It Starts With Drones. It Ends With Nukes

It Starts With Drones. It Ends With Nukes

“If you haven’t figured it out yet, America and the world dodged a huge bullet last weekend,” says Paradigm’s military affairs expert Byron King.

At least so far.

As you’ve surely heard by now, Ukrainian drones pulled off a sneak attack on Russian aircraft parked at their bases.

As you might not have heard, some of those bases lie in Siberia — thousands of miles from the front lines of the war. What’s more, the aircraft are designed for dropping nuclear weapons in a doomsday scenario; they have no value to Russia’s war aims in Ukraine.

Byron usually holds forth in our virtual pages about natural resource investing. But he also logged 30 years of service as a Navy flight officer, both active-duty and reserve. Along the way he picked up an advanced degree from the Naval War College.

“The immediate message of an attack on nuclear platforms — anywhere, anytime: bombers, missile silos, submarines — is that another nation is trying to take out your strategic component,” Byron writes today at our sister e-letter, the Daily Reckoning.

Ominous? Yes, he says. “This kind of hostile action could easily lead to rapid military escalation, up to and including ‘pushing the button,’ so to speak.

“OK, yes… I get it that Ukraine doesn’t like getting blasted by Russian weapons, certainly not by weapons fired from Russian bombers,” Byron goes on.

“But as a matter of American national interest, it is beyond outrageous that Ukraine attacked those strategic-level bombers (and possibly submarines) at home bases, with all the potential to trigger an escalation to nuclear war. And they didn’t tell Trump, eh? Hmm…”

That’s the official story, anyway. The Axios news site says the attack was 18 months in the making. But “reports indicate that Ukraine did not inform the Trump administration in advance,” says the New York Post.

Byron will allow for the possibility that Ukraine’s military acted alone. Other experts rule it out.

“None of these attacks could have been planned and executed without assistance, if not the direct involvement, of Western intelligence and NATO officers,” writes former CIA analyst Larry Johnson at his Sonar21 site.

“The drones likely were activated by a remote signal made possible by Western satellites and/or systems like Starlink. Those systems also played a critical role in enabling the drones to navigate to the targeted airfields.”

Early last year, The New York Times ran a lengthy article acknowledging that when it comes to Ukraine, “the CIA and other American intelligence agencies provide intelligence for targeted missile strikes, track Russian troop movements and help support spy networks.”

What’s more, the partnership “took root a decade ago” — after the Obama administration engineered regime change in Ukraine in 2014.

For today, we’ll leave aside the implications of the American “deep state” orchestrating this operation while leaving the president out of the loop.

The point is that Moscow almost certainly sees Washington’s fingerprints on this attack — especially only days after Trump warned that Russia’s Vladimir Putin is “playing with fire.”

How will the Kremlin ultimately respond?

The Perils of “Escalation”

“No one wakes up in the morning and says, ‘What a nice day for a nuclear war. Let’s launch some missiles,’” said our Jim Rickards in this space in 2022 — when the Russia-Ukraine war wasn’t even three months old.

“Experts who have studied the subject of nuclear warfighting since the 1950s (and I’ve personally studied their work since the late 1960s) all agree that the danger is not an out-of-the-blue decision to launch. The danger is escalation.

“The adversaries will first go through a process of confrontation and gradual escalation to the point that one side or the other feels trapped with no way out except to use nuclear weapons.

“At that point, game theory is applied to infer that if your enemy is about to launch nuclear weapons against you, it’s in your interests to launch first. That’s because suffering a first strike might make you incapable of launching a second strike in retaliation.

“The solution is to launch a first strike before the other side launches its first strike. You can build a capability that will survive a first strike and launch a second-strike retaliation, but you cannot be sure it will work, and your adversary might have increased its first strike capability, etc. The entire game theoretic framework pushes both sides to a nuclear attack even though neither side wanted that.

“The real answer is to avoid escalation in the first place.”

Which the government of Ukraine — and whoever might have aided and abetted the attack — did not do.

So far, Vladimir Putin has responded with restraint. But for how long?

Western media usually portrays Putin as an absolute dictator. But the fact is that for the duration of this war, he’s been under immense pressure from hotheads in the Russian power structure demanding he lash out more than he has.

Then again, the response might not be nuclear at all.

Ponder this for a moment. The Ukrainians say they hid the drones inside the roofs of wooden sheds — which were then loaded onto trucks driven near the bases. The truck drivers had no clue about their explosive cargo until the Ukrainians remotely lifted the sheds’ roof panels and the drones flew out.

“The problem with this attack,” tweets the freelance journalist Leonid Ragozin, “is that anyone can play this game against absolutely anybody. Notably including the Russians when they need to engage in what they call asymmetrical warfare.”

But not just the Russians — also organized crime and terrorists. With this attack, “the genie goes out of the bottle.”

We’ll leave it there for today. The investment takeaway is this: However many hedges against geopolitical risk you hold in your portfolio, it’s probably not enough. We’re talking gold and silver. Oil, too — even with the oil price stuck in the low $60s for most of the last two months.

We haven’t even touched on how the Iran nuclear talks are on the verge of breakdown… or Defense Secretary Pete Hegseth’s reckless promise to defend Taiwan against mainland China.

