GAME-ON

Long War: The Muslim Brotherhood has picked Mohamed ElBaradei as their representative in negotiations with the Egyptian Army that will probably lead to the creation of a unity government with ElBaradei as caretaker Prime Minister until the next election is held. The Brotherhood can say that ElBaradei is their puppet but it won't work out that way. He is, after all, a western oriented sectarian leader. And he has plenty of anti-American credentials, which will quiet the angry mob. There is a difference between anti-American and anti-Pentagon. ElBaradei is not anti-Pentagon, so the GAME is okay.
The military alliance between the Pentagon and the Egyptian Army is the only thing that matters. When the rioting began the senior staff of the Egyptian Army were all in the Pentagon discussing how to destroy Al-Qaeda. American and Egyptian officers rushed into the hallways and put their heads together over the contagion effect of the Jasmine Revolution.
And now, a week after the crisis started protesters on the streets of Cairo still scream pro-military slogans. It seems evident that the protest movements in Tunisia and Egypt would accept military rule until elections are held. It would be better if the respective armies could install civilian governments.
The possibility still exists that Tunisia and Egypt will develop governments similar to Turkey's, i.e. a democracy with an Army able to overthrow any elected government that acquires a taste for jihad. And the Army maintains an active alliance with the Pentagon and CIA.
A country structured like that could be said to be a Global American Military Empire Organized Nation. The acronym then is GAME-ON.

Muslim Brotherhood

Long War: The Muslim Brotherhood is joining the anti-government protests in Egypt, reversing an earlier stance of neutrality. This is incredibly bad news. The Brotherhood arose in the 1920s from the carnage of the Sudanese Civil War. It invented the concept of political Islam. All jihadist groups owe their origins to the Brotherhood. Specifically, the intellectual underpinnings of Al-Qaeda come directly from the Brotherhood. It is centered in Egypt but has branches in 70 different countries.
With the Brotherhood engaged the demonstrations in Egypt have turned deadly. The unrest in the region started with protests against inflation, not a lack of democracy. The main causes of emerging market inflation is loose US monetary and fiscal policy. The US is exporting inflation to the emerging world. So the US is the problem. And the US has to be the answer in the form of cutting government spending and stopping QE2.
The price of oil is soaring today and global stock markets are crashing; all because of the Muslim Brotherhood. The US needs to become vastly more engaged with events on the ground in the Mideast and it must address loose economic policies at home and it should immediately open up the strategic petroleum reserve to knock down the price of oil.
If none of these things occur, it could get really hairy in the financial markets. There is no easy button to press, however. Elections in the Arab world must follow the format proposed by Tunisian PM Ghannouchi, i.e. Islamic political parties like the Muslim Brotherhood must be excluded from office. The quick and easy answer of opening up the political field to all comers in Arab elections will put America on the same path that Russia has been on in the Chechen Wars. We can declare victory now by pressing the easy button, but this will create a much bigger war down the line.

Ghannouchi: Man of the Hour

Long War: Tunisian Prime Minister Ghannouchi is cobbling together one more cabinet after sacking another handful of old guard ministers. He will ask the country's largest trade union for its blessing on the new cabinet and if he gets it he will try to seat a caretaker government. If all that happens the Army should be able to clear the streets of protesters and the crisis will move from Tunisia to Egypt.
America is close to demanding a basket of democratic reforms in Egypt. Probably America will put the hammer down and demand reform. If those reforms come through and Mubarak says his son can't run for office then the crisis moves from the halls of Egyptian power to the Egyptian street. Protests will probably break up on the street if the US keeps all the balls juggling at the same time: all the flare-ups in the Mideast related to the Jasmine Revolution are kept under control.
Algeria and Yemen have Jasmine street protests going on as I write. Unlike Tunisia, both these countries are overrun with Al-Qaeda. So four balls are being juggled right now and not one of them can slip. The key to preventing this juggling act from falling apart is to keep PM Ghannouchi in charge of Tunisia for 6 months until a new government is elected. Here's why: the election that he is overseeing makes jihadist and communist parties ineligible for office, it guarantees a moderate government. As Tunisia goes so goes the entire Arab world.
Obama needs to focus on geopolitics right now and get all of this done. The Republicans are getting ready to chew his vision of socialist America into ribbons. He needs to man up and let that carnage happen, just turn his back on the mayhem, cluck regretfully, maybe shed a tear, roll up his sleeves and get to work on the Mideast.

