1 00:00:01,280 --> 00:00:05,640 Speaker 1: This is Bloomberg business Week Inside from the reporters and 2 00:00:05,840 --> 00:00:09,400 Speaker 1: editors who bring you America's most trusted business magazine, plus 3 00:00:09,480 --> 00:00:13,640 Speaker 1: global business finance and tech news. The Bloomberg Business Week 4 00:00:13,680 --> 00:00:18,600 Speaker 1: Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. 5 00:00:20,079 --> 00:00:24,160 Speaker 1: Certainly on our radar is Shares a Block because we 6 00:00:24,280 --> 00:00:27,360 Speaker 1: have seen them take a major hit as a result 7 00:00:27,400 --> 00:00:29,800 Speaker 1: of some research out by Hindberg. You remember that's the 8 00:00:29,800 --> 00:00:32,360 Speaker 1: firm run by Nathan Anderson bolstered its profile with that 9 00:00:32,560 --> 00:00:37,239 Speaker 1: scathing report billionaire guantam Adanni's business Empire earlier this year 10 00:00:37,280 --> 00:00:40,040 Speaker 1: that really took down that name. Well, right now, he 11 00:00:40,520 --> 00:00:43,040 Speaker 1: and their team has set their sights on Block. They 12 00:00:43,040 --> 00:00:46,280 Speaker 1: did a two year investigation, and just about one and 13 00:00:46,360 --> 00:00:49,239 Speaker 1: a half hours ago, Block fought back a little bit. 14 00:00:49,320 --> 00:00:51,800 Speaker 1: So let's get into it with our own Bloomberg News 15 00:00:51,800 --> 00:00:54,680 Speaker 1: finance reporter Cat Doherty. She's here on a Bloomberg Interactive 16 00:00:54,680 --> 00:00:58,400 Speaker 1: Brokers studio joining myself and Mike Reagan, and I just 17 00:00:58,400 --> 00:01:01,160 Speaker 1: want to check Shares a Block down, still about sixteen 18 00:01:01,200 --> 00:01:04,319 Speaker 1: percent off their lows, but still taking a hit. All right, Cat, 19 00:01:04,360 --> 00:01:07,520 Speaker 1: what first of all did the Hindburg research say? I know, 20 00:01:07,560 --> 00:01:09,320 Speaker 1: it's out on social media, so people can read it 21 00:01:09,360 --> 00:01:12,800 Speaker 1: as well. But what were the highlights or lowlights. The 22 00:01:12,920 --> 00:01:17,640 Speaker 1: lowlights that their alleging is that this company took advantage 23 00:01:17,680 --> 00:01:22,720 Speaker 1: and facilitated, essentially the fraudsters who were then using government 24 00:01:22,840 --> 00:01:27,959 Speaker 1: stimulus programs during the pandemic and essentially allowing folks to 25 00:01:28,000 --> 00:01:31,280 Speaker 1: have multiple accounts. So even if an account the report 26 00:01:31,360 --> 00:01:36,720 Speaker 1: would say had been flagged as fraud, that account was 27 00:01:36,760 --> 00:01:39,679 Speaker 1: then tied to multiple other accounts and it wasn't dealt 28 00:01:39,680 --> 00:01:42,959 Speaker 1: with in a proper way. So essentially, I think that 29 00:01:43,040 --> 00:01:46,399 Speaker 1: was the key here is the extent to which the 30 00:01:46,400 --> 00:01:50,040 Speaker 1: fraudsters could actually take advantage of the system. And so 31 00:01:50,160 --> 00:01:56,240 Speaker 1: this report goes further into saying that they manipulated certain 32 00:01:57,000 --> 00:02:01,840 Speaker 1: numbers and that they either didn't go far enough to 33 00:02:02,680 --> 00:02:06,279 Speaker 1: say how many of these accounts were a fraud or 34 00:02:06,320 --> 00:02:11,040 Speaker 1: that they understated especially the customer acquisitions as well, so 35 00:02:11,080 --> 00:02:14,600 Speaker 1: that obviously, if true, it would have inflated Block's business 36 00:02:14,680 --> 00:02:17,239 Speaker 1: correct the metrics then would be off the financial metric correct. 37 00:02:17,320 --> 00:02:21,160 Speaker 1: So then Block came out and said that these claims 38 00:02:21,160 --> 00:02:25,000 Speaker 1: were inaccurate and misleading. They're saying we are registered with 39 00:02:25,000 --> 00:02:31,840 Speaker 1: the SEC we report factual, accurate information and that the 40 00:02:31,880 --> 00:02:36,799 Speaker 1: report that we saw from Hindenburg manipulated information and it 41 00:02:37,320 --> 00:02:39,680 Speaker 1: was not an accurate depiction of what's actually going on. 42 00:02:40,160 --> 00:02:42,240 Speaker 1: You know, Ken, I think when I think of block 43 00:02:42,320 --> 00:02:45,960 Speaker 1: I think of the sort of point of sale, use 44 00:02:46,000 --> 00:02:49,600 Speaker 1: a tablet iPad or whatever to swipe your credit card 45 00:02:49,600 --> 00:02:52,040 Speaker 1: out of small store or something like that. This seems 46 00:02:52,080 --> 00:02:55,600 Speaker 1: to center on a different block product, the cash app. 47 00:02:55,720 --> 00:02:58,360 Speaker 1: Is that basically the gist of that most of this 48 00:02:58,440 --> 00:03:01,359 Speaker 1: fraud that Hindenberg is alleged was using the cash app 49 00:03:01,520 --> 00:03:03,400 Speaker 1: a big part of it. And the report does seem 50 00:03:03,440 --> 00:03:06,119 Speaker 1: to be that that this cash app was likely facilitating 51 00:03:06,160 --> 00:03:10,240 Speaker 1: fraudsters taking advantage again of that government stimulus program and 52 00:03:10,320 --> 00:03:13,760 Speaker 1: in response, the state of Massachusetts. This is something that 53 00:03:13,800 --> 00:03:17,839 Speaker 1: was referenced told the short seller, So this report that 54 00:03:17,960 --> 00:03:22,200 Speaker 1: it sought to claw back close to seventy thousand unemployment 55 00:03:22,240 --> 00:03:25,680 Speaker 1: payments from the bank behind cash app accounts. That's something 56 00:03:25,720 --> 00:03:28,720 Speaker 1: that is referred to in this report. So again we'll 57 00:03:28,760 --> 00:03:32,880 Speaker 1: see what the company actually comes back, and they said 58 00:03:32,919 --> 00:03:34,840 Speaker 1: that they're going to take some legal action and they 59 00:03:34,840 --> 00:03:39,080 Speaker 1: probably will have further statements to provide. But this was 60 00:03:39,160 --> 00:03:44,280 Speaker 1: a report that was facilitated or underwent for two years. 61 00:03:44,480 --> 00:03:47,680 Speaker 1: I just want to reiterate. So the research from Hindenburgh 62 00:03:48,040 --> 00:03:51,480 Speaker 1: says Block has widely overstated its genuine user accounts and 63 00:03:51,520 --> 00:03:54,920 Speaker 1: has understated its customer acquisition costs. FORM employees estimated that 64 00:03:55,080 --> 00:03:58,240 Speaker 1: forty to seventy five percent of counts they reviewed were fake, 65 00:03:58,360 --> 00:04:00,720 Speaker 1: involved in fraud, or were additional counts tied to a 66 00:04:00,720 --> 00:04:05,840 Speaker 1: single individual. If that is the case, and I'm curious, 67 00:04:05,840 --> 00:04:08,240 Speaker 1: as you guys are reporting this out, looking at Block 68 00:04:08,360 --> 00:04:12,440 Speaker 1: and looking at its balance sheet, how would that materially 69 00:04:13,000 --> 00:04:17,080 Speaker 1: financially change the story of Block. Well, I think the 70 00:04:17,120 --> 00:04:20,040 Speaker 1: first thing to look at is regulatory or response. So 71 00:04:20,120 --> 00:04:24,560 Speaker 1: this is going to be this is already a regulated company, 72 00:04:24,640 --> 00:04:26,960 Speaker 1: but it's going to be scrutinized, and the report is 73 00:04:27,000 --> 00:04:29,000 Speaker 1: going to be cross checked, I'm sure with the public 74 00:04:29,040 --> 00:04:32,159 Speaker 1: information that's out there. So that's the first thing that 75 00:04:32,279 --> 00:04:34,280 Speaker 1: I think is going to be the next course of action. 76 00:04:35,120 --> 00:04:38,039 Speaker 1: And then as information starts to come out, either a 77 00:04:38,080 --> 00:04:42,120 Speaker 1: company may clarify certain things, or who knows, parts of 78 00:04:42,120 --> 00:04:44,760 Speaker 1: this report could be corroborated, in which case if things 79 00:04:44,760 --> 00:04:47,800 Speaker 1: are proven true, well then we have other problems, or 80 00:04:47,839 --> 00:04:50,599 Speaker 1: the company has further problems that then answers that they 81 00:04:50,680 --> 00:04:52,280 Speaker 1: need to get. If I guess my case is like Mike, 82 00:04:52,360 --> 00:04:54,880 Speaker 1: I think if that's the case, If that's true, right, 83 00:04:54,960 --> 00:04:57,320 Speaker 1: it's a very different in terms of how you value 84 00:04:57,320 --> 00:04:59,119 Speaker 1: the company, how you look at the growth in the business, 85 00:04:59,560 --> 00:05:02,159 Speaker 1: lack their do they need to restate earnings or you know, 86 00:05:02,279 --> 00:05:05,240 Speaker 1: is it really facing a big fine and punitive damages 87 00:05:05,320 --> 00:05:08,360 Speaker 1: that has everyone concerned in the stock price? But ket 88 00:05:08,360 --> 00:05:10,800 Speaker 1: you know, one thing I think's interesting is, um they're 89 00:05:10,839 --> 00:05:13,039 Speaker 1: not the only company you who's had to deal with 90 00:05:13,200 --> 00:05:17,200 Speaker 1: fraud claims when it comes to the government stimulus payments. 91 00:05:17,240 --> 00:05:19,360 Speaker 1: Other other banks have two. Right? Is it just that 92 00:05:19,800 --> 00:05:24,800 Speaker 1: block is way at least according to Hindenberg, just way 93 00:05:24,839 --> 00:05:26,840 Speaker 1: out there. As far as how many they allowed happen, 94 00:05:27,440 --> 00:05:30,279 Speaker 1: I don't know the exact comparison in terms of numbers. 