''Australian Exceptionalism''

[Politico]

Australia is in an enviable position and seems to be quite serious about keeping things running smoothly. Other than Canada, Australia is the only place I would invest abroad right now.

[Politico]

I am extremely risk averse and I do not like the political instability of those regions. You cannot even trust much of the data that comes out of many of those places, and that's right now. Imagine what it would be like if late 2008 to the power two really occurs worldwide. Even South Korea and Taiwan, and South Korea is easily my favorite Asian country, could get hairy if things get really ugly in China. The nice thing about Australia is its isolation, stability, and abundance of resources. The same applies to Canada, of course, but their added proximity to us makes them easily the safest place to invest abroad.

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Scary, but true. America is really the only risk-free bet for Americans. I mean, if even we are not risk-free from our perspective than we might as well move into a log cabin in Montana and live off the land. I still think the only events that could possibly cause such a disaster would be a worldwide epidemic, a comet wiping out much of the planet, nuclear armageddon, or some sort of electromagnetic pulse from space that destroys all electronic devices on the planet. Extremely unlikely stuff.

[Politico]

An excellent post, but I think you may be underestimating the degree of social upheaval and military conflict in the Middle East and Asia if there is another global economic recession that exceeds 2008/2009 in severity. For example, I can easily see Tienanmen Square making 1989 look like child's play, and I do not believe any country in the Middle East is definitely immune to the type of upheaval seen in Libya if economic conditions decline severely. If China goes down hard, or if there is some sort of uprising in North Korea that threatens its very existence, there is no way there will not be consequences in Taiwan and South Korea. All bets are off on what would happen in the area. My philosophy is to hope for the best, but expect the worst, and I am expecting nothing good to come out of Asia and the Middle East for the foreseeable future. That is not to say I would recommend shorting anything. I am too risk averse for that. But I would caution against going long on anything in those areas of the world for the foreseeable future.

Australia is obviously trading heavily with China right now, but they can divert their trade in other directions as necessary. In the long-run, their resources are going to be in high demand worldwide. Even if things go completely sour worldwide, I am talking 1930s-like sour where world trade is cut in half and refugees from all over are scrambling for food and shelter in whatever nation they can find it, at least the institutions in play in Australia are able to ensure stability economically and politically until the storm passes (primarily due to their isolation geographically). Their abundance of resources is not going to go away in the near-term, and will eventually be moved one way or another. As such, I feel like you cannot lose with Australia in the long-run. The same applies to Canada with the added benefit of them basically being our definitive satellite state if one cares to use that terminology.

As for hedging against inflation in America, that's what American food producers/distributors are for. People will need to eat no matter how high inflation goes.

[Politico]

I still disagree with you on Australia, but it's likely because my time horizon is significantly further out than yours. When I say their resources are going to be moved at a profitable rate to somewhere in the world over the long-run, I am talking over the next 20-30 years. I have no idea who will be buying up their resources in twenty years, but I am certain they will be moving. The worldwide demand has nowhere to go but up in the long-run. It seems the players over there run a tight ship and know how to get a return on investment. Ultra safe legal environment for investors, of course. Obviously there will soon be a dip with what is going to happen in China and Europe, but there is going to be a dip everywhere else in the world too. In that case, and in my ludicrously risk averse universe as somebody else has already pointed out (Yes, TIPS are king), it would make sense to wait and see what happens.

Despite the disagreement over Australia, I could not agree more about China. Which economist once said that command economies work well until they do not work, and then they really do not work? I have heard from other sources what you are describing, specifically with regards to real estate. Some of the stuff sounds quite insane...

Full disclosure: I am not in finance and all of my assets are in American and Canadian securities, so it's easy for me to say that Australia is a good bet, but I am not putting my money where my mouth is...