Variety : The Safer Bet: Why David Zaslav and the WBD Board Favored Netflix in a

The Safer Bet: Why David Zaslav and the WBD Board Favored Netflix in a Turbulent Time for Legacy Hollywood

After a few marathon days of telephone and video calls, emails and text message chains, the $82.7 billion agreement for Netflix to buy Warner Bros. and HBO Max was clinched Thursday night around 10 p.m. ET.

But there was no chance for high fives or a group huddle among the managers of the freshly betrothed media giants. In modern fashion, the sale negotiations were mostly conducted at arm’s length via phone and electronic communications, with Netflix and WBD executives and legal teams spread across New York, Los Angeles, Washington, D.C. and other locales.

Among the final hurdles to securing the initial agreement was WBD’s insistence that Netflix commit to a record-setting $5.8 billion breakup fee should the deal run into resistance, regulatory or otherwise.

Opposition to the deal assembled, swiftly and fiercely, from unions, consumer watchdogs and politicos on both sides of the aisle. “This merger must be blocked,” the Writers Guild of America urged on Friday.

In the end, about six weeks after Paramount CEO David Ellison’s pushy overtures put the studio in play, the Warner Bros. Discovery board got what it wanted – a pedigreed, market-leading buyer with firm financial foundation and a clear strategic need to make the most of Warner Bros. and HBO.

On the surface, the Netflix deal would seem an echo of the AOL-Time Warner transaction completed in January 2001. A highflying beacon of what was then called “new media” buys a legacy entertainment company with brands that seem to be ripe for exploitation in new ways.

The AOL takeover of Time Warner, of course, was nothing less than disastrous. The grand thesis of the merger unraveled in barely a year’s time after the dot-com bust and the 9/11 terrorist attacks. This time around, the Netflix acquisition signals the (near) conquest of Southern California’s most dynamic industry by one of the world-beating tech giants that sprang from Northern California.

The WBD board leaned toward the Netflix bid because the company has such a strong balance sheet. Its stock has been one of the most consistent and durable performers over a turbulent decade for media and entertainment. Unlike AOL in 2001, when its growth was powered by offering basic dial-up internet access, Netflix has a strong underlying business model that can’t easily be outmoded by new tech or undercut on price by rivals. TV shows and movies are, after all, very sticky – ask any “Bridgerton” or “Strangers Things” fan.

Netflix’s long-horizon outlook stands in contrast to Paramount Skydance, which began its pursuit of WBD shortly after Skydance Media sealed its $8 billion acquisition of Paramount Communications. It’s a sign of the times that the parent company of Paramount Pictures and CBS – two entertainment institutions that have been around for more than 100 years – are a bigger risk than a much younger venture that has been in the original programming game for about a dozen years.

Paramount Skydance faces an uphill climb in turning around the fortunes of its studio and legacy cable networks and restoring strong free cash flow. The company is also carrying more debt on its balance sheet than Netflix, proportionate to its earnings power. All of these factors were a consideration for the WBD board. In the case of a black-swan event for the macro economy, how would Paramount fare?

The lack of certainty there helped sway WBD board members that Netflix was the better fit and safer option for shareholders than Paramount or even Comcast, which was the third contender for the studio in the whirlwind bidding process that began in earnest in early November. The process quickly crystallized into a test of wills between two Davids – Ellison and WBD CEO David Zaslav. There’s been endless industry chatter that Zaslav was angling for a deal that left him with a high executive perch in the resulting company. Ellison slammed the WBD leader in a legal letter sent to Zaslav on Thursday accusing him of having “abandoned the semblance and reality of a fair transaction process” in order to steer the deal to Netflix.

WBD board members were already put off by Paramount’s unsolicited offer and the whispers around Hollywood and D.C. that only Ellison and his familial connections to the Trump White House would be able to secure regulatory approval for such a big merger.

But Donald Trump is famous for working his phone, and Netflix co-CEO Ted Sarandos is definitely in his contacts. President Trump respects Netflix’s rags-to-riches growth as a modern American business success story. And while Trump often expresses hostility to Hollywood as a bastion of touchy-feely liberalism, the reality is that he has long been fascinated by the industry, especially after he became a TV star via NBC’s “The Apprentice.”

Sources close to the situation emphasize that even in Hollywood, ego takes a back seat to business rationale when the enterprise value tops $82 billion.

Netflix and WBD leaders including Zaslav are preparing to make a strenuous case for the consumer benefits of the deal as well as the positive impact that the enlarged company will have on the creative community.

Zaslav, Sarandos and Netflix co-CEO Greg Peters are bracing for a long fight. The leaders are projecting a closing timeline of as much as 18 months given the scrutiny on the companies and the political crosscurrents.

There are points to be gained for elected officials on the left and right by railing against another big media merger. That could make for a long drawn-out battle in Washington with the Federal Trade Commission and Justice Department. The FCC is not expected to play much if any role in this review because of the nature of assets involved – WBD does not own broadcast TV stations (a la Paramount) or cable systems (a la Comcast).

Sources said the Netflix and WBD teams are confident that on the antitrust merits it’s hard to prove the enlarged company would have anything close to monopoly power over the content marketplace –particularly at a time when Netflix, HBO and others have for-real competition for the hearts and minds of younger viewers from likes of YouTube and TikTok.

In their first presentations about the deal on Friday, Netflix and WBD emphasized how little overlap there is between the companies. Netflix has stated its intention to maintain HBO Max and Warner Bros. studio operations as standalone businesses under the Netflix tent. Anyone who has experienced a Hollywood merger in recent decades knows that no matter what is said in the moment, the long-term arc of any business leans toward streamlining, efficiencies and eliminating redundancies. Consolidation will eventually affect some on the list of accomplished senior executives who are spread among Netflix, Warner Bros. and HBO.

