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Over Easter – while most of us cheered for our kids at egg hunts and gathered for family dinners – North Korea released a propaganda video depicting a nuclear strike on Washington.
This isn't the first time Pyongyang has engaged in such inflammatory behavior. And it won't be the last.
As threats go, this one is easy to dismiss out of hand.
But that's a mistake you don't want to make.
Let me show you why…
An Ugly Vision
The North Korean video – a four-minute clip titled "Last Chance" – uses CGI to follow an intercontinental ballistic missile (ICBM) as it arcs through the stratosphere before slamming home in Washington right near the Lincoln Memorial. There's the expected mushroom cloud, a shimmering view of the U.S. Capitol dome and then hellfire that consumes the American flag against a backdrop of cross-marked graves.
According to The New York Times, the video was uploaded Saturday to the YouTube channel of DPRK Today, a North Korean website.
"If the American imperialists provoke us a bit, we will not hesitate to slap them with a preemptive nuclear strike," the video's Korean subtitles read. "The United States must choose! It's up to you whether the nation called the United States exists on this planet or not."
An English voiceover warned that the "U.S. imperialists and South Korean traitors" faced the "most absurd and painful destruction of digging their own tombs with their hands."
Pyongyang loves anti-American rhetoric – much of it consisting of promises to hit the U.S. mainland. This isn't a fake "tough guy" persona that North Korea displays to the outside world: It demonstrates the same anti-U.S. militancy at home.
I've shared the story with you all before about the broadcasting conference I attended a few years back, in which a former foreign correspondent for a major news network showed us slides of a propaganda poster that's extremely popular inside the so-called "Hermit Kingdom." The poster shows a shredded American flag and an exploding U.S. Capitol dome being struck by additional North Korean missiles.
It was a sobering presentation.
And we've seen other videos like the one released over the weekend.
There's almost always a specific catalyst.
And this time around there are two.
And they're each worth a closer look…
"A Click Away"
The first trigger for Pyongyang's amped-up ire is the fact that South Korea and the United States are right now conducting joint military drills – something the two countries do each year at about this time. But this year's maneuvers – code-named Key Resolve and Foal Eagle – involve 317,000 troops (17,000 of them American), making them the largest in scale since 2010.
The heft of these drills – following, as they do, some new North Korea nuke tests – has prompted Pyongyang to view them as an invasion rehearsal.
And those fears will fester for at least another week: The drills are slated to continue into the first part of April.
"Supreme Leader" Kim Jong-un never responds well to this annual military collaboration, meaning you can pretty much count on an escalation in DPRK (Democratic People's Republic of North Korea) rhetoric at roughly this point every year.
But this time around Kim identified an extra helping of irritation because the joint U.S.-South Korean military exercises included a simulated "decapitation strike" on his headquarters. Pyongyang demanded that Seoul apologize for "offending the dignity of the North Korean leadership" and called for the public execution of the South Korean leaders responsible for the simulation.
Should South Korean President Park Geun-hye fail to comply with the ultimatum, Kim's regime noted that her presidential palace is "just a click away" from North Korea's artillery batteries.
But the yearly military maneuvers – even with the alleged affront to Kim's dignity – is just the first of the two catalysts that have elevated Pyongyang's ire.
The second trigger is a new round of United Nations sanctions…
Hey, Nice Watch
North Korea blames Washington for the latest set of U.N. sanctions, imposed this month to punish the country for its early January test of a new nuclear weapon (its fourth overall, and one it claimed was a hydrogen bomb) and February launch of a "satellite" (in reality a ballistic-missile test).
The U.N. Security Council has long been trying to blunt North Korea's ability to raise money, secure technology and attract the other resources needed to continue its nuclear-weapons program. But there have always been questions about whether the ongoing sanctions were being enforced by China, North Korea's key benefactor, chief trading partner and diplomatic shield.
The new sanctions call for the inspection of all cargo going in and out of North Korea, ban all weapons trade and expand the list of items that can't be sent into the country.
The list of banned goods was expanded to include personal watercraft, snowmobiles, watches and other luxury goods worth more than $2,000.
(Don't laugh at the "luxury goods" incongruity: Given that North Korea is such a poor country, Kim has been known to use such items to maintain support from his "fellow elites," according to The New York Times.)
So let me tell you what this all means… and again caution you not to dismiss this out of hand.
Pyongyang's "Come-Out" Roll
When you get right down to it, I can give you seven solid reasons we should be watching Pyongyang more closely than ever before.
