These nukes aren’t gonna replace themselves

I am writing this just a few hours after the US launched a nuke.

Fear not – we aren’t all seconds from being evaporated. It was the US testing its nuclear deterrent, or more specifically, the delivery vehicle. The unarmed ballistic missile, a “Minuteman III”, blasted 4,200 miles from the west coast of the US to an area of the Pacific near the Marshall Islands.

Although these weapons are ready for launch 24/7, the technology in them is very old: the Minuteman III was first deployed in 1970, and is a product of the 1950s. With Russia and China gearing up with much fancier “hypersonic glide vehicles” to deliver their nukes, we expect the Minuteman’s days are numbered.

On this theme of a new nuclear arms race, I’ve found just the niche company to profit from it, a real diamond in the rough. But more on that in a moment.

We’ve pondered whether the UK will betray the US in the coming Cold War sequel in Capital & Conflict before. China’s strong economic and political leverage in London (and throughout Europe) we argued, may tip the balance in the Middle Kingdom’s favour if the UK is forced to take sides.

Some readers agreed, citing David Cameron’s embrace of Xi Jinping. Others did not, citing our military reliance on the US. We’ll have to wait and see, but such a change in the global balance of power will be a process and not an event – and the process is happening now.

“UK foreign policy in a shifting world order”, a report commissioned by the House of Lords last year, was published recently. Within its hundred-odd pages are numerous gems as to where those in power believe the UK’s future lies. The introduction alone is very revealing, emphasis mine:

We are living through a time of worldwide disruption and change. Trends including populism, identity politics, nationalism, isolationism, protectionism and mass movements of people are putting considerable pressure on states and traditional structures of government. At the same time, the global balance of power is shifting and fragmenting in a way not experienced since the Second World War, undermining the rules-based international order.

Our year-long inquiry confirmed the increasing volatility of international relations, a situation which poses major and novel questions and challenges for UK foreign policy, the assumptions on which it has rested, and the way it is formulated and implemented. We conclude, for instance, that the UK’s ‘bedrock’ relationship with its key ally of past decades, the US, is under disturbing pressure. The US Administration has taken a number of unilateral foreign policy decisions on high-profile issues, such as the Iran nuclear deal and trade policy, which undermine the UK’s interests. The UK has struggled to influence the Administration, which is, in part, a reflection of a broader shift in the US towards a more inward-looking ‘America First’ stance, with less focus on the transatlantic alliance or multilateralism. In future the Government will need to place less reliance on reaching a common US/UK approach to the main issues of the day than has often been the case in the past.

And now for the kicker:

This comes at a time when China’s economic and geopolitical influence, and its technological capabilities, are growing substantially. We conclude that it is not in the UK’s interest to treat China systematically as an adversary; rather, the Government should aim to work closely with China in seeking to address major global challenges, while ensuring such co-operation is consistent with the international humanitarian law, and balanced with our other close friendships, such as with Japan.

I’m not saying its quids in. But there’s a case to be made that a big pivot away from the US, and towards China lies in our future.

Now, back to that diamond in the rough…

With all the risk and distorting pressures within financial markets today, it’s hard for me to get bullish on individual stocks.

To my eyes all the quantitative easing, zero interest rates, stock buybacks, and passive investment that have poured into financial markets have turned the whole thing into an unstable soup.

While there are still opportunities to be found within this soup – like the kind we highlighted here last week, or algorithmic strategies like this – it’s hard to find anything dry within the cauldron.
But this stock is as dry as it gets. It’s not listed on any Western stock exchanges, and I’ve yet to find any chatter about it on financial media.

It’s been shielded from the wall of passive money: it’s not owned by any exchange-traded funds (ETFs) or investment trusts. Hell, according to its last annual report, not a single share is owned by a foreigner.

And it’s poised to boom time in Cold War II – there’s big business in big missiles, and those Minutemen nukes aren’t gonna replace themselves. It just so happens that this company produces a key ingredient for said missiles, of which the US is in dire need.

But as irony would have it, after finally finding a tiny company I can get madly bullish about… I discover that I can’t buy it.

This diamond in the rough exceeds my reach. Accessing this foreign market as a non-citizen is cost prohibitive. So many bureaucrats must be paid on a both initial and ongoing basis that only a much larger stake than I’m willing to risk will justify it. Still, amongst our Zero Hour Alert readership I imagine there are both citizens of this country, or non-citizens with large stakes to make, so I’ll be writing up a report on it.

For everyone else who’s yet to join us at Zero Hour Alert, well, my colleague Nickolai has a message for you.

In the meantime, if I’m right about US “nuke replacement therapy”, it’ll do wonders for that aerospace and defence ETF we tipped last week…

All the best,

Boaz Shoshan
Editor, Capital & Conflict

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