Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio.
Speaker 1: Certainly on our radar is Shares a Block because we
Speaker 1: have seen them take a major hit as a result
Speaker 1: of some research out by Hindberg. You remember that's the
Speaker 1: firm run by Nathan Anderson bolstered its profile with that
Speaker 1: scathing report billionaire guantam Adanni's business Empire earlier this year
Speaker 1: that really took down that name. Well, right now, he
Speaker 1: and their team has set their sights on Block. They
Speaker 1: did a two year investigation, and just about one and
Speaker 1: a half hours ago, Block fought back a little bit.
Speaker 1: So let's get into it with our own Bloomberg News
Speaker 1: finance reporter Cat Doherty. She's here on a Bloomberg Interactive
Speaker 1: Brokers studio joining myself and Mike Reagan, and I just
Speaker 1: want to check Shares a Block down, still about sixteen
Speaker 1: percent off their lows, but still taking a hit. All right, Cat,
Speaker 1: what first of all did the Hindburg research say? I know,
Speaker 1: it's out on social media, so people can read it
Speaker 1: as well. But what were the highlights or lowlights. The
Speaker 1: lowlights that their alleging is that this company took advantage
Speaker 1: and facilitated, essentially the fraudsters who were then using government
Speaker 1: stimulus programs during the pandemic and essentially allowing folks to
Speaker 1: have multiple accounts. So even if an account the report
Speaker 1: would say had been flagged as fraud, that account was
Speaker 1: then tied to multiple other accounts and it wasn't dealt
Speaker 1: with in a proper way. So essentially, I think that
Speaker 1: was the key here is the extent to which the
Speaker 1: fraudsters could actually take advantage of the system. And so
Speaker 1: this report goes further into saying that they manipulated certain
Speaker 1: numbers and that they either didn't go far enough to
Speaker 1: say how many of these accounts were a fraud or
Speaker 1: that they understated especially the customer acquisitions as well, so
Speaker 1: that obviously, if true, it would have inflated Block's business
Speaker 1: correct the metrics then would be off the financial metric correct.
Speaker 1: So then Block came out and said that these claims
Speaker 1: were inaccurate and misleading. They're saying we are registered with
Speaker 1: the SEC we report factual, accurate information and that the
Speaker 1: report that we saw from Hindenburg manipulated information and it
Speaker 1: was not an accurate depiction of what's actually going on.
Speaker 1: You know, Ken, I think when I think of block
Speaker 1: I think of the sort of point of sale, use
Speaker 1: a tablet iPad or whatever to swipe your credit card
Speaker 1: out of small store or something like that. This seems
Speaker 1: to center on a different block product, the cash app.
Speaker 1: Is that basically the gist of that most of this
Speaker 1: fraud that Hindenberg is alleged was using the cash app
Speaker 1: a big part of it. And the report does seem
Speaker 1: to be that that this cash app was likely facilitating
Speaker 1: fraudsters taking advantage again of that government stimulus program and
Speaker 1: in response, the state of Massachusetts. This is something that
Speaker 1: was referenced told the short seller, So this report that
Speaker 1: it sought to claw back close to seventy thousand unemployment
Speaker 1: payments from the bank behind cash app accounts. That's something
Speaker 1: that is referred to in this report. So again we'll
Speaker 1: see what the company actually comes back, and they said
Speaker 1: that they're going to take some legal action and they
Speaker 1: probably will have further statements to provide. But this was
Speaker 1: a report that was facilitated or underwent for two years.
Speaker 1: I just want to reiterate. So the research from Hindenburgh
Speaker 1: says Block has widely overstated its genuine user accounts and
Speaker 1: has understated its customer acquisition costs. FORM employees estimated that
Speaker 1: forty to seventy five percent of counts they reviewed were fake,
Speaker 1: involved in fraud, or were additional counts tied to a
Speaker 1: single individual. If that is the case, and I'm curious,
Speaker 1: as you guys are reporting this out, looking at Block
Speaker 1: and looking at its balance sheet, how would that materially
Speaker 1: financially change the story of Block. Well, I think the
Speaker 1: first thing to look at is regulatory or response. So
Speaker 1: this is going to be this is already a regulated company,
Speaker 1: but it's going to be scrutinized, and the report is
Speaker 1: going to be cross checked, I'm sure with the public
Speaker 1: information that's out there. So that's the first thing that
Speaker 1: I think is going to be the next course of action.
