Most financial newsletters focus only on the domestic scene. Over the course of a year, Early Warning Report is, on average, two-thirds global and only one-third domestic. To see why, glance over this brief list of events from financial history.

• 1913, the darkest year in American history. The income tax and Federal Reserve (the "Fed") are created. These will give the USG (United States Government) the ability to grow without limit through the financing of a massive welfare state and military adventures abroad.
• 1914, World War I begins in Bosnia.
• 1917, US formally enters war. Stocks drop 50%. To help pay for the war, the Fed engineers a massive inflation of the money supply.
• 1918, the war ends, but inflation doesn't. The newly created money goes into the stock market. Stocks rise.
• 1920, the Fed stops inflating, stocks fall, depression begins. Germans are impoverished by reparations imposed by France and England in Treaty of Versailles. Hitler vows revenge, forms Nazi party with six members.
• 1922, Fed resumes inflation of money supply, partly to provide dollars to help Germany recover from reparations. This inflation leads to the "Roaring Twenties" boom and wild stock speculation.
• 1929, Fed stops inflating, stocks crash. Beginning of world-wide Great Depression.
• 1933, stocks have dropped 89%. US unemployment has hit 25%; in Germany, 40%. Hitler is swept into power.
• 1941, US cuts off Japanese oil supply. Japan attacks. Massive increases in taxes and money supply. Price controls, shortages, rationing.
• 1942, fueled by inflation of the money supply, stocks begin a long climb lasting till the Vietnam War.
• 1954, stocks finally return to their level of 1929.
• 1959, first Americans die in Vietnam.
• 1965, Vietnam buildup begins. More taxes and inflation of money supply.
• 1968, the war's taxes, inflation and economic disruptions destroy confidence in stocks. Dow peaks at 1,000 and will not surpass this level for 14 years.
• 1971, wartime inflation leads to wage and price controls, dollar devaluation, recession.
• 1973, Arab-Israeli war. US backs Israel; Arabs cut US oil supply. Stocks drop 40%.
• 1979-80, US freezes Iranian assets, triggers global financial panic. As stocks plunge, the bank prime interest rate hits 21%; gold hits $850 and silver $50.
• 1987, dollar plunging again and foreigners nervous about holding dollars. To reassure them, the Fed raises interest rates and reduces growth of money supply. Stocks crash 22.6% in one day.
• 1990, Kuwaitis stealing Iraqi oil. Iraq attacks. Stocks plunge; gold, silver, oil and Swiss francs rise.
• 1991, end of the Soviet empire. Within 5 years, 17 wars will have broken out in Chaostan; arms industry stocks begin a long climb.
• 1995, in Bosnia, USG claims neutrality but sides with Moslems and Croats, sends in troops.
• 1997, since the Russians attacked the Chechens in 1994, weapons stocks have risen 139%, which is 60% more than the Dow. Since 1990, McDonnell Douglas is up more than 800%.

Clearly, most major changes in investment markets are caused by global forces, not domestic forces. But Americans pay little attention to events in foreign lands. They think, if it's far away, it does not affect us. So they are forever getting caught by surprise. Readers of EWR have an edge. They know we must have a global view.

U.S. & World EARLY WARNING REPORT For Investors
January, 1996. © Henry Madison Research, Inc.

U.S. & World Early Warning Report®. Published ten times per year.
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