Trump Backs Off Greenland Tariffs, Citing ‘Framework’ Deal

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1:39Carol Massar:Bloomberg Audio Studios. Podcasts, radio, news. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. All right, everybody, we begin this hour, though, with the most read story on the Bloomberg in the past 60 minutes. President Trump said he would refrain from imposing tariffs on goods from European nations, opposing his effort to take possession of Greenland, citing a framework for a future deal.

2:24Carol Massar:I put quotations because those are his words. He was reached regarding the island. So we're talking about the island, of course, of Greenland. So it was kind of like a wait-what moment for a bunch of us, because the president has been, for days leading up to Davos, talking about acquiring that island. So maybe he found an off-ramp. So let's see what Nick Wadhams has to say. Bloomberg News National Security Team Leader. Nick Wadhams is in the Bloomberg DC News Bureau. It was, Nick, it felt a little bit like a wait-what moment, Although we did have some market observers yesterday saying that, you know, the president's going to figure out a way out of this.

3:00Carol Massar:How do you read? What's your read on this? Right. I mean, it's it's one of those things that's a little bit shocking, but not entirely surprising. We've definitely been through this before where the Trump administration, the president himself, ratchets up pressure, says he's going to impose tariffs and then backs down right at the last minute. The big question is going to be what this framework agreement will be, what it will entail, what will happen to Greenland, because the president was quite explicit in his comments today that he wants Greenland as U.S. territory. So what the back down is going to be there, but also then, of course, what happens in the future, because we've been in this cycle so many times where he escalates tensions, backs down and then escalates tensions again.

3:45And it's a sort of rinse and repeat situation. So markets are certainly happy, but I don't think there's any indication, at least that I'm seeing, that we're anywhere near out of the woods and you won't see the president just ratchet pressure up once again as a negotiating tool if this framework deal, once the details become more specific, aren't really to his liking. Well, he did make a comment earlier today in his speech at Davos, Nick, that he wouldn't use force. And I'm wondering if, which is great, as you know, I just want to say like, we don't want conflict here. I think I can say that. But is there another way to do this if somebody who is not selling something says they're not interested in selling that thing to you?

4:31Like, I don't understand how to thread that needle. Right. I mean, to me, the most likely scenario is that you would see the U.S. put more military assets in Greenland. Of course, that's something that the U.S. has been allowed to do for many decades. In fact, over the decades, the U.S. has drastically scaled back its military presence in Greenland. And Greenland and Denmark have absolutely no objection to the U.S. bolstering military assets at bases all up and down the island and putting essentially as much as they want there. What you heard from the president today as well was this mention of Golden Dome, which is his so far unproven, essentially, missile interceptor system that he wants to put in place at a cost of many, many billions of dollars.

5:21So it's possible that what happened here is that Greenland, NATO and Denmark all sort of said, OK, we're going to be willing for you to station Golden Dome there. And that was enough to mollify him. But, you know, as usual with these things, it's not clear how much the president knows about the history of U.S. basing on Greenland, what he's allowed to do and what he's not allowed to do. So it's entirely possible, for example, that they presented to him this thing that might be seen as a big concession, but was something he could already do in the first place. So needless to say, we're trying to sort all that out right now.

5:58Carol Massar:Yeah, it's, my brain hurts a little bit, Nick, because I do feel like, are you laughing at me? He's laughing at me, Nick. No, but it just feels like. I'm just sad that your brain hurts. Where did we, what did we get? What did we achieve as a nation? And I just think about some serious situations that are still going on around the world. Some Americans would say, we're still dealing with a war between Russia and Ukraine, Ukraine an ally, right? Or, you know, we still have stuff going on in the Middle East. We still have stuff going on in Minneapolis, Minnesota, our home front. I'm just trying to understand the amount of time spent on something like this.

6:38Carol Massar:And I'm not quite sure what we got as a nation out of that and as an American, what we got out of that. Right. I mean, well, I think on the one hand, you have the president's view, which is he sees this pressure dialing up, ratcheting up the pressure as a legitimate and successful strategy. I mean, you look at NATO itself and he has one of the foreign policy achievements he has had, according to the administration, at least, is this idea of getting other NATO countries to commit to spending five percent of GDP on defense. And that's not something they would have done. Certainly not at this pace unless he had done that.

