War Drums Beat, War Headlines Bleat
"Wars are becoming existential, like it or not," one opinion-section headline published on Wednesday declared.
I'd have chosen a different title. "Like it or not" is something you say when you're -- I don't know -- determined to buy another color variant in the same Balmain sweater you already own three times over and your significant other asks if you really need a fourth one. ("I'm gettin' the red one too. Like it or not.") "Wars are becoming existential. We aren't prepared" would've been bet
And since the houthis got so little worth bombing, what’s the logical-but-repugnant next step?
This is the English translation of the slogan for the Houthi movement:
God is the Greatest
Death to America
Death to Israel
A Curse Upon the Jews
Victory to Islam
If global peace is the goal (even if not fully achievable), do we need to find more reasons to keep them “in check”?
This is really a war with Iran (even if the battle is with Hamas, Houthis or Hezbollah and others throughout Northern Africa) – and Iran does have assets.
Yeah. I’ve got to say I don’t understand the Iranians. Their actions don’t seem to support an objective I though they had and can understand – long term regime survival.
Like, them wanting nukes make sense. Them pissing off everyone and increasing the positive payoff of bombing the living hell out of them? I don’t get it…
Totally agree. War is part and parcel of the human conditon — although according to Steven Pinker (and I agree with him), we’re gradually becoming less violent as a species. Inre the Houthis and the Red Sea, what is needed now — and will be forthcoming, I believe — is a multinational “police effort” to protect the critical sea lanes through that body of water and the Suez Canal. Make trade, not war.
It seems we are experiencing real time, “Interesting Times”.
Part of the problem in the current state of militarism is that those making the most noise view themselves as having little to lose. I seem to remember many years ago Henry Kissinger was asked for the secret to world peace. He said it was a function of entanglements. The more nations trade with one another, maintain relations, etc, the more they have to lose if they fight. He posited that if every nation was simply deeply entangled with every other one, they couldn’t afford to fight because it would cost too much. But non-national movements and groups like Hamas, the Houthis, etc. don’t have assets to lose. They have followers, but at least in some forms of Islam if those followers die for the cause they gain martydom and heavenly rewards. So for the price of a few drones and some zealots these non-national groups can make a huge amount of trouble. The level of the entanglements of these types of weaponized groups is low and flexible so they must be dealt with while their sponsors sit back out of the fray.
The Houthis are the Zaidi Shias. They’re a distinct group of people (not sure if saying an ethnic group makes sense) i.e., they may not have much assets to lose but they’re not just a bunch of like minded people from all over (like AQ or ISIS kinda were) – there are things you can do to a people to dissuade them of following a particular policy.
US and European defense stocks trade about 15-16X NTM PE. They have been through some slow growth years. Europe was demilitarizing, much US defense spending was on deployed troops, and the US dropped its previous requirement of being able to fight two major wars concurrently. The new Cold War will drive new generations of high tech weapons: sixth gen aircraft, autonomous weapons, hypersonic missiles, missile/drone defense, etc. The prospect of concurrent major wars is regaining relevance. Europe is re-arming, as are India, Japan, etc. Western weapons are more attractive on the export market due to geopolitical reasons and Russia’s poor weapons performance and crippled export capacity. Chinese weapons exports are a wild card but feels not imminent. Munitions stockpiles need refilling and governments are pushing for higher defense production. Quasi-monopolies are tolerated, DoD trumps DoJ and FTC when it comes to the defense industry. It is worth looking at ROW names in addition to the US primes.
Like you probably, I eyeballed them last year. It seemed like the oil trade = “everyone” was in the trade already. Anticipating the order flow, as stocks are reputed to do.
One problem for both investors and our ability to respond to multiple threats is that many of these companies cannot simply ramp up output. I read a telling quip from a missile producer who reminded us that the new missiles are like mini combat aircraft. These are not liberty ships or WWII tanks. Short-term capacity is limited. Nor can Bath Iron works or the Ingalls shipyard churn out two vessels a week.
Hell, the one and only US producer of 155 mm artillery shells is struggling to meaningfully increase output. That’s OLD technology.
I wonder if those of us with a wider client base will run into resistance from our ESG-friendly customers. Who tend to be our younger ones.
