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- [00:01]
A
War talk. May 8th. We've got the great Jack Shanahan, retired Air Force general, here with us. We're going to throw it over to Brian to explain Project Freedom, KSA and whatever the hell else has been going on. And, I mean, I guess this has been like the murkiest week we've had in a while, right?
- [00:26]
B
Absolutely, Absolutely. The White House has announced that the war is over as well as it's continuing in a new form. It's just an ever evolving set of actions and activities.
- [00:36]
C
There was a love tap.
- [00:37]
B
Yeah, there was a love tap. So trifle. I mean, it was. It's a whole, you know, it's a whole smorgasbord of military operations.
- [00:46]
D
These shootings do not. Do not equate to a ceasefire being broken.
- [00:51]
B
Exactly. Yeah, it's a. It's a trifle. I mean, it's just like if you went to tea at the. The Langham in London. So the latest is, we tried to. The leverage that the Iranians have right now is the closure of the Strait of Hormuz, obviously. And so the US saw an opportunity to say, well, if we can erode that leverage, maybe we get a better position in the negotiations. The gambit they pursued was trying to do a escort operation on the cheap. Back in the 80s when we'd had the tanker war and we had the Iranians and Iraqis shooting at each other, the US Navy had to escort shipping through the Strait of Hormuz and the Persian Gulf with dozens of warships interspersed among convoys defending them from missiles and small boat attacks in those days, and mines. And it was a pretty robust operation. And shipping companies both had to have their ships flagged under US flag to feel confident that the US would actually defend them. And they also had to have the presence of US warships right next to them, essentially as bodyguards. So it was a large undertaking. Back in the tanker war, the us, the administration didn't want to pursue that level of effort this time. And therefore they tried to convince shipping companies to join up in a sort of convoy of convenience where a couple of US warships would lead them out and show them the path to take, basically guiding them out. And then the commercial ships would fall like ducklings right behind those warships and that know, if they could do that and demonstrate that the strait was clear, there were no mines in it, or there was a route you could take without mines, and Iran didn't attack those ships, then you've undermined Iran's leverage and now you've kind of called their bluff. Well, shipping companies didn't find that to be very credible. As they said, this level of protection is not sufficient to give me any sort of confidence that my ships will survive the passage. Also, you're not willing to flag my ships under US flag to kind of guarantee that they're going to be defended. Therefore we're going to beg out big off and not participate. So the only two ships that were brought out were two US flagships that kind of knew they were going to be protected by the US Navy no matter what, or the US Military no matter what. And the US as part of this operation, took out some small boats that the Iranians did launch and they took out a pretty good number of cruise missiles and drones that the Iranians launched at the warships and then the container ships or the commercial ships. Unclear exactly. You know, who was shooting at what. But those, those threats were taken out. These two Maersk ships were able to get outside the strait and make their way back to their, their destinations. But the rest of the 900 or so large ships that were in the Persian Gulf are still there. One of the complicating factors here is the fact that the ksa, the, the Kingdom of Saudi Arabia decided not to allow basing or overflight rights to US forces that would be doing this defense operation for the shipping constrained the amount of air power that you could use to be able to shoot down drones and cruise missiles or go after small boat threats. So without that more robust air cover, without the willingness of the administration to put Navy ships at risk in larger numbers, shipping companies just didn't find it to be very credible. And the US Sort of to save face, said, well, we're going to go back to the negotiating table in Pakistan and Saudi Arabia have asked us to stop the project in order to get back to negotiations, negotiations with the Iranians. So it's a, it was a nice way to sort of walk it back without looking like you're, you're running home with your tail between your legs. But in a lot of ways it was a failure. And I think some folks have tried to make it sound like a success because two ships got out, but I would argue it's a failure because you have hundreds of ships that didn't take up the offer because it just wasn't seen as being very credible.
- [04:52]
C
Like 20,000 sailors are on board.
- [04:54]
B
Those are still trapped.
- [04:55]
C
But Brian. Justin, before you get into this, Brian, about a month ago, there was robust commentary about how Mohammed bin Salman in Saudi Arabia was aggressively advocating for increased military action against the Iranians. That. But by and between Riyadh and Abu Dhabi and a few other stakeholders that there was this sort of percolating assumption that if you have reached the peace and you're going to war, you might as well try to finish off the regime. What transpired in the past month that has led the regional stakeholders to back off? Or was that original viciousness not particularly well sourced? Is there a change or are we just reacting to poorly sourced reporting through the media?
- [05:43]
B
I think it's probably a combination of the two. I mean my, I mean we've, we've been over just backstory a little bit. We went over it a couple of times to meet with MBS back when he was the defense Minister in Saudi Arabia as part of the effort to sell these multi mission surface combatants to the Saudi Arabians. They were focused very much on getting larger warships and we were trying to talk them down to something more commensurate with their military capabilities. But in any event, he seemed very savvy, very knowledgeable about the region, kind of what the strategic relationships are. And I find it hard to believe that he would be so naive as to think the Iranian regime would just with some sustained firepower coming from the US and Israeli air forces. So I think it was probably not that well sourced at the start. And then I think in the last month we've just seen evidence that the Iranians aren't going to fold and therefore the Saudi Arabians probably have to rethink what their strategy is. So I imagine it's a combination of, he wasn't quite as aggressive as maybe the portrayal was then. Also I think we've seen in the last month that, that there's probably not going to be an easy way to get the Iranians to back down and become a non player in the region.
- [06:58]
D
Yeah, I mean I think that that goes exactly to it. Like I think this, this speaks to two things. One is that the, the preeminence of an air campaign alone was never going to be enough to capitulate Iran. And we could get into that because I think Jack is eminently suited to talk about that. But the coalition building that would have been necessary to even sustain the types of operations that were. Again, we kind of talked about this, this is, this is a, you know, on the distribution curve, this is firmly in the, this, this was most likely, and we didn't have those conversations already in place like hey, if they try to close the strait, this is what we're going to do and this is what we're going to need to access to you know, basing and overflight from Saudi Arabia, from uae. And then again, like the other thing too is that as soon as Project Freedom gets launched, UAE gets hit. And I think Iran is denying that that was them that did it. So then there's also the question of like, what else is going on in this area that is leading to these increased tensions where maybe KSA is like, hey man, like, stuff's getting a little bit wilder than we're, than we're prepared for right now.
- [08:12]
E
There's a couple of things. First of all, it's become evident that all I have to do is come up with a new name. You get another 60 days. So we're going to see a lot of different names used in operations here to get around the War Powers act, which is crazy by itself. But just to a broader point, I've been thinking about this this morning. I'll never forget being in a meeting in Secretary Mattis office at the time, not probably too long before he resigned and left the building, so to speak. Wasn't a meeting that I had to be at, but for whatever reason I was in, it was a very small group. OSD policy was there and he was clearly tense. I think he had come back from the White House and was discussion about Russia and the OSD policy team. There are a couple of people, some of you would know the lead that she, she's been in the building a long time and she's, they're all kind of in a, in a kind of good mood and saying here, here's what the administration at the White House want to do. Terse and he looked at them and he picked up this paper that they were talking about. He said, this paper is bereft of strategic thought, which is a very classic Mattis way of saying things. This operation is bereft of strategic thought. I guess this is the way I think about it. We don know what the end state is. They've tried to explain it probably 15 different times, but it's a variation on a theme and nobody can understand. I feel bad for the people that are doing the targeting because they're going to do what they have to do. The people at the front end are going to do what they're always going to do. They're going to go hit the targets they were told to hit. But if anybody's trying to ask the question, what are we doing? The connection of the Ways and Means against what strategic end state? I don't have a good answer to that because it's changed right now. It Appears to be straight a hormone moves is open and I can't get much beyond that other than maybe the enrichment one is under negotiation how many years with complete obliteration to well maybe 10 years. Whatever it is that's a problem. I think we would all admit that without that clarity in strategic end state this is not going to end well so either there has to be a very clear definition is it just the strait and you know one or two other things about the Iranian military capability without that I think I saw this morning I was torsing a little unclear but maybe UAE was attacked again by some ballistic missiles and drones that they successfully defended against and I know Brian, you didn't mention that it appears those US naval ships were attacked successfully defended against but we're one inch away from catastrophe if you successfully hit one of those ships and I think it will not be hard to do because they still have plenty of fast boats, drones and other capabilities and we end up killing American naval people on on these ships that is going to make a turn and I don't think we're prepared for and yet again the President used a phrase yesterday that I'm trying not to read too much into but there will be a bright glow coming from the country should Iran, you know successfully attack one of our ships. I think we could all try to read into that to what he's saying that is not a path I don't think we should be really walking very far down because it sounds to me like he's suggesting nuclear weapons and probably oh no no no. That's not what he's saying. So I think just this absolutely muddled on on strategic end states is so frustrating I don't know what the right answer is. I just know that somebody has to come out and make it more clear than they've been so far is what is the US going to accept? What are we going to accept?
