Dear Reader,
Today I want to talk about what happened at the NATO summit and update you on our defense picks (AVAV jumped 44% this week!)…
President Trump himself basically said, “I went there with one idea about NATO and I left with a different view.”
He re-affirmed his commitment to the alliance, which is great.
One of our biggest strengths as a country is our alliance network.
If you read Sun Tzu’s Art of War, he says, if you have an enemy that has a lot of alliances, you’re in trouble.
Alliances are very important.
Sun Tzu’s advice is to attack the alliances, which of course China has been trying to do.
So I am glad to see NATO allies agreeing.
They agreed to increase their defense spending to the 5% of GDP range, which is where they need to be to catch up.
This has benefits for the United States.
Remember, it has been our military doctrine since World War II ended that the U.S. military should be equipped to fight a two-theater war against two major powers.
What we’ve learned since then is that a rising China is a full-spectrum competition to the U.S.
We really can’t fight, God forbid, a two-theater war against China and Russia.
So the idea here is to rely on NATO allies to defend against Russia while we deal with China.
Now, I talk about war, about great power competition, not because I am a war monger – I’m not – but because I’m a historian first and foremost.
War is politics through other means.
War is how things have gotten settled.
In the 3,500-plus years wars have been recorded in the modern sense of the word, there’s only been 272 years when there hasn’t been a war.
Meaning, war is going on over 90% of the time.
Unfortunately, it’s part of the nature of the human animal.
And right now, we have a rising China that wants to put itself at the center of the international order.
Now, I am not under the illusion that war is easy or a good thing.
War is young soldiers on the battlefield crying for their mothers.
I get that – believe me – I get that.
But I also believe to dissuade other countries from messing with us, you need to be the biggest, baddest kid on the block, period.
And that means you really need to invest in your defense industry.
It’s like picking a basketball team.
You’re not looking for 6-footers. You’re looking for 7-footers.
We need to be at least a foot taller than our competitors so they won’t want to mess with us.
The way we do that is through increased military spending.
The way NATO does that is through increased military spending – period.
“Peace through strength,” as Reagan would say.
Or as Teddy Roosevelt said, “speak softly and carry a big stick.”
Teddy Roosevelt is one of my all-time favorite presidents, by the way. I named my son after him.
It’s good news that both the U.S. and Europe will increase defense spending.
We cannot shoulder the load alone.
We cannot fight a two-front war against China and Russia at the same time, if God forbid, it came to that.
It’s just too much of a resource strain, especially given our budget realities this day and age.
So relying on our NATO allies to handle Europe, cooperating and talking together about the future of warfare, is welcome news out of this week’s NATO summit.
Now, this brings me to our defense picks – this week AeroVironment (SYM: AVAV) jumped up 44% and hit an all-time high over $269.
We recommended this stock around $83 in Breakthrough Wealth, where we recommend our defense plays.
The reason for this pop is, as we predicted, AeroVironment’s becoming a superpower – basically like the “Palantir” of drones.
It’s a big deal.
They acquired a company called Blue Halo last year, which is really starting to juice the business and show up in the numbers.
To understand the value in AeroVironment you really have to understand something I’ve been beating the drum on for a long time…
Remember, 20th century warfare was about massed armor – massing a group of tanks together and punching through a line, for instance.
The future of warfare is not that.
It’s about “distributed warfare” – in a word, drones.
It’s swarm warfare, networked warfare – all driven by AI, software controlling drones.
Imagine you have five tanks firing at something.
Well, now imagine there’s thousands of drones flying around, and if something fires at them, they spread apart and take little damage…
Then they come back together, target and fire all at once, taking down a tank, for instance, then spread out again.
Like a swarm of bees.
This is what the future of warfare looks like.
Tanks and helicopters are out. They’re slow, not maneuverable, 20th century weapons.
Ukraine has been very good at proving this.
Russia came into Ukraine with 20th century weapons – helicopters, tanks, etc.
Ukraine countered using $1,500 drones to just knock them out completely.
And AeroVironment has positioned itself as the #1 arms dealer for drones.
Right place, right time.
Someone asked me the other day if I think AeroVironment is a takeover candidate, or any of the new defense stocks we cover.
And I thought to myself, I hope not – I want to ride these things up 1,000%!
Sure, conceivably, a big company like Lockheed Martin, Boeing, Northrop Grumman could go and swallow up these small firms – but I don’t think it’s going to happen.
DARPA and the U.S. government have been specifically seeking out small, nimble defense innovators to move faster than the old 20th century defense stalwarts.
They, like I, believe our defense sector is best served when we have a bunch of independent, smart, small companies innovating and competing with each other…
Moving lightyears faster than the Lockheeds and Boeings, etc., can.
At the rate they are growing, I can’t say for sure they won’t be taken over, but I can say no matter what happens, it’s happening fast…
After this week’s NATO meeting, the time to take positions in these stocks before they pop has never been shorter.
“The Buck Stops Here,”
