The Best Defense Is a Good Defense
Whether you see the presidential debates as a boxing match or standup comedy, it does pay to listen closely to what the candidates are proposing.
Indeed, the debates have revealed that the candidates all want to demonstrate their commitment to a strong and secure nation.
For that reason, if the presidential debates were to boost any one sector, it would be the defense sector.
Even though none of the candidates have thoroughly explained their approach to military spending, the risks across the global political landscape are intensifying, and the candidates are all inadvertently pumping up the defense industry.
National Security – Topping the Charts
Defense, security, and military spending have taken center stage in the 2016 campaigns thanks to growing political threats from North Korea, China, Russia, Syria, Libya, Iran, and ISIS, just to name a few.
Republicans and Democrats alike are trying to convey that they’re focused on national security and know how to keep America safe and strong.
As one would expect, the more jingoistic talk comes from the Republicans, who tend to have a somewhat vague and one-dimensional view of an all-powerful military.
Donald Drumpf wants a military so strong that “no one will mess with us.” Drumpf stated over the summer, “Our enemies are getting stronger and stronger, and we as a country are getting weaker. Even our nuclear arsenal doesn’t work.”
When pointing out that the arsenal’s equipment is 30 years old, he said, “It was horrible when it was broadcast on television, because boy, does that send signals to Putin and all of the other people that look at us and they say, ‘That is a group of people, and that is a nation that truly has no clue.’”
Needless to say, Drumpf supports lifting the caps on the defense budget – as do his Republican rivals, Ted Cruz, Marco Rubio, and John Kasich.
Cruz defends his call for “carpet-bombing” militants, saying his plan is “dramatically different” from anything President Obama has offered. Cruz also notes that military morale is lower than ever.
And while Rubio supports balancing the federal budget within 10 years by cutting $4.3 trillion in spending – including funds from Medicare and other programs – the Florida senator still proposed increased defense spending.
Even Kasich is in favor of increasing military spending, though seemingly less than Cruz and Rubio.
On the left, both Democrat candidates are open to scaling back the planned $1 trillion, 30-year modernization of the nuclear arsenal – but they still favor directing those funds to conventional weapons needed to fight threats from the Islamic State, among others.
Military Spending Approaching Historic Highs
U.S. military spending, dictated by the bipartisan Budget Control Act (BCA), is comprised of the Pentagon’s base budget – and it’s approaching historic highs.
For 2016, spending totals $580 billion, which is 50% of the federal discretionary budget.
In inflation-adjusted dollars, U.S. taxpayers will spend more on the military in each of the next five years ($510 billion) than was spent, on average, during the Cold War ($460 billion). And that spending excludes the cost of today’s recent wars.
Even with another Democrat in office, military spending is unlikely to decrease. Clinton, the likely front-runner for the Democratic nomination, has built a reputation for being more hawkish on defense issues than some in her party.
She’s also advocating the idea of “smart power,” which relies on military tools to keep the nation safe. Doubtless she’s motivated by the Benghazi debacle, which will follow her into the White House should she make it.
Even Bernie Sanders vows to support a “robust military,” although he opposes any increases in military spending.
Defending Your Portfolio
Rather than just listening to the jibber jabber from the presidential candidates, astute investors should capitalize on this momentum before our next leader is even elected.
If you don’t have time to study the balance sheets and income statements of all the defense companies building our tanks, submarines, and surveillance equipment, you can leave it up to a professional who analyzes the sector for you.
Active as opposed to passive funds are typically the better option. One example is the Fidelity Select Defense & Aerospace Portfolio Fund (FSDAX).
Alternately, indices and ETFs are passively managed, and they tend to be more diversified. Two examples are the PowerShares Aerospace & Defense ETF (PPA), or the iShares U.S. Aerospace & Defense ETF (ITA).
Any of the above would make a good choice if you want to capitalize on the current political environment.