February 6, 2007: Making the best of it.Defense budget, quantitative earnings summary and a few stocks

You either laugh, or you cry.

President Bush has asked for an 11% increase in defense spending for 2008, which should benefit defense contractors. The caveat is...how much will Congress cut?

One item that received a 17% cut was the anti-missile system, which impacts Boeing(BA) to a degree.

LMT fared well with fifty C-130J's planned. The F-35 funding jumps 23% to +$6B and the F-22 rises to $4.6B. The C-5 upgrade program was fully funded at $603M (up 59%). Boeing's C-17 falls from $4.8B 07 to $650M 08. A dozen F-18s are also funded.

Funding for ground equipment for 08 is DOWN, again supporting my ongoing commentary of less boots on the ground (thus less armor, etc. needed)and a presumed withdrawal from most of Iraq by late summer. OSK should be about the only beneficiary of this proposed budgetary area.

Body armor, a political topic of conversation, received good 08 funding support. Chief beneficiaries are CRDN and AH.

Homeland Security was well treated, rising 8% to $US47B.

Shipbuilding is up across the board. The Coast Guard Deepwater project, under a cloud for design flaws, appears to be back on track.

Readers wanting more specific information my e-mail me. I have lots more data to share.

QUANTITATIVE TIDBIT:

Large-cap earnings to date beat expectations for the fourth quarter. Earnings growth was 11.3% versus a forecasted 8.3% heading into earnings season.

S&P 500 64% beat estimates 22% missed estimates 14% in-line
Russ.1g 64% 22% 14%
Russ.2g 47% 37% 17%

Revenue Summary:

S&P 64% above estimates 36% below estimates
Russ.1g 61% 39%
Russ.2g 51% 48%

My thoughts on defense policy is that the United States is going to retreat some from international shows of force.Instead, the US will focus on Homeland Security upgrades and a huge upgrade in technologically "star wars"-quality weapons systems to avoid ground causalities and keep Chinese expansion in check. President Bush is tacitly admitting that the US population and the World do not wish to have a superpower to be the final arbiter of regional conflicts. And, sometimes you unfortunately will get what you wish for. The world will become an increasingly dangerous place, which will impact investor decisions worldwide, especially in the newly developing regions and the Middle East.