- [11:42]
C
Didn't the President come out and say that he wanted to buy the heu?
- [11:46]
E
I've heard a lot of different things. One is so far underground they're never going to get it to no, they're going to give it to us to well maybe we can pay for it to which the response from the Iranians has been clear. No, we're not we're not giving it up so I don't well to be
- [12:02]
F
fair if anyone knows the market rate for highly enriched uranium is the Pakistanis. So we've got the right negotiators.
- [12:09]
B
That's right. The right people involved is Khan is exactly he's our negotiating partner. So to Jack's point, I think that's the reason we didn't do the kind of the full meal deal when it comes to the escort mission, because we knew that it was only it's inevitable that one of these ships is going to be attacked if you put them in contact with the Iranian forces long enough and successfully attacked rather. And the US doesn't want that visual. And part of it is they've sort of built up the expectation that this is a risk free operation, more or less. And so if there are losses, there are casualties at a greater level. We have not prepared the public for that. And to Jack's point, there hasn't been a strategic rationale that would justify having a lot more casualties as a result of this operation. So they've really kind of backed themselves into a corner where they can't mount any operations that are higher risk because they're trying to treat this as a small scale operation. But the only way to really get yourself leverage against the Iranians in the negotiations is to restore access to the strait, which requires putting more forces at risk and incurring potentially casualties in the process. So it's really a cul de sac that they've put themselves into. And I'll note one other thing that has come up in Navyland is the passage that the US Ships have been using, which is right next to Oman, is pretty narrow. And it's, they've clearly identified that that is an area that's free of mine. So it's a queue route, as we'd call it. But it's not wide enough to allow two way traffic. Right. So if you're going to restore access to the Strait of Hormuz, it's going to be one way traffic, single file through that lane if the Iranians allow it or if you can defend it, which is nowhere near getting to 130 tankers or ships per day going through the Strait of Hormuz. So there's going to have to be some other mine clearing operation that still has to happen even once we get to some kind of negotiated settlement. And that'll take probably a couple weeks at least to go verify that that area is free of mines and that if you find some, it's probably a couple weeks more to clear them.
- [14:10]
D
Brian, sticking on that just for a second during the tanker war, that's when the SEALs really leaned into VBSs. The, you know, visit board, search and secure and seize. What, what is our strategy right now? Are we currently, are they currently undertaking Those. Because that's. Those are very dangerous operations.
- [14:32]
B
The do those now. So since then, the Marines have taken that on as one of their big missions. So one of the things that the Marine Expeditionary Units are doing out at sea is the VBSS missions to support the blockade or the US Blockade. And so they've been busy doing that, so we've been able to have them take that on as a mission, which, of course, now the Marines have gotten a lot of experience doing blockades now between Venezuela and, I guess, Cuba as well, and then here. So the Marines are now viewing the. One of the ARGUMU missions as now being blockades and VPSs and that kind of thing, which. Which we'd always kind of envisioned, but they really hadn't practiced very much, I guess.
- [15:13]
D
Just when we talk about risk acceptance, like, is there an acknowledgement that that is a highly risky mission? Like, I think back. Yeah. I mean, even in training in the Gulf, there was those two seals that were killed two years ago, you know, the swim buddies. One fell off the boat trying to climb in, and the other one went in after him. And like, like, again, that's training. Like, so, again, like, there also seems to be a divorce between, like, where they're willing to accept risk. And like, just we've gotten lucky a lot of times. Like you said, they have fired at ships. They have been successfully defended. There also becomes the question of, like, again, back to the tanker war. Using relatively recent history. The. Was it the. The Vinson shooting down the, the Iranian airliner? Like, like, when all of our defenses are turned on, like, what prevents something like that from also.
- [16:03]
B
Yeah, the. Vincent. Yeah, Vincent. Sorry. Yeah, yeah, yeah.
- [16:06]
C
You're not.
- [16:07]
E
What you're not hearing is. And I know this is more military talk, so it won't resonate much with the, with your typical American who, Who doesn't hear this kind of. But we're not hearing this. What is the acceptable risk to mission, risk, to force? Those are two concepts that, of course, everybody in the military lives by all the time, but at least you could try to translate that at the administration level and say, you know what? This is so important. We' going to accept a certain level of risk. Back to the. I think Brian and Justin both making the point that you're not. You're not setting the stage to accept some level of casualties. If you did it in a way the American people would buy into. That's different. But right now, that risk discussion is. Is not present in anything that's coming out of the administration. It's actually the opposite of no, no, this is a cakewalk piece of cake.
- [16:53]
C
And it's, it's also grounded in almost like anti constitutionality. Part of, part of civic risks management is Article 1, Section 8 of the United States Constitution and that this is supposed to flow through Congress back to the executive. So there are numerous parts of a regular process that have been avoided or skipped.
- [17:13]
A
And this is how you know, you get to that no more ammo conversation we've been having for the past month because part of buying down potential casualties, potential you know, hostages is using more long range stuff which is more fancy and expensive so you don't have to have planes flying over the country. And you know, it doesn't mean that is no risk. That just means no risk and more risk in 2027 and 2028 when you have less of this stuff for, for, for other theaters. So by sort of dialing, dialing this down you end up sort of spending more which increases risks downside and I think yeah, exactly. In other ways and yeah, sorry Tony.
- [18:00]
F
No, no, into like Jack's point of like yeah the idea of using long range exquisite munitions is to buy down risk to force. Now what they will not say is that does create more risk to mission because you still need to be able to you know, either hold ground or hold blue ground in this case and you still need to be able to like impose your will upon the enemy which, which they haven't been able to do. And yeah, now you're inviting greater risk to force and mission in other theaters which I is really killing me because I do not see a way if we have to do another three to four months of this as the leaked CIA report says. I mean the amount of munitions we can burn in that time, that's another two to five years of magazine relapse.
- [18:50]
C
How do powers have constraints?
- [18:51]
A
Should we do rapid fire? Jack, Air Force questions.
- [18:55]
D
What do you think the seed lessons Learned given the F35 getting hit, the A10 getting shot down or getting hit the F15 getting hit? Like what are we learning or not learning from a seed and projection of military power from the Iran?
