10/27/2016
By Charles Payne, CEO & Principal Analyst

Dwight D. Eisenhower used the above title in his Farewell Address to the Nation on January 17, 1961:

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

The farewell address from President Eisenhower was the ultimate warning about the immense power defense companies would come to wield.  Many think his prescient prediction means America will always be embroiled in foreign wars with massive demands on taxpayer funds.  Although it’s considered discretionary spending, the fact is military spending is 16% of the Federal budget. In all probability, spending can’t be cut any further, even as it becomes more expensive to wage war and peace around the world.

So, could this actually be the Achilles heel that neutralizes our abilities?

According to an article in Foreign Policy magazine, Is the U.S. Navy a Sitting Duck?  It talks about the recent attack in Yemen when Houthis rebels launched two Chinese-made missiles at the USS Mason that were greeted by an assortment of the following defense missiles:

• 2 (SM-2) Anti-Air Missiles
• Evolved Sea Sparrow Missile
• Nulka Radar Decoy Missile

The Houthis missiles landed harmlessly into the sea. The entire episode cost America $8,000,000 and the rebels only $1,000,000. 

The USSR lost the Cold War after breaking the bank and finally gave up on its grand ambitions. And now, experts worry if the world’s bad actors could do the same to America.

One thing that frustrates many is the disconnection between the Pentagon and the men and women who actually go to battle.  Billions of dollars in unwanted weapons are made as military bases are shut down and the VA system is in complete disarray.  One thing is for sure, the money keeps rolling in and the profits keep piling higher.

And the shares of these companies continue to take off like a rocket (pun unintended). Over the past five years, the ITA exchange-traded fund is up 120%.

Public Wants More Military

According to Gallup, only 13% of Americans don’t think our military is strong enough versus 45% that believe it’s not strong enough.  Moreover, 67% believe America should have the number one military in the world. 

With this in mind, it shouldn’t be surprising that 37% of Americans think Washington is spending too little on defense while 32% feel that Washington is spending too much.

For the moment, it looks as though Eisenhower’s warning about the power of the military-industrial complex is spot-on, but it’s poised to only become more powerful.

Charles Payne
Wall Street Strategies

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