95 00:05:30,320 --> 00:05:32,520 Speaker 1: I do know that there there have been other banks 96 00:05:32,600 --> 00:05:36,320 Speaker 1: that were caught in. It was like credit card payments 97 00:05:36,320 --> 00:05:39,800 Speaker 1: when when the government was giving out stimulus on the 98 00:05:39,839 --> 00:05:43,040 Speaker 1: form of what was essentially debit cards, and those were 99 00:05:43,480 --> 00:05:46,200 Speaker 1: manipulated in ways where people were taking more debit cards 100 00:05:46,200 --> 00:05:49,880 Speaker 1: than they actually were allowed. Um. So that's that's another 101 00:05:50,000 --> 00:05:52,640 Speaker 1: case I think this is very different. It sounds I'm 102 00:05:52,640 --> 00:05:56,760 Speaker 1: not I'm not exactly sure how the the app. It 103 00:05:57,160 --> 00:05:59,640 Speaker 1: seems like how the app was used was just adding 104 00:05:59,720 --> 00:06:03,480 Speaker 1: more accounts and so you had one person. But they're 105 00:06:03,520 --> 00:06:06,719 Speaker 1: taking advantage and using multiple accounts that they're therefore getting 106 00:06:06,760 --> 00:06:09,440 Speaker 1: more stimulus when they're only supposed to be allowed to 107 00:06:09,480 --> 00:06:11,680 Speaker 1: use one account. Yeah, and it's interesting. You do have 108 00:06:11,760 --> 00:06:14,680 Speaker 1: the analyst community, you know, starting to weigh in. Certainly. 109 00:06:14,720 --> 00:06:18,720 Speaker 1: Raymond James came out earlier today contending that the report 110 00:06:19,360 --> 00:06:21,719 Speaker 1: and the short by Hindenburg doesn't include a lot of 111 00:06:21,960 --> 00:06:25,800 Speaker 1: new and in quotation marks news are a bombshell and 112 00:06:25,880 --> 00:06:28,160 Speaker 1: argues that the biggest risk is potentially drawing scrutiny from 113 00:06:28,200 --> 00:06:31,679 Speaker 1: regulators and politicians, which would create some overhang on the stock. 114 00:06:31,760 --> 00:06:34,200 Speaker 1: Right now, we've got forty one buys on block ten 115 00:06:34,240 --> 00:06:36,520 Speaker 1: holes and two cells, So you know, Wall Street for 116 00:06:36,520 --> 00:06:40,800 Speaker 1: the most part, likes this. I was curious and forgive 117 00:06:40,800 --> 00:06:42,520 Speaker 1: me if this is out of your purview, But when 118 00:06:42,560 --> 00:06:45,400 Speaker 1: I think about short sellers, we're always so careful right 119 00:06:45,440 --> 00:06:47,679 Speaker 1: when we bring up a short seller, and we always 120 00:06:47,680 --> 00:06:49,400 Speaker 1: want to make sure we get a comment from the company. 121 00:06:49,440 --> 00:06:53,080 Speaker 1: But having said that, what are the laws rules, if 122 00:06:53,120 --> 00:06:55,919 Speaker 1: you will, if any when it comes to somebody at 123 00:06:55,960 --> 00:06:59,520 Speaker 1: somebody coming out with a blockbuster report like Hindenburg and 124 00:06:59,640 --> 00:07:03,400 Speaker 1: being such a short on the company, what are their responsibilities. 125 00:07:03,520 --> 00:07:06,000 Speaker 1: So we've we've seen a number of reports from Hindenburgh, 126 00:07:06,560 --> 00:07:09,440 Speaker 1: most notably recently a Donnie Right UM, and we saw 127 00:07:09,480 --> 00:07:12,320 Speaker 1: Clover Health UM. And these reports they are they are allowed. 128 00:07:12,360 --> 00:07:14,320 Speaker 1: It's not as if once these reports come out then 129 00:07:16,320 --> 00:07:19,440 Speaker 1: now yeah, exactly, it's it's it's as if another analyst 130 00:07:19,560 --> 00:07:22,760 Speaker 1: is putting out UM. I mean, it's it's commentary, and 131 00:07:22,800 --> 00:07:24,680 Speaker 1: it's it's you could even put out a tweet, now 132 00:07:24,680 --> 00:07:26,400 Speaker 1: that's going to be scrutinized in a different way. I 133 00:07:26,400 --> 00:07:29,680 Speaker 1: think this, this report actually I believe did come through 134 00:07:29,800 --> 00:07:32,760 Speaker 1: a tweet, which is did it through social media? Through 135 00:07:32,840 --> 00:07:35,640 Speaker 1: social media? And I know that that's been circulated and 136 00:07:35,680 --> 00:07:38,800 Speaker 1: there's been a lot of responses since then. UM. But 137 00:07:38,960 --> 00:07:42,480 Speaker 1: I do think that the big question is the regulatory 138 00:07:42,520 --> 00:07:46,640 Speaker 1: scrutiny of the company here. Um. The report is what 139 00:07:46,680 --> 00:07:50,400 Speaker 1: it is, and it'll be used and looked at. UM. 140 00:07:50,480 --> 00:07:54,960 Speaker 1: But some of the fundamental questions or I guess fundamental 141 00:07:55,120 --> 00:07:57,480 Speaker 1: aspects of the company that the report is pointing out 142 00:07:57,960 --> 00:07:59,760 Speaker 1: they may be looked at in a different way just 143 00:07:59,800 --> 00:08:02,640 Speaker 1: because of what they started to explore. And it's you know, 144 00:08:02,640 --> 00:08:06,320 Speaker 1: it's interesting because not every activist short seller report is 145 00:08:06,400 --> 00:08:08,600 Speaker 1: met with this type of reaction in the stock market, 146 00:08:08,680 --> 00:08:13,000 Speaker 1: which kind of speaks to the reputation Hindenburg has. What 147 00:08:13,120 --> 00:08:15,040 Speaker 1: can you tell us about sort of their track record 148 00:08:15,080 --> 00:08:17,120 Speaker 1: with this type of thing. It seems to me like 149 00:08:17,160 --> 00:08:21,000 Speaker 1: they're pretty good at knocking share prices down and leaving 150 00:08:21,040 --> 00:08:24,800 Speaker 1: them down for a long time. Yes, especially immediately. I 151 00:08:24,840 --> 00:08:28,680 Speaker 1: mean the shares today of block were down twenty two percent. 152 00:08:28,720 --> 00:08:31,240 Speaker 1: They've since recovered a little bit, especially since the company 153 00:08:31,320 --> 00:08:38,400 Speaker 1: responded put out its own statement, But Donnie Clover Health, 154 00:08:38,440 --> 00:08:40,120 Speaker 1: those were some of the big ones that at least 155 00:08:40,160 --> 00:08:43,880 Speaker 1: I was tracking. They've recovered the six month period. Some 156 00:08:43,920 --> 00:08:47,760 Speaker 1: of these stocks they lost significant market valuation and then 157 00:08:48,160 --> 00:08:52,199 Speaker 1: have after half of a year gone back to before, 158 00:08:52,920 --> 00:08:54,760 Speaker 1: to where they were before the reports came out. So 159 00:08:54,800 --> 00:08:57,200 Speaker 1: it really depends on the name and I think to 160 00:08:57,240 --> 00:08:59,400 Speaker 1: the extent of what is included in the report, how 161 00:08:59,520 --> 00:09:05,760 Speaker 1: damning actually is. And then also if there's any information 162 00:09:05,800 --> 00:09:08,720 Speaker 1: that comes out even after the report, either to prove 163 00:09:08,760 --> 00:09:11,280 Speaker 1: it false, or true. Yeah, that's what I'm thinking out. 164 00:09:11,280 --> 00:09:13,240 Speaker 1: I mean the stock, I mean, Block could do no 165 00:09:13,320 --> 00:09:15,360 Speaker 1: wrong for such a long time and Wall Street loved 166 00:09:15,400 --> 00:09:17,720 Speaker 1: it right, and then it's down I think about seventy 167 00:09:17,720 --> 00:09:21,880 Speaker 1: five percent since August of I think, going back to 168 00:09:22,200 --> 00:09:25,520 Speaker 1: twenty twenty one. I mean, it's way down a lot. 169 00:09:25,640 --> 00:09:27,800 Speaker 1: One of those high growth fintects that it was a 170 00:09:27,880 --> 00:09:31,280 Speaker 1: pandemic Darling really was, and none of them are performing 171 00:09:31,320 --> 00:09:35,160 Speaker 1: too well in this environment. But you don't see that 172 00:09:35,240 --> 00:09:38,679 Speaker 1: kind of instant knee jerk reaction very often. It's pretty dramatic. Well, 173 00:09:38,720 --> 00:09:40,760 Speaker 1: I guess stay tuned right and just see kind of 174 00:09:40,760 --> 00:09:42,439 Speaker 1: what the next step is. The stock though shares a 175 00:09:42,440 --> 00:09:44,920 Speaker 1: block still down about sixteen percent here off their loads 176 00:09:44,920 --> 00:09:48,440 Speaker 1: of the day, but nonetheless a pretty significant hit. Kat, 177 00:09:48,480 --> 00:09:50,320 Speaker 1: thank you so much. Glad you could come in and 178 00:09:50,360 --> 00:09:53,200 Speaker 1: just kind of laid out for us. Kat Doherty, Finance reporter, 179 00:09:53,280 --> 00:09:56,360 Speaker 1: apt Bloomberg News. Here in our Bloomberg Interactive Brokers studio, 180 00:09:57,040 --> 00:10:00,640 Speaker 1: you're listening to the Bloomberg Business Week podcast. Catch us 181 00:10:00,640 --> 00:10:04,000 Speaker 1: live weekday afternoons from three to six Eastern Listen on 182 00:10:04,080 --> 00:10:07,320 Speaker 1: Bloomberg dot com, the Ion Radio app, and the Bloomberg 183 00:10:07,400 --> 00:10:11,439 Speaker 1: Business app or watch us live on YouTube. We want 184 00:10:11,440 --> 00:10:13,600 Speaker 1: to talk a little bit about something Bloomberg News giving 185 00:10:13,679 --> 00:10:16,880 Speaker 1: heads up on yesterday, and that is the Ford Motor Company. 186 00:10:16,960 --> 00:10:21,600 Speaker 1: We're getting more clarity, more specifics, the company predicting losses 187 00:10:21,600 --> 00:10:24,680 Speaker 1: in its EV business electric vehicle business will grow to 188 00:10:24,800 --> 00:10:27,120 Speaker 1: three billion dollars this year as it spends big on 189 00:10:27,160 --> 00:10:30,960 Speaker 1: new models and factories, the deficit matching it's accumulated EV 190 00:10:31,120 --> 00:10:34,760 Speaker 1: losses over the past two years. The stock right now 191 00:10:34,800 --> 00:10:36,360 Speaker 1: a little bit lower, though we did see a little 192 00:10:36,360 --> 00:10:38,640 Speaker 1: bit higher earlier in today's session. So let's get to 193 00:10:38,679 --> 00:10:41,240 Speaker 1: it with Bloomberg News auto reporter Keith Noughton. He's with 194 00:10:41,360 --> 00:10:45,400 Speaker 1: us following this via zoom in Detroit. So, Keith, three 195 00:10:45,400 --> 00:10:49,000 Speaker 1: billion dollars sounds like a lot you guys were giving us. 196 00:10:49,040 --> 00:10:50,920 Speaker 1: You were giving us a heads up on it yesterday. 197 00:10:50,960 --> 00:10:54,439 Speaker 1: Why the losses and put it in perspective? Well, what 198 00:10:54,520 --> 00:10:57,920 Speaker 1: Ford says, Carol, is that the EV business is like 199 00:10:58,000 --> 00:11:01,680 Speaker 1: a startup within side side Ford Boda company, and like 200 00:11:01,800 --> 00:11:05,200 Speaker 1: any startup, they incur a lot of losses as they 201 00:11:05,240 --> 00:11:09,959 Speaker 1: spend for future growth. So what that spending is they 202 00:11:09,960 --> 00:11:13,480 Speaker 1: are currently working on their second generation of electric vehicles. 