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Keeping the war talk going, share prices of aerospace and defense-related companies were leading the broader market this year by 17 points as of 23 April, the most in a decade and only the third time since 1999, according to an MSCI index.
Investors see Western nations adding to military budgets as a result of Vladimir Putin’s aggressive behavior toward Europe, requiring greater attention to international security, the Financial Times reported.
The U.S. alone has pledged more than $3 billion in aid to Ukraine, much of which is in weapons and munitions that will need to be replaced.
“There seems to be the beginning of some irrational exuberance about the industry,” Bill Greenwalt, a former U.S. deputy undersecretary of defense, told the FT.
“We have not yet seen an increase in orders and contracts or a recognition of the need to act quickly,” he said.
In the past, when regional wars boost defense stocks, those gains usually disappear, often within six months, according to Bernstein analyst Douglas Harned.
“Do the budget trends and relative valuations make defense interesting as a long-term play?” he asked in an FT interview.
“If you put something into the budget this year—a tank, aircraft, or naval vessel—it won’t be delivered until 2023, 2024, or 2026 in some instances,” Byron Callan, managing director at Alpha Capital Partners noted to the FT.
“You see these moves in the stocks and in the sentiment, but managements are reticent to frame what it all means for their companies,” he said.
TREND FORECAST: Share prices in other sectors rise and fall, but, since the business of America is war, the war industry is a reliable profit-maker. And the louder the war drums beat, the higher the defense stocks will rise.
Just today, in an interview with CNN (the Cartoon News Network), another major war-drum beater, Gen. Mark Milley, Chairman of the U.S. Joint Chiefs of Staff declared, “If this is left to stand, if there is no answer to this aggression, if Russia gets away with this cost-free, then so goes the so-called international order.”
Speaking pure hypocritical bullshit, Milley—ignoring America’s century of deadly wars across continents and its military aggression against smaller nations that were unprovoked such as Iraq, Afghanistan, Libya, Yemen to name a recent few—said the post-war world order has “prevented great power war, and underlining that entire concept is the idea that large nations will not conduct military aggression against smaller nations, and that’s exactly what’s happened here, an unprovoked military aggression by Russia against a smaller nation.”
Follow the Leader
Thus, even before the Ukraine war, with the war talk ratcheting up, so did defense spending… and so too will the stocks of defense companies. Yesterday, the Stockholm International Peace Research Institute (SIPRI) reported that total global military expenditure increased by 0.7 per cent in real terms in 2021, to reach $2113 billion.
The five largest spenders in 2021 were the United States, China, India, the United Kingdom and Russia, together accounting for 62 per cent of expenditure, according to their data.