The Space Wars Have Begun... With a Balloon

The space wars have begun – with a balloon... These are not otherworldly concerns... The age of hypersonic missiles... Pulling teeth from a dragon... Money is coming to the defense sector...

The battle of 'near space' has begun...

On February 1, folks began spotting a Chinese high-altitude spy balloon over Billings, Montana. You've likely heard about the story by now.

Today, I (Dave Lashmet) am going to tell you a bit more... and explain why the spy-balloon saga likely means even more than you may think. In short, it's a signal that space wars – perhaps once thought of as comical or science fiction – are a very real thing.

The war in space has begun with a battle in "near space"...

China almost got away with it...

Hot-air balloons are a simple piece of technology. Hot air makes them go up. And when the air is colder, they come back down.

At the time the spy balloon was likely making its way across Canada to the United States, based on NASA's stratospheric wind tracker, the region was facing an incredible cold streak. In Winnipeg, Canada, temperatures on the ground had fallen to minus 26 degrees Fahrenheit on January 27. Even farther south, Great Falls, Montana hit minus 12 degrees the next day.

With such cold temperatures, the balloon evidently descended to about 60,000 feet. (Balloons like this one typically float out of sight at 80,000 to 120,000 feet, or even higher.) Once it dropped, passengers on a commercial airline flight made the first reported sighting. Soon afterward, the U.S. began tracking the balloon.

From Montana, the spy balloon moved across the U.S. at the speed of the wind, passing over Missouri on February 3. That's when a U.S. Air Force pilot took this photograph...

This picture is from a U-2 spy plane, which has a maximum altitude of 80,000 feet. And rumor has it, we shot down this balloon at 80,000 feet the next day over the South Carolina coast, using a missile fired from an F-22 Raptor fighter jet.

It was a perfect shot, really – it clipped the bottom of the tear-dropped helium envelope, all the gas escaped, but the payload of solar panels and electronic eavesdropping equipment remained intact as it fell into the Atlantic Ocean.

So instead of China capturing our radio and radar frequencies, we can examine the antennas on China's balloon and see what frequencies its intelligence services use to talk to their satellites.

That's why this is a space war...

Defining 'space'...

Here is another cool picture that is relevant to this story... You can see these layers of sky way above Earth here (and a silhouette of the Endeavor space shuttle)...

The red bit with the clouds is called the troposphere – it's where our weather is and where passenger jets fly. Above that in white is the stratosphere. The light blue is the mesosphere, and then we hit the space.

Technically, both the Earth's stratosphere and the mesosphere above that are not yet in "space," as they are less than 100 kilometers (that's 62 miles and about 330,000 feet) above the Earth. It's "near space"...

But it's a careful balance. The U.S. has plenty of low-Earth orbiting ("LEO") satellites as close as 100 miles above the Earth, and small ones might come as close as 75 miles.

If we shoot down Chinese spy gear while it's in our stratosphere, China might claim the right to shoot down LEO satellites in space if they cross Chinese territory.

Then we have another level of space war...

Remember, all this is tied to events at ground level...

China's plan to take over Taiwan is no secret. China claims this country for itself all the time. It's an independent country (and U.S. trading partner) of 24 million people 100 miles off China's coast.

Last month, the U.S. military think tank Center for Strategic and International Studies, or CSIS, ran war-game simulations of China trying to take Taiwan in 2026. In 24 tries, China routinely failed... because long-range anti-ship missiles sank its invasion fleet.

In the simulations, these new missiles made all the difference when fired from U.S. Air Force and Japanese jets based in Japan, plus U.S. Navy jets from multiple aircraft carriers in the Pacific and Indian Oceans.

There's also the issue of timing. Couldn't China make a surprise invasion of Taiwan? Well, remember those "eyes in the sky" I wrote about yesterday?... They can see Chinese ships crossing the Taiwan Strait. If China wants to win this battle, it will have to blind our satellites.

That will be another part of the space wars...

The Chinese spy balloon clearly lost the first battle in near space... But it's a harbinger of space battles to come over the long run. That's why the U.S. Department of Defense established the U.S. Space Force as its own military service in 2019.

Why the space wars should matter to investors...

First, bringing the threat of space wars into the open and public discussion allows the U.S. to prepare defenses. To do this, the U.S. Space Force is using a layered defense: a few top-secret satellites, plus lots and lots of commercial providers.

So, instead of being a top-secret federal budget, we can see the Space Force buying up bandwidth on commercial-grade satellites. This is the same gear that provides Internet on cruise ships or mid-ocean jet flights.

The main reason is that a space war will need to include transmitting video around a future battlefield... so troops on the ground can see what drones or reconnaissance jets have found. Satellites also let us fly far-off observation drones by remote control.

In other words, space is becoming a normal but vital part of the U.S. defense infrastructure...

And we want to defend our space assets from getting shot down – just like we defend jets and ships and submarines...

To most investors, these might seem like otherworldly concerns...

Here is just one big example of why they're not... consider more than half of world trade passes through the Taiwan Strait. More to the point, Taiwan makes 80% of high-end computer chips.

These chips power our modern technological economy. You can't build new cars, new jets, new refrigerators, or new MRI machines without chips.

So, what's at stake with conflict with China is free trade in a free world. Surrendering Taiwan to China would be as bad as losing South Korea or Japan. It would risk a permanent disruption in trade and would let China's Communist Party set global rules.