I'm not sure the "seven" here is a lucky number. But here are all seven reasons, starting with the fact that:
- The Rhetoric Is Rising: Make no mistake: North Korea has been leveling threats toward the United States for a long time. But those threats are increasing in both frequency and violence (indeed, it's only been two weeks since Pyongyang threatened to "burn Manhattan down to ashes" by using an ICBM to launch a hydrogen bomb into the heart of the city). And some experts worry that North Korea may be painting itself into a corner.
- Pyongyang Keeps Thumbing Its Nose at Seoul: The DPRK has shown no inclination at all to dial down the cross-border tensions, which experts say are as high now as they can recall. On Sunday, North Korea's state news services reported that trade unions in that country had openly promised to lay down their tools and "join the powerful revolutionary… army in the battle to blow up the den of the Park regime."
- Kim Is Sharper Than You Think – Much Sharper: Much of the Western news media portrays the North Korean leader as a comic figure (Britain's Telegraph newspaper recently did a "Five Strange Facts" feature about Kim that chronicled an "addiction to cheese" and an ability to drive since the age of 3). But the fact is that many of his moves have been surprisingly shrewd. For instance, the United States, South Korea and Japan had all warned Pyongyang it would suffer stiff penalties for pushing forward with its announced February missile launch. But experts like Alison Evans, a senior analyst at IHS Jane's, said the timing – coming so quickly after the January nuke test – was carefully calculated "to only incrementally affect the U.N. sanctions arising from that test." One other thing: The more often Kim appears to go toe-to-toe with America, the greater his stature and following in places like the Middle East.
- The Poverty-Stricken "Hermit Kingdom" Has "Anti-Collapse" Insurance: The DPRK has a major "ace in the hole" in its chief benefactor – China. Beijing is absolutely infuriated by Pyongyang's outright refusal to halt its nuclear program. But there's a bigger concern here. China is terrified of a North Korean collapse that would create a unified (and U.S.-allied) Korea right on its border. That's one reason that – despite the increasingly rancorous relations with Washington – Beijing has managed to stay chummy with Seoul.
- This Nuke Threat Will "Get Real" – Real Fast: The Unha-3 rocket Pyongyang fired off in early February is a cumbersome weapon that could be turned into a marginal missile. But it's dependent on a fixed launch site and takes time to prep for firing – meaning there'd likely be enough time to knock it out before a launch. However, the country is developing other missiles, including the smaller KN-08 – which is fired from a tough-to-spot mobile launcher. John Schilling, an aerospace engineer who's often quoted on Pyongyang's missile programs, says the KN-08 is "less than half the size of the Unha-3 and would carry a small nuclear warhead to the U.S. West Coast but it could not reach Washington, D.C., or other East Coast targets" – though probably not for a few more years. But worries are clearly escalating for U.S. allies like Japan and South Korea. And any kind of attack ratchets up the opportunity for the United States and China to square off. That last thought is not a happy thought.
- It's Still "Missiles 'R' Us" – so Beware: Graham T. Allison Jr., director of the Belfer Center for Science and International Affairs at the Harvard Kennedy School, once wrote that North Korea, inside the intelligence community, is known as "Missiles 'R' Us," for having "sold and delivered missiles to Iran, Syria and Pakistan, among others." Indeed, the North Koreans will "sell anything they have to anybody who has the cash to buy it." Indeed, let's not forget that it was Pyongyang that sold a nuclear reactor to Syria – which "by now would have produced enough plutonium for Syria's first nuclear bomb had it not been destroyed by an Israeli airstrike in 2007," Allison wrote.
These are lessons worth remembering as the DPRK nuke program progresses, experts say. Back in July, in testimony before the House Committee on Foreign Affairs, Larry Niksch of the Center for Strategic and International Studies said that North Korea earns "upwards of $2 billion to $3 billion annually from Iran for the various forms of collaboration between them." Analyst Bruce Bechtol, author of North Korea and Regional Security in the Kim Jong-un Era, believes Iran has helped finance Pyongyang's missile program. That's why Bechtol believes Washington should watch vigilantly for evidence of sales of weapons to Iran.
It's not far-fetched: Just two summers ago, near Panama, a small freighter was found to be smuggling parts of surface-to-air missiles, two complete MIG-21 fighter jets "in perfect condition to operate," 15 airplane engines, a dozen rocket engines and other parts – secreted in a sugar shipment. Just goes to show you why there's still room to worry, says Gordon Chang, the author of Nuclear Showdown: North Korea Takes on the World. According to Chang, the specific cargo was irrelevant. "What [was] important [was] that the North Koreans were able to smuggle dangerous equipment into our hemisphere," he said.