Speaker 1: And then as information starts to come out, either a
Speaker 1: company may clarify certain things, or who knows, parts of
Speaker 1: this report could be corroborated, in which case if things
Speaker 1: are proven true, well then we have other problems, or
Speaker 1: the company has further problems that then answers that they
Speaker 1: need to get. If I guess my case is like Mike,
Speaker 1: I think if that's the case, If that's true, right,
Speaker 1: it's a very different in terms of how you value
Speaker 1: the company, how you look at the growth in the business,
Speaker 1: lack their do they need to restate earnings or you know,
Speaker 1: is it really facing a big fine and punitive damages
Speaker 1: that has everyone concerned in the stock price? But ket
Speaker 1: you know, one thing I think's interesting is, um they're
Speaker 1: not the only company you who's had to deal with
Speaker 1: fraud claims when it comes to the government stimulus payments.
Speaker 1: Other other banks have two. Right? Is it just that
Speaker 1: block is way at least according to Hindenberg, just way
Speaker 1: out there. As far as how many they allowed happen,
Speaker 1: I don't know the exact comparison in terms of numbers.
Speaker 1: I do know that there there have been other banks
Speaker 1: that were caught in. It was like credit card payments
Speaker 1: when when the government was giving out stimulus on the
Speaker 1: form of what was essentially debit cards, and those were
Speaker 1: manipulated in ways where people were taking more debit cards
Speaker 1: than they actually were allowed. Um. So that's that's another
Speaker 1: case I think this is very different. It sounds I'm
Speaker 1: not I'm not exactly sure how the the app. It
Speaker 1: seems like how the app was used was just adding
Speaker 1: more accounts and so you had one person. But they're
Speaker 1: taking advantage and using multiple accounts that they're therefore getting
Speaker 1: more stimulus when they're only supposed to be allowed to
Speaker 1: use one account. Yeah, and it's interesting. You do have
Speaker 1: the analyst community, you know, starting to weigh in. Certainly.
Speaker 1: Raymond James came out earlier today contending that the report
Speaker 1: and the short by Hindenburg doesn't include a lot of
Speaker 1: new and in quotation marks news are a bombshell and
Speaker 1: argues that the biggest risk is potentially drawing scrutiny from
Speaker 1: regulators and politicians, which would create some overhang on the stock.
Speaker 1: Right now, we've got forty one buys on block ten
Speaker 1: holes and two cells, So you know, Wall Street for
Speaker 1: the most part, likes this. I was curious and forgive
Speaker 1: me if this is out of your purview, But when
Speaker 1: I think about short sellers, we're always so careful right
Speaker 1: when we bring up a short seller, and we always
Speaker 1: want to make sure we get a comment from the company.
Speaker 1: But having said that, what are the laws rules, if
Speaker 1: you will, if any when it comes to somebody at
Speaker 1: somebody coming out with a blockbuster report like Hindenburg and
Speaker 1: being such a short on the company, what are their responsibilities.
Speaker 1: So we've we've seen a number of reports from Hindenburgh,
Speaker 1: most notably recently a Donnie Right UM, and we saw
Speaker 1: Clover Health UM. And these reports they are they are allowed.
Speaker 1: It's not as if once these reports come out then
Speaker 1: now yeah, exactly, it's it's it's as if another analyst
Speaker 1: is putting out UM. I mean, it's it's commentary, and
Speaker 1: it's it's you could even put out a tweet, now
Speaker 1: that's going to be scrutinized in a different way. I
Speaker 1: think this, this report actually I believe did come through
Speaker 1: a tweet, which is did it through social media? Through
Speaker 1: social media? And I know that that's been circulated and
Speaker 1: there's been a lot of responses since then. UM. But
Speaker 1: I do think that the big question is the regulatory
Speaker 1: scrutiny of the company here. Um. The report is what
Speaker 1: it is, and it'll be used and looked at. UM.
Speaker 1: But some of the fundamental questions or I guess fundamental
Speaker 1: aspects of the company that the report is pointing out
Speaker 1: they may be looked at in a different way just
Speaker 1: because of what they started to explore. And it's you know,
Speaker 1: it's interesting because not every activist short seller report is
Speaker 1: met with this type of reaction in the stock market,
Speaker 1: which kind of speaks to the reputation Hindenburg has. What
Speaker 1: can you tell us about sort of their track record
Speaker 1: with this type of thing. It seems to me like
Speaker 1: they're pretty good at knocking share prices down and leaving
Speaker 1: them down for a long time. Yes, especially immediately. I
Speaker 1: mean the shares today of block were down twenty two percent.
