Defense Stocks Are the Bulletproof Solution Against Economic Collapse
If you’re still wondering what to put in your portfolio to protect yourself from economic collapse, look up at the night sky for the answer. Space is about to create a trillion-dollar industry.
Never has the expression “the sky is the limit” been less relevant, at least when it comes to potential profits for the defense sector.
Now it’s official: the military space race has formally begun.
Vice-President Mike Pence made good on an earlier announcement from President Donald Trump, which many had considered part of his usual “tremendous” hyperbolic compliments.
And the Pentagon’s timing could not have been better, as the dark clouds of economic collapse start threatening to rain on the stock market parade.
What’s more, the timing is ambitious.
The Space Force is not a long-term project that will require years to pass through Congress and more regulatory approvals. It’s not even like the Star Wars project, formally known as Strategic Defense Initiative (SDI), which President Ronald Reagan launched in the 1980s.
The Space Force Could Begin Operations by 2020
The Space Force is a new entity, separate from the armed forces, and it enjoys the full backing of President Trump.
Reagan’s Star Wars was always going to be a mere program to be managed by the Air Force. However, the Space Force will be an entirely new branch of the military.
Something like this had not happened since 1947 in the United States, when the U.S. Air Force (USAF) was inaugurated as a separate branch on September 18, 1947.
The USAF, thanks to the Cold War (which formally began in 1947), quickly rose to become the driver for the most expensive programs of all the armed forces.
Not surprisingly, the “F-35” fighter jet may well be the costliest single military program in U.S. history. (Source: “F-35 Program Costs Jump to $406.5 Billion in Latest Estimate,” Bloomberg, July 10, 2017.)
No Matter the Cost, Militarism Is Alive and Well
Expensive programs are bad for taxpayers but they’re great for investors in such companies as Lockheed Martin Corporation (NYSE:LMT), Boeing Co (NYSE:BA), Northrop Grumman (NYSE:NOC), and Raytheon Company (NYSE:RTN).
After all, these companies get their money from the Pentagon budget, and it’s simply not politically wise these days to challenge its size.
In fact, for fiscal 2019, the federal government recently approved a $717.0-billion defense bill. (Source: “The $717 billion defense bill just made its way to Trump’s desk. Here’s what the Pentagon is poised to get,” CNBC, August 2, 2018.)
Just about every major defense contractor has technology that could be applied to a military version of NASA. After all, that’s what the Space Force might end up being.
Boeing, Lockheed Martin, and the others mentioned above would be direct beneficiaries of the Space Force portion of future defense budgets. These are companies with years of experience in designing and building rocket systems.
Moreover, given the growing tensions with Russia, the United States will have to increase research and development in rocket engines. Apart from depending on SpaceX, NASA has relied on Russian-made “RD-180” rocket engines.
These may soon no longer be available to Lockheed Martin and Boeing, which run the joint “Atlas V” rocket program. Russia has threatened to stop their supply as retaliation against U.S. sanctions. (Source: “Russia threatens to ban sale of key rocket engines to US as row over ‘obnoxious’ sanctions intensifies,” The Telegraph, August 9, 2018.)
The initial estimated budget for the Space Force seems rather conservative, at merely $8.0 billion over the next five years.
Pence explained that the new military unit will be necessary for the U.S. to maintain dominance in space in expectation of more intense competition—and deeper divisions—with China and Russia.
The Problem Is More Than Just About U.S. Debt
Should the Space Force go through, it will add further strain to the already overstretched U.S. national debt. And don’t bet on Congress not approving the new force.
The Republicans appear to be headed to another victory in the 2018 mid-term elections. They will back the president on the Space Force issue.
Furthermore, U.S. relations with countries from Russia to China to Iran are in such a state as to beckon more defense spending, even from the most liberal of politicians in Washington D.C.
Militarized satellites will be the bread and butter of a space defense force.
To counter these space weapons, the Russians and Chinese could easily deploy anti-satellite weapons.
But aside from the technical considerations, the very demand or need for new weapon systems results from an almost planned effort to aggravate the United States’ relations with emerging superpowers.
If sanctions are a convenient way of ensuring that Russia continues to be perceived as a threat, a trade war with China will all but guarantee a military escalation of Sino-American relations.
Trade War and Economic Collapse
The risk of a trade war between the two largest economic powers, the U.S. and China, has increased sharply.
Should it break out, as many fear, it will cause economic growth to drop everywhere. It will even have an impact on basic commodities because demand for manufactured goods will simply grind to a halt.
Protectionism, the kind that Trump wants to bring back, was the tool that President Herbert Hoover wanted to use to revive the U.S. economy in the immediate wake of the financial crisis sparked by the October 1929 stock market crash.
Nevertheless, Hoover’s policy failed. Protectionism slowed down economic growth and helped spread the effects of the 1929 crash just about everywhere in the world.
It would take Franklin D. Roosevelt and the “New Deal” to fix the economy.
Trump’s Protectionism Sounds Rather More Intense Than Hoover’s
The effects of a renewed protectionism, given that there have been over two decades of industrial dismantling in the U.S. in favor of the “arch-enemy” China (and other countries, increasingly) will hit the economy hard.
U.S. consumers will no longer be able to afford the cheap-import-fueled lifestyle to which they’ve become addicted. Meanwhile, jobs won’t come back. There will be less money available to buy smaller quantities of goods.
The situation today could be heading in the same direction as in the 1930s.
Trump also wants to undermine the dense network of international organizations that govern global trade and resolve (or try to resolve) disputes.
In such a tense climate—and as a way to boost U.S. industrial production—the defense industry will become more important.
Indeed, it would be fair to suggest that the defense industry could potentially be more important to protect the United States from economic collapse than from an external military threat.
The establishment of the Space Force will necessarily demand an escalation of tension to justify its need and related spending.
The trade war will be used to this effect, fueling geopolitical tensions as well as the threat of economic collapse.