Time for Kelly to Wrap It Up, Adm. Stavridis Says

with Prime Minister May and in Helsinki as well. We do this with a gentleman who did a tour of duty on one platform in Haiti, Bosnia and a Persian golf out in the real trenches of a projection of her U S Navy and Admiral Strevidis at the Fletcher School, Toughs University. Admiral your Twitter feed I featured this morning. It is the most scathing feed I have ever ever seen in the history of what Twitter wrought. I like in respect Ambassador Dan Coates. I am not sure how

he goes to work tomorrow. President Trump has lost his grip on reality and by the way, Mr Putin offering to help find the culprits in our election is like Edward Snowden, et cetera. And then you finish up on a classy Strevida's note by saying that the president's decision not to throw out the first pitch at tonight's Baseball All Star Game in d C now seems brilliant. Admiral, this is the number one question I've gotten on this trip. When do people start resigning and why don't they resign?

Discuss I'll start with Dan Coates, as I said in my tweet. I like Dan Coates. I respect him for were ambassador to Germany, former senator, just a terrific person by every regard um. He ought to resign and he ought to kind of lead the charge on resignations. I just think that to watch your boss, your immediate boss, and he goes into the White House almost every day

to brief the president on intelligence. To watch your boss stand next to the president of Russian avowed bitter hater of the United States of America, and UH through the entire intelligence community under the bus, UH screams for a resignation. So I think I think it's kind of got to start there, because I don't think the Congress can really do much. Tom, you are very close, particularly with General Madison, your wonderful book on leadership, which was the year a

few years ago, Admiral stevinus our General Madison. General Kelly held to a different standard of resignation. Can they not resign because they serve the nation in the military. I think two different cases, tom Um. First of all, they can resign, but I think both of them have a lifetime of standing up in the fire and continuing on, and I think both of them, probably part of them wants to do that. I think for General Kelly in the White House, it's probably about time for my good

friend John Kelly to wrap it up. Uh. In terms of General Maddis, I hope he stays, and I think he should stay. He's in a different category. He's not part of the intelligence community per se. Uh in his role is just so vital that I hope he stays, and I think General Kelly has got to be pondering his options today. Admiral Stavrida's I'm wondering if you could comment on the notion that perhaps Donald Trump sees something that other people don't see, and that his negotiating style

will yield results that we have yet to expect. I think we have to examine that possibility. But here's how I would approach Russia. We should confront them where we must, and that is on things like intrusions in our elections, support for war criminal like Assad invading Ukraine and annex and crimea. We have to confront Russia on that. But we should cooperate where we can. Can we work together on counter narcotics, on counter piracy, on counter cyber on

cooperation in the Arctic, on arms control. I think there are zones of cooperation. But to approach Vladimir Putin as the President did yesterday essentially as a supplicant um undoes any ability to confront him on the vital issues. So I think we need both. And I don't think that the negotiating style being displayed with Vladimir Putin gets us anywhere, because Putin will take everything you put on the table, put it in his pocket, and then ask for more.

But at the same time, the United States is outspending every country in the world on its defense budget, and President Trump has been vociferous in his support of the defense established, pushing for more spending. I think that he is in the right place, President Trump, uh in looking for modest increases in the defense budget. We don't need to uh double our defense budget or increased by even

ten percent. But he's looked for modest increases in single digits, low single digits that I think are appropriate to address readiness. The United States has an enormous global uh sense of what it needs to do in the world, and that requires a pretty big defense budget. But this gets us to another fallacy and the Trump approach, which is throwing the Europeans under the bus right before he throws the intelligence community under the bus. Europeans have the second largest

defense budget in the world. If we want relief on our defense budget, we're to be encouraging them, not rejecting them, as I see the President doing. Let's continue with that mostravitas, of course, with tough university in the Fletcher school. I can't say enough, folks about the briefings that you can get from the work of j. Stravitz. His book See Power, The History and geopolitics of the world's Oceans, will make you far smarter about the seas. Things we take for