203 00:11:13,480 --> 00:11:16,280 Speaker 1: You know, they already have the electric F one fifty 204 00:11:16,360 --> 00:11:19,760 Speaker 1: lightning pickup truck out there and the Mustang Makie. So 205 00:11:19,840 --> 00:11:22,440 Speaker 1: now they're working on the second generation of electric vehicles, 206 00:11:22,480 --> 00:11:25,600 Speaker 1: which will be ground up and cost a lot of money. 207 00:11:25,640 --> 00:11:28,120 Speaker 1: And they are on a building spree. They're building their 208 00:11:28,120 --> 00:11:31,880 Speaker 1: first new assembly plant in fifty years in Tennessee to 209 00:11:31,960 --> 00:11:36,320 Speaker 1: build electric F series trucks, and they're building battery factories 210 00:11:36,360 --> 00:11:39,120 Speaker 1: in Tennessee, Kentucky, and Michigan. So they've got a lot 211 00:11:39,160 --> 00:11:42,800 Speaker 1: of factory construction going on, and they've got a lot 212 00:11:42,840 --> 00:11:46,120 Speaker 1: of spending on new models. You know, Keith, it seems 213 00:11:46,120 --> 00:11:48,600 Speaker 1: to have caught the market at least somewhat by surprise 214 00:11:48,760 --> 00:11:51,760 Speaker 1: that the loss would be this big. Correct me if 215 00:11:51,800 --> 00:11:55,400 Speaker 1: I'm wrong about that. But what is the story? There's 216 00:11:55,520 --> 00:11:59,679 Speaker 1: just that this spending, these investments they're making are a 217 00:11:59,720 --> 00:12:01,800 Speaker 1: lot bigger than what they projected, or at least what 218 00:12:01,840 --> 00:12:05,120 Speaker 1: analysts were penciling in. You know, Ford has said that 219 00:12:05,160 --> 00:12:08,480 Speaker 1: they're planning to spend fifty billion in total on electric 220 00:12:08,559 --> 00:12:11,840 Speaker 1: vehicles by twenty twenty six. The plan is to ramp 221 00:12:11,960 --> 00:12:16,040 Speaker 1: up their factory production to be producing two million vehicles 222 00:12:16,040 --> 00:12:18,800 Speaker 1: a year by the end of twenty twenty six. Last 223 00:12:18,880 --> 00:12:22,200 Speaker 1: year they sold about sixty five thousand in America. So 224 00:12:22,400 --> 00:12:26,120 Speaker 1: it's a very steep ramp and a very big spend 225 00:12:26,559 --> 00:12:29,160 Speaker 1: because you know, they don't want to be left behind 226 00:12:29,240 --> 00:12:32,280 Speaker 1: in this transition to electric vehicles and they're trying to 227 00:12:32,360 --> 00:12:37,760 Speaker 1: catch Tesla. The losses are rising, not going down. They 228 00:12:37,800 --> 00:12:40,280 Speaker 1: had a nine hundred million dollars loss in twenty one. 229 00:12:40,760 --> 00:12:43,080 Speaker 1: They had a two point one billion dollar loss on 230 00:12:43,160 --> 00:12:45,959 Speaker 1: evs last year, and then it'll be up forty three 231 00:12:46,000 --> 00:12:48,800 Speaker 1: percent this year to that three billion figure we're talking about. 232 00:12:49,080 --> 00:12:52,679 Speaker 1: So they're in this heavy investment period. But they say 233 00:12:53,200 --> 00:12:56,000 Speaker 1: they will be profitable on an earning sefore interest in 234 00:12:56,080 --> 00:12:59,719 Speaker 1: taxes basis by the end of twenty twenty six of 235 00:13:00,120 --> 00:13:03,520 Speaker 1: an eight percent EBIT margin. They say on the evs, Hey, Keith, 236 00:13:03,520 --> 00:13:05,600 Speaker 1: help me out though. Like two Mike's point, And you 237 00:13:05,640 --> 00:13:07,840 Speaker 1: know the stock earlier Ford was up two point six 238 00:13:07,880 --> 00:13:11,920 Speaker 1: percent earlier in the session before it moved a little 239 00:13:11,920 --> 00:13:14,800 Speaker 1: bit lower. And I guess you've covered this inside and out, 240 00:13:14,840 --> 00:13:17,280 Speaker 1: and I feel like the Wall Street community who covers 241 00:13:17,920 --> 00:13:19,800 Speaker 1: Ford gets what they have to do. I get this 242 00:13:19,880 --> 00:13:22,840 Speaker 1: concept of a startup within you a bigger, broader company. 243 00:13:23,960 --> 00:13:26,960 Speaker 1: Is the street to somewhat to some extent, kind of 244 00:13:27,080 --> 00:13:29,439 Speaker 1: comfortable with it. I'm not seeing any analys calls come out, 245 00:13:29,480 --> 00:13:32,760 Speaker 1: any downgrades at least not yet, or any kind of moves, 246 00:13:32,840 --> 00:13:35,400 Speaker 1: So the street aware that this is what it's going 247 00:13:35,440 --> 00:13:39,640 Speaker 1: to take for this transition. Yeah, Carol. Actually, the three 248 00:13:39,720 --> 00:13:43,560 Speaker 1: billion dollars loss, which sounds awful, I understand, is not 249 00:13:43,679 --> 00:13:46,840 Speaker 1: as bad as some analysts were projecting. There are projections 250 00:13:46,840 --> 00:13:50,520 Speaker 1: out there of they thought Ford lost six billion last 251 00:13:50,600 --> 00:13:54,800 Speaker 1: year on electric vehicles. So while three billions bad, maybe 252 00:13:54,840 --> 00:13:57,599 Speaker 1: not as bad as the market expected. The stock was 253 00:13:57,679 --> 00:14:00,240 Speaker 1: up as much as two percent in the morning. Um. 254 00:14:01,000 --> 00:14:04,600 Speaker 1: During the morning. Also, Fords CFO John Lawler was doing 255 00:14:04,600 --> 00:14:08,800 Speaker 1: this teach in at the NYS with analysts, so, um, 256 00:14:09,120 --> 00:14:12,080 Speaker 1: you know, they are trying to explain this walk to profitability. 257 00:14:12,240 --> 00:14:15,640 Speaker 1: I was listening in. The analysts seemed fairly skeptical that 258 00:14:15,679 --> 00:14:19,200 Speaker 1: they could get to there from here. It's a big walk. 259 00:14:20,240 --> 00:14:26,800 Speaker 1: Last year's EBIT margin on electric vehicles as negative forty percent. Yeah, 260 00:14:27,640 --> 00:14:29,960 Speaker 1: it's a say, by the end of twenty six will 261 00:14:29,960 --> 00:14:34,160 Speaker 1: be a positive eight percent. That's a lot. So analysts 262 00:14:34,160 --> 00:14:37,960 Speaker 1: were skeptical probably right there. So you know, Keith as 263 00:14:37,960 --> 00:14:40,680 Speaker 1: a Twitter addict over here, you know, it's it's hard 264 00:14:40,760 --> 00:14:46,040 Speaker 1: not to notice the distraction Elon Musk has undertaken with 265 00:14:46,120 --> 00:14:50,280 Speaker 1: his purchase of Twitter and getting very political on that 266 00:14:50,840 --> 00:14:54,240 Speaker 1: on the site itself, turning a lot of people off 267 00:14:54,320 --> 00:14:58,600 Speaker 1: with some of his m political opinions and culture war 268 00:14:58,760 --> 00:15:01,560 Speaker 1: type of opinions. So I'm wondering, like, what is the 269 00:15:01,680 --> 00:15:04,600 Speaker 1: lane do you think and the strategy at Ford to 270 00:15:04,720 --> 00:15:10,360 Speaker 1: actually take some share from Tesla? Does Musk's personality play 271 00:15:10,360 --> 00:15:12,080 Speaker 1: into it at all? Or is it just a matter 272 00:15:12,160 --> 00:15:15,440 Speaker 1: of they want to make cheaper cars, better cars? What's 273 00:15:15,480 --> 00:15:20,720 Speaker 1: their strategy entail for getting that share away from Tesla? Right? So? 274 00:15:20,800 --> 00:15:23,600 Speaker 1: I mean Ford strategy is they are going straight for 275 00:15:23,640 --> 00:15:27,000 Speaker 1: the mainstream. You know where Tesla's sell best is on 276 00:15:27,040 --> 00:15:29,800 Speaker 1: the coasts right there. They kind of sell to the converted, 277 00:15:29,880 --> 00:15:33,280 Speaker 1: if you will, Folks who are wealthy and are inclined 278 00:15:33,680 --> 00:15:38,240 Speaker 1: to take actions to either because of climate change or 279 00:15:38,280 --> 00:15:43,520 Speaker 1: because that's you know, that's what is the current you know, 280 00:15:43,640 --> 00:15:45,880 Speaker 1: going Trent, and they have the money to afford that. 281 00:15:46,440 --> 00:15:50,040 Speaker 1: Ford's going for the big middle in America that buy 282 00:15:50,080 --> 00:15:53,440 Speaker 1: pickup trucks and buy Mustangs. The things that Ford is 283 00:15:53,480 --> 00:15:57,320 Speaker 1: electrifying are these sort of classic names that have been 284 00:15:57,360 --> 00:16:00,440 Speaker 1: popular in Middle America for years, and so far they're 285 00:16:00,480 --> 00:16:02,920 Speaker 1: after a very strong start. You know, the F one 286 00:16:03,040 --> 00:16:06,160 Speaker 1: fifty lightning plug in pickup truck head two hundred thousand 287 00:16:06,240 --> 00:16:09,240 Speaker 1: reservations when it went out to sale last April. And 288 00:16:09,280 --> 00:16:12,160 Speaker 1: they are doubling the capacity right now at the Mexican 289 00:16:12,240 --> 00:16:15,520 Speaker 1: factory that builds the Mustang Maki. That'll be able to 290 00:16:15,560 --> 00:16:18,640 Speaker 1: produce two hundred and ten models, two hundred and ten 291 00:16:18,680 --> 00:16:20,680 Speaker 1: thousand models a year by the end of this year. 292 00:16:21,600 --> 00:16:23,960 Speaker 1: And you know, last year they produced fewer than one 293 00:16:24,040 --> 00:16:28,000 Speaker 1: hundred thousand, So it's it's working so far, but it's 294 00:16:28,200 --> 00:16:30,840 Speaker 1: very early days. For four they are the second bestseller 295 00:16:30,880 --> 00:16:34,560 Speaker 1: of electric vehicles in America, but they're miles behind Tesla, 296 00:16:34,920 --> 00:16:38,440 Speaker 1: which controls two thirds of the EV market in America. 