- [19:11]
E
One of them is I'm just absolutely shocked that we've lost four F15Es in a conflict that I would consider a low level conflict. Three of them happen to be by fracture side by the Kuwaitis. So I put those in a different category. But when you only have 218 of the things four is a pretty significant loss. Maybe the Air Force use it as hey, it gets us to the F15X quicker than we would have expected. But that wasn't really the intent. The shoot down and the near absolute tragic loss or capture of the crew really hit me home because F15E background watched all that play out and really disturbing how we got into the place where we're getting hit by probably maybe shoulder fire or some infrared surface to air missiles. I think as a broad comment we're very, very good at certain things to include the seed piece of it. But I think this idea of I think believe you guys have talked about suppression of enemy air defenses. I believe you guys have talked before about what do we really mean when we say air superiority, air supremacy. The way I look at is sure we have air superiority in localized area but. But we clearly do not have air supremacy over the entire country because an airplane got shot down. You could say well that was an aberration. I don't accept aberrations. You either have air supremacy or you don't. So I think we do what we do extremely well. We've suffered on the electronic warfare part for about 15 years thanks to counter terrorism, counterinsurgency. We didn't invest my service, kind of gave up on it after the EF111 put the eggs in the F16 wild weasel basket which is affected what it does. But I think what we're see now both some extent in Iran, but really what's happening in Ukraine, in Russia is if we do not go all in on electronic warfare electron magnetic spectrum operations, we're in serious trouble in a fight in the Pacific, very serious trouble. I mean this idea of assumptions of detail, you know, denied disconnected intermittent limited bandwidth environments, not an assumption anymore. It is going to be a fact of life. So there's a lot of good that watching what played out is okay, we still know how to do this. But Justin, you alluded to this earlier. I wanted to come back to it is there is no such thing. I had this drilled into me by former JFax, Real JFax said there's no such thing as an air campaign. There's a joint campaign of which there is an air component. To think that you're going to go in and win the war, quote unquote, just through air alone. It's delusional. And if we put people on the ground it's going to get ugly very quickly. So a lot of it has gone exactly as I hoped. But we're fighting two different wars. I mean we are fighting a very conventional. We go destroy their navy and their air force, we talk about how well we've done that. The Iranians are saying, look, we're not going to win against you in our navy and our, our air force anyway. Have at it. We'll go at you with our ballistic missiles, our shaheds, these fast boat attack boats. It's, it's, you could call it an asymmetric fight. I don't know what the right term is. It's probably an economic war on their behalf where we're fighting a much more conventional military fight in general. We're doing very well on the kind of things we know how to do very well. But that shoot down was a wake up call because then we lost a couple of C130s on the ground. I mean it was so close to absolute disaster there with a bunch of people being killed or captured on tv, prisoners of war, all these other things. We got lucky in my opinion. Very high risk mission. I applaud everybody. I got heroes, which is a word that tends to be overused. The heroes in the special ops, Cesar Air Force. I mean the people that do this for a living. Nobody else in the world I think could have pulled that off. But we were one inch away from it going absolutely spectacularly wrong. And we shouldn't be expecting everything to go right in the future in a different fight. So we, you know, there's, I, I know people that were shot down in Desert storm and were POWs. That was a very tough episode for, for Strike Eagle crew in particular. So I, we, we were that close to doing it at this time. So the EW piece of it. Yeah, we need massive investments in that because we're seeing what the world looks like in Iran, but really in Ukraine, Russia.
- [23:31]
D
Do you think that the shootdowns are going to drive more impetus for uncrewed capabilities? The co pilot, you know the, what's it, the 2025. Yeah. Or do you think that there's going to be a move to get just pilots all out of the aircraft as fast as.
- [23:50]
E
It won't be one or it won't be a binary answer. I think there's always going to be a place for the, we can go in and use this. But in general, I agree that this is one of the many reasons driving more and more towards the unmanned uncrewed drone, whatever you want to call it. Why not? Because you're not putting people in harm's way. I think it's a little bit shocking to me. Doesn't seem to get talked about a whole lot. I think we're up to like 30 MQ9s that have been shot down. That's not, not a small number. They're what, 30 million-plus or minus on fix. So we're talking a billion dollars of asset, plus the, the awacs, plus the four Strike Eagles. I mean we're talking many billions of dollars of assets.
- [24:30]
C
But all the aircraft getting knocked down are recovered by Ministry of State Security and they are rebuilt. So all of those assets are now known to our opposition. And it's not just which what happened
- [24:45]
E
with the RQ170 got shot down years ago, if you remember that one.
- [24:48]
C
That's right. And so it's not just, and it's not just physical rec recovery, it's electromagnetic signature, it's visual, it's acoustic. That the crown jewels of American special technology have been revealed in Venezuela and Iran elsewhere in a way that enables the opposition.
- [25:06]
E
Yeah. And I would say the two big things that scream to me is one, Justin, to exactly what you're saying is, yes, not only more investment, I mean you guys have all had this conversation about drones at length, but a different kind, a much cheaper mass produced. As Jordan, one of your episodes with a person from Ukraine where I just caught on to the idea of no longer just in time logistics, it's just in time disassembly and reassembly at the operational unit as they get a drone in and do something differently the moment they get it. Because the technology has didn't change from the 48 hours since that thing was delivered to where they're going to use it. So that's a really big one. I don't think we fully absorbed these lessons yet. I think we're trying to pretend that, oh no, no, it's going to be a very different fight in Indo Pacific, but counter drones would be even bigger for me because we've struggled on this a little bit. Where does it really reside? Who's got the, who's got overall lead? We've gone back and forth and people are trying to do really good things with it. But I think this counter drone piece, it really is the ultimate wake up call of seeing what Iran can do with just a couple of shaheds here and there. They're really having big impact, well beyond the tactical level. So that's, I think that would be the big lesson. And then you can make those. Some of those will be electronic warfare, some of them will be kinetic, some of them probably be cyber at some point in the future. So I think we got to rethink this. But I don't see the crewed airplanes going away anytime soon. It'll be a question of where in the fight do you use them, kind of stand off and then trying to work your way. And the standard is as you start reducing the threat to air defense threat that goes in and maybe it was a lucky shot, a golden bb. Okay, perhaps. But that doesn't mean you have air supremacy. It just doesn't.
- [26:51]
D
The one other thing you said that I wanted to touch on just because again, your background is great. Why do you think we're not seeing more cyber usage offensively against Iran? Is it because of the nature of the Internet in the country or is it that they had learned lessons from Stuznek and have made that harder?
- [27:15]
E
I think we're not seeing it because we're not going to see it. I think there's probably more happening than we, we might normally think. But I also know that all the claims of cyber offense have been countered by cyber defense. It is the classic, absolutely classic history of military technology. As I say, it's the Newtonian third law of motion for reaction. There is an equal and opposite counteraction in this case when, when we've hit them so hard with cyber, they put some defense in place and maybe this just speculation, maybe they're getting some sort of advice from Russia and or China on bolstering cyber defenses. But then the question is, okay, what would we go after? Probably command and control networks. The sort of things that all of us would understand are the kind of things that you want to take down their ability to command and control all of their military national security. So that probably has happened. Once you start talking about electrical infrastructure now, you start getting into a much more gray area. So what I think is happening is we are doing it, but it's going to be done very quietly. Maybe there's a lot to what we saw play out in the beginning of the Ukrainian war with Russia. Russia, we all thought they were going to come in with state of the art cyber and just completely shut down Ukraine. That did not happen. And there's speculation, well, they didn't want to reveal their best capabilities or it just didn't work the way they thought it was going to work because you change one router box and all of a sudden your cyber attack is no longer good anymore. So I think it's a combination of all those things that one, their defenses are probably better in Iran than they were 10 years ago. They're probably getting help from other people. And three, on our side is what are we trying to do and why are we trying to do it. I'll just go back to what I remember from Brigadier General Tim Hawk, who was a vice commander when I was down in San Antonio many years ago. What I thought the operation they put in place as cyber, supporting the CENTCOM fight is a truly supporting element. Not trying to go off and do things by itself. Let the national agencies do what they're going to do. But let's figure out how to make this part of JTF cyber, or whatever it was called at the time that it really becomes integrated. One day it's a cyber capability, the next day it's a 2,000 pound bomb. But Centcom, as the owner of the overall fight, gets to make those choices as opposed to treating cyber as this special thing over there. So I guess the good news for me is both. Cyber in space has become normalized in a way that I always hoped it would become. It's not just people sitting in a room by themselves over here. It is being integrated into the overall campaign in a way that I think is, is, is much better than it's done in the past. But at the national level, you know, the whole, what are we doing? Yeah, we, we all know there's something happening, but good news is I'm not privy to it because I'd be, I'd be hauled away if I said anything.
- [30:06]
D
Exactly.
