The protective walls of Fortress America

For a world where US bond yields trade at a level which predates the founding of the UN, there is a new use for what is an old label: Fortress America.

It helps to explain the pessimism that appears to have driven many investors yet again to seek shelter in the safety of the country’s debt, but it also captures the resilient optimism which means that even after Friday’s sharp one-day fall in the S&P 500, it remains one of the few stock indices left in positive territory for the year so far.

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Indeed, while the US economy may not be growing rapidly, the poor employment report released on Friday was still positive, with a net 69,000 jobs added. When interest rates first started to test multi-decade lows during the crisis, more than 400,000 jobs were disappearing every month.

Meanwhile, US banks have been forced to raise capital and are now quite capable of funding themselves. The Federal Reserve remains a credible guardian of the monetary system and the chances of another deep recession seem remote.

This is not to be blithely optimistic, rather it is to view the wooden walls of the North American economy as a more sturdy home for investment than the papier-mâché turrets elsewhere. And it is to realise that, for all the advance of globalisation, the US remains a relatively closed economy.

Exports of $2.1tn last year were only 14 per cent of national output, according to the Commerce Department. The largest trading partners are its neighbours to the north and south, and all the countries that use the euro combined bought only $200bn worth of US goods and services last year, as much as Mexico.

Meanwhile China, which bought only $104bn from the US while sending consumers four times as much back in return, is another reason for reassessing the assumption that the greatest opportunity lies outside the US.

Even from 12,000 miles away the topic is hard to avoid. There are persistent bears, such as short seller Jim Chanos of Kynikos Associates, who has been betting on a sharp slowdown for the past two years.

And there are the mega bulls, with renowned value investor Jeremy Grantham of GMO embracing the Malthusian idea that emerging market growth in consumption has put commodity prices on a permanent upward track.

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