297 00:16:38,680 --> 00:16:41,400 Speaker 1: You know, I keep wondering, you know, Keith, in terms 298 00:16:41,440 --> 00:16:44,240 Speaker 1: of a company like a Ford or General Motors that 299 00:16:44,480 --> 00:16:47,240 Speaker 1: still think, oh, they have internal combustion engine vehicles, right, 300 00:16:47,240 --> 00:16:49,400 Speaker 1: because they still make a lot of money off of that, right, 301 00:16:49,440 --> 00:16:52,120 Speaker 1: And that's kind of the flip side. But having said that, 302 00:16:52,480 --> 00:16:55,880 Speaker 1: I wonder how much of that is a drag, you know, 303 00:16:56,000 --> 00:16:58,880 Speaker 1: in terms of really being out there with evs right 304 00:16:58,920 --> 00:17:02,000 Speaker 1: Elon Musk is a pure play doing it differently, And 305 00:17:02,120 --> 00:17:06,159 Speaker 1: I just wonder if that longer term is going to 306 00:17:06,200 --> 00:17:09,439 Speaker 1: be a problem for Ford or GM or not. I 307 00:17:09,440 --> 00:17:12,639 Speaker 1: mean Ford and GM, but Ford is saying that, you know, 308 00:17:13,240 --> 00:17:16,280 Speaker 1: internal combustion engine vehicles are still a growth business for them. 309 00:17:16,280 --> 00:17:20,800 Speaker 1: They sell lots of Bronco SUVs. They sell you know, 310 00:17:20,880 --> 00:17:23,800 Speaker 1: like nine hundred thousand F series trucks every year. I mean, 311 00:17:23,840 --> 00:17:27,439 Speaker 1: it's the best selling vehicle in America since the first 312 00:17:27,640 --> 00:17:32,360 Speaker 1: Reagan administration. Wow. So so there's a huge I mean, 313 00:17:32,640 --> 00:17:34,679 Speaker 1: you have to keep in mind that electric vehicles make 314 00:17:34,760 --> 00:17:38,320 Speaker 1: up five point eight percent of the US market. So 315 00:17:38,560 --> 00:17:42,119 Speaker 1: every nine and a half vehicle sold is still a 316 00:17:42,200 --> 00:17:46,840 Speaker 1: gas fueled car or truck. And is the F one 317 00:17:46,960 --> 00:17:51,359 Speaker 1: fifty lightning the actual performance of that vehicle enough to 318 00:17:51,600 --> 00:17:54,920 Speaker 1: convert the type of people that already own the gas 319 00:17:54,920 --> 00:17:58,760 Speaker 1: powered pickup truck. Yeah. You know, it's an interesting question 320 00:17:58,880 --> 00:18:02,280 Speaker 1: because you know, those folks wouldn't seem to be necessary 321 00:18:02,280 --> 00:18:04,679 Speaker 1: they sell mostly in Red states. They wouldn't seem to 322 00:18:04,720 --> 00:18:08,600 Speaker 1: necessarily be folks who are um, you know, trying to 323 00:18:08,640 --> 00:18:11,879 Speaker 1: address climate change in their vehicle purchases. But you know 324 00:18:11,960 --> 00:18:14,840 Speaker 1: what the Lightning has done. It's popularity is actually with 325 00:18:14,920 --> 00:18:19,040 Speaker 1: newcomers to Ford and newcomers to pickup trucks. Ford says, 326 00:18:19,040 --> 00:18:21,600 Speaker 1: you know, more than sixty percent of the sales of 327 00:18:21,720 --> 00:18:24,359 Speaker 1: the Lightning go to these new beats, not to the 328 00:18:24,480 --> 00:18:28,040 Speaker 1: traditional truckers. But eventually, if you're going to convert the fleet, 329 00:18:28,040 --> 00:18:30,879 Speaker 1: the best selling vehicles in America are the Ford truck, 330 00:18:31,480 --> 00:18:35,879 Speaker 1: the GM truck, and the you know, uh Ram truck. 331 00:18:35,920 --> 00:18:38,960 Speaker 1: It's that's that's what Americans buy. And so if you're 332 00:18:38,960 --> 00:18:41,760 Speaker 1: going to electrify the vehicle fleet in this country, you 333 00:18:41,840 --> 00:18:45,000 Speaker 1: have to be successful in electrifying pickup trucks, which is 334 00:18:45,000 --> 00:18:47,520 Speaker 1: of course why Elon Musk is doing the cyber truck. 335 00:18:48,600 --> 00:18:51,560 Speaker 1: It's so interesting in terms of all that's going on. Um, 336 00:18:51,840 --> 00:18:54,119 Speaker 1: I forgot about the cyber truck. How could you forget 337 00:18:54,119 --> 00:18:59,640 Speaker 1: how cyber truck? We're waiting right exactly all right? But yeah, 338 00:19:00,880 --> 00:19:03,720 Speaker 1: Keith not in good stuff. Out of reporter at Bloomberg News. 339 00:19:03,760 --> 00:19:07,960 Speaker 1: Joining us via zoom from Detroit. You're listening to the 340 00:19:08,000 --> 00:19:12,240 Speaker 1: Bloomberg Business Week podcast. Catch us Live weekday afternoons from 341 00:19:12,280 --> 00:19:16,160 Speaker 1: three to six Eastern on Bloomberg Radio, the Bloomberg Business App, 342 00:19:16,240 --> 00:19:19,720 Speaker 1: and YouTube. You can also listen live on Amazon Alexa 343 00:19:19,800 --> 00:19:23,160 Speaker 1: from our flagship New York station, Just say Alexa play 344 00:19:23,240 --> 00:19:28,160 Speaker 1: Bloomberg eleven thirty, joining Mike and myself. Bloomberg News Technology. 345 00:19:28,240 --> 00:19:31,959 Speaker 1: Put Alex Barenka joining us right now. She's been up 346 00:19:32,000 --> 00:19:35,640 Speaker 1: on Capitol Hill, So all right, Alex. First of all, 347 00:19:35,680 --> 00:19:37,640 Speaker 1: a lot to get to tell us about the mood 348 00:19:37,640 --> 00:19:40,000 Speaker 1: in the room, how packed it was. Paint the picture 349 00:19:40,080 --> 00:19:43,760 Speaker 1: for us, Carol. It was packed to the brim. Folks 350 00:19:43,760 --> 00:19:47,080 Speaker 1: were overflowing, We were dropping for seats, even as credentialed 351 00:19:47,119 --> 00:19:50,560 Speaker 1: media and sitting right behind TikTok was also kind of 352 00:19:50,560 --> 00:19:53,399 Speaker 1: a slew of creators. All of these folks got to 353 00:19:53,400 --> 00:19:55,359 Speaker 1: witness what I would say is probably one of the 354 00:19:55,400 --> 00:19:58,960 Speaker 1: more contentious congressional hearings that we heard. There was a 355 00:19:59,000 --> 00:20:02,240 Speaker 1: lot of cutting off of the CEO when he was 356 00:20:02,280 --> 00:20:04,920 Speaker 1: trying to give answers, a lot of pushing to try 357 00:20:04,960 --> 00:20:08,080 Speaker 1: to get him to commit to these yes or no questions? 358 00:20:08,800 --> 00:20:11,840 Speaker 1: Do you have any relationship with the Chinese Communist Party? 359 00:20:12,040 --> 00:20:15,399 Speaker 1: Who is prepping you today for today? Was there anyone 360 00:20:15,440 --> 00:20:18,280 Speaker 1: from China in doing so. There was also a lot 361 00:20:18,320 --> 00:20:21,560 Speaker 1: of emotion both when it came to the protection of 362 00:20:22,000 --> 00:20:25,800 Speaker 1: US American users data, which those national security concerns have 363 00:20:25,880 --> 00:20:28,959 Speaker 1: been top of mind, but there was also some really 364 00:20:29,040 --> 00:20:32,960 Speaker 1: kind of emotional moments talking about the impact that social 365 00:20:33,000 --> 00:20:36,000 Speaker 1: media can have on teens, particularly around users who are 366 00:20:36,000 --> 00:20:39,760 Speaker 1: posting about suicide on the app. So very high stakes moment, 367 00:20:39,880 --> 00:20:43,080 Speaker 1: and a lot of tension in that room between the 368 00:20:43,119 --> 00:20:46,840 Speaker 1: CEO and the lawmakers who were not holding back in 369 00:20:46,960 --> 00:20:49,639 Speaker 1: firing questions his way. You know, Alex, I'd love to 370 00:20:49,720 --> 00:20:52,600 Speaker 1: unpack a little bit that notion of the personal data. 371 00:20:53,119 --> 00:20:54,840 Speaker 1: You know, that seems to be one of the main 372 00:20:55,200 --> 00:20:59,720 Speaker 1: lynch pins here that Agger's politicians about TikTok, is all 373 00:20:59,760 --> 00:21:02,280 Speaker 1: this personal data. I gotta say, I've got three teenage 374 00:21:02,359 --> 00:21:05,239 Speaker 1: daughters who were all TikTok addicts. I don't know what 375 00:21:05,320 --> 00:21:09,320 Speaker 1: data they have that the communists China would be interested in, 376 00:21:09,359 --> 00:21:12,560 Speaker 1: but obviously that's probably not what's wearing people. What is 377 00:21:12,600 --> 00:21:15,560 Speaker 1: the type of data that's so precious and so dangerous 378 00:21:15,600 --> 00:21:19,440 Speaker 1: to leak from TikTok into China. So today we heard 379 00:21:19,880 --> 00:21:23,879 Speaker 1: folks talk about IP addresses, which is kind of could 380 00:21:24,080 --> 00:21:28,800 Speaker 1: narrow down your location GPS data and that additional location data. 381 00:21:29,080 --> 00:21:32,160 Speaker 1: And then you had some questions from TikTok CEO show 382 00:21:32,200 --> 00:21:35,679 Speaker 1: to himself saying, what else should I be kind of 383 00:21:35,680 --> 00:21:38,920 Speaker 1: helping protect US user data for? You asked this question, Michael, 384 00:21:38,920 --> 00:21:41,560 Speaker 1: and it's one that a lot of folks have talked 385 00:21:41,560 --> 00:21:44,920 Speaker 1: about in context of TikTok. They're being national security concerns 386 00:21:44,960 --> 00:21:48,479 Speaker 1: about data. The company feels like they are doing as 387 00:21:48,600 --> 00:21:51,479 Speaker 1: much as they can to protect American users data. They 388 00:21:51,480 --> 00:21:54,639 Speaker 1: would argue more than any of their peers by basically 389 00:21:54,720 --> 00:21:58,680 Speaker 1: setting up this firewall with Oracle to bring all Americans 390 00:21:58,800 --> 00:22:02,960 Speaker 1: data onto US soil. You saw him push back today 391 00:22:03,560 --> 00:22:05,680 Speaker 1: in the very few times that he did push back, 392 00:22:06,000 --> 00:22:09,200 Speaker 1: basically saying, some of these concerns that you guys are alleging, 393 00:22:09,640 --> 00:22:13,119 Speaker 1: they're hypotheticals. If you give us more specific information, we 394 00:22:13,200 --> 00:22:15,960 Speaker 1: can kind of work for that. So, you know, young 395 00:22:16,040 --> 00:22:18,880 Speaker 1: folks might say, TikTok and everyone under the sun has 396 00:22:18,920 --> 00:22:22,240 Speaker 1: my information. But when that argument came up today in 397 00:22:22,440 --> 00:22:25,359 Speaker 1: the hearing, lawmakers push back and said, well, we're not 398 00:22:25,440 --> 00:22:27,640 Speaker 1: here to talk about everyone else, We're here to talk 399 00:22:27,680 --> 00:22:31,120 Speaker 1: about TikTok. Well, there is something to be said to like, 400 00:22:31,400 --> 00:22:33,920 Speaker 1: can't the government, Like we work for a company where 