Defence Sector outlook

With the US getting ready for an election in November, do you consider that a Democrat victory will lead to a slowdown for the defence industry?

Which shares would be more likely to out-perform in such a slowdown in the sector?

Quote:

Originally Posted by Steve

With the US getting ready for an election in November, do you consider that a Democrat victory will lead to a slowdown for the defence industry?

Which shares would be more likely to out-perform in such a slowdown in the sector?

Hard to say, in my opinion.

One thing that I think IS safe to say:

I expect to see further MASSIVE, MASSIVE, MASSIVE arms export programs to the following countries:

*Saudi Arabia.......paying OVER retail price to recycle petro dollars, and provide a very lucrative pie to cut up amongst the Saudi royal family and it's sycophants

*Kuwait.....same as Saudi, but scaled down a bit

*UAE......same as Kuwait, but scaled down even further

*Bahrain.....same as UAE, but scaled down even further

*Israel.....discounted/subsidized bribe to allow Arab arms for oil petrodollar recycling to occur

*Egypt.....crumbs due to all of the above.

I have no idea how the "arms pie" split will occur, but traditionally the majority of arms contracts into the Gulf have been US dominated, with a healthy slice going to the UK, some going to France, Russia...not so much.

Have a read of the recent investigation against the gigantic UK arms contract with Saudi in the 80's/90's involving many $$$ billions of far overpriced Tornado and Hawk tactical aircraft was sunk.......the level of corruption involved is the biggest semi-open secret in the petro-dollar trade......too much money, too many jobs, too many votes at stake.

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Also, India is modernizing their armed forces...they have kept a foot in both the Western/NATO camp as well as a foot in the former Soviet camp in terms of military hardware. There seems to be a LOT of jockeying for position, particularly between the US and Russia to supply some upcoming and HUGE multi-billion dollar contracts for the Indian military.......gratf is also an issue there as well.....just a bit less so than the Arabian Peninsula....and it's more competitive than the US dominated Arabian Peninsula.

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My GUESS on big picture contracts going forward:

Next generation weapons systems for purchase by US forces(F22, F35, Littoral Combat Ships, next-gen carriers, next-gen attack subs...all the BIG ticket, MANY manufacturing jobs projects) will get hammered down due to lack of funds. Too much money being spent on current operations, combined with existing equipment inventory being run down/attrited MUCH faster than originally anticipated will see procurement funds having to go towards replacing equipment being overused......which will probably result in new projects getting slashed to the bone to provide funding for unanticipated repair/replacement of equipment actually used.

Same goes for Western Europe...outside of the Eurofighter, the F35 which is declining in popularity, and a pair of Carriers for the Poms...there's not much happening other than continued drawdown in forces and restructuring to balance more towards the current urban COIN threat....which is not good for the big ticket manufacturers.

The developing world is where the big ticket military contracts will be....in the next couple of years it will be the Arabian Peninsula, India/Pakistan(at a much lower $$ rate than India), then Asia/Pacific(Vietnam, Thailand, Malaysia, Phillipines, Japan) and South America(Brazilian led).

Just my 0.02c

I think defense will be a decent sector to be in going forward long-term, but the risks include:

*high inflation killing/cutting projects

*operational overstretch......diverting money away from new gadgets and towards operations

*equipment overuse......the useful life of kit on operations and in conflict is far less than in training......sucking money away from new gadgets

*force restructuring.....getting ready to fight to Soviet Union was good for the likes of Boeing.......restructuring to fight a real/perceived counter insurgency threat doesn't sell as many expensive new gadgets.

Just my 0.02c

Quote:

Originally Posted by malcolm

CNBC reported this morning that israel airforce had mock flying pursuits over IRAIN in last 24 hours ---- us military stocks will get there timely boast- and the bush family get there fairwell gift:rolleyes:

One thing to keep in mind is that when Israel destroyed Iraq's Osirak reactor in 1981, the Reagan administration "condemned" the attack and held up weapons shipments to Israel for a brief period of time.....holding up F16 shipments amongst other things.

So I wonder if an attack could possibly have a short-term negative consequence for defense sector stocks?

I would think that IF an attack occurs, the weapons systems perceived to have been the most successful will probably lead to a nice boost in purchase inquiries(if not export approved sales)...and conversely weapons program losses if deemed unsuccessful/unreliable.

F16 sales exploded after the 81 Osirak raid and 82 Bekaa Valley raids

UAV sales first kicked off after 82 Bekaa Valley raids

Exocet ASM after Falklands and 80's Gulf War

Conversely, Soviet/Russian kit, such as MIG 23's and SAM 6/8/9 systems became noticeably less popular after Bekaa Valley 1982.

Quote:

Originally Posted by malcolm

ANY body hear a taped interview played on dannys show about 3.50 pm between a american correspondent and us radio station bush adminstration hell bent on sorting IRAN OUT befor his term is finished it scared the sh-t out of me though i should not of been surprised;)

If you think this is scary, wait till McCain becomes president. :eek::eek: