Weeks of War Are Reshaping Global Gas Market for Years to Come

Summary

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Bloomberg Businessweek Podcast Summary

Episode: Weeks of War Are Reshaping Global Gas Market for Years to Come
Date: March 19, 2026
Hosts: Carol Massar & Tom Keene

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Overview: Shifting Global Energy and Economic Landscapes

This episode examines how recent weeks of conflict in the Middle East—particularly attacks impacting Qatar’s crucial Ras Laffan LNG complex—are causing ripples through the global natural gas market, defense sector, and broader financial system. By bringing in Bloomberg and industry experts, the hosts break down energy supply shocks, implications for defense contractors, monetary policy perspectives, and investor outlooks.

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1. Middle East Conflict and Global LNG Markets

Key Segment: 01:01 – 05:39

Discussion Points:

• Unprecedented LNG Supply Shock:
  The Iranian drone attack on Qatar’s Ras Laffan—the world’s largest LNG plant—marks the first supply interruption in 30 years (“the world loses enough energy to power Sydney's homes for a year each week it's shut” – Tom Keene, 01:01).
• Extent of Damage & Uncertainty:
  The facility suffered massive damage that will require significant time and resources to rebuild, with disruptions expected to echo for years.

  "This is massive equipment that could take much time to rebuild...this has really disrupted global markets with end users in Asia and Europe looking at elevated gas prices for time to come."
  — Ruth Liao, Bloomberg’s LNG market reporter (01:58)

• Supply & Demand Effects:
  Even as the US emerges as the largest LNG exporter, it cannot fully compensate for Qatar’s sudden deficit, fueling uncertainty and potential demand changes, especially in Asia and European power/utilities.
• Comparisons to the Ukraine Crisis:
  This shock mirrors the European gas crunch post-Ukraine invasion but differs in that it’s a direct hit on LNG, not pipeline gas.
• Timing—‘Shoulder Season’:
  The crisis arrives during a relatively lower-demand period (“shoulder season”), lessening but not negating its impact.
• Long-Term Market Impact:
  Repairing both supply lines and physical infrastructure will take considerable time, suggesting higher prices and volatility for extended periods.

  “This is massive infrastructure...it really is clear...those will have an enduring impact...could take a significant, significant amount of time.”
  — Ruth Liao (05:09)

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2. Defense Sector Response and Investment Outlook

Key Segment: 07:56 – 17:57

Discussion Points:

• Escalating Defense Production & Budget:
  With President Trump seeking an additional $200 billion in war funding, military production is surging:

  "Raytheon is building four factories. Lockheed is building five or six...so we're in very good shape, but we want to be in the best shape we've ever been in."
  — President Trump (via Mark Travis, 07:18)

• Missile Production Frameworks:
  The Department of Defense (DoD) is guaranteeing production increases (e.g., PAC3 missiles from 600 to 2,000 units annually over seven years).

  "Missiles is the best part of the market in terms of growth to invest in for investors...4x production increases."
  — Sheila Kailu, Jefferies (08:14)

• CapEx and Margins:
  Major defense contractors face significant capital expenditure demands with less clarity on profit margins, leading to cautious analyst outlooks (e.g., hold, not buy, ratings).

  “The DoD has guaranteed the top line, but not margins...they have to invest their own capital, cut their repurchases.”
  — Sheila Kailu (11:51)

• Defense Supply Chain Opportunities:
  Investors are encouraged to look beyond the biggest names (Lockheed, Raytheon) to suppliers and component-makers (“Woodward, Heiko...solid rocket motor providers” – Sheila Kailu, 10:52).

• Drones and Modern Warfare:
  The evolution of warfare (e.g., drones, electronic warfare) necessitates not just more tech but also scalable, cost-effective armaments.

  “The key...is the ability to manufacture today, readiness and scalability—doing it in the hundreds of thousands.”
  — Sheila Kailu (13:57)

• Cost Considerations:
  The mismatch between expensive US munitions and cheaper adversary missiles forces the military-technology sector to pursue affordability and innovation—backed by increased support for defense-tech startups like Anduril and Voyager.

  “We can't shoot down $50,000 drones with $5 million missiles forever.”
  — Paraphrased from Sheila Kailu (15:03)

• Budget Politics and Spending Trade-offs:
  Increasing the DoD budget from $1T to $1.5T will require cuts elsewhere (e.g., F35, helicopters) and may reignite interest in “older” systems given current conflict needs.

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3. Market and Macro-Economic Repercussions

Key Segment: 18:24 – 27:31

Discussion Points:

• Bond Market & Central Bank Dilemma:
  Surging energy prices trigger global bond selloffs as central banks signal inflation fears, dampening rate-cut expectations.

• US vs Global Fixed Income:
  Despite global bond turbulence, the US is viewed as resilient, with real yields on Treasuries remaining attractive (10-year at ~2%).

