Mitt Romney's policy statements have this far been quite hawkish on both the approach to 'dealling' with adversaries and on the funding of the military (growing DoD by 2,5% per year). President Obama on the other hand wants to build consensus and have us move in tandem with our allies. As such, he wants to keep our military spending relatively flat and encourage our allies to spend more. As Citi notes, this would suggest a Romney win is better for sentiment (on defense stocks) in the short-term, though since change occurs very slowly in Washington, even an Obama win would leave the status quo; implying no material change in the outlook for defense industry revenue and earnings power over the next several years no matter the winner. For everything you wanted to know about their policy and budget differences, but were afraid to even contemplate, as well as fiscal and threat realities, these four charts are critical.

Via Citi:

Romney vs Obama In A Nutshell Governor Romney’s rhetoric clearly fulfills the typical role of the conservative in the election promising more vs. the democratic challenger. His 4% GDP target is especially ambitious as it would have the US spend more in peace-time than it ever has in war-time





On the surface, a Romney administration would clearly be more constructive for defense spending given the candidate’s commitment to various defense budget targets higher than the Obama plan, ranging from a 2-year old budget baseline to 4% of GDP. Obama’s long-term plan is roughly equivalent to status quo as reflected in his FY13 budget proposal. We note that both candidates’ plans reflect long-term growth in defense budgets. It shouldn’t come as a surprise that Romney’s national security policies are bit more aggressive vs. Obama’s, including taking stronger stances against China and Russia. However, we don’t consider their Middle East or Afghanistan policies to be far off. More notable is Romney’s commitment to bolster shipbuilding. The Tough Fiscal and Threat Realities It shouldn’t come as a surprise that Romney’s national security policies are bit more aggressive vs. Obama’s, including taking stronger stances against China and Russia. However, we don’t consider their Middle East or Afghanistan policies to be far off. More notable is Romney’s commitment to bolster shipbuilding. There are a variety of defense budget plans floating around. We note that our est. is materially lower vs. both candidates’ plans.



No matter the winner, the next President faces difficult fiscal realities given the $1T+ deficits of the day. He’ll also face a threat environment that includes a potentially “nuclear” Iran, an emerging China, an unstable middle-East, a frosty Russia, and a growing concern over cyber security. In our view, all this will make it difficult to place radical pressure on defense budgets in either direction lest the country returns to armed conflict or world peace breaks out. At this point, we expect a flat base budget outlook to emerge post the election (ex-sequester implementation).

Source: Citi