Equity-Research-Cold-War-Feb 2022- Sonoro Gold p.126-128

1. Equity Research
page 1
Equity
Research
The Swiss Research Group
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
The Second Coming
W.B Yeats
Cold War II
There’s Opportunity in Anarchy

2. Equity Research
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Cold War II
Contents Page
The Second Cold War: America Retreats
3
The Peril of Politicizing Science 7
America: Land of the Oligopoly 8
America’s Errs, China Learns 11
Education In Crisis 12
Taiwan 14
What if? 16
Anglosphere Threesome 18
Not All There 20
Asia: On The Fence 21
Hot and Cold 22
Europeans: Rethinking their Security &
American Plutocracy 23
The Fix 24
Nuclear Pandora’s Box 25
Biden’s Our Man &
France: Humiliated and Angry 26
Oz: Sharing Cold War II’s Costs 27
No Promisies:Historical Precedents
Not Encouraging 28
Arakis: Are Microchips The New Spice? 29
If Microchips are the new Oil 31
New York for Taipe? &
In Search of Pentagon Officials not
Captured by Industry 32
War games 35
Dire Staights 36
Where Are The Chips? 40
The Last Big Glut 42
$200 Oil 45
It Goes Both Ways 49
The Cradle Of Slavic Civilization 51
Tight Gas 53
Demand Drivers 55
Sleep Walking Into Catastrophe 57
In Charge: The Butcher of Tehran 58
The First Government of God 59
Global Warming: Goldilocks No More 62
Sleeping Giant: Another Source of Trouble 63
Contents page
It only gets wrose: extreme weather combines
with energy crisis to create food shorttages 66
Palm Oil Better Burned Than Eaten 68
Nuclear Energy– Safe and Sound 70
EROI Explainer 72
Extreme Weather, Energy Crisis
add to food insecurity and inflation 66
Palm Oil Better Burned Than Eaten 68
Nuclear Energy– Safe and Sound 70
EROI Explainer 72
The China Syndrome 73
Earthquake Primer 75
Moms for Nukes 78
The Future: Small Modular Reactors 79
Rolls Royce Holdings:SMR Front-runner 82
Generac Holdings: Keeping the lights On 88
Copper Bull Market 91
Ivanhoe Progress Report 93
The Bubble that Broke The World 96
Fire and Ice 97
Gold’s Link to Oil 99
China: Hedging the
Super Mega Ponzi Scheme 100
Understanding Inflation 102
American’s Hate Each Other 103
Market Template: 2018-2019 106
No Going Back 107
Inflation: Only The First Inning 108
Grey Rhinos 109
Rhino I: Russia Goes to War 110
The All American Putsch 111
Rhino II: Iran Creeps Towards The Bomb 113
Rhino III: China Reclaims Taiwan 114
The Bubble That Broke The World Redux 116
Pecunia Non Olet 120
Gold The Ultimate Insurance 122
Franco Nevada Best of Both World’s 123
Newmont Corp: King Of The Miners 125
Sonoro Cold Corp Developing Nicely 126

3. Equity Research
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The Second Cold War
During WWI Army, General John J. Pershing, the
Commander of the American Expeditionary Forces,
famously said, “Infantry wins battles, logistics wins
wars”. It’s a reality which cannot be news to even
the most obtuse commander. So, when the Ameri-
can military took flight from Bagram Airbase, their
largest and most secure in Afghanistan, accompanied
by some 18,000 contractors which provided the back-
bone of the Afghan army’s logistics, the swiftness of
the Taliban’s victory is not really all that surprising.
The Taliban was already providing incentives for the
troops to stand down. Once US support had melted
away, resistance was suicidal. The shock comes from
learning that after eliminating the sup-
ply lines for ammunition and food, and
the air support, which the Afghan’s had
been trained to rely on, the American’s
actually expected the Afghan army to
continue fighting.
This is not the first time the US has
witlessly helped the Taliban. Beginning
in 1979 the CIA ensured a flow weapons
and money to the Taliban’s predeces-
sor, the Afghan Mujahideen which were
fighting Afghanistan’s Soviet occupiers. Their support
was both direct and through the Inter-Services Intel-
ligence (ISI) which officially is Pakistan’s spy agency
while it moonlights as a serial jihadist incubator.
As inconceivable as it may seem, America’s funding
never really stopped. Incredibly they ignored Paki-
stan’s President Benazir Bhutto’s 1989 warning (to
President George Bush Senior.) that the jihadists had
become a “Frankenstein monster”. Even following
the September 11, 2001 attacks, America’s support
continued. Between 2002 and 2018 the US gave $33
billion to Pakistan, of which $14.6 billion was direct
military aid. In a 2014 televised interview Hamid
Gul, the former head of the ISI summed up his take
on the situation by saying: “When history is written,
it will be stated that the ISI defeated
the Soviet Union in Afghanistan with
the help of America, Then there will be
another sentence... The ISI, with the
help of America, defeated America.”
While America’s enemies pass out
sweets from the Gaza strip to Iran, the
message to allies is that they are on
their own. German Chancellor Angela
Merkel’s potential successor, Armin
Laschet, called the withdrawal the
America Retreats

4. Equity Research
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“biggest debacle that NATO has
suffered since its founding”. UK
Prime minister, Boris Johnson,
referred to Biden as “sleepy Joe”,
a derogatory term borrowed from
former US President Donald
Trump. The UK parliament is
united in their fury and indigna-
tion with one Afghan-serving
minister describing Biden’s sub-
sequent distortions as “shame-
ful”.
Like it’s 9/11 all over again
Biden remains defiant while he gaslights US voters
with speeches regarding the success of the US with-
drawal. In the meantime, the world’s terrorists are
celebrating like it’s 9/11 all over again.
And indeed, perhaps they should be. This time round
their odds look much more favorable. Unlike 2001, af-
ter 20 years of war the American electorate is far from
united against them, or anything else for that matter.
Making the situation worse is the world’s (and the
West’s) enemies recognize America’s grave leadership
deficit, as summarized by Mark
Thiessen at The Washington
Post: “Either Biden had no idea
this disaster was going to hap-
pen, in which case he is incompe-
tent, or he knew that this would
be the result but doesn’t care, in
which case he is morally complic-
it in an intentional humanitar-
ian catastrophe.”
Ryan Crocker, the former US
ambassador to Iraq and Pakistan
under both Bush and Obama,
says “The Biden doctrine is like the Trump doctrine,
except worse”, adding “Frankly, I have serious ques-
tions about his competency.” Already America’s top
soldier, General Mark Milley, has met in Helsinki with
his Russian counterpart, General Valery Gerasimov,
asking for help in dealing with a resurgent Al-Qa’ida
and ISIS.
Biden says the US can no longer be counted on as the
world’s policeman, a stance which can only encourage
renewed waves of conflict. The president’s admis-
sion however, is not surprising given he has much
ISI Chief Hamid Gul with an American helper
China
A Part of China’s neighborhood...

5. Equity Research
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bigger problems at home. In 2001 America was the
world’s dominant military and financial power. But
the country’s free market model of global finance and
plutocratic governance was only in the early innings of
maxing out America’s credit lines, inflating the largest
financial bubble the world has ever seen, while enrich-
ing its elites, off-shoring manufacturing to China, and
in the process gutting the country’s middle class.
September 11, 2001 marked the beginning of Ameri-
ca’s $8 trillion and counting – according to a Brown
University study – war on terror. In the same year,
China began the acceleration of its economic ascent
when it joined the World Trade Organization. The
cold war was long forgotten and America was fixated
on the threat of terrorism, while its future geopolitical
competitor was quietly growing stronger. Since 2001
China has become the world’s factory, as it built almost
40,000 kilometers of high speed rail (in comparison
the US has 54.6 kilometers) and its middle class grew
more than 10 fold – to exceed 340 million – more than
the total population of the US.
America is, to be fair, still ahead in terms of the size of
its economy, most technologies, ‘global’ strength and
wealth, however concentrated. But its lead is slipping
fast. If we look at history, the economic and techno-
logical success of emerging powers has little to do with
democracy, which is what many Americans tout as
China–PPP
China–Nominal
US–Nominal&PPP
GDP
(billions
of
$)
25,000
20,000
15,000
10,000
5,000
0
1960 1969 1978 1987 1996 2005 2014 2020
UnitedStatesvsChina byGDP

6. Equity Research
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among the country’s biggest advantages. Vietnam is
the latest authoritarian, and Asian, success story. Sin-
gapore is another. Singapore’s People’s Action Party
has ruled the city state since its founding in 1965,
earning plaudits from China’s President Xi Jinping for
its “high efficiency, incorruptibility and vitality”. If
plagiarism is the sincerest form of flattery, the Chinese
Communist Party (CCP) appears to have extended
President Xi’s compliment by emulating the City
State’s management.
China: Ensuring Small C Capitalism
Until recently, the CCP was largely hands-off regard-
ing its tech giants. But, whether east or west, major
tech companies have established a reputation for
hoarding data, abusing their suppliers, exploiting gig
workers, using their dominant positions to raise prices
while they spend more on stock buy backs than re-
search and development.
A study by Bruno Pellegrino, PhD, “Product Differen-
tiation and Oligopoly: a Network Approach” finds that
as US industries have become more oligopolist, the
share of the surplus (value of products) that goes to
consumers has decreased, while the share that goes to
oligopoly profits has increased. “The consumer is los-
ing twice.” The growing rate of startups, which ended
up being acquired privately rather than going public,
has contributed to this market concentration. Pellegri-
no simulated what the effect would be if, rather than
being acquired, IPOs continued at the same rate as in
1996 when they outnumbered buyouts by roughly three
to one. He found that the negative effects in terms of
higher prices and lower variety, nearly disappeared.
This is where Central Banks QE programs and the
resulting negative real interest rates mean the larg-
est corporations with access to credit can and have
acquired struggling smaller companies that can’t get
credit.
Add in share buy-backs, which inflate earnings per
share, and provide a previously illegal lift to the top
10% of the population’s equity investments, and an-
other source of the widening gulf between main street
and wall street becomes clearer.
A darker impact of buyouts is also mentioned by Pel-
legrino when he cites a 2018 study by Cunningham,
Ederer and Ma which provides “evidence of the phar-
Central Banks Fuel Wealth Inequality Increases
50 60 70 80 90 00 10 20
65
55
45
35
25
100
0
-100
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1985 1994 2003 2012 2021
1,000
0
-1,000
-2,000
-3,000
-4,000
-5,000

