The Price of Terrorism

With the notable exceptions of the attack on Pearl Harbor in December of 1941 and Nazi U-boats lurking off our Atlantic Coast during the remainder of WWII, our God-given gift of geography has been enough to keep us safe from attack for generations. With (reasonably) friendly neighbors to our north and south and oceans to our east and west, attacking America has historically been a fool’s errand. Even if hostile troops could make it onto our shores, communications and logistics would be a commander’s nightmare.

Unfortunately, that’s not really the case anymore. Thanks to cheap and abundant air travel, it’s not inconceivable for groups like ISIS to infiltrate individual terrorists into the U.S. An even scarier thought is thanks to the internet and ease of communications, it’s even easier for terrorist groups to recruit and radicalize homegrown terrorists.

This weekend alone, nine people were stabbed at a Minnesota shopping mall. The suspect in that attack legally immigrated to the U.S. with his parents as a child, so he was likely radicalized after coming to America. Another 29 people were injured when a homemade bomb exploded in the Chelsea neighborhood of New York City and a second, unexploded device was found just a couple of blocks away. Another bomb exploded in Seaside Park, New Jersey, apparently targeting a charity run benefiting the Marine Corps, and yet another unexploded device was found in Elizabeth, New Jersey. The suspect those cases, who is in custody, is a naturalized American citizen, though it’s not clear he had any ties to a terrorist organization.

So far no fatalities have been reported in connection with any of the incidents, aside from the suspect in the Minnesota stabbing, and our thoughts and prayers go out to the victims and their families.

Not only does terrorism cost lives, it also has very real economic consequences. Last year the Institute for Economics and Peace released its 2015 Global Terrorism Index, which estimated that acts of terrorism claimed 32,700 lives and cost the global economy $52.9 billion in 2014. While 2015’s tallies won’t be released for another couple of months, many are saying that the cost of global terrorism will have grown in 2015 and 2016.

While I don’t want to seem crass about the impact of terrorism, it seems as though it would be prudent to insure our portfolios against its economic impact. While it may not seem like it after the bloody weekend we just had, there are a host of companies working to keep us safe from terrorists, several of which opened higher this morning.

For instance, in Breakthrough Technology Profits we recommend an Israel-based company that develops and sells systems which help detect terrorists moving money through the international financial system. Another company we follow offers video monitoring systems that can be paired with facial recognition software to identify potential terror suspects. And a third makes baggage screening systems that use computed tomography (CT), the same technology used in hospitals to diagnose disease. Beyond those lesser known names, most of the traditional defense contractors, like Northrup Grumman (NYSE: NOC) or L-3 Communications (NYSE: LLL), are reliable hedges as well.

Gold would also be a decent hedge, which gapped higher on the open this morning. After closing Friday at $1,313.20 an ounce, it opened at $1,314.20 this morning. That’s not a huge jump, but considering that there really wasn’t any bad economic news this morning the attacks clearly rattled some nerves. It’s never a bad idea to have gold in your portfolio regardless, with about 5% of assets being the standard advice from financial advisors.

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