The date is August 20th, 2032.

We’re nearing the end of Alexandria Ocasio-Cortez’s first term as president.

The wave of naive optimism that swept her into power has faded. But the damage is done. With a majority in both the Senate and House, the Democrats made big moves.

First they eliminated the Senate filibuster. No more 60 votes needed to pass most legislation. Now a simple majority will do. The political equivalent of a nuclear first strike.

Then AOC’s coalition created two new states: Washington D.C. and Puerto Rico. That’s 4 more Democratic Senators, and additional seats in the House.

The Supreme Court was quickly expanded from 9 to 13 justices. The number of justices has changed before, and there’s no hard and fast rule in the Constitution.

Justice Clarence Thomas, the court’s last Constitutionalist, retired in 2028 due to health issues. So the highest court in the nation has 5 new neoliberal judges.

ICE was abolished almost immediately. Immigration, both legal and illegal, is out of control. Another 11 million illegals have entered, mostly from Latin America. And 4 million visa workers. Another 4 million refugees and “asylum seekers” from Africa and the Middle East.

All this immigration undercut American workers’ wages, drove up real estate prices, took over small towns, and drained social welfare programs.

Green cards are now granted to immigrants who have been in the country for 3 years, regardless of how they entered. Citizenship and voting rights after 6 years.

The Democrats quickly set themselves up for a permanent majority.

Fruits of the Revolution

The unemployment rate hit 18% this year, even with all the book-cooking. AI, outsourcing, and poor leadership have taken a toll.

The federal deficit hit $5.3 trillion. The stagflation which began in 2029 shows no signs of letting up.

Inflation is running at a 16% clip. A gallon of gas costs $11.34, and diesel is $15 if you can find it. A third of American oil refineries have been shuttered under new environmental regulations.

Anyone worth more than $1 million faces an annual wealth tax of 3%. Family businesses are sold at firesale prices. Wealthy Americans flee the country, taking their assets with them.

Power blackouts are common in big cities. No new generating plants have been built, and data centers continue to tax the grid. With copper trading at $30 a pound, thieves rip out cabling anywhere they can find it.

The Green New Scam reached new heights. Billions of dollars were handed out to politically-connected crooks to build high-speed rail, electric vehicles, and “carbon-free” energy. It’s a total writeoff.

Biden-era censorship on social media platforms returns.

‘Equality’

Households earning less than $80,000 per year now receive Universal Basic Income (UBI) of about $30,000 a year. Barely enough for a family to live on.

UBI was celebrated by the masses early on. But the lack of motivation to get up and work creates a pervasive malaise across the country. Tent cities sprout up like weeds. The scourge of drug addiction worsens.

DEI returns with a vengeance. All of President Trump’s executive orders were reversed in the first month of AOC’s term. Companies are punished harshly if they have too many white male executives. Diversity quotas are enforced with an iron fist.

Universal healthcare went live in 2030. If you thought the old system was bad, this is a nightmare. Patients often wait a year to see a specialist. Need a scan? Tough luck.

Healthcare fraud reaches new levels as criminals target an exploitable system.

It’s been a tough few years. Yet AOC is still on track to win a second term. Millions of new immigrant voters will be the deciding factor.

Back to the Present

I wrote this piece as a thought experiment, pondering what could happen if Dems sweep Congress and win the presidency in 2028.

Honestly, this scenario isn’t all that crazy. It could well happen.

The Republican party needs to get their act together, quickly.

Trump really needs to resolve the war with Iran before midterms. It’s incredibly unpopular with independents and the libertarian-leaning right. If he doesn’t, the chances of a socialist sweep rise significantly. And as I explained above, the consequences could be catastrophic.

Republicans should not let that happen. Make a deal with Iran and be done with it. Re-focus on the American people. If the war is ongoing and the Strait of Hormuz is still closed during midterms, it’s not going to go well for the GOP. It gives far too much firepower to the Dems.

If a socialist like AOC wins, it’s going to be bad news for all Americans, but especially business owners and investors. Our friend Jim Rickards recently wrote the following:

The rise of socialism inside the Democratic Party is an enormously important political story on its own. But it also has huge investment implications that could affect your portfolio.

Many democratic socialists favor higher taxes on wealthy households, expanded government healthcare and tuition programs and sweeping changes to policing, immigration and other institutions. Some prominent figures on the left have also supported “wealth taxes” — which would tax certain holdings of property, shares, bonds and other assets rather than merely income.

Jim nails it, per usual. Much is at stake. If someone like AOC wins, our country might not recover for decades. If not longer.

The post President AOC’s First Term appeared first on Daily Reckoning.

Do me a favor. Open your brokerage app. Look at your shares. Your Apple. Your silver miners. Your index funds.

Now here’s the fun part: you don’t own them. Not the way you think you do.

The legal owner of nearly every share listed in America is a partnership you’ve never heard of. It’s called Cede & Co. It sits inside the Depository Trust Company in Lower Manhattan. On paper, and paper is what counts, Cede & Co. holds almost the entire US stock market.

You own an IOU. The lawyers call it a “security entitlement.” Your broker owes you shares. Your broker’s custodian owes your broker. The Depository Trust Company (DTC) owes the custodian. You sit at the end of a long line of promises, 3 ledgers away from the actual asset.

It seems strange. Or is it?

Let me tell you how we got here, who runs the machine, and why the firms that hold everything are the most powerful banks you never think about.

The Day Wall Street Drowned in Paper

Until the late 1960s, stocks were paper certificates. Sell your shares and a courier physically hauled the certificate across Manhattan. Then trading volume exploded. Back offices buried themselves alive. Failed trades piled up. It got so bad the NYSE closed every Wednesday just to catch up on paperwork. Brokerages died of clerical error. They called it the Paperwork Crunch.

The fix was elegant. All they did was lock the certificates in a single vault and register them under a single nominee, Cede & Co. Then ownership changes hands via bookkeeping entries. The Depository Trust Company opened in 1973. From that day on, the stock market stopped being a paper market and became a database.

And somebody has to run the database.

Enter the Custodian

That’s what a custodian bank does. It runs the database, or, more clearly, holds assets for investors. Safekeeping, settlement, dividend collection, recordkeeping, all the plumbing. It doesn’t lend your assets to condo developers. Client assets sit off the bank’s balance sheet, segregated, out of reach of the bank’s own creditors. The custodian isn’t betting your money. It’s charging tolls on it.

The tolls are staggering. Alexander Hamilton’s bank, BNY, was founded in 1784 and is the oldest in America. It’s the custodian of about $62 trillion in assets. That’s roughly 20% of every investable asset on Earth. State Street, JPMorgan, and Citi, along with BNY, control the books for most of the world’s wealth.

It gets better. BNY is the sole clearing bank for US Treasuries. Every day it runs the “tri-party repo” machine. That’s the overnight lending market where money funds lend cash to dealers against Treasury collateral, with BNY in the middle holding and valuing the collateral for both sides. That market is measured in trillions… every single day.

If BNY’s systems went dark one morning, Wall Street’s short-term funding would seize up. We got a preview in 2023, when hackers hit the US arm of China’s biggest bank. Its operations staff had to settle Treasury trades the old school way, allegedly walking a USB stick full of trades across town. The financial system runs on a handful of pipes, and the custodians own the pipes.

Custody Is Power

If your ownership is an entry on someone else’s ledger, then your ownership is, at the limit, a permission slip. Just ask old Vlad Putin. After his tanks rolled in 2022, some $300 billion of Russia’s reserves were frozen with Western custodians, the largest share held by Euroclear in Brussels. Russia still “owns” those assets the way you “own” your shares.

Gold investors have known this forever. Allocated gold means specific bars with your name on them. Unallocated means a claim on the bank’s pool.

