Peoples Geography — Reclaiming space

Creating people's geographies

War Is A Racket Updated

Read past the global conflict strategic overview, right into the extraordinary comments:

Not so visible, however, is the impact beyond commodities — defense-related companies poised to make some serious profits and see their share prices move higher.

In fact, even as the broad markets have declined, the share prices of defense-industry heavy hitters have risen nicely.

What can you do about it? My answer: The best defense is a good offense. And a good offense for any investor is to buy the stocks of companies that will be called to action in the coming conflicts.

Of course, to be fair, there is the comment:

Above all, let’s hope this morning’s ceasefire in Lebanon is a lasting one. And let’s pray that each and every time bomb I’ve told you about is defused. At the same time, however, be sure to prepare your portfolio for the worst.

Some nice conflicts should help boost profits. And for only $39, you too can purchase the Report “The Rising Tide of War: Five Defense Stocks Set To Soar” (see details below)


Article Title: No Truce from Wars! Your Defense … (By John Burke)

Money and Markets 14 August 2006

Martin is busy preparing for his Wednesday online seminar. So he’s asked me to fill in for him this morning.

My name is John Burke. I’m the investment analyst at Money and Markets specialized in tracking global conflicts and the defense industry. I’m also a former Marine intelligence specialist.

Later this week, I’m releasing a special report for investors with five defense stocks I’m recommending. But before it’s available to the general public, I want to give you the highlights right here …

No Peace Despite UN Resolution

At exactly midnight last night (8 a.m. local time), a UN ceasefire resolution was supposed to go into effect between Hezbollah and Israeli forces in Lebanon.

But Hezbollah has not agreed to disarm. Nor has Israel agreed to refrain from retaliation against attacks on its citizens or on its troops in Lebanon, now in excess of 30,000.

Therefore, truly ending this conflict will be tough; and quelling the raging lust for revenge in the region, even tougher.

Moreover, there’s nothing in the UN resolution to address the war in Gaza and the West Bank … nothing about Hamas, which is continuing to battle Israeli forces … and no solution to the explosive issue, which sparked the crisis in the first place — Israeli soldiers kidnapped by Hamas and Hezbollah plus prisoners in Israeli jails.

Separately, virtually nothing has been done — at the UN or elsewhere — to deal with the other conflicts raging or looming around the globe …

  • The disintegration of Iraq into a three-way civil war among Kurds, Shiite Arabs and Sunni Arabs. Just this weekend, Prime Minister Nouri al-Maliki banned a Kurdish extremist party from operating in Baghdad. If he hadn’t, Turkey would have sent troops across the border to destroy the group’s bases in northern Iraq. Also this weekend, Sunni-Shiite violence took another 50 lives.
  • The eruption of new conflicts in Sri Lanka. On Saturday, ethnic rebels advanced. Government jets bombed rebel positions. And truce monitors were told to stay away. A stark warning to UN truce monitors headed for Lebanon? I’m afraid so.
  • The Kashmir conflict. India has now concluded that Kashmir terrorists were behind the recent Mumbai bombings. But that’s a conflict which is also continuing to escalate. Just 48 hours ago, thousands of villagers protested in Indian-controlled Kashmir after an ambush by security forces targeting Muslim militants mistakenly killed two civilians. Where’s the UN? It has struggled to deal with this conflict for nearly 60 years. And all it has to show for it is three wars plus the likelihood of more to come.
  • North Korea’s already-stockpiled atomic bombs and its recent test firing of long-range missiles. This is easily a bigger threat to world stability than the Iranian nuclear research program, which may not produce deployable bombs for years. Yet, any efforts to stop the North Koreans have been largely sidetracked, even abandoned. The UN is mostly silent.
  • And now, the terrorist plot in London to blow up 10 airliners headed for the United States a shocking reminder that the global war on terror has barely begun.

Defense Stocks Already Rising

As these and other battles rage around the globe, the effects on global markets are clearly visible: Oil near all-time highs; gold, the ultimate safe-haven investment in uncertain times, well above $600 an ounce.

Not so visible, however, is the impact beyond commodities — defense-related companies poised to make some serious profits and see their share prices move higher.

In fact, even as the broad markets have declined, the share prices of defense-industry heavy hitters have risen nicely. Year-to-date, for example, we have:

  • United Technologies (UTX) up 8%
  • Northrop Grumman (NOC) also up 8%
  • Boeing (BA) up 9%
  • Raytheon (RTN) up 12%
  • Rockwell Collins (COL) up 13%
  • General Dynamics (GD) up 19%, and
  • Lockheed Martin (LMT) up 28%.

What can you do about it?

My answer: The best defense is a good offense. And a good offense for any investor is to buy the stocks of companies that will be called to action in the coming conflicts. (More on this in a moment.)