7:14So, you know, he may see this as something where the U.S. gets an increased presence on Greenland, has the ability to install Golden Dome, bolster its military presence and get, you know, portray this essentially as a win under the knowledge that a lot of people, certainly his base, are not going to look back and say, well, hey, you guys could have done that anyway. And you could have done it without all of this chaos and drama and brinksmanship with an ally. But, you know, you can be sure that he is going to portray this as a win. And the result may likely be that the U.S. will have an increased military presence in Greenland, which is something that folks on both sides of the aisle, there are certainly voices who would advocate that that's an important thing to do.

8:00Carol Massar:Yeah. And maybe all the cards are being laid out on the table. It may not it may feel kind of messy, but there's certainly a lot that's out there at this point. Hey, Nick, before we let you go, Article 5, the collective defense clause for NATO, just remind everybody when it has been invoked and who benefited from that. Right. Well, I mean, so the president has said repeatedly that the U.S. gets nothing from NATO. Obviously, the time that Article 5 was invoked was after the September 11th attack. And a lot of NATO countries came to the U.S.'s aid and you saw participation by NATO forces in Afghanistan.

8:36So that was really the big one. Of course, it would have been an extraordinary and chaotic situation if the U.S. had decided to attack Greenland and you would have essentially had to have had NATO invoking Article five against one of its own members. and then you would have essentially seen the total dissolution of NATO. So at least for today, January, late January 2026, we are not going to see the dissolution of NATO. But who knows what the president is going to say in the next day or two.

9:06Carol Massar:Well, investors certainly like that and probably like even more that we're not going to see more tariffs coming down. Nick Wadams, thank you so much. Nick, of course, Bloomberg News, national security team leader out there in our D.C. bureau. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

9:47Carol Massar:Life MD, it's just getting good. Visit lifemd.com slash goodlife.

10:17Carol Massar:is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Netflix shares tumbled earlier in the session by as much as 6%. Off their lows now, as we see some buying across risk assets late into the trading day. Netflix shares down about 2.9 % right now. The stock taking a hit after the company issued a disappointing forecast for earnings in the months ahead as it spends more on programming and works to close its$82.7 billion deal with Warner Brothers Discovery.

11:02For more, let's bring in Alicia Reese, Senior Vice President of Equity Research. She covers media entertainment at Wedbush Securities. More than$5 billion in assets under management. She joins us from Lake Oswego, Oregon. Alicia, welcome back to the program. You know, we were talking yesterday before the call about the idea of content spend sending shares lower. And it's like a story that we could have told about Netflix a dozen years ago, because this is always, you know, apart from members, I mean, we don't get that number anymore. That's what in the past has moved the company's stock. Is that what happened this time?

11:34Or is it something different? There are a few different elements here going on. So, you know, Netflix does give the engagement numbers now. And, you know, after not giving subscriber numbers for most of the year, they did give their subscriber numbers. But the subscriber numbers are really where we expected them to be. There was no surprise there. I think, you know, there was some disappointment in how much advertising revenue that Netflix was able to squeeze out of a quarter as big as Q4 when you had, you know, all those live events, including NFL games on Christmas, some boxing matches. and of course, Stranger Things, and you had a lot of people coming onto the service and a lot more engagement around those events, Netflix should have been able to get some pretty significant advertising revenue.

12:20They did get a decent amount. Advertising revenue did grow two and a half times year over year, and they do expect another doubling in 26 to about$3 billion. And that's satisfactory, but it's not exciting just yet. There's still a significant growth opportunity for Netflix in advertising. And I think the hurdle so far has been just that they haven't had the data stack and the attribution available for advertisers significant enough for them to really do all of the campaigns that they would like to do. They have great alternatives right now across social media and other connected TV items, but Netflix is really catching up on this.

13:01And I do think that they'll be able to exploit that opportunity in the coming year or two.