Yeah, personally I’m buying more silver today, even with the price near 12-year highs…

Power Play

Among the market-moving names today is one we submitted for your consideration in this space four weeks ago — Constellation Energy (CEG).

Facebook/Instagram parent Meta Platforms just announced a deal with CEG to help power Meta’s AI ambitions. For the next 20 years, Meta will get access to the electricity generated by the Clinton nuclear power station in downstate Illinois.

Exactly how much money is changing hands is still under wraps. But “it’s billions of dollars of capital that you’re signing up for to run a plant for 20 more years,” says Constellation CEO Joe Dominguez.

The Wall Street Journal says the deal is the first of its kind — in the sense that Clinton has been in operation for nearly 40 years.

That’s different from the deal Microsoft struck with Constellation last year — in which CEG will restart the undamaged reactor at Three Mile Island in Pennsylvania after it was shut down in 2019.

CEG is up 1% on the day. It’s up 18% since we mentioned it in our May 7 edition as one of the companies best positioned to thrive from the prodigious demands that AI is placing on the power grid.

It’s a theme we’ve been pounding the table about since early last year. If you’re not up to speed, here’s a good place to start.

We’re so passionate about the issue — and the investment possibilities — that it’s quickly becoming a major project here at Paradigm Press. Stay tuned through the summer for details…

As for the broader market, it’s not outrageous to start talking about new all-time highs.

At last check the S&P 500 is up more than a half percent on the day. At 5,970 it’s at its highest level since late February… only 30 points below the psychologically significant round number of 6,000… and only 2.8% below its record close of Feb. 19.

Elsewhere, the jitters over Uncle Sam’s debt burden persists in the bond market — with the 10-year Treasury note a little below 4.5% and the 30-year T-bond just under 5%.

Precious metals are taking a breather after yesterday’s furious rally — gold down $34 to $3,346 and silver off 37 cents to $34.35. Crude is up another buck today to $63.58.

Bitcoin is showing signs of life, up to about $106,500.

Comic Relief

A postscript to your editor’s post-DOGE scribblings yesterday…

Admittedly this is a dated reference, lost on younger readers — but it does have an entry at KnowYourMeme!

Mailbag: Civil War

We got a voluminous reader response to our “civil war” issue — originally published in late 2023 and updated last week for the Trump 47 era.

“I agree with you,” says one short note. “What happened to leave each other alone and quit stealing my money and wasting it? Let’s go with that.”

“I can see civil unrest, sabotage and martial law with government-run food centers in our future. Runaway inflation alone could trigger that,” a reader speculates.

“What I really fear is a future where the threat has no face. It's random and capricious. Films like Escape from L.A. (1996), The Warriors (1979), and Children of Men (2006) are fun examples.

“But the work of fiction that has the most uncanny parallels to today is Frank Miller's graphic novel The Dark Knight Returns (1986). The broken tribal society he artfully depicts in that work mirrors our modern world in so many ways. The talking heads in the media, the obnoxious political rhetoric, the crime and the fanatics. Taken from the blaring TVs colored on the page and transplanted to the ones in our homes 30 years later.

“Unless Elon has a Batman suit in his closet, I don't know how we're going to give people a sense of unity in the years to come.”

“There never has been any ‘civil’ war in all recorded history. ‘Civil war’ is a term used for a failed revolution,” another reader writes.

“All so-called revolutions (especially U.S. 1775–82) are better characterized as civil wars, except the U.S. Civil War which was a failed War of Southern Succession. Victors write the history.

“Widespread combat within the U.S. might have occurred after Obama was elected the third time in 2020 and more so after imposing vax mandates in September 2021. Why else were the truckers so brutally suppressed in Ottawa in February 2022? Orders from Kalorama because a southerly copy was developing and needed to be quashed lest midterms turn into an even worse disaster. Do you think Trudeau could do it on his own? Biden is brighter. So is Kamala.

“All to illustrate that war happens when one or more parties decide that war is the only/best way to get what they need. For the time being, Repubs are satisfied with the nominal presidency and Dems appear satisfied with lawfare, but a third Trump term frightens them. (What doesn’t?) Maybe enough to unleash their proxy gangs (illegals).”

Dave responds: You’re not the only reader to bring up the American Revolution — which indeed is characterized by Johns Hopkins historian Michael Vlahos among others as a civil war.

Another reader points us to a Wikipedia article titled “Expulsion of the Loyalists” — and a 2012 estimate by a Harvard historian that 60,000 white settlers left the United States, over half of whom ended up in what are now the Canadian Maritimes.

“I'm not sure which door to pick on your three scenarios for civil war but it reminded me of a trip I took to Tennessee and Alabama in the late ’90s,” writes a reader from the San Diego area.

“When I told the owner of the B&B outside Nashville that I was going to see a few Civil War battlefields they replied in thick Southern drawl, ‘We call it the War of Northern Aggression; there was nothing civil about it.’ We have a long-standing tradition of holding strong differences of opinion and managing to coexist in relative peace.

“That said, media hysterics and the interwebs’ effect of instant infotainment and sifting for substance does distort our better natures. I'm betting on the inertia of the collective to remain more at rest as full bellies and superficial entertainment lull most into passivity.

“Thanks for keeping it interesting as you have for many years!”

Dave: So instead of The Dark Knight Returns, our alternative future is Idiocracy? You’re not making me feel any better!

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets