The New Year is off to a bad start for defense stocks. The Pentagon has announced it is cutting back purchases of jet fighters and other major systems to free up money for operations, meaning for fuel, bullets, food and other daily necessities of war.

    The Pentagon is not far now from living hand-to-mouth. They are sacrificing their capital stock to keep going day to day and hour to hour.

    If the war was about to end, this would not be a big deal. Peace would give the government a chance to recapitalize the armed forces.

    What are the chances the war is about to end?

    I'd say, not more than ten percent. As explained in numerous Early Warning Reports since 9-11, the evidence points to the war lasting decades.

    The Pentagon is robbing its future capability in order to keep operating today. This at a time when the Russian and Chinese arms industries are, for the first time in their histories, subject to intense market pressures, and developing very high quality weapons in response to these pressures.

    All during the 45-year Cold War, the Pentagon cried wolf, claiming it needed more money because it was in danger of falling behind the Russians and Chinese. Now, as reported in the 9/04 EWR, the attempt to fight the war on the cheap means the Pentagon really is in danger of falling behind.

    It all spells a growing pent-up demand for new weapons.

     I could be wrong, but in my opinion, the recent drop in defense stocks is a buying opportunity that has a good chance of paying off handsomely. At some point, there will be a huge call for a mountain of emergency military spending, and defense stocks will soar.

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