Money Alone Can't Fix America's Arsenal Problem

Editor's note: America has long been the world's greatest military power. But as Joel Litman from our corporate affiliate Altimetry explains, the war in Iran has sapped those resources – and revealed surprising vulnerabilities. In this issue, recently published in Altimetry Daily Authority, Joel outlines where our military is facing key shortages... and which types of companies could help fill the gaps.

America is on track to spend roughly $1 trillion on military technology this fiscal year.

Despite all that spending, inventories have reached dangerously low levels for key equipment.

The shortfall includes the interceptors used to destroy incoming aircraft and missiles, and long-range precision weapons.

Recent military operations in the Middle East have put even more pressure on those reserves. And replenishing them is a painfully slow process.

Even an immediate funding surge wouldn't close the gap fast enough. The Pentagon would have to wait at least two years before fresh missiles roll off production lines.

The main constraint is physical capacity... There just aren't enough factories and suppliers. There's also a shortage of skilled labor.

Today, I'll explain how decades of lost industrial capacity created the current munitions shortage... and how investors could benefit from a manufacturing rebuild at home...

The Best Defense Is a Good Offense

The U.S. weapons shortage was decades in the making...

The defense drawdown had already begun in the 1980s, as Cold War tensions eased. And the Soviet Union's collapse in 1991 accelerated it.

The Department of Defense ("DOD") budget fell roughly 40% in the early 1990s. The Procurement budget took an even bigger hit... dropping 71% around the same time.

America's weapons makers received far fewer orders. Production lines slowed. Suppliers lost business. And factories cut their storage capacity for munitions.

The military head count also shrank alongside the budget. By 1997, the number of active-duty personnel had fallen roughly one-third below 1988 levels. The DOD budget decreased about 30% in the late 1990s.

Our defense budget is only as useful as our industrial capacity allows it to be...

Roughly 40% of the Pentagon's spending goes toward new weapons, modernization, and replenishing low inventories. And as I mentioned, production is the main constraint.

The U.S. spent decades shrinking its defense industry. China, on the other hand, expanded the industrial base behind its military...

China is adding advanced weapons and military equipment at 5 to 6 times the U.S.'s pace. China also has roughly 230 times as much shipbuilding capacity as the U.S. by gross tonnage.

That doesn't mean China produces 230 warships for every American ship. But it does show how massive China's manufacturing infrastructure is...

And how much work the U.S. needs to do to catch up.

Replenishing our arsenal means rebuilding our defense industry...

The U.S. can't solve its weapons shortage with increased spending alone. It needs a sustained rearmament strategy.

Defense companies want a steady stream of orders before they'll commit to building new manufacturing plants. The Pentagon also needs larger munitions inventories... Every new conflict can't immediately cause a production bottleneck.

China has demonstrated its tremendous industrial capacity. Now the U.S. needs to do the same.

As we restore our arsenal, the entire defense supply chain will feel the effects... from the largest weapons makers to the companies supplying the parts that keep production lines moving.

Be on the lookout for the companies that will reshape the defense industry and its supply chain... and the companies downstream from them. These include manufacturers, manufacturing-equipment providers, and the businesses that power that machinery.

They could be lucrative opportunities for investors.

Regards,

Joel Litman

Editor's note: America needs to rebuild its military. Trillions of dollars could flow into defense in the years ahead. But Joel believes that the biggest winners of this trend won't be the household names like Raytheon or Northrop Grumman... The real opportunity will be in the small contractors, suppliers, and defense-tech companies supporting the industrial giants. On September 24, he's going live with all the details. Reserve your spot here.