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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. So here's the lacest
this morning. The US amassing it's the largest military build up in decades around around with current and former officials saying the Trump administration appears ready for strikes on military and strategic targets. Joining us to discuss as Stephen Kirk, the senior Middle East Fellow at CFR. Stephen, welcome back to the program. I asked Jonathan, our colleague, what does success look like? Struggle to answer, think most people do. But there's an additional question we've all got to ask
as well. What is success and are the risks of pursuing get worth it? What's the answer to that, Stephen.
Well, first, on the question of success, the success is anything that President Trump defines it as, and I think that that's the issue here, and that's what I think people are struggling with. He operates in a totally different foreign policy level than most of us who have grown up around the US foreign policy establishment, which is, he could very well order the strikes, and however they come out, he'll declare it a success, whether it's regime change or
attacking the around nuclear program. Now you asked a very important question about the risks. The risks are, of course, one that it does not work, and that the regime remains in place, retaliates against American partners in the region, fires on American forces in the region, and we're often
running into a broader regional war. That is, I think the worst case scenario for the United States of the Iranians are greatly weakened, but the Iranians still have the ability to cause a lot of trouble around the region. So if the United States goes, it's going to have to be sure that it's going to be able to affect the kinds of changes it's seeking.
The question is what.
Are those changes? Is it removing the nuclear program, which by the way, last June the President said was totally obliterated.
Is it regime change?
Is it going after the ballistic missile program as the Israelis have been advising. We won't know until if and when he orders those strikes.
Stephen, If there is a strike, what do you expect the Iranians to do immediately in terms of retaliation?
Yeah, they have been full of bravado. In the last week, they conducted an exercise for several hours in the Strait of Hormuz, a very strategic waterway that connects the Persian Gulf in the Indian Ocean. They have threatened to rain missiles down on Tel Aviv. I think that that is probably the most likely response from the uron Ins, which is why the President has ordered the USS Gerald R Ford and its carrier Battlegroup into the region.
That group of ships, along with.
The USS Lincoln, provide and augment air defense systems for Israel's already robust air defense systems and provides air cover for America's partners in the Golf. But the Iranians are limited in terms of their ability to take on the United States. So that's why it seems likely they'll use what remains of their ballistic missile force to try to do a lot of damage to Israel and perhaps other partners in the region.
When the USS Gerald r Ford arrives this weekend, it's going to be a massive military build up. Do you think that build up is enough for the Ruddians to come to the table in earnest on the three top issues this administration has outlined ballistic missiles, nuclear as well as money to proxies.
Well, that would probably be the best possible outcome for the Iranians, But so far, at least publicly, they are digging in. They are saying that they will retain their right to enrich They're willing to negotiate enrichment around the margins. They've come up with some ideas about a pause, which really doesn't matter shipping enrich uranium out of the country. But I think the theory is a mass a lot
of force. If the Iranians don't capitulate, then you really do have to use that force, because otherwise your credibility is blown unless you use it. And the President has been clear they either come to terms within the next ten or fifteen days or he's going to use that force.
What did you think the outreach has been between the administration and allies in the region, Saudi Arabia, UAE, and Israel as well on the oil front, do you think the OPEC members if Iran starts to strike some tankers or close the strait of her moves, are they willing to get some more exports on the market to keep prices down.
Certainly think that the Saudis and the Amoradis, who have said that they will not participate in American strikes on Iran, will definitely play ball on the oil front. First, I think there's a lot of American force in the region, so whatever disruptions there might be to the oil market, it'll be temporary. But of course, the Iranians have been putting oil on the market despite being under heavy sanction.
But I do think we are at a moment where the Saudis and the Marats, despite Saudi financial and fiscal troubles, would play ball if it does mean a positive change to Iran.
How close is coordination right now between Israel and the United States, Because, as you said, if there's going to be a retaliation, it's going to be across the Israeli skies.
Yeah, and there is a very significant amount of coordination. There has always been a significant amount of coordination, and at these moments, the United States and Israel are working hand in hand. The Israelis has said that though this is going to be an American operation and they are going to be the wingman for the operation, there's also a close coordination with other members of SENCOM. If you look at where the United States is moving assets, it
is throughout the region. So countries, although they are somewhat reluctant to publicly say that they support or will participate in this operation should it come to pass, are nevertheless keeping up with their responsibilities to Sencom and opening access to their bases and allowing the United States to operate from those bases.