Speaker 1: They've since recovered a little bit, especially since the company
Speaker 1: responded put out its own statement, But Donnie Clover Health,
Speaker 1: those were some of the big ones that at least
Speaker 1: I was tracking. They've recovered the six month period. Some
Speaker 1: of these stocks they lost significant market valuation and then
Speaker 1: have after half of a year gone back to before,
Speaker 1: to where they were before the reports came out. So
Speaker 1: it really depends on the name and I think to
Speaker 1: the extent of what is included in the report, how
Speaker 1: damning actually is. And then also if there's any information
Speaker 1: that comes out even after the report, either to prove
Speaker 1: it false, or true. Yeah, that's what I'm thinking out.
Speaker 1: I mean the stock, I mean, Block could do no
Speaker 1: wrong for such a long time and Wall Street loved
Speaker 1: it right, and then it's down I think about seventy
Speaker 1: five percent since August of I think, going back to
Speaker 1: twenty twenty one. I mean, it's way down a lot.
Speaker 1: One of those high growth fintects that it was a
Speaker 1: pandemic Darling really was, and none of them are performing
Speaker 1: too well in this environment. But you don't see that
Speaker 1: kind of instant knee jerk reaction very often. It's pretty dramatic. Well,
Speaker 1: I guess stay tuned right and just see kind of
Speaker 1: what the next step is. The stock though shares a
Speaker 1: block still down about sixteen percent here off their loads
Speaker 1: of the day, but nonetheless a pretty significant hit. Kat,
Speaker 1: thank you so much. Glad you could come in and
Speaker 1: just kind of laid out for us. Kat Doherty, Finance reporter,
Speaker 1: apt Bloomberg News. Here in our Bloomberg Interactive Brokers studio,
Speaker 1: you're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the Ion Radio app, and the Bloomberg
Speaker 1: Business app or watch us live on YouTube. We want
Speaker 1: to talk a little bit about something Bloomberg News giving
Speaker 1: heads up on yesterday, and that is the Ford Motor Company.
Speaker 1: We're getting more clarity, more specifics, the company predicting losses
Speaker 1: in its EV business electric vehicle business will grow to
Speaker 1: three billion dollars this year as it spends big on
Speaker 1: new models and factories, the deficit matching it's accumulated EV
Speaker 1: losses over the past two years. The stock right now
Speaker 1: a little bit lower, though we did see a little
Speaker 1: bit higher earlier in today's session. So let's get to
Speaker 1: it with Bloomberg News auto reporter Keith Noughton. He's with
Speaker 1: us following this via zoom in Detroit. So, Keith, three
Speaker 1: billion dollars sounds like a lot you guys were giving us.
Speaker 1: You were giving us a heads up on it yesterday.
Speaker 1: Why the losses and put it in perspective? Well, what
Speaker 1: Ford says, Carol, is that the EV business is like
Speaker 1: a startup within side side Ford Boda company, and like
Speaker 1: any startup, they incur a lot of losses as they
Speaker 1: spend for future growth. So what that spending is they
Speaker 1: are currently working on their second generation of electric vehicles.
Speaker 1: You know, they already have the electric F one fifty
Speaker 1: lightning pickup truck out there and the Mustang Makie. So
Speaker 1: now they're working on the second generation of electric vehicles,
Speaker 1: which will be ground up and cost a lot of money.
Speaker 1: And they are on a building spree. They're building their
Speaker 1: first new assembly plant in fifty years in Tennessee to
Speaker 1: build electric F series trucks, and they're building battery factories
Speaker 1: in Tennessee, Kentucky, and Michigan. So they've got a lot
Speaker 1: of factory construction going on, and they've got a lot
Speaker 1: of spending on new models. You know, Keith, it seems
Speaker 1: to have caught the market at least somewhat by surprise
Speaker 1: that the loss would be this big. Correct me if
Speaker 1: I'm wrong about that. But what is the story? There's
Speaker 1: just that this spending, these investments they're making are a
Speaker 1: lot bigger than what they projected, or at least what
Speaker 1: analysts were penciling in. You know, Ford has said that
Speaker 1: they're planning to spend fifty billion in total on electric
Speaker 1: vehicles by twenty twenty six. The plan is to ramp
Speaker 1: up their factory production to be producing two million vehicles
Speaker 1: a year by the end of twenty twenty six. Last
Speaker 1: year they sold about sixty five thousand in America. So
Speaker 1: it's a very steep ramp and a very big spend
Speaker 1: because you know, they don't want to be left behind
Speaker 1: in this transition to electric vehicles and they're trying to
Speaker 1: catch Tesla. The losses are rising, not going down. They
Speaker 1: had a nine hundred million dollars loss in twenty one.