The crypto kids rediscovered it and made a bumper sticker: not your keys, not your coins. (They think they invented it, like everything else.) But it’s the oldest rule in finance, and the entire modern market is built on the other side of it.

Finally, notice who sits closest to the ledger. The ledger’s keepers never lose. Custodians get paid per asset, trade, or corporate action, whether in a bull or bear market. They’re the tollbooths on the highway of capital. The market can crash 40%, and the tollbooth keeps ka-chinging along.

Now that’s using The Cantillon Effect to great effect!

Wrap Up

I’m not telling you the vault is about to fail. The dull truth is that custody exists because it works. Segregation is why customers of a failed brokerage generally get their assets back. The machine settles trillions daily with boring reliability. Boring is the product.

One more thing. If custodians are tollbooths that collect in every market weather, that’s worth remembering when you look at the banks everyone ignores because they don’t do anything exciting.

Excitement is for the customers. The house prefers fees.

The post You Don’t Own Your Stocks appeared first on Daily Reckoning.

Boom! It was another great day for gold, silver, and miners.

The GDX gold miner ETF is up a whopping 9% as of mid-day.

Gold moved up 3.5% and crossed the $4,500 level. Silver also popped 3.5% to $66.43.

So… what the heck happened?

We got another signal that the U.S. government is desperate to get debt yields lower. And this is a great sign for gold bugs.

And before you protest, I know. Bonds, interest rates, and yields are boring. But this is critical stuff for anyone who owns precious metals, hard assets, foreign stocks, or fixed-income. So hang with me for a moment.

Here’s a 5-year chart showing the yield on the U.S. 10-year Treasury bond:

Source: CNBC

As you can see, 5 years ago the yield was a tiny 1.3%. That meant the government didn’t have to pay a lot in interest back then. Today it’s 3.5x higher at 4.66%. The bond vigilantes have awoken from their multi-decade hibernation.

In 2022 post-COVID inflation caused the Fed to raise interest rates. That was the first leg of the move.

But the last interest rate raise was in July of 2023. Yields have continued to move higher since, even despite six rate cuts.

For the government and Federal Reserve, paying high yields on debt is horrible. In 2026 alone, the Treasury Department will need to refinance about $9 trillion worth of debt, plus issue another $2 trillion to cover the budget deficit. That’s a lot of Treasuries hitting the market at high yields.

If yields stay at current levels or continue to rise, we’re going to be in a world of hurt. The debt snowball will accelerate dramatically.

The Catalyst

Today’s impressive move in precious metals was driven by the Treasury Department announcing they would double the size of their bond buyback program.

Basically, they’re buying long-term (10-30 year) bonds in an attempt to cap yields.

The announcement itself wasn’t even that big. Buybacks will at least double from $2 billion to $4 billion per operation (every few weeks). By itself, the program doesn’t seem too consequential.

But this move, combined with the intervention in Japan, sent a powerful message. The government and central bank cannot tolerate interest rates at this level.

Soon, the government will have to ramp up QE (quantitative easing, AKA money printing) to further keep a lid on rates.

And after that stops working, more… creative measures will be required.

End Game: Crushing Financial Repression

So our government and central bankers are clearly getting uncomfortable with rising yields and deficits.

And investors are finally figuring out that the “solution” to our problems is going to involve endless money printing.

Between the Treasury Dept and the Federal Reserve, there are now a number of active programs in place to lower yields on our debt.

But we are still in the early stages. For years, my theory has been that the Fed and govt will eventually need to institute brutal financial repression in the form of yield curve control.

This simply means that yields on government bonds will be kept low, even if inflation is high. I’ve shown this chart from the 1940s a few times now, but there’s a good reason for it. This is not just our past, but our future too.

The blue line shows inflation, while the red line is the yield on a short-term Treasury bill.

So in 1942, inflation hit 13%. In a free market, bonds would fall in value and the yields would rise to adjust. After all, bond owners don’t like losing purchasing power.

But the Fed didn’t give them a choice. They got a 1% yield while inflation reached as high as 13 to 20%. Savers and those on fixed income got wrecked.

My prediction is that we’ll find ourselves in a similar situation in the near future.

When a country has a massive pile of unpayable debt, there are limited options. Printing money to patch things up is always the easiest choice, so politicians will default to that.

If this scenario plays out, U.S. Treasuries will initially do well. As yields are crammed down, bond prices will soar.

But when inflation hits 10%, and you’re only getting 1% on your Treasuries, it’s going to sting. And if this inflationary period lasts as long as I think it will, the real value of those Treasuries after 10 years will be minimal.

Sure, you’ll get paid back “in full”, but those dollars will be worth a tiny fraction of what they once were.

What WILL Work

Back in April, I wrote another piece on this topic titled Sounding the Alarm on American Debt. Here’s an excerpt about how investors can prepare for what lies ahead:

Gold wasn’t an option in the 1940s, at least in the U.S. Owning bullion was illegal for American citizens. And the price was capped at $35/oz regardless.

Fortunately today Americans can own precious metals. And they will be key to preserving wealth going forward.

So what did work in the 1940s? Commodities. Hard assets. Industrials. Defense.

I believe a return to yield curve control is inevitable. It probably won’t happen for a few years. If and when it does, you’ll want to have plenty of exposure to select foreign stocks and natural resources.

We are fortunate that today we have precious metals as an investment option. Imagine those investors in the 1940s, facing waves of inflation with no option to buy gold.

In the 1940s investors also couldn’t easily buy foreign and emerging market stocks, which is going to be key to escaping the coming financial repression.

We have more tools available today, and that’s a very good thing. We’re going to need them.

A 60/40 portfolio made up of U.S. stocks and bonds has done incredibly well over the past 40 years. My expectation is that it will struggle greatly over the next few decades.

The post Gold Smells a Rat appeared first on Daily Reckoning.

Back in the 1980’s, there was a pizza place outside the Tropicana Casino in Atlantic City. That is where I learned all about casino games. I’d sit in a booth eating a greasy slice of pizza, while my uncle waxed on about blackjack hands or craps odds.

My uncle skipped college and went to dealer school. I used to sit in my grandmother’s kitchen and watch him practice shuffling multiple decks of cards. He always had big red dice or decks of cards with holes drilled through them.

From those late-night sessions, I determined that gambling was entertainment. As in, it cost me money to play. And even when I won, it wasn’t enough to cover my losses.

I still like to sit at a table occasionally because it’s fun. But I’d never consider it a retirement plan.

And yet, we have an entire generation doing exactly that. According to a St. Bonaventure University poll, 27% of all Americans and 52% of American men between the ages of 18 and 49 have sports book accounts.

Of those people surveyed, 85% think that they can make money doing it. In fact, only about 4% of betters made money in the long term. According to a study from the Rady School of Management at the University of California San Diego, 96% lost money. And the survey’s lead researcher said this:

“Only 4% made money from online betting. That is by design. Online gambling platforms often ban or throttle frequent winners’ accounts. There is no right to gamble.”

Seems like a good business. And the marketing is everywhere. I don’t know about you, but I see and hear gambling app ads constantly. Every sporting event on tv, podcasts, YouTube videos, popups, you simply can’t avoid DraftKings, Hard Rock Bets, Fan Duel, etc. And now we have apps like Kalshi, that let you bet on anything.

It’s way too easy to gamble today. And there is a reason for that. Remember the old saying, if you don’t know who the “fish” is at the table…then you are the fish. The fish is the inexperienced player that ends up losing money. In these betting apps, you are always the fish.

There’s a reason those apps are easy to get. They want your information. Just like every other online subscription you have, you become the commodity when you sign up.

Some of these apps will even pay you money to subscribe. I saw an add this week that offered $100 in bets if you put $10 in your account. If you think they are giving you that money out of the kindness of their hearts, well…as we say down here in the south, “Bless your heart”.

