Richard Maybury's
WAR PORTFOLIO

In June 1991, Richard Maybury published his "Recommended Portfolio" that dealt with violent shifts in the flow of money (velocity) and in the changes over time in the three major categories by which most financial advisors tend to divide portfolios: savings, investment and speculation. (See Recommended Reading at the conclusion of this report).

Soviet coup Results, 8/19  (Stock markets, close of 8/19) US Dow Jones Industrials, -2.40% Tokyo, -5.95% Hong Kong, -8.38% Germany, -9.4% France, -7.29% Britain, -3.10% Richard Maybury's "Recommended Portfolio" Charted from 8/16, -0.08% Charted from 8/15, +0.04% -Sept 1991 EWR

"Most important of my forecasts," stated Maybury at the time, "is that the world economy and investment markets will be increasingly affected by war."

"Most wars," he added, "begin with suprise attacks."

Ten years ago few would have listened to such remarks with great attention, but longtime readers of EWR think and react differently: Know all you can. Be prepared.

A Portfolio to withstand shocks

The Maybury Recommended Portfolio in the summer of 1991 was designed to withstand shocks, especially velocity-driven global panic. "The combination [of investments] is the key, " explained Maybury in the portfolio brochure. "Any given shock will hurt some investments and help others, and in disproportionate ways.... If the portfolio contains the correct percentages of each investment, the net result from any shock should be a profit for the porfolio as a whole."

The Recommended Portfolio was a mix intended to yield a net profit no matter what might happen. That portfolio was first made available on June 14, 1991. Two months later, the failed Soviet coup of Aug 19 rocked world markets. How did the portfolio do?

The Soviet coup of 1991 and first mention of the War Portfolio

Ten days before the September 1991 EWR went to press, the "Soviet coup" took place. The front page of the September issue showed world market reactions to the August 19 coup attempt: "As soon as the Soviet coup was announced," reported Maybury on the front page of the Sept '91 EWR, "the stock market dropped a hundred points, the largest since Iraq's invasion of Kuwait. But if you were in the Recommended Portfolio you were unaffected, the portfolio did it's job."

"My Recommended Portfolio should be called my War Portfolio, "proclaimed Maybury on the front page of the Sept '91 EWR.

"Whether it was up or down a speck," he continued, "depends only on which day you believe the markets began to sniff the coup, the 15th or the 16th. That's stability."

"Speculators," he continued, "who were in oil and weapons stocks and precious metals, as I've been recommending, saw these rise. In all, an excellent test, and we passed with flying colors. Readers of this newsletter are apparently one of the few groups in the world who were not surprised by the coup." -R. Maybury, Sept'91 EWR

Political forecast must comes first
A major premise of Henry Madison Research, Inc. (publications by Richard Maybury) is that forecasting is a three-step process. The political forecast must come first; this leads to the economic forecast which leads to the investment forecast.

"In short," stated Maybury in the Aug '91 EWR, "continual upheaval in the Persian Gulf oil region is now a virtual certainty. U.S. troops will be sucked into the guerilla wars, and these wars will go on and on into the next century."

"We'll also have more terrorism," he said. "Imagine a cannister of nerve gas vented into the air-conditioning ducts of an American skyscraper. Or a suitcase-sized tactical nuclear warhead detonated on the front steps of the Treasury. Somthing like this is coming."

"We won't even know who did it," he continued. "The millions of enraged Moslems in Iraq, Lebanon, Morocco, Algeria, Syria, Iran, Libya and other Islamic lands are not about to end their ancient struggle against the West and its puppets. And, power crazed western governments are not about to back away and leave these people alone."

The events of Sept 11 make the following quote from the Aug '91 EWR even more telling.

"The main lesson the Islamic world learned from the 43-day [Iraq] war," explained Maybury, "is that conventional war against the U.S. is futile. Never again in our lifetimes will we see anyone go head-to-head with the U.S."

"From now on," Maybury said, "enemies will be thinking only in terms of hitting us in ways that do an end run around our bombers, tanks and aircraft carriers. Wars against the U.S. will be unconventional and covert. We won't know what's coming or when, or from whom. The only thing we can be sure about is that a lot more people hate us today than did a year ago.... The thousand year war isn't over, it's just starting to reignite." -R. Maybury Aug'91 EWR

To summarize:

- Political forecast leads to economic forecast leads to investment forecast.
- Instead of more peace, there is more chaos, leading to more war.
- Moslem groups increasingly hate the U.S. for intrusion in their part of the world.
- Enraged Moslems will strike in unconventional ways.
- Safety first in your porfolio. Stocks, including weapons stocks, in speculation.
- Know all you can. Be prepared.