Speaker 1: They had a two point one billion dollar loss on
Speaker 1: evs last year, and then it'll be up forty three
Speaker 1: percent this year to that three billion figure we're talking about.
Speaker 1: So they're in this heavy investment period. But they say
Speaker 1: they will be profitable on an earning sefore interest in
Speaker 1: taxes basis by the end of twenty twenty six of
Speaker 1: an eight percent EBIT margin. They say on the evs, Hey, Keith,
Speaker 1: help me out though. Like two Mike's point, And you
Speaker 1: know the stock earlier Ford was up two point six
Speaker 1: percent earlier in the session before it moved a little
Speaker 1: bit lower. And I guess you've covered this inside and out,
Speaker 1: and I feel like the Wall Street community who covers
Speaker 1: Ford gets what they have to do. I get this
Speaker 1: concept of a startup within you a bigger, broader company.
Speaker 1: Is the street to somewhat to some extent, kind of
Speaker 1: comfortable with it. I'm not seeing any analys calls come out,
Speaker 1: any downgrades at least not yet, or any kind of moves,
Speaker 1: So the street aware that this is what it's going
Speaker 1: to take for this transition. Yeah, Carol. Actually, the three
Speaker 1: billion dollars loss, which sounds awful, I understand, is not
Speaker 1: as bad as some analysts were projecting. There are projections
Speaker 1: out there of they thought Ford lost six billion last
Speaker 1: year on electric vehicles. So while three billions bad, maybe
Speaker 1: not as bad as the market expected. The stock was
Speaker 1: up as much as two percent in the morning. Um.
Speaker 1: During the morning. Also, Fords CFO John Lawler was doing
Speaker 1: this teach in at the NYS with analysts, so, um,
Speaker 1: you know, they are trying to explain this walk to profitability.
Speaker 1: I was listening in. The analysts seemed fairly skeptical that
Speaker 1: they could get to there from here. It's a big walk.
Speaker 1: Last year's EBIT margin on electric vehicles as negative forty percent. Yeah,
Speaker 1: it's a say, by the end of twenty six will
Speaker 1: be a positive eight percent. That's a lot. So analysts
Speaker 1: were skeptical probably right there. So you know, Keith as
Speaker 1: a Twitter addict over here, you know, it's it's hard
Speaker 1: not to notice the distraction Elon Musk has undertaken with
Speaker 1: his purchase of Twitter and getting very political on that
Speaker 1: on the site itself, turning a lot of people off
Speaker 1: with some of his m political opinions and culture war
Speaker 1: type of opinions. So I'm wondering, like, what is the
Speaker 1: lane do you think and the strategy at Ford to
Speaker 1: actually take some share from Tesla? Does Musk's personality play
Speaker 1: into it at all? Or is it just a matter
Speaker 1: of they want to make cheaper cars, better cars? What's
Speaker 1: their strategy entail for getting that share away from Tesla? Right? So?
Speaker 1: I mean Ford strategy is they are going straight for
Speaker 1: the mainstream. You know where Tesla's sell best is on
Speaker 1: the coasts right there. They kind of sell to the converted,
Speaker 1: if you will, Folks who are wealthy and are inclined
Speaker 1: to take actions to either because of climate change or
Speaker 1: because that's you know, that's what is the current you know,
Speaker 1: going Trent, and they have the money to afford that.
Speaker 1: Ford's going for the big middle in America that buy
Speaker 1: pickup trucks and buy Mustangs. The things that Ford is
Speaker 1: electrifying are these sort of classic names that have been
Speaker 1: popular in Middle America for years, and so far they're
Speaker 1: after a very strong start. You know, the F one
Speaker 1: fifty lightning plug in pickup truck head two hundred thousand
Speaker 1: reservations when it went out to sale last April. And
Speaker 1: they are doubling the capacity right now at the Mexican
Speaker 1: factory that builds the Mustang Maki. That'll be able to
Speaker 1: produce two hundred and ten models, two hundred and ten
Speaker 1: thousand models a year by the end of this year.
Speaker 1: And you know, last year they produced fewer than one
Speaker 1: hundred thousand, So it's it's working so far, but it's
Speaker 1: very early days. For four they are the second bestseller
Speaker 1: of electric vehicles in America, but they're miles behind Tesla,
Speaker 1: which controls two thirds of the EV market in America.