- [30:10]
F
So on the defense budget front, because I know we've talked about, you know, what would we do with $500 billion? And you know, why you can't just have a one year off. You think? I was looking at the. I think our debt to GDP ratio hit 100% in this past month. If, what happens if, you know, after 26, after 28, the United States enters a fiscal austerity environment where it's just, even just on the defense front. Right. Because of this war, because of all the other politics. Let's, let's put aside the 500 billion for a year thing and just, I mean, Eric, I think from your standpoint, can the VC crash crowd, you know, kind of protect the defense industry in that? I don't think that's true. I don't think they have enough money to do that. And two, I mean, what is, what does that mean for U.S. foreign policy if that's part of, you know, the pivot that we take?
- [30:58]
E
No.
- [30:58]
C
A fiscal crisis with spiked interest rates wipes out all this defense tech investiture. Absolutely. It crushes it. Because ultimately a lot of the speculation around defense technology and privately held defense companies is that they are all seek it's all rent seeking behavior at its core. For all the American flags that they put on the wall of their workshops, for all the OPER operator has they pull down low. It's they are looking for long term purchases from the government. That's what they're trying to do. And in a fiscally constrained circumstance you're not going to have giant 401 or the defense Innovation Unit throwing out OTAS to test out counter UAS systems that there are going to be trade offs. Investiture is not going to chase like the 5x return that you can get from defense products.
- [31:38]
A
Setting aside a broader economic turn, if this were last another few months and gas hits $5 $6 like what are people going to be campaigning on in October and November? I mean maybe you can make campaigns. Some people might be making the argument like oh we should have bought more boats to open the strait. But I think $7 diesel.
- [32:05]
D
Yeah.
- [32:06]
A
I mean it's going to be no, let's get the hell out of here. Screw the military. Why are we even thinking about this? The stuff like, like national security as a sort of vibe in Washington has been on a pretty long bull run over the past.
- [32:20]
C
Correct.
- [32:20]
A
I mean really since like I don't know how we, I don't know how we want to like work, work Afghanistan into this. But like the let's, let's say since 2018 like a broad consensus around fighting around preparing to determine a big conventional war in East Asia and sort of having such a dramatic military adventure go poorly. I don't think. I think if it ended tomorrow this wouldn't necessarily bake in quite as much. But if this drags much longer and the impact that we've already felt a little bit with inflation really starts to kick up. Um, I don't know, it'd be a scary time for me working at a Pacific oriented defense tech. Much less a, much less a prime.
- [33:13]
C
Yeah, you cannot have international adventurism if you are not getting soy and corn to American and international markets. And I think a lot of the defense tech hype is still looking at like oh we got the valuation of overland AI is spiking or Hawkeye 3360 IPO. Like these are all interesting stories but it also, it's sort of like talking about the success of I don't know, SHIELD AI but the Mississippi river ran dry. It's like you can't speak about one fact without weighing it against the other.
- [33:44]
E
That goes. So part of this goes back also to this national level messaging. There would be, I Think some degree not, probably not much more if the prices keep going up and the fertilizer problem doesn't get solved. But at least if you make a case to the American people, look, there is going to be a pain. I don't want to make this a Jimmy Carter message of I feel the pain here. But that's if that message was strong enough, I think you would get some people to accept a short term, it's open ended commitment right now. And when it's open ended, all people are hearing is one, gas prices, two, fertilizer things that they don't even know about. This idea of cascading effects from the closure of the strait is just going to really feel, it's going to make the pinch is going to be felt in four, five, six more months. And by then I think to Jordan, exactly what you said. The question on the election will not be a national security question. It's going to be economic. But most people won't tie the two together. But it will be why the f are we still in this place if all we're seeing is pain at the pump and elsewhere in the American economy? So I think the messaging is a failure there too. Back to making it sound far easier than I think it really is. And let's say, let's say the strait opens back up. Everybody's happy, declares victory. We pull the assets out. We all know it's capable of two months from now, something goes wrong. One more fast boat attack, one more ballistic attack, hits a hotel in Dubai. All of a sudden we're back to this place. We're in this purgatory Right now it's neither war nor peace and we don't have a solution for it in the American people. Eventually, I think will will be voting on this, on this economic one more than anything else.
- [35:19]
A
Yeah, I just, I just think it's unsellable, Jack. Like, like Iran getting a nuclear weapon is not something that like the current body politic is willing to send thousands of people, people to die for and spend, you know, hundreds of millions of dollars.
- [35:36]
E
That's fair.
- [35:38]
D
Sorry, Tony.
- [35:39]
F
No, and the, yeah, no, I would say that the next trigger here is Memorial Day is early this year and Memorial Day weekend is two weeks away. That is the first, bigger, biggest test of are people willing to tolerate big gas tax, big gas prices.
- [35:52]
C
I'm not an expert on a historic precedent of rally to the flag that people will take their country's side in times of challenge. And the administration through its muddled messaging about, hey, it's about Nuclear weapons. It's about respect. It's about conventional capacity. It's about just killing their leaders because it's fun. Has, has muddled that. And also not to continue falling back on constitutional prerogatives. But when you do not go to Congress and you do not compel members of the House, members of the Senate to put their careers on the line to affirmatively acknowledge that, hey, we're going to go to war for this purpose, you lose an opportunity to create a sense of civic virtue around the expenditure that you're about to expect the country to do. And they, they didn't do any of that. And now we're talking about a triumphal arch in Arlington and a hundred million dollar SERP appropriation slug for a ballroom in the wreckage of the East.
- [36:53]
F
It's a billion dollars for the ballroom.
- [36:55]
A
We're not paying for it. Jensen is. Okay, relax. All right, so I've gotten some critique from some more right leaning family members about how all we do is beat up on these guys. So let's do a bit of counterfactual here, right?
- [37:08]
C
Steel, man.
- [37:09]
A
You're sitting there, you really think Iran's about to get a nuclear weapon. You know that you can't get Congress to vote for a real military, you know, a real operation around it. You also know that the American people will not tolerate, tolerate 100 or a thousand Americans dying. And then so what is the path that's left to you? I mean, it's a negotiation. But say you don't believe in the negotiation, you think the negotiation is crap, so then you're gonna. And you can't trust them. So then you're left with this very uncomfortable, narrow path where you just are kind of trying stuff and seeing because there aren't necessarily good options. And also, you also also got to bake in at 10%. Maybe I draw two aces on the river. And if we kill everyone, things end up going swimmingly. Jordan, I think Kamala Harris, I do feel for these guys at some level.
- [38:04]
C
If you gave Kamala Harris the mission profile of Midnight Hammer, you said that the Israelis, by virtue of their intelligence services and their special operations forces, had reduced Iranian air defenses to sort of a negligible position and that they had good targeting data on the three principal sites of the Iranian nuclear program. You knew where the HEU was and that if you used a certain number of ordinance penetrators against these targets, you could set back the Iranian capacity for, for 10 years, whatever the classified disposition from the intelligence community was. I think Kamala Harris like, would have been compelled to think about that seriously. Like, I think the original military operation against the nuclear program program fits within the traditional span of American national security decision making. Like, I think there are very serious Democrats that would have looked at that mission profile and said, let's go.
- [38:57]
B
I think also, you know, we.
- [38:58]
C
You.
- [38:59]
E
The.
- [38:59]
B
The. The thing is, even after that operation and people said, oh, maybe it only set it back a few months, and it was unclear what the real impact was, you could just mount more of those kinds of strike operations because the air defense network in Iran was fairly degraded. And with a combination of, you know, kind of normal suppression of enemy air defense type operations and whatever the. The Israelis had done against the Iranians, you could, over time, continue to degrade it. But you, as long as you don't take it to the level where the Iranians feel like they have to escalate by doing something like closing the Strait of Hormuz. Because when we run these war games, including the one we just ran, the Iranians generally don't take that action unless they are kind of backed into a corner because they feel like it puts them in the penalty box. Right now, they're the bad actor. So in the games we've done and in the past, obviously, they've traditionally not taken that action because it's seen as being so escalatory. So as long as you keep hitting them and degrading that capability without forcing them into that corner, you could have ended up degrading the nuclear program without getting to the kind of the cul de sac we find ourselves in today.
