Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Here’s Why The Defense Stocks Sector Is The Best Trade Today

Companies / Sector Analysis Sep 15, 2017 - 05:39 PM GMT

By: John_Mauldin

Companies

BY PATRICK WATSON : September is not unfolding as expected.

Just a few weeks ago, this month was supposed to bring an angry stand-off in Washington and possibly a government shutdown or debt default. Those could still happen, but President Trump’s deal with the Democrats pushed it back to December.

And then we have the threat of nuclear war.


While that risk is small, it’s not zero. A nation’s leaders have to prepare for the possibility of nuclear war, and their preparations have an economic impact.

It seems right now is a particularly good time to think about this.

Preparing for the Unlikely

North Korea celebrated US Labor Day weekend with its largest nuclear test yet. It was followed by a series of long-range missile tests, one of which flew directly over Japan.

Placing a nuclear warhead on a missile in a way that it survives the trip and explodes on the intended target is a different matter. We don’t know if Kim Jong-un can or will do that, but we can’t rule it out either.

At our Mauldin Economics Strategic Investment Conference back in May, geopolitical expert George Friedman said the US appeared to be planning a military strike against North Korea (learn more about North Korea’s strategy in Friedman’s free exclusive e-book, The World Explained in Maps).

He may yet be right, even though the Trump administration seems to prefer economic sanctions so far.

Meanwhile, South Korea and Japan are understandably nervous. Treaties obligate the US to defend both from attack... but will we if it means risking Seattle or San Francisco?

I’m not so sure.

More to the point, South Korea and Japan aren’t sure either. That means they must prepare to go it alone. Both are perfectly capable of building their own nuclear weapons if they wish.

Call me an optimist, but I don’t expect open war—nuclear or otherwise.

Instead, I think the region will simmer as it is now, with harsh rhetoric and occasional small skirmishes. All sides will build up for a war none of them want to fight.

If this sounds familiar, you may have lived through the decades-long Cold War.

Back then, we didn’t have to wonder if the USSR could strike the US with nuclear-tipped missiles; we knew they could. Yet life went on. Markets paid little attention.

That kind of atmosphere is already returning to Europe, as Russia and NATO face off over Ukraine, the Baltic states, and elsewhere. Now we see similar tension in East Asia.

If someone launches real missiles at real targets, all bets are off. Short of that, we can confidently predict higher defense spending for all countries involved.

War is never good, but preparing for war can be good—if you are a defense contractor or someone investing in a defense contractor. They get paid whether anyone shoots or not.

The Best All-Weather Sector

I’ve noted before that defense is the best all-weather stock sector. The companies that make weapons, planes, and other military equipment routinely demolish market benchmarks.

For instance, here is the iShares US Aerospace & Defense ETF (ITA) plotted against the S&P 500 over the last five years.

The defense sector, as ITA defines it, didn’t just beat the market by a few points. Its total return doubled the market in the last five years.

I’m not cherry-picking time periods here. You can run the same comparison for one year, 10 years, whatever range you want, and keep finding the same thing. The defense industry occasionally has a bad quarter or two, but over time it outperforms.

Yes, I know: Past results don’t indicate future results.

But some things just go with the human condition. People will keep eating… and governments will keep buying weapons.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules