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.

Defense Contractors 3Q16 Results	Earnings	Consensus
Northrop Grumman	$3.35	$2.81
United Technologies	$1.76	$1.66
Lockheed Martin	$3.27	$2.88

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.

Market

It was another tense session for stocks on Wednesday. All the major equity indices opened lower, only to rebound with crude oil after a surprise drawdown in crude, and sustained its rebound; NASDAQ and the S&P 500 also finished lower.  It’s looking less likely that earnings will be the catalyst that gets the market out of its range.  Coming into the session, 30% of names reporting revenues were up on an average of 2.7% and earnings 1.7%.

Yesterday, 22 out of 25 names posted results that also beat earnings consensus. After the bell, highly- profiled Tesla (TSLA) crushed the consensus on the top and bottom that sent shares higher. 

Other earnings beats include:

• ServiceNow (NOW)
• Western Digital (WDC)
• F5-Networks (FFIV)
• Buffalo Wild Wings (BWLD)
• Cheesecake Factory (CAKE)

So, earnings are coming in strong across the board.  And yet, the market can’t get out of the starter’s block. Some believe that like almost everything else in the nation, the market is being held hostage by the upcoming election while others are worried about valuations and the overall economy. I think it’s a combination of all the above. 

Today’s Session

The earnings parade continues this morning with companies like Bristol-Meyers Squibb, Carbo Ceramics, Colgate-Palmolive, Dow Chemical, Ford, NXP Semiconductor (being acquired by QCOM for $110), Texas Instruments, United Parcel Service, and Whiting Petroleum to name a few.  Most of the earnings and beats are better than expected, and the major indices are all in the green.  

Comments

Based on the fear mongering and personal attacks by the left and even some on the right against Trump, I believe a pall has fallen over our country. It is like a fog of self loathing and paralysis. Political discourse has headed lower and lower over the years, but in this election has reached a new low. It's as if the very existence of the Democrats is at stake. It just may be that their personal attacks and hyper partisanship has reached its zenith. My only hope is that the everyday man and woman has figured out that the attacker and name caller is actually the guilty party. Thank God for the internet and the few news outlets that actually report and don't filter what is shown. All of the lies are imploding before our very eyes... Obamacare costs are indefensible. Video of corruption at the highest levels paid for by the Democratic Party for violence and voter fraud could not be clearer. The collapse of the feigned caring of the inner cities crime, murder, joblessness and educational failure are all coming home to roost. Just as Brexit shocked the media, wait until you see how they react to the coming result of America's Rebellion from the political elite and those fed up with corruption. God bless America. My hope is that the silent majority of AMERICANS vote and send a message to those in power there is a new electorate in our country. We will not allow your triteful sound bites to from the workers paying the bills, to the inner cities being left out of education, jobs, and opportunity, and the many across our country that have lost jobs because of the failures of our trade agreements. Ray Weldon on 10/27/2016 10:34:07 AM

Amen, brother! Jeff Oliver on 10/27/2016 11:01:29 AM

Very well said. Bruce Boyd on 10/27/2016 12:29:28 PM

Excellent post Ray. I think your giving Americans too much credit. We'll see next week. E.V. Wagoner on 10/27/2016 3:14:32 PM

Ray...Excellent !!! FMT on 10/27/2016 4:33:59 PM

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