- [40:03]
A
So it's really of the jackpot of, oh, we kill these guys in the Hulk, House of Cards falls down.
- [40:09]
E
Yeah, yeah, yeah. I think Midnight Hammer is so defensible in so many different ways. It's what fits into what you're saying, Jordan, that I think up to the point of what we see now, you could have made, and I think reasonably did make a case to the American people we stopped them from getting a nuclear weapon. You could argue on the timelines, was it legit a couple of weeks? No, it was not a couple of weeks. We all know it was not a couple of weeks, but it's a reasonable one. But then from that point to today, I think now the message has become so muddled, as was said earlier, that we don't know exactly what we're trying to achieve. So that would be my response to the legitimate questions about, wait a minute, what's wrong with going in and doing this? And I just. Just kind of as an aside, I watched an interview with FP Live yesterday with Ali Hashem, who's a reporter in the Middle east who has been in Iraq. He's Iranian and he's been there. And he says, no, this really does seem to have the reverse rally around the flag for the Iranians. You've gone from mass protests in the cities to why is the United States keep hitting us there and what are we going to do about it? So it's interesting. I mean, it's one person's view, but he has been on the inside. I think what we're seeing is a reaction probably we did not anticipate and did not want to see of. There is an opposite rally around the flag effect that you're going to get when your country is repeatedly being bombed and you're not giving to the support to the protesters anymore that are inside the country.
- [41:35]
D
Those are my two big hang ups with the argument because. Because I, I think 1 like to Brian, at everybody's point was like, you could have just continued to do Midnight Hammers if that's where all the highly enriched uranium was. Like, they go in to try to get it. You drop, drop again on it. They go in to get it, you drop again on it, like. And you can just look at them and be like kind of Captain America in, in the Avengers. I can do this all day. Like every time you go back to touch it, I'm going to hit it again. You're not getting a bomb. You need to come to the negotiating table. That's a very different tactic. And that's like the Big Brother tactic that I would have expected us to use. You could have had a humanitarian argument where you said, we are going to do this because 30,000 protesters, they want regime change. They are calling for it. We didn't do either of those things. We went to this other thing. We waited for the protest to be suppressed, we waited for the killings. And then we started targeting and bombed a girls school, maybe multiple girls schools, hit things that are of civilian importance that would like be necessary for any new regime or new government to come in and run the country. That's where my hang up comes on. Like the, well, what is the defensible nature of it? The defensible nature of it was you had all the chances to do the defensible thing. You had already done it. You had started down that pathway. You could have even made though this. It would have been odd for this administration. You could have made the humanitarian argument and done something when there was actually humanitarian impetus for it. We didn't do any of those things. We didn't build coalitions. And then we started hitting random strike, you know, outside of the leadership, like pretty random strikes within Iran. And then the ceasefire and this goes back to, you know, one of the reasons like we have this weird ceasefire. According to some of the intelligence reports and open source reporting, something like 70% of the Iranian ballistic missile capability potentially has survived and has been able to be reconstituted.
- [43:30]
C
Yeah, that's, that's sourced to a CIA analysis that apparently went to segments of it went to the Hill. I think that is a credible read. I mean it's supposed to be classified, but yeah, 70% of pre war defensive capabilities still don't check after all that.
- [43:47]
A
What does that mean? Because they went from shooting like 200 missiles a day to like two missiles a day and by then they were up to like five or six.
- [43:55]
F
Right, yeah. So 70% of what?
- [43:58]
A
Exactly.
- [43:59]
F
So I think that's a great question and I think that, you know, without having seen the report, there's a question of is that all missiles, is that just long range missiles? Are those the shoot and scoot type? Are we including shaheds in there? I think there's a lot of questions. I think if you were to say 70% of long range effectors, which is perhaps maybe more how it was couched. Yeah, I mean that, that would make sense. I mean that's kind of the, you know, you can do this all day is, is, you know, lob Shah heads across the street on their end. And I, I would also say that, well, let's look at the targeting packages they went after. First, first it was regime change. Well, midnight Hammer, less than a year later, it's regime change. And then we pivoted basically to kind of infrastructure and kind of trying to do Scud hunts, but not really really. So yeah, I can see a world in which given what it looked like the targeting priorities were, yeah, there's maybe a world where the mobile targets were harder to hit.
- [44:57]
D
That also gets to Brian's war games and we've talked about this before, it doesn't take a lot to close the straight. So if, if even if it is 70% of, of whatever the amorphous thing is that 70% of. Because again I didn't read the report either, just seen like snippets of it on line. But it only takes a couple of those shots for shipping companies to go. Well, we're not moving through the straight today.
- [45:23]
A
Yeah, you could be 95%.
- [45:26]
D
Exactly.
- [45:26]
C
It is it is much less about damage control on an Arleigh Brick destroyer as it is about insurance carry rates and force majeure provisions and contracts that are tied regionally and those are much more brittle devices than the engineering at an American destroyer. That is the core vulnerability. It is the financial component that I don't think the senior stakeholders in the Pentagon really thought through when they went
- [45:52]
E
into this and the economies of every country in the Middle east right now. And I'm not trying to claim a causal connection here between Saudis pulling out of live funding, live golf, but I actually think there's something there that is absolutely the case.
- [46:07]
A
They got to grow up real fast.
- [46:09]
C
Yeah, the Saudis had a really robust strategy that they had launched by virtue of their partnership with McKinsey that they were going to shift from hydrocarbons to mining to financial services to tourism, that they were truly going to try and diversify their economy. The mining project hasn't taken out like Moden. The state owned enterprise has dramatically pulled back their ambition. The mega projects are pulling back. Even some of the more mundane residential efforts in around Riyadh are slowing down. The Saudis worked under an extraordinarily fairly robust set of assumptions and those assumptions all sort of broke based off of this war and a few other financial mechanisms. So they yeah, have to shift.
- [46:52]
F
The problem with pivoting to tourism and finance is that it's dependent upon missiles not raining down on your, your, your key industries generally.
- [47:00]
E
Yeah, as I say, I have to, I have to put on hold my, my career as a looks maxing influencer in Dubai of had to, had to put that on for a little while.
- [47:10]
D
I mean it's also one of those things like you know, you see Saudi like This is obviously MBS's passion project, but Neom where like even trying to sell that to keep funding it. You see them start talking about like well we can use the port at NEOM to ship out oil. Gosh, y' all didn't build any pipelines to neom. What are you talking about?
- [47:30]
E
And it got this other one got headlines for probably a couple of days and sort of faded, but it's a very serious one which is hitting the AWS data centers, which to me, I mean just reinforces why in the world are we going to go Stargate $500 billion and build all this infrastructure in the Middle East? I gotta admit, for the Iranians, a very savvy move on their part. Just enough to say those data centers, yeah, we can hit those too. And by the way, if you're thinking this whole economy is going to be based on the back of AI, okay, we can hit that. So whether or not it did long term damage, I think is less the point than the fact that they demonstrated they can and will hit commercial targets that they assume are being used one way or another for national security purposes.
- [48:17]
C
Yeah, they put data centers into the concept of critical infrastructure very aggressively.
- [48:21]
D
Exactly.
- [48:21]
C
And now like the United States with Dryada 401 has to adapt to a whole new series of targets that it's not just like the Ukrainian armed services, Ukrainian intelligence hitting Russian oil infrastructure, that there is a much broader array of authority, authentic target opportunity that these armed actors can now put into their thought process. It was true, true innovation.
- [48:44]
A
Boxing, man, it was almost fixed.
- [48:47]
D
We were so close.
- [48:49]
F
Boxing has always been fixed. I don't, I don't know.
- [48:52]
D
I don't know. I don't, I don't think Mike Tyson bit that ear off based on a bet. That's right.
- [48:59]
A
What should we talk about? Do we have, we have Jack questions you want to do?
