Last week Congress agreed on legislation that allocates $165 billion for US war efforts in Iraq and Afghanistan. The funds will last until mid-2009, when President Bush’s successor will have to deal with the US economy.

Earlier this year the Bush administration presented a record $3.1 trillion federal budget for 2009. The Pentagon snapped up over $500 billion for defense spending, an increase for the 11 consecutive year.

Bill says the end of the Cold War should have signaled the end of massive military budgets and the start of a domestic investment spree. It didn’t. And now an uncompetitive US economy is feeling the strain…

An empire is, fundamentally, in the business of providing protection. People in America applauded when the Soviet Union collapsed and China took the capitalist road…but it practically put them out of business. There was nothing to provide protection against.

The sensible thing for the United States to do, following the fall of its one and only major enemy, would have been to cut the defence budget down to a nub…and invest the money in infrastructure and capital improvements, so Americans would be able to compete on better terms with the rising economies of their former enemies. It was obvious that with billions of people entering the modern economy for the first time, the world was beginning a new, more competitive phase of development…and that without huge capital investment, labour rates for marginally skilled workers were doomed to fall.

But what kind of world would it be if people always behaved sensibly? Instead, it was party time in the U.S. of A. Americans went on a binge of spending, borrowing and soft-headed thinking. Colleges switched from teaching engineering to letting students emote on subjects such as gender and racial equality. The leading profit makers switched from manufacturing to finance…from making things to lending money…from Detroit to Wall Street. New regulations imposed higher operating costs…and more lawyers and more delays. And lobbyists got billions in special favours.

No lobbyists were as successful at squeezing the public tube as those who work for the defence industry. People come to believe what they must believe when they must believe it. The United States is an imperial power with one major leading industry: defence. But with no enemies capable of inflicting real damage to the country, the defence industry had to invent one: terrorism…and the people had to believe it.

Readers typically want to argue this point. “What about 9/11?” they ask.

Of course, terrorists always pose a danger to individuals. And if they are daring and determined enough, they pose a danger to many individuals. But they pose no real danger to the state…and none to the Pentagon. You could put all the world’s terrorists together in a single army…they would still stand no chance whatsoever of defeating the United States of America.

Normally, it is the police who are charged with protecting citizens. The fuzz fight crime and criminals…even gangs of criminals. Terrorists in the U.S.A., as near as we can tell, are practically non-existent. They don’t seem capable of breaking into a parking meter, let alone challenging the U.S. Army. There must be 10,000 paid cops for every one of them. Why bring the Pentagon onto the case?

As mentioned in these reckonings, the feds are adding to the official national debt at the rate of $1.5 billion per day. Still, neither Democrats nor Republicans dared challenge the Pentagon’s latest $600 billion spendfest. No one wants to audit the Pentagon. No one wants to oppose it. The Pentagon is in a bubble of its own.

The average man is no genius. And half the population is even dumber. He responds to popular issues by instinct. He’s not going to spend his leisure time thinking about how the military industry complex works. Instead, he’s going to get behind the man in the crisp uniform. He’ll support America’s leading industry – until it ruins him.

Yes, dear reader…every empire is a kind of bubble in power…an extraordinary, temporary thing. And like every bubble, empires end in bankruptcy…disgrace…and the perp walk.

Source: Sicking “The Fuzz” on Terrorism

The first reason is because they simply don’t know that it’s part of investing successfully. Learning about stop-losses and risk management simply isn’t as sexy as learning about how to make triple-digit gains. So the subject is often avoided.

Second, it’s a matter of emotions. You see no one in the world – not me, not you, or anybody else – enjoys selling stocks at a loss. It’s a pain that nobody wants to inflict on themselves. So as long as they don’t sell at a loss, they never end up ‘inflicting’ the pain.

Then there’s the prospect of selling at a loss and then looking at the stock a few weeks later, only to find that you could’ve sold it for a gain. Now, the investor might feel embarrassed or foolish. Nobody wants that. So emotionally, it makes sense why a lot of investors don’t follow through with an exit strategy. But logically, an exit strategy is IMPERATIVE to making money in the stock market.

If people didn’t take their losses, then they’d never free up capital to pursue better opportunities. Heck, if people didn’t take their losses they’d eventually have no capital at all.

This is a situation you don’t want to put yourself into. So before you get into a trade, MAKE SURE to have an exit strategy planned. And you should do this for every single trade.

If that means selling your position once you lose ten or fifteen percent, then follow through with it! If your exit strategy is simply to sell if the fundamentals of your buy change, then make sure to follow through with it!

Either way, just remember to ALWAYS have an exit strategy before you invest. And more importantly, FOLLOW THROUGH WITH IT!

Good trading,

Charles