Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Defence Contracting Sector Under Trump

Companies / Sector Analysis Jan 04, 2017 - 05:02 PM GMT

By: John_Mauldin

Companies

BY PATRICK WATSON : This month, President-elect Trump annoyed some people when he criticized two top defense contractors on Twitter.

Wall Street isn’t used to presidents publicly criticizing major US companies. The tweets caused shares to tumble a few points for both Boeing (BA) and Lockheed Martin (LMT), which makes the F-35 fighter planes.


The stocks recovered quickly, but the sudden moves gave traders a few frantic minutes.

Within the same week, Trump also shared a Washington Post article about a study that exposed enormous bureaucratic waste at the Pentagon.

According to the article, the Pentagon buried the study because it feared “Congress would use the findings as an excuse to slash the defense budget”:

Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power. But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results. […]

For the military, the major allure of the study was that it called for reallocating the $125 billion for troops and weapons. Among other options, the savings could have paid a large portion of the bill to rebuild the nation’s aging nuclear arsenal, or the operating expenses for 50 Army brigades.

But some Pentagon leaders said they fretted that by spotlighting so much waste, the study would undermine their repeated public assertions that years of budget austerity had left the armed forces starved of funds. Instead of providing more money, they said, they worried Congress and the White House might decide to cut deeper.

So, the plan was killed. The Pentagon imposed secrecy restrictions on the data making up the study, which ensured no one could replicate the findings. A 77-page summary report that had been made public was removed from a Pentagon website.

This doesn’t surprise me in the least.

Anyone who has been in the military knows about wasteful spending

A few months ago, I told our Macro Growth & Income Alert subscribers how, as a lieutenant, I had dozens of expensive vehicles forced on me. I had no troops to drive them and no place to park them. It didn’t matter. Someone up the chain had orders to spend millions of dollars on those vehicles and send them my way, so that’s what he did.

Every military officer has similar stories, so Trump is absolutely right about Pentagon waste. I’m convinced it costs lives too: Other units had to make do without urgently needed resources while I was getting Humvees jammed down my throat.

Such things don’t happen in the private sector (at least not as often) because corporations must show a profit. The Pentagon doesn’t… nor should it.

When you think about it, all defense spending is economically irrational.

Governments spend billions preparing for wars they hope to never fight. It’s kind of a very expensive insurance—we have to defend the nation from potential enemies, whatever it costs.

That simple fact gives military spending a natural upward bias. Combine that bias with bureaucratic inefficiency and the cleverness of defense contractors, and the result is… well, what we have.

The Trump administration will have a hard time changing everything

That F-35 program, for instance, is directly responsible for thousands of jobs in virtually every congressional district. The contractors arranged it that way on purpose. Canceling the F-35s might be the right move, budget-wise, but it would have serious political side effects.

President Eisenhower was way ahead of his time when he warned about the “military-industrial complex.” He knew from experience how political forces could make defense spending spin out of control. It is truly insane and no one has been able to change it.

Will Trump have better luck?

Maybe, though choosing retired USMC General James Mattis as secretary of defense doesn’t give me confidence. Mattis barely had his uniform off when he took a high-paying board seat with leading defense contractor General Dynamics (GD) in 2013.

But I could be wrong; some people say Mattis was a good general. Maybe he learned something from that private-sector experience that will help him rein in the contracting beast. I hope so—but I’m not going to bet on it.

No, the far better bet is that defense spending will remain strong and probably grow after Mattis and Trump take command. They may change priorities, but I can’t see them spending any less.

That being the case, I think it is a mistake to interpret those Trump tweets as a sign that defense spending is on a downhill slide. In fact, the opposite is much more likely.

The all-weather sector

It’s true that the US has the world’s largest defense budget, but other countries spend a lot too… and they will have to spend even more if Trump gets the US’s NATO allies to shoulder more of the financial burden.

I also bet Trump will not-so-subtly suggest they buy American products, which will offset any revenue loss from lower Pentagon spending.

I’ve been bullish on defense for a long time.

It is the closest I’ve found to an all-weather sector, and I believe it will stay that way. Global peace and harmony aren’t on the horizon yet.

If you have second thoughts about investing in defense stocks, I understand. In an ideal world, no one would have these kinds of “opportunities.”

On the other hand, we don’t have an ideal world (and probably never will). So, when reality hands you a lemon, there’s nothing wrong with making lemonade. Now is your chance.

Grab This Free Report to See What Lies Ahead in 2017

Now, for a limited time, you can download this free report from Mauldin Economics detailing the rocky roads that lie ahead for three globally important countries in 2017—and how the economic fallout from their coming crises could affect you. Top 3 Economic Surprises for 2017 is required reading for investors and concerned citizens alike. Get your free copy now.

John Mauldin Archive

© 2005-2019 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