WEBVTT

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Here's the thing.

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AI is the most appreciated tailwind in
markets right now.

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Valuations reflect it,
capital flows reflect it.

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You can't sit through any earnings call
without hearing about AI.

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So the more interesting tailwind,
the one I think about a lot is the one

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that isn't priced.

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And my answer is this synchronized fiscal
expansion for defense and economic

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security,
it's happening simultaneously across

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every major economy in the world,
Not one country doing it, not one region,

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all of them all at the same time for the
first time since the Cold War ended.

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That to me,
is the most underappreciated tailwind out

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there.

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Over the next 12 months, and frankly,
over the next decade,

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the scale is worth pausing on.

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European NATO countries increased defense
spending 20% over the past year.

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That's the sharpest acceleration since
the Berlin Wall came down.

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Germany is doubling its defense budget by
2029.

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The NATO summit last year committed the
NATO alliance to 5% of GDP defense

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spending by 2035,
and that could lift European defense

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spending towards €800 billion a year by
the end of this decade.

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Pile on the build outs that we're seeing
in the US, Japan, and Korea,

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and you have global military spending
nearing $3 trillion.

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That's the highest share of global GDP
since 2009.

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Pretty straightforward order books in the
defense hardware, munitions,

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dual use technology and industrial
infrastructure.

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They're filling faster than supply chains
can absorb,

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and markets are still treating it as a
geopolitical footnote that's

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missing the big picture over the course
of a decade.

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I think it's an even bigger story because
for 30 years after the Cold War,

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governments basically outsourced economic
security to the private sector,

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and that era is gone.

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What's happening now is sustained
government backstop investments in the

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technologies that will define the next
generation of growth, semiconductors,

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critical minerals,
next generation manufacturing,

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fusion energy, quantum computing.

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And there's a structural financing gap
between government-led industrial policy

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and the actual commercialization of these
technologies.

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This is what's called the Valley of death
and it runs somewhere between 50 billion

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and $100 billion each year globally.

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Now I do want to say this,
this is not a totally clean story.

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The IMF's latest World Economic Outlook
was pretty clear about the risks defense

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buildups of this scale.

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They're historically inflationary,
they tend to worsen fiscal deficits and

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they risk crowding out more productive
spending in healthcare,

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education and infrastructure.

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So a rearmament super cycle,
the one that we're seeing now,

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if it corners central banks into hiking
rates or it hollows out the productive

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deployment of capital,
that's not just a tailwind,

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it also creates its own headwinds.

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And so for me,
the question is not just whether you have

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exposure to this theme,
it's whether you have the judgement to

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capture the upside while being clear eyed
about the second order downside risks.