OT- Article suggests spending, flying, buying bonds more effective act of patriotism than buying stock
FOOL ON THE HILL
Patriotic Money Management
By Bill Mann (TMF Otter)
September 21, 2001
Within hours of the attacks on New York and Washington, the emails started flying across the Internet. "Buy stock in America! Support American stocks!" While this notion is honorable, there are frankly better ways to help out America and its companies. Try opening up the pocketbook and spending some money, buying bonds, flying on an airline -- or even investing in Pakistan, a country that desperately needs foreign financial support.
One of the great investment thinkers in America, PIMCO Managing Director Bill Gross, had some prescient observations about the nature of America's financial response to the terrorist attacks of last week. He noted -- and wrote, prior to Monday's market opening -- that some unique forces were being brought to bear to ensure that the U.S. stock markets remained liquid, as a collapse is believed by many to hinder our ability to respond to the attacks.
And even though the stock markets have dropped precipitously this week, I maintain that this has as much to do with the economic situation domestically prior to the attack as it does any real and true response to the attack as an isolated event. I base this observation on nothing, except for the fact that our economy was well on its way into a recession well in advance of any additional uncertainty added last week.
Gross described an interesting turn of events. During World War II the concept of patriotic investing was centered around loaning our money to the government to use in a war effort in the form of war bonds, savings bonds, and treasury bonds. This money would be repaid to each of us with interest, while the government would use the proceeds to conduct various campaigns, including the defeat of an enemy. Today the rallying cry is to keep the stock market supported, suggesting that it is the engine from whence America derives its power. If you haven't received one of those "buy stock in America" exhortations in your email box, I'll be glad to send you one of the hundreds I have received.
Who gets the money when we buy stock?
Buying stock is in fact supportive, but it is an extremely inefficient way to assist the U.S. in what may be a protracted battle against those who would destroy us. There seems to be a misconception of who benefits when an individual buys a stock. The money you spend only goes to the person or entity selling the shares. Unless a company is in the process of raising money through an equity offering, it has access to none of the cash you have deployed. And in the current environment, most companies that are selling their own stocks into the market to raise money are seeing their share prices shellacked as people fear the added dilution such events inevitably cause.
So whether you invest in Qualcomm (Nasdaq: QCOM), General Dynamics (NYSE: GD), or United Technologies (NYSE: UTX), these companies do not get your money. Only the person who sold you the stock does, and if he or she simply squirrels the proceeds away your investment provides very minimal short-term benefit.
There are, however, some ways in which you CAN support the U.S. in a much more effective manner. Here are some suggestions of ways you can get more bang for your patriotic buck. Each of them requires that you do one thing: take a risk.
1. Spend!!!
Yep, break out the money and go out there and buy something. I almost cannot believe I am saying this, as a true believer in living beneath one's means. Reality is, nothing gets the economy going like a little spending. When you buy something at the Gap (NYSE: GPS), your dollars pay for the company's store, its workers, suppliers, the tax man, utilities -- everyone. The dollars that pay the workers are recycled once again, and so on, and so on.
Economists estimate that each dollar spent by a consumer can cycle through the economy as many as 10 times. Think about this: Come January, when Gap puts out its quarterly numbers, do you think they want to show increased earnings and revenues, or increased multiples based upon a stock price that has been propped up? Earnings drive the markets. Revenues drive earnings. Those revenues come from you. (NOTE: This message does not apply to people who already carry a balance on your credit cards. In fact, none of these messages apply to you.)
2. Fly somewhere
Yep, the U.S. airline industry has been crushed by the shutdown in the wake of the attacks. Truth be told, it was a basket-case industry prior to this, with only Southwest (NYSE: LUV) and Mesaba Holdings (Nasdaq: MAIR) showing much propensity to consistently earn a profit. But the industry lost some $250 million per day while the airports were shut down, and now unused capacity runs rampant.
Be brave. Our airlines are safe, and they need our business. Congress may make some loan guarantees for struggling airlines, and many of these companies are deeply in need of fiscal discipline. But nearly 100,000 Americans have lost airline jobs in the last week, and nothing will prevent further job losses like an uptick in some desperately needed revenues.
3. Buy bonds
You want to invest in America? Buy government or municipal bonds. Unlike stocks, bond sales directly provide liquidity to the entity that issues them: You buy a bond, the government gets your money. It's funny how fast the talk of government debt and balanced budgets evaporated when a crisis struck, but it's appropriate. When the country is in a crisis -- particularly one that calls for potentially drawn-out military action -- the portion of government spending as a portion of Gross National Product necessarily increases.
Last week two senators introduced a bill to bring back U.S. War Bonds, so for the first time in 50 years Americans may have the ability to invest directly into both the relief funds already announced and any future actions against terrorism.
4. Invest in Pakistan
This one will certainly invite criticism. Let me say it right now: Pakistan is a country rife with corruption and has a fair portion of people who hold deep-seated resentment toward the U.S. I dare say there are dozens of other countries that deserve our investment dollars more than Pakistan. But we will need Pakistan more than any other to help us in our efforts to take the fight against terrorism to the terrorists. Pakistan's economy is a wreck, and it has borne the brunt of nearly a million Afghan refugees for nearly 20 years, almost without outside assistance. It is from these squalid refugee camps that ignorant creeps like the Taliban have gained support, generally by people who have minimal education and no hope.
This isn't some wet noodle plea. I'm not advocating some sort of Neville Chamberlain "Peace in our time" nonsense when we ought to be preparing for conflict. But when destruction is brought to our front door we ought to dedicate some resources to not only eliminating the source, but also addressing the conditions that created the source. This means investing in Pakistan, because the country cannot address its dire financial problems alone. Buy bonds issued by the State Bank of Pakistan, or donate to one of the groups trying to improve education in the country -- particularly in the refugee areas, like the Pakistani Education Fund or the Kashf Foundation.
Obviously, all of the above suggestions imply some risk. Current economic conditions are not great, our future is uncertain, and we may not feel like sending aid to a third-world country in light of recent events. But if we're talking patriotism, the goal should be to apply our dollars in a way that derives maximum benefit for the United States, and by extension its friends. People have been focusing on the stock market, but there are other routes that may pay better dividends.
Fool on!
Bill Mann, TMFOtter on the Fool Discussion Boards
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