These gambling sites make so much money that they can afford to take a small loss to get you in. They know that they will make far more money over the long run. You see, they take a cut from every bet you make. It’s called the hold or the vig.

For a big, liquid bet on a football or basketball game, the vig is about 4% to 5%. When you move into player prop bets, the vig jumps to double digits. Futures markets’ bets can go from 15% to 30%.

That’s why gambling apps are not investments.

Money managers’ fees on big managed funds range from 0.01% to at most 1.5% on very active funds. An easy rule of thumb for most funds is less than 0.75%. If the fund charges you 1%, it better be actively managed or have some justification.

If you pay more than 1% management fee, the fund is expensive.

Bets are way more expensive. Remember, you pay at least 5% on any bet with -110 odds. The math on that is not great. Here’s what I mean…

Let’s say you make 100 bets at $110 per bet at -110. If you win half of those bets, you are down $500, because of that vig. Just to break even, you must win 53 of those 100 bets. And that’s just on the basic bets. According to Fox Sports, here are the common vigs you’ll pay on betting apps:

Look, I can’t emphasize enough, how impossible it is to “invest” with gambling apps. This is fun. It’s speculation…but it is not investing.

Imagine you put $100,000 into a fund that pays 7%, and you leave it there for 30 years. If the fund charges you 0.1%, you earn 6.9% and your investment becomes $740,000. If the fund charges you 1%, you earn 6% and your investment becomes $574,000.

This is the kind of math a serious investor uses. And I’ve seen grown men get absolutely irate over a quarter of a percentage point in fees on funds. That’s because a quarter of percent point becomes serious money over thirty years. That’s why you can’t pay 10% per bet and consider it investing.

Online gambling is a huge business that’s growing quickly. According to multiple sources, online gambling will grow about 12% annually through 2033. The market currently is around $100 billion. That could hit $279 billion by 2034, according to Polaris Market Research.

To put that in perspective, the global copper market is only $260 billion. And online gambling could exceed that in less than eight years.

The best bet here is to take the bulk of your betting money and buy the stocks instead. You can do that through funds like the Roundhill Sports Betting & iGaming ETF (NYSE: BETZ).

Here are the top holdings of BETZ:

• Evolution AB: 7.2%
• Futter Entertainment: 7.1%
• DraftKings: 6.5%
• Allwyn AG: 6.5%
• Light & Wonder: 5.4%
• Lottomatica Group SpA: 5.2%
• Super Group: 5.1%
• Entain PLC: 5.0%

And the fund managers only charge you 0.75% in vig for BETZ. That’s a solid bet. Certainly better odds than you’ll find on these companies’ apps.

As I said, I’m not fun-shaming anyone. If you love to gamble, go for it.

My grandpop played the numbers every week for as long as I can remember. We would all sit on the couch when they pulled the ping pong balls out of their cages. He was always one number off. We always laughed. It was pure entertainment. At no time did he think it was a retirement plan.

The post Suckers Bet, Winners Invest appeared first on Daily Reckoning.

Today, let’s discuss aircraft carriers; namely, recent news accounts about poor food and living conditions aboard the long-deployed USS Abraham Lincoln (CVN-72), as well as President Trump’s recent order about future vessels using steam catapults versus something called an electromagnetic launch system (EMALS).

USS Abraham Lincoln (CVN-72) Credit U.S. Navy.

These are not just “Oh-yeah-military-stuff” stories. Indeed, these stories open the door to several Very Big Pictureissues: war, peace, operational tasking, military procurement, supply chains and industrial base (or lack thereof). And it’s all far beyond gossipy, political hit-job soundbites. So, let’s dig in…

Napoleon and Me – Same Ocean, Different Remote Islands

First, I’ve been traveling. In fact, I just spent two weeks on an arid volcanic island out in the Atlantic Ocean. It’s kind of like what happened to Napoleon, except I didn’t invade Russia or lose the Battle of Waterloo.

Indeed, I traveled to the far-off island of my own free will, to study geology; to observe and examine basalts, ash deposits, pyroclastics, aka “oceanic plate shield volcanoes.” My goal was to learn about mantle hotspots and energy/mass transfer from deep inside the earth to the upper crust.

To me, this kind of continuing education effort is “scientific” geology that helps me improve on the industrial side. That is, if you understand how energy and mass flow around in the earth’s crust, it helps to decipher why and how certain minerals form in certain ore deposits. And of course, that helps to find more gold, silver, copper, etc.

On the island, I had cell phone coverage and Internet, but I was kind of busy. Along the way I saw some headlines about how U.S. sailors are allegedly getting bad food and live in stark conditions aboard a deployed aircraft carrier, USS Lincoln.

And yes, this Navy news caught my eye… cuz I’m an old Navy guy with a few aircraft carrier deployments in the logbook (see below). But I was preoccupied with my own geology work and besides, I’m far from the facts of the story. The Lincoln is in the North Arabian Sea, and I was a continent and more away, out in the far Atlantic. Plus, I don’t receive Navy message traffic and absolutely can’t say what’s in the food storage lockers of Lincoln, or any other Navy warship or logistics vessel in that theater.

But over the past weekend I flew home, and the vagaries of airline travel put me in Switzerland for a day, where I had a chance to catch up on the “news.”

And in my humble assessment, there’s something quite wrong with what the public is being told. So, let’s put it all into more perspective…

I Know a Few Things

Begin with the fact that I – like hundreds of thousands of other current and former Navy people! – know a few things about aircraft carriers and long deployments to distant places. In 1985 I pulled a seven-month haul on the long-gone ex-USS Constellation (CV-64), across the Pacific and Indian Oceans and up into the North Arabian Sea. And we sailed all the way back, I’m pleased to say.

In 1990-91, I worked in what’s called “combat logistics,” and supported wartime carrier operations in the Mediterranean and Red Seas during Desert Shield and Desert Storm. That is, my job was to move stuff from Point A ashore to Point B, a gray hulled vessel making a wake out in the middle of some vast body of water. There’s nothing easy about it.

In the 90s, I sailed the Atlantic aboard ex-USS Enterprise (CVN-65) and later crossed the blue Pacific out of Japan, aboard ex-USS Independence (CV-62). And I have the flight jacket to prove it.

Your editor’s flight jacket. BWK photo.

Then in the early 2000s, working in the Med region, I did more of that combat logistics stuff in the early days of the wars in Afghanistan and Iraq. Long stories; not here.

So, I’ve sailed on a few aircraft carriers to a few places, and I know a few things. Now, any questions? Okay, you… in the front row.

• Are long deployments mentally tough and stressful? Yes, absolutely, totally. And like it or not, however down-in-the-dumps you might feel at times, you’re surrounded by 5,000 other people. Do you want some privacy? No way… But do you want some friends? Well, they’re not too far away either.
• Do sailors try to commit su!c!de by jumping off ships? Actually, yes, sad to say… It’s been happening since the days of sailing ships. Modern-Navy-wise, every couple of deployments there’s a story about some guy who jumps over the side. Take 5,000 people, age 18 to about 40 or so; put them under high stress for six months or more, somebody cracks and you get an “Oscar” – slang for “man overboard.”
• What about the news accounts of a guy who jumped off Lincoln, bobbed in the water for an hour, and was rescued? Well… it seems to be true and hey, miracles happen. That is, again per news accounts, somebody jumped; and at night I hear, which makes it very hard to find him. And in the middle of fighting a war, ships and helicopters diverted, located the individual and pulled him out. He’s now receiving psychiatric counseling.
• Frankly, this dude is lucky he didn’t get eaten by sea snakes and jellyfish. That was a huge fear when I flew in the North Arabian Sea arena. The intel officers briefed us that there were sea snakes and jellyfish in the water, and that’s all I needed to hear. The last thing I ever wanted was to get wet and become jellyfish food. Meanwhile, oceans are big and people are small; so, when you go into the briny sea your only true hope is that somebody misses you and sends help. Which is EXACTLY what happened here. In other words, we have a system for finding lost souls and in this case it worked as advertised.

