Trump Says Iran to Suspend Nuclear Program, Open Hormuz Strait

21:37Carol Massar:I always feel like I look and I'm like, nothing to watch. Which is crazy, right? And I don't know whether it's being overwhelmed. My friend has this notes doc with all the recommendations that he shares with us. I'll share it with you. Don't we talk about the makeup room? What are you watching? What are you watching? It's also fun to look at someone else's Netflix front page because it's just so totally different. You're like, wait, that's the same service as mine? Yeah. And that's the ideal for them, I mean, to surface stuff that it thinks will keep you engaged. Hey, speaking of technology, that Netflix acquisition of Ben Affleck's Interpositive for$600 million, as much as$600 million.

22:12You're obsessed with this. I am. I am because the AI story is so important in Hollywood. it. Ted Sarandos yesterday on the call said, AI will give great artists better tools. Netflix has to thread this needle where they don't alienate creators, but also make sure they adopt these technological tools that allow for, I guess, things to be more efficient. How do you see this? I mean, I think everyone is grappling with this in the industry. All the studios are trying to walk that tightrope between, yeah, you don't want to alienate the creators who are very worried about AI replacing them. But at the same time, the history of television and film and animation all of that has always been this incredible mix of storytelling with technological advances.

22:53And, you know, you don't at what point do you cut off and say, oh, we're not going to, you know, play around with any new technology. Like, that would be crazy. We still be watching, you know, silent black and white films. Claymation. Gumby's awesome.

23:07Carol Massar:Gumby and Pokey are cute. Very cool. So I think the question is, who is going to be able to use this technology in a way that, clearly you can do it to create low-grade, cheap content that doesn't really move the needle for anybody. But can you use it in a way that actually inspires and pushes things forward? Netflix, like everybody else, is proactively trying to get involved in that and figure it out. you know I think part of it is you know special effects part of it is you know CGI adjacent but I think yeah it's still that's going to be the huge question for the next year three years five years ten years for Netflix fortunately we got Felix to help us figure it out Felix Gillette he's Bloomberg News Media Entertainment Editor also check out his book It's Not TV The Spectacular Rise, Revolution, and Future of HBO.

24:05Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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27:25Carol Massar: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. We had a question. It's something that we talk a lot about as we continue to watch wars around the world, even though it feels like we're making some progress, fingers crossed, when it comes to the war, the U.S. war in Iran. But we've been asking, are we becoming a war economy? And we ask this because President Trump has asked Congress to enact a$2.2 trillion budget for discretionary programs, seeking a massive increase in defense spending while also renewing, Tim, his push for steep cuts to domestic agencies.

28:08Carol Massar:Basically, big spend in defense, but a lot of other agencies, many of them, and the rest of the government getting cuts. The jump in defense spending is something that the director of the OMB, It's the Office of Management and Budget. Russell Vogt was grilled about by Democrats up on Capitol Hill this past week. Did you warn the president or administration officials that spending this much on defense would explode the deficit? Senator, I fully support this budget. The idea. That was that. Well, first, Senator Patty Murray, we apologize for that technical glitch there. That was also then where the glitch came in, represented Brendan Boyle, Democrat from Pennsylvania, just saying the idea that we're going to pay a 42 % increase in this military, in this Department of Defense, and at the same time cut Medicaid, Medicare, not pay for child care, all of these things that the American people need in the case of Medicare have paid into that is a reflection of priorities that are out of whack.

29:03Carol Massar:And then there was one other representative we wanted to bring to you, Veronica Escobar, Democrat from Texas. All of these are Democrats, so we do full transparency here, asking, what are you all asking for in order to fund the war in Iran? How much will you be asking? Again, asking this of the director of the OMB, Russell Vogt. He said, we're not ready to come to you with that request. We're still working on it. We're working through to figure out what's needed in the fiscal year versus next fiscal. Do you have a ballpark? He was asked. He said, well, don't have a ballpark. Would be more than 50 billion.

29:32Carol Massar:I don't have a ballpark for you. But we know the president's request is about one and a half trillion dollars. So Nick Wadhams watches this closely. He's Bloomberg News national security team leader. He joins us from Washington. Nick, I think we got to separate what the president kind of ran on in terms of where the budget is going right now. Also, because of I think it's fair to say there were a lot of people in his party who didn't want to see the Department of Defense enter into new conflicts separate from this. But what can we learn if we follow the president's budget and we follow the money?

30:07Well, I think you're seeing a couple of things here. One is that Trump feels that there really is essentially limitless appetite for increased defense spending. And he's getting very little pushback from that. I mean, obviously, the proof will be in the pudding because the president can make these requests. But it's ultimately Congress that has the power of the purse. So we'll see what happens when when the budget is actually put forward. But, I mean, the fascinating thing to me is that we really have sort of shoved aside any concept of balancing the budget or real fiscal restraint. And defense spending is a key indicator of that.

