Dear Reader,
Today I want to talk a little bit more about the Israel-Iran conflict - it’s the big topic of discussion in America.
And I want to talk about what it really means for the defense industry.
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One friend said to me, “why does Israel have to attack Iran?”
I tried to explain that states, like people, can be insecure and traumatized for a long time after something happens to the population.
Now, in the Western world, we have a situation where we haven’t really seen one population try to wipe out another population in a very long time.
It still happens; you think of the genocides in Rwanda, Bosnia, Serbia, the Taliban with the Salafis…
But in the Judeo-Christian world, we mostly don’t see one population trying to completely eliminate another.
And with those we have seen, the Armenian ones, the victims don’t run their own states. They don’t own their country. So these modern victims have very little agency to express the trauma.
You have to go back to Rome and Greece.
Rome was invaded by Hannibal.
By some accounts Hannibal killed 40% of the men in Rome over 10 years of fighting.
What happened to Rome after surviving and ultimately defeating Hannibal, is that they went out and burned Carthage to the ground - never again - they salted it, famously.
They went and invaded Greece.
They were so insecure, that when Caesar came by over a hundred years later, they actually marched and took care of the Gauls, which were even older enemies than the Carthaginians and the Punics, basically Venetians.
So, really what you have here is a situation where Rome was very insecure after almost getting destroyed, and really expanded afterwards.
You think of Greece, and Persia - Persia is ancient Iran.
Persia invaded Greece, burned Athens to the ground, enslaved people, destroyed it, but the Greeks actually won that, kicked out the Persians, and Athens created the Delian League just out of insecurity and fear that Persia would come in and try to wipe them from the history books again.
And of course the Persian threat was eliminated finally by Alexander the Great.
That’s where Alexander of Macedon gets the moniker “the Great,” because he eliminated the Persian threat that was hanging over Greeks for hundreds of years.
Especially, you think of Rome, you think of Greece - when Roman children would misbehave they would say “you’d better behave or Hannibal’s going to get you.”
That’s how traumatized.
Israel is in a very similar situation. This is a population that was traumatized.
They didn’t have a state when they were traumatized by the Holocaust. They had another people try to systematically wipe them out, and then they got a state.
And usually, when you see something like that happen, a population becomes aggressive and scared.
Even from little threats.
I’m not saying nuclear weapons from Iran is a “little threat.”
But they tend to overreact, for better and for worse. They are not overreacting right now in my view.
So here we are. It’s really been a good clinic on what’s happening in the defense industry…
Using F-35s made by the U.S., with Israeli modifications, Israel took out Iran’s air defense systems completely.
Now, Israel controls the skies.
And you’re really seeing here that fixed-wing aircraft are still the primary mover in air superiority.
Russia was not able to take over Ukraine’s airspace. Ukraine was able to defend against that.
But when you have control of a country’s airspace, it’s the old lesson - Israel is putting it fully on display - you basically can come and go as you please.
And Israel is doing that - targeting not only nuclear sites but, intelligently, Iran’s top military leadership. That’s what you want to do - what they did with Hezbollah.
So what I want to say is, we’re watching all this happen and it’s giving us a clinic on where the military is going.
So I would say right now, it’s still 80% airplanes.
When you can’t control another opponent’s skies, drones become the thing, like has happened between Russia and Ukraine.
But Israel, like Ukraine, also had drones in Iran, and those drones have done certain things which we’re not exactly clear on.
But that’s still 80% aircraft, probably 20% drones.
You don’t hear about helicopters.
Iran makes a lot of drones.
You don’t want to put a helicopter up against a $1,500 drone and knock out a helicopter.
But it just tells you, really, the incredible power of “king airpower.” If you dominate the air, you have such an advantage.
Which is why I’ve been looking to find companies that are pure plays. For example, aircraft engine companies.
Because most of them have been gobbled up by giant competitors.
In the Breakthrough Wealth issue we’re releasing today, we actually have a pure play that recently went public.
Because of the increase in military spending, you’re starting to see some of these pure play companies go public.
I can’t imagine they’re not going to get acquired over time.
But this is where you want to be.
When you get a chance to get a pure play, it’s a terrific opportunity. That’s why it’s the focus of our Breakthrough Wealth issue for June.
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Anyway, I just wanted to talk about the rise in military spending…
What the Iran-Israel war is telling us about the importance of air superiority...
And what that means for jet engines and pure play companies.
I suspect we’re going to see a lot more pure play companies coming public as everybody understands and recognizes military spending is going to increase.
The world is entering a new cycle of war, so it will increase dramatically over time going forward.
The most likely scenario for Israel-Iran - my best guess - is that Israel pretty much defangs Iran…
Israel becomes the hegemon in that area.
And it’s going to be very interesting to see.
See, Israel’s been making nice with the Arab states because the Arab states have been afraid of Iran.
But if Israel becomes the hegemon, then all of a sudden the Arab states might seek to balance against Israel’s power by even partnering up with Iran.
It’s going to be interesting to see how this plays out over time.
But one thing is certain - we are entering a new cycle of war. Here’s what that looks like for the U.S. and what President Trump’s doing about it.
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