American Debt

Cold War II: China is still buying US government debt but it is doing so through British brokers, which confuses debt analysts and disguises China's evolving position in US debt. China is openly buying more European debt. Obviously then China intends to back off on US debt purchases and feels that this will create PR problems in the US, hence the move to British brokers.
China is right, there will be PR problems when and if it throttles back on American debt purchases because US interest rates will rise and housing will get hurt. Exports to China, however, will increase. Take one example, Harsco (HSC) which is a top steel service company. Steel mills in most countries can no longer dump slag anywhere they want. This means the slag must be recycled into useful products and then sold. One steel mill can't run a distribution network for recycled slag products, it is smart then for mills to contract slag removal to an outside company. This company must then perform maintenance on the mill during the down time of slag removal and must, in fact, know more about steel mill maintenance than the steel mills themselves know. In China the development of this natural business specialization is in its infancy and Harsco is just beginning to get contracts there.
The Chinese steel industry is hampered by the 2000 mom and pop steel mills propped up by local governments. The central government wants to get rid of these little mills and is very slowly constricting the noose. Fewer but larger and more modern mills will eventually replace all the mom and pops. This process will help certain Western and Korean steel companies.

Tunisia

Long War: Tunisia has not yet seated a functioning caretaker government. The Tunisian Army (TA) is getting increasingly involved but so are various powerful trade unions, muddying the water. Protests continue unabated in front of the Prime Minister's office and demands are becoming increasingly incoherent. And protests are spreading to other Arab countries. The Gulf states are beginning to issue checks to citizens to stop the contagion effect from Tunisia's revolution.
Violent protests are erupting in Egypt. The Egyptian protesters want money or state jobs, not democracy. In Lebanon, Hezbollah is forming a new government and placing itself in the center, not a positive development for democracy in the region. And a Hezbollah led Lebanon increases the chance of war with Israel. War or the threat of war is not propitious for fledgling democracies.
What needs to happen going forward in Tunisia is for the TA to either fully back the existing caretaker government or form a new government by force. Tunisia's primary Islamic political party claims that it is committed to helping establish a Turkish style democracy. And in Egypt the Muslim Brotherhood is saying pretty much the same thing.
If Tunisia does transform into a Turkish style democracy, then it will be possible although extremely difficult for the US to build democracy in the region. If Tunisia goes sideways, then all hell will break loose.

Please Declare Victory

Long War: Pacifists universally utter this piece of advice to their hated military protectors: Declare peace and bring the troops home. Nowhere has this advice been followed more often than in the ongoing wars between Russia and Chechen jihadists. After years of fighting, the First Chechen War was declared over by the Kremlin in 1996 and troops were brought home, even though victory had not been achieved. At the time the Chechens warned that it wasn't over. In 1999 the bad guys invaded a neighboring Russian Republic, which even the war weary Russian public understood to be unacceptable because the Chechens would grow stronger and stronger until a huge war became inevitable. Reluctantly, the Kremlin shipped troops back to the Caucasus region and a Second Chechen War ensued. By 2007 opinion polls showed that 70% of Russians were clamoring for peace at any price, even though conditions on the ground meant that peace was not possible. Bowing to public pressure, in 2009 peace was declared a second time. Russian troops were brought home and counter-insurgency operations brought to a halt. The bad guys warned that it wasn't over.
2010 saw a steady escalation of Chechen terror strikes inside the Russian Republic. On the streets of Moscow, armed gangs of Russian youths have been battling immigrants from the Caucasus region on an almost daily basis, inflaming tensions on both sides. Yesterday a jihadist suicide bomber killed about 40 people in an airport outside of Moscow. There is no doubt that a Third Chechen War will be launched at some point in the not too distant future.
Peace is achieved when the good guys win, not when the good guys declare victory. Pacifists have caused more bloodshed than all the generals put together.