30:45Of course, the side element there is that, you know, some of these lawmakers may have dollar signs in their eyes as well. because if you boost defense spending by more than 50 percent and become such a massive part of the budget, of course, the way that that spending is done is it goes to defense contractors and bases and military installations that are spread pretty equally across all 50 states, which, of course, was intentionally done by lawmakers because they see defense spending in some ways as essentially massive subsidies to their own states. I mean, they all benefit from this. So, you know, in the short term, there's really no downside for a lot of lawmakers when it comes to a massive defense budget.

31:24Question is going to be in the longer term is the defense, you know, as the debt really starts to pile up and the deficit piles up as well. You know, when do you have to sort of reckon with the massive overhang and the debt that will be faced by the U.S.?

31:37Carol Massar:You know, but Nick, I do wonder when we ask, are we a war economy? Obviously, you know, World War Two, we were a war economy. right? And every effort was to make sure that we had what we needed to help in that fight, certainly from the U.S. perspective and, you know, with its allies. But are we becoming a war economy based on what the president is asking and, you know, where he is focusing on the spend versus where he is not? Well, I mean, what you're seeing is it's sort of exerting, I think, a war economy in some ways is exhibiting itself in more subtle ways. You're seeing the president exert a lot more pressure on defense contractors.

32:12The Defense Department is also exerting much more pressure. In fact, the Defense Department has become in some ways a sort of refuge for some of the China hawks in the administration, where they're looking to use loans and grants and other forms of financing via the Defense Department to try to rest supply chains for critical minerals and other things away from countries like China. Then you have the president obviously telling defense contractors, you know, no more money on dividends and stock buybacks. They want them to be more efficient. They want to use that money more wisely. So, you know, in terms of a broad war economy like you saw during World War Two, we're a long way off from that.

32:55But we have seen the president exert exhibit a much greater willingness to really exert his own influence on defense contractors and essentially tell them, you know, listen, if you want to do business with the government, you're going to have to do as I tell you. Well, perhaps not just defense contractors, Nick. There was a report in the Wall Street Journal earlier this week about the Pentagon approaching car companies and asking the CEOs of Ford and General Motors to potentially produce military supplies and weapons. It's like World War II. What happened during World War II in the U.S.? Right.

33:29I mean, we have seen some overlap. I think we are in some ways a little ways off from car companies producing munitions and things like that. But what you have seen, what's been documented by Bloomberg and many of our competitors, is this idea that there is some overlap and that you have car companies looking to partner with the Pentagon, with the administration on things that would be a little more, pardon the pun, in their wheelhouse. So, you know, tactical vehicles and things like that. You have seen that. But, I mean, it's also this broader element where you've really seen the walls come down between startups and the defense department, where the department is really looking to shake up the industry and rely on startups.

34:13There is just so much money here, as you indicated in the top of the segment, how much the president is willing to spend. And everybody is kind of jumping in looking for a piece of this. I mean, the Golden Dome Missile Defense Shield, very undefined. We're not clear what at all that's going to do, but just millions and millions of dollars in the pipeline to be spent there.

34:31Carol Massar:All right. Glad we could check in once again with you. Nick Wadams there on this Friday there in D.C. He's Bloomberg News National Security Team Leader. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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37:18Carol Massar: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. A global risk on surge swept Wall Street after Iran declared the strait of Hormuz completely open for commercial traffic, erasing much of the fear that had gripped energy and equity markets through weeks of the Middle East conflict. I want to bring in David Bush, the co-CIO of Trajan Wealth. The firm has$2.6 billion in assets under management. Like all of us, he's been watching these developments very closely.

37:54He joins us from Scottsdale, Arizona on this Friday afternoon. David, the president is talking about this like it's the end of this conflict. Markets are seeming to at least price it like there's some good news on the horizon. Is this the end of the conflict in your view? Well, it's to be determined, honestly. What we've seen over the last several weeks since this conflict started is this headline risk where we get a sense that things are starting to calm down. but then another headline or an escalation will happen. And then we're right back to where we were. But I believe that this is a good step in the right direction.

38:35And really, I saw just a headline just a few moments ago that Iran is saying like the Strait of Hormuz is open, but they want the blockade to move out of the way. So it'll be interesting to see what happens over this weekend. But these are all good signs pointing to a ceasefire and hopefully peace talks, permanent peace talks.

38:56Carol Massar:Hey, David, signs that you trade off of? Signs that I trade off of? Yeah. I'm just saying, like, is this what you're getting now? Is this something that you feel comfortable enough that you have enough transparency that you make some trades off of it? Or you think about kind of a longer term trade from here? Yeah, I'm generally a long term investor. And that's sort of our stance. But I will say that the sectors that have performed well or that have been beneficiaries, and I hate to use that term, but beneficiaries of this war is like energy and defense contractors and so on. Now, we're seeing a pullback in some of those sectors and a rotation back into some consumer discretionary and so on.

39:37But having said that, given where price of oil has been and where it's at today, we have to remember that even if we have a ceasefire, what we're going to have is a period of 12 to 24 months to rebuild that infrastructure that was taken offline due to the bombings there in the Middle East. So the price of oil, I don't anticipate that it's going to drop back down to pre-war levels. I mean, we may ever come back into that$75 range, but I would just stay invested long term and diversified. Not drop back to$60 a barrel ever or in the near future? I just think in the near term, like over the next 12 to 24 months because of that infrastructure.

