Hot Stocks for the Coming Arms Race

Film, music, apparel, food, wireless communications, consumer electronics and retail have flourished in the newly decentralized economy, and opinion polls show that the swelling Russian middle class loves the country's muscular, tough-talking boss.

With most of his people's material needs now being met, it now looks as though Putin wishes to reassert Mother Russia's old swagger on the world stage. While he has the ability to throw Western Europe quite literally back into the dark ages by cutting its access to natural gas, he cannot give up the old czarist ambition to obtain military hegemony on the continent. So back to an arms race we shall go.

Arming Up

Stripped to the waist like an ancient warrior king in the photos published last week, Putin apparently wished to show that unlike the dissolute, draft-dodging elite in Western capitals, he is a fit product of Spetsnaz training who's ready to lead his nation into the first really big battles of the 21st century.

In February, he told a security conference in Munich that he objected to the Bush administration's attempt to create a "unipolar" world governed by "one sovereign" from "one single center of decision-making." Then earlier this month, Putin horrified peaceniks by announcing that he had relaunched a Cold War effort to have a fleet of nuclear-capable strategic bombers in constant flight. The Russian president also recently blasted U.S. plans to put an anti-missile defense battery in Poland and the Czech Republic, which are two of Russia's old Warsaw Pact allies.

And, of course, Putin is at odds with Great Britain over the radiation poisoning of dissident KGB agent Alexander Litvinenko in London last year, with each side refusing to cooperate in the other's investigations. Taking the tit-for-tat up another notch, Putin has lately engaged in a row with Estonia over dissident arrests, threatened to cut off gas supplies to Belarus and withdrawn from a key disarmament pact known as the Treaty on Conventional Armed Forces in Europe.