EW&L
April 24, 2026
What does war actually cost financially? Who pays it, when, and through which investments? Answer that clearly and a lot of what looks like confusing market noise starts to make sense.
That question ran through two recent conversations on The Exchange. Libby Cantrill, PIMCO's Managing Director and Head of Public Policy, approached it from the bond market. Lawrence Lam, founder of Luminary Investment Management and one of Australia's most respected long-term investors, approached it from individual companies. At EW&L, we sit in the middle, turning those big-picture ideas into practical portfolio decisions for our clients.
Together, the three perspectives point to the same conclusion. Conflict has permanently raised the cost of running Western governments. That extra spending will keep inflation higher than most investors expect. And the companies best placed to grow through this period are run by founders who think long-term and treat capital carefully.
PART 1: THE BOND MARKET HASN'T CAUGHT UP YET | LIBBY CANTRILL
Libby Cantrill's job is to watch Washington closely and work out what it means for financial markets. She reads the political signals, separates the noise from what will actually become law or policy, and maps the results onto interest rates and bonds. Her take on the current environment is not about which shares to buy. It is about the bigger financial structure that sits under every investment decision.
"Defence spending is one of the only things left in Washington with genuine bipartisan support. When both sides agree on something, it tends to stick." - Libby Cantrill | Managing Director and Head of Public Policy, PIMCO | The Exchange by EW&L
For years, NATO members largely ignored their commitment to spend 2% of national income on defense. Russia's invasion of Ukraine in 2022 changed that overnight. Now the conversation has moved on entirely. The question being asked in Brussels and Washington is no longer whether countries can reach 2%. It is whether 3% or even 5% is the new minimum. Germany broke with decades of fiscal caution and set up a dedicated 100 billion euro defense fund. Poland is already spending close to 4%, the highest share in the alliance.
Add it all up across NATO, factor in the defense build up being planned under AUKUS across the Indo-Pacific, and include the cost of actually producing all the equipment required, and you are looking at decades of higher government borrowing. Bond markets have not priced this in. As Cantrill put it: "The market has, for a long time, looked at fiscal deficits as a problem for later. War accelerates later."
Higher defense spending also feeds directly into inflation. It pumps money into the economy without producing the kind of goods that make people's daily lives cheaper. At the same time, countries are moving supply chains closer to home, away from cheaper overseas producers. Energy costs spike with each new conflict. All of this pushes prices up.
"These pressures don't just add up. They interact. Inflation may now have a higher floor. And if it does, central banks have less room to cut interest rates than most investors are counting on." - Libby Cantrill | Managing Director and Head of Public Policy, Pimco | The Exchange by EW&L
There is one more complication. In 2022, the US and its allies froze around $300 billion of Russian central bank assets held in Western financial systems. It was the biggest use of financial sanctions in history, and the message it sent was clear: holding your savings in dollars is not unconditional. Since then, central banks in countries like China and Saudi Arabia have been buying more gold and holding fewer US Treasuries. It is a slow shift, and it has real effects on interest rates and on what investors around the world can expect from their bond holdings.
BY THE NUMBERS
- ~5% Poland's defense spending as a share of GDP, the highest in NATO
- €100B+ Germany's new defense fund, a break from 30 years of fiscal caution
- $3T+ Estimated annual global defense spending by 2030
- 12% Share of global trade passing through the Red Sea, disrupted since late 2023
PART II: BACK THE JOCKEY, NOT JUST THE HORSE | LAWRENCE LAM
Lawrence Lam thinks about investing very differently from Cantrill. He is not focused on interest rates or government budgets. He picks individual companies. And his whole approach rests on one core belief: the most important thing about any company is not the industry it operates in. It is who is running it.
“When the environment shifts violently, founder-led businesses navigate it differently. Not because their founders are smarter, but because their incentives line up with the long term. They hold cash. They protect capital. They don't need a board meeting to make a decisive call.” - Lawrence Lam | Founder & CEO, Lumenary Investment Management | The Exchange by EW&L
Lam has spent years studying what he calls The Founder Effect. Companies led by their founding shareholders, or by leaders who act like owners, tend to outperform over time, especially during difficult periods. The evidence is consistent. In the market downturns of 2001, 2008, and 2020, founder-led businesses fell just as sharply as everyone else. But they recovered faster, grew more strongly, and took market share from competitors who cut too hard and moved too slowly.
The reason is straightforward. A professional CEO answering to a board and reporting quarterly earnings thinks differently from a founder whose own wealth is tied to the company's future. When things get hard, the professional manager often cuts costs and protects short-term results. The founder, more often, does the opposite. They keep their best people, stay patient on long-term bets, and treat the downturn as a chance to get ahead of rivals who are pulling back.
