Before I begin my macro prospective I’ll give you a couple of fundamental reasons why I like A&D stocks and why I have added to my position in many of the major players (NOC, LMT, RTN) in the last few months. Then I’ll begin my geopolitical analysis, and how you may be able to play individual global developments:

Another astonishing fact that many people may not know is that America has been “at war” (Let’s not get into dramatic specifics as we know only Congress can definitively “declare war.” I’m referring to US Troops fighting on either domestic or foreign soil) for 222 out of the 240 years of its existence! Rounding up, that’s 93% of the time!!!

However “war” has been part of the animal kingdom long before the United States became a country, and in fact since humans became a living and breathing part of this planet. War is ingrained in human’s DNA since we were cavemen, and I don’t think that is something that will ever go away. While war may be cyclical, I don’t think that you can ever say it will enter secular decline. In fact, global turmoil is more present today then it was when we invaded Afghanistan 15 years ago.

Let’s break the analysis down by regions:

North America:

Thankfully no significant military engagements have been active in this region. However, years of gun violence in the United States have brought attention to how we handle precarious situations and whether guns are the right answer to deal with potentially lethal situations. Body cameras to hold police accountable, and non-lethal weapons have been touted as the safer option to guns. Other countries like England, which already have extremely strict gun policies in which citizens cannot own a pistol (nor can police unless they are the British equivalent of SWAT) have begun to look for products that can serve their needs.

Way to play it:

So a potential investment idea to fit this theme is Taser (NASDAQ:TASR). It is one of the dominant players in the wearable body camera and Taser products’ market with growing domestic and international orders.

Another stock is AeroVironment (NASDAQ:AVAV). They are the number one producer of small drones for military and civilian purposes. I believe the application for drones on US soil by police will become more important as the technology advances. Police will be able to use them to survey a potential target possibly with infrared technology so they incur limited damages upon a raid or sting operation.

Central America:

Mexico:

Mexico is completely controlled by the cartels. While the arrest of the infamous Joaquín Archivaldo Guzmán Loera (AKA El Chapo Guzmán) was a big moral win, this doesn’t change the equation. If anything, things may become much worse as rival cartels seek to expand their power via extreme violence (e.g., “The Godfather” of Mexico exits the scene). I’m also not so convinced that it isn’t possible that he escapes again. While there is no “war” going on here, you could certainly say that it is pretty close. The most powerful cartels in Mexico include the Los Zetas (a new powerful cartel that has paramilitary capabilities due to the fact it is all ex-military), Gulf Cartel, Sinaloa Cartel, Knights Templar, Beltran Levya Cartel, and Jalisco Cartel.

South America:

Colombia:

People often forget that the communist, left-wing FARC has been waging guerilla warfare on the Colombian government since the mid 1960’s (continuing until today). While they are currently in peace talks, nothing is assured, and sporadic attacks continue throughout the “peace” process. While Cartel’s have shrunk since the reign of Pablo Escobar, they are still a large part of the country’s makeup accounting for much of the organized crime.

Brazil:

Unlike the previous two regions cited above, there is no super organized crime group in Brazil. However, the criminality inside of the Favela’s are strong, and while they have been trying to combat crime with special SWAT-like groups, crime is still rampant. All you have to do is watch ” Cidade de Deus” to get a good sense of what it is like there, and you should because it is a great movie. The possible impeachment of the Brazilian president is shaking up the government which may lead to greater destabilization.

El Salvador:

While originally from LA, MS-13 has taken a stranglehold on El Salvador. MS-13 is mostly made up of ethnic Salvadorian immigrants in LA who were returned to their host country due to illegal immigration status in the late 80’s, 90’s and today. From 1979-1992 civil war raged in the country, which allowed the newly returned immigrants to take their new-found criminal skill set to create a highly organized gang culture within their home country without law enforcement pressure. From there, they expanded across the US, as well as internationally.

Honduras:

Most people don’t know this, but Honduras actually has the highest murder rate of any nation in the world! Many assert that the large increase in violence occurred after the 2009 coup d’état. For every 100K people, ~90 people die. That’s a startling statistic!

Venezeula:

Most people think of Venezuela as an oil rich country; but, like most of Latin America, the leftist populists has undermined the region’s democratic institutions and wrecked its economies for the last 15 years. Hugo Chavez ran the country into the ground. Riots and looting broke out in several blacked-out cities last week, forcing the deployment of troops. Citizens are looking to oust their president, blaming the socialist government’s policies for the current economic crisis (I don’t disagree with them; it’s time they finally woke up and saw that socialism doesn’t work), the shortage of staple goods in many shops, and a lack of food, medicine, water and electric power. There has been an increase in organized crime, and a decline in state policing as the murder of police, military, and private security officials are on the rise.

Peru:

Similar to Colombia, but not as well known, Peru has been fighting communist left-wing guerillas since the 1980’s, known as the Shining Path. Shining Path guerrillas killed at least 10 military and civilian personnel in an ambush in Peru’s central state of Junin on Saturday. The attack came one day before the April 10 elections in the VRAEM, the central jungle region home to the majority of Peru’s coca production. The Shining Path provides security for drug-trafficking gangs in exchange for money and weapons (those communists sound like great people fighting hard for their goals, don’t they? Maybe Bernie will take a page out of their playbook?). Interestingly, Peru has overtaken Colombia as the number one producer of cocaine in the world. However, on Monday Peru’s equivalent of El Chapo (Gerson Galvez) was arrested in Medellin at a shopping center. It’s always funny how these high-level crime bosses are arrested while nonchalantly strolling in public places.

Way to play it:

The biggest problem for governments in both Central and South America is trying to locate guerrillas and coca fields in the dense jungles, or cartels hiding out in the desert. Israeli companies are some of the best drone producers in the world, and, with much less restrictions on arm sales than the US, it gives them a leg up when compared to the United States. Israel has a particularly strong presence in Latin American markets due to a legacy of robust arms trade between themselves and regional governments throughout the turbulent 1980’s, especially Brazil. I continue to see Elbit Systems (NASDAQ:ESLT) as a dominant player in the drone market internationally, but also in South America. It has performed extremely well, sports a 1.5% dividend, and will continue to get more products as needed for their products’ surge internationally.