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In Rod Dreher’s Blog The American Conservative
he writes: A reader sends in this blockbuster es-
say by chemist Anna Krylov, who warns that the
same kind of ideological abuses Soviet society
imposed on science are taking place now in
America. Excerpts from her open letter:
It’s a beautiful thing, the destruction of words.
Don’t you see that the whole aim of Newspeak
is to narrow the range of thought? In the end we
shall make thoughtcrime literally impossible, be-
cause there will be no words in which to express
it.
–George Orwell, 1984
The Peril of Politicizing Science
by Anna I. Krylov*
I grew up in a city that in its short history (barely
over 150 years) had its name changed three
times.( Founded in 1869 around a steel plant and
several coal mines built by the Welsh industrialist
John Hughes, the settlement was originally called
Hughesovka (or Yuzovka). When the Bolsheviks
came to power in the 1917 Revolution, the new
government of the working class, the Soviets,
set out to purge the country of ideologically
impure influences in the name of the proletariat
and the worldwide struggle of the suppressed
masses. Cities and geographical landmarks were
renamed,(4) statues were torn down, books were
burned, and many millions were jailed and mur-
dered.(5) In due course, the commissars got to
Yuzovka, and the city was stripped of the name
of its founder, a representative of the hostile class
of oppressors and a Westerner. In modern terms,
Hughes was canceled. For a few months, the city
was called Trotsk (after Leon Trotsky), until Trotsky
lost in the power struggle inside the party and
was himself canceled (see Figure 1). In 1924 the
city became the namesake of the new supreme
leader of the Communist Party (Stalin), and a
few years later renamed to Stalino. My mother’s
school certificates have Stalino on them. Follow-
ing Stalin’s death in 1953, the Communist party
underwent some reckoning and admitted that
several decades of terror and many millions of
murdered citizens were somewhat excessive.
Fast forward to 2021—another century. The Cold
War is a distant memory and the country shown
on my birth certificate and school and university
diplomas, the USSR, is no longer on the map. But
I find myself experiencing its legacy some thou-
sands of miles to the west, as if I am living in an
Orwellian twilight zone. I witness ever-increasing
attempts to subject science and education to
ideological control and censorship. Just as in
Soviet times, the censorship is being justified by
the greater good. Whereas in 1950, the greater
good was advancing the World Revolution (in the
USSR; in the USA the greater good meant fighting
Communism), in 2021 the greater good is “Social
Justice” (the capitalization is important: “Social
Justice” is a specific ideology, with goals that
have little in common with what lower-case “so-
cial justice” means in plain English).. For the entire
essay go to: https://pubs.acs.org/doi/10.1021/acs

8. Equity Research
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maceutical industry’s so-called
killer acquisitions: specifically,
they show that a significant
share of startup acquisitions by
drug makers results in the ar-
rested development of the start-
ups ‘drugs that might compete
with the acquirers’ own.”
America: land of the
oligopoly
Watching China’s brutal strike
against the country’s corporate
giants and it’s easy to under-
stand why tech giants and
other monopolists prefer liberal
– democratic economies. The US, has become a blend
of plutocracy and oligopoly. Since the Reagan years,
multi-million dollar campaign contributions have
often been followed by big-business friendly laws (or
lack of enforcement) and a ballooning wealth dispar-
ity. Whether the CDC, or the military there are too
many obvious fox-guarding the hen house like conflicts
of interest. Take Senator Joe Manchin, America’s
champion infrastructure bill blocker who is well known
for his family’s waste coal business. He rejected every
Build Back Better program version his fellow Demo-
crats put forward, and then when they final agreed to
his own proposal he rejected that too. The reality is Joe
Manchin’s biggest objection was
legislation that would remove
cancer linked chemicals from the
nation’s drinking water together
with the Clean Electricity Pay-
ment Program; a provision that
would have reduced U.S. carbon
emissions by subsidizing wind
and solar power. Making drink-
ing water safe would have made
producing coal more expensive,
while subsidizing green energy
would have made it less competi-
tive, and both would have hurt
his family coal business.
“The median net worth for the bottom 25 percent of
American families is a mere $310”,
According to the World Inequality Database, the me-
dian net worth for the bottom 25 percent of American
families is a mere $310, the median retirement sav-
ings balance for the bottom 50 percent of American
families is $0 compared to an average of $830,000 for
the top 10% and more than $10 million on average for
the top 1%.
Fiona M. Scott Morton, Professor of Economics, at
the Yale University School of Management writes of:
“increasing evidence that many firms are unrestrained
by antitrust enforcement and engage in anti competitive
mergers, anti competitive exclusion and collusion with
rivals”, adding that “consumers, suppliers and workers
may be harmed by paying higher prices for monopoly
products or services and receiving lower compensation
for the products and services (inputs or wages) they
supply to monopsonist”.
The tech sector has an added advantage in their ability
to make even the most specious justifications for main-
taining the status quo seem reasonable, owing to the
reality that when it comes to technology, most Wash-
ington legislators are essentially illiterate.
Washington Post columnist, Jennifer Rubin’s key
USA
Public Trust in Government near historic lows
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Moving average Individual calls
Pew Research Center
100
80
60
40
20
0
Percent
2016 2018 2020 2022
10
8
6
4
2
0
FAANG combined profits
12 month rolling average
FAANG total market cap
Printing Money
Monopolies run wild as FAANG profits and
market cap explode
350
300
250
200
150
100
50
USD Trillions USD Billions

9. Equity Research
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take-away from her coverage of
Cambridge Analytical/Facebook
congressional hearings in 2018
illustrates this reality. Ms.
Rubin writes:
“It is evident that very few, if
any, of the lawmakers have a
sophisticated understanding
of how Facebook works. They
are in a poor position, then, to
evaluate how effectively Face-
book is addressing the problem and what they need to
require as a matter of law.”
Facebook’s latest bind is regarding its own research
which shows its Instagram app made body image
issues worse for one in three teen girls. Even more
troubling is that the same internal research showed
that of the teens who reported suicidal thoughts, “13%
of British users and 6% of American users” traced the
desire to kill themselves to Instagram. Facebook has
since renamed itself Meta, perhaps hoping to distance
itself from its dodgy past.
In an e-mail (hats off to Wikileaks) covering talking
points for Hillary Clinton’s speeches to private donors
in 2016, her description of what it takes to make new
laws in America is revealing:
“Like sausages being made. It
is unsavory, and it has always
been that way, but we usually
end up where we need to be.
But if everybody’s watching,
you know all of the back-room
discussions and the deals you
know, then people get a little
nervous to say the least”.
In America if you are not in the
back room, what new laws are
coming down the pike are often
best indicated by the sources
of elected officials’ campaign
finance.
After his close call in what
was previously a Republican
controlled Congress, according
to the Amistad Project of the
Thomas More Society, Facebook
founder Mark Zuckerberg and
his wife made $419.5 million
in contributions to non-profit
organizations which funded the
Democrat campaign. Amistad
Project Director Phil Kline noted
that the project’s report “paints
a clear picture of a cabal of billionaires and activists
using their wealth to subvert, control and fundamen-
tally alter the electoral system itself”. It will be en-
lightening to see if Zuckerberg’s near half-trillion-dol-
lar insurance policy will keep the Twitter expose from
prompting laws which actually constrain Facebook.
The report “paints a clear picture of a cabal of bil-
lionaires and activists using their wealth to subvert,
control, and fundamentally alter the electoral system
itself,”
But it is not just the billions of dollars used to throw an
election. As Siva Vaidhyanathan writes in slate.com,
The New Nightmare Scenario for the Media:
“Google and Facebook manage what we (and they)
In US Voter’s bomb-sights: Agrabah
Profit Margins at a historic high
After tax corporate profits as a percent of nominal GDP
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10
9
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7
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5
4
3
2
14
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10. Equity Research
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consider important, interesting and ‘relevant’ to us.
They do so through pervasive surveillance of billions of
people around the world and massive computational
power that guides both companies in their advertise-
ment-targeting efforts.”
It is these two “great gatekeepers of our attention, that
threatens democracy through its massive, unchecked
global power and its effect on our collective ability to
think clearly about the problems we face.” It does not
bode well for democracy and the choices voters may
make in the future.
In a 2015 Public Policy Poll which covered voters’ can-
didate preferences and other issues such as immigra-
tion and gun control, Republicans and Democrats were
also asked if they were in favor of bombing the city of
Agrabah. Roughly 50% of Republicans who identified
themselves as somewhat liberal were in favor of bomb-
ing, while 24% of Democrats who identified themselves
as moderate were also for Agrabah’s destruction.
What else did we learn from the poll? Well, for one we
now know that lots of people were willing to endorse
bombing a place they obviously knew nothing about.
Agrabah does not actually exist, as it is a fictional city
from Walt Disney’s Aladdin, a fact which hardly shines
a positive light on many American voters’ decision-
making acumen. We also now know that some of the
people at Public Policy have a sense of humor and that
a large proportion of Americans are no heroes when it
comes to geography.
China’s authoritarian government faces no such re-
sistance from tech giants, or ill-informed voters, and
they are not going to allow Facebook equivalents such
as WeChat, Tencent or Weibo shape the political nar-
rative, never mind employ algorithms which slowly
poison the social fabric.
China is also not going to wait for a GFC-like banking
crisis. Beijing’s campaign against fin-tech companies
such as Alibaba was triggered by what it characterizes
as a “reckless push” by technology firms into finance
which threatened the stability of the financial system
and made regulatory oversight imperative. At the
same time, hundreds of millions of consumers deserve
a series of laws to both safeguard consumers’ personal
data and prevent monopolistic behavior – and that is
exactly what they are getting.
The CPC continues to adjust policies to ensure a highly
competitive capitalist environment where start-ups
thrive and that puts the economic advancement of its
general population first. Importantly, the CPC has
done a good job explaining its policies and as a result,
they are quite popular.
A 2020 Harvard Kennedy School Ash Center publica-
tion compared to public opinion patterns in the U.S.,
where its survey of 31,000 Chinese individuals in
urban and suburban settings beginning 2003, showed
increasing satisfaction with the Central government
with 95.5 percent of respondents were either “relative-
ly satisfied” or “highly satisfied” with Beijing in 2016,
the last year of the survey.
90% of Chinese trust their government 24% of
American’s trust theirs...
– Share of Corpo-
rate Equities and
Mutual Funds Held
by top 10%
– Everyone else
– Share of
Corporate Equities
and Mutual Funds
Held by top 10%
– Everyone else
Widening Gulf
America’s 10% own 88% of listed stocks
87.2
75
50
25
0
1989 1994 1999 2004 2009 2013 2018 2021

