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• This is a preemptive attack. There is no way the extent of this attack is hitting just a few targets in the capital city of Tehran;

  • If you’re going to risk a huge land war with Iran, you’re going all the way, and that means attacks on every suspected nuclear enrichment site in the country, and that will take at least a few days, if not weeks;

• The U.S. issued a statement before this attack that if the Israelis did go forward, they would be on their own, meaning no U.S. involvement. That freed up the Israelis to do what they wanted;

• Trump was serious about doing a deal with Iran and the Israelis just didn’t want to hang around for them to break it later and find out the hard way. (I’m not saying this is right, but I do understand the logic);

  • This opens up a lot more pieces on the chessboard. Will China and Russia intervene in any manner on Iran’s behalf? I doubt it.

    • We own the water around the Middle East, half of Russia’s fleet has been destroyed by the Ukrainians, and China, which has a much higher number of light ships, is way underrepresented on an average tonnage basis. Translation: they (quite literally) don’t want to go into deeper waters with us. Not only do we have a massive size advantage, we are battle-tested. Their naval battles have all been fought in computer simulations;

• Iran will respond;

• Key question: will the Iranians target U.S. assets in any way? I believe that would be a serious mistake for them. Why give Trump a bona fide reason to unleash on them?

Investment Implications

It’s always distasteful to think about money during situations like these, but I am a fiduciary and trust and confidence has been reposed in me by others to look after their assets, and look after them I will.

Again, first thoughts:

• Oil is up 7.45 percent as I write, to $73.02/barrel. Goldman is saying $130 is the outside number. That seems like a number designed to get clients to trade;

  • It’s possible, but it would take a big interruption of all Middle Eastern supply and a complete shutoff of Russian oil as well;

  • That’s not outside of what is possible. I can see the Ukrainians seizing on this to blow up more Russian oil infrastructure;

  • Will Iran and/or their proxies hit Saudi Arabia? Again, possible, but unlikely - why ad to the list of countries that are/will attack you?;

• Crypto is getting crushed being the only risk asset that trades 24/7;

  • I had the Fund at 20 percent cash at the close today and on the news around 8pm went to 90;

  • The Fund was having a nice up month and I locked in those gains (after giving some back);

  • IF, and it’s a big if, Bitcoin can stop the bleeding somewhere reasonable and rally the way gold is (+1 percent as I write), that would be a major milestone;

    • Historically, all of crypto has done horribly when wars have started;

• The dollar is up 0.13 percent, not much, but that shows you how flawed the currency is;

• I still have the separate accounts in a lot of European defense stocks and they will be up tomorrow;

• I recommended (to Subscribers) on June 3, 2025 that they buy the XLE energy ETF (at $82.99), and that I had taken an eight percent position in it;

  • War was not my thesis there, but I knew it was an upside possibility and I’ll take it (I’ve lost a lot of money on war news in the past).

• China is a clear loser here as it gets a lot of oil from Iran;

• Oh yeah, inflation will be rising and quickly. Oil is a feedstock into… everything. Remember, every piece of plastic in your house, car, clothes, etc. is made from oil derivatives.

Image 1: Defense Industry Strategy Deck Cover Page

In this presentation, I argued two primary points:

• That the world was set for a massive increase in defense spending; and,

• That where the money was spent was going to change dramatically (shifting to drones, autonomous, and AI).

It was the most compelling investment setup I had seen in my life.

NO ONE INVESTED IN IT. Not. One.

In the accounts that I manage on a discretionary basis, I took defense equities to 50 percent. Those did very well.

Chart 1: Defense Investment Percentage Performance Since February 9, 2024

Chart 1, above, compares the performance of defense industry names I owned (colored lines) to the S&P 500 Index (white line - SPY). The S&P 500 was up 20 percent over that period. The defense industry names were up between 48 and 896 percent, with all but one more than doubling. The average was 278 percent, or 13.9x the S&P 500 Index.

Am I blowing my own horn here? Hell yes. If I’m going to own my losses, then I’m damn sure going to celebrate my wins.

The Russian Pearl Harbor

The Ukrainian strike on Russian air force bases all across the continent has not been fully appreciated by the media. This is one of the biggest events in military history and completely validates my investment thesis.

It should be apparent that everything about how war is waged has now changed.

The Ukrainians used a few hundred cheap drones and took out $2-3 billion worth of Russian strategic bombers (41 of them). These are the ones the Russians would conceivably use to deliver nuclear payloads and they are one of the key ways that Putin projects power out of Russia.

The return on that investment is essentially infinite.

Russia has not been mortally struck, but it is seriously injured, and now has to allocate a significant amount of resources to protect every military base it has, no matter how far behind enemy lines it is.

Remember, the Ukrainians are basically taking commerical drones and modifying them for their own purposes in a garage. These were not General Atomics Reaper Drones costing $33 million per copy (the ones you see in all the movies).

In fact, the days of $33 million drones may also be coming to an end. We’ll have to see about that.

It turns out that Zelensky was holding the right cards… and he played them well.

Chart 1: AeroVironment 2-Day Price

Chart 1, above, shows my recommendations.

I still have over six percent in this name, I just didn’t want 10 percent in it.

Buy low, sell high - so simple, but so hard for most.

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It would appear that others agreed.

Chart 1: March 5, 2025 AeroVironment Intraday Price

Chart 1, above, shows the initial decline and then sharp rally. I ended up buying at $115…

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Here’s a quick summary:

• Revenue $167.6M v. $192.3M estimate, missed;

• Adj. EPS 30 cents v. 61 cent estimate, missed;

• Gross Profit $63.2M v. $71.3M estimate, missed;

• Gross Margin 38% v. 36.9% estimate, beat;

• Backlog $763.5M +65% y/y, beat.

