Bloomberg Businessweek Weekend - March 27th, 2026

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2:10Another week where the U.S. and Israeli war in Iran dominated headlines, much of it over whether or not actions were happening to bring it to an end, maybe a ceasefire, even as all sides continued with military attacks. And Tim, that really was the back and forth all week. And there were times the markets kind of bought into something that maybe an end was near. And then there were times they just didn't believe it. And that was kind of our backdrop. And watching them react in real time was really what told us what people thought was or is going to happen. That's how markets work. One area we wanted to focus on is a world where defense spending is a priority for many countries to protect against a changing and, I think, surprising geopolitical environment.

2:52For more on that and the U.S. defense spend, we caught up with noted defense and aerospace analyst Sheila Kayalu to talk numbers and weapons. Also on the war regime change in Iran, what the people there may really want and, you know, their nuclear ambitions post-war. I mean, these are things that still are questions going forward. We talked about that with Ray Takei from the Council of Foreign Relations. Plus, a former Trump insider who served as Secretary of Commerce during the first Trump White House. We're talking about Wilbur Ross on awakening the sleeping giant that is the U.S. And then later on, the leaders in business and finance and politics and lots of parts of our world and why it might be time for them to make amends.

3:34Bloomberg's Max Chafkin breaks down the ongoing crisis for the Epstein elite. All that to come. We begin, though, with the soaring price tag of war. With the conflict in Iran now in its fifth week, the financial toll is already surpassing$25 billion. dollars, with U.S. Secretary of Defense Pete Hegseth recently defending a request for an additional$200 billion from Congress. If that's approved, that spending bill would be the largest since the 2020 COVID relief bill. That's according to the Congressional Budget Office. So for some context here,$153 billion was given to defense this year in the one big beautiful bill, and an anticipated$1.5 trillion is requested for fiscal 2027.

4:14That's a more than 50 % boost from the most recent budget. Yeah, I think the bottom line is we're talking about lots of money, big increases. And I know in reading in for this and writing this, the two of us coming across things too where folks were saying in the government that the idea of$1 trillion budgets annually for defense is maybe something that we could be seeing for years to come. So it's a lot of money. Now, somebody who understands this space is Sheila Kayalu. She's Managing Director in Equity Research over at Jeffries. She covers aerospace, defense, and airline sectors. We caught up with her a bit more than a week ago, just after her recent trip to Washington, D.C.

4:53for a hearing from senior leadership at the Department of Defense. You were in D.C. this week, right? Yeah, we attended a conference called the McAleese Conference. Jim McAleese is an expert in bringing folks from the Department of War together, whether it's Army Secretary, Navy, Air Force, and critical weapon systems. And the theme there, 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.

5:28And 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, 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, is to put forward frameworks on missile production, saying over the next seven years, we'll guarantee you production increases on a Pac-3 missile from 600 units a year to 2 ,000 units a year, which is a big revenue bump.

6:14And we will guarantee that for the next seven years. So can you build enough capacity to do that? Can they? 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 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. The president's comments about what Raytheon is doing, building four factories, Lockheed building five or six factories.

6:47Does that align with what these companies have said publicly? 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 % 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 me, well, you missed this one. Well, you missed this one. And I was like, well, there's so many opportunities to continue to invest.

7:20And I think that's one thing the government will agree on. 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. 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, Elbit and Israel.

7:55So there's a whole slew of ways to play missile defense and offensive missiles. So not just U.S., obviously. Yeah. And like, you know, I would say Haumet and Woodward are great ways to play it that traditionally people might not think of. Can I just ask you, what is the supply chain like for defense companies? Is it a global one? No, it's mostly in the U.S. It's U.S., but what the government's trying to do is a dual source in the U.S. So having multiple suppliers because the capacity increases are going to be pretty significant. So I hear you talking about the opportunity that these primes have ahead of them.

8:27Yet, as you mentioned, you still have a hold rating on RTX, Northrop Grumman, Lockheed Martin. What would prompt you to change those to buy ratings? I think the Department of War, one of the things that they've done is 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 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.

9:02He 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 renegotiate a contract term every year. 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 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?

9:38I'm just curious what you are hearing. 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 see invest. It won't be kind of wishy-washy, like we're only going up$5 ,000. It'll be$600 to$2 ,000, so the CapEx investment is 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. Yeah. Of course, these primes don't have infinite capital. And they're already spending a big chunk of their CapEx now associated with missiles.

