U.S./China Tensions Fuel the "New Cold War"
And these eight stocks will fly alongside ...
My Dad William Patalon Jr. spent his five-decade professional career as an engineer – most of it in the defense business – working for companies like the Late Great Westinghouse Electric, Pratt & Whitney, Hamilton Standard and iconic flying wing pioneer Northrop Grumman Corp. (NOC).
He worked on aircraft control systems and power systems for submarines and other U.S. Navy ships (and was a fan of Adm. Hyman Rickover, the “Father of the Nuclear Navy”).
He was a great Dad. And a man I admired, was inspired by and learned from.
In the “nature and nurture” debate, experts argue over how much we’re shaped by the environment we grew up in.
My Dad’s folks (my paternal grandparents) absolutely were shaped by the Great Depression.
My Dad absolutely was a product of the Cold War.
And, by extension, so am I.
In addition, my personal backdrop and experiences I’ve tacked on as a reporter and analyst during my own 40-year (and counting) career means I’m one of the best “guides” to help folks understand, navigate and capitalize on one of the biggest investing “storylines” unfolding right now - the New Cold War.
It’s also key storyline we’ve covered since the launch of Stock Picker’s Corner (SPC).
And in particular, tensions between the “Red Dragon” and America are spooling up.
Since September, we’ve seen:
The Countering CCP Drone Act passing the House of Representatives, which if passed by the Senate, would prohibit new models from Chinese drone maker SZ DJI Technology Co. Ltd. (DJI for short) from operating on U.S. communication networks.
In a “tit-for-tat” response, China banned the exports of gallium, germanium and antimony to the United States. These commodities have military and high-tech applications, like in semiconductors and satellites. A total export ban on gallium and germanium would be a $3.4 billion hit to the U.S. economy, according to the U.S. Geological Survey, an agency that watches over the nation’s land use, energy-and-mineral resources and water use.
And China-based ByteDance Ltd.’s crown social medial jewel, TikTok, faces banishment on Jan. 19, 2025.
TEMPERATURE’S RISIN’
Yeah, I get it: This sounds like the usual “Inside the Beltway” maneuvering. Except — unlike the Elvis song, there’s no “burning love” here.
Indeed, the U.S./China tech/trade spat has squeezed out to become a mainstream fear.
Just look at the growing number of news reports about swarms of unidentified drones buzzing around our military bases and critical infrastructure in recent months. Most recently, the rush of sightings over New Jersey have been (erroneously) ascribed to a seagoing “Iranian Mother Ship” off the U.S. East Coast.
But back in the Fall, multiple drone sightings were reported over U.S. military bases in the Virginia, Washington and Mid-Atlantic regions. Details were sparse, but the Naval Air Station Oceana and Langley Air Force Base were among the targets. And while no security threats were reported, everyday folks seemed ready to believe China had a role.
More substantive were the cyberattacks launched against U.S. water systems in October — the latest in a series of infrastructure assaults ascribed to hackers backed by China, Russia and possibly Iran. They, too, made headlines on the country’s general news sites.
Consider the events we’ve detailed here and others that we haven’t as “table-setters” for the New Year.
And you need to be watching.
The fact is — with how 2024 is ending — the New Cold War is certain to get a bit hotter in 2025.
And you need to be ready.
These “storylines” will help make sure that you are …
Degloblalization: I’ve been a reporter/observer/stock picker long enough to remember when a true “global economy” was taking shape. U.S. President Richard Nixon (who I later interviewed as a reporter) opened trade relations with China way back in 1972. Following the fall of the Berlin Wall, some of you may remember “Europe 1992,” which was the push to unify Europe as a single market with a single currency. Over time, Asia became the “factory to the world,” which led the United States to “offshore” its industrial might. Partly because of the New Cold War, we’re reversing those decades of globalizing efforts and shifting back into regional trading blocs. We’re “re-shoring” production to Mainland America. One example is with semiconductors, which are the “brains” of just about every sophisticated product you can think of. There are 73 new semiconductor “fabs” (production facilities) being built worldwide right now, including 35 in the West, says Z2 Insights. Of those 35, 27 (77%) are being built here in the United States. That alone will create lots of new business for companies like chip-equipment maker Applied Materials Inc. (AMAT).
Drones, Drones and More Drones: At the annual NATO Munich Security Conference, held in mid-February, officials listed drones and AI as the two of the biggest current threats to global security because those technologies can circumvent existing conventional defenses. We’re talking about weapons systems whose smallness, radar-evading agility and “smart” arsenals make them super effective — especially with higher-risk missions, since there are no human crews to worry about. An unmanned aerial vehicle (UAV) killed U.S. troops in Jordan in January. The Ukraine has been using aerial drones to take out Russian missile sites, parked aircraft and oil refineries. And it has used seagoing drones to knock out Russian warships — including a Kilo-class attack sub. Hamas used drones in its October attack against Israel, sending them in first to “blind” Israeli defenses by hitting watchtowers and security cameras. And unmanned surface and undersea (UUV) drones are attacking shipping in the Red Sea. The U.S. military is developing jet drones that can serve as flying gas stations and unmanned “loyal wingmen” for American combat planes. Several companies to consider here — that I’ve followed for years — are drone pioneer AeroVironment Inc. (AVAV), components-maker Littelfuse Inc. (LFUS) and camera/system-on-a-chip provider Ambarella Inc. (AMBA).
