Investing In Confrontation

Date: 11/16/2021
Author: Mr. X

President Joe Biden may have hit bottom when it comes to his political standing. With the passage of an infrastructure bill thanks to at least some Republican support, the president can try to win back the suburban voters that so spectacularly deserted the Democrats in recent elections in New Jersey and Virginia. The Biden Administration still must confront inflation, crime, and the divisions within the Democrats themselves. However, at least now he has something to campaign on during the midterms.

Yet President Biden may not be in control of his political destiny. There’s little the President of the United States can do to control the economy in the short term – if President Trump had remained in office, he’d likely be facing the some problems of inflation and supply chain disruptions. More important, whoever is Commander-in-Chief still has deal with an increasingly challenging geopolitical climate as American hegemony wanes.

There are – at least – three main challenges that face the United States.

First, Russia has reportedly amassed close to 100,000 troops on its border with Ukraine. While the United States and most of the rest of the world continues to recognize Crimea as part of Ukraine, it is simply inconceivable that President Vladimir Putin – or any Russian leader – could give back Crimea and expect to remain in power. Even dissident Alexei Navalny – whose popularity within Russia is probably less widespread than Western media would have you believe – hasn’t said that he would give back Crimea if he somehow ousted Putin.

Second, Belarus is using mass migration as a weapon against the European Union. Belarus is allegedly allowing large numbers of refugees to move through Poland into the European Union, essentially dumping a major security and humanitarian problem on Brussels. The problem could also divide the EU internally if Poland and other Eastern European countries feel that Brussels does not have their back. Given that Belarussian President Alexander Lukashenko is directly negotiating with German Chancellor Angela Merkel, Eastern Europe may well feel betrayed. In contrast, Belarus enjoys major support from Russia, which recently sent nuclear capable bombers to patrol Belarussian airspace. President Alexander Lukashenko has also threatened to cut off the flow of natural gas to Europe to forestall any possible economic sanctions against his country.

Finally, and by far most importantly, the People’s Republic of China continues to assert territorial claims in the Pacific, especially over Taiwan. American military leaders have expressed alarm and amazement at China’s rapidly increasing military capabilities. China’s recent test of a hypersonic missile was especially worrying.

Even without discussing Iran, Turkey, terrorism, or countless other crises, the American-led rules-based international order faces systemic challenges. That requires major investment by the federal government in traditional weapons systems and defense programs for the country to be able to respond credibly.

One of the biggest problems the United States has is that many Big Tech companies and defense contractors have potentially problematic ties with foreign powers. For example, consulting company McKinsey & Company advises both Chinese state companies and the U.S. Defense Department. One reason Palantir (PLTR) is in the Rogue Investing Daily Model Portfolio is because PLTR has made its allegiance to the United States very clear – removing potential public relations and security concerns that could get in the way of federal contracts.

At The Intersection of Power and Profits

However, Palantir ultimately provides very specific kinds of services. In this new era of geopolitical competition, we are likely to see other contractors be able to seize new opportunities.

Parsons (PSN) has been declining recently, losing about 12% over the last six months. Nonetheless, it is steadily picking up contracts. Earlier this month, the company announced it was awarded a potential five-year $49 million contract from the United States Army Corps of Engineers to help reduce pollution and contamination at military munitions sites. Before that, in its third-quarter report, it announced increasing revenue and the award of five contracts worth more than $100 million each.

Kratos Defense & Security Solutions (KTOS) presented a mixed picture with its third quarter results. Though earnings per share were slightly above what analysts predicted, revenue was down year-over-year. Kratos is best known for its work on directed energy weapons, a sector that is likely to be increasingly important as the American military struggles to maintain technological supremacy over China.

One of the world’s biggest companies may also be re-entering the competition for military contracts. Google is reportedly pursuing the Joint Warfighting Cloud Capability (JWCC) contract with the military. Reported anger among employees about working with the U.S. military forced an end to a previous Google partnership with the military. With President Donald Trump out of office, Google’s corporate leadership may feel that it is an easier political sell to the workforce. However, given that nearly 1,000 employees reportedly demanded clarification on what the company was doing in this week’s staff meeting, they may have underestimated the strength of their employees’ feelings on the subject.

Going forward, the countries that are going to be the most successful are those that can align their most valuable companies with the aims of statecraft. On the surface, one might say China has an inherent advantage here because Chinese state companies will obviously have an easier partnership with the government than will American private companies with the U.S. government. However, one might argue that it is precisely the separation and political freedom that allows American companies to out-innovate so many potential competitors.


A $40 Trillion Mega-Wave is shifting the global economy… 

Changing everything from the clothes we wear to the cars we drive. It’s recently produced a 500% windfall in only 30 days.    

The Right Trading Approach At The Right Time

What is at stake is nothing less than the way modern states will be organized. It is questionable whether the United States is capable of a whole-of-society effort like America was able to marshal in the world wars or a policy like that which both Democrats and Republicans sustained during the Cold War.

What I find unquestionable is that American leaders will not cede global hegemony without a fight. That means a great deal of money for those companies willing to openly align with the United States government – and who are willing to jeopardize possible commercial ties with China, Russia, or other geopolitical competitors.

Companies will have to pick sides.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for three times a week to bring you news on what those with power are debating, planning, and doing.

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