Stay with US. Multilanberg surveillance coming up after this. Let's move on.
Let's turn to Netflix, the company's co CEO Ted Sarandosk, countering a key complaint in the High Stakespencil for Warner Brothers.
We're going to keep Warner Brothers running pretty much like they are today. And in fact, it's even quite better for theaters because now they are going to be in that business and own a theatrical distribution entity. We're going to take some of the Netflix films and put them through that as well, So it's very likely that you'll have even more outcome of high quality films or the theaters if this deal goes through.
His comments coming is the Justice Department assesses the deal's impact on theaters. Alisha Race of Wetbush Securities writing, we believe that Netflix can create jobs, boost production, and offer consumers more value at a reasonable price. The Netflix deal is superior to paramounts guidance. Alisha joins us now for more. Alisha, welcome this tracks on is it becoming a distraction for the stock.
It is a distraction for the stock. Absolutely. The issue is that Netflix is perfectly well balanced as a company without the acquisition. It has significant growth opportunities, particularly in advertising. Now this certainly would help if they got the deal through for long term growth, especially if they're able to leverage their new advertising vehicle throughout Warner Brothers as well.
I have that global growth, but they don't need it, and it's certainly been a distraction and has weighed heavily on the stock. But ultimately, you know, we do think you know, Netflix will be okay without this deal, and the regulatory headwinds are you know, significant.
Well, Alicia, let's talk about why you believe they'll be okay, and you alluded to it. Do you think we're underpricing how their position to take advantage of a big rebound in global add growth?
Oh? Absolutely, yeah, you know, and I think without the deal the shares would have been okay. You know, they did have a bit of a hiccup a couple quarters ago with their reporting just because you know, the expectations are enormously high, you know, for the stock because they've bet you know, so healthy for so long. But the AD opportunity is growing. They're adding more capabilities throughout the AD stack, and the ability to do targeting on a
global scale is significant with all of the users. So I think a lot of that performative marketing capabilities that they have or will have in our building are wildly underappreciated at this point.
Because everyone else is looking ow swear. So let's talk about the set one feats release. As you know of the hold up and closing this deal. One aspect of all the complications theatrical releases, have they got a pr problem?
And what are they doing to counter that now.
Well, going on Bloomberg yesterday and on Matt Belanie's The Town podcast, Ted Srando's I think dispelled some of the concerns around that. You saw, you know, Sean Gamble, the CEO of Cinemark the other day on his earnings call, noted that, you know, the forty five day window that was promised, it wasn't clear, you know, is that going to streaming right afterwards or is that going to go to the t VOT window where you can buy a rent.
The actual windowing matters a lot to Hollywood, and so Ted Surrandos did clarify that yesterday that he does intend to take the titles to t VOD before the streaming window, and that helps a lot. They have an opportunity Netflix does to show Hollywood the real intent. They have Narnia coming out later this year. They have it set for an exclusive Imax release and then going to streaming directly.
If they change that to you know, an Imax exclusive release and then created a wide release for that with a t VOD window, perhaps that would give Hollywood a lot more backing for this deal. This would create a lot less friction.
Do you think they need to do that to really show Hollywood that they're committed to theaters.
I think there's still a lot of skepticism, you know, even with those promises. The skepticism is that they'll do that at first for the first few years, and then they'll shift back to their old ways. And so doing that with Narnia where they don't have to, I think that would create a lot of goodwill.
I think it's obvious why people think that. Remember Netflix was the blockbuster killer. You get they used to get the DVDs in the mail. And what's the point then, why you want to go to a theater? You say in your note, The bottom line is that Paramount Skuy needs this deal along Netflix does not. Why does Paramount need this deal?
Well, Paramount needs it because they you know, they're struggling to you know, get to profitability and they need more you know, theatrical and they'll be out. They'll have to cut costs though you know, they're cutting costs pretty significantly right now with the current integration, and so you know, looking for growth in this market, especially if they have the linear TV deal, and especially if they bring on
the Warner Brothers linear as well. You know, there's just a lot that needs to be cut, and there's not a lot of natural growth in that market particularly, so Paramount will have to build on its theatrical releases and build in other areas of the business, and that's not necessarily easy to do organically in these in its market.
They should just to wrap things up.