  “Our real yields look quite attractive here...not as much of a selloff is expected in the US.”
  — Matthew D. Sac, BofA Head of Fixed Income Strategy (19:24)

• Energy Shock, Inflation, and Fed Policy:
  There are competing theories on whether higher energy prices will lead to sustained inflation or simply a short-term spike.

  “It’s a Rorschach test...Is it maximum employment or is it price stability?”
  — Matthew D. Sac (21:12)

• Likely Rate Path:
  Expectation: one or two more rate cuts this year, possibly before midterm elections, echoing 1990s cycles of hikes, productivity booms, and prolonged growth.

  “We expect him [the next Fed chair] to at least try and deliver one rate cut before the midterm elections.”
  — Matthew D. Sac (23:54)

• Advice for Investors:
  Overweight US equities versus the rest of the world. Be “neutral duration” in fixed income and consider long municipal bonds for tax-advantaged income.

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4. Investor Perspectives Amid Turmoil

Key Segment: 27:53 – 33:57

Discussion Points:

• Energy Price Adaptation:
  Despite $100 oil, the US and global markets are likely to adapt—historical patterns suggest that even major events (e.g., 1979 Iran, 1990 Gulf War) become buying opportunities over time.

  “In commodities, the cure for high prices is high prices.”
  — Mark Travis, Intrepid Capital CEO (29:41)

• Strategic Stock Picks:
  Focus on founder-led, resilient businesses, especially those with leaders deeply invested in company longevity (e.g., Jefferies).

• Opportunistic Investing:
  High volatility (VIX toward 30) creates opportunities to acquire high-quality stocks for long-term gains. Investors should look beyond near-term panic to historical market uptrends.

  “When you feel really bad and kind of have a bad stomachache, that’s usually probably not a bad time to invest.”
  — Mark Travis (30:13)

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Notable Quotes and Memorable Moments

• “Each week the world's largest liquefied natural gas plant remains shut, the world loses enough energy to power Sydney's homes for an entire year.”
  — Tom Keene (01:01)

• “Even with all of the LNG facilities in the US running as much as they can, it's not going to be enough to backfill that deficit.”
  — Ruth Liao (03:00)

• “The key...is the ability to manufacture today, readiness and scalability—doing it in the hundreds of thousands, not only 100 or 200 or 2,000 units.”
  — Sheila Kailu (13:57)

• “Missiles is the best part of the market in terms of growth to invest in for investors.”
  — Sheila Kailu (08:14)

• “The cure for high prices is high prices.”
  — Mark Travis (29:41)

• “So when you feel really bad and kind of have a bad stomachache, that’s usually probably not a bad time to invest.”
  — Mark Travis (30:13)

• “Our real yields look quite attractive here ... not as much of a selloff is expected in the US.”
  — Matthew D. Sac (19:24)

• “It's a Rorschach test...you’re gonna learn more about me from that answer than you're gonna learn about what's gonna happen in the economy.”
  — Matthew D. Sac (21:18)

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Timestamps for Major Segments

| Time | Topic & Guest | |-----------|--------------------------------------------------------------------| | 01:01 | LNG infrastructure damage and global market disruption (Ruth Liao) | | 07:56 | Defense sector expansion & investment potential (Sheila Kailu) | | 18:24 | Bond market turbulence, Fed policy paths (Matthew D. Sac) | | 27:53 | Investment insights, energy adaptation, stock picks (Mark Travis) |

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Takeaways

• The Middle East conflict and attacks on LNG infrastructure create supply shocks with multi-year global consequences for energy prices, industrial demand, and inflation expectations.
• US defense and tech sectors are poised for structural growth as government guarantees fuel increased production and innovative supply chains—though margins remain uncertain.
• Bond markets and central banks face a shifting landscape, with expectations for cautious rate cuts and a strong US economic position relative to global peers.
• Current volatility offers astute, long-term investors opportunities, especially in well-led, resilient companies.

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This episode offers a comprehensive view of how geopolitical conflict, market adaptation, and government policy interact to reshape global energy, defense, and financial sectors.

Transcript

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[Tom Keene]

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[Tom Keene]

Well, each week the world's largest liquefied natural gas plant remains shut. The world loses the equivalent of enough energy to power Sydney's homes for an entire year. Qatar's Ros Laugh and plant closing earlier this month. You know that we've talked about it after an Iranian drone attack, the first interruption to supply in three decades of operation. Now, after further hits and retaliation for an Israeli strike on the vast south Paris fields that happened yesterday, the wider complex has suffered. Tim, what Qatar described describes as extensive damage.