Speaker 1: You know, I keep wondering, you know, Keith, in terms
Speaker 1: of a company like a Ford or General Motors that
Speaker 1: still think, oh, they have internal combustion engine vehicles, right,
Speaker 1: because they still make a lot of money off of that, right,
Speaker 1: And that's kind of the flip side. But having said that,
Speaker 1: I wonder how much of that is a drag, you know,
Speaker 1: in terms of really being out there with evs right
Speaker 1: Elon Musk is a pure play doing it differently, And
Speaker 1: I just wonder if that longer term is going to
Speaker 1: be a problem for Ford or GM or not. I
Speaker 1: mean Ford and GM, but Ford is saying that, you know,
Speaker 1: internal combustion engine vehicles are still a growth business for them.
Speaker 1: They sell lots of Bronco SUVs. They sell you know,
Speaker 1: like nine hundred thousand F series trucks every year. I mean,
Speaker 1: it's the best selling vehicle in America since the first
Speaker 1: Reagan administration. Wow. So so there's a huge I mean,
Speaker 1: you have to keep in mind that electric vehicles make
Speaker 1: up five point eight percent of the US market. So
Speaker 1: every nine and a half vehicle sold is still a
Speaker 1: gas fueled car or truck. And is the F one
Speaker 1: fifty lightning the actual performance of that vehicle enough to
Speaker 1: convert the type of people that already own the gas
Speaker 1: powered pickup truck. Yeah. You know, it's an interesting question
Speaker 1: because you know, those folks wouldn't seem to be necessary
Speaker 1: they sell mostly in Red states. They wouldn't seem to
Speaker 1: necessarily be folks who are um, you know, trying to
Speaker 1: address climate change in their vehicle purchases. But you know
Speaker 1: what the Lightning has done. It's popularity is actually with
Speaker 1: newcomers to Ford and newcomers to pickup trucks. Ford says,
Speaker 1: you know, more than sixty percent of the sales of
Speaker 1: the Lightning go to these new beats, not to the
Speaker 1: traditional truckers. But eventually, if you're going to convert the fleet,
Speaker 1: the best selling vehicles in America are the Ford truck,
Speaker 1: the GM truck, and the you know, uh Ram truck.
Speaker 1: It's that's that's what Americans buy. And so if you're
Speaker 1: going to electrify the vehicle fleet in this country, you
Speaker 1: have to be successful in electrifying pickup trucks, which is
Speaker 1: of course why Elon Musk is doing the cyber truck.
Speaker 1: It's so interesting in terms of all that's going on. Um,
Speaker 1: I forgot about the cyber truck. How could you forget
Speaker 1: how cyber truck? We're waiting right exactly all right? But yeah,
Speaker 1: Keith not in good stuff. Out of reporter at Bloomberg News.
Speaker 1: Joining us via zoom from Detroit. You're listening to the
Speaker 1: Bloomberg Business Week podcast. Catch us Live weekday afternoons from
Speaker 1: three to six Eastern on Bloomberg Radio, the Bloomberg Business App,
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Speaker 1: Bloomberg eleven thirty, joining Mike and myself. Bloomberg News Technology.
Speaker 1: Put Alex Barenka joining us right now. She's been up
Speaker 1: on Capitol Hill, So all right, Alex. First of all,
Speaker 1: a lot to get to tell us about the mood
Speaker 1: in the room, how packed it was. Paint the picture
Speaker 1: for us, Carol. It was packed to the brim. Folks
Speaker 1: were overflowing, We were dropping for seats, even as credentialed
Speaker 1: media and sitting right behind TikTok was also kind of
Speaker 1: a slew of creators. All of these folks got to
Speaker 1: witness what I would say is probably one of the
Speaker 1: more contentious congressional hearings that we heard. There was a
Speaker 1: lot of cutting off of the CEO when he was
Speaker 1: trying to give answers, a lot of pushing to try
Speaker 1: to get him to commit to these yes or no questions?
Speaker 1: Do you have any relationship with the Chinese Communist Party?
Speaker 1: Who is prepping you today for today? Was there anyone
Speaker 1: from China in doing so. There was also a lot
Speaker 1: of emotion both when it came to the protection of
Speaker 1: US American users data, which those national security concerns have
Speaker 1: been top of mind, but there was also some really
Speaker 1: kind of emotional moments talking about the impact that social
Speaker 1: media can have on teens, particularly around users who are
Speaker 1: posting about suicide on the app. So very high stakes moment,
Speaker 1: and a lot of tension in that room between the
Speaker 1: CEO and the lawmakers who were not holding back in
Speaker 1: firing questions his way. You know, Alex, I'd love to
Speaker 1: unpack a little bit that notion of the personal data.
