- Helicopter buyout: Defense-sector wheeling and dealing
- How to grab your share of $156 billion in military contracts
- Gold gets kneecapped… but what about China’s purchases?
- A “disappointing” earnings season, but stocks are still bid up
- The new normal in Greece… a bargain-priced airport… a dystopian future of “good money”… and more!
“Helicopters may not be able to outfly a jet, but nothing else can do what they do,” says our military-tech maven Byron King.
The big merger-and-acquisition news this morning is the defense giant Lockheed (LMT) buying Sikorsky Aircraft from United Technologies (UTX) for $9 billion. Sikorsky is the world’s biggest maker of military helicopters.
“This year,” says Byron, “the global military rotorcraft market is expected to reach $21.1 billion, and sales are expected grow by about 2.61% each year at least through 2025, to hit $27.3 billion. About one-third of demand will come from rising Asia, while North America alone will account for another 29%. The rest will be divided among Europe, South America, Africa and the Middle East.
“Every military needs helicopters, and as time goes by, they need more and more of them,” Byron explains.
“In fact, according to the CIA World Factbook, there are over 6,800 dedicated, hard-surfaced ‘heliports’ across the world — and that doesn’t include the notion that helos can land on any flat, hard ground; one doesn’t really need a formal heliport.
“Helos conduct tasks that are not possible — well, they’re nearly impossible — with fixed-wing aircraft. For example, helos are used to transport and ‘insert’ people and cargo within the military realm — plus wage war, to be sure; think of the iconic helicopter scenes from, say, Apocalypse Now.”
How many helicopters are there in the world? “That’s a tough question,” Byron ventures. “It’s fair to say that governments and industry keep track of new sales each year. Still, helos crash or are simply grounded for structural fatigue or lack of funds and/or parts to keep them maintained. Still, I’ve seen ballpark numbers like 35,000 civilian helos in the world and 45,000 military helos.”
Wall Street appears to like Lockheed’s move — LMT shares are up 1.5% as we write this morning.
“The planned purchase,” says the Dow Jones Newswires, “will add the world’s largest military helicopter maker to its lineup of combat jets, missiles and intelligence services at a price that also allows it to retain the shareholder return policy that has driven its stock price over the past two years.”
Indeed, it has: The S&P 500’s two-year performance is plenty respectable… but LMT has tripled it.
But the big opportunity in the defense sector arrives tomorrow. The feds are about to unleash a $156 billion spending spree.
As Byron explained last week, “two-thirds of what’s known as America’s ‘nuclear triad’ is set for a MASSIVE, once-in-a-generation modernization under Obama’s watch.”
Who will grab the lion’s share? Byron has been in constant touch with his network of contacts built up through three decades as Navy flight officer — both active and reserve — and a stint at the Naval War College.
He knows the people in both government and industry who are best positioned to say who will get the most lucrative contracts. He’s been checking a little-known federal website that reveals “tip-offs” in the defense sector. And he’s identified a way for you to generate outsize gains. We’re talking a $1,000 investment that becomes $21,900 in pure profit.
Byron can get you started at noon EDT tomorrow. But only if you act now.
Gold is in danger of cracking through the $1,100 level. As we write, the Midas metal is down nearly 2.5% at $1,106 — the lowest since March 2010.
Can’t blame it on a stronger dollar — the dollar index is down a tad at 97.8.
“Here’s the skinny as far as I know,” says Chuck Butler at EverBank Global Markets — who’s plugged into the metals every bit as much as the currencies. “In Shanghai and the Shanghai Gold Exchange (SGE), close to 5 tonnes of gold was sold on the SGE in a two-minute window in a market where the normal amount of gold traded on a daily basis is 25 tonnes. The August 2015 Comex gold contract also saw 7,600 contracts traded in the same two-minute window. The paper trades led off and I would think caused the HUGE sell-off in the SGE.”
As you might recall, the selling began Friday after the People’s Bank of China revealed the size of its gold stash for the first time in six years… and it surprised on the downside.
That’s assuming China is telling the truth. How likely is that?
It was Chuck Butler who first turned us on to the work of Koos Jansen, a researcher at Singapore-based BullionStar. He’s become the go-to authority on China’s gold holdings. Our own Jim Rickards follows him closely too.
Mr. Jansen’s take: “China’s import data acknowledge imports of both monetary and nonmonetary gold but customs reports quantify only the nonmonetary gold, never the monetary gold, thereby signifying that the People’s Bank of China does not want its gold purchases made public. That is, official gold purchases in China, like official gold swaps and leases in the West, are highly sensitive and top-secret.”
