Below is a clip from the Getting Technical market letter - Interim Update November 20, 2015 GT1487
Economist Paul A.Samuelson is the founder of the modem introductory economics textbook. His textbook Economics – ISBN- 0-07-0 092863-0 has become a classic in which he states in a chapter – Central Problems Of Every Economic Society - that a nation has to choose between two options when spending its finite resources. It may buy either guns (invest in defence / military) or butter (invest in production of goods), or a combination of both.
According to Wikipedia - while president of the United States, Lyndon B. Johnson used the phrase to catch the attention of the national media while reporting on the state of national defence and the economy. Another use of the phrase was British prime minister, Margaret Thatcher's reference in a 1976 speech that, "The Soviets put guns over butter, but we put almost everything over guns.
World War II effectively ended the Great Depression of the 1930’s with the Dow Industrials rebounding from a 1942 low of 92.90 and then running up to a peak of 1000 in January 1966. The following ten years were cluttered with the noise of the Indochina War (Vietnam) and the Arab Oil Embargo.
When it relates to investing – there are two extreme possibilities:
The beneficiaries of guns over butter – Materials, Energy, Technology & Industrials
The beneficiaries of butter over guns – Financials, Consumer Discretionary & Consumer Staples & Health Care
Our chart is of General Electric (GE) a component of the NYSE listed Industrial Select Sector SPDR Fund (XLI) which is a basket of large US industrial companies.