For the most senior executive at WBD, however, the future does seem to be coming into focus. Sarandos and Peters are firmly installed as Netflix co-CEOs. Zaslav has been telling friends and colleagues that he’s focused on helping to get the merger to the finish line and to deliver a healthy Warner Bros. and HBO Max to Sarandos when it’s time to hand over the keys.

If the deal goes through as it was outlined to investors today, Zaslav will eventually lose his CEO perch but he’ll gain many, many millions (as will a host of senior WB and HBO executives through stock options), as well as the satisfaction of having gone out on his own terms.

FT : Should Europe fund Ukraine? It can’t easily afford not to

Should Europe fund Ukraine? It can’t easily afford not to
Funding Kyiv’s war effort is a better return on bloc’s buck than having to deter a victorious Moscow itself

Europe is struggling to come up with the cash to fund Ukraine’s war effort. Its debt-laden countries would rather not stump up themselves. And the European Commission is still attempting to get full support for its proposal to use frozen Russian assets to back up to €210bn in loans. The danger, however, is that inactivity will be far more costly.

Think of this for a moment as a purely financial question. On the one hand, Europe commits to funding Ukraine’s war efforts for, say, four years, whether through one of the various schemes to leverage frozen Russian assets or, at a pinch, with member states putting up the money themselves. Estimates over how much this would cost vary: the IMF calculates a financing gap of $136bn to 2029 while a report from consultancy Corisk and the Norwegian Institute of International Affairs reckons between €522bn and €838bn.


The pay-off comes if Ukraine can consequently push Russia into a reasonable ceasefire. President Vladimir Putin would hardly be in a position to demand the return of Russia’s €210bn of frozen assets, meaning some or all of the initial outlay would be recouped. And, while Europe has good reasons to raise its defence spending anyway, Putin would be less likely to pose a further military threat. 

Now consider the alternative path, where Europe fails to get its act together. Ukraine is then more likely to capitulate to a ceasefire on Russia’s terms, which could see Putin shake off current sanctions and perhaps even return to the G8. Europe, facing a wealthier and emboldened Russia, would be under enormous pressure to spend furiously on rapidly bolstering its defences.

The costs of this scenario, too, could vary widely. Corisk thinks that a Russian victory would cost Europe between €1.2tn and €1.6tn over four years, including raised defence spending and the probable influx of refugees. During the cold war, UK defence spending peaked in 1955-56 at 7.6 per cent of GDP. Getting Europe to that level from its current 1.6 per cent entails extra spending of over $1tn a year.

These are simplified outcomes, and there are others that lie somewhere in between. Russia could gain the upper hand, only to then return to peaceful and profitable relations with its neighbours. But the EU would be unwise to bet on that. It is also possible that Ukraine could get a slug of cash, fight a few more years, and still fail to get an advantage.

But even ascribing a non-zero probability to these outcomes, funding Ukraine’s war effort is a better return on Europe’s buck than having to deter a victorious Russia itself. War transcends pecuniary decisions, of course, but in so far as finance matters, the logical course is fairly clear.

WSJ : Five Reasons Investors Are Feeling Good About Stocks Again

Five Reasons Investors Are Feeling Good About Stocks Again
Recent gains reflect more than just optimism about artificial intelligence


Anxiety has given way to hope on Wall Street.

Stocks are back near records, recovering from a slump spurred by fears that the excitement about the artificial-intelligence boom has outstripped the potential profits.

Optimism about AI has proved durable. But other important factors are also powering gains. Here’s a look at some of the reasons investors expect that the rally could go further from here:

Stock valuations could be worse
Stocks currently look very expensive by some measures, such as traditional price-to-earnings ratios. Still, even those ratios remain below their peaks reached in the 1990s dot-com boom. And stock valuations look less stretched in other ways.

Many Wall Street analysts think the best way to value stocks is to compare their earnings yield—or earnings-to-price ratio, expressed as a percentage—with yields on ultrasafe government bonds. The additional yield shows how much investors are being compensated to hold the much riskier instrument.


One popular version of this metric, known as the “excess CAPE yield,” uses S&P 500 companies’ average earnings from the past 10 years and adjusts both those earnings and the 10-year Treasury yield for inflation.

As of November, it stood at 1.7%. That is low by historical standards—suggesting the high prices of stocks have shrunk the reward for owning them over bonds. But it is hardly unprecedented and actually up from 1.2% in January, thanks to a decline in the 10-year Treasury yield driven by a cooling labor market and the resumption of Federal Reserve interest-rate cuts.

Economic growth is supporting earnings
Ultimately, stocks are closely linked to the near-term outlook for consumer spending.

Right now, there are some concerns about the economy. Job growth has slowed significantly and the unemployment rate has ticked higher—enough to push the Fed to cut rates.

But investors and economists still aren’t that worried. Many believe that job growth has slowed largely because of sharply reduced immigration. Holiday spending is off to a robust start, and weekly unemployment claims remain stubbornly low.


All of that should be good for companies’ bottom lines. Analysts expect 2026 to be another great year for tech companies in particular, even as they spend huge sums on AI infrastructure.

It isn’t just about big tech stocks
Tech companies including Nvidia, Microsoft and Meta Platforms have become such giant components of the S&P 500 that any doubts about the AI future will likely result in losses for not just tech stocks but also the entire index.