Wh…

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It’s all fake news.

The defense budget is going up this year (if it doesn’t get caught in a Continuing Resolution - and no defense budget has, they’ve always been carved out).

Any funds cut from the defense budget will just be reallocated to other priorities… in the defense budget, including: INDOPAC (the Indo-Pacific) and an “Iron Dome” for the U.S.

I go through the prime contractors and our names in this video:

Fair winds and following seas, my friends.

So the news was… Trump suggested that the U.S., China, and Russia should all just reduce their defense budgets by 50 percent and spend the money on more productive items.

Phew!

I …

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Nixon was seeking to turn opinion against drugs and the long-haired hippies who took them because he rightfully saw that they were his political opponents. In their meeting, Elvis threw the Beatles under the bus as well, rightly seeing them as his competition for album sales.

That was 1970. In 1974, Nixon resigned and three years later, Elvis left the building. What a long, strange, trip it’s been since then.

In the 1970s, drugs were all peace-and-hair-grease, with hippies smoking weak pot and taking strong acid. Reefer was a cottage industry dominated by friendly neighbors.

In the 1980s things turned darker as psychedelics gave way to amphetamines and cocaine. There were gunfights in the streets of Miami. The stakes were a lot larger and drugs had gone international.

Fast forward to today two days ago. Trump issued an executive order that effectively declared war on the drug cartels and a few players to be named later.

As usual, I’ve read it so you don’t have to. Here’s the basics:

(a) International cartels constitute a national-security threat beyond that posed by traditional organized crime, with activities encompassing:

(i) convergence between themselves and a range of extra-hemispheric actors, from designated foreign-terror organizations to antagonistic foreign governments;

(ii) complex adaptive systems, characteristic of entities engaged in insurgency and asymmetric warfare; and

(iii) infiltration into foreign governments across the Western Hemisphere.

Here’s the money quote:

It is the policy of the United States to ensure the total elimination of these organizations’ presence in the United States and their ability to threaten the territory, safety, and security of the United States through their extraterritorial command-and-control structures, thereby protecting the American people and the territorial integrity of the United States. (Emphasis added)

Let me translate here: the U.S. military is coming for the cartels and I expect everything from tier-1 operators making raids into Mexico to National Guard troops stationed on the border.

Investment Implications

Unambiguously defense positive and also positive for other defense-adjacent names such as:

• V2X (VVX); infrastructure asset management and logistics;

• Cadre Holdings (CDRE); Safety and survivability equipment; and,

• Avon Technologies (AVON - LSE); Helmets and respiratory protection products. Over 80 percent of sales in the U.S.

Chart 1: VVX, CDRE, and AVON One-Year Stock Appreciation

Chart 1, above, shows that all three names have responded strongly to Trump’s Executive Orders.

I’ve owned all these names for about a year. We’re still very early for them.

Thanks for coming out, B. Riley, but I put a buy out on this name at $18.63 on March 8, 2024, calling it “The Walmart of Battlefield Drones”.

When the B. Riley’s of the world have woken up to the name, it’s time to give some back. I…

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If only someone had given you this name back on March 8th, 2024 at $18.63! You’d be up over 59 percent on the open.

Hypersonics

So wha…

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On this one, Trump is absolutely correct. Defense free-riding by Europe is BS, they’ve been running Agent 007/11 for too long. Time to step up.

Plus the level of NATO preparedness is a joke. Basically, the entire strategy is: hold on for a month and wait for the cavalry (the U.S.) to arrive.

We knew this was coming and I’ve written about it extensively over the past year. The five percent level was the surprising part.

More importantly was Trump saying he would continue supplying military aid to Ukraine! This was out of left field because he’s campaigned on the exact opposite for the past two years. Is it just a negotiating ruse? pure genius? bat-shit insane? something that just flitted across Trump’s brain for two seconds and got Tweeted out? Yes.

Jump back, what’s that sound?

Trump is saying we’re going to take the Panama Canal back if the Panamanians don’t drop their canal shipping rates. (Now that’s a commitment to lower everyday prices!)1. I knew Trump would be undoing everything Democrat going back to the first Obama administration, but this goes back to Carter!

Investment Implications

Buy defense stocks in preparation for the Battle of Panama on weakness as Team Freedom rearms for a more hostile and dangerous world.

As I’ve written about for the past year, global defense is a secular trend unlike any I’ve ever seen, with a structural demand story locked in for a decade. Any price weakness should be used to accumulate shares.

I’m selling 22 percent of my position, taking it back, yet again, to two percent of the portfolio.

This name has become something of a meme stock and even though I still love it, I believe these panic buys should be sold. (There was some big Trump defense news over t…

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This is significant because the unmanned drones will be able operate in contested environments where there is no GPS or r…

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Chart 1: AeroVironment Chart with Callouts

If you’ve been following along at home, all we’re doing is giving the people what they need. When the stock is flying high and they need to buy it, we give them stock. When the stock declines and …

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I’m a buyer and you should be too. The stock will merely be at the bottom of its upward trend channel.

Chart 1: AeroVironment Price Chart

The 2Q numbers:

• Adjusted EPS 47 cents v. 67 …

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This thing keeps adding 25-30 basis points of alpha to the separate accounts every day and I continue trimming to keep the position at two percent of the portfolio.

Don’t stare at the screen adm…

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If this thing keeps going up a double-digit percentage every day, I’m just going to keep selling some to keep it at two percent of the portfolio. Yes, I won’t capture the full upside, but I’m locking in profits when I can, not …

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