“Money goes where people think it should go”
The United States Navy has a big problem its been called the “U.S. Navy Dilemma”. you watch video here on it
The U.S. Navy is aging faster than its building ships, and not repairing ships fast enough.
They will add 10 new ships while retiring 19 ships in 2025.
The Navy yards in the U.S. has faced insignificant labor shortages.[1]
So the Navy will decline by 9 ships in 2025, which would put the total fleet at 287 ships.
This interesting chart I made from the data from the U.S. Navy [6]
They are projected to build 381 ships in FY2042 as forward looking statement. [6] while China has over 370 ships or “platforms”. [8]
So why is this a “Dilemma?” because of Taiwan we see geopolitical tensions rising and potentially China will go to war to claim Taiwan, in which the U.S. is preparing to fight in the Indo-Pacific’s littoral waters to protect it’s allies [7]
Littoral Waters are “shallow areas of a body of water that are close to the shore”. This important word we will come back to this later.
There is a lot of littoral waters in Info-pacific especially the south china sea
Where China has built artificial islands to dispute the sea borders of other countries.
The U.S. is still strongly committed to protecting Taiwan just recently there was a $571 million defense invest from the U.S. to Taiwan.[9]
For instance the Marine Core has been going through a complete change via the “Force Design” initiative.
In which the Marine Core has be retrofitted from tanks, artillery to completely littoral waters based infantry, small unit reconnaissance, and long range missile systems to better align with the Navy. [10]
So that is the “U.S. Navy Dilemma” we are short staffed, smaller navy, and the U.S Navy knows the numbers are working against them.
There is more informed and in-depth articles on this issue, however we going to keep that surface level.
So what makes this a investment opportunity?
So when I initially came across this information I thought this would be a great investment opportunity.
2 to 3 years ago I found out by the CHIPS Act a infrastructure bill passed by congress to incentive companies to bring semiconductors manufacturing to the U.S.
I look at applied materials (AMAT) at around $80 to $90 dollars and learn of their unique position that semiconductor industry is bottlenecked by many companies such as AMAT
The passing of CHIPS Act has these very same companies benefit from it like SKYWATER TECHNOLOGY INC, ON Semiconductor Corp, Intel, TSMC etc
AMAT now sits at $163 today at 12/21/2024, its very common thing investors watch government funding.
So question remains? if we are going to invest in companies we need a long-term view?
- Which companies are best position to meet this new demand?
- Who has the resources to finance it?
- Who has the shipyards?
- Who has the workforce? and experience to execute and deliver?
There are many suitors excuse me “companies” competing for the U.S. government contracts. The U.S. government is the belle of the ball!
The U.S. government has a close relationship between the pentagon and “Pentagon City” of contractors in Washington D.C. [2]
There is a great video that maps out entire military budget of U.S. by Johnny Harris.
Another interesting thing to keep in mind is the relationship between politicians providing jobs, getting contracts with the government for providing jobs to it’s own voters or ‘constituents’.
Politicians investing in companies that providing those jobs create this conflicts of interest.
So watching key political agents is especially important signal. [2]
In total the U.S. Navy budget for 2025 requested is $257.6 billion.[3]
The FY 2024 budget request included the following:
- Military personnel: $60.6 billion
- Operation and maintenance: $84.6 billion
- Procurement: $76.9 billion
- Research and development: $26.9 billion
- MILCON/family housing: $6.8 billion
What matters here is Procurement!
- We have $32.4 billion for shipbuilding. [6]
Companies like Vigor Industrial, Northrop Grumman, Bollinger Shipyards, Philly Shipyard U.S., General Dynamics, Huntington Ingalls Industries, and more
- Vigor Industrial were awarded for $294 million Navy Contract for support services
- Northrop Grumman were awarded for $3.5 billion dollar contract for development of new aircraft to replace E-6B Mercury Aircraft’
- Bollinger Shipyards were awarded contract a berthing barge and Auxiliary Personnel Lighter–Small (APL 73)
- Philly Shipyard U.S. was acquired by Hanwha South Korea ship building company a Chaebol priced at $18 a share they acquired Daewoo Shipbuilding & Marine Engineering one of big “3” DSME, Hyundai, and Samsung (DSME) they also were contracted for the first time for U.S. Navy Maintenance, Repair, and Operations (MRO project to preforms maintenance a market of 60 billion potentially.
