The Inextricable Link Between Politics and Investing

September 23, 2006 –

alice.gifThe world of global politics is like Alice in Wonderland, a great landscape of fabrication where it seems like more people are accepting of strange, wild fantasies rather than desiring to dig down the rabbit hole to discover the truth. Back in November, 2004, U.S. Senator Richard Lugar pointed to statistically significant divergences in the exit polls and the officially reported results in the Ukraine elections as evidence of “blatant fraud” in their elections. The margin of error in exit polls in global elections held all over the world is considered so slim (because unlike pre-election polls, exit polls merely ask leaving voters who they just cast a vote for), that generally, many statisticians vow that the exit polls are never wrong.

In fact, based on the historical accuracy of exit polls, the U.S. Bush administration refused to recognize the “offical” results of the Ukraine election because the candidate that won the “official” count lost the exit poll results by a significant margin. Ironically, in the 2004 U.S. elections, Kerry won the exit polls by 3.0% yet Bush won the “official” count by more than 2.5%. Four out of the five states that had the largest statically significant discrepancies between exit poll results and officially reported states were key “swing” states including Florida, Ohio, and Pennsylvania.

In the recent Mexican Presidential election between Andrés Manuel López Obrador and Felipe Calderón, again there was so much controversy in exit poll results and an “official” count that was hotly contested, that Obrador’s supporters swear to enact a parallel government to Calderón’s and to swear Obrador in as the “legitimate” President of Mexico 11 days before Calderón’s official inauguration. Unlike in the U.S. 2004 Presidential election, where there was no serious debate surrounding the significant discrepancies between exit poll and “official” results, Mexicans have staged massive demonstrations in Zocalo, Mexico City’s main public square, for seven straight weeks.

The infamous Subcomandante Marcos commented that the state of outrage in Mexico today is as high as it’s ever been since 1994. Again, as in the case of the 2004 U.S. Presidential elections, you can find passionate arguments for both sides, the side claiming that fraud is undeniable, and the side claiming that exit polls are not accurate and that the loser is a sour grapes whiner.

In the latest political controversy, the United Nations nuclear watchdog group, the International Atomic Energy Agency (IAEA) has voiced vehement protests in opposition to a U.S. government report on Iran’s nuclear program that they labeled as “erroneous” and “misleading,” claiming that the U.S. government’s report included “serious distortions” of their findings. The IAEA sent a letter to the U.S. government to “set the record straight on the facts”. In the letter to the U.S. House of Representative’s Select Committee on Intelligence, the IAEA rebuked the U.S. government as wrong for reporting that Iran had enriched uranium to weapons-grade levels and stated that they had only discovered “small quantities” or uranium that had been enriched at “far lower levels”.

In addition, the IAEA stated that the U.S. had made an “outrageous and dishonest suggestion” and took “strong exception to the incorrect and misleading assertion” regarding the removal of one of their senior nuclear program inspectors Chris Charlier. In the letter, the IAEA stated that they removed Charlier according to a request from Tehran whereas the U.S. reported that Charlier was removed by the IAEA “for allegedly raising concerns about Iranian deception” about their nuclear enrichment program.

Regardless of where you stand on any of the above issues, one thing should be painstakingly clear to you. Governments all over the world are ruthlessly manipulative of statistics when it comes to serving their own agenda and interests. If you’re thinking that this post is more appropriate for a political post than an investment post, you are wrong. Politics and economics are so intertwined in today’s global economy that they can not be separated. If you do not understand how politics affects the global economy you will never make wise long-term investment decisions.

If you let your political affiliations overpower rational judgment and blind you from a more sobering reality that lies hidden down the rabbit hole, you will never make wise long-term investment decisions. When it come to building wealth, not only must you understand politics, but you must also be extremely careful not to let your political views cloud wise judgment in your investment decisions. If you still don’t understand what I am speaking of, then go read my previous blog entitled “Know Your History.”


There is a famous saying by Tsutomu Oshima. “In order to achieve victory you must place yourself in your opponent’s skin. If you don’t understand yourself, you will lose 100% of the time. If you understand yourself, you will win 50% of the time. If you understand yourself and your opponent, you will win 100% of the time”. Put more simply by Zack de la Rocha, he said, “Know Your Enemy.” In investing, because you must understand politics to understand global economics, and you must understand global economics to make sage investment choices and decisions, you must know your enemy.

When sparring in martial arts, if your spar the same people repeatedly you learn what people like to do over time. With one person it’s a back elbow. With another it’s a roundhouse following by a front thrust kick. With another it’s a feinted low kick followed by a high backfist. Over time, as you get to know your opponent, defeating them is exponentially easier. In investing, your enemies are everywhere. Your enemy is the media that spreads irresponsible, sensationalistic headlines. Your enemy is government deception that leads you off the straight and narrow investment track into seemingly can’t miss opportunities that end up sinking your financial ship. Your enemies are deceptive strategies pushed by large global investment firms masquerading as “investment” strategies when they are nothing more than “selling” strategies. Know your opponent and your investment success will increase not by baby steps, but by monumental leaps and bounds.

Maholo, KAEHO.

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