If you watched the GOP debate last night, you saw another BIG LIE. I know it’s hard keeping track of all the big lies. There are so many of them. Only Ron Paul spoke the truth last night about DEFENSE CUTS. There are no cuts. Reducing the rate of increase is not a fucking cut. When will the American people wake the fuck up and realize what these politicians are doing to this country. We’re broke. We need REAL cuts, not this phony bullshit.
Why everyone is wrong about defense
Commentary: Contractors will do better than you think
By Brett Arends, MarketWatch
BOSTON (MarketWatch) — Disgusted with Congress and the so-called “super-committee”? Cynical about politics? Convinced that America is in decline, and that our system of government is childish and corrupt?
If so, take a look at buying some defense stocks like Raytheon (NYSE:RTN) , Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC) . They may offer a way to bet on everything bad.
If you follow the headlines, and believe them, you would probably think that defense spending is about to be slashed to the bone following the collapse of the “super committee”. Defense secretary Leon Panetta is warning of a “doomsday” scenario for national security spending. Congressman Buck McKeon, the chairman of the House Armed Services Committee, warns that automatic cuts will end up “crippling our military.”
There’s just one problem. It’s total nonsense.
Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center, says that under these alleged post-committee “cuts” defense spending is actually forecast to rise from 2012 to 2021 by 16%, from $695 billion to $818 billion. Boy, that’s some cut!
The Pentagon had been expecting a 23% rise, and in Washington a slow increase is called a “cut.” But even if we get some inflation ahead, she says, the worst case scenario under the current plans is to a see “a freeze in real terms.”
Yes, Congress in the future may decide to cut defense spending. Credit Suisse analysts are penciling in reductions down the road. But nobody knows. And I think they are giving our political system too much credit.
What do I mean?
You need to start by understanding where defense spending is today.
It’s off the charts.
We’ll spend about $695 billion this year on defense.
The most Ronald Reagan ever spent, in 2011 dollars, was $537 billion. The most America ever spent during the Vietnam War, also in today’s dollars, was $526 billion. The peak during the Korean War: $442 billion. The amount we spent in 1942, the year after Pearl Harbor: $352 billion. In modern times the only years when we spent more than we do today, in 2011 dollars, were 1943, 1944 and 1945. Defense spending today, in inflation-adjusted dollars, is 70% higher than the average since 1946.
Yet, as you can see, any suggestion that we should even slow the rate of increase — during a budget crisis — has produced political hysteria, almost across the board. Our political system is dominated by imperialists. The only presidential candidate contemplating any real defense cuts at all is Ron Paul. That’s it.
Now factor in corporate, er, generosity on Capitol Hill. Defense contractors are rich and they know how to give. They were the source of $24 million in campaign contributions in the last presidential election, 2008, and they spend about $100 million a year on lobbying.
Thanks to the “Citizens United” ruling, they can spend unlimited amounts on political advertising.
I’m going to go out on a limb here: Expect to see lots of commercials on TV very soon warning about “dangerous cuts” to our “national security.” The first are probably being tested on focus groups right now. Some of these commercials will play on your heart-strings: As flags flutter and music plays, they’ll imply that we owe it to our veterans to buy more battleships and planes. Others will try to terrify you: 9/11, there’s a bear in the woods, and so on. The commercials will be funded by bodies with apple-pie names like “Concerned American Moms For Freedom.”
I’d love to know if congressmen are buying defense stocks right now.
There is one more reason to be bullish of defense contractors. Most of the bearish forecasts are based on the assumption that military spending will be dominated by America, as it has been in the past. But our country is in decline. Pax Americana is on the way out. China will have a bigger economy in real terms within half a dozen years. The decline of great empires has always been a time of international turmoil.There are no exceptions I can think of.
So you can expect that lots of other countries, especially in Asia, will want to buy products from the likes of Lockheed and Raytheon in the years ahead. They’ll need to. And they’ll have the money to spend.
Meanwhile, the budget panic has left defense stocks looking cheap.
Raytheon is down 17% from its 52-week high, General Dynamics (NYSE:GD) 19% and Northrop Grumman 22%. Lockheed Martin is down 10%. They’re trading for a very modest eight to nine times forecast earnings. When you compare these companies’ market valuations to their book value, or their annual sales, they are near modern-day lows.
And they’re generating good income. Lockheed Martin has a dividend yield of 4%, Northrop Grumman 3.5%, General Dynamics around 3%.
A recent survey by Credit Suisse of major investment institutions found most of them had run a mile from the sector. A stunning 89% of them were “underweight” defense stocks. That’s a dangerous consensus.
Defense stocks, in other words, are a cynical bet against Washington and Wall Street. Tell me I’m wrong.