10:14So if there's more and more needed, you could see the government get involved. Can I just ask you too, shift to drones? Are more drones? I think this war has been a fascinating—well, fascinating is a bad word to use because it is war. We've seen the way that it's fought different than previous wars. Yeah. 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? There's so much going on, right? So with Russia and Ukraine, I think you've seen 70 % of the fatalities associated with drones.

10:48But that's not the kind of drone warfare the U.S. 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 2000 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. How are you looking at magazine depth in the context of comments that we heard from the Secretary of Defense? He said in the Oval Office, missiles being shot down, shot are down over 90 percent since the beginning.

11:29One way attack drones down over 90 percent since the beginning. The U.S. 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? I'm not sure how Iran 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 in debt. $200 billion more is what? 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.

12:07We 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's really driven, like, this administration has been super supportive of startups, the defense tech names in the world. It's led by Andrel, 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. Hey, I want to bring in a question from our Wayne Sanders, who we talked to a lot about. He's down in Washington and part of our Bloomberg Intelligence team.

12:40But he said, which programs are most at risk of funding versus revenue due to execution or industrial bottlenecks? That's 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.

13:18And I think historically what's been thought of as areas that will be reduced is F-35, 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. Can you believe we're talking about the F-35 as being something of the past, given how much we spent on it? 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.

13:53So it's had a bit of a rebirth. Okay. All right. Do we have time for a quick question on airlines? Like, what do we need to know right now? I think, you know, basically this is a month of COVID for airlines in the Middle East. you're seeing capacity cut 80%. So a lot of work is being done on 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? Yeah, we talked about a lot of travelers like buying tickets in advance before this stuff kind of hits.

14:31I've been doing that. Lock the doors. We're not letting her go. We're just going to continue. We're going to, as Tom Keen would say, we're going to rip up the script. You are a Jeff. Thank you so much. Thanks. 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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16:47Let's create smarter business, IBM. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. You might say this past week we saw the U.S. war in Iran in a constant state of high stakes escalation diplomacy, with both sides seemingly signaling a desire to end the conflict. And yet they continued attacks from all sides. On that, we wanted to bring you two conversations that really got us thinking about after the U.S. war in Iran is over and what might be the future of the country.

17:26regime change, nuclear ambitions. Also, it got us thinking about the U.S. role in the world. I feel like there's a lot of questions about longer term, this U.S. war and Israeli war in Iran. What's the longer term impact? So let's start with Iran's future. And we did that with Ray Takei, Senior Fellow for Middle East Studies at the Council on Foreign Relations. On the American side, the president may be looking for an off-ramp with everything that has happened in the markets and so on. However, with President Trump, there's always a large number of options that he can consider. There's a lot of military deployments taking place in the region.

18:04And so what we have seen in previous rounds of negotiations in June and in March, in February, they were usually preludes to war. So this may be another one that what the president is saying about discussions doesn't meet the manpower that he's deploying. But he may be looking for an off-ramp from a war that is proving more complex than he thought. I suspect that Iranians, despite their narrative of success and triumph, are also looking for a way out of this. They have suffered a great deal. And they may be essentially trying to figure out how to extricate themselves from this conflict as well.

18:43So we'll see if this mediation is real and we see if it can produce some sort of agreement not to settle the conflict between the two nations, but at least some sort of an armistice for now that allows everybody to return to their corners. All right. So let's throw on top of that, Ray, about Iran's biggest Gulf Arab neighbors considering joining the U.S.-Israeli war. I'm trying to understand that. And help me out here in your understanding or thinking and your knowledge of this region. Did the region know, did Saudi Arabia know that Donald Trump was going to do this, was willing to go along, and maybe this is part of a bigger strategy, a plan?

19:21or are they just looking at it and saying, wait, this could actually be an opportunity for us to change the direction of the Middle East going forward? I'm just trying to understand the steps here. Or is it all just kind of happening in real time with no big strategy? I suspect the latter. I'm not quite sure if this is a very synchronized, thought out plan. And in terms of the Gulf states, before the war, they were essentially having a policy of detente with Iran and actually pressuring the administration not to engage in the conflict because the Iranians were quite clear about what they were due should there be an attack on them.

