Postcards: The Real "Too Big To Fail?"

There's an odd pattern popping up in one critical industry. Is it a coincidence, or is the government just making sure that these industry investors stay happy... or worse? ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: The Real "Too Big To Fail?"]( There's an odd pattern popping up in one critical industry. Is it a coincidence, or is the government just making sure that these industry investors stay happy... or worse? [Garrett {NAME}](floridarepublic) Aug 13 floridarepublic   [READ IN APP](   [Republic Risk Readers]( Go Here.]( --------------------------------------------------------------- Dear Fellow Expat: I’m not sure if a Nintendo Switch was the best idea. My daughter is adamant that we play Donkey Kong Freeze every night for 30 minutes. In it, two characters are on the same screen, trying to advance safely, connect bananas, and find puzzle pieces. Bananas are a form of “currency” in the game. It’s supposed to be… you know… fun. But as the evening wears on - giving her the benefit of being tired - she drives these missions with the command of General Patton. I feel at any moment, I’ll be slapped for lying on the couch and not paying close enough attention. “Daddy, go over here!!!” she starts screaming. Whoa, it's time to pause this game. “I’m sorry, I just get really excited,” she says, calmly. There’s tension. “Stop being, bananas!” I tell her… We unpause the game. Soccer season will be really interesting when she’s on a team… Too Big to Fail Some people would probably prefer bananas to the U.S. dollar as a currency. The reason, most say, is that “the fiat U.S. dollar isn’t backed by anything…” Well… allow me to dispute this claim with a simple image. That’s what backs the American dollar…  The U.S. military since the nation broke from the Gold Standard under Nixon. We've fought wars abroad for the last few decades to preserve U.S. dollar supremacy.  Some leaders abroad suggested new trade regimes outside of the Greenback. It didn’t end well for them. As the dollar remains the most in-demand currency on the planet, Americans have enjoyed the fruits of a stronger dollar at the expense of  Things changed in 2009, as many questioned the resilience of the U.S. dollar after a massive economic crash. You might recall massive bailouts as we deemed banks, insurance companies, and many others “Too Big to Fail.” As we enter another decade of war, I’m starting to sense a new pattern from Washington, D.C.  The notion of “Too Big to Fail” appears to be the same for military contractors.  Over the last three years, I can’t help but sense a coincidence in the timing of major military contracts at struggling contractors.  Today, I’ll show you two “bailout” contracts.  Then, discuss the most recent one that arrived over the weekend.  We’ve Seen This Before Last year, RTX (formerly Raytheon), which owns Pratt & Whitney, faced a significant downturn when issues with its turbo engines started making headlines.  A defect in the powder metal used during manufacturing led to extensive inspections and recalls, affecting over 1,200 engines, mainly in Airbus' A320 neo fleet.  This led to grounded aircraft and severe disruptions for airlines globally. RTX took a $3 billion charge to address the issue, which started a downward spiral wiping out over $35 billion in market cap. The bottom for RTX came Friday, October 6, 2023, when the stock traded to a low of $67.20. Shares had plunged roughly 33% in just a few months.  But fortunes changed in the form of timing. On October 7, Hamas launched a surprise attack on Israel, firing over 5,000 rockets in a single day.  Israel’s Iron Dome missile defense system, heavily reliant on RTX, was crucial in defending against the onslaught. The U.S. has sent billions in aid, which is used to spend on these systems.  RTX supplies the Tamir interceptor missiles used in the Iron Dome, which cost about $50,000 each. Some estimates suggest that the cost could reach as high as $100,000 per unit in 2024.  If we pencil in a conservative $50k each, that's over $950 million since the start of the conflict, with over 19,000 rockets fired into Israel since June, according to Israeli Defense Forces. Talk about firing money out of a cannon.  It boosts the bottom line, but at what cost?  This week, the U.S. released another $3.5 billion in aid spending to Israel.  