A Family Reunion — but With Guns

“The United States and the Philippines are more than just allies. We’re family.”

That’s what U.S. Defense Secretary Lloyd Austin says. 

And in the most basic sense, he’s completely right. 

The two countries have a long and storied history dating all the way back to 1587, if you can believe it. 

That’s when Filipinos first arrived in Morro Bay, California, followed by a permanent settlement in Louisiana in 1763.

From there, Filipino Americans scrambled to help fight off the British in the War of 1812, taking part in the Battle of New Orleans. 

Meanwhile, back home in the Pacific, America’s revolt against British rule inspired Filipinos to shed the yoke of their Spanish colonizers. 

The 1896–1898 Philippine Revolution against Spain paved the way for the United States to purchase the territory from Spain as a concession in the Spanish-American War.

But then things kind of soured.

America invaded and destroyed the First Philippine Republic and then ruled the country until 1946, when it was finally granted independence.

Of course, the United States and the Philippines continued to cooperate militarily. 

The 1947 Military Bases Agreement gave the United States a 99-year lease on a number of Philippine military and naval bases. And in 1951, the two countries signed a mutual defense treaty that remains in force even today, 72 years later.

Still, the relationship remained rocky, checkered by a litany of abuses by American soldiers posted overseas, particularly against women. 

In one recent and abhorrent case, a U.S. marine murdered a trans woman. After being found guilty, he was pardoned by former President Rodrigo Duterte and allowed to return to the United States.

Understandably, there’s some resentment, which came to a head back in 1991, when the Philippines opted out of its base agreement with the United States. 

Once home to 15,000 U.S. troops and two of the largest American military bases in Asia, the Philippines were completely free of U.S. forces by November 1992. 

Nevertheless, as Austin said, we’re family, and families have a way of coming back together — even after horrible fights or ugly falling outs.

This is especially true when a family member is threatened.

That’s the case today. 

Over the course of the past decade, China has gone from a rising threat to an active one. It’s claimed the entirety of the South China Sea as its own, using threats and intimidation to sideline its half-dozen neighbors in the region, including the Philippines. 

To further cement its claim, China has expanded and fabricated artificial islands that now host harbors, airstrips, and barracks.

Since 2014, China has built 10 artificial island bases, including one at Mischief Reef, inside the Philippines' exclusive economic zone. 

While the U.S. Navy continues to conduct so-called freedom of navigation missions, vessels in the South China Sea are constantly harassed by Chinese forces. 

China’s bullying tactics have caused the Filipinos to reflect on the benefits of an American military presence. 

The Philippine Constitution prohibits the permanent basing of foreign troops and their involvement in local combat. However, an Enhanced Defense Cooperation Agreement (EDCA) signed in 2014 allowed for American forces and non-nuclear defense equipment to rotate in and out of the country on an indefinite basis.

This past Thursday, that agreement was expanded to include four more Filipino bases in Cagayan, Zambales, Palawan, and Isabela. 

Access to these facilities gives U.S. forces a front-facing view of the South China Sea and Taiwan. 

They also complete an arc of military allies that now cradles China’s coastline.

Obviously, Taiwan is the other major flash point in the region; coincidentally, it’s home to some 200,000 Filipinos. 

So the Philippines’ involvement will be absolutely vital in the event of a Chinese invasion, which is expected to come sooner rather than later.

China’s been menacing Taiwan for years, if not decades, but its antagonism has really escalated of late — especially since Nancy Pelosi visited last year.

A private memo penned by a four-star general in the Air Force this week warned that things could jump off as soon as 2025.

“I hope I am wrong,” writes Air Mobility Command head Gen. Mike Minihan. “My gut tells me we fight in 2025… Taiwan’s presidential elections are in 2024 and will offer Xi [Jinping] a reason. United States’ presidential elections are in 2024 and will offer Xi a distracted America.”

I’ve seen other potential timelines floated too, so you can take that with a grain of salt, but everyone seems to agree that the invasion itself is a foregone conclusion. 

At least now we’re better prepared.

And investors should be too.

Investing in defense contractors like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) has always been a sure thing, as they benefit from a seemingly bottomless Pentagon budget.

But now, Russia’s invasion of Ukraine and China’s increased belligerence have really opened up the floodgates for defense spending. 

Of course, if investors really want to profit, they should go further than buying up the big names like Lockheed Martin. 

They should look for cutting-edge suppliers like the ones I cover in my Secret Stock Files service. 

There, I focus on smaller companies that are developing futuristic war-fighting technology that’s yet to go mainstream. 

For example, my latest report there details a company that makes head's-up displays for fighter pilots. 

Its scopes, displays, and helmet visors use augmented reality to keep war fighters aware of any relevant data without distracting them from their target or mission.

The technology even goes so far as to provide X-ray vision in some cases.

You can find out more about that here.

Fight on,

Jason Simpkins

@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

*Follow Outsider Club on Facebook and Twitter.