20:02They said they would regionalize the war and they would also target energy supplies as well as the passage to the Persian Gulf. So there was nothing surprising about what the Iranians did. There are some reports that the Gulf states are becoming more aggressive, but honestly, I suspect at the end of this war, whatever it is, they will return to their practice of trying to balance the two sides, having a relationship with the United States as close, but also not necessarily being antagonistic to the neighbor in the north, which would be grieved, injured, and quite angered. Well, the implication of what you just said, Ray, is that we don't see a very changed Iran following the end of this conflict?

20:46Oh, no. Iran will certainly change after this conflict. The Islamic Republic that survives this war is going to be very different than the one that went in before. For one thing, a large number of highly senior officials have been decapitated. And one of the things that has happened with this large-scale decapitation is you're beginning to finally see a generational shift where you begin to see a new group of people gradually coming to power. In terms of the military services, the revolutionary guards and others, you begin to see the second tier officials coming to power. And for them, their formative experience was not the 1979 revolution.

21:30They were too young for that. It wasn't even Iran-Iraq war. They may have participated in this last latter stages. For a lot of them, their most formative experience was the Syrian civil war. A large number of the Iranian military officials rotated through that Syrian civil war, about a thousand died, and the lesson they drawn from the Syrian conflict that what was built for a long period of time collapsed in a matter of three weeks. So they're likely to be more vicious in protection of their patrimony at home. The Islamic Republic that comes out of this war, should have survived, which I suspect it will, is likely to be more militant, but also more brittle in a sense that the elite that's coming to power are less competent in statecraft and management and so forth.

22:19So Islamic Republic is going to be very different. Always appreciate your insight. Ray Taka, he is Senior Fellow for Middle East Studies at the Council on Foreign Relations, of course, understands this region, former at the State department. I also want to bring on former U.S. Secretary of Commerce, Wilbur Ross. He's well known to the Bloomberg audience and to Wall Street, a longtime distressed investor. He has restructured over$400 billion of assets, everything ranging, Carol, from airline apparel to auto parts, home building insurance, marine transport, oil, gas, shipyard steel, textile, trucking industries, and more.

22:50Yeah, certainly understands the global market and certainly geopolitics and more and politics here in the U.S. Wilbur, so good to have you. He is chairman, president and CEO of Ross Acquisition Corporation. He joins us from Florida. Great to have you back on Bloomberg and to be talking with you again. Big picture. You told our scarlet foo, Wilbur, the action in Iran is long overdue. You're not alone in that thinking. We've heard other people on Bloomberg say that. You also believe that this war is temporary in nature, even if we don't exactly know when it ends. What do you believe is the long-term impact of this war when it comes to geopolitics, when it comes to global markets?

23:25How do you think about it? I think this war will make less likely armed conflict elsewhere because people have now seen that at least under President Trump, U.S. is willing to use its enormous military strength to deal with threats. That was not at all clear under the Biden administration nor under the Obama. So I think part of the reason so much trouble boiled up was that they viewed us as a paper tiger. But with what happened in Venezuela, what's happening now in Iran, and what's probably going to happen very quickly in Cuba, I think people have seen the sleeping dragon is no longer sleeping.

24:16Sleeping dragon is perfectly ready to put its fangs wherever they're needed. So I think the old saying holds true. The best way to avoid a war is if everybody knows you're fully prepared not only to pursue it, but to win. You mentioned Venezuela, you mentioned Cuba, you mentioned Iran. At this point, Secretary, who else has been put on notice? Well, everybody's been put on notice. I think ultimately China and Russia are on notice. While we haven't done much about invading the rush lines, probably won't initiate anything like that. We have provided support of one kind or another to Ukraine. And we certainly have been arming Taiwan.

25:08And even more importantly, we've been moving a lot of the semiconductor technology from Taiwan to the United States. So we're becoming both less vulnerable in the event something happens on Taiwan and yet also showing that we're very interested in it. You know, I find it interesting, Wilbur, that you went to Russia. And I just think, you know, and maybe you can give some insight into President Trump, because I think there are things that are said that seem to indicate a friendship, a camaraderie with a certain leader, be it President Putin. And yet, it sounds like from what you said that Russia needs to be kind of on guard when it comes to the United States.