Making the Empire Pay
President Trump writes a new chapter in the art of the deal…
Official business brought Mr. Trump to the desert kingdom of Saudi Arabia this weekend.
He now heads for Israel to maybe write another.
But not before his Saudi hosts agreed to take purchase on nearly $110 billion of U.S. arms.
American-born tanks, ships and missile defense systems will find loving new homes in and around the deserts of Araby.
U.S. radar, communications and cybersecurity technology will go with them.
“It was a great day,” gloated the American president. It means “tremendous investments in the United States… and jobs, jobs, jobs.”
It also means a red-letter day for American defense stocks…
Lockheed Martin opened about 2% higher this morning. Raytheon, over 1.4%. Northrop Grumman climbed 1%, while General Dynamics was up about half a percent.
All four stocks tallied record highs today.
Meanwhile, the iShares U.S. Aerospace & Defense ETF (ITA) was up about 1.3%.
Jim Rickards and veteran defense industry insider Kevin Massengill run a trading service around the defense sector.
They advised their Defense Technology Alert readers to close out a handful of positions this morning for gains of up to 97%.
Well played, gentlemen.
Now, some readers have accused us of treason against the decencies… that we’re hawking the wares of the military-industrial complex — the “merchants of death.”
Shouldn’t we be more “socially responsible”?
Our intrepid leader Addison Wiggin tackled the question in 2014:
Name almost any investment and we can come up with a valid objection to it…
If you own a gold stock, there’s a good chance the company is stomping all over the property rights of someone whose land happens to sit on top of a gold deposit. Third-world governments routinely cut sweetheart deals with mining firms to seize land held in the same family for generations, with zip for compensation.
Or if you own any kind of government bond, your stream of income depends on the ability of that government to extract tax payments from the citizens in its jurisdiction.
Meanwhile, if you shun the stocks of the major banks because they accept government bailouts, you’ve passed up monster rallies going back to late 2011.
Addison found justification in the late libertarian writer Harry Browne:
Maximizing profits and conforming to social policies are separate endeavors. You can cater to one endeavor only at the expense of the other… The stock exchange isn’t a pulpit. If you want to promote a particular environmental policy, political philosophy or other personal enthusiasm, do it with the profits you make from hardheaded investing.
Head over heart, that is… at least if you seek profitable returns.
You might not like it, argued Addison. But if the U.S. is going to play empire, you might as well “make the empire pay.”
So he recommended the iShares Aerospace & Defense ETF back in 2010.
If not “socially responsible,” the trade’s certainly been personally profitable for anyone taking Addison’s advice.
It was trading in the $50 range at the time he recommended it.
Today it trades above $154 — more than 200% higher.
“Just sayin’,” as Addison did in fact say.
Last month’s budget deal locked in billions of new military spending. But that should just be the opening installment…
Just this morning Vice President Mike Pence pledged the Trump administration would “rebuild the military” and seek the largest increase in defense spending since Reagan.
They probably won’t get as much as they want. But still…