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Deal Delays Spending Cuts

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    Oppenheimer & Co. senior analyst Yair Reiner weighs in the fiscal cliff and defense stocks.

  • Duration 3:16
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-- the thank you so much.

Senate fiscal click deal reached by congress rules delay across the board cuts to the budgets of the Pentagon and other domestic agencies by two months.

But our next guest says that that's no free ride for -- -- stocks yeah -- writer is executive director and senior analyst for Oppenheimer and company.

Thanks so much for joining us this -- just a temporary measure obviously right I mean it just Steve's -- dealing with the problem.

For two months what do you think happens then well -- You -- it just pushes out the start of the cuts by two months.

And the issue is that the next time the congress deals with these cuts it's gonna be probably in the context of the next debt ceiling debate.

And the Republicans in the house of said that -- is that -- that ceiling debate try to cut more money out of the federal budget.

So I think in the next time around.

You know the Defense Department other federal agencies are gonna be in the position of begging for money back at a time when the whole -- can be -- further yeah I can be pretty difficult set up.

Absolutely you are a lot more optimistic the last time you were on you know is the reason that your I mean -- a lot more optimistic or less optimistic now is that.

Because of this timing issue.

Well I think you know two weeks ago it -- like we're pretty close to getting of grand bargain.

And they had the grand bargain and we've been reached where taxes and spending were dealt with the same time.

I think didn't who's looking like may -- sequestration could have been avoided almost entirely.

But the issue now is we've done the easy part we've.

Kind of embedded taxes lower for the long term.

It would have been easy to say hey you know we're raising -- the taxes -- use those extra revenues down pay for the sequestration funds that opportunity was missed.

Yeah I think that may be opportunities are gonna be coming back and buying time -- -- -- it was 24 billion dollars in order for us to shut off the sequestration by a couple months it wouldn't it doesn't come at a cheap price.

What -- this mean for you in terms of the -- we're talking about.

Boeing Lockheed.

General dynamics Raytheon would you dump all of these would you hold them if you were in them are there any winners in the group if they happen it.

-- to go down from here well.

The interesting thing if anything here for the next few weeks until people really recognize the threat the DOD budget I think these stocks could be under some pressure.

If you -- a little bit of a longer term view.

It's not a fairly disastrous -- you the companies like Lockheed Martin Northrop Grumman Raytheon.

They're incredibly cheap creating -- sending around nine times normalized free cash flow -- you could argue that in many ways the bad news is.

Price standing for a long term investor fear short term investor you probably want to avoid these stocks until the picture.

Clarifies -- it.

Is there anyone in their that you look at all the -- of the group.

Well I think that Raytheon -- interest thing.

About a quarter of its business today comes from international.

Business.

And that seems to be on the upswing.

All the other companies have explored -- exposures between ten and 15%.

Now -- Martin's interest in -- that big dividend yield of about 5%.

The issue for Lockheed Martin is that if there are incremental budget cuts.

Their biggest program the F 35 could be under the knife.

-- -- that -- would definitely be dangerous but Raytheon maybe appear contrary in player hearing you're looking for something to go against the -- of the gets really hammered it might be interesting if you have a long term time horizon -- Yeah thanks for coming -- we appreciate your time my pleasure.

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