Mongolians Are Not Stupid

Cold War II: Pres. Obama warned China that unless it puts a muzzle on North Korea, the US will deploy new troops and equipment to the Korean peninsula as well as step up the tempo of joint military exercises. Even though the 6-party talks are gaining momentum, Obama's threat is scaring investors and escalating tensions. Nevertheless, Obama is doing the right thing because there is no easy button to push and magically make Cold War II go away. Americans, who think war is like a football game, often fail to understand that one makes a war go away by either winning or losing it.
Here is one news item that tells us everything we need to know about Cold War II... Mongolia has a gigantic and largely untapped coal deposit sitting only 200 miles from China. Rather than building a short rail line to bring this coal to the lucrative Chinese energy market, Mongolia is building a nearly 1500 mile long rail line that ends at a Russian port and links Mongolia's rail system to Russia's. The Mongolian coal will be transported all this distance and then sold to other Asian countries other than China.
If we ignore geopolitics and simply look at economics, the Mongolian rail line is insane. But with this rail line in place it will be pretty much impossible for China to seize Mongolian coal deposits by force. Such a move would threaten Russia directly and also Japan and South Korea, the customers of the Mongolian coal. And a forcible seizure would require China to build a new rail line, which would be very difficult with an anti-Chinese guerrilla war raging in Mongolian.
Do you think the leaders of Mongolia are stupid? Do dovish pin-head liberal Western academics have a better idea of China's intentions than the people actually living in the shadow of the great dragon?

Long War: Karzai may use Afghan troops to block the opening of the Afghan parliament. Like any parliament, the one in Afghanistan is designed to check the power of the executive branch and Karzai doesn't like being checked. Simply put, Afghanistan does not have a democracy. Nor does it have a functioning dictatorship. On the ground, the US Army & Marines are trying to build a tribal society, not an advanced industrial democracy. Because the US was so eager to end the Afghan war, it slapped together Afghanistan's pseudo-democracy years ago and has been making plans to leave ever since. I'll repeat myself, the war will end when the US wins. After that happens a democracy can be built.
Of course the Taliban could win. But that will only bring a temporary pause to this theater of the Long War, not an end to conflict. Here's why: We know that in at least two instances the Pakistani Taliban seized control of Pakistani nuclear weapon assembly stations. The goal of every insurgent guerrilla movement is to become a conventional army backed by a nation-state. The existence of a nuclear armed Taliban nation-state will lead to a much bigger war than what we are seeing right now even if America were to become totally disengaged because India would be forced to act.

Are You Thick-Headed And Right Wing?

Long War: The Tunisian caretaker government is up and running. It does appear that Tunisia's Jasmine Revolution is indeed like an Eastern European velvet revolution. No other Arab government has the right conditions for a velvet revolution, so the US must make sure revolution does not spread out of Tunisia and infect our other allies.
Here is why Tunisia was unique... The government of Ben Ali was more successful than any of its peers in destroying Al-Qaeda and other jihadist groups over the last couple decades. The bad guys were mostly crushed. And until the last few years Ben Ali created a thriving and educated middle class by way of free market reforms. In recent years his family had basically started taking over the private sector, threatening to undo his years of good deeds and destabilizing this once thriving oasis of stability. Okay fine, overthrow him, but nobody else. Especially Egypt. It's economy and the educational level of its people are not in the same league as Tunisia. The political opposition is essentially the Muslim Brotherhood, the fountain of all jihadist evil plaguing the globe. It is a shame that people over use the analogy of Hitler's Nazi party for every little cause because when a good analogy does pop up it is ignored. The Muslim Brotherhood would win an honest and open Egyptian election just as the Nazis won the first few open elections they participated in. And the Muslim Brotherhood would dismantle democracy once elected just as the Nazis did.
Right after the Jasmine Revolution overthrew Ben Ali, Pres. Obama got on the horn with Egyptian dictator Mubarak and told him in diplomatic language to not worry, the US would do everything possible to help keep him in power and contain the Jasmine Revolution to Tunisia. A few liberal intellectuals are roasting Obama for this but mostly the liberal establishment has its eyes glazing over and is busy ignoring the President's hawkish behavior like they always do.
Thick-headed and right wing fund managers are finally overcoming the strange mix of prejudice that has them believing that Obama is a dove. Consequently defense stocks are moving higher.

