‘BARBED WIRE AND FAGS’- THE TIPS FOR 2009-01-03
By Julian Nettlefold
03 Jan 09. The remark ‘Barbed wire and fags’ was attributed to Jim Slater as his tips for the Stocks to follow during the aftermath of the 1970’s recession. He reckoned that defence, security and cigarette stocks would provide the bedrock for recovery.
Security and defence stocks are seen as being solid bets against the turmoil in financial, building and retailing stocks. The strength of the U.S. defense market in particular has shown through over the past few months with Lockheed Martin winning $1.5bn in one week before Christmas and GD and Northrop winning the huge $14bn Virginia Class submarine order. In this issue we see Boeing winning large missile order, Lockheed winning two large GMLRS orders, AM General winning another HMMV order and Oshkosh winning a large truck order. It also shows signs that the big four U.S. contractors, Boeing, GD, Lockheed Martin and Raytheon are winning the bulk of the orders along with specialists such as AM General, DRS, Oshkosh and Navistar in preference to those overseas companies such as BAE Systems and EADS; don’t bet on EADS winning the tanker deal now!. This policy of using defense business to pull the country out of the slump is likely to continue under President Obama.
The U.S. debt will increase rapidly with this policy but it will mean that the USA will have the most powerful army in the world at a time when Russia and China are cutting back due to their own recessions. Thus they can put two fingers up to any world challenge! In addition FMS contracts to Iraq and later Afghanistan will also go a long way to bolster production.
Meanwhile, back in the U.K., where Gordon Brown still has to admit any blame for the collapse of his ‘No Boom or Bust’ policy the opposite seems to be happening, to the detriment of the economy and jobs. Knowing his dislike for the defence industry, it seems that Gordon cannot put his prejudices behind him to use the industry to save jobs in the vital manufacturing sector and has delayed the CVF Programme, a key contract which could have been speeded up to create jobs and the Typhoon tranche 3 order which again could have had a remarked effect of the Preston constituency in particular.
No, Gordon appears to be going the other way and pandering to Civil Service jobs which where most of the money will go and hence the economy is not expected to recover for at least five years.
France is also taking the same view as the USA with domestic production orders for VBCI in particular being pulled forward and the large £12bn deal with Brazil announced. Expect France to pull ahead of the UK in arms sales this year unless the U.K. can pull off another Typhoon sale to Saudi Arabia which would dilute its own Tranche 3 Requirement now that exports are allowed in the figures.