The U.S. resumed bombing Iran, again. Yawn. Stretch. Turns out, the first 38 times President Donald Trump said the two sides were close to a deal were not quite accurate.
This time, Trump announced that the ceasefire is over. So, maybe Epic Fury 2.0 will have more teeth? It’s hard to say with any confidence we’d want to put our money on.
Overnight, oil popped higher but then gave back the gains. The stock market as a whole dropped slightly.
Stretch, again. Take a sip of coffee.
The only thing we know for sure is that Trump will need more money. He again suggested that the U.S. government raise the annual war budget from $860 billion to $1 trillion.
The timing is less than suspect. Trump is in Ankara for the second day of the NATO summit. Trump wants NATO to join in the fight against Iran.
At the meeting, a U.S. arms deal with Türkiye for F-35 fighter jets is on the table. And he has again been pressuring Europe to spend more on its own defense.
Currently, the EU spends less than 2% of its gross domestic product (GDP) on defense. Without the U.S., the EU would need to spend 3.5% of GDP, or 75% more, just to keep Ukraine on the battlefield with Russia:
European countries currently spend less than 2% of their collective GDP on “defense.” If the U.S. is less involved, that number will need to increase to 3.5%. (Source: Statista)
Defense spending is likely to keep rising for years. Combatant countries must replace weapons and equipment used or destroyed in recent wars as they prepare for a multipolar world.
It doesn’t take a quant to identify the algo:
First, recent conflicts have burned through military equipment, ammunition, drones, air-defense systems, vehicles and other supplies. Those stockpiles have to be rebuilt.
Second, governments may spend even more if another major geopolitical surprise occurs. That is what “geopolitical grey swan events” means: risks that are visible but not fully priced in, such as a wider war, a shipping-lane crisis, a Taiwan confrontation, a NATO emergency or a Middle East escalation.
Third, military spending is different from consumer spending. A country may postpone it for years, but if threats become obvious, defense becomes mandatory. Years of underspending can suddenly turn into a rush to rearm.
Fourth, modern defense is no longer just about tanks, ships and fighter jets. Countries still need those, but they also need drones, electronic warfare, cyber capabilities, missile defense, satellite systems, autonomous weapons and logistics technology. Updating militaries for that kind of warfare will require more money.
In plain English:
The defense boom is not a short-term trade tied to today’s headlines. It looks like it’ll be a long investment cycle driven by depleted stockpiles, rising geopolitical risk and the need to modernize armies for drone, cyber and electronic warfare; “The Great Race,” in not-so-many words.
Today’s Grey Swan Pro looks at a key defense contractor that supplies not bombs, but mission-critical technology. Its leading tech makes it a clear winner for a world spending more on defense — details here.
~ Addison
P.S. Tomorrow, for Grey Swan Live!, we’ll be tapping Shad Marquitz’s expertise in precious and industrial metals, mining and energy to zero in on the base layer of Jensen Huang’s “5-Layer Cake” – strategy for the AI intelligence economy buildout.
Specifically, the “Sovereign Bloc” strategy was established when President Trump issued an executive order establishing Project Vault.
Background: The 5-Layer Cake is a bottom-up supply chain strategy focused on physical technology and infrastructure. The Sovereign Bloc is a geopolitical risk strategy focused on domestic resilience, national control, and regional trade ties.
If the 5-Layer Cake strategy is about owning the best flour, ovens, and frosting recipe to make a highly profitable treat, the Sovereign Bloc is about a country deciding it wants to own the bakery and grow its own wheat, so no other country can stop it from eating.