EWR Principles of Investment
and where you put the War Portfolio

The Recommended Portfolio was designed for safety, to withstand shocks. During the 1990s the investments in the Recommended Portfolio translated into the larger portion of the EWR Total Investment Plan, primarily into the two main sections termed "Foundation" and "Safety-Plus Income." All stocks, including stocks in the War Portfolio, were put into the section aptly termed "Speculation."

If there is a crises, what do people usually tend to do? They tend to flee to those ancient crisis hedges of gold and silver; to precious metals and coins. If you add to that the effects of wartime on natural resources and raw materials--plus the relative safety and modest income of short-term government securities and safe-haven currencies--there you have it: the EWR Investment Model for the 1990s and well into the new century. Nothing changed on Sept 11th for EARLY WARNING REPORT! The investment model had been in place all along, and, tragically, fits more today than yesterday.

The War Portfolio belongs in "C," money you can afford to lose.

Key Principles: Velocity of Money and the Injection Effect
The Recommended Portfolio of 1991 was positioned for shocks and therefore was designed for safety. The key principles are money velocity and the "injection effect." Injection means money pouring into a particular segment of the economy, also known as malinvestment. Examples of such a segment, or "cone" of investment, would be the arms industries and raw materials. Two books by Richard Maybury that cover these subjects are The Money Mystery (money velocity) and The Clipper Ship Strategy (injection efffect). See "Recommended Reading" at the conclusion of this paper.

Safety first, keep what you have

With great respect for money velocity and the "injection effect", and coupled with awareness of the predictable behavior of governments and the histories of war, EWR's forecast and investment recommendations are simpy put: In peacetime or war, safety first. Above all, keep what you have. If you want to speculate--a form of betting--one of the surer bets is chaos and war. This is not to say we prefer that, but few have been able to do anything about it. Six thousand years of human history says governments behave as they always have, and if you can respect that, you can be less foolish with your family's wealth.

Thererfore, in peactime or war, keep a bedrock in coins and precious metals; keep a percentage of your portfolio in the relatively safe but modest incomes of government-backed short-term securities and safe-haven currencies, and speculate only with money you can afford to lose, and that includes the War Portfolio.

The War Portfolio, while carrying risks the same as other speculative investments, does have profit potential. Writes Maybury in the Feb '02 EWR, "If you would like to be able to tell your friends about hitting an occasional jackpot of 50% to 200%, I do think we have a reasonable chance at that."

If not liberty, then tyranny or chaos

A third principle factors into the EWR Investment Model.

Fundamental to Maybury's political-economic-investment model, Chaostan: The Full Story, is the following: If not liberty, then tyranny or chaos. Regions of the world that have no foundation for liberty will continue to exist under forms of tyranny or chaos--and those conditions are constantly going to affect the world and U.S. economies, meaning your investments.

Making matters worse, two thirds of the world is in a state of chaos and the U.S. foreign policy is more prone to involvement and interference than to neutrality and even-handedness. Where war was once a high risk, it is now a reality.

For well over a decade since its inception, EARLY WARNING REPORT has been in the forefront of world events that drive the economy and your investments. Geopolitics is Richard Maybury's speciality.

If you examine EWR from the past ten years you will find a full one-third of the issues covering the War Portfolio specifically, or covering arms and weapons industries, or some subject about war and war-related investments.

The ramifications of chaos and war are at the core of EARLY WARNING REPORT and the War Portfolio. If you examine EWR from the past ten years you will find a full one-third of the issues covering the War Portfolio specifically, or covering arms and weapons industries, or some subject about war and war-related investments.

In this Expanded Edition to the War Portfolio we hi-light a number of these issues (see below) to show how EWR brings the political forecast to bear on the economic and the investment forecast -- and therefore on the suggested investments of the War Portfolio.

Basics of the WAR PORTFOLIO

The War Portfolio is comprised of defense industry stocks (weapons), raw materials and natural resources (oil & gas), precious metals, currencies and security equipment. Over the years, the War Portfolio is often presented as two plans: a Macro Plan and a Micro Plan. The Macro Plan is more detailed and requires more management; the Micro Plan is a shorter list of combined investments and easier to manage but carries slightly more risk.

This first division of the plan into Macro and Micro appeared in the May 1996 EWR and was revised in the War Portfolio Annual Update in the June 1997 EWR. If you want to track suggested investments in the War Portfolio over time, review these two issues. They contain some of the more detailed War Portfolio updates during the past ten years, and they lay out the Macro and Micro strategies in great detail.