- [49:02]
C
Yeah, we should.
- [49:03]
A
I want to hear, I want to hear about this with Jack or what?
- [49:06]
C
Yeah, I want to hear about the struggle for control of the narrative and for this extraordinary technological breakthrough that we've addressed on previous shows. But there's consistent media chatter and some inter regime struggle over who is the point person for controlling and putting the thumb on diamaday. And the team at Anthropic. Is it the Under Secretary of Defense for research and engine engineering, Emil Michael? Is it the Vice President of the United States? Is it David Sachs?
- [49:40]
E
I don't have a lot of inside information, but I've been very public in saying the idea of designated Anthropic as a supply chain risk may be the single most short sighted technology related decision I have ever seen in my time because it makes no sense to me. Now there are other things you could argue that Anthropic got wrong and just ending the contract would have been one way to solve this. Look, you're talking to the person that when Google didn't renew their contract with Project Maven, we were all disappointed in it. Nobody was shocked. We saw it coming. The chairman had the CEO. When I was in the office with Chairman Dunver, he's got a finger in the chest of Sundar saying my God, you're working with China but you're not working with the U.S. he goes, oh, we're out of China. I swear to you, Chairman, we're out of China. But all of that was when it ended. It ended. Nobody said we're going to take these draconian actions against Google. And so it played out in strange ways that I said at the time, okay, that was a good canary in the coal mine. We're never going to have to go through this again. Eight years later, we're going through the exact same thing again. It is so disappointing to me. So Eric, to your question, I sense that there was a real fit of peak here in something that happened between Dario and Emil personally. And it was maybe related to this question of a. During a war game, these missiles are coming in. We want to use your technology. And supposedly he said, well, Dario said, call me. That's a silly framing to begin with because the technology would have been used anyway. You're not going to be calling the CEO of a company to decide whether or not it has legitimate use. So something went horribly awry. And I think between the secretary and Emil, they've decided this was going to be a very personal vendetta against anthropic. As I've said again publicly on this, it seemed to me about power personalities and ego and less about the capabilities. The capabilities speak for themselves. I did not want to see this happen. It should have been handled privately. It could have been handled private privately. Mario himself publicly said, look, if the contract is just going to end, not only will it end, I'll help you figure out how to transition it. Let's remember Claude is being used in combat operations right now as we speak. It is integrated into Maven smart system. I don't know of any company that's not using CLAUDE code that's related to the national security, defense, space, all these other things. I think it started there. I think the White House didn't have the same quite view of the stridency of this, but that's what the Pentagon wanted will support them. I think it's become much more complicated now. As all of you have been talking about and mentioned earlier in this session was Mythos. You can't then say that this is a supply chain risk. But my God, this technology is so important. We're going to bring you into the White House, we're going to talk about it and how we can help NSA and the rest of the federal government figure out where their vault vulnerabilities are. It's. You can't have those two things happening simultaneously. So what I hope happens is this the beginning probably of a painful conversation to have, but to have to say, you know what, let's figure this out. Let's just everybody get off of this. But I don't know, I'm not deep into politics by any stretch of imagination, but it seems like Anthropic is seen as a Biden company and they're not on the inside of the decision making loop. So we're going to hold them accountable. I don't like that whatsoever. I think we want the best capabilities in the hands of not just the military, but the entire intel community. And Anthropic has a lot to bring to the table. So it's frustrating to me to watch this play out. I really did not think we were going to go through this again. I guess the last thing I'll say is back to the conversations of the defense primes. If the Pentagon tells Boeing, build me a Death Star, they will say how big, how fast, how many missiles we'll build. Whatever it is, we'll build it. This is a commercial company that's not used to having the same kind of conversations about lethal autonomous weapons, weapon systems, domestic mass surveillance. So two sides talking completely past each other. Dario saying, hey, we really don't want to do this stuff. The Pentagon said we don't do that stuff here. We got policy that says we don't do it and never the twain shall meet. And it just exploded in a way that is bad for the country, bad for everything except China, who's looking at it probably gleefully saying, go on, have the, you know, have this fight. We're happy to watch it play out. So I, I as, as bad as it was. I do hope there's an entry point into getting all of this back in the box, so to speak, and get the capabilities in the hands of the people that need it, and they do need it.
- [54:14]
A
You know, it's interesting. We had this, this whole blow up happened before you had the President of the United States making offhanded comments about making Iran glow and ending civilizations. So kind of looking back at all of this, it's like, oh, man, maybe, maybe DOD policy directives aren't necessarily the sort of thing you want to.
- [54:38]
E
That plays into it. I don't think any doubt that plays into it. And there is. I just talked with Corin Stone. Some of you may know Corin. She used to be odni, but she works for Senator Lissa Slotkin. She has something, Slotkin has introduced something called the AI Guardrails Act. It's very, she just showed me the other day. It's a, it's a page and a half. It's very short, but it's good. And what it's going to do is try to put in legislation what basically DoD Directive 3000.09 says, but it puts it into law that says, yes, humans will launch and execute nuclear decision making, all that stuff. And also there will be, you know, appropriate levels of human judgment. And then I'll have a bunch of caveats that give the Pentagon all the flexibility they need to do what they would need to do if there's a crisis or emergency. But I think if that had been in place, to be honest with you, I think Anthropic would have said that. Dario would have said, okay, that's law. Whether or not they follow the law, that's a separate conversation. But I'm comfortable with the legislation. So maybe as bad as all this was, something will come out of it that actually helps make this less of an issue from this point on. With any other company that says, oh, yeah, no, this is what Congress passed. We've all said in various ways, we have to have Congress step in and do some of this. This is not all Pentagon business. This is legislation. This has to come from the, from the, from the Congress once in a while. So maybe, maybe there'll be some positive outcomes as a result of what's happened.
- [56:03]
D
This approach, this administration's approach to defense and like, the way they have, the way the Secretary has politicized aspects of the armed forces and defense just generally also has a very pernicious effect when we have these type of conversations. Because you shouldn't be having a conversation of, well, does that CEO support my side or not? Because realistically, it's national defense, and there should be some underlying, like, principles and core principles of. This is what defines America. This is what America is. This is kind of what we stand for. And we can argue at the margins over, you know, whether we think the tax, the effective tax rate should be this or that or, you know, whatever we want to argue about. But, like, there's core principles still reside there. If we're going to start disqualifying companies based off of the. The political views of their leadership, it doesn't end well. Exactly.
- [56:57]
A
I mean, we had this fascinating tweet by Susie Weil saying that when it comes to AI and cybersecurity, President Trump and his administration are not in the business of picking winners and losers. This administration has one goal, to ensure the best and safest tech is deployed, laughably, to defeat any and all threats. Okay, we're not picking. All right. For the industries where we have Democrats who are leading, great. If we'll take not picking Winners and losers for other industries where, you know, there might be.
- [57:29]
C
Don't set up a wind farm, Eric.
- [57:31]
A
You make the joke.
- [57:32]
C
Sorry. Yeah, don't. Don't set up a wind farm because it kills birds. Don't set up. Don't set up solar panels because there is nighttime, in case you hadn't heard of it. But we're going to be a true neutral when it comes to AI.
- [57:49]
A
Well, I mean, and it's nice. Look, we, we went from Elon saying anthropic is evil to three months later, oh no, they didn't set off my evil radar. So, okay, like, you know, money can talk and they're going to use some
- [58:02]
E
and they're going to buy some of his compute or rent some of his ton has been up here.
- [58:04]
A
So yeah, that was a funny arc. But the other thing I think is, is a fascinating dynamic of all this is on the one hand, Eric, you pointed to this series of articles over the past few weeks about how everyone is scrambling to like get on top of the portfolio and like be the AI czar and be in charge with Besant trying to look like he's doing stuff. Vice President Vance running around as well. Michael and doz David Sachs. Here's my take on this. This is a political loser. Like, I think that the, you know, AI polls badly. Mythos. What Mythos means is like entirely down downside risk for like, I mean, maybe it's like fun for the nsa, but for like a US domestic voter perspective. Like, this is, this is scary. This is disruption. This is water plants coming offline from like random ransomware attacks from 12 year olds and you know, all this sort of like AI job related disruption that's about to come down the pipe. And so I feel frankly found it surprising that Vance wants to like, like take the charge on this from a, from a 2028 perspective. Rubio has enough on his plate. But if I was, if I was thinking about running for President in 20 and 2028, I would try to be staying clear of whatever the AI portfolio is going to throw down. Me.