[Carol Massar]

With more on how weeks of war are reshaping the global gas market for years to come, we head to the Bloomberg News Washington, D.C. bureau and to our reporter who covers the LNG market. Ruth Liao joins us. Ruth, want to talk a little about the infrastructure in the Middle east and the idea that this could shape the global gas market for years to come. At this point, what has been taken out when it comes to natural gas.

[Ruth Liao]

So this has been a significant development for this ongoing crisis. The these attacks as far as we know, have struck the liquefaction facility at Ras Lafont, the largest on the globe and really massive equipment that, you know, could take much time to rebuild. And that's only presuming that there would be a let up in the conflict. So having all of that uncertainty has really disrupted global markets with, you know, end users in Asia and Europe looking at elevated gas prices for time to come.

[Tom Keene]

Well, and so I'm glad you went there in terms of what Asia and Europe is watching because we do talk about distinctions between who is being so served by the region. President Trump saying earlier today we don't use the Strait of Hormuz. And so the US Isn't really impacted. Is he completely correct on this? And then there's the reminder that markets are global. So what happens around the world often does happen to possibly impact everybody.

[Ruth Liao]

Yeah, the US has become the largest, largest LNG exporter globally, overtaking Qatar in terms of production. But this is such a massive supply shock that even with all of the LNG facilities in the US running as much as they can, it's not going to be enough to backfill that deficit. So the impacts that we'll see will have immediate consequences for end users. Southeast Asia, the ones that are looking and using this LNG for industrial and heating purposes, for power utilities. You know, will there be changes in demand? Demand? This is what experts are expecting will happen because again, this has been such a sudden supply shock.

[Carol Massar]

Ruth, what about Europe and I think back to the beginning of Russia's invasion of Ukraine and the supply shock that we saw then and certainly it was in a different time of year when it was set to be cooler than it is set to be in the months moving forward. And that was a big supply shock and really affected Europe's economy. What about the effect on Europe with this shock?

[Ruth Liao]

Yeah, the distinction I think with the invasion of Ukraine is that it was mostly pipeline gas, that supply dramatically reduced by Europe and LNG was there to backfill for that lost supply. The US stepped up to provide a lot of the LNG cargoes then and then we saw a redirection of flows this time around as you mentioned, you know, storage will be on top of mind for the next few months as storage needs to rebuild. But really if there was a time for this to occur, it's during what traders called the shoulder season. Relatively lower in demand. Before there's the high cooling season for the summer in the Northern hemisphere. And before that there's going to be winter demand as well.

[Tom Keene]

Hey Ruth, one more question before we wrap up here. The story that you've got out on the terminal, you and the team, its headline weeks of war reshaping global gas market for years to come. I mean this is, you know, where we're trying to get to the timeline of this war and when we can kind of start to not think about the energy shock. But is this something that is going to last and impact these markets for a while? Especially maybe it is for the European and Asian markets given the uncertainty in

[Ruth Liao]

terms of the extent of damage, not knowing how long it would take to repair. As I mentioned, you know, this is massive infrastructure, not just in scale but in terms of the type of technology that's used. It really is clear that I think those will have an enduring impact. It's not even just a matter of, you know, clearing the Strait of Hormuz and allowing for the traffic to flow again, but really being able to have the labor, the equipment, the repairs, the workforce, etc. All of that still needs to be laid out and could take a significant, significant amount of time.

[Tom Keene]

Yeah, it maybe makes sense too, why you're seeing some of the energy equipment companies, the drillers, they're really rallying in today's session because you do think about what kind of demand will be for them in the future. Ruth, thank you so much. Really appreciate it. Ruth Liao joining us. She is Bloomberg News Washington, D.C. bureau. She's there and she, of course, covers the LNG market for us here at Bloomberg.

[Carol Massar]

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

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[Tom Keene]

U.S. defense Secretary Pete Hegseth confirming that the Trump White House is asking for an additional $200 billion from Congress to pay for the war against Iran, even as earlier this morning. He also argued that the campaign was ahead of schedule and disputed that the US Was getting embroiled in a quagmire. President Trump, though, also addressing the military situation earlier today from the Oval Office, specifically talking about stockpiles.

[Mark Travis]

Fortunately, we have a lot we have a tremendous unlimited supply of what you'd call middle and upper middle armaments and military equipment, munitions. Armaments, but munitions in particular. Raytheon is building four factories. Lockheed is building five or six factories and they're building them fast. They are now building a tremendous there's never been anything like it what's taking place right now. So we're in very good shape, but we want to be in the best shape, the best shape we've ever been in.

[Tom Keene]

All right. So are we in good shape? We want to ask that of our next guest.

[Carol Massar]

Sheila Kailu is with us. She's managing director in equity research at Jefferies. She joins us here in the studio. That was President Trump at the White House earlier. He said a lot that, that we want to unpack with you. Are we in good shape when it comes to munitions?

[Tom Keene]

You were in D.C. this week, right?

