Pakistan Says Hormuz Deal Is Close; eToro CEO Sees 'Untapped' US Market

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2:50And just a reminder, the president said yesterday in the Oval Office that the strait is open now. Quote, the U.S. is the only one that has control of Hormuz. And quote, we control the strait 100%. Noam Raidon is senior fellow at the Washington Institute for Near East Policy. She joins us from Washington, D.C. Noam, I just want you to fact check this comment from the president yesterday. Does the U.S. control the strait 100 %? Hello there. I'm very happy to join both of you. First of all, let me give you a quick overview of what's going on in the Strait of Hormuz. Throughout this war, Iran has established a new navigational order.

3:29What I mean by that is the following. It is unlikely that we're going to go back to the maritime arrangement that existed in the Strait of Hormuz before the Iran war. Iran has gained immense influence in the strait. It will not let go of this leverage it has obtained easily. And my prediction is the following. Iran wants to build a new maritime arrangement in the Strait of Hormuz. The return to the old routes that were being used by commercial vessels, and by that I mean the inbound, outbound lanes in the center of the Strait of Hormuz, It is unlikely that we're going to return back to those lanes.

4:09Iran right now wants to control traffic, meaning it wants to control who enters the Strait via the Persian Gulf, excuse me, via the Strait of Hormuz and who leaves the region. This is where we are. It hasn't changed much since March. So, no, the U.S. does not control the Strait 100 percent? What we know is that Iran remains in control of traffic in the Strait of Hormuz. And this has led to new ways of trading in the region so that regional oil and gas producers and exporters can continue to move their energy products out of the region. Yeah. No, no. Very interesting because, you know, what markets are really waiting for at the moment is a return to how it was before the conflict started in the US and Iran.

4:57But what you're saying is essentially it's unlikely that we will go back to the way that shipping routes were working in the Strait of Hormuz prior to that. So how do you envision kind of the new normal for shipping in that lane? And, you know, what should investors be looking out for as a sign that, OK, we're actually making progress here? This is an excellent question. As I said, we have a new navigational order. What Iran has managed to achieve is the following. They caused immense disruption. What Iran now is trying to do is convert this wartime disruption into a lasting advantage. And this is the reason why Iran is holding talks with Oman and making it so difficult to reach an arrangement for a future government of the strait reformers.

5:46Why? Because Iran does not want to be included in any discussions where it does not play a central role, meaning Iran wants to be the dominant voice right now with respect to how the Strait of Hormuz will be managed in the future. With respect to what I mentioned earlier, I mentioned the old routes. These I'm referring specifically to the traffic separation scheme. This one was adopted by the International Maritime Organization in 1968. Iran does not want to return to those routes. And those routes right now are reportedly containing mines. Excuse me, they are reportedly containing mines. In June, the assessment was that there were around 80 mines and that getting rid of those mines was going to take a long time.

6:39And by the way, this is according to an international association of tankers owners. That was the assessment in June. And up until now, we don't have a clear idea about the mines in those lanes. Again, the lanes we refer to as the old inbound and outbound lanes that are not being navigated right now because of the uncertainty surrounding mines. My prediction is the following. Iran will not even make it an easy mission to completely clear those mines from the old lanes. Why? Because this means that we're going to go back to the old and traditional routes. Iran does not want that to happen. Right now, Iran wants to take advantage of this new maritime arrangement or order it has created throughout the war in order to create a lasting influence in the region.

7:27And last point is the following. Iran has always used the maritime domain in the region as a theater of operations, meaning it has always went after commercial vessels in order to retaliate against U.S. sanctions and even Israel. So we've seen Iran since at least 2019 using the maritime domain in order to retaliate against its adversaries. During this war, it has cemented this influence on the maritime domain. And finally, this is why I don't expect Iran to let go of this leverage it has built throughout conflict. Yeah. Yeah. All of us that you mentioned, of course, just had tankers basically finding workarounds, right, in terms of alternatives to transferring cargo outside of the Strait of Hormuz.

8:08But how much can these alternative routes realistically handle? And is it going to be enough to keep a lid on oil prices? Or are we about to see another breakout above$90 and beyond? This is another good question. As you mentioned, we've seen some workarounds, right? And these have included some pipelines in the region. But not all countries in the region have pipelines. Some countries have been doing better than others. For instance, Saudi Arabia, United Arab Emirates, they have systems that are completely different from the system that exists in Iraq. For instance, Iraq is a country that is struggling because it heavily relies on the Strait of Hormuz.

