Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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

Catching a Falling Financial Knife