“Largest Single Arms Deal in US History” Turns into “Fake News”

Something funny happened on the way to the bank for investors who were trying to cash in on President Trump’s trip to Saudi Arabia and the $110 billion for US defense contractors that White House Press Secretary Spicer had touted on May 20 as the “largest single arms deal in US history.”

The stocks of defense contractors had already soared over the past two years, with Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), and Raytheon (RTN) up between 52% and 72%. But from Friday, May 19, through the end of the month, they got a big extra push of 5% to 6%.

But since then, they lost ground. The magic is gone. What happened?

Friday, May 19, President Trump departed for Saudi Arabia. And it appears a list of the “deals” to be announced that weekend was already being circulated, and folks got busy buying up those stocks even before Trump stepped on the plane that afternoon.

Then on May 20, in Riyadh, a laundry list of deals was announced, including that “largest single arms deal in US history.” The following Monday and over the next days, the shares of defense contractors rose further, powered by visions of $110 billion in deals raining down on them.

But those deals were “fake news,” according to Bruce Riedel, at Brookings:

I’ve spoken to contacts in the defense business and on the Hill, and all of them say the same thing: There is no $110 billion deal. Instead, there are a bunch of letters of interest or intent, but not contracts. Many are offers that the defense industry thinks the Saudis will be interested in someday. So far nothing has been notified to the Senate for review. The Defense Security Cooperation Agency, the arms sales wing of the Pentagon, calls them “intended sales.” None of the deals identified so far are new, all began in the Obama administration.

It seems investors too have figured this out: these stocks have given up about half of their fake-news arms-deal gains since the end of May. Riedel goes on to list some examples:

• The four “multi-mission surface combatant vessels” to the Royal Saudi navy. The proposal for sale of the frigates was first reported by the State Department in 2015, but “no contract has followed,” he says. “The type of frigate is a derivative of a vessel that the U.S. Navy uses but the derivative doesn’t actually exist yet.”


• The Terminal High Altitude Air Defense system (THAAD), which made headlines recently by being deployed in South Korea. The system has been on the Saudi wish-list for several years. In 2015, President Obama approved the sale in principle. But to this day, “no contracts have been finalized,” Riedel says.


• 150 Black Hawk helicopters, which the Saudi also had on their wish list for years. “Again, this is old news repackaged,” he says.