Treasuries Sink as Oil Jumps on Iran War, Stoking Inflation Fears

Summary

Bloomberg Businessweek Podcast Summary

Episode Title: Treasuries Sink as Oil Jumps on Iran War, Stoking Inflation Fears
Date: March 2, 2026
Hosts: Carol Massar & Tim Stenovec
Featured Guests: Michael Kantopoulos (Richard Bernstein Advisors), Mona Yacoubian (CSIS), Marcelo Lima (Heller House), Cole Smead (Smead Capital Management)

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Episode Overview

This episode focuses on the rapidly developing US-Israeli military strikes in Iran, the intensification of Middle East conflict, and their immediate reverberations in global markets—particularly in treasuries and oil. As oil prices jump, inflationary fears mount, and volatility roils financial assets, the hosts break down the economic, geopolitical, and sector-by-sector implications with expert guests. Major themes include uncertainty in markets, the risks from private credit, the war’s potential duration and scope, energy markets' vulnerability, and the evolving role of AI in reshaping corporate strategies.

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Segment 1: Geopolitical Tensions and Market Reaction

[00:32–02:54]

Key Discussion Points

• Intensifying Conflict: US and Israeli strikes in Iran continue for a third day; Iran retaliates with missiles, causing major disruptions in the region. (Matt Miller)
• Diplomatic Moves: Qatar and UAE are pushing for de-escalation, lobbying President Trump for an “off ramp.”
• Official Statements:
  • President Trump reaffirms military commitment:

    "We have the strongest and most powerful by far military in the world and we will easily prevail." (Trump, 01:13)

  • Defense officials emphasize the operation's focus on neutralizing Iranian weapons and infrastructure, establishing air superiority, and preventing nuclear capability (Marcelo Lima, Carol Massar, 01:34–01:51)
• Market Response: Initial “flight to quality” reversed quickly; treasury yields and oil surge as inflation concerns intensify. (Matt Miller, 02:07)

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Segment 2: Market Uncertainty, Inflation, and Portfolio Strategy (w/ Michael Kantopoulos)

[02:54–10:14]

Key Insights

• Rising Uncertainty:
  • “Uncertainty has really been a staple…for the last 18 months or so.” (Kantopoulos, 03:19)
• Inflation Dynamics:
  • Wars are not deflationary; oil and supply chain disruptions add to existing inflationary pressures (Kantopoulos, 04:06)
  • Fundamental inflation has been rising even pre-conflict, as seen in core PCE, ISM input prices, PPI (Kantopoulos, 04:06)
• Bond Market Reaction:
  • Yields jumped after an initial dip; "that's the right reaction" to persistent inflation fears. (Kantopoulos, 04:30)
• Politics vs. Market Fundamentals:
  • Midterm elections seen as less influential for markets than liquidity and earnings growth, despite voter concern over inflation (Kantopoulos, 05:01)
  • “Markets are smarter than what's going on with politics... midterms are going to be much less exciting for markets…” (Kantopoulos, 05:01)
• Financial Sector Risks and Private Credit Bubble:
  • Risks are building in credit, especially private credit; the illiquidity of credit markets (Kantopoulos, 06:43)
  • “You sell what you can sell” in a liquidity crunch can create spiral effects (Kantopoulos, 07:00)
  • Democratization of illiquid assets a classic bubble signal; concern about retirement accounts exposed to private credit (Kantopoulos, 08:08)
• Investment Strategy Advice:
  • “Investors need to think long term... underweight long duration assets, speculative US tech, China... and overweight shorter duration assets, dividends, high quality fixed income.” (Kantopoulos, 09:45)

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Segment 3: Geopolitics Deep Dive—Regional Impact & Conflict Duration (w/ Mona Yacoubian)

[13:16–18:25]

Key Insights

• Scope of Conflict:
  • “By pretty much any metric this conflict is widening. It now is embroiling Israel plus 10 Arab countries.” (Yacoubian, 13:56)
  • Attacks on energy infrastructure cross Gulf “red lines;” Iranian strikes as far as Cyprus
• War Duration:
  • “I don’t think this is a days-long engagement. I think we’re talking weeks and maybe even months.” (Yacoubian, 14:40)
• Iran’s Position:
  • Minimal support from Russia and China; region's Gulf states have largely rallied against Iran (15:55)
  • “Iran is really alone. It has its proxies, but even they again are weakened.” (Yacoubian, 15:55)
• Proxy Dynamics:
  • Hezbollah’s response relatively limited, other proxies (Iraq and Houthis) so far quiet but Houthis may act and snarl shipping (Yacoubian, 17:20)
  • “Iran's proxies have really been substantially cut down to size…” (Yacoubian, 17:20)

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Segment 4: AI, Layoffs, and Corporate Efficiency – The Block Case (w/ Marcelo Lima)

[20:05–31:17]

