Bullish on War
by Michael Nystrom
February 15, 2007
So much for the idea that Democratic victory in November's mid-term elections would put an end the war. One look at the five year chart of the Amex Defense Industry Index (shown above) should make that perfectly clear. As you can see, the index has been in a steady uptrend since the start of the war in March 2003, has over tripled in value, and is now surging - presumably with our troop levels in Iraq - to a new all time high.
The index is composed of fourteen stocks, listed below:
Armor Holdings (AH)
Alliant Technology Systems (ATK)
Rockwell Collins (COL)
DRS Technologies (DRS)
EDO Corp (EDO)
Flir Systems (FLIR)
General Dynamics (GD)
Goodrich Corp (GR)
L-3 Communications (LLL)
Lockheed Martin (LMT)
Northrop Grummon (NOC)
United Industrial (UIC)
All of these companies are in the business of making the stuff that wars are fought with - weapons, armor, planes, guns, bombs, ammunition, and/or electronics and communications systems. And all (of course) share one well-known and very well-to-do customer in common: The United States Government.
Unlike the Dow, which is limping along to phony new highs on the strength of only a few of its component members (one of them being Boeing) and terrible breadth, the advance in the DFI is a healthy one from a technical standpoint. Twelve of the fourteen stocks are at or very near five-year highs. This is not a market that is being driven by liquidity, or simply adjusting itself to the realities of inflation. This is a market driven by fundamentals. Bullish ones. And it is not just American companies that are cashing in on the action. Just yesterday India announced that it would be buying 40 of a 166 new fighter jets in total, from Russia.
The Democratic paper tigers in the US Congress who were swept to victory on voter dissatisfaction with current war policy may talk tough about ending the war. But at the end of the day, a non-binding resolution is just that: Non binding. After all, the Democrats are also part of the established banking, business and government triumvirate that knows all too well that war is great for business, and great for expanding the powers of government.
The markets are speaking: the world is heading for more war. Adjust your life strategies accordingly. For a deeper understanding of the business of war, I urge you to watch the BBC documentary Why We Fight.
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As always, comments on this story are welcome here.
Also of interest:
Nemesis - The Last Days of the American Republic
Alan Greenspan 1967: Gold and Economic Freedom
McNosis, Retiring Boomers and the Silent Crash
Tough Times Ahead for Elder Boomers?
Ron Paul: Inflation and War Finance
A New American Dark Age
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