Hiram Maxim, inventor of the first true self-loading, self-powered machine gun, was said to have been motivated by a single sentence, spoken to him by an American during a visit to the Vienna in 1882.
“I met an American whom I had known in the States. He said: ‘Hang your chemistry and electricity! If you want to make a pile of money, invent something that will enable these Europeans to cut each others’ throats with greater facility.'”
A more morbid inspiration behind a product may never have been so clearly and unabashedly articulated, but within his lifetime, Maxim got to see the device that would forever carry his name do exactly that.
The Maxim gun, or simply, ‘The Maxim’, as it was called by all who used it (including two of my uncles who used Soviet-made clones of the weapon throughout World War II), was standard issue for both the German and British armies during World War I.
The bullets that this water-cooled beast fired flew in both directions, slaying soldiers on both sides by the hundreds as an entire generation of Europeans did exactly what the author of Maxim’s inspiration described with industrial efficiency.
War profiteering in the eyes of most, it was simply a matter of a superior product around at the right time and licensed to the right parties.
Decades later, the now-ubiquitous symbol of terrorism, insurgency, revolution, and, initially, communism — the AK-47 rifle — found the same popularity among rivaling sides in hundreds of skirmishes, conflicts, and full-blown wars throughout the latter half of the 20th century and on every single day of the 21st.
The Business of War: Manufacturing Demand by Blowing Supply to Smithereens
Selling weapons to both sides of a conflict isn’t a new business model. It’s a reviled business model, but it’s also a highly profitable one.
Because no matter who loses, as the seller, you win… and if you do your job well, you keep winning as the classic demand and supply chain starts to turn in on itself, with supply on one side creating more demand on the other, and vice versa.
Who replaces damaged or destroyed equipment? Usually the very same entity that initially built it.
So when both sides of a problem are actively raking each other up with machine gun fire or, as is the case in certain parts of the Middle East today, taking out each other’s jets and helicopters with shoulder-fired missiles, not only does each successful engagement constitute two sales, but on an ongoing basis, you’ve also got secondary income streams with replacement parts, maintenance, and ammunition.
But now, as well-funded national armies widen their technological advantage over poorer nations, will this practice continue?
More so than ever, the answer is yes.
One famous weapon system that truly captures the spirit of modern war profiteering, designed and built right here in the States, is the M60 Patton Main Battle Tank.
Designed and built primarily during the Vietnam War era, this 60-ton beast was initially intended to contend with swarms of Soviet tanks as they rolled through Western Europe in a land invasion that never happened.
Today, the U.S. has given up the M60 entirely, moving all of its main battle tank needs into the iconic Abrams series — itself already more than 30 years old.
Nineteen other nations, however, still keep this Cold War beast in service.
You Wouldn’t Want to Send Your Kids There… But Tanks Are Fine
Those nations include Iran, Egypt, Jordan, Lebanon, and Yemen, not to mention less unfriendly but still questionably stable nations such as Saudi Arabia, Sudan, Turkey, and Bahrain.
Israel used the M60s as well, as recently as 2014, gradually replacing them with their own, more modern Merkava.
For those who see potential volatility in these names, not to mention the regions where these nations lie, it’s no accident.
Between Iran, Egypt, Lebanon, and Jordan and our closest ally in the region, Israel, a conflict has been raging with only brief respite since the establishment of Israel as a nation in 1947.
In the Yom Kippur War, which pitted Egypt and Syria, with support from Iraq, Jordan, Saudi Arabia, Algeria, and Morocco, against Israeli forces in 1973, both sides were either real-time or eventual operators of this American-made machine.
Today, one of the biggest military contractors in operation, the Raytheon Company (NYSE: RTN), has come up with a truly 21st century evolution of this centuries-old business practice.
Helping Them Fight by Providing the Means
The company recently announced the development of a line of upgrades for the aging M60 Patton, allowing existing operators to give it capabilities found on modern main battle tanks like the German Leopard 2A7, the Russian T-90s, and the newest generation of the legendary M1, the A2 SEP Abrams, at just one-third the cost.