11. Equity Research
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In May 2020, a University of California survey found
that 88 percent of Chinese people preferred their
country’s political system and, according to the Edel-
man Global Trust Barometer, the rate of public trust
in the Chinese government was 90 percent in 2020. In
contrast to these findings, Gallup reported in January
of this year that only 38% of Americans were satisfied
with the federal government and a June 2021 Pew
Research Center poll showed only 24% of the public
trusted the federal government, near a historic low.
Considering the June poll was prior to Afghanistan
and a growing list of whoppers and gaffs by the Presi-
dent Elect, it’s bound to have declined further. How
can you trust your government when its chief spokes-
man keeps scoring own-goals for the GOP, that is tell-
ing lies - in public - which are inevitably refuted by his
own people.
America Errs, China Learns
In Unherd, Marshall Auerback, a research associate
for the Levy Institute, writes in his op-ed ‘The West
Can Learn From China’:
“That China wants a nation full of engineers, not finan-
cial engineers, innovation rather than financial experi-
mentation. Beijing also wants an education system
that actually educates rather than creating a cottage
industry of ‘progressive’ credentialism that engenders a
self-perpetuating upper class, rich both in
terms of capital and diplomas but provides
very little in the way of genuine scholar-
ship.”
The CPC is likely motivated, as Auerback
points out, by the pressing need for China’s
best and brightest to use their energies
solving the country’s most urgent chal-
lenges. Producing microchips is at the
forefront, especially after President Trump
crippled Chinese state champion Huawei
by cutting off its chip supply. Engineers
may get rich by designing the next amaz-
ing video game, but President Xi considers
it to be more for the common good if they
spent their time ensuring the country be-
comes self sufficient in what it really needs. A few key
essentials such as energy and microchips, is one focus
while reducing China’s carbon footprint together with
improving the environment – a demand that is increas-
ingly being made by the country’s growing middle class
– is another.
The Economic Information Daily, a Chinese state-run
publication branded online gaming ‘spiritual opium’
as it warned that the number of addicted youths was
becoming widespread. Not long afterwards, a new law
was announced that restricts minors’ online gaming
time to three hours on weekends. As a parent, they get
my full support.
The government has also eliminated the ‘for profit’
tutoring industry which had made school studies for
many of the country’s youth, a miserable near-Sisyph-
ean existence, while it imposed an unaffordable finan-
cial burden on parents. As a consequence, having more
than one child has become almost unthinkable for the
vast majority of Chinese.
China expert, Louis-Vincent Gave, writes in GaveKal
Research his take on the new Chinese campaign:
“While private education companies in the West
are free to gorge themselves on the insecurities of
parents, in China that behavior will no longer be
May Jun Jul Aug Sep Oct
130
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90
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40
30
20
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New Oriental Education &
Technology Group Inc.
(HK: 9901)
Schooled: Chairman Xi Teaches price gouging educators a lesson

12. Equity Research
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accepted. In the West gains are privatized and
losses are socialized, China aims to privatize the
losses (as with Evergrande) and socialize more of
the gains (as with the pressure on tech platforms to
raise wages, hire more young graduates and make
big donations to charitable causes).”
In comparison, America’s Hobbesian education system
is producing a shrinking number of technology-focused
students as diploma-mill scams and loan-shark-high
interest rates, fees and penalties have metastasized
into $1.8 trillion worth of student debt.
Some borrowers are misled by high pressure sales
pitches regarding job prospects following graduation,
mainly because in too many cases there aren’t any.
Trump University, founded by the former POTUS, is
all too common an example. It was sued, and settled,
for its near-worthless seminars that were touted in
misleading and aggressive marketing campaigns.
Once indebted, many students are trapped in what is
a wholly American form of bonded servitude. Regard-
less of a borrowers’ circumstances, because Congress
removed any realistic avenue of relief via bankruptcy
for virtually all federal student debt decades ago, and
a Biden sponsored bill, extended the law to private
student borrowing, their debts, and accumulating
interest and penalties – which can exceed the original
amount originally borrowed – follow millions of hapless
students around for life. An incensed Senator Eliza-
beth Warren described Biden’s sponsor of the bill in a
Harvard Law School Paper saying:
“His energetic work on behalf of the credit card
companies has earned him the affection of the
banking industry and protected him from any well-
funded challengers for his Senate seat.”
Thanks to the Biden bill, these often-ill-advised loans
now follow students to the grave. It is great business
for financial companies but as the more than 20%
of $1.8 trillion that are currently in deferral or non-
performing, they have become a form of penury. Biden
however seems to be having second thoughts. A stu-
dent debt relief program has been in place since 2007
but of 1.3 million enrolled in the program, only around
5,000 have seen their debts forgiven. After institut-
ing a program which provides loan forgiveness for the
handicapped this year, the administration says it will
also make the 2007 program’s hurdles less onerous and
expects up to 550,000 individuals to qualify. We shall
see.
Education: In Crisis
Student debt notwithstanding, America’s education
system is in crisis with an unhealthy focus on woke-
ness, critical race theory, safe spaces and ensuring
even the dimmest students can graduate. In Oregon
State, a recent bill suspended the requirement for a
basic-skills test in math, reading and writing as a high
school graduation requirement.
In California the recommended teachers’ mathematics
manual claims correcting students’ mistakes imme-
diately is a form of white supremacy, as is “focusing
on ‘getting the right answer’”, requiring students to
Total US National Student Loan Debt
Balance in Trillions
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
2003 2006 2009 2012 2015 2018 2020
No Way Out: student debt in America

13. Equity Research
page 13
“show their work” and grading them on demonstrated
knowledge of the subject matter. It says, “The concept
of mathematics being purely objective is unequivo-
cally false,” and warns that “Upholding the idea that
there are always right and wrong answers perpetuates
‘objectivity’.”
The consequences are already apparent. America’s
National Assessment For Education Progress showed
that a mere 37% of 12th grade students were proficient
in reading with only 25% proficient in math. According
to The Wall Street Journal, enrollment at U.S. col-
leges and universities has declined by 1.5 million fewer
students over the past five years. What is increasing,
however, is the number of mob-backed left-leaning
administrative staff, which according to The Economist
have expanded their remit to focus on “ferreting out not
just overt racism or sexual harassment but implicit bias
too”.
The dumbing down of growing numbers of the Ameri-
can public will not make the political environment
better, although it will make the political elite’s job
considerably easier, because in the absence of basic
math, meaningless statistics become compelling sound
bites, without science everything is possible and with
no history or geography to ground us, all stories are
credible - even as mentioned earlier; bombing fantasy
cities like Agrabah.
In contrast, the Chinese are too busy studying to worry
about any woke nonsense. A recent report by George-
Town University’s Center for Security and Emerg-
ing Technology concluded that “by 2025 Chinese
universities will produce more than 77,000 Science
Technology Engineering and Mathematics (STEM)
PhD graduates per year, compared to approximate-
ly 40,000 in the United States”. If international
students are excluded from the U.S. count, Chinese
STEM PhD graduates outnumber their U.S. coun-
terparts more than three-to-one.
The report also says that “much of China’s current
PhD growth comes from high quality universities”
that are on par with many of the best U.S. insti-
tutions. Similar to the economic boom periods in
19th century Germany, or the U.S. with its nearly
free advanced education, following WWII, China’s
national merit-based college exam, the gaokao,
provides a corruption-free method of selecting
millions of talented individuals from amongst the
general population for government subsidized at-
tendance at its universities. It is not perfect, but
it is a reasonable economic leveler where, unlike
Oregon or California, test scores still matter.
Confucious say study hard
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
By 2025 China is projected to to produce almost twice
the number of US STEM Ph.D graduates annually
(more than 3x if foreign students are subtracted from US Ph.D programs)
Source: National Center for Education Statistics’ Integrated
Postsecondary Education Data System (IPEDS) for U.S. data,
Ministry of Education for Chinese data
2000 2005 2010 2015 2020 2025
China (Total)
U.S.(Total)
U.S.Domestic (Total)

14. Equity Research
page 14
Taiwan
China’s growing pool of talented STEM graduates
has, among other things, enabled it to modernize the
country’s 1.9-million-strong military to a level where
a ‘conventional’ East-Asian conflict, over Taiwan, with
the US appears winnable. The key questions are:
would the US actually defend Taiwan, and if they did
what would the cost to both China and the US be?
The Taiwan strait, which separates the two countries,
is 130 km (81 mi) at its narrowest and most of the
strait is no deeper than 150 meters. In The Taiwan
News, Owen Cote, associate director of the MIT Secu-
rity Studies and an expert on submarine warfare, says
that:
“The shallow, noisy waters of the Taiwan Strait greatly
favor submarines over air and surface (anti-submarine
warfare) forces.”
Quiet-running subs in the straight’s noisy waters
would be difficult to detect for the Peoples Liberation
Army Navy’s (PLAN) anti-submarine warfare (ASW)
units. Meaning that the subs could prowl the straight
and sink Beijing’s troop transports as they sail toward
Taiwan. Cote concluded that knowing the hazardous
conditions in the strait favor submarines and given
China’s inability to conduct ASW underwater, on the
surface or in the air, “even a small number of attack
subs could stop a would-be Chinese invasion fleet in its
tracks”.
Currently, Taiwan has four aging submarines, two
which hale from the second world war. Two of the
newer submarines (1970s vintage) are being refit-
ted with upgraded sonar and weapons systems and
should be ready by 2025. More critical is that Taiwan
has initiated a program to build 8 more diesel-electric
China
Chinese Province
of Taiwan
Japan
S. Korea
Guam
Philippines
South China Sea
Okinawa

15. Equity Research
page 15
Equity
Research
submarines. This program has a far more substantial
impact than AUKUS, as the eight Aussie subs will not
be operational until the mid-2030s at the very earliest.
The first Taiwanese sub is to be delivered to the navy
late 2024.
Choosing the diesel-electric subs over nuclear-powered
ones is logical as diesel-electric
subs are easier and simpler to
build and when traveling un-
derwater, their electric motors
produce significantly less noise
than nuclear reactors. The US
has agreed to supply Mark 48
torpedoes which the US Navy
considers its “most capable” and
“exceedingly lethal”. The US is
also delivering to Taiwan Block
Va Maritime Strike Tomahawk
(MST) missiles which can engage
a moving target at sea.
Once Taiwan has several new
submarines in the strait, its abil-
ity to deny access to a Chinese
invasion force should be formi-
dable. Carl Schuster, a former
US Navy captain who is now an
analyst at Hawaii Pacific Uni-
versity, puts the deterrent value in
perspective:
“Every (large troop carrier) hit by
a torpedo, particularly a modern
one like the US Mark 48, removes a
battalion of troops from the invasion
force. So, no one is going to send
those amphibious assault ships into
the Strait until they are confident it
is clear of submarines.”
China’s Xiao taizi dang
– ‘little princelings
One point to consider is how would
China’s population react to mass
casualties? A Taiwanese straight
infiltrated by nearly invisible troop-ship-sinking
submarines is a great deterrent. Given that until re-
cently China allowed only one child per family, almost
ever military death would mean the end of a family
line - no small thing in Asia or even the West for that
matter. Recall the blockbuster 1999 movie “Saving
Private Ryan” where the film
follows a squad during the WWII
Normandy invasion trying to
find and extract from the fight-
ing, James Francis Ryan, the
sole surviving son, whose three
brothers had already been killed
in action.
During the Korean War, more
than 900,000 Chinese are es-
timated to have been killed or
wounded. China’s involvement
began when Communist Forces
counterattacked and routed
American-led forces as they
neared the Yalu River, which
separates North Korea from
China.
China’s successful defense of
North Korea was a great geopo-
China
North Korean
Forces
American
Forces advance North
(just prior to being routed by
Chinese forces)
North
Korean
Forces
current (cease fire)
border at 38º as both
North snd South Korea
still technically at war
Chinese Province of

