The War Cycle Turns

Monday, September 30, 2019

Not long ago, many believed we were entering a new golden age. After the fall of the Berlin Wall and the collapse of the Soviet Union, historians began talking about “the end of history” ...

The belief was that international conflict would diminish as more nations embraced democracy and free markets.

But human nature being what it is, conflicts are once again erupting, escalating and spreading faster than almost anyone expected.

Witness …

Iran’s supposed missile and drone attacks on Saudi Arabia’s oil industry this past Sept. 14 ...

And the constant conflicts in the South China Sea between China and its neighbors ...

... not to mention continuing protests in Hong Kong, with Chinese troops massing at the border.

Armed conflicts now impact every continent except Antarctica.

And while wars can seem to be triggered by random events — like the assassination of Archduke Ferdinand before World War I — the truth is they’re the result of social and economic forces that build up over time.

Historians and social scientists have studied these forces for hundreds of years. But in the last century, a few mathematicians, cultural anthropologists and sociologists have noticed something:

There is a regular pattern to the outbreak of war.

In fact, the social and economic patterns that make war likely are almost as predictable as the movement of the sun across the sky, or the changing of the seasons.

Two war cycles repeat themselves consistently: a 17.71-year cycle and an 8.8-year cycle.

These, in turn, are sub-cycles within a larger 53.5-year cycle.

This 53.5-year cycle is what I call it the “Granddaddy of War Cycles.”

But here’s what worries me most:

All three of these proven war cycles — the 53.5-year cycle, 17.7-year cycle and the 8.8-year cycle — are converging in a way that hasn’t happened in at least 50 years!

And that means we can only expect things to get worse before they get better.

As an investor, you can take advantage of this historic convergence …

Defense stocks are rockets right now, and a smart play would be the iShares U.S. Aerospace & Defense ETF (ITA).

As of this morning, the fund was up 30.3% from the beginning of the year.

That’s almost DOUBLE the Dow Industrials, which only gained 15.3%.

ITA currently gets a "B-" — or, "Buy" — grade from our proprietary Weiss Ratings. That's because it holds a whole bunch of "Buy"-rated big defense stocks like Raytheon (RTN), Northrop Grumman (NOC), Lockheed Martin (LMT), Heico (HEI) and more.

All of those stocks are trading in the $100 to $400 range, which would cost you a fortune to buy each one individually. And while ITA isn't cheap, at $225 and change, it is a much more cost-effective way to own a piece of the defense sector.

I’d take advantage of any pullback if I were you.

All the best,

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