Though the armor and chassis remain largely unchanged, the new M60s, now aptly called the Raytheon M60, will mount a 120mm main gun straight from its successor, the Abrams, as well as be fitted with an entire suite of electronic sighting and countermeasure systems to increase battlefield effectiveness.
Designed and delivered as a kit dubbed SLEP (Service Life Extension Program), these aftermarket modernizations aren’t too different from the kind auto-enthusiasts bolt onto their cars to add horsepower and improve handling.
The Raytheon package will give aging M60s shoot-on-the-go capabilities that are all but essential on today’s battlefield, as well as improve survivability with advanced early warning systems.
Keeping in line with the hot-rodder spirit of this product line, SLEP also includes a new v12 diesel engine that is more reliable, efficient, and powerful at the same time.
The effectiveness of the SLEP kit will require testing and real-life combat to truly measure, but as far as business models go, it’s hard not to chuckle (hopefully after you’ve finished gagging).
Stay on top of the hottest investment ideas before they hit Wall Street. Sign up for the Wealth Daily newsletter below. You’ll also get our free three part report, “After Apple: The Next Big Thing in Consumer Electronics“.
When Your Business is Fire, Be Sure to Bring the Kindling
With Middle Eastern politics the way they are today; with the Saudis staring decades of economic decline straight in the eye; with the Iranians on the verge of civil war every other week; with Egypt still reeling from the leftist pipe dream–turned nightmare that was the Arab Spring; and with Israel stuck in the middle, just waiting to be provoked, this could be one of Raytheon’s most brilliant business moves yet.
These modernization packages are dirt-cheap to develop, as they’re nothing more than parts cannibalized from existing vehicles; they’re highly effective in increasing lethality; and best of all, the market is substantial thanks to more than 5,700 units in service in armies around the world.
Of those 5,700, more than 2,100 are currently operated by Egypt, Iran, Jordan, and Lebanon… which means if another conflict flashes over in that region, that’s 2,100 Raytheon-upgraded M60s that will likely find their way into the crosshairs of Israeli or even American precision-guided weapons.
Weapons like the Javelin man-portable anti-tank missile or the wire-guided TOW missile — mainstays of NATO ground forces and well proven in combat — will probably have more trouble killing these improved M60s than they would have facing older stock models thanks to improved detection and countermeasure capabilities.
And that’s good for Raytheon for two reasons.
Not only will it be able to tout survivability enhancement to future prospective M60 buyers, but both the Javelin and TOW missile systems are also Raytheon-brand killing machines.
Coming Full Circle
So while one product’s reputation improves, another product is depleted more rapidly than before — increasing demand for those systems and up-selling potential for improvements in anti-tank missile technology to those who can’t afford the tanks but still need to maintain their ability to kill them.
As you might have figured out by now, Raytheon and the like have no shortage of new anti-armor solutions on the assembly line just waiting for newer, more expensive, more advanced targets to blow to smithereens.
Just think about the warm, fuzzy sensation board members will have to contain when they watch one of their SLEP-upgraded M60 main battle tanks struck by the latest version of their wire-guided TOW missile, all courtesy of a ballsy Facebook live-streamer who stuck around long enough to broadcast the impromptu product testing.
More supply… more destruction… more demand… repeat.
They say the road to hell is paved in good intentions; while that adage may carry some profound relevance, the road to profit is most certainly paved, grouted, and polished with humanity’s most violent.
Moralistic questions aside, it’s a trend as predictable as it is unstoppable.
Making the ultimate decision is up to you.
Fortune favors the bold,
Alex Koyfman
Check us out on YouTube!His flagship service, Microcap Insider, provides market-beating insights into some of the fastest moving, highest profit-potential companies available for public trading on the U.S. and Canadian exchanges. With more than 5 years of track record to back it up, Microcap Insider is the choice for the growth-minded investor. Alex contributes his thoughts and insights regularly to Energy and Capital. To learn more about Alex, click here.