granted that he has lived as well. In my Book of the Year a few years ago, the Leader's bookshelf is a set of writings by military officers, for the most part, uh their favorite books. And these are people reading, including General Maddis I believe in the book, and General Kelly as well. I can't say enough about the Leader's bookshelf. You go in, you pick out one to three or

four books. Mark Twain is in there, among others, but just a very valuable book to give you perspective in this time of economics, finance, politics, and of course our most interesting international relations. Right now, Ian Whittaker joins us some libering in London as we look at the end of Netflix. As we know and Ian, I just did a two standard deviation chart. Netflix is such a juggernaut. It's not even down to resistance. It's amazing. It's pulled

back this morning and it's still within trend. Has the back been broken of Netflix? Is unreal ball market? Is it just a quick blip along the road or is there something different this time? I think what we'll have to see is what are the results that come out from the following quarters. I mean, it's always dangerous taking warm quarters results and then extract lating across. Having said that, I think there will be some particular points of concern

for people in terms of longer term story. Very mind, giving the market camp this stock, which is still after they for over a hundred and fifty billion dollars, you really need some funchy assumptions both in terms subscribe to growth and also as well are pro growth moving forwards to justify that valuation. Now, what I think people will be particularly concerned about there's the court to subscribeer missed, which is not great. Then the Q three subscriber prediction

doesn't look particularly fantastic either. But going back to this point before, it's that the the argument that Netflix has been impacted by the fact of a lack of news shows. What's particularly worrying about that is it suggests that they have to continually invest in very expensive, very glassy drama, which quite frankly, nobody knows whether it will be a success until it's shown in order to keep that subscriber

momentum growing. The rest of the package just doesn't seem good enough to actually get to subscribe momentum that the analysts are expecting out there on the street. So, as I said, I think one quarters numbers, let's not put it into a trend. If this was a critique for next sort of two quarters or so, I think people would be very worried. So let's talk about a couple of things. And the first point you've made is the is the quarterly miss, and I want to talk about

the communication there ian. We didn't just miss, we missed by a million subscribers. When you missed that big, typically something's gone wrong with communication, both from the company towards the street and just the general visibility internally. How have

they got it this wrong? Gain well, I think they they probably if you're a company doing your forecast, what you'll obviously look you look at the trends that have been going on, both in terms of Q on q and then year on year, and you'll take a view on that. You'll say you've advanced into more markets than you were in previously. That essentially you've become a lot more they've got a lot more more products than therefore

that should drive growth as well. I think therefore, of a couple of things that would extrapolate from that one. Either the growth from their new markets hasn't been as good as they expected, or they've seen more of rappid the slowdown coming through in the way existing markets both of which is obviously sort of a Boying trend. They might argue that the World Cover has had an effect in the sense that the World Cup probably was a much better receive competition than many would have expected at

the start of the tournament. And I think that will probably be their main line of defense here. Having said that, so they should have actually, as he said, to get a million subscriber miss. Yeah it's okay. Let's say it was two hundred, three hundred thousand. You can probably explain it away by the effect of the World Cup missing by so much, because yeah, that's something like a sixteen

seventeen miss against their estimates. I mean, that does feel as though something a bit more drastic has gone wrong. You're trying to blame the World Cup for a couple of weeks in June, for a three month quarter, for a one million submiss seems like a stretch to me. Oh no, it doesn't. And I love you and I love bringing this up because John wants to be World Cup free and I just will keep it going with This is just slowly going to drain out the program

in the next couple of days. And I want to pick up on a point that the CFO David Wells made yesterday taking on Dennis most effective capital source. How much debt does this company's need to take on now to fund this growth in the future to fund that content. Well, it's very interesting if you if you look in terms of the numbers serve in terms of the cash burn on Netflix, the consensus cash burning is around three billion dollars over three billion dollars for this year, and it

rapidly comes down. But you're still looking at a company where it doesn't our most analysts forecast it doesn't get cash flow positive until one. I think it all boils down to the point that maybe four. If their subscriber growth is predicated on having to get a consistent stream of high margin show of high sort of cost shows to keep those subscribers in, your cash flow is probably going to be. People expects, well, they just have the generals,

