Major Defense Spending Announcements
Jeffrey C. Borneman | September 11, 2014
Investors must keep their eyes on the rotation of DEMAND into Defense spending. Yesterday's news that Russia, Japan and the US plan major expansions in their respective military's and weapons systems is just one obvious example of the rotation of capital. To summarize:
President Vladimir Putin said Wednesday, "Russia will counter military moves by the U.S. and NATO with an array of new nuclear and conventional weapons as the military successfully test-fired an intercontinental ballistic missile from a nuclear submarine," reports the AP.
Putin accused the West of attempting to pull Russia (further) into an arms race, but "emphasized that Russia will not enter a new arms race and will tightly control its military budget to avoid overburdening the economy."
Very conflicting statements by Putin. How should investors interpret them? Investors understand once a weapons system is deployed the counter party responds to the threat - period. The US aim is to build a missile "Defense" system surrounding Russia ostensibly to counter an Iranian threat - this is not news - however, Putin upped the ante yesterday with the "array of new nuclear and conventional weapons" statement.
To those vacillating regarding Putin's true intentions, he cemented the Russian position thusly: "We have warned many times that we would have to take corresponding countermeasures to ensure our security." Russia has clearly signaled it will not be cornered and has every intention of of ensuring a both a secure perimeter against NATO aggression and a balance of power.
Regarding yesterday's news from Japan, the Abe government's distrust of the traditional "Sword and Shield" defense relationship with the US (Japan's defensive Shield reliant upon the US offensive Sword) has apparently peaked, Japan is seeking a major increase in it's offensive War capabilities to defend itself lest the US Sword fails to appear.
In secret and separate talks away from foreign ears, "Japan and the United States are exploring the possibility of Tokyo acquiring offensive weapons that would allow Japan to project power far beyond its borders Japanese officials said, a move that would likely infuriate China," reported Rueters.
Also, in a survey released today by JapanToday, more than half of those polled in China see a war with Japan as likely within the next decade.
War on Terror
The president's speech last night was long on DEMAND for Defense to those who listened for it. The US is committed to arming and equipping troops in Iraq, Northern Iraq and mobilizing for a prolonged Syrian offensive. This, coupled with the demand that NATO member countries immediately increase their respective military budgets, to a minimum of 2% GDP.
We have pointed out that monetary policy has failed to provide the requisite Inflation (to reverse the Deflationary pressures of falling DEMAND and money flow) and the last tool in the toolbox is direct fiscal spending. It is the confident assessment and judgement of this writer that the majority of that spending will be in Metals, Defense, Energy and Food (MDEF™) and market rotation into these areas will be key sectors of future growth for the investor.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.