Wednesday, July 6, 2016

More on the Guns or Butter question:

Paul Anthony Samuelson was an American economist and the first American to win the Nobel Memorial Prize in Economic Sciences. His textbook Economics (ISBN- 0-07-0 092863-0) has become a classic in which he states in a chapter entitled “Central Problems of Every Economic Society” that a nation has to choose between two options when spending its finite resources. It may buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both.

U.S. President Lyndon B. Johnson used the phrase to catch the attention of the national media, while reporting on the state of national defense and the economy. Another use of the phrase was British Prime Minister, Margaret Thatcher's reference in a 1976 speech that, "The Soviets put guns over butter, but we put almost everything over guns.”

The US seems to favour Gums over Butter – so why not drill down into the sector and seek out the Aerospace and Defense names – In the U.S. there are lots of aerospace & defense related companies - L-3 Communications Holdings Inc. (LLL), Lockheed Martin Corp (LMT), United Technologies Corp (UTX), Honeywell International (HON), Boeing Co/The (BA). General Dynamics Corp (GD), Raytheon Co (RTN) and Northrop Grumman Corp (NOC). Many of these names are at or close to new 52-week highs.

The related ETFs are the iShares U.S. Aerospace & Defense ETF (ITA) and the PowerShares Aerospace & Defense Portfolio (PPA) :

In Canada the choices are slim with a few thin traders – such as Magellan Aerospace (MAL) and Heroux-Devtek Inc (HRX). We are left with CAE Inc (CAE) a liquid pure aerospace play. Our chart – monthly of LMT displays a pending new bull cycle – recent all-time highs and strong money flow numbers

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