Wall Street Sinks on Greenland Risk

0:00Disney Plus wants to know, are you ready? For Marvel Studios' Thunderbolts The New Avengers, now streaming on Disney Plus. Let's do this. One of the best Marvel movies of all time is now streaming on Disney Plus. Hey, you weren't listening to me. I said, Thunderbolts The New Avengers is now streaming on Disney Plus. Meet The New Avengers. That's cool, man. Marvel Studios' Thunderbolts The New Avengers, rated PG-13. Now streaming on, you guessed it, Disney Plus.

0:33Last week, Apple announced its cheapest laptop ever. And the wildest thing about it is it's really kind of very good. This week on The Vergecast, we're talking all about how Apple managed to make the MacBook Neo as good and cheap as it is, and whether the rest of the PC market needs to be in just a full-blown panic about it. All that, plus the latest on what's going on with Live Nation and Ticketmaster, what's going on with Anthropic and the Department of War, and the future of Xbox on The Vergecast, wherever you get podcasts.

1:06When is the AI bubble going to burst? How do you AI-proof your job? How should colleges handle AI and prepare students for a shifting job market? I'm Henry Blodgett, and on my show, Solutions, I've been exploring all of those questions and more with experts who have actual answers. We hear enough about our problems. Let's solve them. Follow Solutions with Henry Blodgett. Today's number? 25. That's how many years old Wikipedia turned last week. That means it can no longer date Leo DiCaprio. Money market's mad. If money is evil, then that building is hell. The show goes on! The folks in there are watching the show, show!

1:52Welcome to ProfitU Markets. I'm Ed Elson. It is January 21st. Let's check in on yesterday's market vitals. The major indices sold off in their worst session since October. Bitcoin dropped below $90 ,000. The dollar weakened and the yield on 10-year treasuries jumped to its highest level since August. Okay, what's happening? The S &P plunged 2 % yesterday, erasing its gains for the year as Wall Street reckoned with President Trump's escalating threats to acquire Greenland. Volatility spiked with the VIX, the market's so-called fear gauge, hitting its highest level since November. And you guessed it, gold hit another record high as investors ran for cover.

2:39The drama is playing out in Davos right now as business and political leaders gather for the World Economic Forum. President Trump arrived yesterday and he agreed to meet with officials to discuss Greenland, but he says, quote, there can be no going back on his plan to seize the territory. Meanwhile, Greenland's prime minister is urging the island to prepare for an invasion, which is still unlikely but no longer unthinkable. How far are you willing to go to acquire Greenland? You'll find out. OK, joining us now to discuss everything that is happening here, we're speaking with Justin Wolfers, professor of public policy and economics at the university of michigan justin welcome back to prof g markets would you believe me if i told you i was coming to you live from greenland i'm not sure i would i'm not sure i would it looks the same looks like you're you're you are in ann arbor right now is that right it's as cold as greenland mate and we have been taken over by federal authority as well right right it's it's not it's not too not too dissimilar well what's happened in the markets is quite astounding really um stocks are plunging uh yields are rising uh all the safe haven assets like gold are hitting record highs um i guess let's just start with your initial reactions it's kind of remarkable what we're seeing here at least To me, do you feel the same way?

4:12Look, the thing that's more remarkable than what's happening in the markets is what's happening in the world. Right. The president woke up and decided the United States needed Greenland, which had never been part of the U.S. Well, not never. In recent years, hadn't been part of the U.S. security planning at all. And he's saying he wants to buy it, take it, something it, rename it. No one's quite sure what. and he's putting tariffs on countries who've sent vast forces up to dozens of troops to defend Greenland from American hostile aggression. That is astonishing on its face. I know that your podcast is called Markets.

4:59Mate, sometimes you've got to pause on the world. The world's where the action is. So yes, markets are responding to this. I guess the reason that the market's response seems relevant to me is we see a lot of crazy stuff from the president. We saw crazy stuff in the past few weeks. We saw the Powell investigation. We saw the invasion of Venezuela and the capture of Maduro. We saw what happened in Iran. And so I find that the markets help to give us a sense of what's maybe real and what isn't. And it seems that the markets are telling us right now, this one's real. This one is different. This one is actually giving us pause.

