Interesting...

How interesting is it that the Treasury Department released its November budget statement, and it was just awful. The budget deficit for the month of November was $-366.8B, which was worse than expected and combined with October's print of $-257.5B totals a deficit of $-624.3B. That by the way makes for the worst two month start to the government's fiscal year (that runs October through September) in the nation's history.

This did not stop the House of Representatives on Wednesday from passing the $895.2B Defense Authorization Bill. Sure, I like defense spending as much as the next guy who served and has historically invested in the large defense contractors, but this bill adds up to $5.7B more than the Department of Defense had requested. Look, I know these guys. They don't ask for one penny less than they think they can get. In fact, they are more likely to try to push the envelope.

Remember a few weeks ago, when we discussed the potential impacts of the DOGE team, Elon Musk and Vivek Ramaswamy on defense spending and I told you then that with the election result in the US, the wars in eastern Europe and the Middle east would likely simmer down? I have shaved my defense longs, by the way.

Well, it looks like someone else is finally paying attention. On Wednesday, JP Morgan (JPM) cut estimates for valuation multiples across the industry and by extension, reduced target prices. Five-star rated (by TipRanks) analyst Seth Seifman wrote, "We see a few potential headwinds for defense stocks emerging from the election, including a fiscally hawkish Office of Management and Budget, potential cuts to Ukraine support, and of course, DOGE." Target prices were reduced for 11 big ticket defense contractors including my big four, Lockheed Martin (LMT), RTX (RTX), Northrop Grumman (NOC) and General Dynamics (GD).