Specific Stocks: Raytheon just got a $450 million order to convert Saudi Arabia's arsenal of dumb bombs into smart bombs. If bad guys try to overthrow the Saudi government, it will soon be able to bomb them with pin-point precision and at a bargain price because of the low cost conversion kits. Now I ask you, do American allies really need full on Aegis destroyers to defend themselves against the missiles of Iran, North Korea and China? Or do they need to convert existing warships to fire Raytheon's SM-3 missiles? What is cheaper, building a new house or remodeling your old house?

Global American Military Empire (GAME)

The Chinese government is a big believer in academic studies. A series of Chinese studies claim that the US is a declining European style empire, doomed to fail. Western scholars would mostly agree with their Chinese counterparts. A tiny number of British professors assert that the primary force driving geopolitical events is America's global military empire. The Chinese scholars started Cold War II, the British scholars can help us understand both CW II and LW.
Look at recent world events through the lens of the British scholars. The Pentagon has an alliance with the Tunisian Army, not the government of Ben Ali. The government of Ben Ali was overthrown when the Tunisian Army disobeyed a direct order to fire on demonstrators. At the moment Tunisia is effectively a military dictatorship, with elections pending. So Ben Ali's government was overthrown by a US ally.
If an election were held today the winners would all be Tunisian generals according to internet analysis. Probably none of the generals will run for office. The possibility emerges that Tunisia will take on the same sort of democracy that Turkey has, i.e. the military has the right to overthrow any government, even one that is popularly elected. This is another way of saying Al-Qaeda can't win an election or the government will be overthrown. And remember Turkey is the only major Muslim power aligned to Israel. In the Cold War Turkey was a stud horse. The biggest mistake Bush made in the Iraq War was not listening to Turkey.
Linking the growth of democracy in the Mideast to the American military empire will make both grow faster.
Let's look at one Cold War II news item through the British professor's lens. Sec. Gates is pushing Japan to amend its constitution so it can take profits on the SM-3 missile defense system is to developing with Raytheon that is sure to see huge demand around the world. The constitutional change will at first make money for Japan but soon it will increase pressure for a military alliance with South Korea. And we see the global US military empire expanding in Asia.
Now take a step back and look at the structure of global financial markets as they relate to the GAME (see title of today's blog). Any major conventional military action anywhere on the globe triggers war with the GAME, whether in the Straits of Taiwan or shipping lanes in the Gulf. Any big military engagement pushes up safe haven US government debt. In the event of a conventional war money automatically pours into the Pentagon's coffers like the Amazon. The biggest investor in US dollars is China, its greatest enemy. But try as it might, China is unable to shed its dollar horde.
So overall conditions seem promising for the GAME.

Superpower Gives Birth

Long War: In Africa two new democracies are (hopefully) being formed: South Sudan and Tunisia. When and if they fully emerge, America will have two new allies in the heart of the beast. It won't be a smoooth path forward for Tunisia or north Africa in general. AQIM is sharpening its sword and taking advantage of the chaos in Tunisia, likely breaking bad guys out of prison and growing its networks through new recruiting. If a unity government isn't formed soon and elections scheduled, the bad guys might even take over, which would rock the whole region. But Al Qaeda didn't overthrow the old regime in Tunisia, democratic forces did. So far Tunisia's Jasmine Revolution is running along the same path as a Velvet Revolution in central Europe. As we've already observed, shock waves from the Sudanese election are rolling through bad guy country.