5:41And it feels almost like we're back in April 2025. Everyone's deciding to sell. So I guess that's why it's kind of interesting to me or seems important. I guess my question to you would be, why is this different? Or at least why do markets maybe believe that this is different? I'm not sure I'd give exactly the same explanation that you would add. Okay. So here's the problem, right? The bloke comes up with a harebrained idea every day. Nine out of 10 times he tacos, Trump always chickens out and the world moves on. And so if you're a trader, you want to discount these because if you responded to each and every one of them, you'd sell off.

6:24And then the next day the markets would rise as it became clear it wouldn't happen. And then you lost a lot of money. Yeah. So you've got to scale your response to the likelihood that Trump will actually follow through. If Trump follows through, in the short run, the obvious is he launches a trade war with the European Union. Because remember, he's talking about 25 % tariffs by June. You can't just, You know, it's not as much as he's picked out Germany that he wants to go after or the United Kingdom. You don't just declare a trade war on particular members of the EU, the entire union response.

7:01The EU plus Norway plus the United Kingdom collectively is 22 % of American exports. So that's a big economic threat right there. There are two other things you learn if you're serious. One is if he follows through with a trade war, there's actually a chance he follows through with a war war. that then is the end of NATO and the end of the post-war world order that in turn is the end of American military leadership we move into some complicated world and you can get one of these guys who likes to point at the globe until you how complicated that gets all I know is that Ed in the brief time you and I have been alive we haven't seen fighting on our shores and that's not true for our grandparents.

7:49And so even if you don't like what we've had, it's been remarkably successful relative to the rest of human history that we've grown up without wars on our shores. So there's some chance that that's the end of that. For the United States, the world, economic productive activity, it would be catastrophic. One war is a lot of wars. walking closer to one war is a lot of problems. And then the other part is, so he's launched a trade war, a new trade war with you. The other part is you've then learned tariff, McTariff Face wants to tariff everyone at will. Deals don't mean anything. The idea that we get through 2025 and that was the end of tariffs because we would have done deals is clearly hopeless.

8:39And we just have trade wars and trade uncertainty for the next three years ahead of us as well. those are really really big generational shifts um i know i wrote a study years ago looking at the stock market effect of the invasion of iraq we found that if the diff the stocks were valued 15 percent lower if the u.s invaded iraq relative to if it didn't so if you thought something like that if you thought greenland were iraq there's lots of reasons to think it's not right you would expect stocks to fall on the order of 10 to 20 percent. Today, they fell on the order of 1 to 2 percent. So my interpretation is they've built in a 1 in 10 chance the guy is serious.

9:25In some sense, markets are really useful here that are a wake-up call. It's not about the probability he follows through. It's about the consequences if he follows through, which is they're screaming, this is terrible. But they're not screaming, screaming. If you remember Liberation Day, they screamed, they howled. We weren't quite used to the Trump two-step of two steps forward and an immediate back down. If we're in a world in which you never followed through on anything, of course, markets would react to nothing. The problem is that the president actually does sometimes do things. You could ask the Venezuelans about that.

9:57And the problem is we couldn't tell before the fact if he was serious about Venezuela, and then we learned after the fact he was. And I would like to think he's not serious about Greenland, but I don't want to wake up tomorrow and all of a sudden discover he was. Right. So I think this is the markets putting in only a small chance, but it's a small chance of a big, bad outcome. Just looking at what he's said recently, it does seem that he's somewhat serious from what he's been saying. That's a hard question to answer, but he's at least trying to present as serious. He also sent that text to the Prime Minister of Norway saying that he wouldn't be doing this if he had won the Nobel Peace Prize.

10:44This is maybe like a hyperbolic question, but I don't think it is. At what point do you think it's fair to say that he's actually lost his mind? I mean that like very legitimately. Not in the sense that, oh, he has dementia and he's just totally crazy. But, I mean, he's clearly operating on a different level of reality. He's decided that the world order as it is now is unacceptable, that globalism, this is the end of it, and we're kind of going back to the 1800s. I mean, it appears that he might have gotten, I don't know, so drunk on power, so deluded by something that he might have actually like lost his mind here.