This matters especially now. Many of the companies building the technology that modern defense depends on are founder-run. AI systems that help armies make faster decisions, satellite networks that give commanders real-time information, autonomous vehicles that reduce risk to soldiers. Companies like Palantir, founded by Peter Thiel and Alex Karp, or Anduril, founded by Palmer Luckey, are not old-school defense contractors. They are technology businesses built by founders who are deeply committed to their mission and who still hold significant stakes in what they have built. That changes how they behave when times get tough.
“You want to back the jockey, not just the horse. The industry tailwinds are available to everyone. What is not broadly available is the compounding that comes when a founder-owned business catches a long-term wave and refuses to flinch when it gets hard.” - Lawrence Lam | Founder & CEO, Lumenary Investment Management | The Exchange by EW&L
PART III: PUTTING IT TOGETHER | THE EW&L VIEW
Cantrill and Lam are looking at the same world from different angles. Cantrill sees governments borrowing more, inflation staying stickier than expected, and bond markets that have not adjusted to the new reality. Lam sees companies run by founders outperforming through disruption and backing the kind of long-term bets that institutional managers avoid. At EW&L, we connect those two views into practical decisions for our clients.
Three perspectives, one direction
- Libby Cantrill, PIMCO | Government borrowing is rising fast and bond markets have not priced it in. Own shorter-dated bonds, real assets, and private credit instead of long-term government debt.
- Lawrence Lam, Lumenary Investment Management | Back founders who will not cut and run when markets turn. Defense technology, critical materials, and the infrastructure of modern security are the places to look.
- Craig Emanuel, EW&L | Geopolitics is not background noise. It is a core input into how we build portfolios. The question is whether your portfolio is set up for the world as it is, not the world as it was.
What this means for bonds and defensive assets
For a long time, holding long-term government bonds made sense as a safety net. Inflation was low, government budgets were manageable, and central banks could cut rates when things went wrong. That environment has changed. Governments are spending more, inflation is harder to tame, and central banks have less room to move. Holding long-term bonds as your main defensive position is riskier than it used to be. Shorter-dated bonds, floating-rate credit, and real assets like property and infrastructure offer better protection in the current environment.
The case for private credit
Private credit, where specialist lenders provide loans directly to companies rather than through banks, sits right at the intersection of what both Cantrill and Lam are describing. Banks have pulled back from lending to complex or defense-adjacent businesses, partly due to regulation and partly because their internal processes struggle with these types of borrowers. That has created a gap. Specialist lenders like Ares and Oaktree are filling it, and they are earning significantly better returns than equivalent bank loans would generate. The companies borrowing from them are often exactly the kind of growing, founder-led businesses Lam is targeting: too fast-moving for a bank, too strategic in their importance to be ignored.
Specific holdings that reflect this view
Several positions already in our client portfolios line up directly with this thinking. Palantir is one example. It is a founder-run technology company deeply embedded in defense and intelligence work across allied governments. IperionX is building titanium processing capacity in Australia from locally sourced mineral sands, a material that is increasingly critical for defense manufacturing and one that allied governments are actively funding. SpaceX, accessed through Scottish Mortgage, is building the satellite and communications backbone that modern military and commercial operations increasingly rely on. These are not short-term bets. They are long-term structural positions.
WHAT COULD GO WRONG
It would be dishonest to present this theory without acknowledging the risks. The most serious one is that conflict escalates in ways that no model can capture. A military confrontation over Taiwan, a large-scale cyberattack on Western financial systems, or a situation that crosses a nuclear threshold: none of these is the base case, but none is impossible. Events like these would disrupt markets in ways that go far beyond any investment framework.
A second risk sits closer to home. Australian investors hold globally diversified portfolios, and some of those exposures touch countries or companies that could get caught in expanding sanctions. Supply chains, minority ownership stakes, and counterparty relationships all carry this risk. It is not always visible and it needs to be actively managed, not just reviewed once a year.
The third risk is what Cantrill calls the bond vigilantes. When governments borrow too much and inflation stays too high for too long, bond investors eventually push back. They sell, yields rise sharply, and borrowing costs go up across the economy. "They're not gone," Cantrill told us. "They've just been very patient." When they do return, the adjustment tends to happen quickly and painfully.
THE LONG VIEW
The investors who came through the market disruptions of 2001, 2008, and 2020 in good shape were not the ones who correctly predicted what would happen. Nobody predicted those events with precision. What they had in common was preparation. Their portfolios were built to handle difficult environments, not to bet on a specific outcome. The same principle applies now. Nobody knows exactly how the conflicts in Ukraine and the Middle East resolve. What we do know is that the financial consequences of permanent conflict are already flowing through bond markets, inflation data, defense budgets, and supply chains. Portfolios that account for this will be better placed than those that are still priced for a world that no longer exists.