40:20Then what are the implications of that? Well, it means that we're going to have that continued inflation from higher energy prices, which we saw in the latest CPI and PPI numbers. And that inflation has to permeate the economy. And unfortunately, it touches every sector of the economy. So I would expect that inflation related to energy costs is going to stay elevated and consumers are going to continue to feel that pinch of the gas pump. But ultimately, I think we'll get some relief here.

40:55Carol Massar:Yeah. I mean, if you look at, we've talked about this a bunch. If you look at crude oil futures, WTI, I mean, we're still looking at oil in the$72 a barrel range. So we're not anywhere close back to where we were prior to this war. So you definitely see a bit of a floor here, And that's going to certainly feed into a lot and certainly as energy as a trade. How do you think about, like along those lines, David, and this is something we talk an awful lot about here, or I have been certainly focusing on, but I think the rethink of supply chains and when it comes to crucial things like energy or rare materials or just basic commodities, like the world kind of rethinking what happens in times of geopolitical strains or conflict or wars.

41:43Yeah, that's right. And this has been eye-opening, especially when we look at some of the headlines coming across from the European countries where jet fuel price or jet fuel supply is limited. And there was a headline earlier this week that talked about they have maybe six weeks left of jet fuel supply. So you're exactly right. There are supply chain disruptions that have happened because of these geopolitical conflicts. And what that means is that we as a country have to be energy independent and less reliant on foreign sources of energy. and what that means is likely a portfolio of energy sources, everything from the typical oil, coal, natural gas, but also those green energy sources like wind, solar, hydrothermic, and so on.

42:40And I think that we have to become more energy independent so that if in times like this when we have geopolitical risks and supply chain disruptions that we can continue on as a country and not feel the pinch like we've had over the last several weeks. Yeah, I mean, I think a lot of people would agree with you. I don't know if the policymakers would agree with you right now on the renewables part, though. Right. And it's kind of walking a fine line or a good balance. But I think that at this point, we almost have to consider several different sources of energy, including nuclear, when we not just in light of the supply chain disruptions, but also think about the AI infrastructure buildout in these data centers and the power that's going to be required to electrify them and provide this AI technology.

43:33We're going to have to pull from several different sources. And I don't think anything should be off the table in terms of an energy source.

43:43Carol Massar:David, for something like nuclear, that is something I feel like, Tim, do you remember when we did, was it NJIT? And that's several years ago. Yeah, and Scarlett and Paul were there earlier this week. Right. And we were talking about different sources of energy. But when we did it a couple years ago, they were just, we were kind of shocked that, at least I was, that all of a sudden they were talking a lot about nuclear energy again. And this was, I feel like, even ahead of the AI build. Having said that, David, folks in the industry say it's a long time before you really start to see whether it's SMRs, the small modular reactors in terms of nuclear.

44:19Carol Massar:you really actually see them online and performing. So it's a little bit of a longer term play. Obviously, there's some old facilities that, you know, I guess can be rehabbed and up and running again. What's the advice to investors for you? If you've got clients who are saying, what's my play here when it comes to nuclear? Do you hold off a little bit because it's going to take a while for that to actually get online? Or is it something that is this too, you're long term, you said, and reminded us, is it too early, though, or too long term for investors right now? Well, I think that it's one of those sectors that we need to consider.

44:56And I think that right now, I think you're right. These small nuclear reactors, they're still years away from being put into production and online and usable. But at the same time, it's one of those that, from a diversification perspective and also So thinking about the future and the future energy needs of the country, I think that it's something that I'm considering for sure personally. But it's also one of those areas that if somebody gets into it, they have to think about that long-term horizon, that five, seven, seven to ten year time horizon before these actually come online. And so the payoff will be further out in time.

45:45Yeah, the regulatory environment and just the logistical challenges of where these will actually be built are still up in the air. We don't have any, as Carol mentioned, don't have any example of that. Hey, before we let you go, I just want to kind of push things ahead a little bit to the Federal Reserve and what the drop in rates and the drop in oil prices signals to you about not the Fed's next move, but the path for the remainder of the year. How are you thinking about today's developments and the way that rates are going to look? Yeah. So what I think is going to happen at the next federal FOMC meeting, Federal Open Market Committee, that's happening on April 28th and 29th is that they're going to hold rates steady.

46:27And we may get perhaps one rate cut this year. But really, when we think about their dual mandate, it's really the labor markets and inflation. So labor markets have at times softened, and then we've seen some bright spots. At the same time, inflation is still persistent, and we saw that increase in PPI and CPI. So there's really no catalyst for the Fed to cut rates in the near term. And as this inflation permeates the economy, and we think about what the Fed may say and what they may signal, is we're looking for words like transitory. That's not allowed anymore. Versus permanent inflation. Yeah.

47:08That word's not allowed. That's been banned, apparently. I know. That's almost a swear word at this point, transitory.

47:16Carol Massar:All right. Hey, listen, David, thanks so much. It was good to get some time with you. David Bush, he is the co-CEO of Trudgeon Wealth. He has his firm that is$2.6 billion in assets under management. Joining us from Scottsdale. This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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