- Nukes and ICBMs – the World's New "Growth" Business: The Cold War may have brought down the Iron Curtain, but it didn't bring down the curtain on the global ICBM threat. U.S. intelligence officials recently revealed that North Korea has boosted its production of plutonium – an isotope that's key to making nuclear weapons. Those weapons must be "delivered" – but there's apparently progress there, too. In October – in a warning that echoed similar cautions from the Defense Intelligence Agency and the U.S. commander in South Korea – U.S. Adm. Bill Gortney of the North America Aerospace Defense Command said Pentagon officials "assess that [the North Koreans] have the capability to reach the [U.S.] homeland with a nuclear weapon from a rocket." And rogue states are playing follow the leader.
Indeed, as we told you in a detailed report earlier this month – in violation of the recently inked nuke deal – Iran test-launched two ballistic missiles… including one emblazoned with the phrase "Israel should be wiped off the earth" (written in Hebrew, of course). U.S. Director of National Intelligence James R. Clapper told Congress these are a "deliberate message of defiance," and noted that Tehran has launched missiles 140 times since a 2010 U.N. resolution banned such tests. And I haven't even talked about China, which has made impressive strides with submarine-launched ballistic missiles.
Rooting for the "Killer"
The reality is that – with this proliferating nuclear-missile threat – there's going to have to be a matching investment in "missile interceptors." Since 2001, U.S. defense researchers have conducted 72 successful anti-missile tests (out of 89 total) – a stunning percentage given the fact that so many critics said this type of weapons system couldn't be perfected. But a better "kill rate" must be achieved. And with the threat growing – and an election looming – expect to see a new look at this new reality.
The Pentagon has poured at least $84 billion into missile defense over the past decade, according to U.S. News & World Report. And it's planning to spend another $3.3 billion over the next five years for a single element of the system, known as the Ground-based Midcourse Defense, or GMD – a key element of which is a network of interceptors that can hit an incoming missile in space, destroying it with the impact.
As we told you in a February 2013 special briefing – "If This Stock Doubles, Thank North Korea" – the rocket-engine maker now known as Aerojet Rocketdyne Corp. (NYSE: AJRD) was poised to be a major beneficiary. Aerojet makes the booster motors – as well as some of those for maneuvering – for the ballistic-missile "killers."
Aerojet, for instance, has a key role in the GMD system.
It's also involved with a radical new spy plane and the move to commercialize space.
As we predicted, the stock did double. But it subsequently surrendered some of those gains. And that's given us a new opening to buy this stock at this lower price.
As we've detailed in past reports, there's a "special situation" aspect to Aerojet, because the company is holding about 12,000 acres of land on its books at "historical cost" – meaning well below the potential market value. And the company is starting to sell off that land – which would generate a massive windfall.
Between the land revenue – and the long-term prospects for its rocket-motor business – there's lots of upside here for patient investors.
Even without the investment play, this is a story you have to watch closely.
And we will.
See you tomorrow.
[Editor's Note: Unless otherwise directed, we recommend investors employ a 25% "trailing stop" on all holdings.]
- StimmeKoreas (YouTube): North Korean Video Shows Nuclear Destruction of Washington, D.C. (English Voiceover).
- Private Briefing: Here's What You Need to Know About the Newest North Korea Threat.
- Marine Corps Times: 315,000 U.S. and South Korean Troops Begin Massive Exercise as North Threatens War.
- Private Briefing: North Korea's "Satellite" Launch Means More Business for This Tech Player.
- The Telegraph: North Korea Demands Apology From Seoul for Simulated attack on Kim Jong-un's HQ.
- The New York Times: U.N. Toughens Sanctions on North Korea for its Nuclear Program.
- Private Briefing: North Korea's "Satellite" Launch Means More Business for This Tech Player.
- The Daily Beast: North Korean Nuke-Capable Missile Could Hit U.S. and Be Sold to Iran.
- Private Briefing: If You Thought the Nuke Threat Died With the Cold War, Think Again.
- The Telegraph: North Korea Threatens to "Burn Manhattan to Ashes" With a Hydrogen Bomb.
- Private Briefing: Why the Next Cuban Missile Crisis Could be in the South China Sea.
- Private Briefing: If This Stock Doubles, Thank North Korea.
- Larry Niksch, Testimony to the House Committee on Foreign Affairs: The Iran-North Korea Strategic Relationship (July 2015).
- Private Briefing: Did You Hear About the Missiles Being Smuggled in the Sugar Shipment?
- The Wall Street Journal: The Rogue-State Nuclear Missile Threat.
- Private Briefing: Non-Scholae, Sed Vitae Discimus.
- U.S. News & World Report: North Korean Nuclear Threats Spotlight U.S. Missile Defense.
- Defense News: Homeland Missile Defense System Successful in Non-Intercept Flight.