Speaker 1: You know, that seems to be one of the main
Speaker 1: lynch pins here that Agger's politicians about TikTok, is all
Speaker 1: this personal data. I gotta say, I've got three teenage
Speaker 1: daughters who were all TikTok addicts. I don't know what
Speaker 1: data they have that the communists China would be interested in,
Speaker 1: but obviously that's probably not what's wearing people. What is
Speaker 1: the type of data that's so precious and so dangerous
Speaker 1: to leak from TikTok into China. So today we heard
Speaker 1: folks talk about IP addresses, which is kind of could
Speaker 1: narrow down your location GPS data and that additional location data.
Speaker 1: And then you had some questions from TikTok CEO show
Speaker 1: to himself saying, what else should I be kind of
Speaker 1: helping protect US user data for? You asked this question, Michael,
Speaker 1: and it's one that a lot of folks have talked
Speaker 1: about in context of TikTok. They're being national security concerns
Speaker 1: about data. The company feels like they are doing as
Speaker 1: much as they can to protect American users data. They
Speaker 1: would argue more than any of their peers by basically
Speaker 1: setting up this firewall with Oracle to bring all Americans
Speaker 1: data onto US soil. You saw him push back today
Speaker 1: in the very few times that he did push back,
Speaker 1: basically saying, some of these concerns that you guys are alleging,
Speaker 1: they're hypotheticals. If you give us more specific information, we
Speaker 1: can kind of work for that. So, you know, young
Speaker 1: folks might say, TikTok and everyone under the sun has
Speaker 1: my information. But when that argument came up today in
Speaker 1: the hearing, lawmakers push back and said, well, we're not
Speaker 1: here to talk about everyone else, We're here to talk
Speaker 1: about TikTok. Well, there is something to be said to like,
Speaker 1: can't the government, Like we work for a company where
Speaker 1: we've just secure our information a lot of companies do.
Speaker 1: I mean, can't the government institutions basically kind of create
Speaker 1: firewalls around these applications and maybe you know, not allow
Speaker 1: employees to use it, and that's a way of kind
Speaker 1: of protecting themselves. Absolutely, and federal workers cannot actually use
Speaker 1: TikTok on their phones after that legislation pass. But we
Speaker 1: heard something along those lines of kind of cause comprehensive
Speaker 1: legislation around data policy be brought up today. Honestly, that
Speaker 1: was the argument that CEO showed Cho was trying to
Speaker 1: push to broaden this conversation outside of just TikTok. We
Speaker 1: did hear a little bit of that, not that they
Speaker 1: were friendly voices, but voices along the lines of comprehensive
Speaker 1: legislation from both sides, from Greg Pence on the Republican side,
Speaker 1: from Darren Soto on the Democratic side, who both kind
Speaker 1: of echoed this idea that there should be kind of
Speaker 1: bipartisan legislation that looks at all tech companies. Pence actually
Speaker 1: came out and said, hey, this is my thirty second
Speaker 1: hearing that I've been in about tech companies and data.
Speaker 1: So the push is there, but the problem is TikTok
Speaker 1: is being seen as kind of a bigger threat right now,
Speaker 1: and all of those things, those concerns that swirl around
Speaker 1: regular social media companies, what data do they collect, what
Speaker 1: are they showing me, who was influencing me, where do
Speaker 1: the ads come from? All of those concerns have been
Speaker 1: made kind of way more sinister because of this kind
Speaker 1: of ratcheted up fear of China and those hypotheticals of
Speaker 1: what could they do if they got your information? You know, Alex,
Speaker 1: It's such a sort of perilous political topic because it
Speaker 1: does seem like there's bipartisan support to do something about TikTok,
Speaker 1: But on the other hand, no one wants to lose
Speaker 1: those you know, millennial Gen Z voters who are addicted
Speaker 1: to the app, and I know from your coverage and elsewhere,
Speaker 1: there's several competing bills floating around Washington about what to do.
Speaker 1: A gevity sense of where that's going, is there one
Speaker 1: piece of legislation that you think has a better chance
Speaker 1: or is gaining more support than the others. So the
Speaker 1: bill from Thune and Warner, which has backing by the
Speaker 1: Biden administration. Biden administration actually said send that to Joe's
Speaker 1: desk and we will kind of make some moves on it.