- [59:35]
D
It's actually worrying too because like, that's one of the areas where I think that especially from a national defense side, like, we want a robust AI infrastructure, we want a robust understanding and utility of AI. And yes, there's going to be disruption. But then like, they're not doing themselves any favors, not even on the political side. Like Jasmine Sun's article in the New York Times Magazine the other day was amazing in the fact that you have a whole class of people who are building these tools that are like I'm building something that's going to end civilization as we know it and like up upend the way that humans interact with each other. And I'm just trying to make as much as I can can before the end comes. And it's like come on guys, do you actually want people to ever use this or trust you? Because you're not saying anything that's going to lead to that.
- [60:24]
E
After the whole Google maven thing happened, I would tell a certain group of people like hey, you know they, I got great support at the C suite level and all this and one person in particular said jack, of course you did, it's the C suite. What you don't understand is what's happening in the companies themselves. And just to reiterate reinforced that Google employees yet again send another letter to the CEO objecting to the to working with the Department of Defense. So now this time the, the reaction was shut up in color kind of thing where it was a very different reaction back in 2018 but it's there for a lot of different reasons. People have never worked with the military. They don't know anybody in the military. I mean I can give you a lot of different reasons for it but I, I keep coming back to this point of when you get below a certain level in this country, the view of AI is not the view that is being talked about on those podcasts.
- [61:16]
D
Yeah, that's exactly right.
- [61:18]
E
This be interesting to have Eric's take on this. I get these emails of these quarterly shareholder calls by the big defense companies. I usually read them quickly because it's not my area of expertise. They're very deep into the financials. But I really caught the quarterly call by the Lockheed CEO and it was very interesting to me. He basically said look, we're more than than happy because we've been asked to triple the rate of production for the THAAD PAC3 and the precision strike missile. But he said we will not do it without sharing the cost. We will not do this in a cash negative basis. He says it will be cash flow neutral. What he was asking for is what I've heard in a very polite, respectful way. We ain't doing this in which we get some true commitments, financial commitments from the department. It can't just be a promise because the promises are going to leave us stuck when you ask us to build this. We're going to build, we're to going to put all this capex into capex. We're going to spend all this money to try to do this. But we have second and third tier suppliers and if they are told build to this and they get no money to do that, they go under. And it was, it was blunt but polite. So Eric, it'd be very interesting you, you live this firsthand in there. And. And he even mentioned Office of Strategic Capital. Hey, the deputy's bringing in some industry experts. That's great. These are the people that will actually help us. But he was not saying we're going to go triple production on these advanced missiles because one going to take us a few years get to that point and we do not want to be left holding the bag. So it was just a different way of hearing about this than I've heard before.
- [62:50]
C
I appreciate you setting me up to talk a bit about this because a publicly traded company doing an earnings call or publishing a 10Q or other formal communications to the FCC and even gently chiding the the Pentagon or Capitol Hill is fraught with hazard these days. And there's a couple components to this story. I'll try to address them all quickly so we don't hang up here. The first is this is a CEO telling the truth. That capacity cannot just be turned on and turned off. This isn't 1940 where the French army collapses and all of a sudden you can send Bill Knudsen out to the Singer factory and start turning out 30 mil 30 caliber machine guns. It's, it is more complicated these days in the manufacturing process. The tooling necessary, the supply chains upon which this all depends are more complicated. He is signaling alarm that says if you fire these munitions you are going to have to wait until we can replenish them. The second component is a broader theme that I'm picking up in my day to day responsibility capabilities as venture capital attorney. Somebody works in this space. I was up in Maine earlier this week speaking with Northeastern University's innovation hub up in Portland. There are a series of investment funds who are there. And I made a comment on a panel discussion about a era of excitement about top line spending that's coming through the Pentagon. The $1.5 trillion defense budget and the creation of of Office of Strategic capital giving it $200 billion. A few other funding functions that are setting expectations for this flow down effect through the American industrial base. I said that for all of the excitement around this top line dollar figure 1, 95% of it is still going to go to the prime. So stop vilifying them. They're the entities that are going to make American and allied and partner nation defense rise and fall. But with that there is a lack of a trickle down effect to the tier 2, tier 3 suppliers that effectively make the American industrial base function or fail to function. That if you look at Bath Ironworks up in Maine, they make the Arleigh Burke destroyer which is effectively the mainstay of the United States Navy, the final man manufacturer does like 40% of the build. The rest of the sub components are coming in that are pre assembled or assembled on site. And the point of elevating this is that the amount of money necessary in order to do full recapitalization of American strategic capacity. One, it's extraordinarily expensive. Two, it's something that you can't just flick a light switch to make it move immediately, that it takes years to move with any speed. And the third component is that the complexity of the network beneath, like the big six primes, it's extraordinary. And when a CEO from Lockheed comes out and makes it clear that hey, we are assuming strategic risk and we as one of the key components of this, this network are seeing strain. It is a form of risk management. And the last component of this story is concurrent to whether it's Lockheed or RTX or any of the other Primes making this kind of commentary. The administration back in January put out an executive order that effectively demanded these entities curtail stock buybacks, they curtail dividend payments, and that they start investing heavily in capital expenditure on fear of direct reprisal. And I'm not part of this. I hear it firsthand or secondhand. And again, this isn't through clients or anything. This is just through networks that I've cultivated professionally and personally that these prime actors are having screws turned on them by the administration and extraordinarily aggressive ways. And it is not really leaking into the press because the Primes recognize that they are sort of, sort of a monopsonic buyer here and that they cannot rattle the network of people around Deputy Secretary Steven Feinberg. They can't really challenge the set of acquisition reforms are coming through and that they are in a position where they have to meet their stockholders obligations. They've got to meet the company management expectations, they've got to meet SEC regulatory expectations, they've got to adhere to traditional acquisitions rules. So they've got like four, four masters and then there's a fifth master of the new industry guys inside the Pentagon who all have sharp knives out. They sort of hate the Primes because defense tech culture tells them to. And people who are at the head of the Lockheed Martins of the world who are signaling hazard. We're trying to say that we've got a yellow blinking light that's about to turn red. I think are doing a public service by virtue of telling us just how bad that it can be.
- [68:15]
B
But I mean one thing that, that to note is these manufacturers, like any manufacturer, loves a backlog, right? You want to be able to have your order book full so you kind of know where to plan to and you can make some capex decisions on your own. But if you make so much capex or make so much capex investment that you're now going to work on your backlog, that's not an attractive prospect. So the incentives aren't there to be able to dramatically raise production unless you can really convince yourself and everybody in your ecosystem that this demand signal is going to persist into the future to allow you to both get a return on that investment and even just make sure that that is continuing to be a productive part of your company. So the internal incentives in these companies are not ones that drive you to make these kinds of investment decisions, decisions on your own. I mean, so yeah, they get forced to do it I guess by being pressured from the Pentagon. But even then you're going to resist it. Like if you look at the shipbuilding world, I'll shout out Dan Pat or my colleague who's doing some analysis on this for us and as part of our shipbuilding or force design study. But he found that US shipbuilders on average take four times longer get to get from contract to keel than their Chinese counterparts. So four years basically to get from contract to laying the keel and it's about a year for the Chinese but once construction starts they're almost the same. The length of time to get from keel to putting it in the water is about the same between us and China. So the problem is the front end, not the back end. Well, the reason for that is the incentives are such that you want to kind of take your time to get, get started on the ship because if you get started too fast, you end up working off your backlog.
- [70:00]
E
Yeah.