13:06Carol Massar:So advertising being the big surge, Alicia, when it comes to boosting the top line, the revenue line? Yeah, I think that's their biggest opportunity in the coming years. 26 is the first year where that's really meaningful. It's a meaningful contributor to its growth opportunity. And I, you know, the$3 billion mark that they set for themselves, they can easily surpass that if they get all of the pieces in place. And that excessive content spend or what might look excessive content spend relative to the engagement will look a lot more reasonable if a lot of that engagement is on the ad tier. Now, they said that they're planning to do some price increases in the year.

13:44And I think that's going to be mainly on the premium tiers, trying to urge more of its users over to the advertising tier, which is significantly cheaper. If they get a lot of that engagement on the ad tier and a lot more advertisers in front of them, that results in profitability. The$82.7 billion deal for Warner Brothers Discovery. Predict this for us. Does Netflix get these assets? The regulatory process is going to be long, drawn out, and very difficult. Why do you think that in this case? Yeah, well, there's two different sides of it. On the one side, there's the consumer side. It's going to be hard for Netflix to argue that the likes of YouTube, you know billions on YouTube are real competitors you know you do have some subscribers but it's a significantly lower portion not all media is going to be you know considered a competitor if you only have real competitors in there Netflix does have significant market share and will have quite a bit when they have HBO on the other side it's content as a content buyer it's going to consolidate power pretty significantly for, you know, against producers of content.

14:57And so it'll give Netflix almost too much, you know, collective power against those producers and how much they'll spend on content. So it does diminish some power in Hollywood potentially. And, you know, the prosecutors will be able to argue that.

15:14Carol Massar:Alicia, you've got an outperform. You've had an outperform for a while. I think you've moved around the target price. Right now you're looking for about 115 a share on Netflix. So that's some room to the upside. I mean, the stock right now trading just under$85 a share. Is it though, we just talked about, you stressed that the revenue is certainly going to be a big opportunity for this company, ad revenue growth. Is that what gets it to the target? Or are there other things? Is it also the completion of the deal? And if that deal doesn't happen, then what? What does the story, the growth story look like for Netflix going forward?

15:48Carol Massar:Is ad revenue enough or do they need that deal to help with that growth in the ad revenue? So my price target does not include Warner Brothers at this time, and it won't until the deal closes. Right now, I'm, you know, my assumption is that they're going to just continue operating as Netflix, at least for the next, you know, year plus during the regulatory process. So my$150 price target is one year out, includes only Netflix and its own, you know, internal opportunity with ad revenue growth. And so, you know, should that deal go through, that will, you know, significantly improve Netflix's ability to leverage its ad stack, which by then should be, you know, absolutely booming.

16:29So I do think there's a lot of upside opportunity with or without Warner Brothers at this point. Okay. What happens though, if a competitor gets it, you said there's still a lot of upside, even if, even if content gets more expensive. Yeah, that is the issue. Netflix has been making a lot of partnerships and content. They made their one with Sony recently. Of course, they have their content deal with Warner Brothers, and they've seen how successful that content library is for Netflix on Netflix. And so owning the content makes a lot of sense. It'll save them a lot of money on those content costs.

17:04If somebody else gets the content, it could potentially be more expensive. but Netflix buys that content, plenty of content from Paramount already. So, you know, it's just a matter of will Netflix continue to spend this much on, you know, procuring content through licensing deals and then producing its own content and a combination of that and a combination of international content as well. It certainly can. You know, it just would be a little bit more profitable, especially if they're able to leverage that content against a global, you know, base that that utilizes advertising. OK, so years ago, Netflix said all we're doing, you know, is sending DVDs to people and that's our business.

17:44Then they, you know, Quickster and the whole spinoff and that didn't end up happening. But then they're like, OK, now all we're doing is focusing on on demand streaming. We're never going to do sports. We're never do anything live. They threw all that out the window. They're doing everything right now. They're doing advertising. They used to say we'd never do advertising. What is left for Netflix to do, at least from a content perspective, if they're doing games, if they're doing sports, if they're doing these live one-off events, if they're doing the live not one-off events and getting actually rights to broadcast sports, if they're doing podcasts, what's left?

