Saudi Arabia and five other Persian Gulf countries are set to receive a $20 billion arms package from the U.S., Cramer said tonight on Mad Money. He thinks this – and the continued fighting in Iraq – should set off a bull market in the defense sector, giving investors plenty of opportunity to make money.
According to a New York Times article, Saudi Arabia will get advanced satellite-guided bombs, upgrades to its fighters and new naval vessels. The other countries will get weaponry and equipment meant to bolster their air and missile defense systems as well as their air forces and navies.
Another $30.4 billion will go to Israel, which was worried about the U.S.-Saudi Arabia deal but softened after getting “a significant increase over what Israel has received in the past 10 years,” the Times article said.
A good number of Americans might want U.S. troops out of Iraq, but Cramer has been listening to the Army’s take on things, and it doesn’t look like the U.S. is going anywhere for a while, he said, whether people like it or not.
“Unfortunately, unless you’re in the business or a shareholder, the future looks pretty bright for the defense industry,” Cramer said.
Even if the Democrats take the White House in 2008, Cramer wagers they will have to keep up the spending on defense appropriations in order to look tough on security.
According to Cramer’s calculations, the U.S. spends more on defense than the combined military spending of the next 14 biggest spenders – $643 billion dollars worth for the fiscal year 2008. That’s 4% of the U.S. gross domestic product, and Cramer thinks the number could go to 6% in the not-too-distant future.
“The bull market in defense is here,” Cramer said. “In a market where a lot of things are not working…your portfolio could use a new sector that’s in legitimate bull mode.”
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