[Sheila Kailu]

Yeah, we attended a conference called the macalies conference. Jim McAlees is an expert in bringing folks from the Department of War together, whether it's Army, Secretary, Navy, Air Force and critical weapons systems. And the theme, they're very, you know, clearly all appointed by the administration. So there's a view there $1.5 trillion budget is going to come out from the president's request at the end of April and May. That's kind of new. It's delayed, we thought any day now, but we know it's going to be at the end of May, end of April, and they're sticking to their 1.5 trillion. And I don't know how Democrats will align with that. With that, you know, President Trump's comments. I don't know if we're at unlimited stocks of missiles and munitions, but that's one thing that's clear from all the DOD employees is all the Department of War folks is that missiles is the best part of the market in terms of growth to invest in for investors. And that's why you're seeing, you know, 4x production increases. So what the Department of War has done working with multiple primes like Raytheon, like Lockheed, and is to put forward frameworks on missile production saying over the next seven years, we'll guarantee you production increases on a PAC3 missile from 600 units a year to 2,000 units a year, which is a big revenue bump. And we will guarantee that for the next seven years. So can you build enough capacity to do that?

[Tom Keene]

Can they?

[Sheila Kailu]

Well, they're working on it. And I think that's a theme that the Department of War more than anything could align on, whether it's Republicans or Democrats, is that, you know, there isn't unlimited supply. And what we do manufacture from a missile perspective is quite expensive. We're doing it in low quantities, so we have to do it in larger quantities and also find ways of manufacturing cheaper munitions and missiles.

[Carol Massar]

The president's comments about what Raytheon is doing, building four factories, Lockheed building five or six factories, does that align with what these companies have said publicly?

[Sheila Kailu]

Yeah, we're seeing 30% increases in CapEx for basically 15 to 20% of their revenues. We continue to see 8% even though we're hold rated 8% of upside in our estimates. If Raytheon and Lockheed could actually meet these frameworks, and those are only three that have been announced, thus Far, I think you'll see more to come. There's dozens of offensive and defensive missiles. We put out a missile primer today and folks were emailing, well, you missed this one. While you missed this one, I was like, well there's so many opportunities to continue to invest and I think that's one thing the government will agree on.

[Tom Keene]

I mean it's a whole supply chain, right? It's the suppliers. I mean when you look at it, we obviously talk about the big defense companies, whether it's Lockheed Martin, whether it's rtx, but there's a ton of American companies, right, that are going to be impacted by this.

[Sheila Kailu]

We're trying to find ways that might not be as obvious that have also really great margins associated with it and might not have to have the massive capital expenditures without the share repurchases. So like Woodward is a great way to play it. Solid rocket motor providers, you know, even Heiko that does missile components, Albert in Israel. So there's a whole slew of ways to play missile defense and offensive missiles.

[Tom Keene]

So not just us, obviously global and

[Sheila Kailu]

like, you know, I would say helmet and Woodward are great ways to play it that traditionally people might not think of.

[Tom Keene]

Can I just ask you, what is the supply chain like for defense companies? Is it a global one?

[Sheila Kailu]

No, it's mostly in the, it's mostly in the U.S. but what the government's trying to do is source a dual source it in the US So having multiple suppliers because the capacity increases are going to be pretty significant.

[Carol Massar]

So I hear you talking about the opportunity that these primes have ahead of them. Yet you, as you mentioned, you still have a hold rating on rtx, Northrop Grumman, Lockheed Martin, what, what would prompt you to change those to buy ratings?

[Sheila Kailu]

I think the Department of War, one of the things that they've done is have, has guaranteed the top line, but they haven't guaranteed margins associated with it. On top of that, the primes have to invest their own capital, cut their repurchases in order to invest in the capex themselves. So at the end of the day it doesn't change their EPS algorithm much. It actually, you know, keeps it the same even though they're investing for the Department of War much more. And that was part of the executive order President Trump put in at the start of this year. He said, I'll give you these frameworks, I'll boost the budget, but we haven't seen margins associated with it. And of course some visibility as they finally have five seven year contracts should be helpful. In margins, then they don't have to re negotiate a contract term every year.

[Tom Keene]

Having said that, we have an administration that when it identifies something as important to national security they get kind of more aggressively involved whether it's the semiconductor space, whether it's rare, you know, earths and rare minerals. And I just wonder, is there something more that we would anticipate from the administration, this administration when it comes to defense companies, whether it's taking a stake, making some further investments? I'm just curious what you are hearing.

[Sheila Kailu]

I think they'll continue to do that. Whether it's providing frameworks so they'll allocate the dollars. So that'll be big contracts. So the primes will have no choice but to invest. It won't be, you know, kind of wishy washy like we're only going up 5, it'll be 600 to 2,000. So the capex investment is ne needed is critical. There's a seven year time horizon. So first we'll see more long term frameworks. Second, I think you could see some stakes. We've seen some of it already.