Still, the outsize gains for big tech companies don’t mean that other types of stocks are doing poorly. The Russell 2000 index of smaller company stocks reached a record high last week. The S&P 500 equal weight index—which gives the same influence to each company regardless of size—is also near a record, providing hope that a tech-centered selloff wouldn’t be disastrous.


“Massive tech behemoths are dominating the headlines and all the investment flows and analysis, but other companies are also executing,” said Michael Antonelli, a market strategist at Baird.

Inflation expectations are anchored
One lingering concern for investors is that inflation remains comfortably above the Fed’s 2% target, with the central bank’s preferred gauge sitting at 2.8% as of its most recent reading.

Sticky inflation could make it harder for the Fed to keep cutting interest rates. If the Fed—potentially under greater sway from President Trump’s appointees—cuts rates anyway, investors could lose confidence in its commitment to stable prices, sending shock waves through markets.


Investors, though, are confident that inflation pressures are easing. Inflation expectations, after jumping earlier this decade, remain anchored. That can be seen in the spread between yields on nominal government bonds and those of Treasury inflation-protected securities, or TIPS—a gap known on Wall Street as the break-even inflation rate.

Prospects for longer-run economic growth have improved
Investors also have a big-picture reason to feel good. The economy, whatever it does over the next several months, looks to be in much healthier shape than it was for more than a decade following the 2008-09 financial crisis.

For years, the Fed kept short-term interest rates at zero—translating to negative real, or inflation-adjusted, rates—in an effort to jump-start moribund economic growth. Investors and economists fretted about a new era of “secular stagnation” that would hurt financially conservative savers and make it harder for the Fed to fight recessions.


Negative yields on 10-year TIPS showed investors expected rates to stay at rock-bottom levels for the foreseeable future. Now, though, those yields have stabilized at precrisis levels. Analysts ascribe that partly to higher inflation and larger federal budget deficits but also to hopes for stronger economic growth—driven by private-sector investment in areas such as AI infrastructure and renewable energy.

“For a lot of investors, you have higher confidence to invest in general whether it’s equities or fixed income when real yields are positive,” said Thanos Bardas, senior portfolio manager and co-head of investment grade at Neuberger Berman. “It looks like the economy is operating at potential or above potential.”

FT : Friedrich Merz seeks to reset relations with Benjamin Netanyahu in first vi

Friedrich Merz seeks to reset relations with Benjamin Netanyahu in first visit to Israel
German chancellor makes efforts to mend ties after disagreements with Israel on Gaza conduct

German Chancellor Friedrich Merz sought to repair relations with Israel when he met Israeli Prime Minister Benjamin Netanyahu on Sunday, after months of disagreements over Israel’s conduct in Gaza.

Merz has long been a strong defender of Israel, but he shifted his stance amid mounting international censure over civilian deaths and spreading famine during Israel’s war in Gaza. Earlier this year he paused exports of some weapons to Israel, straining relations with Netanyahu.

In a joint press conference in Jerusalem on Sunday, the chancellor reiterated Germany’s commitment to Israel’s “existence and security”. “This belongs to the unchanging essence of our relationship. This applies today, this applies tomorrow and it applies forever.”

However, he did not renew his invitation for Netanyahu to travel to Germany, saying that a visit was not currently “at issue”. In February Merz had told Netanyahu that he would be invited to Germany despite an arrest warrant from the International Criminal Court for war crimes.

Netanyahu acknowledged that the threat of arrest still hung over him in various “well meaning countries”, and urged the ICC to “get rid of these ridiculous charges”.

Merz said in May that Israel’s military operations in Gaza could no longer be justified solely as a fight against Hamas terrorism. His move in August to halt exports of weapons that the Israeli army could use in the strip took his own party by surprise, and was seen as a historic departure from Germany’s postwar tradition of unwavering solidarity with Israel. Netanyahu at the time expressed his “disappointment”.

Berlin ended the temporary pause on weapons exports last month, saying the situation had “stabilised” following the peace deal brokered between Israel and Hamas by Donald Trump. The two-month truce has so far held, despite repeated violent clashes between the sides amid mutual recriminations over violations.

Merz said on Sunday that he decided to impose the controls in response to the “special circumstances” at that point in the conflict. “The circumstances have changed and therefore this decision no longer applies.”

Netanyahu on Sunday said he expected “to move into the second phase” of the agreement “shortly”, which could see a further withdrawal of Israeli forces out of Gaza, Hamas’s disarmament and the introduction of an international peacekeeping force and new governing structures into the war-torn enclave.

The Israeli leader again rejected the establishment of a Palestinian state and admitted that he and Merz “have a different point of view” on the issue. Germany supports a two-state solution but has insisted that recognition of a Palestinian state should come at the end of the peace process.

Merz also reaffirmed Germany’s commitment to a two-state solution when he met the King of Jordan on Saturday, so that “Israelis, Palestinians and Arab neighbours can live together in security, peace and freedom”.

He conveyed the same message in a call with Mahmoud Abbas on Saturday, urging the Palestinian Authority leader to “urgently tackle necessary reforms” in order to play a “constructive role in a post-conflict phase”.

Merz’s trip is the first visit by a European leader to Israel since the ceasefire in Gaza came into effect in early October. While his two predecessors Olaf Scholz and Angela Merkel travelled to Israel within three months of taking office, it has taken seven months for Friedrich Merz to arrange his inaugural visit.

The trip comes after the arrival in Germany last week of the Israeli-built Arrow anti-ballistic missile defence system, in a $4.6bn deal considered the largest military export in Israeli history.

“Not only does Germany work in the defence of Israel but Israel . . . works for the defence of Germany. That is a historical change,” Netanyahu said on Sunday.