401 00:22:33,920 --> 00:22:36,159 Speaker 1: we've just secure our information a lot of companies do. 402 00:22:36,240 --> 00:22:41,000 Speaker 1: I mean, can't the government institutions basically kind of create 403 00:22:41,080 --> 00:22:46,080 Speaker 1: firewalls around these applications and maybe you know, not allow 404 00:22:46,119 --> 00:22:48,720 Speaker 1: employees to use it, and that's a way of kind 405 00:22:48,720 --> 00:22:54,520 Speaker 1: of protecting themselves. Absolutely, and federal workers cannot actually use 406 00:22:54,520 --> 00:22:57,000 Speaker 1: TikTok on their phones after that legislation pass. But we 407 00:22:57,119 --> 00:23:00,680 Speaker 1: heard something along those lines of kind of cause comprehensive 408 00:23:00,800 --> 00:23:04,240 Speaker 1: legislation around data policy be brought up today. Honestly, that 409 00:23:04,320 --> 00:23:07,840 Speaker 1: was the argument that CEO showed Cho was trying to 410 00:23:08,119 --> 00:23:11,520 Speaker 1: push to broaden this conversation outside of just TikTok. We 411 00:23:11,600 --> 00:23:13,760 Speaker 1: did hear a little bit of that, not that they 412 00:23:13,760 --> 00:23:16,800 Speaker 1: were friendly voices, but voices along the lines of comprehensive 413 00:23:17,160 --> 00:23:20,800 Speaker 1: legislation from both sides, from Greg Pence on the Republican side, 414 00:23:20,840 --> 00:23:23,840 Speaker 1: from Darren Soto on the Democratic side, who both kind 415 00:23:23,880 --> 00:23:26,600 Speaker 1: of echoed this idea that there should be kind of 416 00:23:27,000 --> 00:23:30,920 Speaker 1: bipartisan legislation that looks at all tech companies. Pence actually 417 00:23:31,119 --> 00:23:33,280 Speaker 1: came out and said, hey, this is my thirty second 418 00:23:33,320 --> 00:23:36,800 Speaker 1: hearing that I've been in about tech companies and data. 419 00:23:36,920 --> 00:23:40,040 Speaker 1: So the push is there, but the problem is TikTok 420 00:23:40,119 --> 00:23:42,520 Speaker 1: is being seen as kind of a bigger threat right now, 421 00:23:42,680 --> 00:23:46,040 Speaker 1: and all of those things, those concerns that swirl around 422 00:23:46,080 --> 00:23:49,240 Speaker 1: regular social media companies, what data do they collect, what 423 00:23:49,359 --> 00:23:51,600 Speaker 1: are they showing me, who was influencing me, where do 424 00:23:51,680 --> 00:23:55,040 Speaker 1: the ads come from? All of those concerns have been 425 00:23:55,080 --> 00:23:58,320 Speaker 1: made kind of way more sinister because of this kind 426 00:23:58,320 --> 00:24:02,359 Speaker 1: of ratcheted up fear of China and those hypotheticals of 427 00:24:02,400 --> 00:24:05,840 Speaker 1: what could they do if they got your information? You know, Alex, 428 00:24:05,880 --> 00:24:10,160 Speaker 1: It's such a sort of perilous political topic because it 429 00:24:10,200 --> 00:24:14,480 Speaker 1: does seem like there's bipartisan support to do something about TikTok, 430 00:24:14,720 --> 00:24:16,480 Speaker 1: But on the other hand, no one wants to lose 431 00:24:16,520 --> 00:24:20,560 Speaker 1: those you know, millennial Gen Z voters who are addicted 432 00:24:20,600 --> 00:24:23,320 Speaker 1: to the app, and I know from your coverage and elsewhere, 433 00:24:23,320 --> 00:24:28,760 Speaker 1: there's several competing bills floating around Washington about what to do. 434 00:24:28,880 --> 00:24:32,400 Speaker 1: A gevity sense of where that's going, is there one 435 00:24:32,440 --> 00:24:35,240 Speaker 1: piece of legislation that you think has a better chance 436 00:24:35,320 --> 00:24:38,399 Speaker 1: or is gaining more support than the others. So the 437 00:24:38,400 --> 00:24:41,879 Speaker 1: bill from Thune and Warner, which has backing by the 438 00:24:41,920 --> 00:24:45,280 Speaker 1: Biden administration. Biden administration actually said send that to Joe's 439 00:24:45,280 --> 00:24:47,879 Speaker 1: desk and we will kind of make some moves on it. 440 00:24:48,119 --> 00:24:50,560 Speaker 1: That seems to be the one on pole position. I'll 441 00:24:50,600 --> 00:24:53,359 Speaker 1: tell you the representatives in the room at the hearing, 442 00:24:53,359 --> 00:24:55,360 Speaker 1: we're not the only ones who are kind of piling 443 00:24:55,359 --> 00:24:58,880 Speaker 1: on to the anti TikTok sentiment today. We have messages 444 00:24:58,880 --> 00:25:01,240 Speaker 1: in our inbox from those sent ors on that bill 445 00:25:01,600 --> 00:25:05,120 Speaker 1: who are excited to see the bipartisan kind of flogging 446 00:25:05,160 --> 00:25:07,960 Speaker 1: that TikTok had to take today in that hearing room, 447 00:25:08,040 --> 00:25:10,800 Speaker 1: saying hey, we should push this bill. So those folks 448 00:25:10,800 --> 00:25:14,680 Speaker 1: are moving forward. They largely say that these national security concerns, 449 00:25:14,680 --> 00:25:17,439 Speaker 1: these concerns around China are more important than the one 450 00:25:17,480 --> 00:25:20,680 Speaker 1: hundred and fifty million people who enjoy, you know, interesting 451 00:25:20,800 --> 00:25:23,560 Speaker 1: videos on the app, the voters, you know. I talked 452 00:25:23,560 --> 00:25:25,840 Speaker 1: to some creators that TikTok brought down here, about half 453 00:25:25,840 --> 00:25:27,679 Speaker 1: a dozen of them. I asked, all of them, have 454 00:25:27,800 --> 00:25:30,160 Speaker 1: you talked to your representative, have you talked to your senator? 455 00:25:30,400 --> 00:25:34,240 Speaker 1: If they vote against TikTok, will you vote for them? Unequivocally? 456 00:25:34,280 --> 00:25:36,359 Speaker 1: All of them said, my vote would be up for 457 00:25:36,480 --> 00:25:39,840 Speaker 1: question for those individuals if they pass a bill that 458 00:25:39,920 --> 00:25:42,480 Speaker 1: bans the app and removes it from my phone here 459 00:25:42,480 --> 00:25:44,480 Speaker 1: in the US, Alex. If this was a German company, 460 00:25:44,480 --> 00:25:47,320 Speaker 1: a Japanese company, pick your country other than China, would 461 00:25:47,320 --> 00:25:50,399 Speaker 1: we be going through this process? Would with the CEO 462 00:25:50,440 --> 00:25:55,040 Speaker 1: of a non Chinese TikTok be going through this China 463 00:25:55,040 --> 00:25:59,160 Speaker 1: seems to be kind of the focus right now. I mean, 464 00:25:59,280 --> 00:26:01,960 Speaker 1: last night to cross the Lawn from the Hill was 465 00:26:02,000 --> 00:26:05,639 Speaker 1: a group of vcs and lawmakers meeting at a private 466 00:26:05,640 --> 00:26:09,440 Speaker 1: dinner where Peter Teal, the billionaire and venture capitalist, was 467 00:26:09,520 --> 00:26:13,840 Speaker 1: talking about the risks of China, calling TikTok likening it 468 00:26:13,880 --> 00:26:17,000 Speaker 1: to the wholeless problem, as he called it here in 469 00:26:17,040 --> 00:26:19,239 Speaker 1: the US, something that we cannot get away from. So 470 00:26:19,600 --> 00:26:22,200 Speaker 1: that kind of rhetoric has ratted it up and ratched 471 00:26:22,240 --> 00:26:25,040 Speaker 1: it up around this country in particular. You've also seen 472 00:26:25,040 --> 00:26:28,560 Speaker 1: it with the chip deliberations and the semiconductor industry. So 473 00:26:28,680 --> 00:26:30,920 Speaker 1: this seems to be kind of the focus right now, 474 00:26:30,960 --> 00:26:33,719 Speaker 1: and we're not hearing it about those other countries. So 475 00:26:33,840 --> 00:26:36,560 Speaker 1: China seems to be kind of number one on that list. 476 00:26:36,600 --> 00:26:40,520 Speaker 1: Twenty seconds now what now? What happens. Now. What happens 477 00:26:40,760 --> 00:26:43,080 Speaker 1: is the company will probably be jocking to get this 478 00:26:43,200 --> 00:26:46,440 Speaker 1: legislation off the table. I don't think that's going to happen. 479 00:26:46,680 --> 00:26:49,520 Speaker 1: We saw such an uproar today. It seems like they 480 00:26:49,560 --> 00:26:52,320 Speaker 1: lost ground on their argument to garner trust from the 481 00:26:52,400 --> 00:26:54,879 Speaker 1: US government. So we'll be kind of watching and waiting 482 00:26:54,880 --> 00:26:58,160 Speaker 1: for next steps on bills and any additional national security 483 00:26:58,160 --> 00:27:00,919 Speaker 1: review as a result from the Testama. All right, Well, 484 00:27:00,920 --> 00:27:03,320 Speaker 1: some great coverage and reporting, Alex. Thanks so much. Alex 485 00:27:03,359 --> 00:27:06,600 Speaker 1: BARMENCA technology reporter up Bloomberg News. There. I believe in 486 00:27:06,640 --> 00:27:09,800 Speaker 1: our DC bureau after spending time up on the hill 487 00:27:10,160 --> 00:27:14,480 Speaker 1: listening and watching that testimony. You're listening to the Bloomberg 488 00:27:14,520 --> 00:27:18,400 Speaker 1: Business Week podcast. Catch US Live weekday afternoons from three 489 00:27:18,440 --> 00:27:21,679 Speaker 1: to six Eastern Listen on Bloomberg dot com, the Ion 490 00:27:21,840 --> 00:27:24,800 Speaker 1: Radio app, and the Bloomberg Business App, or watch US 491 00:27:24,880 --> 00:27:28,600 Speaker 1: Live on YouTube. Latching noted about a year ago that 492 00:27:28,720 --> 00:27:31,920 Speaker 1: drug makers advertise drugs through TV and other media to 493 00:27:32,000 --> 00:27:35,320 Speaker 1: encourage patients to ask their doctors for specific medications. In 494 00:27:35,359 --> 00:27:39,200 Speaker 1: that story, our reporters citing a GAO report on how 495 00:27:39,240 --> 00:27:42,080 Speaker 1: manufacturers spent about six billion each year for a total 496 00:27:42,119 --> 00:27:46,159 Speaker 1: of seventeen point eight billion on direct to consumer advertising 497 00:27:46,240 --> 00:27:49,719 Speaker 1: for more than five and fifty drugs from twenty sixteen 498 00:27:49,720 --> 00:27:52,320 Speaker 1: to twenty eighteen. They spend a lot, that's the bottom line. 499 00:27:52,400 --> 00:27:55,199 Speaker 1: So looking at former advertising, a new study led by 500 00:27:55,240 --> 00:27:58,119 Speaker 1: researchers at the Johns Hopkins Bloomberg School of Public Health. 