16. Equity Research
page 16
litical victory for the CCP, especially after a century of
humiliating defeats. At the same time, it also ensured
that a Western-backed regime was not on its border,
while it increased China’s prestige internationally, be-
cause the country had just successfully fended off the
world’s most powerful military. General Curtis Lemay
of the U.S. Air Force recounted the razing of North Ko-
rea prior to China entering the war, which played well
into the middle kingdom’s justification for intervening:
“We went over there and fought the war and eventually
burned down every town in North Korea anyway, some
way or another, and some in South Korea, too.”
While Chinese casualties were massive less than a
decade before, the population had experienced the
horrors of WWII, when an estimated 14 million Chi-
nese civilians and soldiers were killed by the country’s
Japanese invaders. Thus, the surviving generation
was far less sensitive to the news of Chinese killed in
action, especially knowing that under the leadership
of the CCP China had, for the first time in more than
a century, successfully fought off another invader.
Boy’s are often referred to as Xiao taizi dang – ‘little
princelings, given their importance to the
family’s future.
At the time of the Korean war, most of China’s popula-
tion lived in poverty, communications were rudimen-
tary, education standards were almost non-existent
and the average family had three or more children.
Contrast that to today’s China: poverty has virtually
been eliminated with hundreds of millions used to a
relatively pampered middle-class life, education is
universal, communications near instant and families
have on average only one child. Boys are often re-
ferred to as xiao taizi dang – little princelings, given
their importance to the family’s future. Under China’s
21st century standards, the loss of even a few hundred
thousand ‘little princelings’ could be highly destabi-
lizing for the CPC. This is an additional calculation
President Xie is bound to be making.
What if?
“No one should underestimate the Chinese people’s de-
termination and strong ability to defend [our] national
sovereignty and territorial integrity. The historical task
of the complete reunification of the motherland must be
fulfilled, and it will definitely be fulfilled”.
President Xi speaking about China’s right to
“reunify” Taiwan by force if peaceful means
are not possible.
President Xi is not the only one willing to wage war for
Taiwan. According to a survey by the state-run Global
Times, “70 percent of Chinese polled strongly sup-
port using force to unify Taiwan with the mainland”.
In contrast, according to a July 2021 ET Today poll
reported in the Taiwan News, 49.1% of Taiwanese have
said they were ‘not’ willing to fight and would object
to any one in their family participating in a war with
China, while only 40.9% claimed the opposite. The ET
Today survey was conducted among Taiwanese over 20
years of age between July 15 and 16, and 2,640 valid
samples were collected.
Since the poll, China has stepped up its cross straight
incursions. Experts cite them as potentially pre-
invasion training and for the adverse psychological
effect on the Taiwanese. They note that by making its
military incursions so numerous and regular, it will
be difficult for Taiwan’s allies to immediately discern
provocations from an actual invasion.

17. Equity Research
page 17
The stepped-up activity seems to also be rallying
Taiwanese. America’s Newsweek reports that in an
October 1,000-person telephone poll, 77.6 percent said
they were “willing to fight to defend Taiwan” if China
struck first.
Similar to the potential of having an American-backed
South Korea on its Southern Yalu River border, China
considers Taiwan as acting as an adversarial American
outpost, in exchange for US protection. This has been
the case since 1950 when President Harry Truman
sent the USS Valley Forge, the flagship of America’s
Seventh Fleet, to the Taiwan Strait on the promise
that America would defend China’s break-away prov-
ince from assault. Until now, the CCP has lacked the
means to do anything about it.
But times change. Stephan Frueling, a Professor in the
Strategic and Defence Studies at Australian National
University, says that:
“The US now accepts it may lose a conflict – at least at a
conventional level – with China.”
And in testimony to America’s Congress, former U.S.
Indo-Pacific Command, Admiral Philip Davidson, said
China will have the ability to invade Taiwan in six
years. He emphasized:
“I think the threat is manifest during this decade - in
fact in the next six years… We are accumulating risks
that may embolden China to unilaterally change the
status quo before our forces may be able to deliver an
effective response.”
Chinese Province
of

18. Equity Research
page 18
Lonnie Henley, who until 2019 was
the Chief Pentagon Intelligence
Analyst for East Asia, sees the
radars and missiles of the built-in
air-defense system alongside Chi-
na’s coast as the “centre of gravity”
of any struggle over Taiwan which,
unless destroyed, could restrict the
US response to minimally effective
long-range weapons or assaults
by stealth aircraft. Critically, if
the US is to destroy the Chinese
missile batteries, it would mean a
direct assault on the territory of
China – a nuclear power. Similar
to the Soviet Union’s failure to
come to Vietnam’s aide in 1979, will the US view the
risk of provoking an all-out nuclear exchange as too
great?
As part of the agreement, the countries also renewed
vows to continue hypersonic missile research while
Aussie ships are to get Tomahawk Cruise Missiles and
its aircraft Long-Range Anti-Ship Missiles. The Amer-
icans also reiterated, mostly already in place, plans to
establish air force and navy bases in Australia.
Building a nuclear submarine is a fiendishly compli-
cated undertaking, considered more so than building
even a space shuttle. The US, which has been build-
ing subs for decades, suffers a chronic deficit of skilled
workers while Australia has no nuclear sub-making
experienced workers or industry at all.
At the same time, shipyards in the US are running
at full throttle so freeing up scarce capacity to make
more subs before 2030 or even later is unlikely. The
UK’s BAE Barrow in Furness site in Cumbria is the
country’s only nuclear sub-building facility. The facil-
ity is expected to be finished building the last on order
Astute Class submarine towards the end of this de-
cade. This makes starting construction of Australia’s
first subs there, nearly a decade from now, a potential
alternative. America is currently in the midst of a
program to build 43 Virginia class attack subs, widely
considered Australia’s best option given its superior
firepower which includes vertical launch tubes that
can fire medium-range cruise, ballistic and hypersonic
The late Senator John McCain quotes former
US defense Secretary Robert Gates.
Anglosphere Threesome
Admiral Davidson’s narrowing six-year window makes
the recent AUKUS agreement, championed by Austra-
lia’s current Prime Minister Scott Morrison - at least
for the near term, at best symbolic. The three coun-
tries have allotted 18 months to work out the details
as to how the Australian Navy will obtain American or
British designed nuclear submarines. At this point, all
we can say is that it will be at a yet-to-be-determined
cost within an uncertain time frame, except that it will
be more than a decade from now.

19. Equity Research
page 19
missiles. The submarine also has the ability to act as a
mother ship for robot mini-submarines.
But, according to the US Congressional Government
Accountability Office, the $166 billion program, which
is hoped to produce roughly two subs every year, has
been plagued with cost increases and “persistent prob-
lems” that are likely to force continued delivery delays.
There are 29 subs left to be built, not including its
ballistic missile subs, before an Australian sub would
have a chance to be built. That is a very long queue.
Peter Dutton, Australia’s Minister for Defense, says
leasing US subs in the interim is being discussed. But
it is hard to see how basically swapping sub crews
brings any geo-strategic improvement and it’s a big ‘if’
America’s Congress would even approve one given - the
Americas are chronically short.
The US Navy currently operates 68 nuclear powered
submarines. The power plants have, at most, a 35-
year life and given the exorbitant cost of replacing
them at the end of 35 years, the submarines are almost
always retired and new ones built. It’s an easy calcu-
lation with 68 submarines currently, to replace all of
them, an average of just under two need to be built ev-
ery year, except that is not what has been happening.
There was a lull in submarine construction after the
first cold war ended and only a few were built up until
2012. As a consequence, the US Submarine Fleet was
actually projected to decline to a low of 42 in 2028.
Then the China threat rose to the forefront. The US
has now accelerated its sub building program and
now hopes to keep the number of submarines in ser-
vice from falling to no lower than 66. But the current
shortage makes accommodating Australian subma-
rine aspirations fanciful. Logically, even if the US did
lease a sub to the Australians in a time of war, surely
the Americans would have all the subs it could spare,
including the ones on loan, in the Pacific so, no, there
would be no net improvement in the number of subma-
rines in the Indo-Pacific, only a change in what country
crew them and is footing the bills.
Given the actual short-term nothing-burger positive
aspects of the agreement and on the heels of President
Biden’s Covid and Afghan fiascos and, more recently,
his struggling $3.5 trillion infrastructure bill, perhaps
the Aukus announcement is more a desperately needed
PR gambit. Former Australian Prime Minister, Mal-
com Turnbull, thinks so, saying in a Foreign Policy
Interview: “This looks as if it’s all political, you know,
media-focused, wanting to have a big announcement.”
Turnbull calls the deal “reprehensible”, pointing out
that “Our defense and foreign ministers and their
counterparts in France had a meeting on Aug. 30 and
in the communique emphasized the importance of the
submarine partnership.” Two weeks later on Septem-
ber 15th, the Aukus deal, and French betrayal, was
announced. “It’s just mind-blowing. It’s so deceitful.”
Turnbull notes that Australia’s Collins-class subma-
rines are to be taken out of service by 2030, leaving a
decade long gap until the Aukus subs might be deliv-
ered. The implications are clear to Equity Research:
the first French submarine was scheduled to be under
construction in 2023. Under the AUKUS deal by 2023,
the hope is to have agreed on how to proceed. Actual
construction could be a decade away. Supporting our
nothing-burger description of the deal, Turnbull also
points out that describing AUKUS as a new alliance
is “just not true” and “the alliance we have with the
Fast-attack submarine USS Jefferson City (SSN 759)
departs Pearl Harbor Naval Shipyard
Equity Research

