The Bull Market That Began on Sept. 11, 2001

August 29, 2006 at 2:52 pm  ·  Category: Stocks

When Al Qaeda struck the World Trade Center on Sept 11, 2001 it ended an era of relative global peace that had begun with the fall of the Soviet Union and the tearing down of the Berlin Wall in 1989. 

Five years later the world seems to be becoming an increasingly violent place. 

According to George Friedman, head of private intelligence company Stratfor, interviewed for this week’s Barron’s (subscription required), the recent ceasefire between Hezbollah and Israel isn’t likely to last:

Israel won’t let the current stalemate with Hezbollah stand, in Friedman’s opinion…. He expects Israel to mount a major offensive into Lebanon, targeting both the South and the Bekaa Valley Hezbollah strongholds to the north.

‘Our Hezbollah sources tell us that they used the first 48 hours of the ceasefire to rotate fresh fighters and supplies into the south of Lebanon,’ [Friedman said].

On top of that Iraq seems to have descended into civil war:

In recent weeks, sectarian violence in Iraq has escalated into a full scale civial war, largely, in Friedman’s view, because an emboldened Iran has pushed its Shiite clients in Iraq to rise up.

Which brings us to the biggest potential threat on the horizon, Iran:

Iran is cocky these days and eager to assert itself on both the Middle East and world stages, according to Friedman.  ‘With Israel’s paralysis following its unsucessful campaign against Hezbollah, Iran believes this is its golden moment in history,’ he says.

Expect more adventurism from Iran, as it pushs for Middle East supremacy, says Friedman.

All things considered, it seems to me like we have entered a new era of worldwide tension similar to the Cold War.  Barring a Democrat takeover of Congress and the Presidency in 2008, it seems likely that defense spending is likely to remain high in the years and even decades to come. 

According to Morningstar analyst Chris Lozier in his research report on Lockheed Martin (NYSE: LMT) (subscription required) “the top five players [in the military industry] own as much as 70% of the Defense Department’s annual outlay for research and development.”  Of the big 5, my two favorites are Lockheed Martin (NYSE: LMT) and General Dynamics (NYSE: GD).   

If you want exposure to some of the smaller players in the industry, you might want to consider Fidelity Select Defense & Aerospace Fund (FSDAX) which holds 51 different defense and aerospace stocks and has performed nicely over the last 5 years

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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