The New York Times has 100% unravelled the CIA's Stuxnet anti-Iranian nuclear weapon program virus operation. The whole affair was huge involving Israeli intelligence, CIA, NSA, British intelligence, and German industrial company Siemens (ticker symbol: SI). About a quarter of Iran's centrifuges have been blown up and all its top nuclear scientists are now under lock and key, huddling fearfully not working on weapons. Iran's current nuclear weapon program is utterly destroyed. This is a terrific victory in the Long War, worthy of an extra beer at dinner.
The word to takeaway from all this is alliance. Four intelligence agencies and one of the world's biggest industrial conglomerates acting like an intelligence agency makes a formidable alliance. Assembling and running that alliance displayed CIA colors that haven't existed since the 1950s. Its name is Central Intelligence Agency for a reason, it is supposed to run other clandestine services other than itself; the fact that it is functioning along its original mandate is good news.
A geopolitical environment analogous to the late 40s and early 50s has emerged with the Long War and Cold War II just starting. Obama is like Eisenhower and Bush like Harry Truman. The plot to derail Iran's nuclear program was hatched during the Bush years but Obama is now getting credit. This is how it worked with Truman and Eisenhower in the Cold War. Obviously we only care about this topic because it may create a stock market environment like the 1950s.

Hezbollah And Raytheon

Long War: Over the past few months Iran has given Hezbollah thousands of high quality short range missiles. This means that if Israel and Hezbollah go to war again like they did in 2006, then thousands of Israeli civilians will be killed by the bad guys. This did not happen in the last war. In the event of war, Israel would be forced to pretty much carpet bomb Lebanon, killing tens of thousands of innocent Lebanese civilians and enraging the Arab world.
In preparation for all this, Hezbollah has torn down the government of Lebanon and put the country's democracy in a fragile state. If war with Israel were to break out before a new government were formed (months away at best), then Hezbollah could turn a shattered Lebanon into an Islamic dictatorship. Currently Lebanon is the world's only functioning Arab democracy, other than Iraq. Iraq's democracy is based on the religious/ethnic structuring of Lebanon's government. Probably this structuring is the only way democracy can function in the Mideast. It is, therefore, something of immense value to the good guys in the Long War.
Like Al Qaeda, Hezbollah was created by the Muslim Brotherhood, which in turn grew out of the Sudanese Civil War. So Hezbollah's roots run deep into the fabric of the Long War and it would be very bad if it got its way. Hezbollah is terrified of the election in South Sudan and needs to stop a tide of anti-jihadist democracy from sweeping it aside.
Sec. Gates announced today that Raytheon's $835 billion SLAMRAAM missile program will be cancelled but the money will be recirculated back into Raytheon's short range missile and artillery defense programs. This technology is designed to counter Hezbollah's missile arsenal.
Raytheon is up 9% in the past 3 months. It is rising against a fierce tide of analyst warnings against defense stocks. No, no, no, they cry, a brain dead liberal peacenik is in the White House. Following this logic, investors the other day forced ITT to split itself up to shed its "toxic" defense business. Even that wasn't good enough, ITT is now being pressured to sell its defense business, not just spin it off.
All other great imperial powers have loved their evil and immoral empires and fought savagely to keep them intact. America hates its globe straddling and highly moral military empire and wishes it would somehow just go away. Americans are indeed warlike, but think of war as a kind of sport, like a football game, that is quickly over. As this consciousness slowly changes defense stocks will do better.