20. Equity Research
page 20
United States is the Australia-New Zealand-United
States Security Treaty”. It’s a treaty Equity Research
notes that has been in place since 1951.
Turnbull laments that the French partnership Mor-
rison terminated “was a very significant move because
what we were acquiring was a new partner in the Pa-
cific. France is in the Pacific. It’s got 2 million citizens
between the Indian and Pacific oceans and the damage
that has been done to that relationship is enormous. If
you take the submarines out of it, it is essentially an
enhancement, an embellishment, of the arrangements
we already have. The talks between Australia and Eu-
rope on a free trade agreement have been postponed.”
Not All There...
In the meantime, Joe Biden’s miss-steps hardly begets
comfort as to what the future may hold. As Amber
Ms. Athey’s account is reminiscent of Biden’s claim
that the Afghanistan evacuation was “an extraordinary
success”. America’s President, if anything, is consis-
tent. In a later incident, during a press conference
where President Biden and UK Prime Minister Boris
Johnson were answering questions, as Biden’s turn
approached, Johnson was suddenly cut-off in mid-
sentence by Whitehouse staffers as they yelled that the
media should leave the room. A reporter did manage
to ask Biden about Haitian’s crossing America’s south-
ern border, but the President’s answer was unintelli-
gible given the cacophony of shouting staffers.
To this latest Press Conference fiasco, Athey com-
ments:
“It is bad enough that lower-level communications staff-
ers prevented their boss from speaking to the media, but
it is a pure disgrace that they also thought it appropri-
ate to interrupt a visiting world leader”.
My butt’s been wiped – Biden goes off-script
It appears the staffers may have panicked at the
prospect of Biden giving any unscripted answers to the
press and preemptively shut down the briefing. And
no wonder. From blurting out “my butt’s been wiped”,
when reporters asked him about immigration or forget-
ting the name of the Prime Minister of the country the
just signed a historic nuclear sub deal with, it is sad
to admit, that America’s most affable Commander in
Chief is losing it.
Republican Representative Ronny Jackson of Texas,
who was previously the White House physician to
former Presidents George W. Bush, Barack Obama and
Donald Trump, says:
“I think he’s either going to resign - they’re going to con-
vince him to resign from office at some point in the near
future for medical issues - or they’re going to have to use
the 25th Amendment to get rid of this man.”
The saying “out of the frying pan and into the fire”
comes to mind as America lurches from POTUS Trump
to Sleepy Joe. According to Fiona Hill, Trump’s for-
mer deputy assistant, Trump rarely read the detailed
briefing materials his staff prepared for him and that
Athey writes in The Spectator:
“The most powerful man in the world is not all there.
Biden’s first address to the United Nations General As-
sembly suggested he lives in an alternate reality. He
claims to have restored relations with America’s allies
just a few days after France recalled its US Ambas-
sador over a dispute about a submarine contract with
Australia. He later rather undermined the rapport
built up with the Australian Prime Minister Scott Mor-
rison by forgetting his name and calling him “that fella
down under”.
From The Spectator: We need to talk about Joe Biden

21. Equity Research
page 21
capable of flattening the city in a matter of hours.
“The likelihood that South Korea would aid America in
fighting China over Taiwan or other Asian territories
approaches zero”, according to Korean National Assem-
bly Speaker, Moon Hee-sang.
Last April, Korean National Assembly Speaker Moon
Hee-sang pointed out that South Koreans, across the
ideological divide, wanted to avoid involvement “unless
our survival is at stake.” In the Speaker’s words, ask-
ing the country to choose between China and America
was like “asking a child whether you like your dad or
your mom.”
Malaysia and Indonesia worry that Aukus is the begin-
ning of an arms race that increases the risk of a con-
flict. Cambodia and Laos remain China-aligned and
Vietnam noncommittal as its official comment it reiter-
ated: “All countries strive for the same goal of peace,
stability, cooperation and development in the region
and the world over.”
in meetings or calls with other leaders, he could never
stick to an agreed-on script or his cabinet members
‘recommendations’, often with disastrous consequenc-
es. In comparison, President Biden would stick to the
script or his staff’s advice, if only he could remember
what it was.
Asia: On The Fence
While the anglosphere may be all high-fives, the Aukus
deal is ratcheting up tensions in Asia. In the Austra-
lian Financial Review Dr. Matthew Schmidt, Associate
Professor of National Security and Political Science at
the University of New Haven, Connecticut, called it “the
undeniable opening volley of the Asian Cold War”.
Taiwan, Singapore and Japan are the few enthusiastic
supporters. South Korea, whose bacon was saved at
the same time as Taiwan’s, wants nothing to do with
any US-China dustup. This is not surprising, as the
country’s capital Seoul and its 9.7 million inhabitants
are menaced by more than 15,000 fortified North
Korean artillery and rocket emplacements that are
Next stop Taiwan – a fleet of more than 200 large Chinese fishing trawlers anchored at Witsun reef S. China Sea

22. Equity Research
page 22
“Cause you’re hot, then you’re cold
You’re yes, then you’re no
You’re in, then you’re out
Katie Perry, Hot ‘n Cold”
Hot and Cold
Meanwhile, the Philippines’ relationship with the US
is like the Katie Perry song “Hot ‘n Cold”, as it swings
from accommodating Beijing to embracing America.
Last spring, it was cold when the Philippine Secretary
of Foreign Affairs, Teodoro Locsin, complained on Twit-
ter about hundreds of Chinese fishing boats which had
surrounded the country’s Witsun Reef.
“China, my friend, how politely can I put it? Let me
see… O… GET THE F*** OUT.”
Following Locsin’s protest, the country openly em-
braced the new AUKUS defense partnership at least, if
only for a few days. Already the archipelago’s outgoing
President, Rodrigo Dueterte, says he is having second
thoughts. Like the song goes: “Hot Now Cold”.
The Association of Southeast Asian Nations, or ASE-
AN, considered AUKUS a “slap in the face” given the
lack of advance consultations and their view that it
undermines ASEAN’s efforts to turn the entire region
into a nuclear-free zone. Going forward, the group
plans to shift any focus it had on the US, Australia
and the UK and make Europe its priority. Thailand,
an American ally when convenient, is just breaking
ground on a China-backed $10 billion railway proj-
ect. The country’s elite is not exactly cheering for the
Australians. In an Op-Ed: “Thai View on the Aukus
Alliance”, Kavi Chongkittavorn, a senior fellow at
Chulalongkorn University’s Institute of Security and
International Studies, didn’t mince words, writing
what a lot of SE Asians must be thinking. He called
the deal “a bad move”, that will “ratchet up the arms
race and turn Southeast Asia into a new battleground”.
Chongkittavorn writes:
“Thanks to President Joe Biden’s quick reaction to the
post-Afghanistan chaos, the region has seen his ad-
ministration’s true colors, jumping from one debacle to
create a new one.”
According to Chongkittavorn, the tripartite alliance
will change the way the region perceives the US for
the rest of the 21st century. He finished by emphasiz-
ing that “the region does not share the American world
view, most specifically on China” and that the Biden
administration’s haste to form a coalition against
China “shows the US cannot handle China alone”.
Encounters between Western and Chinese navies have
tripled in the past 5 years and with Aukus, it is expect-
ed to get worse. Rizal Sukma, a senior researcher at
the Jakarta-based Centre for Strategic and Internation-
al Studies (CSIS) and former Indonesia ambassador to
Britain, echoes Thai sentiments writing:
“Many regional (SE Asian) countries do not want to be
drawn into U.S.-China rivalry. They worry that the
Western powers will start a war which they have no say
in.”
Playing chicken: a Chinese cruiser cuts off the Ameri-
cans in the South China sea
“the (SE Asia) region does not
share the American worldview”

23. Equity Research
page 23
If a war does start, the outcome is far from certain.
Oriana Skylar Mastro, a Fellow at the Freeman Spogli
Institute for International Studies at Stanford Univer-
sity, warns that in the case of a conflict in East Asia,
“China is closer to on par with the US” adding that:
“Many in Beijing also doubt that the United States has
the military power to stop China from taking Taiwan -
or the international clout to rally an effective coalition
against China.”
Biden’s latest French double-cross, together with his
Afghanistan humiliation and callous treatment of the
Afghan and Coalition allies, can only reinforce this
sentiment.
Krastev adds: Europeans aren’t tempted by the lure
of Chinese or Russian authoritarianism, but in today’s
world, the border between democracy and authoritari-
anism is increasingly blurred. According to Krastev:
“It may be that Europeans are much more preoccupied
with internal threats to freedom, political polarization
and the power of big money, than the threats coming
from hostile external powers.”
America’s Plutocracy
After an estimated $14 billion was spent on the Re-
publican and Democrat election campaigns it is hard
to think of American as anything other than a plutoc-
racy. In Europe they have limits. Just ask France’s
Former President Nicolas Sarkozy. He was just given
a jail term for spending €42.8m (almost double the
official spending limit) for this successful 2007 election
campaign. It seems like small change compared to the
$419 million the Zuckerberg’s paid to their Democrat
protectors.
Watching a handful of corporate giants fund American
politicians and at the same time control virtually the
entire volume of information most voters get, certainly
erodes the democracy – authoritarianism distinction.
Facebook, Twitter and mainstream media’s shutdown
on the eve of the US Presidential election of a New
York Post bombshell expose regarding Hunter Biden’s
international access peddling business and other
clearly illegal activities, is one of the more outrageous
examples.
Source: European Council of Foreign Relations
European’s: re-thinking their security
Ivan Krastev writes, in a European Council of Foreign
Relations Policy (ECFR) Brief, that while Brussels
may be aligned with the US, a majority of the EU’s
voters are not. According to a 2019 Pan-European poll
conducted by ECFR, a large majority of respondents
said that they would prefer to remain neutral (rather
than align with Washington). Even with a more af-
fable Biden at the helm, at least half of the electorate
in every surveyed country would still like their govern-
ment to remain neutral, if a conflict between the US
and China was to break out. ECFR’s polls show that
Europeans have mostly not bought the idea of “system-
ic rivalry, a majority of Europeans do not see China as
a threat to their way of life.”

24. Equity Research
page 24
The Fix.
The authenticity had been confirmed and between
videos of Hunter frolicking with hookers or snorting
coke or frolicking with hookers while snorting coke, the
laptop also contained email messages which detailed
Hunter’s access peddling to the Chinese, Russians and
Ukrainians. Some of the e-mails were confirmed to tie
in his father, who was at the time in the final lap of his
successful presidential run. It was a shocking revela-
tion that any uncorrupted media organizations would
have treated as news. But, this is America and the fix
was in.
But even mainstream media appears to finally be
reaching its vomit point. In the New York Times,
normally a bastion of Biden and Democratic support,
columnist Brett Stephens details President Biden’s
unsavory history, beginning with his whopper about
the Afghan withdrawal:
“There should be little doubt that President Biden was
not being truthful when, days after the Taliban’s vic-
tory, he told ABC News that his senior military advis-
ers had not urged him to keep some 2,500 troops in
Afghanistan.”
Subsequent congressional testimony from America’s
top generals revealed that a complete withdrawal was
“not at all recommended”. The Generals had advised
Biden that no less than 2,500, and up to 4,500, soldiers
should remain in Afghanistan. Stephens then writes:
“All this would be bad enough if it were just history.”
“But, what are we to make of Hunter’s recent venture as
a visual artist, a field in which he has no formal train-
ing and no commercial track record?”
The younger Biden has become an Artist with a SoHo
gallerist intending to sell 15 of Biden Hunter’s works
for as much as $500,000 each. The White House is
trying to dress up what looks like a classic case of
money laundering by issuing rules that the identity of
the buyers must be hidden from both Hunter and the
White House. Really?
On the heels of Hunter Biden’s last stint in a no-show
$50,000-a-month job working for Burisma, a crooked
Ukrainian energy firm, another vocation he had no
prior history working in, maybe it’s not that big of a
deal. Hunter’s just, well, special.
From here, in Switzerland, after enduring Trump and
having our hopes dashed by Biden, it is hard to get
serious about any kind of American alliance. Seeing
sweet payments to the family and friends of top offi-
cials leaves a stench of corruption that healthy politi-
cal systems take care to avoid. Combined with being
burned in Afghanistan and double crossed in business,
whatever feel-good alliance-promoting pronouncements
EU leaders may make, Europeans at large understand-
ably wish to opt for the sidelines in any fight America’s
plutocracy gets into.

