as "competition" taking away new business. A military draft, for instance, would lower the need for private mercenaries.

2. Privatization of government for the investor class

These new forces are screaming to privatize our economy and government: After the Minneapolis bridge collapse Klein saw many calls for more private toll roads and bridges across America. Same with calls to privatize New York's subways after rain closed them temporarily. Ditto with airports and their security. And in New Orleans, reconstruction moneys rebuilt private schools in upscale areas and neglected infrastructure in poor areas.

3. War generates profits, peace hurts free markets

"Disaster Capitalism" firms need wars to generate profits. And by sidestepping the draft, Iraq became a privatized war employing over 185,000 (20,000 more than the military), including truck drivers, PX clerks and mercenary soldiers. Blackwater was near bankruptcy before the war. Through secret no-bid contracts the U.S. pays for training centers which the companies now own. Peace does not generate disaster profits.

4. Plutocratic government favoring wealthy over masses

"The vast infrastructure of the disaster industry, built up with taxpayer money, is all privately controlled" through special interests favoring the wealth classes during reconstruction. In New Orleans Klein saw the "so-called FEMA-villes: desolate out-of-the-way trailer camps for low-income evacuees [with guards that] treated survivors like criminals;" while the wealthy gated communities quickly received water and power generators, private school and hospital services.

5. Shadow banking system

Private equity firms and hedge funds are making our Federal Reserve Bank less and less relevant. Today a private banking system is emerging nationally and globally that operates in relative secrecy outside the established system and beyond the oversight of securities and banking regulators and the legislature, out in a parallel universe beyond the comprehension of the vast majority of American taxpayers and Main Street investors.

So folks: Is "Disaster Capitalism" merely a hot short-term investment opportunity for you? Or is it a national "crisis," a warning bell, a "shocking" call to rise above euphemisms like "creative destruction," get into action and rein in the "military-industrial complex" mindset that's pushing America into a disastrous, self-destructive future? Tell us.

Paul B. Farrell
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