the history. Well, yeah, we gotta leave it. We gotta leave it there. What I would say is it just seemed more of the Queen, I mean, clar fo, he's just got to get to work to well. Well. President Trump's proposed new tariffs on two billion dollars worth of imported goods from China. They escalate the US China trade conflict and intensify the debate about the economic and political implications of trade negotiations, but do they obscure the investment

opportunities and reality. Here to tell us more is our own Matt Winkler, Bloomberg Editor in Chief emeritus. Matt, always a pleasure, Thanks for being here. I want you to just describe a little bit about what you were trying to do in your latest column, to kind of peel back the rhetoric and explore exactly what is going on in the world economy. It is in a way much more domestic, particularly when it comes to a place like China. Yes, Pim,

thank you for that introduction. Always good to be with you. We're besieged. If you will buy headlines like Trump tariff barrage pushes China few to point of no return, that's a good one. China vows retaliation with you know, two

hundred billion dollars of trade threat. The reality is if we do something we like to do with Bloomberg, which has followed the money is what emerging market funds are doing best, and if emerging markets are in peril, which everybody from black Rock to Carmen Reinhardt at Harvard has been saying, they are what are these emerging market funds doing it? In fact, the best of them are investing

in China. They're increasing their holdings in China. And the reason for that is that the Chinese economy, which is now the second largest in the world after the US, is looking more and more like the US in the sense that it's domestic demand that's driving performance of corporate China, and corporate China that is driven by domestic demand as doing very well. And some of these funds, for example, have doubled their holdings in the past three years, going

from say sixteen percent China to almost thirty percent. And on top of that, they've been reaping fiferent annual returns the best of them. So that's all pretty good in the face of all the sound bites and um the rhetoric of trade wars. Let me just push you a little bit because one of the funds that you talk about in the piece is the American Century Emerging Markets Fund. It is down about seven and a quarter percent so

far this year. Does that underscore that this is a long term view or is there something else at work? It absolutely does underscore that's a long term view. And if you were to speak with as we did to Patricia Riberio, who is the UH woman who manages the American Century Emerging Markets Fund, she will tell you that, um, you know, she does not really pay much attention or

make decisions based on day to day UM events. What she does is follow the performance of the companies there, and it's increasingly difficult because finding the signal and all this noise is probably more rigorous than than it otherwise would be because there's so much noise. But she would tell you that the worst thing to do is to pay attention to the noise. No But yeah, I look at this, and what's the advantage your folks, is that mett wor cler works shouldn't pay and they really go

through the data on this. Are these Is this em fund out performance because they make more money when things are good? Or is that they lose less money when things are bad. So I'm not sure it's it's I'm not sure it's either of those things. Tom. It's more about UH companies that are poised for growth in China because the economy is so income, so dynamic, and because domestic consumption is such a bigger driver than it was

ten years ago. We you know, we live at a time where a lot of politicians, one in particular, who thinks that the equation is all about manufacturing and exports from low cost labor, when in fact, if you look at China, the biggest UH and longest term UH and most dynamic development is that companies there are catering increasingly to domestic demand, which has nothing to do with you know, who can make the most goods at the lowest cost

with within emerging markets. As you say, it's highly ideostocratic.

And back to stock selection. What did you learn about active funds versus passive funds, Well, here is an example where UH, the active actually is um perhaps much more thoughtful than the most advanced algorithm UH in the case of a passive fund, because the active manager is specifically looking at how the economy is changing in China and how China is becoming much more like the US, at least in this context of the stock market, and so

that thinking is probably ahead of where the passive investor is. Well, Matt, if you just look at the actions that the Chinese government has taken, they're trying to boost consumer confidence right, absolutely, And you know that's a very important point. And uh, she would uh in American century be the first to say, look, um, you have to pay attention to what the Chinese government does, and it's focused on because if you do, you are going to benefit because they are, without a doubt, the

invisible hand. Uh. You know, this is a different kind of economy. It's not capitalism as we know it in the US of A. There there is clearly a force, and that is the government. And so these managers are paying very much attention to uh, the government as it