[Tom Keene]

Yeah.

[Sheila Kailu]

Of course these primes don't have infinite capital and like they're already spending a big chunk of their capex now associated with missiles. So if there's more and more needed, you could see the government get involved.

[Tom Keene]

Can I just ask to shift to drones or more drones? Like I think this war has been fascinating, while fascinating is a bad word to use because the way that it's

[Carol Massar]

fought different than previous wars.

[Tom Keene]

Yeah. Like is there a shift in terms of the kind of weapons that these companies want to be working on or are working on in the future or does that kind of get sidelined as a result of these orders from the government?

[Sheila Kailu]

There's so much going on. Right. So with Russia and Ukraine, I think you've seen 70% of the fatalities associated with drones. But that's not the kind of drone warfare the US might use. So we'll need more maneuverability, more electronic warfare with drones. But the key I think whether it's missiles, munitions or drones, is ability to manufacture it today, readiness and scalability, doing it in the hundreds of thousands, not only 100 or 200 or 2,000 units even, which is what we've seen from at least Russia, Ukraine, Iran, is they manufacture missiles in the thousands, not smaller quantities like we do.

[Carol Massar]

So how are you looking at magazine depth in the context of comments that we heard from the Secretary of Defense earlier today? He said in the Oval Office, missiles being shot down, shot are down over 90% since the beginning. One way attack drones down over 90% since the beginning. The US is going after Iran's industrial base. Does that mean a lot of the munitions that we've used up or have used, those will not be used in the coming weeks or months depending on how long this goes? Just because Iran's capabilities have changed?

[Sheila Kailu]

You know, I'm not sure how Iran's stockpiles look, but what we're doing is very expensive. I don't know how much the war is costing, but it could be 10 billion of debt.

[Carol Massar]

So 200 billion more is what?

[Sheila Kailu]

Yeah, so over the last 18 days, I mean, it's very expensive what we're doing. So we have to a theme is like readiness, scalability and also affordability. We can't manufacture shoot down objects with $5 million missiles when they have $50,000 missiles. So we have to come up with ways. And that's what. So it's really driven. Like this administration has been super supportive of startups, the defense tech names in the world. It's led by Anduril, that's more publicly known, but there's a whole bunch of names we cover like Voyager, that are out there trying to take a piece of the pie that was previously not given to them.

[Tom Keene]

Hey, I want to bring in a question from our Wayne Sanders, who we talk to a lot about. He's down in Washington and part of our Bloomberg intelligence team. But he said which programs are most at risk of funding versus revenue due to execution or industrial bottlenec?

[Sheila Kailu]

Such an interesting question because I asked Jules hurst, who's the DOD comptroller, so think of him as the DOD CFO managing about 1.5 trillion. And this week I asked him, what do you think is going to get cut if the Democrats don't approve your 1.5 trillion budget? And he's like, I had a hard time getting to 1.5 trillion. I had to cut to get there. And I was like, the budget today is 1 trillion for context. So 1.5 is a significant increase. So the Republicans are going for full steam increases across everything essentially. And I think historically what's been thought of as areas that will be reduced is F35, a fighter of the past, or helicopter spending. And we're seeing that obviously come into the forefront of conflicts like Venezuela and even Iran, right, where we're using older aircraft and the need for it. It's kind of reignited that need.

[Carol Massar]

Can you believe we're Talking about the F35 as being something of the past? Given how much we spent on it.

[Sheila Kailu]

For investors, it was something of the past, but it's actually driven a revival in Lockheed stock which has been leading the primes in terms of performance as we've seen it used multiple times. So it's had a bit of a rebirth. Okay.

[Tom Keene]

All right.

[Carol Massar]

Do we have time for a question on airlines?

[Tom Keene]

Airlines, like what do we need to know right now?

[Sheila Kailu]

I think, you know, basically this is a month of COVID for airlines in the Middle East. You know, you're seeing capacity cut 80%. So a lot of work is being done on what does that, how does that impact global air traffic? Up 5%, Mideast accounts for 10. How does that hit number one? Global air traffic, global aftermarket demand. And then how does that hit sticker shock for folks buying airline tickets in the US as oil goes to wherever it's going to go?

[Tom Keene]

Yeah, we talked about a lot of travelers like buying tickets in advance before this stuff. Kind of.

[Sheila Kailu]

I've been doing that.

[Tom Keene]

Lock the doors. We're not letting her go. We're just going to continue. We're going to, as Tom Keene would say, we're going to rip up the script. You are a gem. Thank you so much.

[Sheila Kailu]

Thanks.

[Tom Keene]

Sheila Kayalu, she's managing director and equity research over at Jefferies. Just a must when it comes to defense and airlines.

