Americans' independence mustn't block links to world

The Insider

Your Money

July 03, 2005|By BILL BARNHART

AMERICANS LOVE to look backward. The nostalgia of Independence Day warms many hearts.

But embracing American interdependence with the rest of the world presents the best opportunity for investors.

David Oser, head of investments at Chicago's ShoreBank, recently returned from Bangladesh, a country that for decades has symbolized Third World backwardness. He was struck by the "building boom" in hotels and housing.

That's an interesting sidebar to the real estate "bubble" story so popular these days. But there's a larger message: Every day, there are fewer places in the world where economic developments do not have a direct influence on the U.S. economy and U.S. investors.

As we enter the second half of 2005, the investment picture seems frozen in place.

Investors cannot dispel the regret of the Nasdaq bust. The most routine periodic reports about the U.S. economy and U.S. corporate results prompt anxious reactions.

What appears to be a sustainable period of enviable U.S. economic growth, strong corporate profits, solid company balance sheets and near record-low interest rates has led the stock market exactly nowhere this year. Major U.S. stock indexes are down marginally.

The Federal Reserve, in its latest pronouncement on interest rates, sees "firm" economic growth that must be contained by "gradual" increases in short-term interest rates.

One result of higher rates is a firmer dollar in foreign exchange markets, frustrating investors who bet against the greenback.

Friday's report on the health of the manufacturing sector was stronger than expected - news that produced barely a blip in the stock market.

"The governing device in the market right now is that everybody is cautious," said Jeffrey Diermeier, a former money manager who heads the CFA Institute, the Charlottesville, Va., organization that awards the Chartered Financial Analyst designation.

"People are scared not to repeat the past," he said. The anxiety is evident among institutional as well as individual investors, he said.

There are reasons to worry, to be sure.

The market is telling the global story, and it's not all good news. Economies in Japan and Europe are struggling. China's swift advance represents unforeseen competition.

The United States' response has been a mixture of xenophobia and risk aversion that is self-destructive and self-fulfilling.

Why, for example, do many Americans fear immigration?

As Diermeier puts it, a highly productive economy needs workers to perform the tasks that the baby boomers will seek when they cash in their stocks and bonds in retirement.

"Economists have missed the importance of the immigration trend," he said. So have many politicians.

The solution to the debilitating bout of inwardness requires a difficult step. We need to capture Osama bin Laden and move on from the Sept. 11 disaster.

The assault on New York and Washington - more precisely, the cynical political exploitation of the attack - has poisoned America long enough.

The whole world is watching and waiting for American leadership to get over it. Our prosperity depends on America re-entering the global community.

E-mail Bill Barnhart at

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