>>> weekend papers Suammry

FINANCIAL TIMES
-Hollywood's traditional leaders once scoffed at the potential of Netflix to disrupt the entertainment industry, likening its prospects to the Albanian army's chance of global dominance. However, Netflix has now secured an $83B deal to acquire Warner Bros, a major player in the industry and the modern successor to the company once led by Jeff Bewkes. This acquisition marks a significant development in Netflix's transformation into a major force in Hollywood, boasting a market value of $450B. The deal reflects an underestimation by traditional entertainment executives of Netflix's capabilities, as evidenced by a prediction of less than 5% chance of such a deal occurring prior to the announcement. Co-CEO Ted Sarandos described the acquisition as a "rare opportunity" that demanded action, demonstrating Netflix's strategic maneuvering and assertive positioning within the entertainment sector.
- “We see this as a healthy pullback in crypto and bitcoin,” said Cantor Fitzgerald crypto analyst Brett Knoblauch, who anticipates bitcoin's price to exceed $1.5M per token eventually. However, a recent sell-off has resulted in a 25% decline in bitcoin's value in two months, raising concerns voiced by Phong Lee, CEO of Strategy, about a potential “bitcoin winter.” This sell-off has wiped over $1T from the total market cap of approximately 18,000 digital tokens, attributed to uncertainties regarding US interest rates and high valuations in technology stocks. Bitcoin's decline from nearly $126,000 on October 7 to just above $84,000 highlights contrasting signals, especially given US President Donald Trump's supportive stance towards the crypto industry since January, including appointing crypto-friendly leaders and creating a national bitcoin reserve. Despite earlier gains, bitcoin is down 4% this year.
-SpaceX is negotiating a share sale that could value the company at $800 billion, surpassing OpenAI to become the world's highest-valued startup. Recent communications with investors indicate interest in a sale priced at double the current valuation of $400 billion. SpaceX has conducted secondary share sales approximately every six months, allowing existing investors and employees to sell their stakes. This new valuation would re-establish SpaceX as the most valuable private tech firm, following its leadership in commercial rocket development and ownership of the Starlink satellite internet service.
-The EU Commission’s plan to use frozen Russian assets to support up to €210B in loans to Ukraine is testing the EU's political and legal structures while posing potential risks to the euro's status as a global reserve currency. The European Commission's proposal involves borrowing against Russian central bank assets held in Euroclear, with Ukraine repaying only after Russia pays reparations. Legal advisers claim this approach does not constitute asset confiscation, but concerns persist, particularly from Belgium, about locking in sanctions. Investors warn that leveraging these frozen assets could heighten political risks for euro assets and undermine their appeal amidst rising geopolitical tensions. Kenneth Rogoff emphasizes the potential threat to the euro's safe status alongside concerns about Russian incursions into Europe. Despite the euro's rise this year, some investors feel this strategy could lead to a reassessment of the euro's reliability.
-President Donald Trump's initiative to end automatic citizenship for those born in the US will be reviewed by the Supreme Court, following an appeal against a lower court ruling that blocked the enforcement of his executive order. This policy has sparked significant debate as it challenges the Fourteenth Amendment, which grants citizenship to all persons born in the US. The Supreme Court is expected to make its ruling by June, alongside decisions on Trump's powers to dismiss Federal Reserve officials and to impose tariffs using emergency powers. This will mark the second Supreme Court consideration of the birthright issue this year; a prior ruling had prevented lower courts from stopping Trump's order, but did not address its legality. Subsequent to that ruling, a class-action lawsuit was filed, resulting in a New Hampshire district judge blocking the policy, prompting the Trump administration to seek a review of this decision.
-The French army claims to have intercepted five drones over a nuclear submarine base on the north Atlantic coast, amidst heightened concerns over foreign interference at sensitive locations in Europe. Defense Minister Catherine Vautrin confirmed the incident, emphasizing that all military base overflights are prohibited in France.
-Discord within Donald Trump's Republican party has emerged after disappointing off-year election results, leading to protests against Speaker of the House Mike Johnson's leadership. A faction of Republican congresswomen is challenging Johnson, revealing anxiety about the party's chances in the upcoming 2026 midterm elections. Johnson is facing significant internal criticism, with Representative Elise Stefanik labeling him a "political novice," while others voice frustration over his inaction on issues like a stock trading ban. The calls for immediate action reflect growing impatience within the party and among their constituents.
-Dario Amodei, who left OpenAI in 2020, co-founded the AI start-up Anthropic, which is projected to generate around $10B in annual revenue and is in discussions for funding at a valuation exceeding $300B. Amodei believes he can build superior AI and that his approach will enhance safety. He is regarded for his blend of technical skills, product acumen, and sales ability, making him a unique CEO. Amodei has a background in physics and biophysics, having worked at Baidu and Google Brain before founding Anthropic.
- US natural gas prices have surged over 70% in the past year, peaking at $5.29, the highest since December 2022 during the energy crisis linked to Russia's invasion of Ukraine. This price increase, driven by high demand for heating amid cold temperatures, contrasts sharply with Donald Trump's claims of reducing energy costs. The boost in LNG exports and domestic gas production has raised concerns among consumers and industry about worsening living costs and competitiveness. Analyst Clark Williams-Derry notes that increased exports lead to higher and more volatile gas prices domestically.
-Groups of Russian holidaymakers are being relocated from Isla Margarita, Venezuela, to Cuba due to security threats posed by a US military build-up affecting Venezuelan airspace. Following sanctions following Russia's invasion of Ukraine, Russians had been vacationing on the island. However, flight cancellations by major Russian tour operator Pegas have now prompted the rerouting of travelers to Varadero, Cuba, amidst concerns for civilian aircraft safety. Some travelers in Venezuela will also be evacuated on special flights at the end of their vacation.