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[Carol Massar]

Well, global energy markets affecting global markets overall. It played out too in global bond markets. As bonds tumbled worldwide, investors rushing to bet on higher rates after key central banks signaled fresh concern that the surge in oil prices will deliver an inflation shock. Carol. Three weeks into the war, the fallout unleashed a major repricing across markets by dashing once widespread expectations that central banks would cut rates this year to spur growth. It's having big implications.

[Tom Keene]

Yeah, I mean I feel like we are thinking and talking about the fixed income world a lot right now. With a us to do that even more is Matthew D. Sac. He is managing director, head of fixed income strategy for the chief investment office and office within bank of America. Also helping drive investment thinking, supporting B of a private bank and merrill. He joins us here in studio. How are you doing?

[Matthew D. Sac]

Great. Thanks for having me.

[Tom Keene]

Doing okay and good to have you here. Global rates, the global bond sell off. We kind of understand what's going on here, but Are we entering, Matt, in your view, a new era when it comes to the global bond trade?

[Matthew D. Sac]

We're not overly concerned about it, particularly from a U.S. perspective.

[Carol Massar]

Right.

[Matthew D. Sac]

If you think about it, what Japan is going through now with the BOJ being a little bit behind the curve, catching inflation, we've been through that, we got through that five years ago. The best way to look at it's real yields, right? Inflation adjusted yields, not exactly, but you know, approaching 2% on tens, approaching, you know, 275, getting close to three on thirties. That looks great relative to the rest of the globe, right? Rest of the globe you got, you know, Germany probably, you know, 75 basis points on tens you got Japan, 35 to 50 basis points. Our real yields look quite attractive here. So if there is more of a sell off expected, more sort of in the developed markets around the world, not as much in the US We've already adjusted to higher inflation. Not saying there's not more upside.

[Tom Keene]

All of it, all of it. Like, like how do you factor in the war? Are you like, you know, we've been trying to assess what we got from Fed chair Jay Powell yesterday about of looking through the energy shock. But time will tell, right? Whether or not this is a longer problem.

[Matthew D. Sac]

But time will, time will definitely tell whether this is more of a problem. You can look at it sort of either way, right. We were joking before you could look at it that oh, energy prices are inflationary. All the spending on a capex is inflationary.

[Sheila Kailu]

Right.

[Matthew D. Sac]

We haven't hit the PC target 5 years, can't hike rates. Right? You got it. You got to hold steady. Or you can look at a different way. You could say actually productivity is going to come through and it's going to lead to higher growth. You saw that in the scp. They ticked up a little bit terms of their expectation for growth you say actually is going to be slightly disinflationary and you can say gasoline prices, energy prices up over the short term, much like we talked about tariffs last year, doesn't necessarily lead to economy wide inflation is inflationary pressure. But you need spending on everything else at the same level and those higher prices to generate it. So I'm overly concerned about long term inflation from a near term spike in energy.

[Carol Massar]

Which of those two views do you think is right?

[Matthew D. Sac]

It's a Rorschach test to learn.

[Carol Massar]

I mean those are two totally right. Yeah. And look, it's.

[Matthew D. Sac]

You're gonna learn more about me from that answer than you're gonna learn about what's gonna Happen in the economy.

[Carol Massar]

Sounds like a man trained in the liberal arts. But truly, I mean, which one is more likely?

[Tom Keene]

That's a tough place to be too.

[Matthew D. Sac]

So, you know, I'm being flippant, but I mean this because you could be a PoliceMaker on the FOMC and you could have a principled view depending on which mandate you think is more, which is more important? Is it maximum employment or is it price stability? So the question to me is not as much what is the right answer or what is my answer? What is the Fed chairman's view? What does he think? Which Fed chairman Assuming, by the way, I think Powell obviously is a professional, did a wonderful job yesterday. He is setting up the next Fed chairman. If there is a next Fed chairman near term, he's setting him up to be able to do whatever he wants.

[Tom Keene]

I think it's even wild that you even said if there's a new Fed chairman in the near term.

[Matthew D. Sac]

It's possible. Pat Chair Powell said himself yesterday that he's unlikely to step down if there is not a resolution to the legal challenges. So it's certainly possible as he's, as he said yesterday, that he stays on. But let's assume we work through this at some point. We work through this and Kevin Wash gets appointed, nominated. The real question is what's his view? His view has been clear. He believes, and we've talked about this at chief Investment office with our CIO Chris Heisey. Yeah, this feels a lot like the mid-90s in a lot of ways. We had a doubling of the Fed funds rate from 3 to 6 in 94. People worried about, you know, the yield curve inverted. A recession is coming. You know, everyone nervous. Didn't happen. Greenscan, Greenspan correctly pivoted. We had the longest recession at that point. Economic history and tech took us through. It feels very much like that now.

[Tom Keene]

Yeah.