8:49Now, back to the workarounds. We've seen countries like the United Arab Emirates shuttling oil on tankers from within the Gulf region. And these cargoes would be transferred to other vessels that are waiting in the Gulf of Oman in order to receive those vessels. because some vessels are unwilling to navigate the Strait of Hormuz because of the very high risks. So in that case, some tankers just transferred the cargoes from within the Gulf. And in the Gulf of Oman, outside of the Strait of Hormuz, they transferred those cargoes to other ships. So this is one way. The United Arab Emirates has been leading this way of trading.

9:25And according to some market reports we've read and we've heard about, Even the ADNOC, which is the Abu Dhabi National Oil Company, has charted some VLCCs, very large crude carriers recently, in order to maintain the flow of energy throughout the strait of formals. So this is one workaround. As I mentioned, also the pipelines. But again, as you said, does this mean that this is sustainable? No. This is my assessment of it, of the situation. and we are not back at all to the oil loading average that existed before the war. When do you think we'll get there? It won't be an easy way back at all. I do not expect even if the war ends for us to immediately return back to normal.

10:14Iran will not make it an easy mission to do so. Back to what I said earlier, Iran wants to ensure that the influence it gained on the maritime domain helps it extract concessions, including from the United States. But Noam, we've talked to some people who have said that this might be temporary, long term, but temporary in the sense of, OK, well, we see what the world sees, what Iran can do in the straits. So now it's actually building infrastructure to rely less on the straits. So, you know, we've heard from some analysts say, OK, well, this could last five years, but, you know, in five years, we will have alternative methods of transportation to the Strait of Hormuz and it won't be an issue anymore.

10:56Is that correct? My own assessment, and this is based also on my own research and as a person who has been tracking specifically the maritime domain for close to 10 years now, you cannot completely get rid of the Strait of Hormuz. Back to Iraq. I'll give you Iraq as an example. Iraq heavily relies on the straight-of-formals. Iraq is talking about pipelines, but Iraq throughout the past year failed to implement those pipelines, to build them for several reasons, security, financial, and political. For this reason, Iraq right now is trying to talk with Iran in order to get permission from Tehran to let tankers carrying Basra crude oil from southern Iraq leave the straight-of-formals.

11:38for I'm giving you Iraq as an example because we are hearing a lot about pipelines from Iraq but we need to be realistic Iraq's key markets are in Asia the best way to get crude oil and heavy fuel oil from Iraq to Asia is via the Strait of Strait of Formals and not loading it in the Mediterranean then sending it to the Suez Canal down the Red Sea to the Gulf of Adan and then to Asia this is an example. Of course, pipelines, building more pipelines, expanding the pipeline system in the region is very important. You can have contingency plans. But to say that we don't need the Strait of Wormuz, we don't need Bab el-Mandeb, which is another critical choke point for energy markets in the Red Sea, I believe this is not based on solid data.

12:23Noam Redan, you got to come back and join us once again. This is a great conversation. We appreciate your time this afternoon. Noam Redan is a senior fellow at the Washington Institute for Near East policy. She joined us this afternoon from Washington, D.C. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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14:54And where do alternative assets fit into this? We've got Aaron Mulvihill with us, global alternative strategist at JPMorgan Asset Management. He joins us here in the Bloomberg Businessweek studio. Perfect timing. You've got this new report out, but it comes the day that we're learning more about this$500 billion commitment that NVIDIA is getting from some of the largest alternative asset managers. It fits kind of squarely into what you have in this guide to alternatives. How does it fit in there? It does, Tim. One of the biggest themes we have right now with clients that's coming up in every discussion is the amount of AI and technology exposure that's in every asset class.

15:30Not just the public markets. We're well aware the S &P 500. You've got 40 plus percent in the MAG-7. You add up all the utility companies, everything else. You're getting to 60 percent of the S &P moving on this AI theme. But now also private markets, we're seeing that ramp up in private credit and private equity with a lot of data center investment as well as other parts of the AI cycle. Yeah, well, you know, Aaron, it seems like everything's going well and dandy, right? Everyone's making money off of this based on the latest financing deal that we're seeing. But, you know, the fear over circular funding was a big theme over the last couple of weeks or months or so.