That money will go up in smoke… literally. We’ve Seen this Over and Over In February 2022, Vladimir Putin launched a full-scale invasion of Ukraine, marking the beginning of the largest military conflict in Europe since World War II.  The invasion began when airstrikes, missile attacks, and a ground assault across multiple fronts, including a 40km column of Russian tanks, aimed to seize Kyiv, the capital of Ukraine. The “unprovoked” conflict quickly escalated, triggering a global energy crisis that reshaped geopolitical alliances, dramatically increasing defense spending worldwide. At this time, the reality was that the $5 trillion in stimulus printed during the COVID-19 pandemic would leave a lasting mark on the economy. Warnings grew that inflation was entrenched, dampening markets in the latter half of 2021. Overnight, following Putin’s invasion, defense contractors started seeing their stock prices reverse course one after the other as demand for military equipment surged. Fast-forward to last September. Lockheed Martin faced similar pressure to RTX after cutting its guidance for F-35 deliveries, as the company faced increasing production challenges. The announcement led to a sharps stock price, dropping over 11% within a month, wiping out roughly $12 billion in market cap.  But just like for RTX, war was Lockheed’s saving grace.  Given that Russia was a tank-heavy military heading into Ukraine, what did Ukraine need? It needed Javelin missiles, which RTX and Lockheed produced. Defense appropriations bills heavily focused on artillery designed to focus on destroying tanks. Recent appropriations bills have heavily benefited Lockheed, and defense spending keeps increasing. Want to guess how it’s done since?  How the U.S. Will Fix Boeing?  Now, we move on to Boeing. The company has been a mess for years.  Two 737 Max 8 jets crashed in 2018 and 2019, and a decade ago, Boeing faced massive problems with its 787 Dreamliner. Today, U.S. astronauts are stuck in space due to helium links in their spacecraft. Recently, 737 jets have seen wheels fall off, and doors blow open… Its previous CEO resigned, and whistleblowers have blown the whistle. Its reputation has been taken a beating. Boeing is down 33% year to date. Back of the napkin math, that’s $33 billion in market cap. Despite all the scandals, Boeing was fortunate enough to [receive a contract for $2.6 billion in the Air Force]( will also get a chunk of change to update Air Force One - the President’s plane. There’s plenty of other programs designed to keep Boeing investors happy with new Ospreys, Apache helicopters, Chinook helicopters, Stingrays, FA Super Hornets, Bombers, F-15 Eagles, [and much more in the 2025 Defense Appropriations bill](. And why are we spending billions and billions more on a company so engulfed in scandal? It’s interesting to see this new headline contract from the Air Force right when the stock is at new 52-week lows. Well… maybe we should be honest about all this. Boeing is Too Big to Fail. It has over 170,000 employees with around $70 billion in annual revenue.  Nearly half comes from defense contracts. Boeing produces critical military aircraft, like the F/A-18 Super Hornet and the KC-46 tanker, which are essential for national security. They’re also a key player in commercial aviation, producing over 700 airplanes annually before the recent downturn. Boeing’s global influence is massive—every day, over 10,000 Boeing airplanes are in the air, carrying millions of passengers and cargo worldwide. The company’s commercial aircraft contribute to over 30% of the global aircraft fleet, making them indispensable to global air travel. The company also supports more than 12,000 suppliers in all 50 states. Overall, it supports about 1.3 million jobs indirectly through its vast supply chain and aerospace manufacturing. They account for a significant portion of the U.S. trade balance, with billions in exports each year. Finally, Boeing is a key partner to NATO, where its technology and aircraft play a central role in collective defense strategies.  So… are we heading toward a dogfight? Is that the reason for this new contract? Are war drums beating for Iran or China or an expansion in Ukraine? Or… are we seeing a pattern of the U.S. government making strategic “investments” when the stock starts cratering? You let me know below. But I don’t think there’s such thing as coincidence in this sector. Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()