501 00:27:58,520 --> 00:28:01,360 Speaker 1: Joining us right now to talk about it is Gerard Anderson, 502 00:28:01,400 --> 00:28:04,320 Speaker 1: professor in the Department of Health Policy and Management at 503 00:28:04,320 --> 00:28:06,840 Speaker 1: this school, of course, supported by Michael R. Bloomberg, founder 504 00:28:06,880 --> 00:28:10,440 Speaker 1: Bloomberg UP and Bloomberg Philanthropies. He joins us now via 505 00:28:10,560 --> 00:28:15,240 Speaker 1: zoom in Washington, DC. Gerard, nice to have you here 506 00:28:15,280 --> 00:28:18,320 Speaker 1: with us. Tell us about this study, what you looked 507 00:28:18,320 --> 00:28:21,399 Speaker 1: at and what you found out. Sure, it's good to 508 00:28:21,440 --> 00:28:25,360 Speaker 1: be back. So there are only two countries in the 509 00:28:25,400 --> 00:28:30,040 Speaker 1: world that allow direct to consumer advertising, United States and 510 00:28:30,160 --> 00:28:33,639 Speaker 1: New Zealand. And so what we wanted to understand is 511 00:28:33,680 --> 00:28:36,600 Speaker 1: why are they doing this and what's so important? And 512 00:28:37,080 --> 00:28:39,840 Speaker 1: as you said in unroduction, many of us watch it 513 00:28:39,920 --> 00:28:42,640 Speaker 1: on television. And my wife and I were watching it 514 00:28:42,720 --> 00:28:44,880 Speaker 1: on television and I would look at him and I'd say, 515 00:28:45,000 --> 00:28:48,920 Speaker 1: why are they spending so much money on advertising? And 516 00:28:49,320 --> 00:28:52,480 Speaker 1: what if you looked at the fine print on TV 517 00:28:52,720 --> 00:28:55,360 Speaker 1: or something like that, you'd see that many of these 518 00:28:55,480 --> 00:28:58,520 Speaker 1: drugs really don't work very well. They do a little 519 00:28:58,520 --> 00:29:01,520 Speaker 1: bit better than nothing, they don't work very well. So 520 00:29:01,560 --> 00:29:04,240 Speaker 1: we wanted to take a look at whether or not 521 00:29:04,520 --> 00:29:08,320 Speaker 1: they actually are very good compared to the drugs that 522 00:29:08,400 --> 00:29:11,400 Speaker 1: are other ones that are also being provided, and it 523 00:29:11,400 --> 00:29:14,720 Speaker 1: turns out that most of them are not. And it 524 00:29:14,880 --> 00:29:16,880 Speaker 1: sort of makes sense. They're going to go to the 525 00:29:16,920 --> 00:29:20,400 Speaker 1: consumer when they can't go to the physician because the 526 00:29:20,400 --> 00:29:24,080 Speaker 1: physician knows that the drug isn't particularly good or is 527 00:29:24,480 --> 00:29:27,360 Speaker 1: equally good but much more expensive, and so it's not 528 00:29:27,440 --> 00:29:30,320 Speaker 1: going to prescribe it. So you go directly to the 529 00:29:30,400 --> 00:29:33,600 Speaker 1: consumer and you say to them, go ask your doctor. 530 00:29:33,920 --> 00:29:37,760 Speaker 1: And the doctors hate this because they know that the 531 00:29:38,240 --> 00:29:41,120 Speaker 1: drug is either much more expensive and therefore are not 532 00:29:41,280 --> 00:29:43,880 Speaker 1: good for the patient, or not as good or just 533 00:29:43,960 --> 00:29:48,400 Speaker 1: as good as another drug. So we basically published a 534 00:29:48,480 --> 00:29:53,560 Speaker 1: paper that said, be cautious when you watch an advertisement, well, right, Jerry, 535 00:29:53,560 --> 00:29:56,080 Speaker 1: because it seems like it must work. Right. They wouldn't 536 00:29:56,080 --> 00:29:59,479 Speaker 1: be spending this type of dollars if it wasn't working. 537 00:29:59,520 --> 00:30:02,680 Speaker 1: So some doctors able to be convinced. I guess or 538 00:30:02,760 --> 00:30:07,040 Speaker 1: is it that some patients? You know, maybe I'm a hypochondriac. 539 00:30:07,160 --> 00:30:10,320 Speaker 1: Sometimes I'm watching the commercials that I'm like the restless legs? 540 00:30:10,320 --> 00:30:13,840 Speaker 1: Do I have restless legs? What we all do? You know? 541 00:30:13,960 --> 00:30:16,200 Speaker 1: How does this work that the doctors actually end up 542 00:30:16,200 --> 00:30:19,360 Speaker 1: prescribing the drugs that patients are seen on TV. So 543 00:30:19,400 --> 00:30:22,400 Speaker 1: you're gonna understand how much these drugs cost. Some of 544 00:30:22,440 --> 00:30:25,200 Speaker 1: these drugs are ten thousand dollars. Some of these drugs 545 00:30:25,200 --> 00:30:28,040 Speaker 1: are fifty thousand dollars. Some of these are drugs are 546 00:30:28,040 --> 00:30:30,800 Speaker 1: more than one hundred thousand dollars. The more so if 547 00:30:30,840 --> 00:30:34,680 Speaker 1: you just get a few patients watching this ad going 548 00:30:34,760 --> 00:30:38,600 Speaker 1: to the doctor and saying, you should, you know, get 549 00:30:38,880 --> 00:30:42,080 Speaker 1: I prescribe this drug for me. And doctors really don't 550 00:30:42,120 --> 00:30:45,560 Speaker 1: like to disappoint their patients, so they do so if 551 00:30:45,600 --> 00:30:49,440 Speaker 1: they can just get a few patients that decide to 552 00:30:49,480 --> 00:30:52,959 Speaker 1: do this. They've made money on this particular ad, so 553 00:30:53,040 --> 00:30:56,040 Speaker 1: they're going to do this just because the high prices 554 00:30:56,080 --> 00:30:59,480 Speaker 1: of these drugs that they're being advertised on TV. So 555 00:30:59,600 --> 00:31:04,120 Speaker 1: where are regulators on this? Like, why isn't the FDA 556 00:31:04,600 --> 00:31:07,800 Speaker 1: in their analysis creating some kind of metrics, especially when 557 00:31:07,840 --> 00:31:11,400 Speaker 1: there's maybe a couple of drugs used for some ailment 558 00:31:11,800 --> 00:31:15,560 Speaker 1: and saying this one's more effective, this one's more effective 559 00:31:15,880 --> 00:31:18,160 Speaker 1: than this one. You know, why isn't that part of it? 560 00:31:18,920 --> 00:31:22,320 Speaker 1: Because the FDA is not responsible for doing that. In fact, 561 00:31:22,400 --> 00:31:26,440 Speaker 1: there's nobody in the United States responsible for making that 562 00:31:26,600 --> 00:31:31,880 Speaker 1: decision we have. Unlike other industrialized countries where there are 563 00:31:32,280 --> 00:31:36,560 Speaker 1: entities sponsored by the federal government, sponsored by insurers, sponsored 564 00:31:36,560 --> 00:31:40,440 Speaker 1: by a variety of things that make those recommendations to people, 565 00:31:40,720 --> 00:31:44,400 Speaker 1: we in the United States don't have anybody making those recommendations. 566 00:31:44,680 --> 00:31:50,040 Speaker 1: The FDA says the drug is safe and effective are afflications. 567 00:31:50,120 --> 00:31:53,200 Speaker 1: That's what it says. It doesn't say it's better than 568 00:31:53,240 --> 00:31:56,760 Speaker 1: another drug, it's more expensive than another drug. It is 569 00:31:56,800 --> 00:31:59,800 Speaker 1: just saying this drug is safe to take. And that's 570 00:32:00,080 --> 00:32:04,160 Speaker 1: only the responsibility they have. There's nobody saying, well, you 571 00:32:04,200 --> 00:32:06,440 Speaker 1: could take this drug but it's not quite as good, 572 00:32:06,520 --> 00:32:08,560 Speaker 1: or you could take this drug but it's three times 573 00:32:08,560 --> 00:32:11,800 Speaker 1: more expensive. There isn't anybody out there in the United 574 00:32:11,840 --> 00:32:17,400 Speaker 1: States that essentially is making that on that recommendation to people. 575 00:32:18,120 --> 00:32:20,120 Speaker 1: You know, Jerry, one line popped out at me in 576 00:32:20,160 --> 00:32:23,040 Speaker 1: this story It says since nineteen ninety six, annual direct 577 00:32:23,080 --> 00:32:26,800 Speaker 1: to consumer advertising budgets for prescription drugs have increased from 578 00:32:27,200 --> 00:32:31,720 Speaker 1: one point three billion to six billion in twenty sixteen. 579 00:32:31,920 --> 00:32:34,160 Speaker 1: And I'm thinking back to the nineties when there was 580 00:32:34,280 --> 00:32:36,080 Speaker 1: a sort of a lot of scandals, I guess you 581 00:32:36,080 --> 00:32:39,520 Speaker 1: could call it about drug reps, you know, who would 582 00:32:39,560 --> 00:32:42,720 Speaker 1: go in wine and dine doctors and take them goffing 583 00:32:42,960 --> 00:32:45,920 Speaker 1: or take them on vacations. And there was a big 584 00:32:45,960 --> 00:32:48,720 Speaker 1: backlash to that and a crackdown on that. Do you 585 00:32:48,760 --> 00:32:51,920 Speaker 1: think this is sort of the modern version of that? 586 00:32:52,040 --> 00:32:55,440 Speaker 1: Is this how the drug companies are sort of getting 587 00:32:55,440 --> 00:32:58,200 Speaker 1: away from that problem and creating a new one. Well, 588 00:32:58,520 --> 00:33:02,040 Speaker 1: so they're still allowed to to wine and dine the 589 00:33:02,080 --> 00:33:05,720 Speaker 1: physicians and whatever. They just have to report it, so 590 00:33:05,800 --> 00:33:09,120 Speaker 1: they're still able to do that. Some places like Johns 591 00:33:09,120 --> 00:33:13,040 Speaker 1: Hopkins don't allow the pharmaceutical reps into the hospital, but 592 00:33:13,160 --> 00:33:16,560 Speaker 1: many places do. But what they're saying is these are 593 00:33:16,840 --> 00:33:20,200 Speaker 1: very profitable drugs for us. We're going to try everything 594 00:33:20,240 --> 00:33:26,120 Speaker 1: we can to get another prescription written, and so we'll 595 00:33:26,160 --> 00:33:29,360 Speaker 1: go to the doctors. But we're also for these drugs 596 00:33:29,360 --> 00:33:32,880 Speaker 1: which are not quite as effective or are much more expensive. 