Asia Treaty Organization or ATO

Cold War II: China claims that America is a European style imperial power and as such is doomed to fail. In actuality America's global empire in no way resembles a 19th century European colonial empire. How many colonies does America have? Guam and Western Samoa, that's it. America has a global military empire, something new under the sun. No great power has ever been structured this way before, in a way history is not repeating itself.
The bigger they got the weaker they got, as far as old style European empires were concerned. But a military empire or global alliance structure obviously gets stronger as it acquires new members. Today word leaked out that Japan and South Korea are in preliminary moves to create a military alliance. The two Asian powers are rigidly aligned with the US, but not each other.
Once South Korea and Japan are formally aligned, Singapore will push to link itself, Australia, South Korea, Philippines and Japan into a single NATO type alliance with the US at the head. It is surprising how aggressive Singapore has been so far in pushing the alliance formation. The entire Singaporean Army is trained in Australia by the Australian Army and Singaporean troops are deployed in combat zones under Australian command. Talk about pushing for a strong alliance. In any case, this Asia NATO (probably it will be called ATO) structure almost exists now. Chinese symbolic aggression like flying the stealth fighter prototype while Gates was visiting China will hasten the formation of ATO.
As always we are only concerned in making predictions like this to buy or sell stocks. On that note my latest defense stock pick, ITT, is up about 14% today.

So Far So Good In Sudan

Long War: The first hurdle has been overcome in the big Sudanese election, a monster turnout guarantees that the the 60% voter turn-out mandate will be reached. Anything under this threshold and the vote is null and void. The bad guys need to launch a huge wave of violence to hold back the voters but so far have managed only one measly attack with 10 southerners killed. There was other sporadic violence here and there but only the one attack attributable to an Islamic tribal militia up till now with five days of voting left. The leader of the tribe accused of making the attack claims that his people weren't involved. This raises the possibility that the attack was actually delivered by an Al-Qaeda affiliate.
Jimmy Carter is hurting matters by blundering about and saying stupid stuff to the press. He told the media that North Sudan is willing to take all the national debt of the two combined countries, leaving South Sudan debt-free. Of course this isn't true. Sen. Jim Kerry seems to have stepped in and is riding herd on Carter while the UN is aggressively deploying its 10,000 strong peacekeepers to tamp down tribal violence.
The Western press is portraying the election as a purely local event, and not a very big deal. However the referendum continues to send shock waves across the jihadist community. Recently AQIM (Al-Qaeda North Africa) has stepped up its kidnapping activity and only a few days ago had a big shootout with French Special Forces, where numerous bad guys and innocent hostages were killed.
The possibility that Al-Qaeda has interfered with the election means that our best and only friend is still the CIA.

Sudan

Cold War II: Gates is off to meet with China's military brass, an attempt to cool down superpower tensions. Before he left, Gates told reporters that the US would have to start a new generation of weapons to contain China, even though the cost will be substantial. He also said that the new Chinese stealth fighter prototype wasn't all that stealthy. He has the prototype's engine in mind with that comment. India and Russia are jointly developing a new stealth fighter. Bear in mind Russia already has a stealth fighter, upon which China is dependent for engine technology. Probably Russia has already cut China off as the Russo-American alliance strengthens, forcing the great dragon to design and produce stealth engines from scratch. Taiwan, Singapore, Japan, Australia, and South Korea could conceivably acquire American stealth fighters. The old adage about not getting into a land war in Asia applies to China as well as everybody else. Add up the population of all the above countries that could field anti-Chinese stealth fighter jets and the number is much greater than China's population. If a single alliance stitched all those countries together, it would be very bad for China.

