The Hidden Arms Race
You likely know that over many decades, the fall season marks a traditional time for surprises and shocks. That is, big things happen in the fall, and in consequence big things change. This is the case in politics, economics and investing.
Looking back, consider the stock market crash of 1929, which commenced in October of that year. The 1929 crash led into a U.S. recession that didn’t end, despite (or perhaps due to) all manner of half-baked economic tinkering by then-Pres. Herbert Hoover.
By 1932, the recession had morphed into the Great Depression. So U.S. voters elected Franklin D. Roosevelt as president. FDR had his own half-baked ideas about economic tinkering. The rest is history (more history than I can get into here, anyhow).
More recently, on an otherwise normal fall Tuesday morning and beneath an azure sky, we had the stunning, disastrous events of Sept. 11, 2001. Indeed, aircraft hijackings and destruction in New York, and to the Pentagon, caused much of the U.S. economy simply to stop working. Remember how stock markets were closed, and airlines didn’t fly for almost a week after 9/11? Then the country had a mini-recession.
Just five years ago we had the crash of 2008, which began in September when Lehman Brothers failed. Market psychology quickly turned defensive and destructive, in that people just wanted O-U-T.
Back in 2008, people sold whatever they could sell — meaning whatever would bring a bid. Often as not, “good” assets changed hands at bargain prices because poor assets attracted few or no bids. Hedge fund redemptions and end-of-day margin calls compounded the misery.
My point is that, considering history, we need to be prepared for anything to happen in the markets. Start by considering that today is the 12th anniversary of the original Sept. 11 events. Recall what happened just last year, with anti-U.S. riots across the Middle East — in Cairo, Benghazi, Yemen and several other places that you probably didn’t hear about (another story for another time, perhaps).
Would it be possible that today will bring new ways for our opponents to recall and remind the world of what happened on Sept. 11? Whether you’re investing your self-directed IRA, or managing larger funds, or standing watch on the bridge of a U.S. Navy gray hull, do NOT underestimate the basic intelligence, tenacity and cleverness of people who want to make a point. Those guys might decide to “move markets”, as the saying goes.
That, and today will likely coincide with Congressional debate over authorizing Pres. Obama to use military force against Syria. Wow, talk about inviting new challenges! What did former Pres. Bush say? “Bring it on!”
It’s safe to say that Muslims across the world see U.S. bombers and Tomahawk missiles as raw, “Western Christian” aggression against their kith and kin. This is the case no matter how much legalistic justification our government places on what happens — like “punishing” the Syrian government for using chemical weapons, or whatever.
So what’s the biggest issue for investors right now? Well, over the past summer at the Agora Financial Wealth Symposium in Vancouver, one speaker discussed how broad markets were “priced for perfection.” That is, the general indexes, collective share prices, price-earnings ratios, etc. are all indicating a market psychology of everything being fine, and getting better.
Another way to describe recent market activity is that investors have bid all manner of things up into a frothy market top. So why buy anything here, right? Many sectors and companies are priced as if nothing can go wrong. So they’re more or less poised for a tumble, and we just have to await the event.
Still, there are plays that appear attractive, if not “bad news-resistant,” even in a market that’s already priced-up… I’m talking about ideas that cover software, energy weapons and “drone” systems.
The headlines, and mainstream news media, cover stories about the possibility of the U.S. shooting 1970s-era missiles at Syria, for example. But the real “investable” military action is with cutting-edge systems that harness all manner of capability in domains such as cyber-warfare, intelligence-gathering and directed energy — and do it from a distance.
Indeed, since the end of the Cold War and demise of the Soviet Union, there’s been a tendency for the public to think that there are no more “arms races” in the world. That is, the U.S. and Soviets are no longer cranking out missiles and nuclear warheads. That last part is correct (although Russia has developed several new generations of missiles in the past 20 years).
But overall? The “no arms race” idea is entirely wrong. In fact, there are new arms races in many respects, across the world. Some of the “deliverables” still include big ships and submarines (think China), fighters and thundering bombers (China again) and missiles (China, North Korea, Iran and more).
But much of the next arms race is well hidden — in cyber-labs, and in research facilities that work on assembling super-complex electronics and optics into remote drones and directed energy systems.
It’s all happening. And business is — if you’ll forgive the pun — “booming.”
Indeed, it’s so investable that you probably can’t afford not to invest in it.
Byron W. King
for The Daily Reckoning
P.S. Government spending can lead to massive technological breakthroughs — history proves this theory. From my perspective as someone who researches mil-tech, there’s plenty of news, analysis and investment waterfront to cover. In today’s edition of Tomorrow in Review, I gave readers a chance to see an exclusive presentation that details the wealth blueprint found hidden inside the Pentagon’s top-secret” Black Budget. If you got it, you’re ahead of the curve. If you didn’t, there’s still time to sign up, completely free of charge.