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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Rotation Of Scant Resources Into Defense Continues

Jeffrey C. Borneman | September 24, 2014

South Korea and Russia announce major plans to increase Defense spending despite the slowing of their respective economies - a clear demonstration that DEMAND for Defense is paramount over all other needs.

South Korea

On the heels of this week's announcement reported by Reuters that South Korea's government will sharply increase budget spending "more than previously planned for at least (emphasis mine) the next three years to help the local economy," comes the long anticipated formal announcement Wednesday that it would buy 40 F-35A fighter jets from the American defense contractor Lockheed Martin, reports The New York Times. The $4.6 billion deal includes an additional technology transfer payment to the US of $7 billion to aid the South Korean government's effort to manufacture a domestic fighter jet.

The world-wide collapse of manufacturing has hit South Korea hard. Its decision to increase domestic spending to stimulate growth is based on the government view that the decline will be significant and long-term. Finance minister Choi Kyung-hwan told a news conference on Tuesday "that any anticipated pick-up in economic growth next year might only be tentative." To highlight the severity of the economic decline, next year the South Korean government plans to spend nearly one-third of its total planned budget expenditure - on health, jobs and welfare. "This will be the most ever allocated to that category," says Reuters.

Russia

The current Vostok-2014 military exercise by Russia includes a staggering 155,000 troops - more than the armies of most sovereign nations - 4,000 armored vehicles, 632 planes and helicopters and 84 naval vessels. This show of military might by a country now suffering from intense financial sanctions imposed by the US, EU and now Japan (as of today) is as salient as Russia's announcement today that it will add 80 more naval ships to its Black Sea fleet and one more naval base. 

"Vice Admiral Alexander Vitko said a second Black Sea base was needed in addition to the main base on the Crimea peninsula annexed from Ukraine because of NATO expansion," reports Reuters. The additional eighty warships (and other vessels) are expected to arrive before 2020 increasing The Black Sea Fleet to 206 ships and vessels.

Russia and Egypt Increase Arms Deal

The $2 billion arms deal reported here in August between Russia and Egypt has now been increased to $3.5 billion, reports Interfax quoting the head of a Russian state arms agency on Wednesday. Russia, the world's second-largest arms exporter now claims to have booked $38.7 billion in weapons sales this year alone.

Investor Takeaway

As I stated yesterday regarding US preparedness for the Syrian War: Current events reiterate the point that Defense Demand does not kneel before eloquent but ultimately vapid theories that promise national security through diplomacy without the muscle of munitions as an ever-present stick behind the posturing. The DEMAND for Defense will not abate, regardless of the truncated status of economic growth.

The updates above are by no means the only DEMAND for Defense stories today, and to be sure, there will be more tomorrow. If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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