- Huntington Ingalls Industries Inc – Ingalls Shipbuilding awarded $9.6 billion in contracts to build four amphibious warships
- AUTLF Austal Limited is not in great place Executives at US Navy shipbuilding contractor hit with accounting fraud charges
- General Dynamics & Bath Iron Works estimated deal around Navy Awards Ingalls 6 Flight III Arleigh Burke Destroyers, Bath Iron Works 3 as Part of 5-Year Deal
- Fincantieri Marinette Marine we see Fincantieri Marinette Marine receives $1 billion contract to build 2 Constellation-class frigates
- BAE Systems Southeast Shipyards for and modernize ships with guided missiles $200 million in maintenance
- Huntington Ingalls Industries Inc
- Edge Autonomy Operations LLC
- Skydio Inc
Who is going win these contract?
Questions like:
- Which companies are best position to meet this new demand?
- Who has the resources to finance?
- Who has the shipyards?
- Who has the workforce? and experience to execute and deliver?
The latest ship to be built is “USS Beloit (LCS 29)” littoral combat ship (LCS) in Marinette, Wisconsin built by the Lockheed Martin and Fincantieri Marinette Marine. [12]
There is that word again “Littoral” its critical word and the construction of this ship commissioned on Nov 23, 2024 could indicate U.S. Navy is going commission this ship.
They are smaller ships that can navigate between Littoral waters and islands of the south pacific.
Risk of shipbuilding and failures of U.S. Government spending
Investing in any company comes with risk, building ships are multiple year project.
For instance the Zumwalt was 20 years program developed by General Dynamics’ Bath Iron Works (BIW).
U.S. Navy never got any cruisers its considered a failed project and U.S. Zumwalt program cost $24.5 billion overall, or $8 billion per ship to tax payers. [4]
See the system rewards people for contributing and keeping eye on the revenue target, and there is a lack of accountability. [5]
Contractors keeps spinning their wheels changing business requirements of ships. [5]
I don’t know if you remember that one scene in transforms about the rail gun? that never got created.
The rail gun system that was promised was never developed.[5]
is it ethical to invest?
Now I usually get excited to find a company, a ticker, and do more in-depth research on the company to potentially invest in.
However I won’t be doing that, I realized that investing in these companies means that those dollars go into developing weapons of war that will potentially harm others.
So if you are looking for the next investment to 100x your returns like crypto currencies you can stop watching now, there are many other videos/blogs out there for you.
This is a philosophical question? is it right to invest to in companies that contribute to Military Industrial Complex?
I could keep researching and find a valuable company that is aligned best with U.S. Navy’s funding to get a expected return?
if you don’t know this yet but it’s really obvious
“investors dollars goes where investors think they will receive a return on that investment.”
the mainstream view is “it doesn’t matter what you invest in or do if it makes money do it”
For even retirement portfolios and ETFs invest around 1% to 5% of the portiflo in military weapons companies.
https://weaponfreefunds.org/fund-managers
Even though these percentages are very small they represent millions if not billions of dollars into military weapons manufacture.
Then finally we are complicit via our tax dollars contribute to cycle U.S. Government military contracts, drone development warfare, and advancing technologies that could decimate populations.
Counter arguments
You could counter argue
- Your investment is a drop in the bucket of invest already get that return!
- Your taxes already contribute to the Military Industrial Complex doesn’t matter
- Everyone is greedy just do it
These are just strawman arguments.
There is really one clear counter argument for this in my mind is that geo-politics and protectionism is necessary part of life for countries to prevent the total destruction of lives, cities, and civilized society.
The question comes down to what kind of society do you want to live? for instance China is not exactly a democracy but its a “socialist consultative democracy” I would considered it’s a loose definition of dictatorship.
I would prefer not to live in a society like China where censorship is the status quo.
Protecting Taiwan is more than just keeping a promise but is part of long history and struggle between ideologies from the past between communism and capitalism.
So it comes down to the individual you should stand “principle” and values you have defined on your own.
To prevent the war the Indo-pacific is important so if you believe in preventing that you should invest.
Conclusions
Morally I cannot invest in these companies, I can see the counter argument that investing is going to prevent the war or to fight for the principles the U.S. historically follows.
Because I do believe in the values of freedom of choice, and freedom of speech but that is what is great I can make my own choices to invest or not.
To critically think about those choices.