attempts to pick winners along the way. Is it possible that all of this confrontation is verbal confrontation and rhetoric overtrade actually will embolden the Chinese government to keep things like the domestic interest rates low, uh, keep money and credit flowing, also a spur that domestic demand, which they were already looking to do in the first place. So, first of all, I'm totally unqualified to answer that question,

so I'm not going to UM. I can say that, UM, you know where things have benefited the economy, which is consumer discretionary. There's no question that the government will do everything it can to increase it up to the point where it is um treacherous for economic policy obviously. Uh, it doesn't want to see lending gets so out of control that bubbles are created and it leads to other worst things. So um yeah, I mean I think that

with trade wars are bad. And there's no question that the Chinese government and and uh just about every other government right now except maybe the US thinks this is not a good thing for the world and the global economy. That much we do know. Thank you very much, Matt Winkler. He is Bloomberg Editor in Chief emeritus. Uh. The column on Bloomberg Opinion definitely worth checking out. The entitled these

investors aren't spooked by trade wars. Emerging markets funds keep increasing their exposure to China and they're doing just fine. Paul Man of Forts in Jail. Stephanie Baker is not. She's with us right now on our set in London. Let's go to which is one of the forty seven fallouts that we've seen here in the last twenty four hours. Off as I watched Air Force one takeoff last night

from Helsinki tarmac, it's amazing. I mean, what Donald Trump was going back to let's look at the heat this obtain the Millbay Fair and Balance in the Washington Post. Mr Milbank really goes after the president as you would expect as well. President Trump has repeatedly informed us that we are quote a stupid country. He is a quote

very stable genius. Among the many stupid things, Trump is identified to White House staffers, the f e I National Football League, democrats of Filipbuster and journalistic step Stephenie Baker stupid, stupid, stupid as a wise man. One said, stupid is as stupid as meal Bank, among others fired up as well. What will be the ramifications? Is it even feasible we could get Senate centure? You know? Uh? I was a somewhat heartened to see some Republicans come out and criticize him,

but by and large the criticism was quite measured. I thought the most notable critique came from new gain Rich who said, you know, Trump trump defender, former Geoky Leader of the House said it's the most mysterious, most serious mistake of his presidency and he must immediately correct it. Two hours later, he tweets out, but Trump has been cutting regulations to help US business, so that kind of capsulates the dilemma and the attitude of Republicans in Congress.

Is this going to be more of a Charlotte's Film moment where people are outraged and that outrage pass is quickly and we get back to status quo? Or do they actually take action. I'm not seeing any indication that any real action will be taking. What is fascinating about this? And I've seen this every moment on my trip. People come up to me and they say what other Republicans doing, And yet I remember wanting Gate, they really didn't do

much right up until the end of the moment. Is that what you expect is this will just dragon and dragon? I mean, if this can do it, what what can change this dialogue for Trump and non Trump supporters? Yeah, I mean I think that you've seen calls for members of his administration to step down and protest um, you know, but it remains to be saying what do you do

in this situation? I think many people have felt reassured by the presence of people like gematics perhaps being a moderating force, but those those people aren't actually pulling him back and restraining him. And you do have to ask the question, why didn't they make sure that there was someone else in the room during that two hour meeting with Trump and Putin. We will never know what really happened during those two hours. Yeah, And I mean the

question is would it have even made any difference? But what could actually happen to the president himself beyond how he's impacted in the mid terms from this, if at all. Well, I think his attempts to change the conversation with the Russia investigation, this has dealt a serious setback to that effort. And um, I think his resistance to sitting down for an interview with Robert Mueller, I think that has been

undermined by this. And I think any attempts by Trump to shut down the Muller investigation I think will be challenged by COT to ask you with your expertise. So, Mr Manaford, he's in jail, which is a shocking thing in itself. Does that change him that he's sitting in jail. Well, we had reports overnight that his trial in Virginia had been delayed for a week, which is unusual. Um, and there has been some speculation that he may be negotiating

a plea deal. We don't know if that's the case, but that might be that might be one of the reasons for it. We don't know. Okay, Stephanie, Thank you so much, Stephanie Baker. Where this, of course Bloomberg senior writer with really expertise on Cyprus and banking here in your where of the money flows. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.