Key Insights

• Layoffs and "AI-washing":
  • Corporate leaders may use AI as cover for workforce reductions (Massar, 20:05)
  • “Block’s 40% reduction in force is the new Citrini fake narrative… Everyone will assume Jack Dorsey... is doing this because of AI. He’s not.” (Marcelo Lima, quoting himself, 23:13)
• Block’s Efficiency Problem:
  • Even after layoffs, Block is still ~50% above 2019 staffing and remains inefficient compared to peers (Lima, 23:13–24:19)
  • “Block was dead last... very poorly in terms of efficiency” even versus cruise lines (Lima, 24:19)
• Investor Perspective:
  • Share price jump post-layoff reflects increased belief in target earnings, but Lima warns this may be “short covering” and noise (Lima, 26:16)
  • He’s no longer a shareholder, citing frustration at the company’s inefficiency and lack of responsiveness (Lima, 27:12)
  • “If Jack and Amrita... really are focused on generating shareholder value, then... this company could do extremely well.” (Lima, 27:38)
• AI's Real Impact:
  • AI not a magical solution; remains a tool that still requires significant human guidance (Lima, 29:12)
  • “I do understand the science fiction future... but I think some of the smartest voices now... are saying that AI will be a tailwind to the best enterprise software companies.” (Lima, 29:12)
• Block’s Public Stance:
  • Jack Dorsey acknowledges over-hiring, inefficiency, and now aims to quadruple gross profit per employee (Massar, 30:24)

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Segment 5: Energy Markets and Inflation Outlook (w/ Cole Smead)

[31:39–38:40]

Key Insights

• Energy Sector Undervalued in S&P 500:
  • S&P’s energy allocation under 3%: “This is merely a flesh wound from a sector perspective.” (Smead, 32:08)
• Global Oil Supply and Demand:
  • OPEC is “effectively liquidating its excess capacity”; global markets face rising demand with only 1 million barrels spare (Smead, 33:00)
  • Concern about how to meet demand for 10 million new barrels over 10 years given shrinking cushion (Smead, 33:00)
• US Oil Production Constraints:
  • US is retreating from leadership role; only high prices will stimulate further production (Smead, 34:47)
  • "We have decided...that we want low oil prices...You scare your producers from producing more." (Smead, 34:47)
• Inflation & Investment Impact:
  • Higher energy prices are tough for the Fed; can depress stocks, boost the appeal of Treasuries (Smead, 36:22)
  • “The only way America will produce more oil into the future is with high prices.” (Smead, 34:47)
• Investor Sentiment:
  • Current muted S&P 500 reaction shows investors are “fading the risks” (Smead, 37:55)
  • “People are just fading the risks. They want to be long. They don’t really care.” (Smead, 38:07)
  • Smead comfortable with his energy-heavy portfolio: “It’s a great environment and people hate the long term story.” (Smead, 38:36)

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Notable Quotes & Memorable Moments

• On Uncertainty:

  "Uncertainty has really been a staple...for the last 18 months." (Michael Kantopoulos, 03:19)

• On Inflation and War:

  "Wars in general never really are disinflationary or deflationary." (Michael Kantopoulos, 03:19)

• On Block's Layoffs:

  "Block’s 40% reduction in force is the new Citrini fake narrative… Everyone will assume Jack Dorsey... is doing this because AI. He’s not." (Marcelo Lima, 23:13)

• On the Widening Conflict:

  "By pretty much any metric, this conflict is widening...it now is embroiling Israel plus 10 Arab countries." (Mona Yacoubian, 13:56)

• On S&P Energy Exposure:

  "For the S&P 500, this is merely a flesh wound from a sector perspective." (Cole Smead, 32:08)

• On Investor Reaction:

  "People are just fading the risks. They want to be long. They don’t really care." (Cole Smead, 38:07)

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Timestamps for Key Segments

• [00:32] – War escalates, oil & treasury volatility, official statements
• [02:54] – Market outlook, inflation, private credit risk (Kantopoulos)
• [13:16] – Regional/geopolitical analysis, war implications (Yacoubian)
• [20:05] – Block layoffs, AI, and corporate restructuring (Lima)
• [31:39] – Energy markets, inflation, long-term outlook (Smead)

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Conclusion

This episode provides a deep dive into how military escalation in Iran is rattling global markets, with inflation, treasury volatility, and energy sector disruption at the center. Experts urge investors to embrace uncertainty, favor quality and shorter duration assets, question overly optimistic AI narratives, and watch for systemic risk in private credit and energy markets. As global risks multiply, both caution and long-term thinking dominate the investment advice.

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Transcript

[Narrator/Producer]

Bloomberg Audio studios podcasts radio news this is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news. As it happens, the Bloomberg Business Week Daily podcast with Carol Massar and Tim Stenbeck on Bloomberg Radio.

[Matt Miller]

So as you know, as we've been reporting here at Bloomberg, US And Israeli joint strikes continuing across the Middle East. This is for a third day as Iran continue to fire missiles at countries around the Middle east in response to that attack, causing major disruptions and a surge in oil prices. With Qatar and the UAE lobbying allies to help persuade President Trump to reach for an off ramp. And earlier this morning, Tim, we heard from a lot of important voices on all of this.

