The protective walls of Fortress America For a world where US bond yields trade at a level which predates the founding of the UN, even as the stock market is barely off its post-crisis high, there is a new use for an old label: Fortress America. It helps to explain the pessimism that appears to have driven many investors towards the safety of the country's debt at the same time that investors in stocks are showing a resilient optimism. On Wall Street The US economy may not be growing rapidly, but at least Friday's poor employment number 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. But what is striking is that most of the debate takes place within the set of assumptions that China is on a persistent long-term upward track, that its relative poverty in comparison with the more developed world creates its own pressure to catch up and that this will maintain economic growth that has run at almost 10 per cent a year since 1978. This performance is all the more remarkable because it runs against 200 years of history where divergence, rather than convergence, has been the norm, a trend that has held for the past four decades of globalisation. In a paper published by Clarium Capital, a hedge fund, Patrick Wolff and Andrew Garvin calculated that since 1973, excluding Opec, the richest half of countries expanded real per capita growth by 1.5 per cent a year through 2008, while the poorer half averaged 1.2 per cent. In this view of the world, China is in an investment bubble run for the benefit of insiders, and one without genuine precedent. In peak periods of their own rapid development, fixed investment as a proportion of gross domestic product topped out below 40 per cent in both South Korea and Japan. In China, by comparison, annual investment in fixed assets is half of the economy. This is not to point to the latest signs of a Chinese slowdown: the same arguments could have been, and were made, three years ago. The point is rather that when the bubble does ultimately pop, the result could be as much like Japan - which has stagnated for two decades since its property bubble burst - as any swift return to expansion. This challenges the assumption that emerging markets will be a persistent source of higher returns for investors, without the need to take on higher risks. With the priority now to lose the least amount of money, it is becoming hard to step beyond the protective walls of the US.