New Defense Systems: Conventional missiles, antiaircraft guns and manned jet interceptors are a less-than-effective (and expensive) way to find and shoot down drones. One candidate is a “directed-energy weapon” (DEW) that uses high-powered microwaves to cook a drone’s electronics. A shipboard version of this so-called “drone zapper” has been tested in real conditions — shooting down an enemy drone in the Strait of Hormuz. Lasers and other technologies are being experimented with, too. A key element of any defense system will be sensors and radar. And one of the biggest beneficiaries might be RTX Corp. (RTX), formerly Raytheon, which has created one of the most-powerful “X-Band” radars on the planet.
Hypersonic Weapons: We’re talking here about a weapon that can travel at “hypersonic” speeds — between five and 25 times the speed of sound (or one to five miles per second). One version, a hypersonic glide vehicle (HGV), uses a missile to “boost” the warhead to maximum altitude, where it’s ejected and then glides back through the atmosphere and toward its target. The wild card here is that it’s not a straight-line return: The warheads can maneuver in a way that blunts such traditionally effective air defenses like the Patriot missile interceptor. The United States had the lead in this next-generation technology, but has since been leapfrogged by China and Russia. China is infamous for its DF-21 anti-ship missile — known as the “carrier killer” — developed to knock out U.S. aircraft carriers in a South China Sea skirmish. Beijing has since developed newer versions. In May 2023, China said it used hypersonic missiles to “blow up” the world’s biggest carrier, the USS Gerald R. Ford, during a war simulation — claiming this proved the U.S. ship could be “destroyed with certainty.” Russia has deployed its new Mach 10 Kinzhal (Dagger) hypersonic missile against the Ukraine. Ukrainian forces last year used an “old-fashioned” Patriot interceptor to down a supposedly “invincible” Kinzhal, with contractor Lockheed Martin Corp. (LMT) saying that the U.S. missile system had undergone a software upgrade to better handle a more-advanced threat. New weapons systems — especially missile interceptors like the super-advanced U.S. Terminal High Altitude Area Defense (THAAD) system and new DEW systems — must be developed to counter the hypersonic threat. Lockheed and RTX are both THAAD contractors that are developing next-gen, missile-defense expertise. A common element to most of these systems is advance warning — which means sensors and radar. And one of the world’s best systems is that X-Band active electronically scanned array radar system made by Raytheon.
Cyberwarfare and AI: Cyber weapons have created a new “theater of war” — a digital one. Take Russia. Although it launched its physical assault against The Ukraine in February 2022, Moscow has been waging cyberattacks since it illegally annexed the Crimea in 2014, a European Parliament briefing paper says. China has an active and aggressive “Internet Army.” So does North Korea. The United States allegedly launched a cyberattack against a suspected Iranian spy ship in February 2024. And the U.S. and Israeli security forces collaborated to create the first known cyberweapon — the so-called Stuxnet computer worm — which was deployed against Iran’s nuclear program nearly 20 years ago. AI will elevate the digital battlefield threat. That’s why the conferees at the afore-mentioned NATO Munich session focused so heavily on AI. Unconventional attacks — like deepfake technology to influence another country’s election — will work well on the digital battlefield. Indeed, the discussions about AI in cyberspace and on social media drew huge conference crowds. And Adobe Inc. (ADBE) General Counsel Dana Rao told listeners that “once you’ve been fooled by a deepfake, you’re no longer going to believe anything you see and hear online. Once you doubt everything you see, that’s a danger to democracy.” Two plays to consider here are the First Trust NASDAQ Cybersecurity ETF (CIBR) and the Global X Artificial Intelligence & Technology ETF (AIQ).
Stock Recap:
No. 1: Applied Materials Inc. (AMAT)
No. 2: AeroVironment Inc. (AVAV)
No. 3: Littelfuse Inc. (LFUS)
No. 4: Ambarella Inc. (AMBA)
No. 5: RTX Corp. (RTX)
No. 6: Lockheed Martin Corp. (LMT)
No. 7: First Trust NASDAQ Cybersecurity ETF (CIBR)
No. 8: Global X Artificial Intelligence & Technology ETF (AIQ)
This is a big story … but understanding it makes you a better investor — and keeps your money safer.
My Dad would’ve wholeheartedly agreed.
See you next time;
'Ukrainian forces last year used an “old-fashioned” Patriot interceptor to down a supposedly “invincible” Kinzhal, with contractor Lockheed Martin Corp. (LMT) saying that the U.S. missile system had undergone a software upgrade to better handle a more-advanced threat.'
I had not heard about this. Can you recommend any stories about it?