25. Equity Research
page 25
ed to prevent India from acquiring sub-surface ballistic
nuclear (SSBN) submarines that most critically would
protect it from its arch-enemy and perfidious American
ally, Pakistan. SSBN’s or “boomers” ensure a “second
strike capability and for that reason possessing only
one SSBN is enough to ensure that even in the event of
a surprise nuclear attack, nuclear armed missiles will
be launched and likely destroy an adversary in retali-
ation. For the Indian’s, it was already evident that
the rot of fanatical Islam was spreading throughout
Pakistan, thus the more India could deter its hostile
neighbor, the better.
Arihant, ‘Slayer of Enemies
India’s first of six planned domestically produced
subs, the Arihant, which means “Slayer of Enemies”
in Sanskrit, was launched on December 15, 2014. The
submarine’s design is based in part on the Akula class
attack submarine, Russia’s quietest, and it comple-
ments the country’s second Akula-class Chakra II
submarine, which is being leased from Russia. The
Arihant, however, is not an attack submarine but is in-
stead equipped to fire ballistic missiles with China and
Pakistan primary targets should a nuclear war ever
break out. With the Chakra II lease about to expire,
India now plans to lease another Russian submarine
beginning 2025 which it intends to name the Chakra
III. The deal includes the refurbishment of the subma-
rine with Indian sensors and communications compo-
nents and, unlike previous leases, the latest agreement
is not expected to have any restrictions regarding its
operation.
At sea: India’s INS Arihant
Nuclear ‘Pandora’s Box
China’s foreign ministry spokesperson, Zhao Lijian,
said Biden’s decision to give Australia, a non-prolif-
eration treaty signatory, nuclear technology was a
case of “extremely irresponsible” double standards.
Chairman Xi Jinping vows to resist “interference from
external forces” in relation to the Country’s goal of tak-
ing over Taiwan. In the Global Times, a well-known
CCP mouthpiece, a senior Chinese official, warns that
Australia may become a nuclear target because in the
future, Beijing and Moscow won’t treat Canberra as
“an innocent non-nuclear power” but “a US ally” which
could be armed with nuclear weapons anytime.
The construction of nuclear submarines is viewed as
a convenient cover for producing bomb-grade nuclear
material, given that is what the American and Brit-
ish nuclear subs use for fuel. The Russians have been
leasing nuclear submarines intermittently to India
since 1986 as part of India’s efforts to produce and op-
erate domestically, nuclear powered submarines.
American Interference
India’s efforts were blocked, however, beginning in
1996 by American instigated pressure from The Fed-
eration of American Scientists, the EU and ASEAN,
which made it a condition for India’s entry into the
trading group. The US had hoped to get access to the
huge Indian arms market if it could spoil the Indian-
Russian collaboration, while at the same time, it want-

26. Equity Research
page 26
Biden’s our man
Following years of the Americans interfering with In-
dia’s nuclear submarine ambitions, under the guise of
slowing nuclear proliferation, the Russians have been
quick to notice the new American double-standard.
In Russia’s MKRU Newspaper, a recent Op-Ed gives
some sense of the national reaction. Titled: USA has
opened a ‘Pandora’s Box’ the translation reads:
“No, after all, Biden is our man. Those who recently
asserted that Russia once ‘chose’ Trump seem to be
greatly mistaken. At least he never gave us such gifts.
Then, there is Biden. First, he made the United States
a laughingstock of the evacuation from Kabul. Now,
he took revenge on the French for the fact that they once
‘threw’ us on the deal with the Mistral helicopter carri-
ers. He has also opened up new opportunities for Rus-
sia to sell our nuclear submarines on the world arms
market. Now that the Americans have announced that
they are selling such technology, it is, in fact, creating a
new arms market, the market for nuclear powered sub-
marines. This opens the ‘Pandor’s Box’, the possibility
for the spread of strategic nuclear weapons around the
world.”
Russia’s Pacific Fleet is expected to add three more
new nuclear-powered submarines in the next year,
while the country’s collaboration with China regarding
the transfer of nuclear submarine technology is accel-
erating.
In a speech last November, at the Valdai Discussion
Club, Russia’s answer to the World Economic Forum,
President Vladimir Putin noted his country’s growing
military cooperation with China:
“We jointly hold regular military exercises at sea and
on the ground in China and the Russian Federation.
We exchange best practice in military buildup. We have
reached a high interaction level in military technical
cooperation, and it is likely the main thing. The talk
is not only about exchange and acquisition of military
products, but also technology transfer.”
Russia’s President Putin dealing with the opposition
Not happy: France’s President Emmanuel Macron
France: Humiliated and angry
The agreement leaves a now humiliated France at the
proverbial geopolitical altar given that right up until
AUKUS was announced, it thought it had a US $60
billion deal to supply French diesel electric subma-
rines to Australia. It was supposed to be a giant BFF
alliance and considering France’s considerable Indo-
Pacific interests, Australia appeared a natural partner
in what the French media referred to as “the contract
of the century”.
Key to the French outrage is the brutal level of dis-
honesty by the Australian, British and American
leadership during high-level meetings with France
throughout the preceding 18 months that the AUKUS
agreement was being negotiated. French officials
had not received any ‘official’ indication of a potential
Anglosphere alliance, a reality which prompted French
Foreign Minister Jean-Yves Le Drian to declare that
the AUKUS pact was “duplicity”, “treachery” and a
“stab in the back”.

27. Equity Research
page 27
France is not a country that can easily be forgot-
ten. America, the UK and Australia depend on it for
many things. France is a stakeholder in the Indo-
Pacific through its New Caledonia, Wallis & Futuna
and French Polynesian territories and it has a large
military presence there. It is a an important partner
with the US in the fight against terrorism especially in
Sahel. France is also one of five permanent members
with veto rights on the UN Security Council.
If European Union cooperation is needed on critical
issues regarding trade and technology, especially as
they relate to China or Russia, or taxes (for example,
a proposed EU digital tax which the US is against),
global warming and trade, they will need to get French
cooperation first. Knowing this, it will be amazing if
Australia’s trade talks with the EU escape Frances
wrath. Already the talks about a Free Trade agree-
ment have been postponed. An Aussie trade agree-
ment with the EU would have been helpful given that
its exports to China look set to falter.
Macron is pushing the European Union for more
“strategic autonomy” from the US and its allies. Aukus
gives him a strong tailwind in his efforts. European
Council President Charles Michel now says AUKUS
underscores the EU’s need to have the ability to act
independently of other great powers. France will get
its revenge.
Oz: Sharing Cold War II’s Costs
American presidents have long chided European allies
for not spending enough on their defense, in effect forc-
ing the US to shoulder most of the previous cold war’s
costs. America comes to this latest cold war with its
finances stretched and deeply in debt. Virginia class
subs, though a small part of the US military budget,
aren’t cheap at $3.45 billion each, never mind the cost
of operating them. Getting Australia to acquire its
own subs as the US appears to be doing, performs the
neat trick of compelling the Aussies to pick up part of
the geopolitical tab in this accelerating great power
confrontation.
What is surprising is how little press coverage there is
regarding the future fiscal burden that will be imposed
on Australia’s taxpayers now that its government has
jumped with both feet into the Indo-Pacific arms race.
At the same time, declaring a cold war with China,
which last year bought 39% of Australia’s exports, will
have its price. Military budgets are apt to crowd out
other spending priorities, just as export revenues go
into a tailspin, when inevitably, China sources its iron
ore, coal and LNG from friendlier countries. India is
already buying Australian coal, perhaps they will need
some iron ore and LNG too..
French Territories
AUKUS underscores the EU’s need to have the ability to
act independently of other great powers.
European Council President Charles Michel
Australia
French Polynesia
Wallis &
Futuna
New
Caledonia
New Zealand
New Zealand
Papua
Papua
New Guinea
New Guinea
China
Philippines
Philippines
Chinese Province
of Taiwan

28. Equity Research
page 28
No Promises: Historical
Precedents Not Encouraging
Hu Xijin, editor-in-chief of the Chinese state news
agency Global Times, advised on Twitter that “Taiwan
should not look forward to the US to protect them”.
Perhaps more telling is the AUKUS group’s silence re-
garding Taiwan’s defense. In August, Taiwan’s leader,
Tsai Ing-wen, spoke to calm a growing panic on the
Island that was triggered by America’s Afghan betray-
al. She says Taiwan should assume it is on its own,
emphasizing that the island nation’s only option is to
“make itself stronger, more united and more determined
to defend itself.”
When it comes to one nuclear power risking Armaged-
don by going to war with another nuclear power in
order to defend an ally which is of minimal strategic
significance, the record for Taiwan is not reassuring.
The Ukraine was on its own in 2014 when Russia an-
nexed Crimea. Neither America nor Europe came to
its aid. Even now, the EU still depends on Siberian
gas, while Russia’s occupation of Crimea and Sevasto-
pol is scarcely discussed.
Another example of a nuclear power failing to inter-
vene occurred decades previous when China attacked
Russia-backed Vietnam. China launched the invasion
to punish Vietnam for driving the Khmer Rouge out of
Cambodia and to undermine its ambitions to dominate
Indochina. China’s President Deng was convinced of
the Soviet’s hostile intentions while he viewed China’s
PLA as having grown corrupt and lazy. Deng was just
starting to consolidate his power and by launching the
Vietnam invasion he would have an opportunity to test
the military. If the invasion went well, he could take
the credit and if it performed poorly, as was the case,
he would be in a position to reorganize the PLA and
strengthen his position as Chairman.
To its Asian neighbors and the US, China’s botched
Vietnam invasion still managed to establish it as a
welcome counterweight to Soviet designs on Indochina.
It was a military failure, but because China avoided
getting bogged down in a drawn-out conflict, it was
largely a geopolitical success. Most significant to the
Taiwan story is that despite the billions’ worth of arms
the USSR essentially gifted to Vietnam and its stead-
fast and declared alliance, when it came to going head
to head with a nuclear armed China, the Soviet Union
Vietnam – China War 1979
Russia