[Carol Massar]

Yeah. U.S. secretary of Defense Pete Hegseth was joined by Dan Kaine, the US Chairman of the Joint Chiefs of Staff. They spoke at a briefing at the Pentagon. They took questions also just a little before noon Wall street time today, President Trump at a medal ceremony at the White House. He addressed the US And Iran today.

[Tim Stenbeck]

The United States military continues to carry out large scale combat operations in Iran to eliminate the grave threats posed to America by this terrible terrorist regime. We have the strongest and most powerful by far military in the world and we will easily prevail.

[Marcelo Lima]

The mission of Operation Epic Fury is laser focused. Destroy Iranian offensive missiles, destroy Iranian missile production, destroy their Navy and other security

[Carol Massar]

infrastructure, and they will never have nuclear weapons. The combined impact of these strikes, swift,

[Marcelo Lima]

precise and overwhelming, has resulted in the establishment of local air superiority. Our ambitions are not utopian. They are realistic. This is not Iraq. This is not endless.

[Tim Stenbeck]

Whatever the time is, it's okay, whatever it takes.

[Matt Miller]

Again, that was President Trump at the White House today around noon Wall street time. We also heard from U.S. defense Secretary Pete Hegseth there and also Dan Kaine, U.S. chairman of Joint Chiefs of Staff. That was at a morning briefing from the Pentagon. As we said, US Stocks seem to be taking a lot of this in stride following Asian and European declines. Earlier, we did see the dollar, US Dollar rally. We've seen treasury yields here, gas also moving up on inflation concerns and of course, gas prices surging as well. There's been a lot in terms of markets. Curious to see what our next guest has to say because it does feel like there's a lot continuing to come at investors. Michael Kantopoulos is deputy chief investment officer at Richard Bernstein Advisors. They have about 17 and a half billion in assets under management that as of the end of September Mike joining us right here in studio. Good to have you here.

[Michael Kantopoulos]

Nice to be here.

[Matt Miller]

It's been an interesting 2026 already and it just feels like the invasion, the attacks on Iran kind of add another layer of risk to what's already been a pretty fragile market. So I am curious before we get into portfolio management and what you should be doing feels like the first question that needs to be asked is what's really changed as a result of what happened over the weekend?

[Michael Kantopoulos]

Yeah, I mean, I think it's too soon to tell exactly. I think you hit the, the word of the day, the nail on the head, which is uncertainty. Uncertainty has really been a staple, I think, for the last 18 months or so is going to continue to be a staple. I think gold is reflecting that and has reflected that over the last year, year and a half. But I do think, listen, wars in general never really are disinflationary or deflationary. I think the bond market is picking up on that at the moment, whether that be because of the obvious oil and natural gas disruptions or whether it be more due to supply chain issues. It's hard to make a case how what we saw over the weekend is going to lead to deflation or disinflationary forces.

[Matt Miller]

Especially going into it. There were inflationary concerns.

[Michael Kantopoulos]

Well, that's the thing, is that, you know, I think even without what was going on with Iran, you've been seeing inflation start to tick up pretty meaningfully. Remember, core PCE is what the Fed cares about. And core PCE bottomed in April of last year. You look at, you know, ISM input prices today, you look at the PPI data, it's all suggestive of higher inflation, not lower inflation. And so this just adds another wrinkle to that which I think the bond market is getting.

[Carol Massar]

Right.

[Michael Kantopoulos]

Right. You started off with the flight to quality and lower yields and that quickly reversed course and now you're seeing higher yields. And I think that's the right reaction.

[Carol Massar]

Can we extrapolate this to midterms? And in an environment where voters care about the economy, voters care about prices, they care about inflation and what this war could mean for a change of control in Washington. Not at the presidential level, of course, but maybe, maybe in the House, maybe even some are saying in the Senate.

[Michael Kantopoulos]

Yeah. I think ultimately what matters for markets is less politics and more what the trajectory is for liquidity and earnings. And so to the extent that, you know, how does it matter to markets, I'm not sure the midterm elections even matter. All that much. You know, I think earnings growth is reasonably strong in the US it's certainly expanding globally pretty dramatically. What happens with the midterm elections is not going to affect what happens with European earnings and emerging markets, ex China earnings. I actually don't think politics are going to have a huge influence on rates either, which I know is probably a, you know, maybe a controversial statement in and of itself. But I think the markets are smarter than what's going on with politics and investors will be investors and the midterms are going to be proved to be much less exciting for markets than maybe what most expectations.

[Matt Miller]

What could be exciting in a negative way is some kind of crisis. And I just do feel like the drumbeat is expanding. Former Goldman CEO Lloyd Blankfein speaking in an interview with Citadel's co chief investment officer about how he can smell a fresh crisis brewing and see similarities, parallels to the mortgage crisis. And then it was just Jamie Dimon that we heard from about a week ago. And we're going to hear from him in just a moment too, live on our air warning of parallels to the financial crisis. What are the major risks? Which seems like a stupid question coming off a weekend where we have seen the US And Israel attack Iran and we see again unease, unrest, if you will, in the Middle East. What are the major risks and is it. We've seen credit spreads widening a little like we've we see things percolating and yet that doesn't necessarily mean crisis.