A Macro Plan is a list of some 30 or more investments. A Micro Plan is a shorter list comprised of funds, including annuties. The Macro plan requires more work and complexity, the Micro plan keeps things simple for just "putting your toe in the water" but is considered more risky.

The May 1996 EWR shows eight funds in the Micro Plan, and a total of 36 investments in the more detailed Macro plan. The report on the War Portfolio in the July 1997 EWR again shows eight funds in the Micro Plan, and again 36 in the Macro Plan.

Remember that the War Portfolio remains in the high risk, speculation portion of The EWR Total Investment Plan. This is money you can afford to lose, but you may get a nice return on your investment just the same.

War Portfolio Updates, and more

Here is a brief look at some of the many issues of EARLY WARNING REPORT concerning war and the War Portrfolio.

May-June 1993 EWR. Update on the War Portfolio. Complete breakdown of the industries in the portfolio. This issue shows 19 investments that grew to 36 by 1996 and 1997.

October 1993 EWR. "Our War Stocks Are Flying High."
Writes Maybury: "This is scary. And exciting. As the Soviet empire was collapsing in the late 1980s, the mainstream press and politicians were cheering the end of the cold war and the 'peace dividend' that would come with the dismantling of the war industries. EWR was saying the fall of the Soviet empire wasn't the end of war it was the beginning. In the fall of 1991 we launched our 'War Portfolio' of investments expected to do well in the 1990s. Critics were shocked, much of the list was war industry stocks that everyone said were headed for the trash heap."

May 1994 EWR. Basic War Portfolio update. Now grown to 28 investments. A list of War Portfolio investments will typically show (a) company or investment, (b) EWR date first mentioned in the portfolio (where applicable), and (c) stock exchange symbol and (d) percent of the investment in the portfolio.

March and July 1995 EWR both have War Portfolio updates.
The July '95 EWR is the annual revision for that year. The portfolio is now comprised of 32 investments.

August 1995 EWR. Back page. Q&A with Richard Maybury.
"Q: Buying into your War Portfolio is a temptation but becoming a war profiteer bothers me. --J.P.
"A: It bothers me, too, and I could write a book about it but I'll try to summarize. I'd like to stay divorced from all this chaos but this is not an option.... I'm not comfortable earning money off war, but I salve my conscience by doing all I can to spread the word. Long time readers know I've never wavered from my warning that, despite all the money we've been making, the United States Government should declare absolute neutrality and withdraw from all parts of Chaostan immediately. If you feel the same, I hope you'll tell others." -R. Maybury

September 1995 EWR. "Buy These War Stocks?"
Writes Maybury, "It is clear now that the markets are waking up and factoring war into the prices of our arms industry stocks.... Since the Russians attacked the Chechens in December, the following stocks are up 40% or so.... and to reduce risk, I suggest you take some profits in them: Arch, McDonnell Douglas, Trimble, Boeing, Logicon, Textron and United Technologies. However, with things getting so much worse in Chaostan, especially in the Balkans, I'd be hesitant to bail all the way out of any of the investments in the War Portfolio."

May 1996 EWR. War Portfolio update. Reviewed already on this page.

October 1996 EWR. "The Crusades and Your Money."
Writes Maybury: "One of the most important parts of history is the Crusades. To Westerners the Crusades are almost unknown. Winners forget wars, or remember only the propaganda. Losers remember the reality. If you don't believe it, listen to a southerner describe the causes of the Civil War.

"To Moslems," continues Maybury, "the Crusades remain as real as if they had happened just yesterday, and these invasions have done much to shape the thinking of the people who live in and around the Persian Gulf oil fields.... The Arab oil dictators are backed and kept in power by the descendants of the Crusaders--by the governments of Britain, France and the U.S.

"Tens of millions of Moslems are livid over this and are not likely to tolerate it much longer. The effect on oil prices and investment markets will be profound." -R. Maybury.

Webmaster's Note: In an exceptional majority of EWR issues over the years, Richard Maybury has continued to put serious emphasis on the Moslem world and on the history of the Crusades and the Western reach into the Mideast and Moslem world -- and the dangers that may lie ahead. EARLY WARNING REPORT has therefore continually examined economic and investment forcasts with an eye first on the precarious, yet predictable, world of men and politics and abuses of power. Today, of course, a lot more people are re-familiarized with the word "Crusades" and the thorn that remains in the side of the Moslem world. Sept 11th is a stark reminder. Yet readers of EWR have been paying close attention to this subject for well over a decade. "Know all you can. Be prepared." See Recommended Reading below, for notes on Richard Maybury's The Thousand Year War in the Mideast.