Speaker 1: That seems to be the one on pole position. I'll
Speaker 1: tell you the representatives in the room at the hearing,
Speaker 1: we're not the only ones who are kind of piling
Speaker 1: on to the anti TikTok sentiment today. We have messages
Speaker 1: in our inbox from those sent ors on that bill
Speaker 1: who are excited to see the bipartisan kind of flogging
Speaker 1: that TikTok had to take today in that hearing room,
Speaker 1: saying hey, we should push this bill. So those folks
Speaker 1: are moving forward. They largely say that these national security concerns,
Speaker 1: these concerns around China are more important than the one
Speaker 1: hundred and fifty million people who enjoy, you know, interesting
Speaker 1: videos on the app, the voters, you know. I talked
Speaker 1: to some creators that TikTok brought down here, about half
Speaker 1: a dozen of them. I asked, all of them, have
Speaker 1: you talked to your representative, have you talked to your senator?
Speaker 1: If they vote against TikTok, will you vote for them? Unequivocally?
Speaker 1: All of them said, my vote would be up for
Speaker 1: question for those individuals if they pass a bill that
Speaker 1: bans the app and removes it from my phone here
Speaker 1: in the US, Alex. If this was a German company,
Speaker 1: a Japanese company, pick your country other than China, would
Speaker 1: we be going through this process? Would with the CEO
Speaker 1: of a non Chinese TikTok be going through this China
Speaker 1: seems to be kind of the focus right now. I mean,
Speaker 1: last night to cross the Lawn from the Hill was
Speaker 1: a group of vcs and lawmakers meeting at a private
Speaker 1: dinner where Peter Teal, the billionaire and venture capitalist, was
Speaker 1: talking about the risks of China, calling TikTok likening it
Speaker 1: to the wholeless problem, as he called it here in
Speaker 1: the US, something that we cannot get away from. So
Speaker 1: that kind of rhetoric has ratted it up and ratched
Speaker 1: it up around this country in particular. You've also seen
Speaker 1: it with the chip deliberations and the semiconductor industry. So
Speaker 1: this seems to be kind of the focus right now,
Speaker 1: and we're not hearing it about those other countries. So
Speaker 1: China seems to be kind of number one on that list.
Speaker 1: Twenty seconds now what now? What happens. Now. What happens
Speaker 1: is the company will probably be jocking to get this
Speaker 1: legislation off the table. I don't think that's going to happen.
Speaker 1: We saw such an uproar today. It seems like they
Speaker 1: lost ground on their argument to garner trust from the
Speaker 1: US government. So we'll be kind of watching and waiting
Speaker 1: for next steps on bills and any additional national security
Speaker 1: review as a result from the Testama. All right, Well,
Speaker 1: some great coverage and reporting, Alex. Thanks so much. Alex
Speaker 1: BARMENCA technology reporter up Bloomberg News. There. I believe in
Speaker 1: our DC bureau after spending time up on the hill
Speaker 1: listening and watching that testimony. You're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch US Live weekday afternoons from three
Speaker 1: to six Eastern Listen on Bloomberg dot com, the Ion
Speaker 1: Radio app, and the Bloomberg Business App, or watch US
Speaker 1: Live on YouTube. Latching noted about a year ago that
Speaker 1: drug makers advertise drugs through TV and other media to
Speaker 1: encourage patients to ask their doctors for specific medications. In
Speaker 1: that story, our reporters citing a GAO report on how
Speaker 1: manufacturers spent about six billion each year for a total
Speaker 1: of seventeen point eight billion on direct to consumer advertising
Speaker 1: for more than five and fifty drugs from twenty sixteen
Speaker 1: to twenty eighteen. They spend a lot, that's the bottom line.
Speaker 1: So looking at former advertising, a new study led by
Speaker 1: researchers at the Johns Hopkins Bloomberg School of Public Health.
