The ugly truth can sometimes yield beautiful profits, says Irwin Greenstein, writing for Contrarian Profits. But the truth exposed by the US government’s recent round of Wall Street bailouts is that the US actually lost the Cold War in terms of its free-market philosophy. Investors should adjust their portfolios accordingly…

For a while now I’ve been writing that if you can integrate a historic shift into your investment strategy you may come out ahead. The shift is this: that America actually did lose the Cold War.

This became apparent to me about a year ago when we saw the economies of our old Cold War enemies, Russia and China, continue to thrive as our own free market economy literally started to melt down.

Now with Washington bailing out AIG, it seems that our Cold War defeat is undeniable. The very same foreign-policy package of democracy, free-market capitalism and laissez-faire government that Washington has been peddling to emerging economies and Middle-East despots has turned into a profound embarrassment.

Worse, Washington’s seizure of AIG clearly puts us in the camp of our former Cold War rivals in terms of socialist capitalism.

Why is this import to you as an investor?

Look no further than the hedge fund managers, traders and executives of the Wall Street institutions that now find themselves broke. They conducted themselves like Cold War victors. They acted as though the US was still on top could get away with anything.

They were empowered by the free-flow of instant information across global networks. They mistook superior technology for superior government, and with this fatal flaw everything came crashing down around them.

Many pundits argue that greed overran the system. In turn, I would say that a lack of humility is a better interpretation. We dominated the markets with the arrogance of Cold War winners, when in fact it is now painfully apparent that we lost years ago.

By contrast, if you look at America through the lens of a Cold War loser, other stock markets become more attractive – not just through a technical analysis but more through qualitative attributes that give you a better long-term perspective of the possibilities.

After World War II, while much of Europe was in ruins and much of Asia was feudal, it was easy for us to believe that we would be on top forever. Certainly the destruction of the Berlin Wall gave us that self-righteous pat on the back and lionized the Cold War doctrine of Reaganonics. And when you look at the Hollywood box office figures and see how much of our entertainment is shipped overseas it sure makes you believe that everyone wants to live like an American.

But does everyone want to invest like an American?

National pride and patriotism are fine, but do they really have a place in your portfolio?

Irwin Greenstein is a contributor to Contrarian Profits. He writes about finance and the shotgun sports from Maryland. Prior, he specialized in worldwide marketing and media outreach for small high-tech companies. Irwin was formerly a contributing author to the Emerging Markets blog, from the Taipan Publishing Group.

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