Mar

10

A few years ago, I read Brig. General Smedley Darlington Butler's War is a Racket (full text). Sample passages:

In the World War a mere handful garnered the profits of the conflict. At least 21,000 new millionaires and billionaires were made in the United States during the World War. That many admitted their huge blood gains in their income tax returns. How many other war millionaires falsified their income tax returns no one knows.

The Nye Committee uncovered some astounding information about the munitions industry, including a confession to profits as high as 800 percent.

Inspired by the book, I looked up publicly listed defense companies and marked out dates for conflicts like the Gulf War, Iraq invasion, Assassinations, Ukraine Vs Russia, Palestine Vs Gaza. While there were some blips on defense stocks, they were not that impressive. So if people say the US defense "complex" is fleecing the government, where exactly is this money going? What doesn't it reflect on stock prices?

Gold on the other hand frighteningly has so many coincidents, when it actually "predicts" aggression. The price of Gold for example went up for a moment before Qasem Soleimani was killed in a drone strike by the Trump regime. Not to mention how it behaved during the previous "Gaza - Israel" & "Ukraine - Russia" conflicts. I also found a similar observation in The Education of a Speculator:

Then, out of the clear blue, from 2 P.M. to 3 P.M., gold jumped $7. No reason for the rise, just technical buying by the funds, we were told. But that weekend, around 4 A.M. on Sunday, U.S. Navy fighter planes shot down a Libyan jet flying over the Mediterranean. This caused tremendous tension, always good in those days for at least a good run in gold. After all, nuclear war in the Mideast was now possible.

— Chapter 4, Subsection (Practical Losses)

Why is Gold way better at predicting political aggression than defense stocks?

Big Al responds:

I find the tricky thing with macro events is being precise enough with dates. Some events, like Fed announcements or other econ data releases, can be timed more precisely. With bigger, geopolitical events, it's less definite. With defense stocks, I would look at their performance in the months before the event, on the assumption that the market would be anticipating rather than reacting. As for strong reactions, look at the chart of Rheinmetall since the start of the Ukraine war and also since the US election.

As for gold, here's an interesting approach, looking at market sectors:

Navigating crises: Gold's role as a safe haven for U.S. sectors

This paper investigates the correlation between U.S. sectors and gold, and whether gold can serve as a safe haven for investors in specific U.S. sectors during the global financial crisis, COVID-19, and the Russia-Ukraine war. We use data from the Standard & Poor's Depository Receipts (SPDR) Select Sector Exchange Traded Fund (ETF) to capture the performance of the respective sectors. Our findings document that gold is a weak safe haven for most U.S. sectors. Gold is not a safe investment for energy, materials, utilities, and consumer staples. Gold does provide vital protection for financial, consumer discretionary, industrial, technology, and healthcare.

Asindu Drileba comments:

Thanks for pointing me to RHM.DE. I didn't even know the company existed. It is exactly how I expected US defense stocks to behave during the Ukraine-Russia & Gaza-Palestine conflicts.


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