NEW YORK TIMES
-Russian President Vladimir Putin announced the capture of the strategic Ukrainian city of Pokrovsk, although contested areas remain according to military assessments. Analysts suggest Russia is gaining an advantage, positioning itself for negotiations while Ukraine appears weak but not ready to concede. Following discussions with U.S. officials, Putin indicated further preparations for winter combat. Concurrently, Russia launched extensive drone and missile attacks across Ukraine. Recent Russian military advances include encircling Myrnohrad and making progress in Zaporizhzhia and near Kupiansk and Siversk.
-President Trump's updated National Security Strategy emphasizes a profit-driven foreign policy that prioritizes American corporate interests over traditional notions of democracy and freedom. The document reflects a shift from the U.S. being a global promoter of freedom to a nation focused on peaceful commercial relations, stating it will avoid imposing democratic changes on other countries. This marks a departure from the aggressive stance of his first term, framing international relations as a contest between repressive systems and free societies.
-The Supreme Court's conservative majority recently upheld Texas' use of voting maps designed to disadvantage Democrats in the upcoming 2026 elections, marking a significant shift in the court's approach to partisan gerrymandering. Previously, the court acknowledged the potential unconstitutionality of extreme gerrymandering but now embraces it as a legitimate political strategy, criticizing lower courts for questioning the state's motives and emphasizing legislative good faith.
-Before President Trump's tariffs, the Chicken of the Sea factory in Lyons, Ga., operated at full capacity, stockpiling canned tuna to counter tariffs. However, after tariffs were imposed, production slowed, reducing operating days and depleting inventory. Executives indicate they may have to raise prices without tariff relief, warning of impending inflation. Recently, exemptions for certain imports sparked hope, leading the company and Georgia lawmakers to seek exclusions for tarred items like foreign frozen tuna, which lacks American substitutes.
-Netflix reaffirmed its commitment to honor the Warner Bros. business model by continuing to release films in theaters for exclusive runs, as stated by co-CEO Ted Sarandos during a conference call with investors. Sarandos emphasized that plans for theatrical releases will remain consistent, prompting skepticism among Hollywood insiders due to his previous remarks questioning the viability of theaters. The entertainment industry, already affected by the pandemic, strikes, and job losses, faces an ongoing contracting job market, which has led to significant layoffs.
-Saudi Arabia, which has banned alcohol for over 70 years, has recently allowed the sale of alcoholic beverages to wealthy non-Muslim foreigners holding a "premium residency" permit in an unmarked liquor store in Riyadh. This change, affecting only those with high status, marks a shift in the kingdom's social policy, which typically involves silence and ambiguity regarding such issues. The store was previously exclusive to diplomats exempt from the ban, leading to a line of cars forming outside as news of the sales spread.
-Beijing's National Security Office in Hong Kong summoned foreign journalists, including those from The New York Times, to caution them about their coverage of a deadly fire at Wang Fuk Court. Officials criticized some foreign media for allegedly distorting facts and undermining government efforts. They warned that consequences would follow if the national security law was violated, asserting that 'press freedom' does not permit interference in China's internal affairs. This engagement highlights the growing regulatory role of the national security office over public discourse and reflects heightened scrutiny of international media since the implementation of the national security law.
-In response to Japan's support for Taiwan, China has escalated punitive measures, urging tourists to avoid Japan, halting Japanese film releases, canceling anime festivals, and blocking concerts by Japanese artists. These actions follow comments by Japanese Prime Minister Sanae Takaichi, who suggested military intervention if China attacks Taiwan, prompting China to demand a retraction. Despite these tensions, Takaichi has expressed support for domestic artists and emphasized the importance of Japanese cultural exports like anime and video games, while seeking to clarify Japan's longstanding position on Taiwan, which China has deemed inadequate.
-Industrial seabed mining is linked to a significant reduction in the abundance and diversity of deep-sea life, according to a recent study funded by The Metals Company. Published in Nature Ecology and Evolution, the research by the Natural History Museum in London indicated a 37% decline in the number of small marine animals, such as worms and crustaceans, in areas impacted by mining activities. Additionally, the study noted a 32% drop in species variety post-mining test.
NEW YORK POST
-Socialist Mayor-elect Zohran Mamdani has chosen Zakiyah Shaakir-Ansari, a radical activist who admires cop-killer Assata Shakur, for his youth and education transition committee. Shaakir-Ansari, co-executive director of the Alliance for Quality Education, expressed a desire to converse with Shakur during an interview, highlighting her belief that Shakur has valuable insights to offer. Shakur, convicted for the murder of New Jersey State Trooper Werner Foerster in 1973, became a fugitive after escaping prison and has lived in Cuba since 1984, where she was granted asylum. Mamdani's appointment has drawn significant criticism, especially from those affected by crime, who view it as support for a figure associated with violence against law enforcement.
-Scott Bessent and his team at the Treasury Department are confronted with the challenge of addressing the affordability crisis while shaping President Trump's policies on tariffs, taxes, and national debt. As the US midterm elections approach, Bessent aims to achieve two consecutive quarters of economic growth while managing rising living costs. He emphasizes that tariffs are designed to boost domestic manufacturing rather than act as consumer taxes. However, a Bank of America report indicates that tariffs have actually increased consumer prices, potentially leading to stagflation and limiting economic growth.

