As Geopolitical Tensions Rise, Defense ETFs Make A Lot Of Sense (ITA)

From Tony Sagami: A momentous change happened last week. One that’s set to significantly change the balance of global power.

But hardly anybody noticed!

The world is awash in conflict. North Korea and Syria have been getting all the media attention. (In between breathless, obsessive Russia, Russia, Russia coverage, of course.)

But the balance of global military power has dramatically changed …

And it’s now in China’s favor. 

China has been constructing manmade islands in the South China Sea to extend its territorial claims. Much to the consternation of Japan, Taiwan, Vietnam and the Philippines.

But like I said, the media isn’t paying much attention to China. That’s why its most recent military move may have slipped past your radar, too.

What move?

The Chinese government just dispatched two naval warships, with an undisclosed number of military personnel, to anchor where the Red Sea meets the northwest edge of the Indian Ocean.

That’s because China is establishing its first permanent overseas military base in Djibouti, Africa.

Djibouti? This tiny African nation, the Republic of Djibouti, is a former colony of France. It’s located on the northern rim of the Horn of Africa.

Djibouti guards the Bab el-Mandeb Strait, a crucial gateway between the Gulf of Aden and the Red Sea and on to the Suez Canal. The strait is only 18 miles wide at its narrowest point. So, it’s a bottleneck on one of the busiest shipping routes in the world.

Ships pass through the Bab el-Mandeb Strait to reach either the Mediterranean Sea or the Indian Ocean. In just one example, millions of barrels of oil and petroleum products pass through the strait every day.

And now China has a firm foothold in the area.

And this isn’t economic. It is purely military.

Make no mistake — the main role of this Djibouti base is to support Chinese warships.

Per the official Chinese government newspaper:

“Certainly, this is the People’s Liberation Army’s first overseas base and we will base troops there. It’s not a commercial resupply point.”

Sure, the implications for the Middle East and Africa are immediately obvious. But China’s military role in the world has changed.

No longer is China’s military squarely focused on Asia. It now has a global reach.

China has a not-so-small fleet of nuclear submarines and well as land-based ICBMs. China has even launched its first aircraft carrier, with another under construction.

The mainstream media may not care. But you can bet your boots that the Pentagon is paying rapt attention to these newest Chinese military moves.

In fact, the House Armed Services Subcommittee recently passed six bills that will make up the base of the fiscal 2018 defense budget.

Get this — the new proposed defense budget is for $640 billion. That’s $37 billion more than the Trump administration’s $603 billion request!

For a start, the increased defense spending helps catch-up from the reduced spending under the Obama administration. Plus, it reflects a tougher Trump and a stronger stance on the growing threat of terrorism.

I can’t envision a scenario that doesn’t goose the profits of defense contractors. For example, the Seapower and Projection Forces Subcommittee recommended a five-ship increase. That’s on top of the eight that are already part of the Trump budget request.

So that could mean a windfall for shipbuilders like Huntington Ingalls Industries (HII), the largest military shipbuilder.

My Calendar Profits Trader subscribers already own the iShares U.S. Aerospace & Defense ETF (ITA), and they are sitting on a fat profit right now. And that’s on top of our recently bagged 96.2% gain on a defense contractor.

Right now, we’re gunning for another round of profits on that defense contractor. To get details about the trade … and to see how we’re going for big gains thanks to other market-moving events … just click this link here.

We could see another boost for defense stocks as soon as this week. That’s because the U.S. Census Bureau will release the next Durable Goods Orders (which includes specifics on military spending) this Thursday, July 27.

I expect a gangbusters opportunity on one perfectly poised defense contractor that is selling military hardware faster than it can make it.

If I’m right about the Durable Goods Report, we’ll be cashing in some fat profits on Friday morning. I hope you’ll join me.

The iShares U.S. Aerospace & Defense ETF (NYSE:ITA) was unchanged in premarket trading Thursday. Year-to-date, ITA has gained 17.57%, versus a 11.72% rise in the benchmark S&P 500 index during the same period.

ITA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 32 ETFs in the Industrials Equities ETFs category.


This article is brought to you courtesy of Money And Markets.