By far, the biggest news item of the week, the decade, and perhaps the century was the meeting between President Donald Trump and North Korean dictator Kim Jong-un. For over a year, the two leaders clashed, openly mocking and threatening the other. At one point, it appeared armed conflict was an inevitability.
Consider that it was only just a few months ago that President Trump promised “fire and fury” if Kim Jong-un didn’t back down from its nuclear ambitions. Needless to say, the entire world was on edge. The hermit nation has always made a mockery of the international community, but this time, they had the technological means to deliver their threats.
Trump, on the other hand, is the ultimate wildcard. You never know what he’ll do next. The face-to-face with Kim Jong-un to secure a possible North Korea deal proves this point.
Now, political pundits are arguing which involved parties won the most in the meeting. I don’t think it’s arguable that Kim Jong-un is the biggest winner – he secured international legitimacy without ever paying for his belligerence and human rights violations, among other ills. But the most profitable winner could be defense stocks.
I understand that defense stocks have so far been the losers in the North Korea deal. Part of the early concessions that the U.S. made was ceasing the “war games” with South Korea. These military exercises are actually critical to the security of the Korean peninsula. Since our forces’ tour of duty are constantly rotating, we need war games for operational readiness.
Applying even more pressure for defense stocks is the fact that President Trump used the same language that North Korea (and Russia) uses to describes the exercises: provocative. This sends the signal that Trump is more interested in securing peace, no matter what the cost.
Obviously, that doesn’t sit well with defense stocks. That said, I believe military contractors are much more critical now. While Wall Street is abandoning them, shrewd investors can use the weakness to add to their positions.
Here’s the deal – with Trump sitting down with Kim Jong-un, it sends the signal that threats to the U.S. will not be tolerated. However, if your threats are serious enough, you will land a seat at the negotiating table. It stands to reason, then, that our enemies will be significantly incentivized to find access to nuclear or otherwise ultra-destructive weapons.
Put another way, today’s problem is securing a North Korea deal. Tomorrow’s problem involves hunting down rogue terrorists who either stole (or were allowed to steal) North Korea’s nuclear technology.
Don’t overlook defense stocks: they’re about to get interesting.