I started buying defense names small in 2021, only HII at first (DoD support through pandemic, China/Taiwan). Then bought a bunch in early 2022 (Russia/Ukraine, obvsly), LMT NOC and (in too few portfolios) Rheinmetall and Leonardo. Missed BAE. Have added and cut exposure to the group a few times, not always wisely 🙁 Currently GD LHX RTX too (the last bought on the GTF mess). I need to consolidate down but they each have their merits.
I think Dr. H is right, the decades of “relative peace” were anomalous. They were not very peaceful decades in the Middle East or for the US/Coalition troops who served there, but we’ll remember them as the post-Cold War peace-dividend decades.
I also think US military superiority is more challenged than any time since Cold War I, from the proliferation of cheap smart weapons, Russia moving its economy to a war footing to keep Putin in power, China who in its own backyard is a peer power, and the rapid development of autonomous weapons.
The US will respond by pouring money into defense; it will not/can not take the risk of losing military superiority. Europe feels the US umbrella fraying, and will respond by building its own forces. China is driving a military buildup throughout Asia, and Xi is all-in on the new arms race, including nuclear.
It is going to be a Golden Age for the military-industrial complex. Hopefully Cold War II will end like Cold War I, which was decided by economic forces rather than fighting, but everyone is preparing for the fighting.
Okay I sound histrionic but, again, the group is still reasonably valued. You can even run old-school DCFs and get good upside, how many (non-small/smid cap) stock groups can you say that for today?
And to think it’s all b/c of two guys – Putin and Xi.
We could save ourselves trillions of USD (of strictly build up military, let alone if we fight a shooting war) if these two gentlemen were to just shuffle off stage.
A frightening example of the global shortages of some advanced weapons system:
“There is no reason to believe that the enemy will stop here,” Gen. Valery Zaluzhny, Ukraine’s top commander, said on social media after Tuesday’s attack. “Therefore, we need more systems and munitions for them.”
But White House and Pentagon officials have warned that the United States will soon be unable to keep Ukraine’s Patriot batteries supplied with interceptor missiles, which can cost $2 million to $4 million apiece.
From the January 6th NYT.
https://www.nytimes.com/2024/01/06/world/europe/ukraine-patriots-us.html
I can’t imagine it will take long for Secretary Blinken’s warning to materialize, tomahawk missiles will rain on Houthi enclaves, it is just a matter of time.
Do you think the US will succeed where the Saudis failed?
Reminiscent of the war again the Taliban in Afghanistan, with the US trying to do better than an army which could care less about civilian casualties.
As our Dear Leader as well as JL have ben mentioning, the nature of warfare is changing. Even Curtis Lemay would be stymied!
My grandfather was general LeMay’s aid-de-camp in WWII. LeMay would only have been stymied in the political oversight sense; strategically, he had one go-to move and he was happy to employ it on anyone: carpet bombing from high altitude. He’d have been delighted at the chance to try it out on Yemen. LeMay was a piece of work, and by “piece of work,” I mean piece of shit. Both general Jack D. Ripper and general Buck Turgidson from Dr. Strangelove were based on LeMay.
Thanks WMD! But you shortchange the man. I mean, he was willing to change strategy once new weapons appeared. Thus his suggestion that he be allowed to nuke North Vietnam “back to the stone age.”
On the margin Yemen’s probably already closer to the Stone Age than North Vietnam was, but I don’t think even Curtis would succeed. They’re a bit more chill than the Afghans (long time outs for qat chewing) but still pretty committed. Best to give it a pass.
Bill – your reply is a reason why the Heisenberg pages are so cool. Now & then people who have real world experience in a field speak up!
I graduated form B-school eons ago (1982). In my second year I was able to take an elective class in transportation and logistics, along with an agribusiness class. Two of my favorites.
So it would be 1981 or 82 when I wrote a paper about modern day piracy. Most of it focused on the exact same region, though the attackers in those days were located on the other side of the channel in Somalia & Somaliland.
Different times, but really similar. Shippers tried to hire security mercenaries and called for navies to intervene, which they did. With some success.
History rhyming?
My feeling is that the Houthis are happy for the public recognition and will place women and children in the target zones to further the cause.
I imagine the US is looking at Iranian targets that can be justified as Houthi-associated. Whether it will actually take that step, who knows.