Christmas came early for the military industrial complex this year when Barack Obama signed the Murray-Ryan budget deal. The sigh of relief from K Street lobbyists was so loud that it reportedly could be heard on Capitol Hill.
If you’re a regular reader of Capitol Hill Daily, you were likely never concerned. While pundits have been nervously rubbing their hands over the dreaded sequestration cuts, I encouraged you to ignore the rhetoric and invest in military industrial complex stocks.
After the budget signing, Secretary of Defense Chuck Hagel said that the Department of Defense (DOD) would “work to minimize disruption to our most critical modernization efforts.”
In layman’s terms, this means that the DOD will be pouring even more money into the technology developed by America’s premier defense contractors. In fact, after the ink dries on this latest budget, the United States will still account for 40% of the entire world’s military budget.
If you’ve been investing in defense tech alongside the political elite, this should be music to your ears.
The DOD’s new two-year spending plan raises the 2014 budget by $21 billion and the 2015 budget by nearly another $10 billion. At one point, the Pentagon thought it would never see this funding again. Now that it’s back, you can bet the money won’t be burning a hole in its pockets for long.
Over at the Air Force, a spokeswoman named Ann Stefanek delivered a message similar to Hagel’s: “Additionally, we would seek to protect our top three investment programs [the Lockheed Martin F-35 joint strike fighter, Boeing KC-46 tanker replacement program, and new long-range strike bomber] and fund readiness enablers and critical installation requirements such as new mission beddowns, ranges, radars, airfields, taxiways and compliance deficiencies.”
The bottom line is that the flow of funding for top government contractors is about to grow even stronger.
The Battle May be Won, But the War is Far From Over
But don’t expect this to be the end of the DOD’s budget battle. The Pentagon and its allies always want more dough, and you can hear the beginnings of a new offensive in Hagel’s statement summary.
“This agreement does not solve all of DOD’s budget problems, but it helps us address our readiness, especially in 2014, with putting more money back into training in particular, and procurement,” Hagel said. “It also gives us some new certainty and predictability for our planning, for our budgeting over the next two years, which is particularly important.”
In time, I expect the DOD to get its money.
You see, when the Obama administration forced the Pentagon to go through an additional round of cuts, it really brought the Republicans – who’ve been allied with giant-sized military procurement programs for thirty years – to their knees.
So John Boehner has used the defense cuts to rally his caucus in support of Barack Obama and also to stop the advance of Tea Party Republicans. At a recent fundraiser, Boehner implored defense industry lobbyists to support moderate Republicans, not Tea Party candidates. He wanted the assembled lobbyists to understand that, unlike Boehner himself, the Tea Party is willing to cut the defense budget.
Clearly, this is clearly an anathema to the Washington elite.
And understanding the Washington elite is the key to predicting policy changes. My knowledge of how this caucus works made me confident that the defense dollars would be restored, and it’s happening as we speak. So look for defense tech stocks to continue trending upward in the months ahead.
To life, liberty, and prosperity,