16:09So that seems to have petered off now that tech stocks are back. But when does that risk come back to fore again, especially in private markets where it's a little bit more esoteric in terms of valuations of assets in that sector? I think the broader risk, Christine, is this concentration in a singular theme. So everything is AI, wherever you look, whether it's the public markets, the stock markets, increasingly the bond markets. A report from J.P. Morgan's investment bank is expecting$2.1 trillion of issuance in investment-grade bonds to fund the AI build-out over the next couple of years. And so it's increasingly important for investors to be active, to work with active investment managers and asset managers who can diligence these increasingly complex bond issuances, stock issuances, as well as choose how much they want to be allocated to this particular theme across public or private markets.

17:06Are there alternatives that are not exposed to AI right now? You know, nobody wants sort of the AI. They're few and far between. You don't want to be in the private credits that's exposed to software, it seems like. Software has definitely had a pullback in the last couple of quarters. I would say in software, even in private credit, we're not really seeing a deterioration in performance. It's more concerns about what the future might hold for software as AI starts to maybe eat into the ability to create code, create competitors to software companies. But we're not really actually seeing this in performance today.

17:41When we think about alternatives, people don't want that sort of broccoli diversification of low returns. So where do we look for higher returns? We like the real estate market right now, commercial real estate. I would say it's important to be mindful of an increasing amount of digital infrastructure in the real estate space, the data centers. So that's a question you can ask. But I think what's important to keep in mind when you're investing in private markets, private funds, is portfolio managers have an incredible amount of discretion into how they build those funds up. They don't need to follow a benchmark.

18:13They're not following the S &P 500. So they can deviate and they can choose how much data center exposure they want to have if they want to completely avoid data centers in a real estate fund. And there's plenty of parts of the real estate market that we see as being very attractive without having to add to exposure in digital. Yeah, well, speaking of kind of preferences between this theme, I know that your group in particular actually prefers the electricity layer over the data center story at the moment. What is kind of the appealing aspect of that narrative that is perhaps underpriced by investors at the moment?

18:47There's a strong case to be made for the electricity layer of data center investing. And I think it comes back to that theme of investors wanting some exposure, but not necessarily the volatility that comes with direct investment in the AI theme. And so when you look at the power layer, we expect that electricity prices are going to continue to increase. We expect more consumption of power by the data centers. They're going to be 12 to 13 percent of the total U.S. power supply within three years. So a lot more power, a lot more consumption, but it's not the only thing driving the performance of infrastructure funds or private infrastructure funds because you've also got electric vehicles, you've got the electrification of the economy, you've got moving towards renewable energy, the need to replace the grid.

19:33All of these things can benefit the funds and their performance without having to be completely reliant just on the AI theme. Can you talk a little bit about shipping? Because this is a really interesting theme that comes up in your report. It is. And we're talking a lot today, of course, about Iran and the Strait of Hormuz. Shipping's an interesting one. To me, it's a little bit like surge pricing. If you're trying to come from downtown to here, the FDR is blocked off, then you've got to take a long way around. That's what we see in shipping. And so transportation companies are actually benefiting from these geopolitical issues, from what we're seeing in Iran.

20:07And you think that's sustainable? In the sense of this is going to be ongoing for a significant period of time. One, it comes down to how long the war is going to continue. But we've had an increased incidence of geopolitical issues over the last several years. If we close this war, there's going to be another issue before long. That's just sort of the nature of the world we live in. But another factor that's beneficial to the shipping industry, if we put that aside, is the fact that there's not a lot of idle capacity out there. Less than 2 % of the global shipping fleet today is idle. And so kind of back to the taxi analogy, there's not enough taxis to go around.

20:44And again, we have this issue of surge pricing, higher transportation costs, and that's benefiting the transportation operators. We even spent some time yesterday talking about the Jones Act, given the news from the White House there. Aaron, it's always good to see you. Thanks so much for joining us on Bloomberg Businessweek Daily. Aaron Mulvihill is Global Alternative Strategist at JPMorgan Asset Management. You're listening to the Bloomberg Businessweek Daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App.

21:16Or watch us live on YouTube. Big news. It announced to buy TradeZero, based in Brooklyn, for up to$231 million. We've got with us Yoni Asiya, the CEO of eToro. He's back with us here in the Bloomberg Business Week studio. So the numbers, you were saying you had a good quarter, and this is an acquisition that you think is a right, the right move, obviously, at the time. And what's the market getting wrong about this? Well, you know, I can't control the markets. I can't control the business. Q2 was another beat quarter. Great 9 % growth year over year of both top line and bottom line. 18 % exceeding actually market expectations of funded accounts.

