EVENTS:   The Fiscal Dilemma - Between Risk Premia and a Recession - Manoj Pradhan/Talking Heads Macro - 26 Feb 25   Best Equity Short Ideas Conference Call 10 - Jules Hull/Dragoneye Research & Eric Fernandez/Two Rivers Analytics & Ed Steele/Iron Blue Financials & Pierre-Olivier Essig/AIR Capital & Jay Van Sciver/Hedgeye & Martin Pradier/Veritas Investment Research - 27 Feb 25   South American Economies and Politics - Marcos Buscaglia/Alberdi Partners & Bolivar Díaz Igal Magendzo/Pacifico Research & Andrea Damico/Buysidebrazil & Mirella Hirakawa/Buysidebrazil - 28 Feb 25   Bitcoin at $2 Trillion: 700 Institutional Asset Managers Are In – What's Next for the Future of Crypto? - Markus Thielen/10x Research - 06 Mar 25   High Yield Bonds in the Telecoms Sector - James Ratzer/New Street Research - 10 Mar 25     ROADSHOWS: Global Merger & Risk Arbitrage Analysis - Rod Manalo /Manalo Advisors   18 - 19 Feb 25       US, EU & Asia Short Equity Ideas - Robert Prather /Vision Research   03 - 07 Mar 25       US Gaming, Lodging and Leisure Long & Short Equity Ideas - Sean Jenkins /Hedgeye   31 Mar - 04 Apr 25       L/S US TMT Equity Ideas - Craig Huber /Huber Research Partners   03 - 08 Apr 25      

IRF Education: Pricing War: 2nd & 3rd Derivatives

Global Forecaster

Capital Alpha Partners

Alembic Global Advisors

Thu 13 Jun 2024 - 15:00 BST / 10:00 EDT

Summary

David provides an overview of the U.S. defense budget trends, emphasizing the increasing defense spending driven by global threats such as the rise of China, the Ukraine conflict, and tensions with Russia. He also discusses the complexity of the defense procurement process, where larger firms may have the advantage, but the evolving landscape could open opportunities for smaller, more innovative companies. David suggests that near-term growth in defense spending may face challenges due to fiscal constraints and evolving priorities. Byron discusses the recent increase in U.S. defense spending, driven by the Russia-Ukraine conflict and broader global security concerns, including China's military buildup. He notes that while large, established defense firms have benefited, there's a significant opportunity for innovation and disruption from smaller, tech-savvy firms focusing on areas like space, cyber, and AI. However, he warns that political dynamics and budget constraints, particularly the ballooning U.S. deficit, could limit the sustainability of these spending increases, posing risks to future defense budgets and prioritizing cost-effective solutions. Pete outlines the historical context and future challenges of U.S. defense spending, highlighting the massive increase in budgets from the post-Cold War era to the present day, driven by bipartisan compromises between defense and domestic priorities. He expresses concern about the long-term fiscal outlook, with rising deficits and interest costs potentially equaling defense spending, posing significant headwinds. He suggests that large-cap defense companies may see short-term benefits, but in the mid to long term, fiscal constraints could lead to reduced spending and a shift towards more cost-effective and innovative solutions like robotics. Pete also foresees potential growth for smaller and regional defense firms as U.S. influence and defense R&D may come under pressure.

Topics

Resource Constriction, Energy and Food Security, the end of Pax Americana and Collective Denial are all concepts gradually entering the mainstream. Against a backdrop of conflict, heightened geopolitical tensions and global rifts (think China, Russia), conflict and its read-across are increasingly critical drivers across investment markets, overshadowing policy efforts globally to tame inflation and paydown decades of QE following the GFC, European sovereign crisis, Covid and the invasion of Ukraine.

How to price these and think through second and third derivative impacts, risks and opportunities is growing more complex. Join three world-renowned experts to learn and debate how to navigate this growing threat, its wider implications as well as how to understand the defense sector, budget cycles and how this may ultimately all play out.