[Michael Kantopoulos]

Yeah, I do think that the stage could be set for credit weakness. We've been saying that admittedly for probably a little longer than what it's taken. About 18 months ago we started talking about the illiquidity risk with private credit. And we're starting to see that actually happen over the last few weeks and over the last few months, I think absent from Middle east tensions and war. And I'll talk about that in just a moment. I think the credit space does pose a bit of a risk here, not so much from mass defaults and that causing a recession and any sort of contagious and similar to the global financial crisis, but more from the perspective of having these very illiquid products. And what do you sell when you can't sell what you want to sell? You sell what you can sell. And that can sometimes beget a, you know, a crisis in and of itself.

[Matt Miller]

Who gets hurt in that process?

[Michael Kantopoulos]

Well, I think certainly private credit holders, but also just credit markets in general. I think if that comes at a time where you have higher inflation because of geopolitical risk and higher rates that can cause meaningfully wider spreads and credit risk as well.

[Carol Massar]

Something that's not lost on us, and we talk about this all the time, is that this is happening at a time where people want. Certain people want retirement accounts open to private credit. Yeah. And the idea that, well, you know, everybody should have an opportunity to invest in what many argue is an opaque asset class. How do you view that?

[Michael Kantopoulos]

So it's interesting. Rich Bernstein, who you all know and is, of course, the founder of RBA and wrote an interesting report several years ago about what sort of are the makeups of a bubble. And one of the key makeups of a bubble is democratization of markets. And. And I think that's what we're seeing here. That's essentially what. What you asked him is sort of the idea of private asset classes within, you know, retirement accounts and these sort of things. Alts and all this, you know, in liquid illiquid asset classes within retirement accounts is democratization, just like, you know, the gamification of. Yeah. Of trading has been.

[Carol Massar]

And so, I mean, at the end of the day, the people who. Who. I mean, and correct me if I'm wrong, Carol, but it seems like the people who want this in retirement accounts are the ones who sell it.

[Matt Miller]

Yeah.

[Carol Massar]

The ones who, you know, benefit from a larger market of people or entities buying these assets.

[Matt Miller]

It feels like there's a lot of money to put to work and they're searching for more markets to put it to work. And a good way of saying that makes me a little nervous.

[Michael Kantopoulos]

Yeah. I think you mentioned Lloyd Blankvine earlier. He had a good quote about this. And how many of his peers out there have made, you know, substantial sums of money doing what they're doing, and now they're trying to even grow that more. And what's the real need for that? Those are Lloyd's names. Where it's not my own. But. But I do think that is an interesting point. But listen, I mean, this is an industry. The asset management industry is one where, you know, you get paid to grow assets and perform. Right. We focus on the performance side and let the asset growth take care of itself. But, you know, it's hard. It's easy to see how those can get, you know, those objectives can get muddled.

[Matt Miller]

Michael, just got about 30 seconds here. This moment in time. How do you suggest investors should be investing? Should they be making adjustments? Thinking short, what's your thoughts here?

[Michael Kantopoulos]

Certainly not shorter term. I think investors need to think like investors and think over the long term. Currently we want to be underweight, really expensive excess in the markets. Investments that are driven by liquidity. We think liquidity will tighten more. That means basically underweight long duration assets, speculative US Technology, China, we would put in that boat. And overweight shorter duration assets. Companies that pay dividends currently value short duration, high quality fixed income.

[Matt Miller]

All right, going to leave it there. Come back soon.

[Michael Kantopoulos]

Thank you.

[Matt Miller]

Please, please. Michael Kintopoulos, deputy chief investment officer at Richard Bernstein Advisors, joining us right here in studio.

[Carol Massar]

Stay with us. More from Bloomberg businessweek Daily coming up after this.

[Matt Miller]

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[Mona Yacoubian]

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[Matt Miller]

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[Mona Yacoubian]

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[Michael Kantopoulos]

Every week we bring you news and industry insight and we do a whole

[Matt Miller]

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[Mona Yacoubian]

We actually get behind the wheel of

[Matt Miller]

basically every latest model, especially the luxury ones and the sports cars direct from the showroom floor.

[Michael Kantopoulos]

It really is remarkable how many cars we have access to. I feel a little bit guilty about it, but everything from $40,000 EVs to exotic half million dollar supercars.

[Matt Miller]

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[Matt Miller]

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[Mona Yacoubian]

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[Matt Miller]

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[Michael Kantopoulos]

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[Matt Miller]

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[Narrator/Producer]

Enjoy the go with Charmin. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on yout.

[Carol Massar]

Well, it is the big story. It is the backdrop not just for the trade today, but informing all of our coverage. And that's the war with Iran. Strikes across the Middle east continue for a third day. The president said the U.S. will do, quote, whatever it takes in Iran. He didn't rule out ground troops.

[Matt Miller]

Nope.

[Tim Stenbeck]

He did.

[Carol Massar]

In fact, gas prices surged after Qatar shuts the world's largest LNG export facility. And Carol limited flight operations are resuming after earlier disruption. You actually see airlines taking a hit today.

[Michael Kantopoulos]

Yeah.