29. Equity Research
page 29
stayed out of the fight.
Arakis: Are Microchips The New Spice?
But is Chinese aggression really all that imminent?
Last year Epsilon Theory editor Ben Hunt compared
Taiwan’s dominance of the semiconductor market to
Frank Herbert’s science fiction series “Dune”. In the
series, a planet called Arrakis holds the key to control-
ling the universe because it is the sole source of a psy-
chotropic drug called spice. Basically, Hunt compared
Arrakis with Taiwan and spice to semiconductors.
Hunt’s point is that Taiwan dominates global chip
manufacturing with 63% of the world’s contract manu-
facturing and its production of more than 90% of the
world’s most sophisticated microchips. As a conse-
quence, Taiwan has become a vital supplier for econo-
mies globally and, more specifically, China and the US.
This is the current reality. Logically, by invading Tai-
wan, China would be shooting itself in the foot.
It consumes close to 70% of the world’s microprocessors
but only 16% of China’s microchip consumption is esti-
mated to be sourced domestically and, in an invasion,
the risk is that most of Taiwan’s fabrication capacity
could be destroyed. Regardless, China is not shy in its
bellicose declarations that it will use force if necessary,
to make Taiwan another Chinese province.
Taiwan’s dominance of high-end chip production is
what Taiwanese politicians consider its ‘silicon shield’
against China. The two critical questions which then
arise are: when will Taiwan cease to be a primary
economic interest of the US and when will China be
producing enough microchips domestically that it could
survive losing its Taiwanese supply?
American politicians might solemnly declare nation
building as their motivation to fight wars in the Middle
East, but in reality their motivation has only been as
strong as the country’s need to ensure a reliable supply
of oil. We think it is fair to make the same assumption
about Taiwan, except we should replace oil with micro-
chips. American and global, including China’s, manu-
facturing, currently depend on Taiwanese chip produc-
tion which translates into what Taiwanese politicians
consider as the country’s “silicon shield” against China.
A Vital Interest
Taiwanese state champion, Taiwan Semiconductor
Manufacturing Co (TSMC), is a half-trillion-dollar
company by market cap and is the world’s largest chip
maker. It hopes to keep Taiwan in the forefront as the
LISTEN TO ME!! The spice must flow… the spice has
given me accelerated evolution for four thousand years…
it has enabled you to live two hundred years… the spice
helps make the sapho juice, which gives the red-lipped
mentats the ability to be living computers… the secret side
of spice… the water of life.
Dune 1984
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
25.00
TSMC Taiwan Semiconductor Manufacturing Co Ltd
Brazil Bovespa: TSMC34
2020 Apr Jul Oct 2021 Apr Jul Oct 2022

30. Equity Research
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world’s supplier and is spending US $100 billion over
the next three years to do just that.
In 2020, TSMC was a major benefactor when produc-
tion problems forced Intel to buy a massive 180,000
wafers from TSMC. But these problems have since
been fully resolved, says Intel, which is now planning
a multi-billion-dollar expansion, including spending
$20 billion building two Arizona plants, both in the US
and Europe. Intel says it is accelerating research to
develop more advanced designs while it plans to also
offer contract chip manufacturing, as TMSC does, to
other companies.
The US Senate is fully supportive, having passed last
year a US $52 billion bill to fund research and develop-
ment with a goal of on-shoring US chip supplies. It is
a strategy intended to shift the technological balance
of power from Taiwan and Asia to safer locales in the
United States and Europe. Timothy Prokett Morgan
writes in technology newsletter The Next Platform
that:
“Eventually, perhaps in 2024 or 2025, if all goes well,
Intel will be competing directly in the foundry busi-
ness with TSMC, as well as making its own chips and
chiplets.”
Morgan concludes, as we do, that “the success of Intel
Foundry Services and Global Foundries in the United
States and Europe, as they expand their operations,
could make it more likely that China tries to take pos-
session of Taiwan.”
For the immediate future, given how dependent the
United States and Europe are on TSMC’s chips and
how important semiconductors are to just about ev-
erything, Taiwan is an American vital interest. Pro-
kett says, “I expect it would be taken as an act of war.
Maybe the opening act of World War III.”
In 2019, Huawei became the world’s second largest mo-
bile phone maker behind Samsung but then the Trump
administration all but crippled its business by pre-
venting it from buying the sophisticated phone chips
needed to make its phones. The US attack was like a
starting gun for the middle kingdom’s tech sector as it
then raced to create its own fully independent semicon-
ductor ecosystem.
Tech consultancy Omdia’s Head of China Semiconduc-
tor Research, Hui He, estimates that “by the end of this
2022 China can build an entirely self-sufficient produc-
tion line of 14nm chips.”
But TSMC is already fabricating 5nm chips and it has
reported a break-through which allows the produc-
tion of a 1nm chip. The lag between China’s leading
foundry SMIC and TSMC is widely considered to be
“I expect it would be taken as an act of war.
Maybe the opening act of World War III.”
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Other Japan Europe North America China
Source: IBS
Semiconductor
Market
Semiconductors consumption by geographic region
900
800
700
600
500
400
300
200
100
0
$509.0 Bn
$468.4 Bn
$433.1 Bn
$401.0 Bn
$477.6 Bn
$555.3 Bn
$607.0 Bn
$664.6 Bn
$728.2 Bn
$798.5 Bn

31. Equity Research
page 31
province acting on behalf of the Americans in exchange
for their protection.
If Microchips are the new oil...
Going back to our micro-chips are the new oil analogy,
if the US can seriously disrupt China’s access to (Tai-
wanese) semi-conductors, China would then have far
less to lose by invading Taiwan. Recall Pearl Harbour
and America’s entry into World War II. As Sebastien
Roblin recounts in The National Interest:
“Japan’s brutal Pacific-spanning Empire depended
on oil—and Japan had been importing 80 percent of
it from the United States. Tokyo did have fifty-three
million gallons of oil in reserve—a supply which could
sustain its Empire for roughly a year.”
The US was no innocent – it had occupied the Philip-
pines since 1892, while deploying its military to protect
US commercial interests in China. In 1941, Japan
invaded French Indochina with Thailand’s Plaek Phi-
bunsongkhram government as a sole ally. In response,
the US then teamed up with the same AUKUS actors:
the UK and Australia to cut off exports of iron, steel
and oil to Japan.
Japan then faced the crippling of its economy and war
machine as these commodities ran out. Its subsequent
attack on America’s Pearl Harbor Naval base was
intended to cripple the US Pacific fleet so that it could
invade Indonesia unopposed and, in turn, access the
Dutch colony’s prolific oil production. However, the
USS Arizona as it sinks at Pearl Harbor
at minimum five years, an estimate TSMC founder
Morris Chang says is likely correct. Chang also thinks
the US will have difficulty re-establishing a competi-
tive chip fabrication sector because it lacks “dedicated
talent -- including dedicated and committed engineers,
technicians and production-line workers -- as well as
the capability to mobilize manufacturing personnel on
a large-scale.”
With America’s education system in crisis and a con-
sequent dwindling number of STEM graduates, the
outlook is hardly encouraging. Biden’s answer to this
is more extra-territorial US repression. Washington is
asking global chip suppliers and electronics makers to
share highly sensitive information regarding their cus-
tomers. In other words, they want to know who specifi-
cally the Taiwanese are selling micro-chips to.
The Americans say they want to address the unprece-
dented global chip shortage but, in reality, it will allow
them to identify China’s choke points in its manufac-
turing and semiconductor ecosystems. If the informa-
tion is not handed over voluntarily, the Biden admin-
istration is considering using a Cold War-era national
security law to force companies to comply.
The Biden administration’s latest salvo is at minimum
an additional erosion of globalization as the US seeks
to further weaponize global supply chains. At best, if
successful, it will add to import costs (inflation) as the
flow of low-cost Asian products is further disrupted
and the world devolves into China centric vs American
centric spheres of economic influence. At worst, if only
China-opposed Western economies are benefiting from
Taiwan’s chip fabricators and if China has not devel-
oped viable alternatives, Chairman Xi will have every
reason to retake what the country considers a renegade
Billions
of
US
Dollars
120
100
80
60
40
20
0
Capital Spending Percent Change
120%
100
80
60
40
20
0
–20
–40
–60
SemiConductors Capital Spending
11 12 13 14 15 16 17 18 19 20
Annual
Change

32. Equity Research
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key differences are: China is not even remotely a des-
potic regime but in fact its thriving economy has lifted
hundreds of millions of people out of poverty.
China’s population is more than triple America’s and
its economy, on a purchasing power parity basis, is
larger. On a military basis in the East and South
China seas it easily exceeds America’s capabilities.
And, as demonstrated, few SE Asian countries are
pro-American, while most of Europe now views any US
initiatives with skepticism.
In comparison, Japan had few friends which could
help it and its 1930’s despotic conquest of Asia is well
known, but these were not its key disadvantages. The
country was in reality tiny versus the US. It had half
the population and one-seventeenth the GDP, while it
depended on imports for almost everything.
At present, Taiwan’s advanced Micro-processor fab-
rication is essential to the vast majority of modern
consumer items. (According to the China Association
of Automobile Manufacturers, less than 5% of its chip
consumption is from domestic sources). The average
car, has approximately 1,400 semiconductors. Any
major interruption in chip supply, which is basically
what a Taiwan invasion would cause, is likely to stop
global manufacturing in its tracks and cause a world-
encompassing deflationary collapse. China knows
this and so does the US. So, this reality is likely to
defer any Chinese invasion, for now and as long as it
also benefits from Taiwanese chip production. This is
something we need to monitor closely: TSMC’s expan-
sion plans notwithstanding, time is slowly running out
for Taiwan as the West’s and China’s dependence on it
for microchips is unlikely to last.
New York for Taipei?
In 1961, French President Charles de Gaulle asked
US President John F. Kennedy whether the US would
be ready to trade New York for Paris if there was to
be a war with the USSR. Clearly, neither the UK nor
France, both which subsequently developed nuclear
weapons of their own, found American assurances that
it would come to their defense very convincing. To
allay the remaining NATO allies’ fears, the US estab-
lished military bases throughout Europe, together with
forward deployed arsenals, and thousands of smaller
tactical nuclear weapons, while establishing nuclear-
weapon-sharing arrangements.
Fast forward to 2021 and the US does not even official-
ly recognize Taiwan as a country, and even if it did, es-
tablishing Nato-like tripwires in the form of American
bases on the island, remains a red line for China that
the US dare not cross. Chinese President Xi Jinping
emphasized, in a speech at the Communist Party’s
centenary, that any attempts to block the “complete
reunification” of Taiwan and the mainland “will be
crushed”. The South China Morning Post reports that
a Beijing-friendly newspaper has even published po-
tential invasion plans which, to our thinking, is likely
just another part of the CCP’s effort to psychologically
wear down the Taiwanese.
In search of Pentagon Officials
‘Not’ Captured by Industry
But what the US will do is sell weapons to Taiwan
regardless of whether or not it is in the best interests
of the majority of American voters. Selling weap-
ons is a vast global industry which the US currently
dominates. The world’s top five companies, Lockheed
Martin, Boeing, Northrop Grumman, Raytheon and
General Dynamics, are all American. The Stockholm
International Peace Research Institute calculates sales
of weapons and military services by the world’s larg-
China’s ballistic missile armed Humpback’ Type
094 nuclear submarine