Long War: The Sudanese election has begun. In one week the South will have seceded and made the first step in creating a new country. Months of negotiations between South and North Sudan will set boundaries, split oil revenue, divide the old national debt, and tackle other thorny issues. If any of these issues restart the Sudanese Civil War (SCW) it will be very bad. The multi-decade long SCW killed 2 million people and started the Long War by creating Al-Qaeda and the Muslim Brotherhood, the fountain of the modern jihadist movement.
The SCW was a Muslim vs Christian affair. This is why over the past few months Muslim on Christian Long War violence has been soaring. Al Qaeda executed a huge Christian terror strike in Egypt. Iran has been turning up the gas. The Pakistani blasphemy laws are being used to execute Christians for the first time. A dozen Al-Qaeda plots have been broken up in Europe (which Al-Qaeda thinks of as Christian), this is much higher than normal.
The potential end of the Christian killing SCW is sending shock waves through the jihadist community. If the CIA can ride this beast into the ground by steering Sudan through the months of negotiations without war breaking out, then it will be very bad for Al-Qaeda. The birthplace of Al-Qaeda will have been handed to the Americans on a silver platter.
But can the CIA do it? Recent Sudanese history is very sticky with CIA fingerprints and suggests that the Agency is on the ball. Consider: in 2009 the North violated the treaty that had ended the original war by arming rival southern clans and turning them against each other, fomenting a mini-civil war in the South. This came to be known as the "civil war within a civil war." But these southern tribes mysteriously one by one stopped fighting each other and Bashir, the evil war criminal leader of the north, totally turned around, becoming a CIA good bad guy or as his opponents call him, a CIA stooge. This is evidence that the CIA is doing a good job so far. But great challenges lay ahead.

Raytheon

Long War: Sec. Def. Gates is adding a stateside USMC combat battalion to the Battle of Kandahar. It is going to reinforce the ring road around the besieged city. Adding these troops violates the 30,000 troop surge level. But don't worry, says Gates, he will reduce total US troop levels a few years down the road. There is a peaceful valley awaiting in the year 2014. Right now there is a big war that needs more troops.
Collectively American voters nod in agreement and say: "Okay, we believe you Team Obama. More war now for the vague promise of less war later. We will continue to suck up this nonsense as long as the economy is improving."
Long War success hinges on strong US economic growth. Pres. Obama, unlike other liberals, knows that only free market policies can grow the US economy. When he pushes big social programs the President says to himself, "This will hurt the economy to some degree but it will help the poor."
You can see how the Long War forces him to the right on economic issues. For instance, he is trying to open US highways to Mexican truckers. This move is dictated by the NAFTA treaty. So the Pres. is strengthening NAFTA and free trade.

Cold War II: There is a reason why China came out with its carrier-killer missile before its first carrier. All levels of warfare are becoming dependent on missiles. Consider China's stealth fighter prototype. If the US knew what composite material it was made of and the thermal profile of its engines, then US fighters could shoot down the new fighter with custom designed missiles. Just last week, France surprised everybody by placing a big missile order with EADS. Iran has been placing thousands of high quality missiles in the hands of Hezbollah in the last few months. Missile expansion is part of a 60 year old trend but it is picking up pace.
A missile development race spells good news to anti-missile manufacturers, primarily Raytheon. Also, China is ahead of the US in cyber-warfare technology. Raytheon is investing heavily in cyber-warfare and already sells a good line of encryption software.

Chinese Stealth Fighter

China has unveiled photos of its stealth fighter prototype, which will be operational in about 10 years. Allowing the West to see photos of the prototype is in itself an aggressive move on China's part. China is reverse engineering as best it can America's F-35. The great dragon is rapidly building aircraft carriers, anti-aircraft carrier missiles, stealth fighters, and a host of submarines. All of this is designed to challenge America's military dominance in the Pacific and east Asia.
And China continues to hold the global electronics industry hostage with rare earth mineral export quotas.
The latter point hurts stocks like Ferro Corporation (FOE). But the big picture is that America does not have the luxury of cutting conventional weapon systems and overall military spending.
Today I am getting slaughtered in my FOE position, but my defense stocks (RTN, ITT, HRS) are more than making up for this loss. Not only will the US have to maintain existing great power weapons programs but it will also have to develop new anti- aircraft carrier missiles and cyber-warfare capability. These are two areas where China is ahead of the US.
The American public will be dragged kicking and screaming to the realization that we cannot afford our big social spending programs and will instead have to spend even more on defense. Reality is a bitch.

