Sequestration Watch: Boeing and Lockheed

This article was written with Steve Cordasco, of Cordasco Financial Network. It's part of a series of articles developed under an agreement with to work with a variety of contributors and assist them in delivering actionable investment ideas each week.

David Evanson and Steve Cordasco, Spring, 2013

Donzzt get lulled into thinking that sequestration isnzzt grinding away against the economy with potential peril for your savings and investments.

Remember, wezzre talking about the federal government here. Nothing happens quickly. Think in terms of a glacier. It moves slowly, but it changes the landscape. Forever.

To understand how sequestration can affect the rest of us, I had Bloombergzzs Pentagon reporter Tony Capaccio on my radio show last Saturday to discuss the impact on contractors and the economy at large.

Therezzs good news and, I think, some bad news.

The good news is this: forced belt tightening is causing the kind of discipline that warms every taxpayers heart. According to Capaccio, “Therezzs all kinds of fat in the military budget. And now with across the board cuts, contractors are first working to cut it out. At this stage of the game, you are not seeing any knee-jerk reactions, at least not among the top-tier contractors.”

For instance he says the Pentagonzzs largest weapons program, the joint strike fighter, may see a cut in the number of planes purchased in 2013. “I am hearing that of the 19 planes the Pentagon says they want to buy in 2013, the worst case scenario is that five will be cut.”

Score one for the capitalists! I think this validates my belief that that fiscal discipline, regardless of form, produces positive results. I think we all hoped this discipline would not come to something as imprecise as sequestration, but now that itzzs here, Capaccio reports, contractors are making smart moves. “Theyzzve seen this coming for months, and they have been ready for it, and planning ways to avoid furloughs.”

I guess the Nirvana I am hoping for is a form of fiscal discipline that is less blunt and more precise.

But in terms of predicting when the impacts of sequestration are serious, and likely to have a serious impact on the economy and the markets, Carpaccio suggests keeping a close eye on mega contractors Boeing (BA) and Lockheed Martin (LMT). “By federal law, they are required to issue warning notices 90 days in advance of any furloughs or layoffs. Once Lockheed and Boeing does it, I think you will get more interest from lawmakers over the ripple effect and rethinking whether sequestration should continue into 2014.”

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