July 1997 EWR. War Portfolio detailed update. Already covered on this page.
This issue contains a chronological listing of the ancient vendetta between Persia (the Middle East to most of us now) and the West, beginning with 331 BC and Alexander the Great's invasion of Persia.
Entry for 1996: "US Congress budgets $18 million to overthrow Persia's government. 8 months later, a blast in Saudi Arabia kills 19 Americans.
Entry for 1997: "Mideast expert Robert Kaplan writes that Persia has a 'shop-till-you-drop policy regarding nuclear and chemical weapons.'"

Sept 1997 EWR. Richard Maybury first introduces his belief that those opposing the United States Government may already be forming a secret alliance, which Maybury calls THE NEW AXIS. Writes Maybury, "I'm reasonably sure it consists of Iraq, Iran, Sudan, Libya, Syria, Chechnya, North Korea, China and Serbia and perhaps Pakistan and Afghanistan."

June 1999 EWR. "Buy Defense Stocks Now?"
Writes Maybury: "It is highly likely that we are in or near the new era of war that EWR has been predicting... My long-term investment forecast remains unchanged: the top growth industry of the next decade will be war." This is a solid article about the approach to the weapons industry; the size of the industries, the power of lobbying and the politics of the arms industries.

Nov-Dec 1999 EWR. "War Profits and Bubbles"
Writes Maybury: "The best way to profit from this newsletter [meaning any issue of EWR] is to use the information to get the strategic overview--the so-called Big Picture--while working with a broker who watches Chaostan and develops specific investment tactics for your personal requirements. See list of Suggested Vendors.

March-April 2000 EWR.
Writes Maybury: "The time to buy something is when no one else wants it. Presently the weapons stocks are unpopular because they have earnings, their P/Es are below triple-digits, and they have a natural strength in the face of interest rate hikes."

July 2000 EWR. "Next World War?"
Writes Maybury: "This growing awareness of the new era of war is probably behind the rise in the weapons stocks. The 11 recommended in the March [2000] EWR are up an average of 34%.... An emergency military build-up by the US and Nato must be one of the best bets an investor can make." All this just 14 months before the attacks of Sept. 11.

August 2000 EWR. A look at the Rogers Raw Materials index.
Writes Maybury: "In 2/98 I began forecasting that raw materials would be to the next decade what high-tech was to the 1990s, the new glamour industry. Thus far, the forecast is perfectly on track."

October 2000 EWR. More on raw materials. Weapons stocks update. A reminder that in the 1930s, 32 big US defense companies merged into nine. Sixteen months after this issue of EWR, consolidation of defense companies had indeed become an important factor in EWR's War Portfolio. Of the eleven companies listed in the Feb 2002 EWR War Portfolio update, the first six (of the eleven companies) were 50 companies in 1980.

Nov-Dec 2000 EWR. In this issue Richard Maybury covers, in detail, geopolitics and military affairs and how he thinks that is making weapons and raw materials investments the stars of the new decade. A concise 4-page feature in Five Parts breaks it all down for you.

February 2001 EWR. "Save, Invest or Speculate?"
Review of the three traditional categories used when giving financial advice: savings, investments and speculation. Writes Maybury, "Notice I am saying that the safest place for your money ever in history was a gold coin in 1875, and a T-Bill today is twice as risky as that. A short-term insured CD is halfway to as risky as it gets. Because of the corruption of currencies and the loss of understanding of risk, investment markets have lurched from one bubble to the next for three decades."

May 2001 EWR. "Update on Coming Arms Build-up"
Writes Maybury: "When I reviewed the War Portfolio 14 months ago in the 3/00 EWR, I did it with the belief that Clinton wore out the US armed forces, and nearly the whole Defense Department would be rebuilt. Since then, evidence for this conclusion has become strong, which is why the defense stocks have done so well. The S&P 500 Aerospace and Defense index is up 32%."

Webmaster's Note: This is short article updates the decline in military assets; meaning that any escalation of war would bring on a massive rebuilding effort. This was four months before Sept 11 and nine months before the budget request for dramatically increased defense spending.

Special Action Report, October 2001, says, "When the stock market re-opened on September 17th, the three top performers in the S&P were defense stocks: General Dynamics, up 9.2%, Lockheed Martin, up 14.8%, and Northrop Grumman, up 15.9%. All three had been recommended by EWR when that group hit bottom in March 2000, and I again emphasized two of them in the EWR mailed to you September 4th (2001)." -R. Maybury

In this report, Maybury also says, "I will not be surprised if in five years, raw materials and weapons have not tripled from their September 10th levels."