[Carol Massar]

After some of them change their service in the region. And then also the higher fuel prices

[Matt Miller]

weighing on that I think we're trying to figure out. I think the world is trying to figure out the way forward, whether this is shorter term or longer term duration in terms of a conflict. Mona Yakubian is director and senior advisor of the Middle East Program at the center for Strategic and International Studies. Great to have her back here on Bloomberg Businessweek Daily. She joins us from Washington, D.C. mona, good to have you here. I feel like it's so weird. It feels kind of calm today and yet it is very weird considering what has happened over the weekend and continues to happen over in the Middle East. Give us kind of top of mind for yourself right now and how you're thinking the situation. Does it go on longer term? Does it go on shorter? Like how are you thinking about it?

[Mona Yacoubian]

Yeah, thank you. Well, it's anything but calm in the region. I think we've seen a significant widening of this conflict by pretty much any metric you all mentioned. For example, you have energy infrastructure that's now been hit in various Gulf countries. This was considered a red line and yet the Iranians have gone forward. We see proxies engaging Hezbollah actually engaging overnight, then prompting a fairly significant Israeli offensive that is now ongoing in Lebanon. And there's even the potential for an Israeli ground incursion into Lebanon. And you're seeing the Iranians continue to respond in various ways, including setting fighter jets to Qatar that then had to be intercepted. So I mean, by pretty much any metric this conflict is widening, it now is embroiling Israel plus 10 Arab countries. And you're even seeing Iranian strikes hit as far as Cyprus, where they've gone after a British military base not once but twice. So I think for Iran, they are pulling out all the stops. I think that they see the stakes here as existential and so they're going to widen and exact as much cost as they can in the hopes perhaps that the US And Israel and others will then look to potentially de escalate. I don't think this is a days long engagement. I think we're talking weeks and maybe even months.

[Carol Massar]

Weeks or months. You mentioned what Iran has done in response just in recent days. And I think one thing that's notable is the allies that the US and Israel find more so in the Middle east than in Europe, for example. I'm curious who Iran has in its corner. Can it rely on any of its partners, China for example, to help at all?

[Mona Yacoubian]

We've not seen significant support beyond perhaps rhetorical support from Russia and China. We don't know of course, what's happening covertly, but Iran actually has managed to alienate the Gulf, which frankly, up until this latest conflict, the Gulf had actually been working hard to de escalate tension and to insist that there should not be war against Iran. Now, because of Iran's reaction and the ways in which they have ensnared these various Gulf countries, you're seeing Gulf countries galvanize their support against Iran. I'm not saying we're going to see military action by the Gulf, but it's very clear that Iran is really alone. It has its proxies, but even they again are weakened. Let's wait and see. See, I think the other shoe to drop will be if the Houthis choose to engage once again. And that could actually further snarl commercial and shipping traffic in the Gulf and around the Babel Mendeb, another key choke point in the region.

[Matt Miller]

How weakened are Iran's proxies and how deep do they go? It does seem like a lot of leadership, official or otherwise, has been taken out. But how much do we know about that which will speak to their ability to come back?

[Mona Yacoubian]

Well, we've seen the so called axis of resistance that is comprised of Iran's proxies very much unraveled. Hamas, very much on the back foot. Hezbollah, yes, they mounted frankly a rather tepid drone and missile strike on northern Israel. No, no damage even from it. We don't, we haven't heard much from Iran's proxies in Iraq. They've been relatively quiet. Even the Houthis have remained on the sidelines. Now I say that with some trepidation because I do think we could see the Houthis engage, but I think it's fair to say that Iran's proxies have really been substantially cut down to size and they really don't pose the same threat that they had, let's say, certainly before October 7th. Again, I would put one caveat, which is the Houthis and they really could engage and smoke gnarl Red Sea shipping and go after US And Israeli targets. That is something I think we could see in the coming days.

[Carol Massar]

Mona, you Cubian, director and senior adviser of the Middle East Program, the Center for Strategic and International Studies. She joins us from Washington, D.C. stay with us. More from Bloomberg Businessweek Daily coming up after this.

[Michael Kantopoulos]

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[Matt Miller]

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[Michael Kantopoulos]

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[Marcelo Lima]

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[Matt Miller]

I'm Christina Raffini. We'll bring you the latest headlines in depth analysis and big interviews, all the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people and culture.

[Michael Kantopoulos]

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[Carol Massar]

Blocks recent layoffs, prompting not just worry about the job market, but also deep search cynicism about how corporate leaders will frame an uptick in AI usage. Danny Moses mentioned it. He was like, hey, there's not one executive out there right now who's not thinking to themselves, can I use AI on a way as a way to reduce my workforce? Can I blame it?

[Matt Miller]

And listen, to be fair, I think most leaders that we talk to, when you push them a little bit, they'll say, of course we're thinking about it. We're trying to like understand its impact, what it can do for our workers, how does it help? How does it aid them in maybe some of the more tedious tasks, tasks to open them up to do things that maybe are more meaningful to the company, especially in terms of the company's top and bottom line. So I think we are very early in some say first inning, some. I talked to somebody this morning, said we're in the third inning, which I thought was surprising. But I think we are early on in terms of understanding the true impact.