Can I get your thoughts on the other threats to the studio business in this projection for the price of content? Given the amount of AI initiatives we've seen developed more recently, and we've all seen these examples come out in social media of people just making their own movies. I have to say started out not so good, and now at the moment, from what I've seen over the past few weeks, things have moved on pretty quickly. What are your thoughts on the trajectory of things?
They are moving on pretty quickly. But you're seeing the studios come out vehemently against this and you know, putting out some c syndicist orders. This isn't going to fly because the issue is that those models were learning based off content that they shouldn't have had access to and they certainly didn't pay for if there were deals in
place that they had paid for to teach those models. Sure, but a lot of the AI models are based on content that you know, they shouldn't have had access to, and they certainly didn't legally, and so there are a lot of ways for the studios to protect themselves against this, and hopefully that's swift enough to be meaningful over time.
Though for the studios. Do you see reduced in the price of content?
Sure? I mean, just as you know, user generated content has become more and more popular, it creates an alternative, certainly to more expensive content. But you know, really it comes down to what's the most compelling, and so I think, yeah, these kind of combinations like you see, you know, Netflix wanting to do with Warner Brothers is more meaningful because you know, there are a lot of content alternatives out there.
But if studios are able to leverage that to get better content to screens faster, that can certainly, you know, thwart some of those AI efforts.
Stay with us more Bloomberg Surveillance coming up after this stocks adding to losses after snapping a three day winning straight to Chiney contownary of more can standing investment management writing. We see a shift from concentrated sources of growth and return to a greater dispersion and wider set of opportunities both within the US and across global markets. Jatania joins
us now for more. Jatania, Good morning. How are you considering developments in the Middle East and the risk of version we're starting to see and the moving crude off the back of threats of military strikes in Iran.
Yes, I do think that the probability of that is clearly rising. I do also believe that the Middle East is now one of the Middle powers as you as you can see that region between the western and the Eastern hemisphere which is getting dominated by US on the west and China on the east, and that region is becoming very critical from a logistics standpoint, from a trade capital standpoint. So I do think that the higher likelihood of tensions in that is going to cause some market volatility.
Gapolitics is traditionally very very hard to predict, so I'm not going to put you on the spot and ask for prediction. I'd like to go through a range of scenarios. One in particular, if we do get another spy car and crude, and yesterday we've already seen a move of almost twenty percent on crude, whether that would upend some of the cyclical traits that a lot of people have gained some enthusiasm for coming into twenty six.
I think the most important manifestation of an increase in oil prices will be on the CPI, and I think that that the inflation outlook, which has been relatively okay even the expectations of core PCE in our models, is about two point seven percent if assuming crude prices at these levels. So I think that can really be detrimental to the inflation situation, which then leads to the rate story and therefore cost some of the cyclical traits unwinding.
And so that's something to keep in mind. But I do not think our base case view here is there is still supply. There is still opeque capacity to supply oil, so there could be an interim move, but I think overall the demand supply situation is not justifying a spike in prices once the dust settled.
Could it, though, galvanize the hawks on the FED to potentially want to continue their weight and see mode or even hike.
Yeah, I mean I think that you know, the interest rate expectations in terms of two cuts are the maximum we can get, and based on the current CPI and the PCE at two point seven percent, as I mentioned, I think that at these levels one can expect maybe a cut or maybe none. So that will definitely be an issue for FED cuts.
When do you have your first cut price ten?
Next year?
Next year, so this whole year will be weight and sea mode when it comes to federal reserve, is that even possible to Kevin worship the Fed?
Well, you know, I think it's going to be a function, as I said, of inflation, but also employment and that clearly there has been some stabilization, but if you're not out of the woods there, so there will be an equal emphasis there. So I think we could definitely see a cut. But the fact that QT is over and the FED is expanding their balance sheet that may be under question under wash because he has not been really a proponent of that.
Let's down equities on the equity side. In the US, the rually stored at the index level, and we can see that the SMP within around two percent of all time highs. It's taken off elsewhere Japan's South Korea. South Korea has had a massive move yere today and AM equities. Looking at the AM equity story for year today, double digit gains so far. What's happening there? What am I buying? What's the story at the moment, what's the best.
