It's not a lot of fun for those of us who do stick our necks out and opine on markets to speak or write on something that we have gotten wrong. What bothers us more than having made a mistake that costs us our own money (those of us who actually trade our own money), is the fact that we have likely led other people who trusted our judgement down the same path.
Yes, I have led the way on some winners, such as the energy sector, in recent weeks, but I haven't forgotten that I led the way on the defense sector, as well. You have all been very kind, as not one of you has stuck that misguidance in my face, but I know how I felt about the group, and I know that many of you did applaud when I had spoken. I do know you were there with me. Thank you.
While I have come very near to completely evacuating the space throughout the calendar year 2018, as my thesis failed to provide the results that I had expected, I have maintained enough exposure to remain diversified, just in case one of my fears does actually play out. Those of you who also trade this space have no doubt noticed Raytheon's (RTN) - Get Report revenue miss and cautious guidance last week. This firm is one of the names that I have at least kept a trace presence in. The others would be Lockheed Martin (LMT) - Get Report , who also guided below expectations, and Kratos Defense (KTOS) - Get Report . That one was actually a significant 2018 winner for us.
The reason, I stick, at least in minimal terms, with these two plus KTOS is simply this. At some point, and I have mentioned this before, I believe there could be some panic once it is publicly understood that both China and Russia are advanced in the field of hypersonic weaponry. While fighter planes and missile technology are going nowhere, the future of offensive capability is this, and thus the rush will be to defend against this high-speed form of delivery.
For those who do not quite get it, not spending on this defense should not be an option, regardless of the fiscal situation. Hypersonic weapons, for the folks who spend most of their time watching "reality" television or arguing about politics of social media, are capable of traveling at five times the speed of sound, rendering them in early 2019 as virtually impervious to modern anti-missile defense. China has supposedly successfully tested these weapons while Russia has talked about strategically deploying such weapons later this year.
Both Raytheon and Lockheed Martin seem, at least to me, to be the leaders in developing capability in this area. The two programs currently under development would be a Tactical Boost Glide weapon that would initially rely upon a conventional rocket capable of Mach 5 speed, and then a glider bearing payload would separate and "glide" toward target at already hypersonic velocity. The other program would be reliant upon the weapon's ability to breathe compressed air for high speed propulsion, unlike a rocket, as rockets rely upon oxidization.
Reason to panic on the personal level? No. Potential for a three-way Cold War situation where the U.S. does not automatically have the advantage? Certainly. As for the firms working on providing solutions, I think I'll stick around, even if it does not work for my portfolio in the short-to-medium term.
(A longer version of this column appeared at 7:45 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)
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At the time of publication, Guilfoyle was long KTOS, LMT, RTN, STX equity and short KTOS calls.