11:35Is that too far? I've had the same thought. And look, I like to speak to my expertise. I'm a PhD economist. And so there are many questions where, and I've increasingly had to do this, say, I think you should talk to a psychiatrist, not an economist. What's striking is that the most important economic question of the day is best answered by a psychiatrist. That's your point. Right. And it's a profoundly important point. There are actually ethical reasons why psychiatrists are not meant to. You're not meant to speak up about someone whom you've not examined. Yeah. I hope you don't mind. I might take your idea a little deeper because I've been thinking about this quite a lot.

12:12I certainly don't think of the president as he currently is acting as rational, or at least we should put a high probability on that. And that worries me. And I'm like, oh, well, what happens if once every hundred years we have a leader, a world leader who is bonkers? Right. We've certainly had people who are bonkers. I think Adolf Hitler was bonkers. Yeah. I don't want to draw that comparison, but the point is. It's happened. Yeah. Then I got to thinking about it. So indulge me for a moment here. You would have, what sort of person would want to run for president of the United States? Who wakes up in the morning and thinks, I know I should run the free world.

12:57I, and I alone, am uniquely qualified to run this country. And this country is the largest economy with the largest military in the world. Yeah. I think if you ran a survey of Americans, people with profound personality disorders would be much more likely to say yes than people without profound personality disorders. That's just an obvious statement. Yeah. You could say, Justin, run for president tomorrow. And I'd be like, are you kidding? I'm going to teach Econ 101 tomorrow. And I'm worried I've got too many students. I'm not qualified. I hope you'd say the same, Ed. I don't know. This pod's going pretty well.

13:44Boy, you give a bloke 30 under 30 and all of a sudden he thinks he can walk on water. But it's actually a really interesting point because if that point is correct, it says the amount of mental illness among world leaders is likely exorbitantly high. Right. That in turn changes how we ought to think about institutions. It says that we basically need to design our political institutions so they're lunatic proof. Yeah. And in some sense, you go back and you read like, you know, the Federalist Papers, you get a sense of this. They would often talk about good versus evil instead, but I think actually just batshit versus not.

14:26And maybe, you know, after Nixon, we had a whole cleansing of like, how do we corruption proof the US government? And I wonder whether people all around the world ought to be thinking about how do we mental health proof our governments. And, you know, we are meant to have checks and balances. And our biggest problem right now, of course, is Mike Johnson, which is we do have checks and balances. They just refuse to play. And they refuse to play because the guy with potentially the mental health problem is also the most charismatic figure in the country. And maybe that's what a mental health problem allows you to do.

15:02anyway that was more about politics the markets let's come back to markets i think the threat here is utterly dire yeah what i haven't had a chance to do today is if i wanted to make the case that it was what i said a small probability of a horrible outcome rather than it being a moderately large probability of a moderately bad outcome which i think is what you were suggesting i think the way to tell the difference between our two stories would be to look at what was happening to way out of the money options i haven't had a chance to look um so maybe some bright Spark, who's in our audience, has looked at way out of the money options and can tell us how they're behaving and drop a note in the comments.

15:38Yeah, I think that would be good advice. Okay, we're going to let you go here. I assume we're going to be discussing this again, probably, maybe tomorrow. Who knows? Justin Wolfe is a professor of public policy and economics at the University of Michigan. Justin, really appreciate it as always. Great pleasure. After the break, a look at Netflix's earnings. And for even more markets content, you can subscribe to my new weekly newsletter, simply put, at edwardelson.substack.com.

16:26fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, sponsored jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a$75 sponsored job credit at indeed.com slash podcast. Terms and conditions apply. This episode is brought to you by Palmolive. Family time isn't just the big moments. It's weeknight dinners, sitting around the table, everyone talking all at once. So when the plates are empty and the sink is full, use Palmolive Ultra. Palmolive's most powerful formula removes up to 99.9 % of grease, leaving your dishes sparkling clean.

17:05And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together. Shop now at palmolive.com. Feeding the fam isn't easy, but we got you with any slamming meal deals starting at$5.99. Full meals for everyone, like a Grand Slam burrito for grandpa and a super slam for super mom. Get to Denny's now. Valid at participating locations for dine-in or denny's.com. Limited time offer. Additional restrictions may apply at some locations.