More questions? Yeah, you in the second row:

• Do ships run out of fresh produce and milk? Absolutely… after about a week at sea! After that, it’s whatever can be canned, frozen, powdered, freeze-dried, boil-a-bag, preserved in plastic bins, etc. It’s been that way for a long time.
• Can all this preserved food become bland and boring? Yes, definitely. Just hope that you have some creative minds at work in the ship’s galley.
• Does the Navy resupply food to ships at sea? Of course! Since… like… the Civil War. And today, there’s food along with jet fuel, spare parts for airplanes and other ship functions, ammunition and related items like fuses and guidance kits, mail and packages, and much else. It’s a very complex operation.
• Do Navy ships keep food preparation spaces and mess decks clean? Yes, because nothing degrades combat effectiveness like hundreds of people getting food poisoning. So, cleanliness of food prep is a maniacal fixation on Navy ships.
• What about news accounts of crummy food, or not enough food? Well, I’m not there onboard USS Lincoln, but it doesn’t shock me that there might have been (or still are?) problems; I’ve experienced similar issues in my own past. But I’m inclined to think that if Lincoln had food prep issues, it’s been on occasion, due to vagaries of high-tempo operations in a war zone where resupply at sea is not at all easy. Because systemically, the Navy does have entire programs to move food and mail to ships at sea.
• So… What’s the problem with Lincoln? Why the headlines about crummy food and terrible conditions? Well, we’re here, not there on the ship; and we don’t know the facts, and news media sometimes twist a small amount of truth into a big lie. We’ll find out eventually, when more “real” news comes out. But for now, don’t discount raw politics and the creation of negative, emotion-triggering narratives in the current American cultural climate. Which leads to another discussion…

U.S. Has Very Deep Problems

Okay, enough day-to-day news. Let’s define a deeper problem: thirty-five years of high level, strategic failure in Washington, D.C. Yes, shocking. I know…

First, why are aircraft carriers – and do NOT forget the other ships in the battle group! – on these long-long-long deployments? Eight months, nine months, ten months… Because the Navy, and of course Congress and a long string of U.S. presidents, did not build enough ships, that’s why.

Long ago, the Navy had 18 large-deck aircraft carriers; then 16, 14, 12, and now “11” although it’s really 10 because USS Nimitz (CVN-68) is soon destined for decommissioning.

Long ago, the Navy had enough carriers to cover operational assignments in a way that allowed for six- and seven-month deployments. Now? Too many commitments, which is why we see these 8-, 9-, 10-month hauls.

Plus, add the task of fighting a war against Iran, with a high operational tempo. And include the important military fact that Iran shoots back at the carrier and its associated ships. My war-planning days are behind me, but fighting Iran ought to require six or more carriers (and air wings), which obviously will not happen.

Meanwhile, how long does it take to build an aircraft carrier? Well, try 18 years. Yes, 18 years. No typo.

Pre-Commissioning Unit John F. Kennedy departs Newport News for acceptance trials. Credit: HII.

In fact, just last week the USS John F. Kennedy (CVN-79) left Newport News Shipbuilding, a division of Huntington Ingalls Industries (HII). The ship is undergoing what are called “acceptance sea trials,” the final major evaluation phase before the vessel is handed over the Navy for commissioning, currently projected for March 2027.

From authorization to commissioning, this new JFK vessel took 18 years to build and bring to the fleet. Or ask the question another way: are there any fast fixes to add more aircraft carriers? Umm… nope. Things like this don’t get built fast. It’s called an “industrial base” issue

Meanwhile, why can’t the Navy bring enough supplies to its deployed ships? Because for 35 years the Navy – and Congress and a string of presidents – have failed to buy and build enough “combat logistics” vessels; the ships that haul fuel, ordnance and other supplies, certainly food.

Right now, in the North Arabian Sea arena, the Navy has just four combat logistics vessels to shuttle food and other cargo from ports in East Africa, Diego Garcia and South Asia, into the theater to replenish Lincoln and numerous other smaller vessels. Plus, a couple of “oilers” that haul jet fuel and other odds and ends. Overall, it’s not enough so the immediate workaround is to hire third party vessels, but now we confront restrictions on how suitable non-military ships are for military logistics (another long story).

I could continue, but… The story is “not enough” industrial base, supply chains, shipyards, skilled tradespeople, ships and sailors; plus, too many tasks for the Navy, and not enough steel and people to cover the long waterfront. It’s not that Navy people – from deckplate sailors to bigshot admirals – don’t know what to do out on the water. They just can’t cover all the missions with the available resources, and the system is stretched thin.

Right now, President Trump and his senior people are the political targets (and what else is new?). But the root of the problem goes back many decades, to a country and governing class that became strategically lazy, if not kind of stupid about reality.

Policymakers blew off kinetic issues like having “enough” ships and people to do the jobs. Presidents and Congresses failed to fund procurement. Institutional Navy didn’t fight for its long-term interests. And people write books about these things.

The EMALS Issue

One last item. Last week, President Trump signed a memo that instructed the Navy to investigate going back to steam catapults on carriers, versus continuing with EMALS. Among other journalistic malpractice, no less than the Wall Street Journal presented it as a cavalier dictate about “ripping out” entire sections of ships to replace EMALS with steam.

No, no, no… WSJ is completely wrong. Trump signed an order that gives the Navy 60 days to explain the virtues of EMALS over steam, now after several years of operation. This might impact construction of one carrier (CVN-81, future Doris Miller), which is in the very preliminary stages of construction, with a few keel-pieces in place and not much else.

If Navy does go back to steam, it will require long-lead buys of numerous systems and machinery, but HII certainly knows how to build these things after all the Nimitz-class vessels it has constructed.

Again, the EMALS controversy is just the news media and political hacks looking for click-bait stories. Don’t be fooled.

And that’s all for now. Thank you for subscribing and reading.

The post What’s Going on With Our Navy? appeared first on Daily Reckoning.

China is running their favorite playbook on AI.

The same one they ran on metals, rare earths, cars, solar panels, and manufacturing in general.

It’s a simple model. Build stuff for cheaper than everyone else, and undercut the world on price.

We’ve been watching this play out in manufacturing for a long time. Now, China is coming for American AI companies’ market share.

Rising Competition

For a while, it seemed like America’s AI lead could last forever. We had the best models, the best hardware, and China was restricted from using Nvidia GPUs.

But those days are over. Chinese AI models are approaching the top U.S. offerings in terms of quality. And cost is where it gets scary.

Chinese models cost anywhere from 60-90% less than the top American ones. Here’s a table comparing a few frontier models.

The latest Chinese AIs are 95-98% as good as ChatGPT and Claude (better in a few areas), and offered at a huge discount.

This is proving to be highly disruptive to top U.S. labs like OpenAI, Anthropic, and xAI.

After Chinese company DeepSeek released their latest open source AI model, DeepSeek v4, OpenAI cut the cost of their top model by 80%.

Rubbing salt in the wound is the fact that China’s models are almost all open-source, meaning they can be downloaded and modified by anyone. And used for any business purpose.

So they’re becoming extremely popular, as shown in the chart below.

Source: Financial Times

The chart shows AI model use by country, on OpenRouter, a service that developers use to access AI models. I should note here that OpenRouter doesn’t include developers who use American models directly with the provider.

So American AI is still doing well, but China is a real rising threat.

The trend is the important takeaway. Note how U.S. models (blue line) started the year with a huge lead over Chinese offerings on OpenRouter. And now China’s offerings are soaring in popularity.

Intelligence, Commoditized

The cost to run top-tier AI models is falling as competition rises. That’s good for users, at least.