February 2002 Update to the War Portfolio

Update to the War Portfolio (see below) and update to EWR's Investment Model. Writes Maybury: "What is the oldest, most reliable long-term trend in all human history? War. ... For investors, the US government provides especially predictable opportunities, for it never, ever turns down an invitation to participate in other people's wars."

The War Portfolio update in the Feb '02 EWR recounts what was written in EWR in Sept 2000; that "for 12 years the Bush and Clinton administration have used the US armed forces as the official bully for the UN, wearing out the weapons and equipment." Nothing has changed. And they have, for 12 years "poked sharp sticks at numerous rattlesnakes around the world."

This issue recounts for the reader that EWR has specifically written about the decay of the armed forces in the following issues: Feb'99, June'99, Oct'99, Nov'99, March'00, May'00, Sept'00, Nov'00, March'01, Aug'01 and Sept'01.

To repeat: The War Portfolio is part of the speculation portion of the Total Investment Plan. It is not a get-rich-quick scheme. Writes Maybury, "This is a cautious attempt to take advantage of a situation not yet well understood by the rest of the investing public. If you would like to be able to tell your friends about hitting an occasional jackpot of 50% to 200%, I do think we have a reasonable chance at that."

The update in the Feb '02 issue narrows the War Portfolio segments to three: arms makers, raw materials and security equipment.

Arms Makers. Corporate consolidations have now greatly altered the ongoing list of companies in the portfolio. Of the eleven defense industry stocks listed in the Feb '02 issue of EWR, six are consolidations of more than 50 companies since 1980 (re: Air Force Magazine, July 1998).

Raw materials. Work with a broker who watches Chaostan and understands it. Please see "Suggested Vendor List" in the Total Investment Plan. Five-year profit potential for these funds and investments in this area of the War Portfolio: 500% and risk level of 3.5, same as arms makers.

Security Equipment. Writes Maybury in this issue of EWR, "I really don't like any security equipment companies, they are part of the dying tech bubble of the 1990s, but when the next big attack happens, they may become even more popular with the millions who will buy into any fad." No call on the profit potential, and risk level of 4.5. Again, please note that all War Portfolio investments are the same as all related investments: high risk.

This latest War Portfolio update again lists a simple Micro Plan of funds that will get you into the portfolio. It is less diversified and therefore more risky, but suitable for toe-in-the-water approach.

From the Feb 2002 EWR...
"WARNING: Do not put your retirement nest egg, your kids college fund or any other highly important money into stocks or stock mutual funds. These are speculations for Section C only. I gave this advice throughout the 1990s, and got pilloried for it, but today anyone who followed it is glad they did."

Again, the War Portfolio is part of the Total Investment Plan which is: Safety first, with a bedrock foundation, room for profit potential but never at the risk of the security of your family.

Many are not happy with the small rate of return of such a plan, but Richard Maybury says he always sleeps well at night knowing he has not maliciously dangled carrots in front of investors. In the Feb '02 EWR, Maybury says, "I am forever meeting people who are embarrassed about earning only 4% or 5% on their money while their friends boast about profits of 100% or more. Two points: first, when a braggart suffers a big loss, it is a safe bet no one ever hears about it. Second, there are so many hidden dangers to your savings that just keeping what you have is a major accomplishment. Learn to be proud of not losing money. These days, it is a rare achievement."

March - April 2002 EWR. "The Weapons Are Worn Out".
Details on the importance of this gunship. Also details on the EA-6B Prowler. Writes Maybury, "I think the military buildup has barely begun, and the war will drastically alter flows of money; it's as inevitable as anything in human affairs can ."
During WWII, the US built over 15,000 of the P-47 Thunderbolt, the best infantry support aircraft of the war. The counterpart of the P-47 today is the AC-130. They cost $190 million each to produce. How many do we have, and how many will we need? This discussion on weapons availability may surprise you. "I think the military buildup has barely begun, and the war will drastically alter flows of money; it's as inevitable as anything in human affairs can be." -RM, Mar-Apr 02

May 2002 EWR. "Military Meltdown = Profits"
Weapons makers in Europe, a feature in this issue. Focus on large aircraft makers with weapons as a sideline. Review of General Dynamics (GD, NYSE). Plus Raw Materials Index Fund. How to invest in real estate in addition to defense stocks and raw materials. "The new 'war on terrorism' is as big an opportunity for European politicians as for those in D.C., but European governments have let their military forces go to pot even worse than D.C. has. It is a good bet that a massive European military buildup is on the way, and speculators who own stock in European arms makers will profit handsomely." -RM, May '02 EWR