| How will Brexit affect UK-based defense firms? Will they lose business to American competitors? There are multiple areas of concern. The problem of border controls slowing component movements will be easily dealt with. The two bigger concerns are the UK's access to pan-European aerospace and defense research programs, and UK participation in pan-European defense programs, such as a next generation fighter aircraft. However, British industry has ways of responding to this threat. British aerospace firms are quite innovative. How has China's pursuit of global hegemony affected defense budgets and the fortunes of U.S.-based defense contractors? The rise of China is easily the biggest catalyst behind growing U.S. defense budgets. One of President Trump's biggest initiatives was to reduce America's role in the Mideast and to instead transfer defense resources to Asia. This hasn't happened, and the U.S. has kept an enduring Mideast presence while still trying to ramp up in Asia. This, of course, means growing top-line defense budgets. Do small- and mid-cap aircraft and weapons systems makers offer greater room for growth than their larger brethren? For years, subcontractors have offered an appealing play for investors, relative to the primes. That's not always true, but we do see mergers and acquisitions continuing to re-shape the landscape at the systems and sub-systems level, while the prime contractor landscape will likely stay as-is. For investors looking for M&A plays, small and mid-cap is the place to be. Will demand for pilotless drones continue booming in 2019 and beyond? This market growth for drones is over for now. The big military surge ran its course, and there has been a lot of irrational exuberance on the civil side of the business. Yes, drone technology remains in demand, but this niche has been on a tear for a long time and now that rapid growth is finally starting to plateau. Growth in the future will come from a few complex and expensive systems, built by the traditional defense primes, and the smaller stuff doesn't matter very much. Basically, drones are to jets as bicycles are to cars. Now that the boom is waning, it's hard to see much of a big opportunity for investors. Timing is everything; the easy money is over. What does China's "Made in China 2025" blueprint mean for America's strategic industries? From an industry competitiveness standpoint there's not much to worry about. So far, Chinese civil aerospace industrial policy seems to focus on inferior systems that copy Western platforms. However, if the trade war gets worse, the Chinese might just pursue strategic industries more for import substitution than for export. In fact, we might see the re-emergence of a new Cold War in trade, with China copying the old Soviet commercial aerospace system. We've seen this movie before. It didn't end well for the Soviets and it won't end well for the Chinese. Editor's Note: My interview with Richard Aboulafia highlighted the great power chess moves occurring on the global stage. Worried about military tensions and how they might affect your portfolio? My colleague Jim Fink makes investment profits, no matter what the headlines have to say. Jim Fink, chief investment strategist of Velocity Trader, has devised a trading system that racks up market-beating gains, regardless of stock market volatility or economic ups and downs. Jim achieves consistent trading success via his proprietary trading system, called the Velocity Profit Multiplier (VPM). The product of painstaking trial and error, the VPM can predict when a stock is about to rise, or fall, with uncanny precision. Jim's VPM has now unearthed a trade that could generate up to 163% in quick profits. Click here for a free presentation. | 
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