I saw a post the other day where someone used DeepSeek V4 to create an entire functional video game for 7 cents. And it looked pretty good.

This is crazy. New territory. Never before has it been so effortless and cheap to create digital products. We’re going to see some crazy developments in the coming years.

And coding is just the first sector to feel the heat. Soon, AI agents will be capable of handling most white-collar tasks.

This is the commoditization of intelligence. And we’re less than 4 years into this madness.

Extreme Options

If Chinese models continue to improve at this pace, things could get ugly. I can see the U.S. completely banning Chinese AI models. After all, China banned our models very early on.

The tricky part is that most of China’s top offerings are open-source, meaning they can be downloaded and used anywhere. Effectively stopping companies from using them would be very difficult, and intrusive.

Unless we somehow ban Chinese models completely, which doesn’t seem realistic, this is going to put severe pressure on our leading firms.

The U.S. economy today depends on AI for the majority of its growth. If the pace of investment falls, or expected returns fail to materialize… That’d be bad.

With Chinese AI on the rise, American leaders are feeling the pressure. Hopefully they can buckle down and keep the breakthroughs coming.

The one positive about this competition between East and West is that it fuels innovation for both sides.

We’re going to see some miraculous, and terrifying, developments over the next few years. The cost of intelligence will continue to plummet.

For the first time in a long time, we have a real tech competitor in China. That’s good for breakthroughs, and healthy for the system as a whole, but it could be problematic for top American AI firms, many of which are valued at more than $1 trillion.

Eventually it could also be problematic for AI hardware firms like Nvidia. After all, China is banned from buying their GPUs, and is busy developing their own ecosystems.

In the long run, more competition is good. It keeps everyone frosty and on their toes. But in the short run, China’s emergence as a peer threat could have some brutal effects.

The post China Aims to Spoil the AI Party appeared first on Daily Reckoning.

A quick weather alert. All week long, our computer — somehow in league with the French authorities — has alerted us to an Extreme Heat Advisory.

Today, the temperature will be pushing up to 100 degrees. Tomorrow, too. The Mirror:

Extreme heat is gripping the UK and Europe this summer, with nearly half of England and all of Wales officially in a drought. England’s Environment Agency and Natural Resources Wales announced their driest months on record, marking the third time they’ve been broken over the past five years. It comes in the wake of four record-breaking heatwaves since May, which Chloe Brimicombe, a climate scientist at the University of Oxford, explained that adaptation to and mitigation of climate change are urgently needed. “We need better long-term planning.”

The Washington Post:

Few places around the world have experienced more unusual heat and drought recently than Europe. A record late-spring heat dome was a harbinger. Then the heat domes just kept coming.

These extreme conditions have turned once-lush landscapes dusty brown. Rhine and Danube rivers have been particularly affected.

Is this just the random movement of weather patterns? Or does it bespeak a more profound change…towards the final furnace?

We don’t know…but here in France it feels End Times-ish. Scorched earth. Zombie trees, still standing but dead to the heartwood. Ground so dry the grass crunches like glass beneath your feet. And people, like the remnants after the fall of Rome, cower in their houses afraid to show their faces in the light of day.

A heat apocalypse? We don’t know. But a summer rain is in the forecast for Saturday.

Meanwhile…

There is the odor of decay on Wall Street too. It smells as though the AI brew may be getting ready to turn.

There are three main groups in the AI complex. There are the chipmakers — Nvidia leading the pack, followed by Broadcom, Micron, AMD, ASML and TSMC. They are the pick and shovel sellers. Together, they are said to be worth $11 trillion. But they have only free cash flow of $236 billion. The theoretical investor, if he could buy the whole group and pocket the FCF, could expect to get paid back by the year 2073.

That assumes that no new tech comes along in the next half-a-century to compete with them…and no further capital spending (no new innovations requiring investment) are necessary. We might as well assume that the Baltimore Orioles will win the pennant each year for the next half a century too. But at least we see, once again, how hard it is to make money from an investment when it is over-priced at the get-go.

What sends the chipmakers into orbit is spending by another piece of the confabulation — the ‘hyperscalers’ — Microsoft, Alphabet, Apple, Oracle and Meta. These are companies that survived and grew fat after the last big boom/bust cycle in tech. They are worth, together, about $16 trillion. Now, instead of sharing out earnings with stockholders, they spend their money on capital investments (Capex) trying to stay on top of the latest tech innovations. Which just goes to show how hard it is to make money in new tech at all; there is always newer tech.

Their total Capex for the next twelve months is said to equal to nearly 3% of GDP. And there’s the trick. The money, flowing into the AI cluster, flatters sales and profits for them all. Capital goes into one company…and is taken as income by another. The casual investor sees the whole whoop-de-doo as a boom…and is desperate to get a ticket before the show leaves town.

Finally, there are the explorers and miners themselves…OpenAI, Anthropic, xAI among the most prominent. In turn, they contract with the chipmakers and hyperscalers…providing more ‘proof of concept’ and further exciting the AI bulls.

Behind them all is the hunch that if we were to reduce the cost of knowledge…thereby eliminating the salaries of the people who have it…we’d all be a lot better off.

But it’s all very well to make something cool. Then you have to sell it. Henry Ford doubled his auto factory wages…giving ordinary workers the money they needed to be automobile owners. In the AI revolution, however, instead of doubling their employees’ wages, AI is firing them. Forbes:

Companies Are Firing Workers To Fund AI That Isn’t Working Yet

In the Dot.com craze, investors believed internet traffic would double every 100 days. So, presumably, would sales. Success depended on getting as many ‘eyeballs’ as possible.

But now AI may actually pluck out the ‘eyeballs’ it needs to pay for itself. Eventually, as in all other big tech revolutions, the displaced workers will find new sources of revenue. Perhaps, as in ages past, they will rent themselves out as grooms, gardeners and chamber maids on the vast estates of the AI impresarios. But between the pink slip and the livery, it could be a rough transition.

And while the eyeball base may be shrinking, we are supposed to believe that the big AI ‘labs’ have a tollbooth on the road to tomorrow. This is not an impossible thing. The costs of entry into the business are so high that, like oil retailers, there are naturally only a few of them. Or, citing reasons of ‘national security,’ the feds might take charge of the turnpike themselves. The big tech bosses stood shoulder to shoulder with Donald Trump at his second inauguration. Could some public/private backroom deal be in the works, forcing AI traffic onto a few controlled highways — with regulated tollbooths? Maybe.

But every bubble eventually makes eye contact with its pin. The AI craze is facing all the prickly thorns that typically doom an investment mania. Most important, whatever trickle of profit the industry eventually produces will be dwarfed by the torrents of investment capital that have flooded in to get it.

After the high-water mark in 1999, Microsoft, a genuine success story, saw its stock price cut in half. For Intel investors, the pain was much worse. The stock did not recover until this year — more than a quarter of a century after the bust. And JDS Uniphase investors, just to take a name from one of the tombstones, lost 97% of their money.

The pin is patient. But we doubt AI investors will do much better.

The post Wall Street’s Odor of Decay appeared first on Daily Reckoning.

Communism is on the rise in the United States and has now entered otherwise mainstream Democratic Party politics.

The Democratic Socialists of America (DSA) is on track to increase the number of its members in Congress from two to at least six in January, possibly more. That’s not including Sen. Bernie Sanders, who calls himself a democratic socialist.

A DSA member named Francesca Hong just came within striking distance of becoming the Democratic nominee for governor of Wisconsin, one of our largest and most important states. Hong was narrowly defeated in the Aug. 11 primary by Milwaukee County Executive David Crowley.

Don’t be confused by those calling themselves socialists. A few may be well-meaning middle-of-the-road Democrats who favor the Scandinavian socialist model. But others are wolves in sheep’s clothing — communists who use the socialist label to hide their real intentions.