Anyways please contribute your ideas, this is a discussion,
References
[1] AP. (2024, August 11). U.S. Navy struggles with warship production while facing expanding global threats. CBS News. https://www.cbsnews.com/news/us-navy-struggles-with-warship-production-while-facing-expanding-global-threats/
[2] Harris, J. (2024, October 10). Why the U.S. military spends so much money [Video]. YouTube. https://www.youtube.com/watch?v=iqJ0kg9xvLs
[3] Office of Budget, Department of the Navy. (2023). Highlights of the Department of the Navy FY 2024 budget. https://media.defense.gov/2023/Mar/29/2003188749/-1/-1/0/HIGHLIGHTS_BOOK.PDF
[4] The Buzz. (2024, September 12). The Navy looks like it’s in serious ‘sinking’ decline. The National Interest. https://nationalinterest.org/blog/buzz/navy-looks-its-serious-sinking-decline-212644
https://swingtradebot.com/stocks-tagged-as/12073-united-states-navy
[5] U.S. Naval Institute. (2024, August 6). The Navy’s shipbuilding dilemma [Video]. YouTube. https://www.youtube.com/watch?v=F5fR3fOjx6U
[6] U.S. Naval Institute Staff. (2024, August 14). Report to Congress on U.S. Navy force structure, shipbuilding. U.S. Naval Institute News. https://news.usni.org/2024/08/14/report-to-congress-on-u-s-navy-force-structure-shipbuilding-2
[7] Palmer, A., Carroll, H. H., & Velazquez, N. (2024, June 5). Unpacking China’s naval buildup. Center for Strategic and International Studies. https://www.csis.org/analysis/unpacking-chinas-naval-buildup
[8] U.S. Naval Institute Staff. (2024, February 1). Report to Congress on Chinese naval modernization: Implications for U.S. Navy capabilities — Background and issues for Congress. U.S. Naval Institute. https://news.usni.org/2024/02/01/report-to-congress-on-chinese-naval-modernization-20
[9] Reuters. (2024, December 21). Biden approves $571 mln defense support for Taiwan. Reuters. https://www.reuters.com/world/us/biden-approves-571-mln-defense-support-taiwan-2024-12-21/
[10] United States Marine Corps. (2020, March). Force Design 2030: Report Phase I and II. https://www.hqmc.marines.mil/Portals/142/Docs/CMC38%20Force%20Design%202030%20Report%20Phase%20I%20and%20II.pdf
[11] Kass, H. (2024, October 8). The Navy’s Zumwalt-class destroyer: A $24.5 billion failure? The National Interest. https://nationalinterest.org/blog/buzz/navys-zumwalt-class-destroyer-245-billion-failure-213132#:~:text=The%20U.S.%20Navy’s%20Zumwalt%2Dclass,cancellation%20after%20just%20three%20vessels.
[12] Brooks, A. (2024, November 25). Commissioning forward to freedom USS Beloit (LCS 29). U.S. Navy. Retrieved from https://www.navy.mil/Press-Office/News-Stories/Article/3977088/commissioning-forward-to-freedom-uss-beloit-lcs-29/#:~:text=USS%20Beloit%20(LCS%2029)%20was,acceptance%20trials%20the%20following%20year.
More research
Ship building since 2006
https://www.kongsberg.com/maritime/news-and-events/our-stories/dsme-new-wave-shipbuilding
and 2ndary suppliers
ArcelorMittal: This company operates the Coatesville stArcelorMittal: This company operates the Coatesville steel site, which supplies up to 95% of the Navy’s armor plate. The armor plate is used in the hulls and decks of aircraft carriers, as well as the hulls of submarines.
American Steel & Aluminum: This company supplies steel and metal solutions to the US Navy, as well as other industries.
SSAB Americas: This Alabama-based company supplies steel to the US Navy for new ships.
Sandmeyer Steel Company: This company supplies steel to all major branches of the US military.
Clifton Steel: This company supplies steel to the government and military, including preprocessed components and stock size plates.
PCR Technologies, Inc. This company custom manufactures naval ship spares and parts, including steel parts.
Bisalloy: This company supplies steel to the US Navy for shipbuilding.
Hillman Brass & Copper: This company supplies copper-nickel products and other copper-based alloys to the US Navy.eel site, which supplies up to 95% of the Navy’s armor plate. The armor plate is used in the hulls and decks of aircraft carriers, as well as the hulls of submarines.
American Steel & Aluminum: This company supplies steel and metal solutions to the US Navy, as well as other industries.
SSAB Americas: This Alabama-based company supplies steel to the US Navy for new ships.
Sandmeyer Steel Company: This company supplies steel to all major branches of the US military.
Clifton Steel: This company supplies steel to the government and military, including preprocessed components and stock size plates.
PCR Technologies, Inc. This company custom manufactures naval ship spares and parts, including steel parts.
Bisalloy: This company supplies steel to the US Navy for shipbuilding.
Hillman Brass & Copper: This company supplies copper-nickel products and other copper-based alloys to the US Navy.