I think you're buying uncoorrelated sources of alpha outside the AI trade and the maximum juice on the AI trade, which is the AI enablers. So in Asia, it's a lot about the semiconductors and network working equipment, exports, the capex that's coming with those exports, and the networth effect
that's happening with the buoyancy and exports. In pockets of Latin America, you have a commodity tailwind because a lot of these countries are actually in the critical mineral supply chain and copper, in uranium and all that we need to power this AI story. And then in Eastern Europe you have spillovers from pockets of Europe and the stimulus there.
So the core versus the periphery versus Eastern Europe. I think the smaller cap countries look interesting, which are in the emerging space, So different sources of drivers across different regions which is powering this. And lastly, the monetary and fiscal orthodoxy in the EM world has been much more superior than the DM world. So that is showing up up in terms of central banks cutting rates, in terms of fiscal balances, being in a much better situation than the developers, especially the US.
When you look at the bankdrop, how much of it is a cyclical story versus secular?
Is it a mix of.
Both, It's a mix of what I'd say. One interesting theme that is developing in North Asia specifically, which seems to have structural legs, is US will not be able to really onshore everything, right, whether it's shipping some electronics, biotech, automation robots and that supply chain, the autonomy supply chain. They won't buy from the China, but they buy from North Asia which have exports similarity like China, and where those vendors will be US preferred in terms of supply
of all these things. So I think that's another area outside SEMIS and tech that is seeing momentum in terms of the markets.
So you want to be exposed to those What potentially are these partners when with the United States when it comes to national security and core features of the AI.
Trade right, and even like shipping in autonomy. Look at the about density in China compared to the US, so the second derivative place of sensors and lied doers and you know everything that is in the supply chain of autonomy, which is coming on the factory floor in the low low altitude economy in space. So yes, I think Korea Japan are some interesting markets there to source a lot of this because China is going to not be the preferred vendor.
Do you think the midterms will be a catalyst to potentially pour money back into the United States because there'll be loose surfaceco policy.
The interesting thing is that, you know, there has been the Americanization on the trade side, where regional trade blocks and trade deal and are being made. On the capital side, interestingly, we're still seeing a lot of FBI come into the US. So I think that is because part of the trade negotiation has been bring capital back. You know, I was at a healthcare conference. A lot of the companies said we're bringing manufacturing backs. I think that seems to happen
and will continue. But I think the big thing on the midterm is what has a Democratic win of the House mean. You know, we've seen a lot of Trump trades in the market. Does that come under question? You know, a goal is a trump trade in regional banks and deregulation, So I think one has to be really discerning because that could have some sentiment impact tactically in the market.
Then the financial story is vulnerable.
I don't think the financial story is vulnerable because I do believe that the consumer and the private sector from the banking side, is delevered in the US. It's there's no excesses, the accesses are citing more else, you know, in private probably, But I don't think it's vulnerable. But I think there has been a decent momentum trade there and one has to be just discerned.
Can we finish on that in private markets?
So I'm not going to talk about the story too directly because I know I imagine you can't talk to it directly either.
I'll talk about it in general terms.
When you start to see redemptions and certain fund struggle to make redemptions, people start to have concerns about what's developing. And the story this morning, of course is blue out and the stock is down again by three point seven percent. Do you see risks of contagion broader systemic risk emerging care or is leveraged so much lower this time compared to say seven, Oh wait, you can have pockets of instances like this that don't necessarily mean we've got bigger problems around the corner.
Yeah, I don't think there has been excessive and a systemic crisis in the making here. Of course, that market's grown because the banks have retreated due to all the regulatory issues. Some of that will with the deregulation, the banks will come back into that space. So the returns you made in private credit in the last few years, maybe you cannot make those same amount of returns. But there have been very strong players in this space, and I don't think this will lead to a systemic crisis.
But definitely there is more competition in that space coming from the traditional banks.
Given how much though this economy increasingly has become dependent on being powered by private market, do you think the economy in general could be vulnerable to a tightening of credit conditions.
I really don't believe there is a systemic crisis here, because in the history of markets, there is crisis only when there's excessive leverage, when credit grows way above GDP. You know, the half hum rule is when credit grows twenty percent more than GDP over a five year period, that is a red flag. I don't see that in pretty much many pockets of the world, Like you don't, a lot of the credit side. There's been de leveraging.
So yes, you know, there's been retrenchment on the households and the corporate side of in traditional banking channels, and some of these pockets have grown, but there is not like an excess in terms of empirical numbers.
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