What’s interesting is that many of the new socialists don’t even try to hide their radical leanings. They publicly call themselves socialists and are proud of it.

After the fight against communism in the U.S. in the 1950s and the U.S. victory in the Cold War by the early 1990s, most Americans might assume that communism is no longer a threat to the American way of life and the U.S. political system.

That’s a mistake.

Communist and Marxist ideas are alive and well in the U.S. and are thriving in universities, think tanks, foundations, the media and other institutions that Americans typically think of as having better motives.

The Evolution of Revolution

This ideological infiltration may follow Marxian economics, but the method used by the new communists was anticipated by the Italian communist Antonio Gramsci, who wrote in the 1920s and 1930s.

Gramsci agreed with Marx’s goal — the abolition of private property — but he thought the way to achieve it was not through violent revolution but through a long-term struggle for control of society’s cultural and political institutions.

Decades later, this strategy came to be described as “the long march through the institutions.”

In other words, communism would not necessarily win by direct confrontation but by a gradual infiltration of education, culture and governance and the decline of critical thinking.

U.S. institutions would become ideological boot camps and propaganda outlets that would gradually convince Americans that communism, dressed up as “socialism,” was the better path.

From there, it would be a simple task to tear down traditional constitutional structures by getting rid of the Senate, the Electoral College and an independent judiciary.

Top-down communist control would be the final step. No revolution required. Just long-term rot like the proliferation of mold or termites.

For a powerful example of this process, consider the recent controversy surrounding the Smithsonian Institution and testimony before Congress by Anthea Hartig, director of the National Museum of American History.

The dispute centered on whether America’s national museums have increasingly emphasized slavery, race and inequality at the expense of the country’s founders and achievements. Hartig defended the museum’s approach and told lawmakers that it does not take sides in America’s political debates.

The Smithsonian’s treatment of Benjamin Franklin, for example, emphasizes his history as a slaveholder. Yet Franklin was also one of the great scientists and founders of the 18th century and, later in life, became a leading abolitionist.

He served as president of the Pennsylvania Society for Promoting the Abolition of Slavery and, in 1790, petitioned Congress to work toward ending slavery.

Franklin also became the nation’s first postmaster general, helped establish an early fire insurance company and helped found the institution that became the University of Pennsylvania, where I attended law school.

The real issue is one of emphasis: whether America’s national museums should primarily celebrate the country’s achievements or increasingly focus on slavery, race, inequality and other failures in the American story.

That debate is worth having because institutions shape the way Americans understand their own country.

A Very American History of Communism

Communist ideology never entirely disappeared from America. It took root in organized political movements following the Bolshevik Revolution in Russia in 1917 and expanded during the Great Depression.

The New York Times’ Moscow correspondent Walter Duranty notoriously minimized Stalin’s man-made famine in Ukraine in the early 1930s, reporting that helped obscure the brutality of the Soviet system.

American communism suffered a setback after the Molotov-Ribbentrop Pact of 1939, which was a nonaggression treaty between the Soviet Union and Nazi Germany. American communists and fellow travelers were disillusioned that Stalin would make a deal with Hitler, who was universally viewed as the avatar of fascism.

Anti-communism reached a frenzy stage during the Cold War with the execution of Julius and Ethel Rosenberg in 1953 after their conviction for conspiracy to commit espionage, the Alger Hiss case, accusations of communist infiltration leveled at government officials by Sen. Joseph McCarthy and hearings by the House Un-American Activities Committee.

Despite these setbacks, the radical left had a revival during the 1960s and 1970s and is prominent today in the success of the Democratic Socialists of America, now the largest socialist organization in the United States.

Castro’s American Alumni

Cuba also played an important role in the American radical left during the Cold War. Many American radicals traveled to Cuba or absorbed the influence of Castro’s revolution, including Stokely Carmichael and Angela Davis.

Karen Bass, now the mayor of Los Angeles, traveled repeatedly to Castro’s Cuba in the 1970s as part of the Venceremos (“We Will Conquer”) Brigade, where young American left-wing activists worked alongside Cubans and were immersed in the communist revolution.

Cuba was not the only source of communist influence. Barack Obama, as a teenager in Hawaii, had a relationship with Frank Marshall Davis, a writer and activist with documented ties to the Communist Party. Obama later wrote about Davis in Dreams from My Father and the influence Davis had on his thinking about race and identity.

If you wonder why race relations in the U.S. remain strained after enormous progress beginning in the 1960s and why socialism is on the rise today in urban centers like New York and Los Angeles, the history of the American radical left and its ties to international socialist movements are worth understanding.

The labels and tactics have changed, but the underlying struggle over property, markets and political power has not disappeared.

Politics Comes for Your Portfolio

The rise of socialism inside the Democratic Party is an enormously important political story on its own. But it also has huge investment implications that could affect your portfolio.

Many democratic socialists favor higher taxes on wealthy households, expanded government healthcare and tuition programs and sweeping changes to policing, immigration and other institutions. Some prominent figures on the left have also supported “wealth taxes” — which would tax certain holdings of property, shares, bonds and other assets rather than merely income.

Depending on how such a tax were structured, investors could find themselves selling retirement assets just to pay the new wealth tax.

Apart from causing social and economic disruption, these policies could hurt your retirement because you’ll have to pay the taxes needed to finance them. Later, you may pay even more taxes to clean up the mess.

Gold and silver may be among the best assets to own in these circumstances because they’re non-digital, can be held outside the banking system and are difficult to freeze electronically.

The post The DSA’s War on Wealth appeared first on Daily Reckoning.

I like to put my money where my mouth is.

If I’m talking about an opportunity… or a sector… it’s probably because I’ve put substantial capital at stake.

For the next three months – and possibly beyond that – there’s one sector of the stock market that’s my biggest buy.

I’ve invested hundreds of thousands of dollars – in the last month.

I’m not alone in this conviction, either.

See, I dug into all the portfolios at Paradigm Press.

Everything Jim Rickards publishes… from his vantage point of defense, metals and resources…

And every portfolio by James Altucher too… ranging from artificial intelligence and biotech to other, more advanced technologies.

In fact, Enrique Abeyta just recommended one of my favorite companies in this sector, too.

Across Paradigm Press, there’s one company that popped up again and again.

I’m going to name that business for you today, in this article. It’s not behind a paywall. You don’t need to subscribe to anything.

First, I want you to understand what’s at stake.

The Last Time This Happened, Shares Tripled — FAST

The last time I saw the stars align like this was last year during an event we held called the All-In Summit.

See, at the time, we were caught up in this trade war with China…

And that put rare earth metals in focus. Rare earths are essential to all our advanced technology. We can’t have the tech without these resources.

That’s why all three of our primary analysts recommended shares of USA Rare Earth (USAR). They own the largest deposit of these metals anywhere in the world, outside China, who controls over 90% of the world’s processing.

Then, something remarkable happened.

Within two months, shares tripled in price. Reports began to leak of a direct government backing. More investors became aware of the company’s strategic position relative to the Chinese trade war. Analysts started to aggressively raise their price targets.

And that was just the shares. Readers who decided to leverage their trade using options made up to 1,000% — again, in just two months’ time.

(I’ve personally used options to make 1,000% dozens of times… those who say it cannot be done are lying to you).

Sure enough, the government ended up taking a direct stake in the business.

A New, “All In” Buy?

Their research is aligning once more.

There’s a new technology that’s essential to our nation’s security. We can’t protect our borders without it. And we can’t wage war properly without it either – at least, not anymore.

We’ve learned this the hard way due to the war in Iran. They’re using this technology against us to control the Strait of Hormuz and hold the global economy hostage.

Jim likes it for the defense implications. He sees a lot of money rushing into this sector. And indeed, the government is requesting a sizeable increase from last year, for this year’s budget (which starts October 1).