17:33We're back with Profity Markets. Netflix's stock fell as much as 5 % after its forecast for the first quarter came in below expectations. That reaction overshadowed an otherwise solid quarter. revenue and earnings per share both beat estimates up 18 % and 31 % year over year. And full year revenue came in at$45 billion, up 16 % year over year. The company also hit a major milestone, reaching 325 million paid global subscribers. Earlier in the day, Netflix also officially revised its bid for Warner Brothers Discovery, moving to an all-cash offer of$83 billion instead of the previous mix of cash and stock.

18:16Here to discuss these earnings and also what this new bid actually means, we are speaking with Rohan Goswami, business reporter at Semaphore. Rohan, thanks for joining us on Prof G Markets. Ed, happy to be here. So let's start with the earnings. Netflix just reported earnings. the stock sunk in after hours as much as 5%, which is kind of interesting because they beat on earnings, they beat on revenue. What do you make of the earnings and what do you make of Wall Street's reaction? So look, they did beat on both those fronts and they guided to around their midpoint for the full year next year. And they also had, you know, a decent subscriber number, 325 million, that's a milestone for them.

19:00But look, there's an overhang on this stock. And as you and I have talked about, Netflix is down, I think, 30 or 40 percent since rumors first started circling about their interest in Warner Brothers. For a simple reason, they are great builders. They are unproven buyers. They've never done a big deal like this before. And their investors, who have counted on them for steady, reliable earnings growth, are kind of in a wait-and-see mode. So the call is going on right now. Ted Sarandos and his co-CEO are expected to sort of preview and give us a little bit more information on their thinking around this.

19:33But it also comes as they've made a, they've doubled down on their Warner Brothers bid, right? You know, they've, this morning announced what we've all known was coming. They've flipped all cash. Warner's board has approved it. We got a lengthy 500-page proxy statement today, which you know I spent my entire lunch hour reading. And look, there's no doubt these guys right now are telling the world they're in it, they're in it to win it, and they could give a damn about the Ellisons. Yeah, what's new about this bid? I mean, we know that it's all cash now. Is that the only thing that's new? What have we learned about this new bid that was just announced on Tuesday?

20:11In terms of the actual bid, that's it. That's the only new thing. It lets us have a cleaner, although not perfect, apples-to-apples comparison between Paramount and Netflix's bid. The interesting thing, there are some details that have come out in this proxy filing. And as you know, when companies are trying to combine, they make their case to shareholders through a formal document called a proxy statement, right? That lays out all the financial analysis that their bankers have done, the potential legal risks, and the most fun for reporters, a detailed, lengthy background to the solicitation, which is a fancy way of basically saying the storyline of how these two companies came together.

20:49Thankfully, a lot of the reporting out there was confirmed by this background to the solicitation, which is always good news for reporters. The big thing that we finally, as reporters, as investors, got to look at was how Warner Brothers has decided to value their spinoff business. Now, remember, we've talked about this. This is the business that they say is worth anywhere from$3 to$5 a share, which Paramount says is worth a buck generously, and which Netflix has said, we don't want anything to do with that. Don't give it to us. We don't want to touch it. Spin it off. We don't care. So we finally got a valuation for that business underpinned and justified by some financial analysis that Allen & Company and other bankers have done for Warner Brothers.

21:26That was really the big thing out of this. Yeah. Yeah, just your point earlier that the stock, Netflix stock, has slid like 30, 40 percent since the rumor started getting going. Talk a bit more about why that's happening. We've also seen, obviously, today some selling activity. But what's so bad about buying another company like Warner Brothers? I mean, what are investors so worried about here? It's the uncertainty. right? This is what the executives and bankers call execution risk, right? The ability for a company to actually do something with the assets they're picking up. And M &A is littered.

22:04Generally, most big M &A doesn't work. Keep in mind, Warner Brothers Discovery itself is a child of two and a half decades of crappy M &A going back to AOL Time Warner, which was the worst deal of all time by any account, right? So it's literally genetic with this company. There's never been a good deal for this company. Anyone who's bought this thing has almost immediately regretted it. AT &T picked it up and immediately dumped it, right? So it's not a good asset. It's kind of cursed. And investors aren't superstitious, but it is kind of cursed. It's also a big bite at an apple for, as we were talking about earlier just now, a company that has chosen to build, right?