597 00:33:33,280 --> 00:33:35,680 Speaker 1: We're also going to go to the patient and get 598 00:33:35,720 --> 00:33:40,000 Speaker 1: them to lobby their own doctor. Well, give me this drug. 599 00:33:40,040 --> 00:33:42,160 Speaker 1: I've read it on TV. I saw it on TV. 600 00:33:42,440 --> 00:33:45,560 Speaker 1: I should be taking this drug. Why don't I taking 601 00:33:45,600 --> 00:33:49,280 Speaker 1: this drug? Well, Jerry, what about doctors though, I mean doctors, 602 00:33:49,880 --> 00:33:52,760 Speaker 1: I would assume they take the hippocratic oath. They want 603 00:33:52,760 --> 00:33:55,560 Speaker 1: to do best by their patients. So if they have 604 00:33:55,760 --> 00:33:58,800 Speaker 1: a buffet of drugs, they're going to go for the 605 00:33:58,840 --> 00:34:02,080 Speaker 1: one that is going to be I would assume best 606 00:34:02,760 --> 00:34:05,600 Speaker 1: for their patient and do the most. Isn't that kind 607 00:34:05,600 --> 00:34:09,239 Speaker 1: of the stopgap? That is the stop gap? But now 608 00:34:09,360 --> 00:34:12,400 Speaker 1: think of yourself as a doctor. You have a patient 609 00:34:12,560 --> 00:34:16,880 Speaker 1: comes in and says I want this drug, and you 610 00:34:16,920 --> 00:34:20,319 Speaker 1: could sit there and spend twenty five minutes explaining to 611 00:34:20,360 --> 00:34:23,959 Speaker 1: them the science behind the two drugs and why this 612 00:34:24,080 --> 00:34:29,040 Speaker 1: old this other drug is better or less expensive, or 613 00:34:29,440 --> 00:34:32,480 Speaker 1: you could just say, Okay, I'll give you the drug 614 00:34:32,560 --> 00:34:35,040 Speaker 1: that you want. It's going to cost you more, it 615 00:34:35,480 --> 00:34:38,719 Speaker 1: has less effectiveness, but if you want it, I'm going 616 00:34:38,800 --> 00:34:40,560 Speaker 1: to give it to you. I mean, it's it's the 617 00:34:40,640 --> 00:34:44,120 Speaker 1: same as you know, we talk about obesity, and you 618 00:34:44,160 --> 00:34:46,960 Speaker 1: know the doctor should talk to us about obesity and 619 00:34:46,960 --> 00:34:49,120 Speaker 1: a whole variety of other things. But it would take 620 00:34:49,120 --> 00:34:51,840 Speaker 1: a long time and you might alienate some patients, and 621 00:34:51,960 --> 00:34:54,799 Speaker 1: some patients would say, well, if this doctor doesn't want 622 00:34:54,800 --> 00:34:56,279 Speaker 1: to give it to me, I'm going to go to 623 00:34:56,320 --> 00:34:59,879 Speaker 1: another doctor. But don't don't insurance companies too kind of way, 624 00:35:00,040 --> 00:35:02,520 Speaker 1: and like, I've a right, I've seen situations like hey, 625 00:35:02,600 --> 00:35:07,399 Speaker 1: you yeah, like don't they don't they play a role here? 626 00:35:08,040 --> 00:35:10,960 Speaker 1: They do play a role. It's called prior authorization. And 627 00:35:11,000 --> 00:35:13,200 Speaker 1: what they say is, you know, you've got to try 628 00:35:13,239 --> 00:35:16,320 Speaker 1: this drug before you take this drug. And so they're 629 00:35:16,360 --> 00:35:19,440 Speaker 1: making it hard to get the more expensive or the 630 00:35:19,560 --> 00:35:24,439 Speaker 1: less effective drug. But still the doctor's lobby in some 631 00:35:24,520 --> 00:35:28,560 Speaker 1: cases the insurance companies and in most cases the insurance 632 00:35:28,600 --> 00:35:32,080 Speaker 1: companies end up giving up and saying, oh, okay, you 633 00:35:32,239 --> 00:35:35,759 Speaker 1: know this patient better than we do, and you know 634 00:35:35,920 --> 00:35:38,680 Speaker 1: you've now called me three times and bugged lea for 635 00:35:38,760 --> 00:35:42,319 Speaker 1: this patient, and therefore you know, yes, we'll give you 636 00:35:42,400 --> 00:35:45,960 Speaker 1: that that new and expensive drug. Um. You know, you 637 00:35:46,400 --> 00:35:49,479 Speaker 1: just get lobbied enough as an insurance company. You don't 638 00:35:49,480 --> 00:35:52,240 Speaker 1: want to be known as the insurance company that always 639 00:35:52,239 --> 00:35:55,279 Speaker 1: says no, do we all have restless leg syndrome. That's 640 00:35:55,280 --> 00:35:59,320 Speaker 1: what we really don't know. Mike's convinced we all have it. Jerry, 641 00:35:59,400 --> 00:36:01,759 Speaker 1: um No. I think it's an important situation because you're right, 642 00:36:02,200 --> 00:36:04,040 Speaker 1: we all see the ads. They're off and out there 643 00:36:04,040 --> 00:36:07,040 Speaker 1: big time, and it's interesting that we've got to be 644 00:36:07,080 --> 00:36:09,960 Speaker 1: smart and not be sold too. What interesting point the 645 00:36:10,040 --> 00:36:13,439 Speaker 1: story makes two is that the US doesn't have comparative 646 00:36:13,640 --> 00:36:18,080 Speaker 1: comparative effectiveness rating like other countries do, and that sounds 647 00:36:18,080 --> 00:36:21,319 Speaker 1: like maybe that's an issue that I'd love a rating. 648 00:36:21,560 --> 00:36:23,680 Speaker 1: I'd love a rating I'm looking at. Is this thing 649 00:36:23,760 --> 00:36:26,080 Speaker 1: really worth it? Yeah? Exactly. Think it would be really 650 00:36:26,120 --> 00:36:28,719 Speaker 1: smart and it would be a lot more transparent if 651 00:36:28,719 --> 00:36:31,520 Speaker 1: you will, Jerry, Thank you so much. Jerry Anderson, Professor 652 00:36:31,520 --> 00:36:33,800 Speaker 1: in the Department of Health Policy and Management at Johns 653 00:36:33,880 --> 00:36:37,759 Speaker 1: Hopkins Bloomberg School of Public Health. Joining us from Washington. 654 00:36:38,400 --> 00:36:41,960 Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us 655 00:36:42,000 --> 00:36:46,040 Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio, 656 00:36:46,200 --> 00:36:49,480 Speaker 1: the Bloomberg Business app, and YouTube. You can also listen 657 00:36:49,600 --> 00:36:52,800 Speaker 1: live on Amazon Alexa from our flagship New York station, 658 00:36:53,040 --> 00:37:03,560 Speaker 1: Just Say Alexa, playing Bloomberg eleven thirty. I'm a journal Yeah, 659 00:37:03,600 --> 00:37:07,320 Speaker 1: but you let me drive. Oh no, no, no, no's home? 660 00:37:07,760 --> 00:37:11,600 Speaker 1: All right, please, I'll do the riding gravels. I want 661 00:37:11,600 --> 00:37:20,080 Speaker 1: to drive. Good question, the drive. This is the drive 662 00:37:20,160 --> 00:37:25,320 Speaker 1: to the globe? Coming well up and down on Bloomberg Radio. 663 00:37:25,520 --> 00:37:27,359 Speaker 1: All right, just got about seventeen and a half minutes 664 00:37:27,440 --> 00:37:30,600 Speaker 1: left in today's trading session. We're just bouncing off our 665 00:37:30,640 --> 00:37:32,759 Speaker 1: loads of this session when it comes to the equity trade. 666 00:37:32,760 --> 00:37:35,719 Speaker 1: But we're well well off our highs of the day. 667 00:37:35,719 --> 00:37:39,920 Speaker 1: Bank stocks still seeing some pressure. Looking at the Spider 668 00:37:40,360 --> 00:37:43,200 Speaker 1: SMP Regional Banking Index, it is still down about three 669 00:37:43,280 --> 00:37:45,560 Speaker 1: percent in the trade. And Mike, we've got that two 670 00:37:45,640 --> 00:37:48,040 Speaker 1: year note with the yield of three point seven eight, 671 00:37:48,080 --> 00:37:50,160 Speaker 1: so staying well below that four percent mark. We were 672 00:37:50,239 --> 00:37:52,560 Speaker 1: up there I think earlier in the session. Yeah. Absolutely, 673 00:37:52,680 --> 00:37:56,120 Speaker 1: anytime you see those lower yields, it signals a few things. 674 00:37:56,200 --> 00:37:59,120 Speaker 1: I mean, are people worried about growth? Is it they 675 00:37:59,120 --> 00:38:02,160 Speaker 1: think the Feds done? But the best she can say 676 00:38:02,200 --> 00:38:04,239 Speaker 1: is it does perhaps alleviate a little bit of the 677 00:38:04,280 --> 00:38:06,440 Speaker 1: banking stress that we've seen, especially the further out the 678 00:38:06,440 --> 00:38:09,920 Speaker 1: curve you go. You know, those mark to market We're 679 00:38:09,960 --> 00:38:13,359 Speaker 1: not losses on bank's bonds. So right, yeah, I think 680 00:38:13,360 --> 00:38:15,240 Speaker 1: I think everyone's happy to see a drop in yields 681 00:38:15,239 --> 00:38:16,719 Speaker 1: these days. All right, well, let's see what our next 682 00:38:16,760 --> 00:38:19,759 Speaker 1: guest has to say about all of this. Time for 683 00:38:19,760 --> 00:38:22,839 Speaker 1: a drive to the closed guest Amanda, Amanda Agatti. She's 684 00:38:22,880 --> 00:38:24,759 Speaker 1: back with us, chief investment officer at P and C 685 00:38:24,880 --> 00:38:27,680 Speaker 1: Asset Management. She is with us today on the phone 686 00:38:27,680 --> 00:38:29,839 Speaker 1: in Philadelphia. I may had a good to have you 687 00:38:29,880 --> 00:38:33,800 Speaker 1: back with us. It's been an interesting twenty four hours. 688 00:38:34,160 --> 00:38:38,840 Speaker 1: The FED decision, the continuing bank questions and nervousness, the 689 00:38:38,960 --> 00:38:41,959 Speaker 1: dialing back. It feels like from Treasury sectary Janet Yellen 690 00:38:42,000 --> 00:38:46,560 Speaker 1: when it comes to maybe backstopping bank deposits. How has 691 00:38:46,680 --> 00:38:49,040 Speaker 1: any of it, if at all, change you're thinking about 692 00:38:49,080 --> 00:38:53,560 Speaker 1: investment strategy, the right strategy in today's environment. Well, thank 693 00:38:53,600 --> 00:38:56,240 Speaker 1: you so much for having me. There's a ton to unpack. 694 00:38:56,320 --> 00:38:58,799 Speaker 1: We could be on the line together all day going 695 00:38:58,880 --> 00:39:02,480 Speaker 1: through all of those variables, a lot of competing narratives. 696 00:39:02,520 --> 00:39:04,520 Speaker 1: I would say, at the end of the day, it 697 00:39:04,600 --> 00:39:09,839 Speaker 1: hasn't really changed our approach to investment strategy or portfolio positioning. 