James likes it for another reason. Yes, it’s critical for all the aforementioned reasons. But it’s also one of the finest, real world examples where artificial intelligence is converging with robotics and real automation. Add in the government’s backing… and it looks like a layup.

I’m talking about drones – the technology that is rapidly replacing soldiers on the battlefield.

They’re used for a variety of purposes… surveillance and reconnaissance… kamikaze strikes… and even to counter-strike other drones.

These weapons have been on display during the Ukraine war for almost five years. Russia and Ukraine both use them extensively. There have been numerous, high profile instances where Ukraine has used drones to penetrate Russian territory and disable key infrastructure – allowing them to hold the enemy at bay. It’s one of the reasons this war has dragged on for so long.

Then there’s the war in Iran. Iran can produce drones for about $35,000 that can take out any ship in the Strait. It’s given them massive leverage.

But the biggest fear that I have personally in all this is China. There’s one Chinese company, called DJI, that can produce more drones that every business in America, combined… on a factor of about 100.

China is way ahead when it comes to robotics (not just drones) and other forms of automation. It’s one of the secret reasons why America has been building out AI data centers so aggressively – because we need to catch up, and fast.

The One Stock You Need to Own

The one company that keeps popping up across Paradigm Press is AeroVironment (AVAV) – the largest pure play in the drone space.

They manufacture a kamikaze drone called the Switchblade. It launches into the air, loiters in mid-air while it searches for its target, then attacks – falling from the sky to disable an enemy.

It comes in multiple sizes. Soldiers can carry smaller ones on their back and launch from a strategic position. Larger ones can take out tanks.

The U.S. army has ordered thousands upon thousands of these.

The company is also working on a newer product line, called Mayhem, that is larger, has more range – and is designed to be fully autonomous. It can also perform intelligence gathering, conduct electronic warfare, and of course, bomb opponents to hell.

I own quite a bit of the stock.

But I’m not putting all of my eggs in one basket.

The Government’s 24,000% Investment

I personally own shares of it as well. Enrique also recommended shares of it to some of his subscribers this week.

However, Jim also recommended a special trade that could return more than 10-times your money within weeks.

We’re targeting a major catalyst date.

See, the new federal budget starts October 1. And the government is requesting 24,000% more money for its autonomous warfare program.

Last year, this program received $225.9 million in funding.

This year, they’re asking for $54.6 billion.

The overall budget for drones, counter-drones and autonomous systems is expected to be even larger — $74 billion. We’re talking about the kind of money that major branches of the military spend – all being summoned at once to create what Jim calls “a seventh branch of our nation’s military.”

Nothing has ever happened on this scale.

And as we get closer and closer to the new fiscal year, we expect Wall Street to front run the opportunity.

Because starting October 1, we could see tens of billions of dollars rushing into this relatively new sector of the market where the companies are all really small. AVAV itself is not even a $10 billion company. And when small businesses get enormous backing from the most powerful government in the world, shares can move fast.

I really want you to understand what’s coming. Because this is a major investment theme. And I think it’s going to make a lot of people rich over the next year.

Jim is recommending a trade that could rise rapidly as we march into the new fiscal year. And it’s all starting this week, as Wall Street reveals some important data about how they’re positioning themselves.

I’ve positioned myself accordingly. But it’s also my responsibility to help communicate these ideas to our readers – because I get a bad feeling in my stomach when I’m making money and you’re not.

This opportunity rests at the convergence of so many forces… Washington and Wall Street… AI and defense… robotics and software… and the Pentagon is requesting tens of billions of dollars for it.

The post I’ve Invested $330,471 in This Sector appeared first on Daily Reckoning.

You may have already seen some of what I’m about to share in The Daily Reckoning. But given what we’re focused on here and the sheer amount of money now moving into this corner of the defense industry… I think it deserves a second look.

The drone itself is only part of what’s happening here. Building a military around unmanned systems requires an enormous industrial ecosystem underneath it like chips, sensors, batteries, rare-earth magnets, software, machine tools and, most importantly, the factories capable of producing these systems at scale.

That’s the side of this story Byron has been looking at.

So with that, I’ll pass it over to Byron to show you just how much the battlefield is changing and what this massive buildout could mean for investors…

We’re out of time. The future is now.

I’m talking about drones, which are no longer an exotic military sideshow, tucked away in research labs while the so-called “real warriors” plan the next campaign. Like phalanxes of marching soldiers, or guys riding horses into battle, that era is over. Drones are now the latest – and likely decisive – military thing.

The Army, Navy, Marine Corps, Air Force, Space Force, Coast Guard, law enforcement and even firefighters are in the drone business. If it can fly, float, roll, crawl, loiter, listen, jam, scout, strike or blow itself up at the right place and time, it belongs in the new, unmanned order of battle.

Think of drones the way old-timers once thought of radios, radar, GPS, precision navigation or night vision. First, they look like clever add-ons, bolted to the airframe, deck plates, or a rack in the back of a truck. Then they become force multipliers. Over time, they become doctrine. Finally, they become table stakes.

Air Power Gets Less-Manned

Begin with air power. The Air Force has been “droning” for years, whether it used that word or not. Cruise missiles, decoys, loitering munitions, anti-radiation weapons and electronic attack packages have blurred the old line between aircraft, missiles and science fiction sky-robots.

A loitering munition can search, wait, attack or return if there is nothing worth killing. MALD, the Miniature Air-Launched Decoy, spoofs air defenses. HARM, the high-speed anti-radiation missile, hunts radar systems. Together, these tools show where air combat has gone: aircraft, missiles and semi-autonomous or autonomous systems now occupy the same battlespace.

MALD missiles. Credit Raytheon/RTX.

In other words, the drone is no longer a science and engineering experiment. It has become a business model for modern war, and a rebuke to past planning processes, acquisition timelines and chronic risk aversion, all designed for a slower world that is long past.

The Pilot Becomes a Mission Commander

Here’s the next step: collaborative combat aircraft, or CCA. These are unmanned aircraft that function via artificial intelligence (AI), built to fly alongside manned fighters, bombers, surveillance birds and tankers. They carry sensors, scout ahead, jam radars, haul missiles, absorb enemy fire or hit targets where commanders do not want to risk a living, breathing pilot. But the key part of a CCA is not the airframe; it’s the autonomy stack that lets the machine sense, decide, maneuver and cooperate inside a larger combat network.

For years, a small community of defense visionaries argued that war would become faster, cheaper, more distributed and driven by autonomous systems and AI. They were called too commercial, too theoretical, too Silicon Valley-ish. Turns out, though, those guys were right.

Now the Air Force has moved CCA from PowerPoint Dreamland to contracts, flight test and production. The air service is not just buying drones. It’s moving toward a procurement model in which hardware and mission software can be competed and upgraded on separate timelines. A future F-35, F-47 or B-21 will not fight alone. It will fight inside a moving code-cloud of sensors, shooters, jammers and electromagnetic tricks.

Drone is my copilot and wingman. Future notional CCA. Credit US Air Force.

And the central question is not whether a pilot is comfortable with an autonomous wingman. Broadly, that decision has been made and now the issue is how the overall package works in wartime, especially when ideas cycle through in days and weeks (and as we’ll discuss below, this is one of many lessons from Ukraine).

Trust in new technology is not an immediate and warm feeling; it must be earned. So, before anyone trusts an AI-driven CCA, the software, communications and cyber defenses must survive deception, electronic attack, GPS denial, spoofed data, degraded links and every other dirty trick a thinking enemy will throw at them.

The old Pentagon way of buying and building new weapons was to fund new ideas on the margin while protecting legacy programs of record. But that luxury is gone, which is why CCA is not just an aviation story. It’s a validation story, a software-assurance story and a network-resilience story.

Manned or unmanned, every aircraft is now a node in a large kill chain. If the network is hacked, delayed, spoofed or denied, the airplane’s performance becomes almost secondary.