[Matthew D. Sac]

That we've had that bond bear market from the hike in rates. We might get a productivity boom. And folks, let's, let's, let's break it down here, right? This 2% inflation target, it is not based on US financial history. It's got zero, zip, niente, not out.

[Carol Massar]

But it's still a target.

[Matthew D. Sac]

But it is a target for now. They haven't hit it in five years. The average inflation rate in the US and CPAs and calculated is 3.3%. So there's nothing to be overly concerned about except for the target on a 3% inflation rate. Nominal GDP, the stock market, the economy, corporate profits, spending income, they all do fine at 3% inflation. So it's really a choice for the Fed to make. And again, as I'll say it again, Powell's a professional and is setting up a new chair to be able to position how he wants months. He's not thumbing the scale in any way.

[Carol Massar]

Well, so how does a new Fed chair, how does a Kevin Warsh's Fed chair want to see things progress? I mean, do you see the rate path differing if this was indeed the second to last meeting that Fed Chair Powell decides over?

[Matthew D. Sac]

Our belief for now is that you're probably going to get another two cuts this year. Right. We saw how candidate Warsh presented himself and again, he's giving that story that looks much like the mid-90s, that AI is going to be productivity enhancing and will allow further US economic growth. That's slightly disinflationary. That is the 90s parallel. So to your question, whether that's right or not, you're not going to learn near term. But that's his view. And so we expect him to at least try and deliver one rate cut before the midterm elections. That's November. So we got June, July and September deliver one rate cut. Right. So expect one and then maybe one

[Tom Keene]

another one before that if everything is so good. Matt, taking.

[Matthew D. Sac]

I didn't say everything was well, but

[Tom Keene]

you sounded like earnings. You talked about a lot of good things that were going good. Why do we need a rate cut?

[Matthew D. Sac]

I said in an inflation environment of 3%, all those things are still fine. I'm not saying the economy right now is fine. The economy right now has issues.

[Tom Keene]

Right.

[Matthew D. Sac]

The slow growth job market is a significant issue that might need a rate cut or two to address again. But that's not. When do you really worry about an economy, not when job growth slows. When people started getting fired. Right. And we're not seeing that unemployment claims, we're still ticking around 200, 250, no fire. So in the low again, when people start to lose their jobs or afraid their wife's gonna lose their job or their brother, then people retrench. We're not seeing firings. Right. We are seeing slow job growth.

[Mark Travis]

Growth.

[Matthew D. Sac]

So it's not necessary for the Fed to move a lot either direction.

[Carol Massar]

But do people retrench if they think gas is going to be a dollar more a gallon than it's been for months?

[Matthew D. Sac]

Absolutely, if it goes up and stays there. But that's not what the oil market's telling us. It's telling us the first month contracts, you know, almost doubled.

[Mark Travis]

Yeah.

[Matthew D. Sac]

But not the 12 month. It's only up 10 to $15. The market is saying.

[Tom Keene]

He's been obsessed just watching.

[Matthew D. Sac]

Right. The market is saying again and the market is smarter than me. It's telling you, it doesn't tell you what what the resolution is going to be. But it's been pretty clear this is not going to be in the market's opinion, not a sustained increase in energy. And again you're going to, you would need that sustained increase and you would need the consumer to spend just as much and everything else to keep inflation wide problem across the economy. Consumers will only do that if they dip into Covid savings they don't have spend a lot more real income which they're not getting borrow against their houses to fund consumption like they did in 06 gas. We're not seeing that. So again energy is an inflationary pressure but to create inflation people need to spend as much on gas and the same and everything else. If gas price go up, they could retrench. It could create demand destruction for the rest of the economy. Energy prices can, can in some way.

[Tom Keene]

Yeah.

[Matthew D. Sac]

Act like a rate hike, believe it or not. Right?

[Tom Keene]

Yeah, absolutely right. So okay, 30 seconds. So what do you what's your advice to investors?

[Matthew D. Sac]

Again, generally speaking, we're not saying investors have to be tactical. If they want to be strategic and hold a portfolio, move it, that's fine. If they wanted to be tactical. We are positive on the economy. We're very, very positive on the US versus the rest of the world. The more dangerous the rest of the world gets, the unassailable competitive advantages the US has demographically, geographically, institution wide, education wise. We are believers in the US So we're overweight us versus the rest of the world. We're underweight. Fixed income, not because we don't like fixed income, but just to fund our equity. Overweight. We're not long or short duration interesting. We want to be neutral duration right now. But if you're looking for opportunities for high tax rate investors, long munis look quite attractive at the moment.

[Tom Keene]

All right, great stuff. Come back soon. Really appreciate it. Thanks Tim, Managing director, head of fixed Income strategy for the Chief Investment Officer over at B of A.

[Carol Massar]

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

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[Tom Keene]

Let's also see what Mark Travis has to say.