CIA Competence

The New York Times a couple weeks ago uncovered a CIA operation and we now know how the agency was able to sabotage Iran's nuclear program. The CIA busted open an atomic weapons spy ring, took control of it, and then used it to bolt defective gear into Iranian centrifuges. From other sources we also know that the NSA planted deadly computer viruses in Iran's civil and military nuclear complex. It seems that as the top Iranian nuclear scientists were on the verge of patching this virus they were assassinated. This isn't the first time Iranian scientists have been killed under similar circumstances. The odds are overwhelming that these "wet jobs" come courtesy of the CIA.
We know that top Iranian scientists have been called upon to convert petro-chemical plants into gasoline refineries. These refineries are performing so poorly that Tehran and other Iranian cities are experiencing the worst smog ever recorded by mankind, the result of so-called gasoline produced by Iran's top scientific talent. Instead of gasoline, combustible poison is pouring out of these jury-rigged refineries. The turncoat Iranian scientists are also channeling resources away from running centrifuges to creating yellowcake uranium, an industrial endeavour that has nothing to do with producing atomic weapons but probably impresses a simpleton like Amedinejad.
From all of this we can deduce that the CIA has demoralized or even infiltrated and co-opted Iran's nuclear science community.
Now let's look at two entirely unrelated chapters in CIA history: the Afghan war for the brief moment when the CIA was running it, and the Vietnam War when the CIA was in charge. In both cases the wars were going swimmingly until the Agency was taken off the job and Congress plus the White House started calling the shots.
I'm addressing this topic because readers are pushing back on my assertion that today's CIA is super competent and the more resources given to it, the better. The mainstream media does not paint an accurate picture of the CIA and as investors you need to shake this garbage out of your head.

Is Dave Wrong About China?

Long War: The New York Times reports that the Taliban have control over the main road linking Tajikistan with northern Afghanistan. Much of the Afghan war now revolves around US Special Forces night raids in the north, targeting bad guy leaders. Obviously bad guys are flowing up out of Kandahar and into the "Stans," former Soviet Republics north of Afghanistan. The Islamic Movement of Uzbekistan (IMU) is a Taliban ally that has been fighting in Afghanistan and tribal Pakistan for years but has strong roots in Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan. IMU is beginning to rear its ugly head.
There have been at least 4 CIA drone strikes in North Waziristan so far in 2011 with about 20 bad guys killed. The rats are jumping off the sinking ship, but there is another ship that they are jumping on to. At some point US Special Forces and the CIA will need to make land and drone strikes in the Stans. From 1992-1997 there was an Islamist civil war in Tajikistan (100,000 dead) and nobody there wants to go through that again. So it will be a diplomatic nightmare to get permission to push the LAD (Land and Drone campaign) north.
Long War violence seems to be ratcheting up away from the two epicenters of the global conflict (Kandahar and Yemen). Al Qaeda in Egypt successfully executed a big terror strike. Al Qaeda in Turkey tried and failed to do the same. AQIM (Al Qaeda North Africa) is also gaining strength, possibly reaching out to bad guys in Nigeria.

Cold War II: I have said that China is like the ancient Persian Empire to America's Rome. Some analysts liken China's military rise to late 19th century Germany's. Others say that the current bit of Sino bellicosity is a tempest in a teacup, fueled by an impending leadership change in Beijing that will transpire over the next couple years. The new younger leaders will be more free market oriented and less militaristic. The old guard knows this and wants to tack the Asian giant hard to the right before these softies take over. By this logic Cold War II will simmer down in a few years.
Buttressing this argument is the fact that no great expansionist power in history has ever had more economic links and interests with its enemies than China vs. the US and its allies. If Cold War II became a hot war, China's economy would be crushed, unless the war were so big as to mobilize the masses.
The most worrisome aspect about China's new found aggression is that reunification with Taiwan is gathering tremendous momentum. All China has to do is cool it and the reunification will become inevitable. If China can get the one island that it really wants why does it then say it also wants this other island and that other island? Once the six-party talks start the picture will become more clear. If the talks go well then Cold War II will get put on the back burner.