The Navy Builds Mother Ships

Characteristically, the Navy took longer to get there, but it is getting there. In the mid-2010s, Northrop Grumman’s X-47B proved that an unmanned aircraft could launch from and land on an aircraft carrier; no small trick, considering that carrier aviation is one of the most demanding operating environments on earth (as I know from first-hand Navy experience).

Navy X-47B autonomous drone in 2015. Credit U.S. Navy.

The actual, experimentalX-47B aircraft (image above) went into storage; but over time, the idea behind the program morphed into Boeing’s MQ-25 Stingray, an unmanned carrier-based refueling aircraft.

And okay, aerial refueling may sound boring, but it’s not (again, ask me how I know). Because tanking is range, range is reach and reach is combat power. Meanwhile, MQ-25 lays the command-and-control foundation for a future carrier air wing full of unmanned systems.

Follow that drone-style logic into non-carrier shipbuilding. New vessels are being built with dedicated space to store, fuel, prepare, arm, launch and recover unmanned systems — not just aerial drones, but surface and underwater drones too. In other words, a modern warship is no longer your granddad’s gray hull, stuffed full of guns, missiles and sailors. It has become a mother ship for both controlled and autonomous drones.

USS Somerset (LPD-25) can carry aerial, surface, subsurface drones. Credit U.S. Navy.

Whether launched by air, surface ship or submarine, drones can scout or attack. Underwater drones can map, listen, lay sensors, hunt mines, shadow submarines or perform missions too dangerous or dull for real people. That creates opportunities not just for traditional shipyards, but also for suppliers that can build unmanned vessels cheaply, quickly and at scale.

Ukraine Shows the Future

This is where Ukraine enters the story as a brutal laboratory and testing-range for drones. Small FPV (first person view) drones, long-range strike drones, loitering munitions and improvised systems have changed the character of the battlefield.

Drones watch trenches, spot artillery, attack armor, cut logistic lines, strike air bases and force both sides to move, hide, jam the other guy, and adapt fast. In fact, the life cycle of a drone’s usefulness is not years or months. It can be weeks, days, even hours or minutes because the enemy watches, learns, jams, copies and counters.

One critical lesson from Ukraine is that drones are not just warfighting tools. They are product development under fire.

Production Wins Drone Wars

For investors, the market angle is that drones are not just weapons. They are complex, moving AI learning systems. They require software updates, signal processing, anti-jamming tricks, antennas, batteries, motors, optics, tactics, operators and constant verification.

A drone unit is part air arm, part artillery observer, part radio shack, part machine shop, part software lab and part test range. The side that manufactures faster, ships quicker, assembles more efficiently, tests more realistically, updates software faster and repairs better gains the warfighting edge.

The Factory Is the Front

Now we get to the hard part. You don’t win a drone war with a boutique defense-industrial base. You win it with production, and not by the dozens, hundreds or thousands, but by the hundreds of thousands, if not millions.

For this vast scope of buildout you need carbon fiber, fiberglass, aluminum, titanium, specialty steels, small engines, propellers, batteries, rare-earth magnets, chips, cameras, antennas, LIDAR, software, test ranges, machine tools and skilled workers. And you need mines, mills, refineries and factories… especially factories.

This is why the new defense companies are talking like mass production industrialists. For example, Anduril’s Barracuda family is built around software-defined, mass-producible autonomous air vehicles. The selling point is not just range or payload. It’s fewer tools, fewer parts, faster assembly and a supply chain designed for scale; to “make it rain missiles,” so to speak.

Mass drop of Anduril “Barracuda” drones. Credit Alex Hollings/You Tube.

In a high-end war, the current arsenal of “exquisite” weapons will be consumed faster than Congress can hold hearings about why the armed forces are out of them. Gold-plated systems designed like hand-sewn, bespoke Saville Row suits may be impressive. But that’s not how to win a modern war against a capable foe.

Follow the Supply Chain

All of this does not mean the old defense primes will go away. Far from it. Lockheed Martin, Raytheon/RTX, Northrop Grumman, General Dynamics, Boeing, Huntington Ingalls, L3Harris and others in that arena still have customer relationships, classified program access, integration muscle, product lines, assembly and est facilities, workforce depth, access to capital, and of course entre to Congress.

But the drone boom is opening cracks in the castle wall. Legacy primes have checkbooks and technical benches that can scale. But startups can move faster. The likely winners will combine Silicon Valley speed with Detroit-style production, along with Pentagon-grade technical authority and combat reliability. In other words, the procurement establishment can no longer afford to treat the new crowd as a kiddie-table sideshow.

Watch shipbuilders too. The Navy’s future is not just buying more big gray hulls. The sea service is building out a mixed fleet of crewed ships, unmanned surface vessels, underwater drones, autonomous mine hunters, maritime sensors and launch-and-recover platforms. That points toward demand for steel, engines, electrical systems, autonomy packages, rugged communications, modular payload bays, shipyard capacity and repair yards.

Along these lines, one company that is both legacy but also quite nimble is Huntington Ingalls (HII). It’s worth a longer writeup all on its own, but not here. The takeaway is that HII builds nuclear submarines, aircraft carriers, and large numbers of surface ships, while is also has an aggressive program of drones called Romulus and Remus; the former being surface drones and the latter for underwater. The company is definitely working to secure long-term Navy business.

(Note: HII is not an official recommendation and we won’t track it here in Strategic Intelligence. But it’s a solid company for long term investors.)

On the other side of the planet, China understands all this about drones and the industrial base. Indeed, China has spent decades building the upstream and downstream muscle behind modern war: ore deposits, mines, mills, refineries, critical minerals, rare-earth magnets, batteries, electronics, components and final assembly. China’s shipyards alone are nothing less than astonishing.

Back here in the U.S., we’re just at the point of broad realization that every drone needs a supply chain before anyone can even think about finding a target. Carbon fiber, chips, magnets, batteries and sensors do not emerge from policy papers. They come from industrial systems that have yet to be built out in America.

All of this also puts rare earths and battery metals on the front page of defense investing. Neodymium, praseodymium, dysprosium and terbium are magnet words. Magnet words are motor words. Motor words are drone words. Add lithium, graphite, nickel, cobalt, copper, aluminum and tungsten, and suddenly the drone story is also a mining story, a refining story, a battery story and an industrial metals story.

And no, we’re not tossing out the old platforms. Submarines are still war-winning weapons. Just as aircraft are critical weapons. Plus missiles, tanks, ships, satellites and radars. But ore in the ground is a weapon too. Refineries are weapons. Machine tools are weapons. Battery plants are weapons. Software libraries are weapons. Assembly lines are weapons.

Here’s the takeaway: in the new age of drone warfare, the factory is not behind the front. The factory is the front.

The Investment Lesson

Here’s the investment lesson: Drones change tactics because they put eyes, ears and explosives everywhere. They change operations because commanders can coordinate fires, movement and logistics with persistent surveillance and rapid feedback. And they change strategy because nations must plan for production depth, electronic resilience, data dominance and supply-chain sovereignty.

Follow the money and you’ll find it flowing toward autonomy, software, sensors, counter-drone systems, batteries, rare earths, machine tools, cyber resilience and the old-fashioned industrial base that still wins wars.

Modern war is industrial war, now fought at software speed. Stockpiles matter, but stockpiles run down. Production keeps armed forces in the fight, and logistics keeps production relevant.

So, while we’ve been discussing drones, don’t confuse the shiny moving thing with the whole story. The real story of a drone is the stack beneath it: motor, magnet, battery, chip, sensor, code, secure network, factory, mine and ore in the ground.

This is where the next great defense trade begins: not with an aircraft on a runway or a ship cutting a wake, but with the magnets, batteries, tools and factories that make drone war possible.

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