18:23Yeah, I mean, there's a lot left in terms of gaming, cloud gaming. They have a really big opportunity there. As cloud gaming becomes more pervasive on connected TVs, they have a good opportunity just given their global base and the number of gamers out there. They can do a lot with that. I think they could become a really important platform for gaming, similar to some of the consoles, they can operate as such, you know, licensing in a lot of really quality, you know, high quality gaming content, and then leveraging their own IP as they see fit. You know, there are a lot of other opportunities in sports, to your point, they don't have to, you know, they can do one-off events, they can do, you know, WWE, which has been really successful for them.

19:09They're going to do, you know, the baseball in Japan, I think that's a really important step for them. And it doesn't have to be global, it can be localized, they can also leverage their global base to bring sports that are not big in certain regions to those regions and, you know, create a larger fan base around the world. You know, take Gaelic football to the US, for instance, you know, that could work. There are a lot of different opportunities within those. I think podcasts, You know, the whole idea is to have content that will appeal to every one of their subscriber households and keep everyone engaged.

19:49And however they need to do that is what they're going to do. Alicia Reese, Senior Vice President of Equity Research, covering media entertainment at Wedbush Securities. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

20:06Carol Massar:This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defence, AI to entertainment and from startups to the magnificent seven. We highlight the latest stories of the people and companies pushing the tech sector to new frontiers and the politics that shape global tech markets. We do this all every weekday, then bring you the most important conversations and analysis in our podcast.

20:39Carol Massar:Search for Bloomberg Tech on YouTube, Apple, Spotify, or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech Podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Well, also on the president's radar is his move to ban institutional investors from buying single-family homes.

21:17The latest proposal from the administration to address housing affordability ahead of this year's midterm elections. He actually signed an executive order on this yesterday. The president addressed housing affordability in his speech in Davos earlier today. Every time you make it more and more and more affordable for somebody to buy a house cheaply, you're actually hurting the value of those houses.

21:37Carol Massar:Now, if I want to really crush the housing market, I could do that so fast that people could buy houses. But you would destroy a lot of people that already have houses. That was President Trump earlier today. Jonathan Reckford knows what it takes to build affordable housing. He's CEO of Habitat for Humanity. He joins us from the World Economic Forum in Davos, Switzerland. Jonathan, good to have you on the program. We spoke a lot last week about institutional investors owning single-family homes in the U.S., and the data are out there. It's actually a small percentage of the homes in the U.S. are owned by institutional investors.

22:13In your view, would banning these folks from owning single-family homes ease the housing crisis in the U.S.? Well, first, we're just pleased the administration is talking about housing. And I think the housing crisis is such a huge issue in the U.S. and globally. And I'm glad it's on the agenda here at Davos as well. And we would say that now that middle class families, children cannot afford housing, the more invisible housing crisis has become visible. You know, we haven't taken a stance on the issue that you've just raised. We still want to look at the details. There are certain markets. Nationally, it's a very small percent.

22:50There's certain markets like Atlanta, Charlotte, a few others where it's a meaningful percentage. But that's only one small piece of the broader housing issue. And what we really have is a supply problem. We have a massive shortage, particularly at the low end of the market starter homes. And so our view is creating a lot more supply on the starter home side would not actually damage home values in the middle and upper ends because we have such a shortage right now. In fact, if we work more on the demand side without increasing supply, we'll drive house costs up further and it won't really solve the housing crisis.

23:23So we need really a little bit of everything. We do need demand side solutions. But the most important thing is to increase the supply of houses at the low end of the market.

23:31Carol Massar:You know, I don't always understand. I mean, I understand giving developers breaks and tax breaks to build in certain areas that maybe need some juice and some help, right, to get it kind of back and bring back a community, bring back a city, bring back a town. But I'm amazed at tax abatements that still get given in areas where things are good without any maybe provisions to make sure that there is housing for everybody in the community, not just the wealthier folks. So how do we really fix this? I mean, I just don't understand. What's the incentive to developers or builders to really help out here?