- [70:00]
C
And Brian, what you're hinting at what you're implying, and Jordan probably doesn't remember this, but before I even joined OSC we had a conversation about it that the theory around OSC was that if you pump a bunch of low cost loans into industry you can lower cost of operation. And there's elements of truth to that. But Jordan ceded it early based off of sort of industry chatter. And I have witnessed it Consistently is that the American capital markets, the defense industrial base, doesn't have a capital supply problem. What it has is a demand uncertainty problem. And when senior leaders at the primes or tier 1, tier 2, tier 3 suppliers or energy producers, ship manufacturers, people who make up the American industry, they are collectively screaming at Capitol Hill, the Pentagon, to permit longer term steady purchasing that they can plan against. That a $1.5 trillion defense budget for one year is still sort of mercurial, that it is dramatic, it's substantial in terms of magnitude. But these companies have to hire, they have to, to purchase, they have to build. For in their mind, they love 5, 7, 10 year commercial offtake agreements against which they can plan. And ultimately, and this is sort of a wonky, unsatisfying answer, but a lot of it falls down to congressional proclivity over defense budgets.
- [71:33]
A
We had that conversation at Ma Dezar the bakery, which is now out of business for having cheated on their taxes.
- [71:40]
F
So wait, is that why they're out of business? That's a shame. That was the worst customer service I ever had.
- [71:45]
C
Actually, a lot of it was about commercial offtake because Crystal city spiked in 2019. 2020, 2021. Because Amazon was supposed to put X number of people into that neighborhood and then it turned out to be 0.5x. So a lot of glamorous coffee shops and restaurants and bars went in there. And then all of a sudden, rather than having Amazonians trying to pay the bills, it was a bunch of GS 13s and 14s and their expense accounts are substantially different.
- [72:14]
A
Well, their New York locations blew up also. So yeah, I don't think we can. There's plenty of things to blame on Jeff Bezos. There are also plenty of bakeries that pay their rent.
- [72:26]
C
I'm just talking about Crystal City. And before we break high profession to something that's a little more what do you think is the best pop culture reflection of the culture of the United States Air Force, whether it's a TV series or a film? What? Have you seen that app that nails it in a way that someone who doesn't have any professional experience with the force would get and appreciate?
- [72:50]
E
Well, definitely not Iron Eagle, which is probably the worst movie ever made about the United States air force.
- [72:58]
C
A 16 year old can't steal a high performance fighter and then fly it to Libya to rescue his dad.
- [73:03]
E
How dare you. Yeah, not only was it bad acting, but it. Those flying scenes were crap. And it was.
- [73:10]
C
You can't be disrespectful happy like that.
- [73:13]
E
Yeah, I Would say probably in the eyes of the aviation community, top Gun, the Air Force version of it, as opposed to the Navy's version of it. You know, it's maybe some of the, some, the, of some of the Tony Stark movies, some of the other things that, about a high tech, cool, constantly evolving culture would be my best, I could say on the pop side, I don't, I don't know there's anything that does, it's, it's, that tells you some of the issue. Right. There is a thing that says this defines the United States Air Force is certainly because you got the space, space culture, you got the fighter culture, you got the bomber culture. It is not as tribal as the swoles in the submarine community and the brown shoe, black shoe Navy, but there is still a strong tribal culture which is probably not healthy by itself. And so there's no one thing that speaks to any of that. I never did watch the comedy series on the Space Force and people who did said, oh, it kind of got it right.
- [74:22]
D
That's great.
- [74:23]
E
They got it more right than wrong. Yeah.
- [74:27]
A
Should we just not talk about Masters of the Air?
- [74:29]
E
I mean I never, I, I never watched it. People have recommended it to me. I mean it's six and a half. It's like, oh yeah, that's the beat
- [74:41]
C
I got on it is that the. They had an extraordinary budget, most world class cast and like they just didn't stick to landing.
- [74:49]
D
Because I, I wrote something about the Navy seals recently and like, I wrote about like, like obviously they are the Navy's recruitment tool. Like I firmly believe that the Navy SEALs, the biggest reason that they're out as much as they are is because the Navy's like, this is how we get young 19 year olds to join the Navy. The Air Force has jets. They don't need a tool to get people to think that that's really awesome and bring them in. And I've always wondered if that's why their culture was always more internal and didn't get out as much as like, you know, the army. The.
- [75:20]
E
No, I think that's fair. That and the idea of being the tech force. But I think just how many people have you talked to who's. Who are parents of children wanting to go in the military and they're like, oh yeah, you know, go to the Air Force. I served in the army or I served in Marine Corps. Exactly. We don't want you to do that. Go into the Air Force. They have much better than they got golf courses.
- [75:39]
D
Yeah, exactly.
- [75:41]
A
All right, let's Close on this. So, speaking of not knowing things, we're starting the Jordan Learns ball initiative. Um, I had Chatgpt make me, excuse me. I had Claude make me a, a syllabus. Um, I don't know, Jack. What, what, what, what should I put on it? I feel like I, there are big holes in my knowledge. Like, I read a lot of military history, but I don't know, where do I start? Here's, I'll, I'll give you the link. And then we had Dan Pat who told me I shouldn't read any of this stuff, but I just, I'm feeding for the J books.
- [76:14]
E
Jack, what do you, you, what do you, what are you trying to learn? What is it?
- [76:19]
A
I just want to be able to follow your conversations. I feel like I miss like a third of it just on this show. That's maybe the, that's like the, the first bar.
- [76:30]
E
Go sign up to the service. These are cultures that are developed over a long time. I mean, I, I, I got my start in a, in fighter squadrons. I mean the culture there is so good. Different really, just in, just a dominant culture. But I think you probably understand more than you're claiming, Jordan, because once you get above a tactical level, they're really the same conversations about weapon systems, budgets, what do we buy? Why do we buy it? What are we going to do with it? What's our national strategy? What's our national defense strategy? Those are all. You understand that very, very well. You don't. No problem there. But I'm trying to think of individual. There are lots of books that people have written about their experiences.
- [77:14]
A
Yeah, I think it's more like hardware buying and then trade offs that come with the different platforms. Thank you so much, Jack, for being a part of wartime.
- [77:28]
C
Yeah, awesome insight. Yeah, thank you for coming in.
- [77:30]
E
You guys are legendary. And I finally, every time I read something on Jordan, I always ask myself, when the hell do you sleep between China talk and this? I mean, I, you keep me occupied for at least an hour and a half every day just reading this stuff. So I, I commend you for doing it, but God, you put a dent in my day. Just trying to keep up. So you, you're trying to figure out playing ball on the military side. I'm like, okay, he's recommended a new book. I gotta go read something. I've read all the military stuff. I'm not looking for that. I'm looking for the stuff you recommend to learn more about China in particular.
- [78:05]
A
We're, we're bringing the two sides together it's all the the whole world is gonna converge to like Jordan interests
- [78:13]
G
900 little ducklings bobbing in the bay Mama Navy whistled follow me this way. Two little ducklings waddled to the front 898 said, Nah, we're good. You hunt? Mama said quack, quack, quack, quack Project Freedom Follow me Mama said quack, quack, quack, quack. Only two little ducks went to sea Cousin Saudi lucked the desert sky wouldn't let the Apaches fly Cruise missile splashing drone went pop Two little Maersks, they wouldn't stop Mama said quack, quack, quack, quack Just a love tap, just a trifle, dear Mama said quack, quack, quack, quack, quack Tea at the Langham Nothing to fear 20,000 sailors stuck in the Gulf riding home Mama, we've had enough. Both little Maersks, American flagged Made it home well, of course they did. Bereft of strategic thought said the wise old drake. We named it Project Freedom for appearances sake 60 days, then 60 more. Just rename the show or powers clock resets and away we go. Mama said quack, quack, quack, quack. Pakistan asked us please retreat. Mama said quack, quack, quack, quack. We'll be back next Tuesday with Operation Eagle's Feet Operation Liberty Quack. Hold on, let me check the sheet.
- [79:56]
A
Quack.