Global Military Spending Is a $1 Trillion Industry

Military budgets topped $1 trillion in 2005, with United States defense spending exceeding the total defense spending by the rest of the world combined, according to the Center for Defense Information.

But most nations feel it’s in their best interest not to reveal exact figures. So the actual defense spending is likely to be much higher. Two prime examples:

1. China’s military spending is estimated to be anywhere from 40% to 70% higher than Beijing acknowledges, according to a 2005 study by RAND Corp. In 2005, China reportedly committed $41 billion to military spending. But the real amount is more than likely between $57 billion and $69 billion.

(Continued below …)

2. The U.S. invasions of Iraq and Afghanistan are paid for outside of the federal budget (through supplementary spending bills). This implies there could be significant spending that doesn’t get included in many official tallies.

Now, as global conflicts intensify and the U.S. continues to wage its global war on terror, military spending is almost guaranteed to grow — both for conventional and anti-terror hardware.

Take a look at how each major conflict is directly impacting the demand for military spending and you’ll see exactly what I mean:

Conflict #1
War in Lebanon, Despite Any Truce, Will
Stimulate Continuing Demand for U.S. Hardware

The military build-up by Israel’s prime enemy in the region — Hezbollah — is massive in scope.

During the 1980s and 1990s, the U.S. government estimated Iran gave Hezbollah up to $100 million a year in financial assistance.

Hezbollah recently had an estimated 12,000 rockets in its inventory, according to official estimates. Supplied by Iran and Syria, the majority are modified Katyusha-type, unguided missiles with a range between 20-45 miles.

Hezbollah also used a Chinese-made C-802 sea-skimming cruise missile to strike an Israeli warship on July 14. And just this weekend, Hezbollah shot down the first Israeli helicopter to fall in the conflict.

But remember: As I stated at the outset, the truce that supposedly went into effect eight hours ago does nothing to remove this big weapons build-up from the battlefield.

Meanwhile, Israel is the largest annual recipient of U.S. military funding — more than $2 billion a year.

Seventy-five percent of the military financing support is used to buy defense equipment made in the United States. That’s $1.7 billion in 2006 alone. Moreover, Israel deals directly with U.S. companies for 99% of its military purchases.

A key point: If the U.S. defense industry gets this much business based on the military build-up to help sponsor Israel, without direct involvement in the Middle East conflict, imagine the spending that is likely if the U.S. and other nations are dragged into the conflict!

Until very recently, this may have been an unlikely prospect and projections for the defense industry excluded the possibility. Now, however, as Iran and the United States have fought a war of proxy through Hezbollah and Israel, those projections have to be adjusted sharply to the upside.

Conflict #2
Nuclear Standoff Rooted In Iran’s Regional Ambitions

Iran has two major goals, both of which go far beyond the current conflict: (1) To develop nuclear weapons as the ultimate deterrent against attack and (2) to become a leader in Middle East politics.

The immediate threat: Should the U.N. impose sanctions in response to Iran’s nuclear program, Tehran has openly vowed to play its oil card and shut down exports. That alone could take up to 3 million barrels a day off the market.

An even greater threat: Iran could block the Strait of Hormuz, strangling up to a third of the world’s oil supply.

Will it happen? No one knows. But the real question is: Does the Pentagon believe that the likelihood of a war with Iran is now real enough to warrant a further military build-up? Yes.

(For more on the impacts on the oil market, don’t miss Sean Brodrick’s current article, “The Oil Horror Show.”)

Conflict #3
Growing Fear of Shiite Crescent Pressuring Saudis to Spend More

For centuries, all governments of the Muslim world were dominated by Sunnis.

That changed with the Iranian Shiite revolution. And it has just changed again with the rise to power of Shiites in Iraq.

Now, the greater fear of many Sunni-dominated governments is not Israel. It’s the specter of a Shiite crescent in the Middle East — Iran, Iraq, Shiite Hezbollah plus more Shiite rebellions spreading throughout the Arab world.

That’s why the Saudis and other Arab states have openly criticized Hezbollah. And that’s also a key reason the Saudis have been such big buyers of military hardware.

Washington has recently approved Saudi requests to spend $9.7 billion on military equipment — $2.9 billion to buy and upgrade M1 Abrams tanks and equipment, $5.8 billion for equipment modernization for the Saudi Arabian National Guard, $400 million to remanufacture and upgrade AH-64 Apache helicopters, plus much more.

The Saudis are also set to buy 72 Eurofighter Typhoon aircraft in a deal with the UK that could run as high as $10 billion.

Huge! They’re on a shopping spree!

And all these deals were in the works long before the latest conflict with the Shiites in Lebanon, and even before the Iranian nuclear crisis burst onto the scene.