33. Equity Research
page 33
est 100 arms manufacturers totaled $420 billion in
2018. US companies accounted for almost 40% of this
amount. Like most industries in the US, the defense
sector is dominated by a handful of giant companies
which in turn have an unsavory degree of direct access
to all levels of US civilian and military officials. Their
influence goes far beyond mere regulatory capture but
also, to a great extent, shapes government policies such
as congressional arms sales approvals.
A December 2020 Project on Govern-
ment Oversight (POGO) analysis
by Mandy Smithberger, entitled
“In search of Pentagon Officials Not
Captured by Industry”, describes how
America’s revolving door of military
officers, overseeing weapons programs
and subsequently working for the
weapons manufacturers, has advanced
to a level not seen in three decades.
Ms. Smithberger details how lucra-
tive post-retirement gigs as lobbyists
or executives give officials at all levels
an untoward and highly conflicted
incentive to ‘play ball’ with the in-
dustry. Former United States Ma-
rine Corps four-star general known
as “The Warrior Poet”, Jim Mattis,
graduated to the Board of General
Dynamics, America’s sixth largest, by
sales, weapons maker. Taking the revolving door steps
further, the warrior poet was subsequently appointed
to what the founding fathers intended to be the highest
level of civilian oversight of America’s military: the US
Secretary of Defense. Since resigning in protest over
President Trump’s betrayal of Kurdish allies in Syria,
he has rejoined General Dynamics.
America’s current Secretary of Defense, Lloyd Austin,
also hails from the military. He was a four-star Gen-
eral in the US Army before being granted passage to
the Board of Raytheon Technologies, America’s third
largest defense contractor. Mattis and Austin are only
the headliners. Smithberger recounts extensive 2018
POGO research which details how the current environ-
ment further corrupts America’s democratic aspira-
tions and inflates defense costs:
“The revolving door of Pentagon officials and senior
military leaders seeking lucrative post-government jobs
does exactly that. It often confuses what is in the best
financial interests of defense contractors - excessively
large Pentagon budgets, endless wars and overpriced
Left to right US President John F. Kennedy and French Presi-
dent Charles de Gaulle 1961
Strategic access: While China’s coasts are shallow(turquoise) invading
Taiwan would give China direct deep water access to the Pacific Ocean

34. Equity Research
page 34
weapon systems - with what is in the best interest of
military effectiveness and protecting citizens.”
The report cites not 10 or 20, or even 50, but 645 in-
stances of the top 20 defense contractors hiring former
senior government officials, military officers, members
of congress and senior legislative staff as lobbyists,
board members or senior executives, all in a single
year. The money involved around is not small change.
Open Secrets reports that:
“In the past two decades, their extensive network of lob-
byists and donors have directed $285 million in cam-
paign contributions and $2.5 billion in lobbying spend-
ing to influence defense policy.”
A cynic may have predicted the first weapons sale to
Taiwan that was approved by the Biden administra-
tion would be Secretary of Defense, Lloyd Austin’s
Raytheon, and he or she would be right. Raytheon is
to provide 40 ME-109 Howitzers and precision muni-
tions upgrade kits for US $750 million. More big sales
should be expected as America’s military-industrial
complex cashes in. The Raytheon sale comes on the
heels of roughly $18 billion in arms sales to Taiwan
under the Trump administration. The weapons pur-
chased include Patriot Advanced Capability (PAC-3)
Missile Segment Enhancement (MSE) systems which
are expected to be delivered between 2025 and 2026.
Like Bringing a knife to a gun fight
It looks like an appropriate move considering China’s
accelerating pace of incursions into Taiwanese air-
space. But is it, in terms of deterrence, like bringing a
knife to a gun fight? China already has thousands of
precision-hypersonic, cruise and conventional missiles
aimed at Taiwan and they, which should quickly over-
whelm the Island nation’s defenses before the PLAN,
send its bombers to mop up. In contrast, other than
enriching US companies, the arms sales are likely to
further undermine America’s relationship with China
and forestall any cooperation Biden may hope to get
from President Xi.
In Anadolu Agency’s Asia Pacific Report, Jingdong
Yuan, an Associate senior fellow at the Stockholm In-
ternational Peace Research Institute (SIPRI), notes that
all the arms sales may accomplish is to “buy time” just
in case the US decides to come to its defense. Taiwan
should assume that China will deploy missile systems
capable of overwhelming any new missile defenses,
if that capability does not already exist. The SIPRI
scholar concludes that Taiwan “clearly is not in a posi-
tion to engage in this kind of arms race.”
Taiwan “clearly is not in a position to engage in this
kind of arms race.”
While the sales may seem morally and emotionally
justifiable, they hardly encourage Taiwan to smooth
over relations with the mainland and thus avoid a fight
it cannot win. The sales also break a 1982 agreement
the US has had with China which limits arms sales
to Taiwan. It is not the first weapons agreement to
have recently been ignored by the US. America’s sales
of Tomahawk land-attack cruise missiles to Austra-
lia are in defiance of the Missile Technology Control
Regime (MTCR) which the US co-founded. The MTCR
is intended to limit the proliferation of nuclear capable
missiles and other unmanned delivery systems. The
AUKUS submarine deal also defies an informal con-
vention which has until now helped limit the spread
of nuclear weapons. In terms of Uncle Sam’s global
leadership, it’s a case of: “do as I say not as I do”.
The US Arms industry’s influence on US policy ex-
plains a lot regarding America’s change of focus from
Middle East terrorism and regime change to the drum
Raytheon’s ME-109 Howitzer

35. Equity Research
page 35
War Games
General John Hyten, Vice Chairman of the
U.S. Army Joint Council, admitted at the
establishment ceremony of the Institute of
Emerging Technology of the National Defense
Industry Association on the 26th that the U.S.
military suffered a disastrous defeat in the
recent simulated Sino-U.S. conflict around the
Taiwan Strait, According to his description,
this is not just a general fiasco, but a complete
overturn of the war experience accumulated by
the US military over the past 20 years. Accord-
ing to Hyten, at the beginning of the simulated
confrontation, the “blue team (on behalf of the
US military)” almost immediately lost access
to its network. The report also mentioned
that after the war broke out, the U.S. military
habitually assembled ships, aircraft, and other
troops to combine firepower and support each
other, but this practice caused them to “sit and
wait to die.” Hyten said,
“We always concentrate our forces to fight and
strive to survive, but in today’s world, there
are hypersonic missiles from all directions and
powerful long-range firepower attacking us. If
everyone knew wherever we assemble, we are
easily attacked.”
A few months ago, the U.S. Air Force also ad-
mitted that the U.S. military had achieved two
disastrous defeats and one disastrous victory
in the three combat games in 2018, 2019, and
2020 that simulated the Sino-U.S. conflict. The
only winning game occurred when the US used
hypothetical weapons – when using weapons
that actually exist it lost badly.
Based on the lessons learned by the war
games the Pentagon is expected to abolish the
concept of “joint operations” that has guided
U.S. military operations for decades, and in-
stead develop an “expanded mobility” strategy.
beat of war in Asia. The more shrill Chairman Xi
gets regarding taking back Taiwan, the more business
America’s weapons makers are likely to get.
America’s willingness to profit from arming Taiwan
should be no reason for Taiwanese optimism regarding
Yankee willingness to come to their defense. A bet-
ter and ominous indication of the likely US response
is the urgency with which its lawmakers are trying to
encourage the development of domestic alternatives
to its Taiwanese semiconductor supplies. The US has
also not done any of the things necessary to put boots
on the ground and come to Taiwan’s aid.
As Ian Easton, a senior director at the Project 2049
Institute and author of “The Chinese Invasion Threat:
Taiwan’s Defense and America’s Strategy in Asia”
notes that the US military sends “very small groups
of people to Taiwan”. “They don’t stay there for very
long. They don’t learn the language. They don’t de-
velop a deep relationship with their counterparts.” In
a military situation, they will struggle to coordinate
and US response (a US response?) in a conflict. “It also
means that top US military leaders may not have a
full understanding of the battle space.”
Chinese President Xi Jinping emphasized in a speech
at the Communist Party’s centenary that any attempts
to block the “complete reunification” of Taiwan and the
mainland “will be crushed”. China is currently in the
midst of adding another 200 nuclear ballistic missile
Does not include surface to air missiles

36. Equity Research
page 36
silos to its arsenal as further insurance that America
will not risk New York by trying to defend Taipei.
Indirect tactics efficiently applied are inexhaustible:
“as heaven and earth, unending as the flow of riv-
ers and streams; like the sun and moon, they end
but to begin anew; like the four seasons, they pass
away to begin once more.”
Sun Tzu, The Art of War
Dire Straights
Taking the risk of running boat loads of China’s prince-
lings through a potentially submarine-filled gauntlet
that is the Taiwanese straight, only to land within a
veritable kill-zone consisting of narrow beaches sur-
rounded by heavily fortified sea cliffs, seems a foolish
strategy. Another more viable option is to blockade
the Island, based on the reality that Taiwan relies on
imports for two-thirds of its food and nearly all of its
energy. This possibility is gaining more prominence
among Pentagon strategists and was more recently
highlighted in the Taiwan Sentinel in an article “Tai-
wan’s Dilemma: Why a Blockade is Likelier than
an Invasion”, by Military Studies scholar Benjamin
Fan. Fan says that “A blockade is less likely to trigger
foreign intervention” to which we add the caveat that
only if the world is no longer depending on Taiwanese
microchips. More to the point, Fan quite reasonably
points out that:
“Even military intervention by the United States might
not make jittery commercial air and sea carriers resume
operations in and out of Taiwan, and the mere destruc-
tion of one or a few vessels or airliners could render
the entire Taiwan region a commercial no-go zone for
months. A blockade therefore gives China very efficient
return on little effort.”
China has already demonstrated how this invasion
Dangerous Crossing: Satellite photo of the Taiwan Straight