Sure, some of the spending is extemporaneous… but the threat of national security and global turmoil makes this idea almost impossible. We may see more of a focus on repairs and maintenance (rather than new projects), but it’s already been rumored that the Department of Defense is attempting to add $60+ billion
above the previous budget ceiling.
Politics and the Defense Industry
It’s a shame that we consider Republican administrations to be somehow more “war-minded.” Contrary to what most people believe, the Aerospace and Defense companies have historically outperformed more during Democratic presidencies than in Republican! What’s more, there really isn’t a safer place to be than in large-cap defense stocks during a recession. Defense outperformed the market during the last two recessions by more than 17% on average. In addition, this creditless environment strongly favors the companies that have their bookings guaranteed.
Rising Geo-Political Tensions - Global Arms Race Theory
It is my belief that as we continue through this globalized slowdown, we are going to see a global arms race. The stage has been set regionally, and it is only a matter of time before worlds collide. According to Merrill Lynch strategists Jose Rasco and Richard Bernstein: “Conflicts with Russia, Iceland, China, Venezuela, Iran, Afghanistan, Nicaragua, and piracy on the high seas are some examples of the regional difficulties that
may require enhanced national security capabilities across the globe.”
Russia:
Seemingly on cue, soon after Barack Obama was elected to be the United States’ next president, Russian President Dmitry Medvedev made some fiery statements concerning Russia’s plans to disable the controversial missile defense shield that the United States has been building in Europe. While the U.S. works to build a networked missile defense system over Europe to protect its allies, Medvedev stated that Russia would be placing short-range Iskander missiles in Kaliningrad to “neutralize” a planned U.S. defense system.
Russia and Venezuela leaders have now made multiple pacts centered around energy policy. Venezuela is still a major supplier of crude oil to the United States, but it seems that a tighter tie between Russia and Venezuela, including a new consortium between two oil & gas giants, Russia’s “OAO Gazprom” and Venezuela’s “PDVSA,” could monopolize the oil and gas markets and create problems abroad. One thing is for sure, the Kremlin fully expects that recent events are turning the global environment in Russia’s favor.
Rest of World:
Not to dwell on the extraordinary political moves in each nation around the world, let’s give a quick summary of more trends that are rising up across the globe.