Result: Expect the new tensions to stimulate greater demand for military hardware from the Saudis and other Sunni Arab governments.

Conflict #4
Iraq’s Civil War Spiraling Out Of Control

In recent testimony before the Senate Armed Services Committee, Gen. John Abizaid, head of the U.S. Central Command stated, “I believe that the sectarian violence is probably as bad as I’ve seen it, in Baghdad in particular, and that if not stopped it is possible that Iraq could move toward civil war.”

At the same time, William Patey, Britain’s former ambassador to Iraq, recently warned in a leaked report that civil war in Iraq is more likely than a successful transition to democracy in Iraq.

And even before a full-scale civil war, the Department of Defense spends an estimated $6.4 billion a month on Operation Iraqi Freedom and another $1.3 billion a month on Operation Enduring Freedom (Afghanistan).

Will the U.S. and its allies pull out, thereby reducing military expenditures? Highly unlikely. The prolonged conflict in the region puts more than half of the world’s oil reserves at risk, and the West will do everything to protect its access. Result: More demand for military hardware by regional and world powers in an attempt to guarantee stability in the region.

Conflict #5
North Korea’s Missile Tests Stimulate Ongoing Military Build-Up in Region

East Asia is a region already rife with nationalistic rivalries, political disputes, and rabid economic competition, especially in China and Japan, which account for more than half of the region’s military spending.

Now, North Korea’s recent missile tests are fanning the fires of these disputes, encouraging an even stronger political mandate for military build-ups.

The details:

China has the largest military in the world — 2.3 million active-duty personnel. And China’s military budget is the world’s second largest — as high as $81 billion, with much of that budget going toward modernizing the People’s Liberation Army.

Moreover, a recent Department of Defense report concludes that Chinese military planners have set their sights beyond local conflicts, such as Taiwan, to broader world conflicts, focusing on modernization efforts in naval, air and missile technologies.

Japan, the world’s second-largest economy, spends an estimated $44 billion on defense, making it the fourth-largest military budget in the world.

Now, Japan’s cabinet has endorsed a bill that would upgrade the country’s Defense Agency to a full-fledged ministry, giving it more clout and a bigger piece of the budget.

The big shift: It’s now more likely that Japan will revise its pacifist constitution to give its Self-Defense Forces a larger role. And the prospect of a re-militarized Japan is already causing increased tensions throughout the region, especially with China, North Korea and South Korea.

(For a thorough review of these dangers, see Martin’s report, “World War III?”)

The Inescapable Conclusion

Each of these conflicts — now raging or looming — is driving governments around the world headlong into massive new military expenditures. Even if one or more of the conflicts is resolved, the die has already been cast.

Moreover, in each case, arms build-ups in one nation foster parallel build-ups in other nations. And whether the weapons systems are produced by U.S. companies or not, the worldwide demand for weaponry is likely to soar.

What do all these conflicts do to U.S. stocks? The broad market could suffer some significant losses. But defense-related stocks are poised to reap some serious gains.

As I’ve shown you, the world conflicts are driving the demand for both (a) conventional military hardware and (b) anti-terror technology. Therefore, a diversified portfolio of defense stocks should address both needs.

In my report, I recommend five. Or, if you prefer ETFs, take a look at PowerShares Aerospace & Defense (Amex: PPA), representing a broad basket of defense companies. After rising steadily to nearly $18 per share in April, it has come back down to a more reasonable $15.92 as of Friday night.

Above all, let’s hope this morning’s ceasefire in Lebanon is a lasting one. And let’s pray that each and every time bomb I’ve told you about is defused. At the same time, however, be sure to prepare your portfolio for the worst.

Best wishes,

John Burke

P.S. If you’d like to get my full 16-page report, “The Rising Tide of War: Five Defense Stocks Set To Soar,” click here. It includes my picks, my price targets and recommended stop-loss levels. It’s only $39, and Money and Markets readers can download it right now.

P.P.S. Martin’s online seminar is Wednesday at noon. So if you want to attend, you should sign up before it’s too late.

For more information and archived issues, visit About MONEY AND MARKETS MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau. Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short blurb: This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Timely Reminders

"Those who crusade, not for God in themselves, but against the devil in others, never succeed in making the world better, but leave it either as it was, or sometimes perceptibly worse than what it was, before the crusade began. By thinking primarily of evil we tend, however excellent our intentions, to create occasions for evil to manifest itself."
-- Aldous Huxley

"The only war that matters is the war against the imagination. All others are subsumed by it."
-- Diane DiPrima, "Rant", from Pieces of a Song.

"It is difficult
to get the news from poems
yet men die miserably every day
for lack
of what is found there"
-- William Carlos Williams, "Asphodel, That Greeny Flower"