21:56Huge roadmap coming in across AI in the company. We actually released a new app, which is taking the old app and rewritten 100 % with AI, with AI focus. and center around Toria AI agent, which is the Grok Frontier model. And we were talking now about Dan Pipitone from TradeZero and the team, a great team joining us here in the U.S. to Lidi Toro in the U.S. with a TradeZero acquisition. Yeah, let's talk about the TradeZero acquisition. Dan's been on our program. I used to speak to him all the time just a few years ago. So certainly a familiar name to our audience. Why buy TradeZero rather than build something internally?

22:36What does bringing on TradeZero do for eToro that you couldn't offer U.S. customers before? So when you look at our business, the vast majority of our business is outside the U.S. We have a huge franchise, Europe, U.K., Australia, Singapore, Abu Dhabi. And the U.S. a bit got left behind sort of the rest of the world for us. We're the big part of the business is. What this brings is, one, a great team based here in Brooklyn in the U.S. with a significant also franchise,$80 million revenues, and a lot of knowledge and experience in U.S. capital markets infrastructure. So a lot of the great products that we actually have outside the U.S., which include leveraged stock trading, long short.

23:19On top of long short trading, we actually created quantitative smart portfolios, which create hedge fund like strategies, market neutral strategies outside the U.S. So all of these products operate and work for E-Toro outside the U.S. And we believe that together with TradeZero, we can actually bring all of these products, including futures trading, which is a lot of our customers. We're trading oil, gold, silver during Q4, Q1. So all of these products will now be enabled to our customers through the integration with TradeZero. Yeah. How are you planning to kind of differ your approach when it comes to dealing with your international clients?

23:58Because, you know, I lived in London for almost 10 years, and the average retail investor there tends to be more conservative. They tend to prefer physical assets, whereas U.S. investors are really just very much into this. And so, yeah, how would you kind of differ to your approach now that we're looking at a broader base of international clients? So I think this actually shows the huge opportunity that we have, right? So eToro has been hugely successful outside the U.S. in places like Germany, Spanish, France, Italy, the U.K., across multiple, by the way, both geographies and products, 24-7 trading of both stocks from 26 different capital markets of commodities, indices, currencies, as well as investing, copying the top trades all around the world.

24:41We actually feel our products have a huge untapped market here in the U.S., but until 2025, until the IPO, basically, we just took a step back, waited actually for also the crypto environment to be the right environment here in the U.S., and together with the Trade Zero acquisition, we are going to double down on the U.S. market, introducing our U.S. customers and U.S. customers to basically the global community and the collective intelligence in eToro? You mentioned AI. And one thing that we're increasingly hearing more about is agentic trading. There was a great piece in Bloomberg just last week, a big take.

25:18Everybody should check it out if they haven't already about the way that some retail traders are harnessing this technology. eToro is allowing customers to use AI agents to trade autonomously, but that's within certain defined parameters. Give us an update on adoption and activity that you're seeing thus far. So first of all, just yesterday, we launched an official connector to Grok. So we have a great partnership with SpaceX. You can actually go now to Grok and click search for eToro, connect your eToro account, click. It opens basically an eToro single sign-on. And then Grok suddenly has visibility into your entire portfolio, into the portfolio of all of the rest of the traders in eToro and into the X feed.

26:00So you can ask something like, look at my portfolio, look at my X post, tell me what I'm missing in my portfolio. Now, we've launched Tori, our own AI agent a while back, which is also based on Grok. We launched also now Claude MCPs. And we are seeing more and more users are actually connecting AI. There was one missing piece, which we launched about two months ago, which is sub accounts, or we called it agent portfolios. A lot of people, including myself, were afraid to connect their entire account into AI. Now you can actually connect it just to a sub-account, to an agent portfolio, and say, let's say I have$100 ,000 in my portfolio.

26:39I want$5 ,000 invested, and I want this now AI agent to manage my portfolio autonomously. Now, the beautiful thing about AI agent is they never sleep. You can train them basically on everything. My, by the way, AI agent goes every day to universities across the globe, downloads research papers on behavioral economics, connects the data in eToro, and runs back tests on actual proprietary data of eToro. So we're seeing things that up until two years ago, only people in places like, you know, Renaissance and Millennium could do. Suddenly, we're doing it with our own quants, and we're building those tools for our customers to run basically quantitative trading and agentic trading as well.