WSJ : Chinese Jets Locked Radar on Japanese Fighters

Chinese Jets Locked Radar on Japanese Fighters
Tokyo says incidents in international waters near Okinawa were dangerous, as diplomatic tensions with Beijing simmer

Chinese warplanes locked radar on Japanese military aircraft near Okinawa in two separate incidents, which Tokyo deemed dangerous.
The incidents occurred after Japanese Prime Minister Sanae Takaichi suggested Japan could be drawn into a conflict over Taiwan.
China has expanded its naval presence, with its aircraft carriers operating near Japan and Chinese ships traveling around Australia.

TOKYO—Chinese warplanes locked radar on Japanese military aircraft in the seas near the Japanese island of Okinawa on Saturday, in two separate incidents that Tokyo said were dangerous acts.

The incidents add to tensions between the two countries as China continues its diplomatic pressure campaign against Japanese Prime Minister Sanae Takaichi. She angered China’s ruling Communist Party when she said early in November that an attack on Taiwan could drag Japan into conflict in defense of itself and its allies, which include the U.S.

A Chinese J-15 jet fighter that took off from the Chinese navy’s Liaoning aircraft carrier on Saturday locked its radar on a Japanese F-15 that was investigating its presence in the airspace over international waters near Okinawa, Japan’s defense minister, Shinjiro Koizumi, said on his official X account. The incident occurred around 4:30 p.m. local time.

A second, similar incident occurred two hours later, Koizumi said, involving a different Japanese plane. Like many countries, Japan conducts air defense identification zone, or ADIZ, operations to identify aircraft coming close to its airspace.

No one was hurt, but Koizumi said Tokyo had lodged a protest with Beijing over the Chinese aircraft’s behavior. “This radar lock-on incident constitutes a dangerous act that exceeds the scope necessary for the safe flight of aircraft,” he said on X.

In a message posted Sunday on a People’s Liberation Army Navy social-media account and attributed to Senior Capt. Wang Xuemeng, the Chinese military said that in recent days Chinese aircraft were conducting routine flight training and that they were repeatedly approached by Japanese aircraft. Wang accused the Japanese pilots of acting unsafely.

China has the world’s largest navy and has been steadily broadening its maritime reach with large-scale drills far from Chinese shores. In June, both of Beijing’s in-service aircraft carriers were spotted operating in the Western Pacific close to Japan. During that deployment, a Japanese patrol was tailed by Chinese aircraft.

In late February and early March, three Chinese navy ships traveled through the Tasman Sea and around Australia.

The waters south of Japan would be an important theater in a Chinese military effort to take over Taiwan, a self-ruled democracy that Beijing considers its own territory, to be seized by force if necessary. Chinese leader Xi Jinping has set military modernization goals including fielding a force that could seize Taiwan by 2027, U.S. officials have said.

Responding to questions in the Japanese Parliament on Nov. 7, Takaichi said that in the hypothetical scenario of an attempt to seize Taiwan, Japan could be forced to deploy its military under the self-defense clauses of its largely pacifist constitution. She added that Japan’s longstanding position is that issues surrounding Taiwan should be resolved peacefully.

Beijing says Taiwan is a purely domestic affair and reacted with fury. It urged Chinese travelers to stay away from Japan, threatened to stop imports of Japanese seafood, and continues to wage a campaign against Takaichi herself in diplomatic circles and state and social media, where it accuses her of seeking to revive Japan’s wartime militarism.

WSJ : Why Nvidia and Other AI Stocks Have Lost Their ‘Quality’ Status

Why Nvidia and Other AI Stocks Have Lost Their ‘Quality’ Status
A popular ETF dropped Big Tech stocks, which gets at an important issue: Is the bet on artificial intelligence a vast potential profit pool, or a money pit?

Are the big AI companies giving up their status as the highest caliber stocks in the market? The question is at the heart of a debate about “quality” companies that has left two popular ETFs with wildly different performance after one ditched Nvidia and most of the rest of Big Tech.

The $48 billion iShares MSCI USA Quality Factor (ticker: QUAL) and Invesco’s $15 billion S&P 500 Quality (SPHQ) specialize in what the investment industry has dubbed quality companies. The exchange-traded funds invest only in companies that show they are safe and steady on financial measures including high profitability and low leverage.

The benchmarks that these two ETFs use to measure quality have a crucial difference, which leads to one having much more exposure to the major artificial-intelligence stocks. QUAL, which bases its definition of quality on an MSCI index, has almost a third of its holdings in five of the leading eight Big Tech stocks. SPHQ, which is based on an S&P index, holds only one, Apple.

The result has been wild swings in performance. Up to June, when Invesco dropped Nvidia, SPHQ beat QUAL by the most in any six-month period. In the past six months SPHQ has lagged behind by the most, aside from the period immediately after QUAL got going in 2013.

This is much more than a semantic debate between ETFs about what quality means. It goes to the heart of a much bigger question in markets: Is the bet on AI being made by the country’s biggest companies a vast potential profit pool or a money pit that should be sounding alarm bells?

In addition to Nvidia, SPHQ dropped Meta and Netflix in June, and Microsoft last December. The culprit, according to Nick Kalivas, head of factor and equity ETF strategy at Invesco, was the accounting concept of accruals.

Accruals are a way to gauge how much of reported earnings are based on sales that generate cash right away, rather than money owed by customers in the future or other noncash items. Cash today is obviously preferable to a promise that money will come through in the future. Things can go wrong. Customers go bust, economies change.

The S&P index behind the fund uses accruals as one of its three indicators, because high accruals are sometimes a sign of trouble ahead.

“You start to see a deterioration in the cash component of earnings, and that might indicate that your strength and the durability of your earnings might be coming under pressure,” Kalivas said.