[Carol Massar]

He's President and CEO of Intrepid Capital. He joins us from Jacksonville, Florida. The Firm has about $1.7 billion in assets under management. Mark, good to have you on the program. I want to talk about some of the stocks that you, you own that you're bullish on, what you're thinking about buying next. But, but first I just want to get the lay of the land from a macroeconomic perspective from you, specifically when it comes to higher energy prices and really what you think the war could do to this economy.

[Mark Travis]

Well, thank you for asking and thank you for having me. I, you know, on an absolute basis, you know, oil's obviously up a lot here in the last three weeks. On a relative basis, inflation adjusted, it was probably a good bit higher in the last several years. So I think we can adapt to $100 a barrel oil. Despite all the people's hair that's on fire with that price. It certainly flows through. You know, I think over time we'll adjust. We'll find new ways to supply the market, whether it's pipeline or sources of our own or Venezuelan, who knows? But I look at events like this as the Vix gets toward 30 as an opportunity to find high quality companies to acquire and hang on to.

[Carol Massar]

It sounds like you're seeing this as more of a longer term situation than a short term situation, at least when it comes to high energy prices, is that, you know, we will make changes as a result of this. Companies will invest as a result of this. We'll find new sources of energy as a result of that. That's kind of contrary to what we hear from a lot of folks. I mean, even the president saying just this week that as soon as this war is over, which he says will be soon, energy prices will drop like a rock.

[Mark Travis]

Well, in commodities, the cure for high prices is high prices. You know, I'd also point out to listeners, you know, oil was negative in the post pandemic. So, you know, there are obviously people making money at $100 a barrel. And is the point that you don't

[Tom Keene]

think it's going to stay this high, that you actually do think, like you say, the cure for oil prices is high oil prices. Do you anticipate that we're going to move back down?

[Mark Travis]

I really, I think that, I think that we will adapt to it. I think the conundrum, Carol, is that we found ourselves in something we maybe didn't prepare as well as some would like in terms of having the Iranians, you know, mine, the Straits of the Hormuz, and what's involved. To be able to have oil flow through that strait is not insignificant in terms of deployment of boots on the ground or otherwise. But, you know, I think that I would be looking over my shoulder in the dark if I was somewhere in the hierarchy of the theocracy of Iran or the IRG with the way the Mossad has infiltrated that country. And, you know, we'll see if we can, with our Navy and Marines, if necessary, capture Carg island and allow the oil to flow through. But again, I think if you look at the history of the markets and both of you, I'm sure have seen them going back to, you know, 50 years from now, you can mark 1979 when the, you know, yeah, Americans were taken. You can mark 1990 when the first Gulf War occurred. And the truth be told is the story of the US Equity market is up over time. So when you feel really bad and kind of bad stomachache, that's usually probably not a bad time to invest, in my opinion.

[Carol Massar]

It doesn't seem like we're there yet, though.

[Tom Keene]

Well, I don't know. Well, are we like, tell us, are you buying? We know a name that you like is Jefferies, and I think you already own it. And this is certainly one that's been having its own share of troubles. It reports on March 25th, 25th after the market, it's down almost 40% year to date. So we're going to see, you know, what we get from that company. You like it, you're holding on to it. What do you want to hear from the company? And this is, of course, the problems have to do with the troubled credit markets, private credit, I would point out,

[Mark Travis]

Carol, and I'm going to date myself, I remember when this company was called Leucadia. And part of what I'm interested in is what I call founder led businesses. And today the largest person in the capital table, equity capital, is Joe Steinberg and Rich Handler, the CEO is number two. So the reason I like a founder led business, I think they're more careful. One of my favorite business quotes is from the great race car driver Mario Andretti. For those who don't know it, he won the 1969 Indianapolis 500. And the quote is to finish first, you must first finish. And I believe a lot of these founder led businesses are built to last and they're going to finish. And I just think they're more careful. But again, it's a broker dealer, you're dealing in the problems in the credit market. I'm sure there's a high degree of panic in the, the private credit world, of course, as some point out, and I would too, what does that mean for private equity? Because the way the capitalization of a business works is the debt holders eat before the equity holders. But I've held it for a long time and I really don't see that changing is the answer. Carol.

[Carol Massar]

Hey, Mark, we just, we. Oh, we're out of time. I wanted to get your thoughts on Levi. I'm sorry, but we only have like 10 seconds left and I just can't do it. Mark Travis.

[Mark Travis]

I hope a private equity buyer will buy it from me, but it certainly takes a long time.

[Carol Massar]

Oh, interesting. Okay.

[Sheila Kailu]

Okay, Nice.

[Carol Massar]

That was succinct. Thank you. Mark Travis, you gotta come back. President and CEO of Intrepid Capital, joining us from Jacksonville, Florida.

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