On Tuesday, March 16, Christopher Maier, the acting Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict, told lawmakers that the US needs to accelerate, diversify, and better coordinate its information operations in order to counter the robust information operations mounted by Iran, Russia, and China. In a word, the US is lagging in the information warfare race. We encourage readers to spend a few minutes reading “Key Official: Defense Information Operations ‘Not Evolving Fast Enough,’” https://www.defenseone.com/technology/2021/03/key-official-defense-information-operations-not-evolving-fast-enough/172742/. Hat tip to Paul Schulte for sending the report.
Cumberland’s US ETF portfolios remain in an overweight position in the aerospace and defense sector. We watched the emphasis on defense funding during the Trump years. And we now watch the world’s evolution at the beginning of the Biden term. Whether you like him or dislike him, it was Trump’s disruptive style that exacerbated tensions globally. Biden inherited the results and now faces an emboldened Russia and an assertive China. Biden must craft a policy pathway with each superpower while attempting to repair global supply chains, and alter disruptions from Trump’s tariff wars and do so while rebuilding alliances with friendly powers. This is a tall order.
At the same time, technologies have rapidly altered warfare and geopolitical pressure points. We won’t get into details here, as ample references exist for serious investors. Our bottom line is simple: In an AI and quantum-computing world, defense response time has to be quick and precise and error-free.
Defense is a very dangerous and therefore very expensive business. We believe Biden and his core advisors understand the threat. Therefore, we do not expect defense expenditures to be targeted for budget cuts.
The world remains an uncertain and persistently dangerous place for Americans and America and we continue to remain overweight defense and aerospace in our US ETF portfolios.
We also remain overweight climate change sectors. Most folks don’t think of climate change as a defense issue. We disagree with that view. Climate change is accelerating and displacing millions of people while disrupting food and water security. Hungry and thirsty people in survival mode trigger adverse and destabilizing changes in governments. Sadly, that means greater emphasis on defense and aerospace. We wish the reality were otherwise.
“Speak softly and carry a big stick,” then Vice President Theodore Roosevelt told an audience at the Minnesota State Fair in 1901 (“Sept. 3, 1901: Roosevelt 'Big Stick' speech at State Fair,” https://www.startribune.com/sept-3-1901-roosevelt-big-stick-speech-at-state-fair/273586721/). This form of policy is now replacing the “tweet loudly” format. The need for the big stick seems more and more important.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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