[Carol Massar]

You know, you and I are going to be at Bloomberg Invest tomorrow. It's a conference that is about finance. It's down in down, it's downtown, it's, you know, Wall street adjacent.

[Matt Miller]

Right in the heart of the financial system.

[Carol Massar]

It is in the heart of the financial district, Wall street adjacent. And one thing that I've been thinking a lot about is how the conversation has shifted because I did a panel there last year about AI and tool that people could use. How the conversation has shifted from AI being this tool from that a year ago now to being this layer that everybody's using all the time. And my panel includes Marjorie Janowitz. She's the chief revenue officer of Mistral AI. So they're a frontier model provider. So like OpenAI or Claude paired up with Shobhit Varshney, who's the global head of AI at Citi. So if you're interested in that conversation and about how financial institutions are using it and building for it, check that out. It's happening just about 8:30 tomorrow morning and you can check it out on the Bloomberg terminal.

[Matt Miller]

Lots of great conversations coming from Invest right now. We have a good conversation we want to get to. And this has to do with Block's recent layoffs prompting not just worry about the job market but deep cynicism about how corporate leaders will frame an uptick in AI usage, so called a high washing. We got there rather quickly using AI as an excuse for drastic job cuts. Now front and center. As to mention as critics highlight Block co founder Jack Dorsey's management decisions in recent years, including a pandemic era hiring spree. Feel like we are still trying to figure this way out and there's a lot of people weighing in on it.

[Carol Massar]

Yeah, one of those people weighing in, Marcelo Lima, managing partner at Heller House. It's a firm that calls itself a quote, value oriented investment management company. It invests in companies with quote, low fundamental risk and high potential upside. Marcelo joining us from Miami. Marcelo, welcome. Because you were one of those critics last week when Block announced its layoffs, he posted this on X quote, Block's 40% reduction in force is the new Citrini fake narrative. Everyone will assume Jack Dorsey is the quote, greatest of all time is doing this because AI, he's not. Block has been massively bloated for years. Don't forget Jack was head of Twitter when Elon took over. He fired 80% of staff within five months and the product got better. That was before Gen AI and cloud code. So is this about AI at all or not at all? About AI, yeah.

[Marcelo Lima]

Thanks for having me. You know, I think it's. There's no question that AI is going to make companies more efficient. We heard from Jamie Dimon last week talking about moving people from certain jobs to other jobs where their skills can be better used as AI takes over certain tasks. But as far as Block is concerned, I think it's hard to argue that this company wasn't massively bloated. I think, in fact, even after this reduction in force, they're still above about 50% more than where they were in 2019. And the company really should be a lot more efficient. If you can compare them to other global players in Fintech.

[Carol Massar]

Well, they didn't have a few things they didn't have Afterpay in 2019. It was still called square back then. The company's changed a lot since then. What about using, instead of using a fintech as a corollary, we use a company like Anthropic as a corollary. A corollary, A company with, you know, more than $300 billion in valuation in the private market and just several thousand employees. That's sort of the AI angle there. Does that make sense?

[Marcelo Lima]

Yeah, I think it does. You can. In fact, I did a ranking of Block a few years ago where you could go and look at how much in gross profits different companies generated, even from different industries. Because that is really the metric that matters for Block is gross profits. That's really their top line. And then how much of that drops to the operating income line? And Block was dead last, almost next to cruise ship company. So across different industries, including software, fintech, et cetera, Block was really poorly shown, very poorly in terms of efficiency. They were eating up a lot of dollars between those two lines, gross profits and operating income in things like R and D expenses, general administrative, sales and marketing, etc.

[Matt Miller]

So, like, if you were sitting down with Jack Dorsey, what would you be asking him? What do you want to know from him right now?

[Marcelo Lima]

Well, I'd say, you know, Jack, is this reduction in force really the most that you could have done if you. If you could pull an Elon here, how far would you go? And is there more to come? Because still the margins that they are Guiding to next year are about 26% EBIT margin compared to gross profits. But a company like adyen is at 69%. A company like Nubank is at 66%. Pag, Seguro is at 34%. Stoneco's at 43%. So they're, they could be even more efficient than they're projecting for 2026 now after this reduction, of course, do you

[Matt Miller]

think just based on what we saw in the share price on Friday, jumping almost 17%, 21% at its highs intraday, but finishing with a 17% gain, another half a percent higher today, Marcelo, that you think that is? Maybe. I don't know. What message does that send to Jack Dorsey? I mean, obviously investors are behind it. Are they misreading it though, in your view?

[Marcelo Lima]

You know, I think short term stock price moves have a lot of noise. There could be short covering in the stock. I don't have the short data right in front of me right now. But there's no question that this increases the probability of them actually achieving that metric, which is earnings per share that investors actually want to see. A few years ago, I think it was almost two years ago to the date I sent Jack and Amrita an email with the projection showing about $4 in earnings per share of 2026. I think they're going to deliver according to their guidance, $3.66. Of course, they're probably trying to beat that. So they are actually now finally, after this reduction in force, delivering the high end of my estimate from two years ago. And frankly, they should continue on this path and hopefully they do. And I hope shareholders enjoy that ride because it's better late than never that the company should become more efficient.