As Jim Rickards pointed out on his Twitter feed, the fall in gold’s price only helps China continue to accumulate. If they were intense buyers at $1,250 — and they were — how much more aggressively will they buy at $1,100 or lower?
We realize that doesn’t make you feel any better this morning unless you’re very patient or you started building your gold position a long time ago…
The major U.S. stock indexes are little moved this morning: The Dow and the S&P 500 are nearly flat. The Nasdaq is moving higher into record territory. The small-cap Russell 2000, however, is in the red. In earnings-land, Morgan Stanley came through this morning with a “beat.”
“So far, 60 of the companies in the big S&P 500 index have reported their second-quarter results to investors,” says Jonas Elmerraji of our trading desk. “Of those, 70% have beaten analyst estimates.”
Which is, in fact, rather anemic compared with recent quarters. “Analysts have been consistently underguessing corporate earnings here. And yet stocks are seeing buying pressure this time.”
That’s right — the S&P climbed 1.29% last week. “Even though positive developments in Greece and corporate earnings are going to get the credit for swatting stocks higher in July, the reality is that we were testing a key support level for the first time in 2015 at the same time short interest was climbing off the charts.”
This morning, the S&P remains in the bottom half of its price channel going back nearly four years. “That should be giving a pretty warm and fuzzy feeling to anyone who owns stocks right now.”
By the way, the banks are open in Greece for the first time in three weeks. ATM withdrawals are no longer limited to 60 euros a day — instead, it’s 420 euros a week. Less than $500. Whoopee.
The country’s value-added tax (VAT) has also been jacked up today from 13% to 23%.
But the Greek government’s creditors have papered everything over to the point that it made a $4.6 billion payment due today to the European Central Bank, so it’s all good, right?
It sounds like a gag listing on Craigslist: One airport, slightly used — $10,900.
But that’s what a Chinese-led consortium of investors is paying for the Ciudad Real airport in Spain.
Built during Spain’s go-go years before economic reality set in, the airport opened in 2008 at a cost of nearly $1.1 billion. It was supposed to be an alternative to Madrid’s Barajas airport — assuming travelers were willing to trek nearly 150 miles by land if they wanted to get to Madrid proper.
Even with a high-speed rail link, that was a nonstarter. The airport closed in 2012.
And people complain Denver’s airport is in the middle of nowhere…
The consortium — Tzaneen International — was the only bidder. It hopes to make the airport an entry point into Europe for Chinese firms.
We’re not sure what to think. At that low, low price, it might be a bargain even if the location is, umm, less than desirable. On the other hand, do the Chinese really want to add to their collection of empty skyscrapers and such by expanding its holdings to other continents?
“OK, I’ll take a shot at this,” a reader writes — as our strange discussion of Gresham’s law, or its converse, extends into a new week.
“‘Good money always chases away bad money.’ Let’s say it’s five years down the road and there is a customer in your grocery store trying to pay you with U.S. dollars that have depreciated by 80% from today’s so-called value (bad money). Now you say, ‘Sorry I don’t take U.S. dollars anymore, because they are bad money. Do you have any good money?’
“So he digs in his pocket and comes out with a pre-1965 dime that is 90% silver and asks you, ‘Will this do?’ And you grin and say, ‘Oh, yea! That will get you another two bags of groceries. Thanks for shopping at Only Store. Please come back ASAP!’
“Of course, this scenario is a bit into the future. So maybe it is a bit into the not-too-distant future that this statement will become an absolute truth.
“I watched a video the other day of a salesman in San Diego standing out on the street in front of a precious metals store trying to sell a 10 oz. bar of 0.999 silver for $10 to anyone who walked by. After hours of trying, not one single person would buy the silver bar for $10. It was one of the most amazing things I have ever watched.
“That goes to show you just how blind and ignorant the general population is to the truth of what is going on in our country and the whole world at large. And most of this population are willfully that way. Such a pity!”
The 5: Well, yes. But the legal tender laws assert that the owner of Only Store must accept the bad money.
If the owner thinks he can reject the bad money without suffering any consequences from law enforcement, he probably has more to worry about than whether he’ll accept junk silver in payment for his goods…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Last chance: If you want to start profiting from Uncle Sam’s $156 billion defense spending spree, tomorrow’s the day.
At noon tomorrow, you can learn about three opportunities that could generate gains of 2,028%… 2,190%… even 8,225%.
But you can’t profit if you don’t act. Here’s where to start.
