We talked earlier this year about the wartime-like building of defense, energy, chips, supply chains and data centers.
The wartime-like behavior of the metals markets.
And the 40s-like boom parallels.
As I said in my January 7th note, "just as the New Deal and WWII mobilization unleashed pent-up demand out of the Depression, today we have the convergence of post-COVID fiscal stimulus, re-industrialization, wartime defense production, and a Manhattan Project-like effort to win the AI race."
That was before the Iran campaign. Before the naval blockade (before 171 tankers headed to the U.S. Gulf to load American oil).
And now, as of late this afternoon, the Wall Street Journal is reporting that the Pentagon is approaching GM, Ford, and other manufacturers to shift some capacity toward weapons production.
And keep in mind, the defense industrial base is already being ramped 4x — and that expansion started months before the first strike.
That's sizing for something bigger than Iran.
This looks like the 1940s playbook, where auto plants were making tanks. Consumer companies were making ammunition. Government spending poured into the economy, while the private sector boomed alongside it.
With that, we've talked over the past several months, about what the early 40s analogue would mean for GDP growth.
In the early 40s, U.S. GDP averaged 14% real growth. Unemployment went from 15% to under 1%. And stocks boomed! The bottom decile small caps exploded higher: 63%, 143%, 71%, and 94% in consecutive years.
Remember, yesterday Jamie Dimon named the tailwinds driving JP Morgan's $16.5 billion quarter: "increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed's asset purchases."
That's the formula: Fiscal stimulus, Deregulation, AI capex, Defense spending, Re-industrialization, Energy dominance. The same forces that built American economic dominance in the 1940s are building it again.
The war in Iran restructures energy.
The confrontation with China restructures trade.
The AI buildout restructures technology.
So, it's not a temporary war. It's about structural change. And it's following the playbook that built American dominance more than eighty years ago.
Stocks are at record highs because the market sees it.