[Carol Massar]

Are you a shareholder now?

[Marcelo Lima]

I am not a shareholder now. I was a frustrated shareholder for many years and I kept trying to get in touch and engage the company on this topic of becoming more efficient, showing them this is what your valuation will be if you deliver these numbers. This is what the IRR between the current share price and the future share price could be. And it was, it was not very fruitful. So I moved on.

[Carol Massar]

Are you, would you, would you invest in the company again?

[Marcelo Lima]

Look, if I have proof that Jack and Amrita have really changed their stripes and they really are focused in generating shareholder value, then yes, I think I would because I do think Jack is a visionary. He's a great product guy. But I do think that the company was really not one for shareholders historically. And I would like to see if you could marry both things, be a Product visionary, be good at executing and be a good steward of shareholder capital, then, then this company could do extremely well for shareholders as well.

[Matt Miller]

Yeah, it's, it's kind of interesting, you know, I guess to have this happen on top of the Citrini research, you know, this nightmare of kind of mass unemployment and that certainly spooked the markets when that report came out. You know, we just talked about, you know, with Danny Moses, founder of Moses Ventures, of course, you know, the big short fame if you will. But this idea that these things that are some of these things coming out and I'm just going to go to the Citrini research that maybe it's just, you know, a longer term view of perhaps where these things are headed because if you do talk to a lot of executives, they're very careful in terms of the impact on the company. But it's hard to ignore that things are changing when it comes to the impact of AI. How do you put it kind of in its proper place or what is your view on what is the AI trade, the AI scare? What is the proper place for investors? How should they be kind of reading into it?

[Marcelo Lima]

You know Carol, I think every inventor should try to code to buy code with Claude and with clock code and Codex as well from OpenAI. They're fantastic tools. I've been using them a lot. I used to be a software engineer earlier in my career and it's not at the panacea that everybody is sort of this magic wand that everybody claims that is oh I one shotted this or that application actually pretty complicated and you have to guide it a lot. Yesterday I spent a lot of hours coding a plugin for Excel that I want to do certain things, looking up a certain API, etc. So this still requires a lot of guidance. Yes, I do understand the science fiction future, but I think some of the smartest voices now are really actually the guys trying to disrupt the incumbents. And those are the top lists in the world. People like Marc Andreessen from Andreessen Horowitz.

[Matt Miller]

Right.

[Marcelo Lima]

And if you listen to what his firm is saying, they, these guys are in the business of disrupting incumbents. They are saying that AI will be actually a tailwind to the best enterprise software companies. So when the guys saying that and they have a vested interest in disrupting the incumbents, maybe we should listen to that signal.

[Carol Massar]

Right?

[Matt Miller]

Yeah, there is some certainly something to that. I do want to be fair. Jack Dorsey did take to social media on Friday and responded to one critic who pointed to the accusations of bloat that have dogged his companies. He acknowledged the company is over hired during COVID and operated inefficiently when he ran Square and Cash app as two separate businesses. He went on to say the Block had corrected for all of that and that it now aims to generate more than 2 million in gross profit per employee, quadruple what it was generating pre pandemic. And then Block's chief financial officer said in an interview with Bloomberg, we are taking bold and decisive action here, but we're doing it from a position of strength. So just wanted to share that with everyone as well. Hey, fun to catch up with you Marcelo. Things to think about certainly as we kind of make our way through this and will be no doubt about it, not only for months but probably years to come. Marcelo Pilima he is founder and managing partner of Heller House, joining us us from Miami. This is Bloomberg.

[Carol Massar]

Stay with us. More from Bloomberg businessweek Daily coming up after this.

[Narrator/Producer]

You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Carol Massar]

Well, speaking of those higher end prices, I want to bring in Cole Smead, CEO and Portfolio manager of Smead Capital Management. He joins us from Phoenix. The Smead Value Fund has more than 20% of its holdings in the energy industry including APA and conoco as top 10 holdings. Diamondback and Occidental are in there as well. Cole, what is your reaction at least from a markets perspective and then we'll get to the energy side of this in a minute. What's your reaction to the events over the weekend and can ongoing in Iran?

[Tim Stenbeck]