In Nvidia’s case, there has been a jump in working capital as rapid sales growth has led to immediate costs, while payments from customers lag behind. In the latest quarter, money owed by customers, known as accounts receivable, leapt by $16 billion from the year before, to $33 billion, while money owed to suppliers, accounts payable, rose only $3 billion, to $8 billion. The gap between the two has to be funded by the company while it waits to be paid.

QUAL’s index doesn’t exclude stocks based on accruals, instead looking for steady earnings growth, which these Big Tech names have in spades. MSCI, which runs the index behind the fund, consulted customers about adding accruals last year, but decided against the move after finding it would lead to more churn in the stocks that qualify.

Rising accruals may be part of the problem that the market began worrying about a few weeks ago: Big Tech companies are pouring hundreds of billions of dollars into AI without a clear path to profit, eating into their cash on hand and increasingly needing borrowing to finance it.

Investing real money now and hoping for payments some time in the future is the core of investment. But big companies rarely spend so much on a technology where uncertainties are so high.

Wei Li, chief investment strategist at the BlackRock Investment Institute, thinks there is still more to go in the bull market. But she said the uncertainties are so big it isn’t even worth trying to forecast how much productivity—and so adoption and profit—AI might lead to.

“We spend first, and we’re hoping that at some point revenue will come,” she said. “But that hasn’t happened yet.”

Quality stocks don’t usually come with so much uncertainty about where they allocate their capital. But it’s also undeniable that Nvidia and most other Big Tech stocks have been exceptionally profitable as the AI boom intensified.

The accruals happening here aren’t the sort of accruals that make investors the most nervous. Forensic accountants worry about rising accruals as a sign of earnings manipulation or fraud, but that isn’t the concern here.

Helen Jewell, chief investment officer for fundamental equities at BlackRock, uses an accruals-like measure—cash conversion—as part of stock selection and said the point is to identify companies able to get into a “virtuous cycle” of investment.

“If you have got strong earnings and cash flow, it allows you to continuously reinvest,” she said. That investment makes more money, allowing more investment, and so on.

A separate academic finding used by neither ETF has long established that when companies splurge on capital spending, as the AI firms are now, their shares typically lag behind the rest of the market in the future. Investment strategists have been rediscovering the depressing historical link recently.

Yet, all this effort might be beside the point, said Mamdouh Medhat, research director at Dimensional Fund Advisors. He argues that there’s no need to overcomplicate quality gauges: A strategy of just buying the most profitable stocks trading at lower valuations, on average beat combined measures with accruals, stability of earnings or other tricks.

Outside the smallest companies, such a strategy already captures any gains from avoiding high-capex stocks, he says. Put simply: Don’t buy bad companies, and don’t buy the most expensive companies.

For me, the point of any quality approach is to spot strong companies where management resists the temptation to throw money at the latest fad. AI is definitely in fashion, and management is throwing money at it.

Investing based on factors aims to deliver a small premium that adds up over time. The problem with today’s market is that a handful of stocks are so big that including them, or not, can deliver, or miss out on, years of these gains in a few months. The result is that which ETF does better from here depends on investor appetite for AI at least as much as it does on quality.

>>> Barron’s weekend summary

Cover:
-This past Monday, the 50th UJA-Federation Wall Street Dinner in Times Square drew around 2,000 attendees to honor Marc Rowan, CEO of Apollo Global Management, for his philanthropic and business leadership, raising approximately $57M. Notable participants included former Goldman Sachs CEO Lloyd Blankfein and executives from JPMorgan, Morgan Stanley, and Bank of America, alongside industry leaders from Blackstone, Blue Owl Capital, Ares Management, and hedge fund executives like Dan Loeb and Paul Singer. The dinner underscored a transition on Wall Street from traditional banks to private-market firms, reflecting a shift in power dynamics well recognized by major charities. Historically, securing a position at a leading investment bank signified ultimate achievement and societal prestige, especially following significant changes since the 1970s and 1980s when banks went public and the financial landscape transformed, culminating in the 2008 financial crisis.

Interview:
-No update

Tech Trader:
-Apple Inc. recently reached a new all-time high, having surged 39% since August 1, following previous challenges with its attempt to integrate artificial intelligence (AI) through a project dubbed Apple Intelligence, which includes an upgraded Siri. This new version of Siri, akin to leading AI chatbots from OpenAI and Alphabet, was eagerly anticipated by users since its initial release in 2011, but has faced indefinite delays. The complexity arises from Apple's commitment to privacy and security, which it emphasizes as key features rather than liabilities. Consequently, new AI implementations must comply with Apple's stringent privacy standards, creating significant hurdles. Apple's preference for conducting machine learning on encrypted devices using specialized chip units conflicts with the operational requirements of advanced language models reliant on large data centers, which are impractical for mobile use. Currently, smaller models compatible with phones do not deliver satisfactory user experiences according to Apple's quality benchmarks.