22:42Starting with House of Cards, but now, you know, a multinational, multi-language content business. Netflix has been really good at coming up with hits, executing on those hits, spending a lot on those hits, but executing on those hits. Now they're picking up a content library which has existed for decades, from, you know, decades here. And while there's no question it's a valuable content library, investors are a little confused about why these guys, who have steadfastly time and time again when they've been asked, would you buy this company? Would you buy that company? Why this time is different, right?

23:12Why Warner Brothers is so compelling to them. Now they've laid out the case They think that the streaming business is going to be a$4.5 billion business, I think, by 2030, which is meaningful for a company like Netflix, which did$50 billion of revenue or is expecting to do around$50 billion of revenue next year. But still, at the end of the day, it's a big bite. Shareholders have to pay for that. And if they don't see the results immediately, you know, these guys are skittish. These guys are skittish in the best of times. And it is not the best of times right now in the markets. So interesting.

23:39It's almost like the Netflix shareholders don't seem to want this deal. Warner Brothers shareholders don't seem to want this deal, or at least they've been pushing for the Paramount deal instead. I'm kind of wondering, who even wants this? Is it literally just Ted Sarandos and David Zasloff? Like, who's decided that this is a good idea? Why is this even happening at this point? History is decided by the victors. So you know what? If two years from now you and I are talking about this and they've done a wonderful job, we'll be saying, you know, they were so prescient. Who were we to doubt them?

24:10But it is kind of true, to your point, That nobody seems particularly thrilled about this process with the exception, yes, of Warner Brothers Board and of Netflix. The one interesting thing I should have mentioned earlier is we actually do have an explanation for why Warner Brothers went completely dark on Paramount. And it actually helps explain and answer your question of who really wants this. Ted Sarandos really wants this. We know this because in his lawyer's final message before the deal was signed, his lawyers basically said, look, Warner Brothers, we're prepared to move on this right now.

24:42And if you don't get back to us by tonight, we're walking. We're done. It's a move called, you know, you go pencils down. You basically walk out. You explode the deal. And Warner Brothers, rather than risk losing Netflix, said, all right, all right, all right, fine. We'll go with you. They've got an executed merger agreement. But it's clear that Ted Sarandos and you and I are both pretty smart people. We're not Ted Sarandos smart. Ted Sarandos thinks there's a lot of value for shareholders here. I don't know if he's actually going to get it in the end. But if history is any guide, patience with that guy usually is rewarded.

25:12Yeah. Yeah. Just looking at the Netflix business, what they're doing here. So they doubled their ad revenue in 2025, which is interesting. It seems like they're going to be leaning more and more on advertising going forward. Another thing that we've been seeing recently, they're getting into podcasting. Just announced their first original video podcast with Pete Davidson. My question is, what's the difference between a video podcast and a talk show? Maybe there isn't one. um and then i guess this isn't relevant necessarily to netflix but disney also announced recently they're going to get into vertical video on disney plus so a lot of interesting product announcements happening in the streaming world it's kind of moving to an audio slash social media um economy it seems what do you make of these moves um and just before we let you go.

26:08What do you think 2026 is going to look like in terms of streaming? Is it just going to be kind of, is it going to look like YouTube, I guess, is my question. I mean, look, everything is TV, right? That's what we're seeing. Podcasts for radio, now they're TV, everything is TV. For Netflix specifically, it's not, they've been making this move for some time and the driver has been the consumer is a little weaker, right? We're paying for a lot of things. We don't really have a clean bundle yet, no matter how hard the legacy cable companies are trying here. Ad support, it makes sense for them at this point because you've got a weak consumer.

26:39You've got an uncertain economy. Yes, the thinking is gone. People always spend money on content. How much money they'll spend and for what content is the bigger question, which again ties into why they want to buy Warner Brothers, right? They've got some iconic franchises. They've got a lot of great content, and that's what Netflix is paying for. They don't care about HBO Max necessarily. They don't care about the actual infrastructure of it all because Netflix is the pioneer in this space. For the space writ large, it's a harder question to answer, right? The content, the big, you know, buffaloes in the room, the Apples, the Netflixes, the HBOs have shown in recent years, even before the economic slowdown, a sensitivity to the kind of blank check Yellowstone style productions that cost hundreds of millions of dollars and have crazy perks for the talent and the directors.