Yeah, and thanks for having me. Good to hear from you guys and see you as well. I would just say to begin with, you have to remember Tim, that you're starting with an S and P that owns less than 3% in energy. To quote the Monty Python for the S&P 500, this is merely a flesh wound from a sector perspective. And so I think we're in an environment where people have really not cared about this kind of stuff. If you go back to the last spring, the idea for most investors, if they did touch or think about energy at all, was well, energy is going to get drilled into the ground because we're going to have a recession tied to tariffs and the oil price is going to be low and therefore there's not much concern other than we know OPEC is going to increase obviously their production and as you fast forward through the year, there were other conversations with that, you know, Venezuela fell into that same, like, let's get everyone out of the energy space, at least, you know, temporarily in rhetoric. And what we wake up with the world is where nothing in the last 12 months really makes any sense to anyone other than they're waking up with, with a much higher oil price than they would have expected at any point during that, and a tension that seems to be so much less easy to solve than Venezuela. I think one thing that has to be mentioned is OPEC is effectively liquidating its excess capacity, not dissimilar to how other industries when they go into liquidation three to four years ago. If you look at the tanker business, which is another whole subject in this, the tanker business was liquidating where they got such low cash rates per day that they would not reorder or buy as many tankers as they had in their fleets. And so we're seeing a liquidation of the global oil market for its excess capacity. But the question remains, Tim, isn't the future fairly bright? And don't we have more demand and needs? And so how are we going to meet 10 million barrels of new demand that shows up in, say, 10 years when OPEC effectively has a million barrels of excess supply left? And that is it, my friends?

[Matt Miller]

Well, I don't know. I mean, how do you bring the US into this? And a world that, you know, coal is increasingly also embracing alternative energy. So I'm just curious, you know, whether it's, you know, go all the way from green energy to, you know, nuclear energy in different forms to meet the demand increasingly, as you say, some of it is a lot of it to do with AI. But we, I remember having a builder in and, you know, doing massive projects and they're saying that increasingly everything's electrical, so you've got to figure out how to power it. So I'm just, you know, as we continue to embrace more forms of energy, you still see that there will be the demand and the uptick when it comes to fossil fuels, and that will lead to higher prices.

[Tim Stenbeck]

Yeah, I mean, we're going to need every form of energy. That's not the question. We're going to need a lot more of it because that's the nature of human progress. Go ask Elon how much easier it is to sell EVs without a subsidy. So I think that's the other question that has to be asked, is what policies grow the best without subsidy. And frankly, oil and gas is just a place that grows easily without subsidy. So if you look at this, I mean, if you look at, let's use the United States, we are exiting our position of leadership in growing global supply. We are the largest oil producing nation in the world, 9 million barrels a day. We grew to that from almost nothing 20 years ago. And we have decided, stupidly might I add, but we have decided that we want low oil prices. And so what happens when you believe that you have low oil prices? You scare your producers from producing more, versus at times like the 2010s or coming off the Peak Oil theory of 2008, investors thought we were going to have high oil prices forever and ever on man, and that the emerging market consumer was going to be the drumbeat of that. And what we end up finding was we could grow a lot of production off that. The only way America will produce more oil into the future is with high prices. And what the Trump administration has tried to do is they have tried to effectively use the bully pulpit into making people believe we'll have lower energy prices. It just ain't seeming to work in as much as it has, say, compared to last April.

[Matt Miller]

So are you ready to go for higher energy prices and higher inflation? Inflation and a higher rate environment, if that's what it takes?

[Tim Stenbeck]

Well, that's a good question. You got to remember Newton's third law, Carol, says that for every action there's an equal and an opposite reaction. And so let's just run that path. Let's take the path of we're going to have higher energy prices. That'd be very tough for the Fed to deal with because obviously, you know, you can't do anything about that. It's like the, you know, the fly in the ointment, if you will. Except that if that happens, that's not good for stocks, particularly historically. If you go back and look like long duration stocks, what are the longest duration stocks out there? We call those tech stocks nowadays. And so the great part about being the 10 year treasury is you're not a stock. So what was the initial reaction yesterday in the bond market? Well, the initial futures reaction of the 10 year was yields down with the NASDAQ down nicely in that futures move. So I say that because I don't think the government has as much trouble if there's something arbiting that 10 year. And the stock market doing poorly would actually drive long term yields down because it's a place to hide. And so the idea that yields go up, that, that automatically is just terrible for the bond market. No, I would say people looking at a 10 year at 4 might be begging for 4% yield in a bad stock market.

[Matt Miller]

Hey, Cole, the only thing is, I will say US government doesn't necessarily want yields to go up too high either. Right. Because if you look at the deficit that just continues to grow and grow and that becomes.

[Tim Stenbeck]

They don't. They don't. But again, why would investors be willing to accept higher inflation? If they get punished in the stock market, they'll just accept less volatility. And that's what happens often in bad markets.

[Carol Massar]

Hey Cole, we only have 30 seconds left, but the S&P 500 is flat right now and I would not have bet that that would happen today. Why? Why such a muted reaction very quickly?

[Tim Stenbeck]

Yeah, people are just fading the risks. They want to be long. They don't really care. I mean, Tim, who's going to go out and pay capital gains on taxable assets after what they've seen the last five to seven years? The history is they always deal with the tax situation when things are much worse. And so we're seeing this investor that is right now saying we don't really care what the wise man does in the beginning, the fool does in the end. We'll find out whether this is foolish, I guess.

[Matt Miller]

Hey, 10 seconds. You buying more energy names Just real quickly.

[Tim Stenbeck]

It's a great environment and people hate the long term story, so we're very comfortable in our seat.

[Matt Miller]

Okay, that sounds like. No, but it sounds like you like what you've got. Good stuff. Call Smee, Chief Executive Officer Portfolio Manager at Smead Capital Management.

[Narrator/Producer]

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