The Trader:
-Inflation rates are significant enough to prompt complaints from consumers, yet not so severe that the Federal Reserve is expected to refrain from cutting interest rates on Wednesday. This anticipated decision is projected to bolster the stock market's performance through the end of 2025. In the past week, the S&P 500 index rose by 0.3% to 6870, remaining just 0.3% below its all-time high, while the Dow Jones Industrial Average and Nasdaq Composite also showed gains. Market sentiment is optimistic as only one obstacle—Federal Reserve Chair Jerome Powell—remains before what could be a strong year-end for stocks. With an 87% probability of an interest rate cut, traders show confidence in the market's trajectory. Historically, the last two weeks of December yield an average 1.4% return for stocks, and despite some troubling employment data, analysts believe that market momentum will persist due to recovering sentiment and an enthusiastic investment community. High-net-worth individuals express concerns, but overall the market is close to peak highs, indicating resilience even amid economic uncertainties.
-Oracle's recent earnings report began with optimism but ended negatively. Initially, Oracle's stock surged 36% after announcing a 359% increase in bookings, largely attributed to a significant order from OpenAI. However, the company's shares have since plummeted 35% to $214 due to concerns over OpenAI's ability to fulfill its financial commitments. Analysts have adjusted their earnings forecasts downward, largely due to the financial strain from Oracle's substantial borrowings and capital expenditures needed to develop AI-focused data storage solutions. This uncertainty surrounding OpenAI creates challenges in forecasting Oracle's stock performance. Despite these issues, Oracle's upcoming fiscal second-quarter earnings report presents an opportunity to demonstrate growth independent of OpenAI's future demand, which is not expected to materialize until 2027.

Features:
-Weyerhaeuser, the largest private owner of timberland in North America with over 10M acres, has seen its stock decline by more than 20% in 2025 due to decreased demand from new-home construction and renovation activities. Lumber prices have dropped 20% to $550/1,000 board feet, resulting in share prices of approximately $21.50, which is half their value from 2022. However, the company, offering a nearly 4% yield, trades below the value of its timber assets accumulated over a century, providing a degree of downside protection. Analysts, including Buck Horne from Raymond James, highlight that the current negative sentiment on timber is unprecedented since the early pandemic, yet they foresee potential upside if market conditions improve. Weyerhaeuser's earnings projections suggest it will earn 17 cents/share in 2025 and 26 cents in 2026, indicating a price/earnings ratio near 100, which signals a challenging financial landscape but also a potential for recovery in the timber sector.
-Netflix is describing its $82.7B acquisition of Warner Bros. Discovery as a significant step to boost growth, although it is incurring substantial debt in the process. The purchase, which includes $72B in equity and assumed debt, encompasses Warner's film and TV studio assets, HBO Max, and HBO, with closure expected within 12 to 18 months. The acquisition's cost translates to approximately 25 times the anticipated $3.3B in EBITDA by 2026, with Netflix focusing on a projected post-synergy EBITDA of $5.5 billion annually, reducing the acquisition multiple to 14.3X over three years as synergies develop.

Currently, Netflix trades at a premium compared to its media peers, positioned at about 30X next year's projected earnings and 25X EBITDA, reflecting its higher growth trajectory. Following the announcement, Netflix shares experienced a slight decline, down 2.7% to around $100.42, while Warner Bros. stock rose 3.7%, albeit still below the deal value. The complexities introduced by this acquisition could lead to investor uncertainty regarding Netflix’s strategic direction, transitioning away from organic growth towards a more intricate business model that carries regulatory and operational risks.

Europe:
-German Chancellor Friedrich Merz's approval of a significant fiscal budget for 2026, marked by a 7% increase in federal spending compared to 2024, has resulted in minimal market reaction. Despite the market's anticipation of this stimulus, as reflected in a nearly 30% rise in German equities this year (in dollar terms), actual spending may be delayed until the latter part of next year due to bureaucratic challenges within both the federal government and its 16 states. Analyst Carsten Brzeski from ING Research predicts only 1% GDP growth in Germany next year, following three years of recession and stagnation. While some sectors may benefit from the stimulus, such as Commerzbank, Volkswagen, and Siemens Energy, the DAX index companies derive only 20% of their revenue from Germany, complicating investment strategies. Additionally, foreign companies, including French firms SPIE and Compagnie de Saint-Gobain, as well as Irish builder Kingspan Group, are expected to capitalize on German infrastructure opportunities. A separate subsidy to halve electricity prices for commercial customers may provide a quicker boost to struggling German industries.

Emerging Markets:
-No update

Commodities:
-Bank of America strategists forecast potential gains for copper and oil in 2026, contingent on a robust global economy. They predict that easing tariffs and a combination of interest rate cuts and advancements in AI will bolster demand for natural resources. Specifically, they favor a bullish stance on oil/energy, suggesting it could be a strong investment amid current bearish sentiments. For copper, recent price movements—hovering around $5.45/lb. with a 10% increase over the past month—reflect a positive trend, fueled by supply concerns and increased withdrawal requests from warehouses, indicating a potential shortage. Analysts emphasize that copper mining stocks have benefited significantly, with the Global X Copper Miners ETF rising nearly 15%. Copper's price trajectory appears strong despite recent fluctuations, with hopes of breaching the $5.90 mark. Conversely, the outlook for oil remains uncertain due to a likely supply glut, exacerbated by geopolitical factors, although BofA suggests that this could present a contrarian buying opportunity should conditions change favorably.

Streetwise:
-The economy is experiencing a significant shift characterized by a movement from a lowercase 'k' to an uppercase 'K'. This metaphor, as explained by Wall Street researcher Mike Reid, reflects a divergence in economic conditions: the affluent are prospering while middle-income groups, particularly those in the 20th to 80th percentile, are facing increasing financial pressure. While the wealthy benefit from rising asset prices, which enhances their spending power, the middle class appears to be struggling, vulnerable to inflation and economic volatility. Reid notes that this situation could complicate the investment landscape, especially if economic growth becomes overly reliant on high earners. Moreover, Reid highlights demographic changes in the workforce, indicating a substantial shift in the retiree-to-worker ratio, which has escalated from nearly 1:1 to 2.5:1 since 1970. This change suggests that robust job growth may not be necessary to maintain stable unemployment rates.