698 00:39:09,880 --> 00:39:13,960 Speaker 1: We've been running a defensive playbook for the last few 699 00:39:14,000 --> 00:39:18,680 Speaker 1: months here trying to keep our investors invested, not pulling 700 00:39:18,880 --> 00:39:22,240 Speaker 1: ripport and raising a ton of cashier saying well, diversified, 701 00:39:22,320 --> 00:39:25,400 Speaker 1: focusing on quality. I'm not sure that anything over the 702 00:39:25,440 --> 00:39:29,200 Speaker 1: last twenty four hours has changed that dynamic at all, 703 00:39:30,000 --> 00:39:34,080 Speaker 1: but certainly the end state for monetary policy is becoming 704 00:39:34,120 --> 00:39:38,200 Speaker 1: a lot clearer and probably sooner than what the market 705 00:39:38,239 --> 00:39:41,600 Speaker 1: has expected. So that's driven a lot of market leadership 706 00:39:41,600 --> 00:39:44,320 Speaker 1: and rotation. The flip side of that is, you know, 707 00:39:44,800 --> 00:39:46,920 Speaker 1: is there another shoe to drop? What are the signs 708 00:39:46,920 --> 00:39:48,839 Speaker 1: of stress that are building here? And so I think 709 00:39:48,880 --> 00:39:51,200 Speaker 1: this is the arm wrestling match that the market's just 710 00:39:51,280 --> 00:39:54,080 Speaker 1: going to continue to face here, and it's sort of 711 00:39:54,160 --> 00:39:58,120 Speaker 1: leading to overall kind of a directionless market, but under 712 00:39:58,280 --> 00:40:01,280 Speaker 1: the surface, clearly a lot of volatility. You know, Amanda, 713 00:40:01,320 --> 00:40:04,640 Speaker 1: It's interesting. I think the cliche that you hear that 714 00:40:04,760 --> 00:40:07,920 Speaker 1: everyone hears on their first day of trading school or 715 00:40:07,960 --> 00:40:10,520 Speaker 1: investing school, whatever it is, is don't fight the Fed. 716 00:40:11,120 --> 00:40:13,919 Speaker 1: But in this case, you know, I wonder which way 717 00:40:14,160 --> 00:40:16,839 Speaker 1: you shouldn't fight the FED, because on one hand, they 718 00:40:17,080 --> 00:40:20,280 Speaker 1: are obviously raising rates. Chair Pale said there's no plans 719 00:40:20,280 --> 00:40:22,560 Speaker 1: to cut them this year. But on the other side, 720 00:40:22,600 --> 00:40:25,920 Speaker 1: everyone is fixating on that FED balance sheet and the 721 00:40:26,000 --> 00:40:29,680 Speaker 1: discount window is wide open. The FED has you know, 722 00:40:30,120 --> 00:40:35,040 Speaker 1: flooded the financial system with cash in the last few weeks. 723 00:40:35,040 --> 00:40:38,040 Speaker 1: So which way, you know, should you not fight the 724 00:40:38,080 --> 00:40:41,920 Speaker 1: FED on the balance sheet side or the interest rate side. 725 00:40:43,040 --> 00:40:45,680 Speaker 1: I think it's really more on the interest rate side. 726 00:40:45,760 --> 00:40:48,840 Speaker 1: You know, you look at the sad fund futures market, 727 00:40:48,920 --> 00:40:52,600 Speaker 1: there's still a disconnect between what the FED has been saying, 728 00:40:52,680 --> 00:40:55,520 Speaker 1: what the FED is actually doing, and what the market 729 00:40:55,560 --> 00:40:57,560 Speaker 1: thinks the FAT is going to do. And so I 730 00:40:57,560 --> 00:41:00,799 Speaker 1: think it's it's much more of a focus there and 731 00:41:00,920 --> 00:41:03,560 Speaker 1: don't fight the Fed. I have gone on record many 732 00:41:03,640 --> 00:41:07,279 Speaker 1: times of fighting the FED is the target to critique 733 00:41:07,320 --> 00:41:10,319 Speaker 1: what they're doing or not doing. But for you know, 734 00:41:10,360 --> 00:41:13,200 Speaker 1: the last call at six or seven months, I've been 735 00:41:13,200 --> 00:41:16,640 Speaker 1: really trying to stay close to what the FED signaling 736 00:41:16,640 --> 00:41:19,000 Speaker 1: effect is and what they're actually doing. I think they 737 00:41:19,040 --> 00:41:22,120 Speaker 1: remain very much committed, as Kal said yesterday, to fighting 738 00:41:22,120 --> 00:41:25,879 Speaker 1: this inflationary battle, but obviously we're starting to see some 739 00:41:25,920 --> 00:41:29,279 Speaker 1: signs of stress and so makes total sense for them 740 00:41:29,320 --> 00:41:31,600 Speaker 1: to slow down here. But I think the market trying 741 00:41:31,640 --> 00:41:33,920 Speaker 1: to call the Fed's loss that we're going to see 742 00:41:34,080 --> 00:41:36,879 Speaker 1: a number of cuts here in the very short run 743 00:41:37,239 --> 00:41:41,000 Speaker 1: feels kind of delusional. Banks. Is there an entry point 744 00:41:41,080 --> 00:41:47,600 Speaker 1: for you with the selling that we've seen. Well, I 745 00:41:47,640 --> 00:41:50,680 Speaker 1: don't know that I want to necessarily comment too much 746 00:41:50,840 --> 00:41:54,960 Speaker 1: on the investment thesis around banks or an entry point, 747 00:41:55,040 --> 00:41:58,960 Speaker 1: but we definitely think that there's a lot of high 748 00:41:59,040 --> 00:42:03,360 Speaker 1: quality assets, especially relative to deposits out there, and sure 749 00:42:03,400 --> 00:42:06,440 Speaker 1: there's signs of stress building in the system, but on balance, 750 00:42:06,520 --> 00:42:09,480 Speaker 1: we feel like see industries in pretty good shape. I mean, 751 00:42:09,480 --> 00:42:13,279 Speaker 1: of course, we're watching financial conditions tighten here said took 752 00:42:13,280 --> 00:42:16,040 Speaker 1: a step you know further in that direction yesterday, So 753 00:42:16,080 --> 00:42:18,239 Speaker 1: I'm not saying that we're you know, out of the 754 00:42:18,280 --> 00:42:21,520 Speaker 1: woods yet, but you know, I think on balance we're 755 00:42:21,560 --> 00:42:23,400 Speaker 1: in pretty good shape. A lot of people, you know, 756 00:42:23,560 --> 00:42:27,400 Speaker 1: making a lot of comparisons to the financial crisis, and 757 00:42:28,120 --> 00:42:29,960 Speaker 1: I hate to say, but it's a little bit different 758 00:42:30,000 --> 00:42:32,920 Speaker 1: this time. A lot of controls, a lot of oversight, 759 00:42:33,120 --> 00:42:36,000 Speaker 1: a lot of stress testing, a lot of really stringent 760 00:42:36,080 --> 00:42:39,719 Speaker 1: capital and liquidity ratios in place make the industry in 761 00:42:39,760 --> 00:42:43,279 Speaker 1: a much better shape overall this time around relative to 762 00:42:43,440 --> 00:42:46,640 Speaker 1: last time. Conversely, if I may in terms of I mean, 763 00:42:46,680 --> 00:42:49,920 Speaker 1: financials have been on our radar. They're the worst performing 764 00:42:49,960 --> 00:42:51,920 Speaker 1: major industry group in the S and P five hundred 765 00:42:51,960 --> 00:42:55,080 Speaker 1: over the past two weeks, surprise, But at the top 766 00:42:55,120 --> 00:42:58,360 Speaker 1: of the list are the second best performing. Is information technology? 767 00:42:58,520 --> 00:43:02,240 Speaker 1: The best performing his communication services. We've seen investors moving 768 00:43:02,239 --> 00:43:05,479 Speaker 1: into some of the big tech names. What's your call 769 00:43:05,640 --> 00:43:10,600 Speaker 1: on that group? Well, I would say that group probably 770 00:43:10,640 --> 00:43:13,520 Speaker 1: has gotten a bit far ahead of itself, you know. 771 00:43:13,600 --> 00:43:16,320 Speaker 1: But we're not of the opinion that we're going to 772 00:43:16,400 --> 00:43:18,920 Speaker 1: see meaningful rate cuts here in the short run, and 773 00:43:18,960 --> 00:43:22,560 Speaker 1: we're certainly not headed back towards a zero interest rate 774 00:43:22,640 --> 00:43:26,720 Speaker 1: policy dynamic, and so the tail winds for those areas 775 00:43:26,760 --> 00:43:29,120 Speaker 1: are not going to be anywhere near what they have 776 00:43:29,239 --> 00:43:31,600 Speaker 1: then over the last few years. And I think this 777 00:43:31,760 --> 00:43:34,400 Speaker 1: is just the market trying to quickly claim victory in 778 00:43:34,440 --> 00:43:37,440 Speaker 1: the battle against inflation and thinking that rates are going 779 00:43:37,480 --> 00:43:40,440 Speaker 1: to come down a lot. We certainly have seen rates 780 00:43:40,600 --> 00:43:42,480 Speaker 1: come in and come down a lot here in the 781 00:43:42,560 --> 00:43:44,839 Speaker 1: last couple of weeks, and so I think it's just 782 00:43:44,920 --> 00:43:48,120 Speaker 1: simply that I don't know that there's a formula kind 783 00:43:48,120 --> 00:43:53,440 Speaker 1: of rates come down. Growth stocks, the discount rate associated 784 00:43:53,480 --> 00:43:56,319 Speaker 1: with them should be improving, but I'm not sure there's 785 00:43:56,320 --> 00:44:01,440 Speaker 1: a fundamental backdrop justifies how far growth exposures have rallied 786 00:44:01,480 --> 00:44:05,400 Speaker 1: here today. You know, Amanda fetchhair pal obviously likes to 787 00:44:05,440 --> 00:44:09,319 Speaker 1: talk about the long and variable effects of raising interest rates. 788 00:44:09,360 --> 00:44:13,439 Speaker 1: Obviously we've seen that crop up very suddenly with the 789 00:44:13,440 --> 00:44:18,000 Speaker 1: stress and the banking sector commercial real estates seen better days. 790 00:44:18,280 --> 00:44:21,600 Speaker 1: Where else would you be looking to see some stress 791 00:44:21,640 --> 00:44:24,359 Speaker 1: build up because of this aggressive rate campaign we've seen 792 00:44:24,480 --> 00:44:26,600 Speaker 1: a Man, it just got about twenty five seconds. Yeah, 793 00:44:26,680 --> 00:44:30,319 Speaker 1: go ahead, Yeah, I think it's really hard to answer that, 794 00:44:30,360 --> 00:44:33,560 Speaker 1: but I think there's I think there is probably broader 795 00:44:33,800 --> 00:44:37,080 Speaker 1: stress underneath the surface there in terms of balance sheet 796 00:44:37,120 --> 00:44:42,720 Speaker 1: management across the market spectrum, across the market capitalization spectrum, 797 00:44:42,800 --> 00:44:45,000 Speaker 1: though I'd be a little concerned about them allering the 798 00:44:45,200 --> 00:44:48,080 Speaker 1: exposures environment. Well, good to check in with you really 799 00:44:48,120 --> 00:44:51,799 Speaker 1: appreciate it again, Amanda Agatti, She's chief investment officer at 800 00:44:51,840 --> 00:44:55,600 Speaker 1: PNC Asset Management. On the phone from Philadelphia. 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