Critics of government spending will say it is a tax on free enterprise. That's true. But one look at Russian torture centers in Ukraine shows the reason for national defense.

That's why building up U.S., Japanese, South Korean, Australian, Philippine, and Taiwanese defenses is not government waste. Instead, it's supporting the technological economies that make modern life possible.

War remains a horrible undertaking. But building defenses doesn't start wars. Instead, it prevents them. Indeed, if Taiwan could defend itself, the U.S. Navy and Air Force would not have to...

China has a massive economy, though – and due to its disastrous, decadeslong "one-child policy," China has a shortage of children... So it's building warships instead of schools, and trying to capture a thriving populace after failing to nurture its own.

That's why the U.S., Japan, South Korea, and Taiwan are preparing to meet a Chinese invasion force. This requires new ships, submarines, and missiles...

In my Stansberry Venture Technology newsletter, I've been paying particular attention to an advanced new type of weapon that will be vital to protecting Taiwan.

Welcome to the age of hypersonic missiles...

I've gone into more detail with my paid Venture Technology subscribers. But an important note is that "hypersonic" doesn't just mean fast. These missiles are unique because they build up momentum. They are like guided meteors, and make similarly big craters, but they are precision weapons.

Hypersonic missiles can be dropped on a dime – and have done so, in testing – and they don't make mushroom clouds or poison the air.

This means we can close down enemy navy ports (from which an invasion could be launched) while keeping the surrounding civilian population safe. It's pulling the teeth from a dragon.

The U.S. government awarded the first serious contract for hypersonic missiles just on Friday. It's a $1.2 billion deal for the first fieldable hypersonic missiles. There's probably another $50 billion to $100 billion to be had to re-arm the fleet with them.

Initially, these hypersonics will be land-based missile systems, quickly followed by three converted U.S. Navy destroyers – the Zumwalt-class cruisers, which currently don't have a primary weapon at all.

As you can guess, not every future tech system works out... Zumwalt Navy ships are proof of that. The U.S. was supposed to make 36. The military stopped at three, because right now they use cannons in the age of precision strikes.

Adding hypersonics makes the Zumwalts useful. But the problem with a ship at sea – even if it's moving around – is that an enemy can target them in a surprise attack, like at Pearl Harbor in 1941.

The real promise of hypersonic missiles is under the sea...

Submarines run silent and deep. They can avoid surprises more effectively than ships above. And nuclear-powered subs don't surface to snorkel and run a diesel engine.

Mind you, these are expensive. But that's why I also track firms that design and build future submarines. The first hypersonic-ready U.S. sub is under construction now: the USS Arizona... which, yes, will bear the same name as the ship sunk in Pearl Harbor.

Ultimately, there will be dozens of these subs, coming out at the rate of two (or more) per year. And although they were not part of the 2026 war game simulation, hypersonics may turn the tide by 2030.

That's why the U.S. is building them. Precision non-nuclear hypersonics don't start nuclear wars. Instead, they prevent major U.S. trading partners from getting absorbed into Greater China. For us, that's a win.

Meanwhile, we are trying not to lose. Indeed, we are building defensive systems – satellites and jets – to track Russian and Chinese hypersonic missiles, so that they don't hit and sink U.S. aircraft carriers.

If a hypersonic missile can hit a port and take out acres of dirt, well, this same meteor technology won't be gentle to a floating U.S. Navy airfield cruising in the middle of the Indian Ocean.

That's why space and jets and ships are integral to our defenses in the Pacific – just like U.S. tank technology can defend Europe in a land war against Russia.

The reason the U.S., NATO, and friendly Asian nations are buying this new technology is that it works. And what we do in Venture Technology is find the best gear with the longest runway for growth, then recommend that investors benefit from the dollars spent on it.

These weapons also promote freedom and democracy and support technology and trade. But from Venture Technology's perspective, those are fringe benefits, really. And even if you have a different opinion on war, finding and profiting from these kinds of trends is why we do this sort of economic research.

Money is coming to the defense sector...

Because of so many reasons, including the ones I've talked about the past two days in the Digest... new wars are starting way up in space, while old conflicts are developing and continuing down on the ground.

As I said yesterday, a few defense contractors in particular are positioned to profit from a massive drive to fit various militaries with the best possible technology for wars, wherever they make take place.

In Venture Technology, I've just recommended seven defense-industry stocks that have massive upside as this story develops... And there's a timeliness factor to this. In my view, the best way to play defense in 2023 is by owning defense stocks.

I explain why in my latest research to Venture Technology subscribers... And, good news, you can become one today at a discounted price...

Our publisher, Brett Aitken, has put together a brand-new presentation with much more detail about how and why to do it. For a limited time only, you can access my research for 81% off the regular price. Click here to learn more now.

New 52-week highs (as of 2/22/23): Madison Square Garden Sports (MSGS).

In today's mailbag, feedback on my essay from yesterday, also about investing in defense stocks... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I understand investing in defense technology, and profiting from yet another senseless war. But on the humanity side, these words always come to mind... 'War! What is it good for? Absolutely nothing!' Signed: A capitalist, conservative hippie." – Paid-up subscriber Molly K.

Good investing,

Dave Lashmet
Seattle, Washington
February 23, 2023