Speaker 1: Joining us right now to talk about it is Gerard Anderson,
Speaker 1: professor in the Department of Health Policy and Management at
Speaker 1: this school, of course, supported by Michael R. Bloomberg, founder
Speaker 1: Bloomberg UP and Bloomberg Philanthropies. He joins us now via
Speaker 1: zoom in Washington, DC. Gerard, nice to have you here
Speaker 1: with us. Tell us about this study, what you looked
Speaker 1: at and what you found out. Sure, it's good to
Speaker 1: be back. So there are only two countries in the
Speaker 1: world that allow direct to consumer advertising, United States and
Speaker 1: New Zealand. And so what we wanted to understand is
Speaker 1: why are they doing this and what's so important? And
Speaker 1: as you said in unroduction, many of us watch it
Speaker 1: on television. And my wife and I were watching it
Speaker 1: on television and I would look at him and I'd say,
Speaker 1: why are they spending so much money on advertising? And
Speaker 1: what if you looked at the fine print on TV
Speaker 1: or something like that, you'd see that many of these
Speaker 1: drugs really don't work very well. They do a little
Speaker 1: bit better than nothing, they don't work very well. So
Speaker 1: we wanted to take a look at whether or not
Speaker 1: they actually are very good compared to the drugs that
Speaker 1: are other ones that are also being provided, and it
Speaker 1: turns out that most of them are not. And it
Speaker 1: sort of makes sense. They're going to go to the
Speaker 1: consumer when they can't go to the physician because the
Speaker 1: physician knows that the drug isn't particularly good or is
Speaker 1: equally good but much more expensive, and so it's not
Speaker 1: going to prescribe it. So you go directly to the
Speaker 1: consumer and you say to them, go ask your doctor.
Speaker 1: And the doctors hate this because they know that the
Speaker 1: drug is either much more expensive and therefore are not
Speaker 1: good for the patient, or not as good or just
Speaker 1: as good as another drug. So we basically published a
Speaker 1: paper that said, be cautious when you watch an advertisement, well, right, Jerry,
Speaker 1: because it seems like it must work. Right. They wouldn't
Speaker 1: be spending this type of dollars if it wasn't working.
Speaker 1: So some doctors able to be convinced. I guess or
Speaker 1: is it that some patients? You know, maybe I'm a hypochondriac.
Speaker 1: Sometimes I'm watching the commercials that I'm like the restless legs?
Speaker 1: Do I have restless legs? What we all do? You know?
Speaker 1: How does this work that the doctors actually end up
Speaker 1: prescribing the drugs that patients are seen on TV. So
Speaker 1: you're gonna understand how much these drugs cost. Some of
Speaker 1: these drugs are ten thousand dollars. Some of these drugs
Speaker 1: are fifty thousand dollars. Some of these are drugs are
Speaker 1: more than one hundred thousand dollars. The more so if
Speaker 1: you just get a few patients watching this ad going
Speaker 1: to the doctor and saying, you should, you know, get
Speaker 1: I prescribe this drug for me. And doctors really don't
Speaker 1: like to disappoint their patients, so they do so if
Speaker 1: they can just get a few patients that decide to
Speaker 1: do this. They've made money on this particular ad, so
Speaker 1: they're going to do this just because the high prices
Speaker 1: of these drugs that they're being advertised on TV. So
Speaker 1: where are regulators on this? Like, why isn't the FDA
Speaker 1: in their analysis creating some kind of metrics, especially when
Speaker 1: there's maybe a couple of drugs used for some ailment
Speaker 1: and saying this one's more effective, this one's more effective
Speaker 1: than this one. You know, why isn't that part of it?
Speaker 1: Because the FDA is not responsible for doing that. In fact,
Speaker 1: there's nobody in the United States responsible for making that
Speaker 1: decision we have. Unlike other industrialized countries where there are
Speaker 1: entities sponsored by the federal government, sponsored by insurers, sponsored
Speaker 1: by a variety of things that make those recommendations to people,
Speaker 1: we in the United States don't have anybody making those recommendations.
Speaker 1: The FDA says the drug is safe and effective are afflications.
Speaker 1: That's what it says. It doesn't say it's better than
Speaker 1: another drug, it's more expensive than another drug. It is
Speaker 1: just saying this drug is safe to take. And that's
Speaker 1: only the responsibility they have. There's nobody saying, well, you
Speaker 1: could take this drug but it's not quite as good,
Speaker 1: or you could take this drug but it's three times
Speaker 1: more expensive. There isn't anybody out there in the United
Speaker 1: States that essentially is making that on that recommendation to people.
Speaker 1: You know, Jerry, one line popped out at me in
Speaker 1: this story It says since nineteen ninety six, annual direct
Speaker 1: to consumer advertising budgets for prescription drugs have increased from
Speaker 1: one point three billion to six billion in twenty sixteen.
Speaker 1: And I'm thinking back to the nineties when there was
Speaker 1: a sort of a lot of scandals, I guess you
Speaker 1: could call it about drug reps, you know, who would
Speaker 1: go in wine and dine doctors and take them goffing
Speaker 1: or take them on vacations. And there was a big
Speaker 1: backlash to that and a crackdown on that. Do you
Speaker 1: think this is sort of the modern version of that?
Speaker 1: Is this how the drug companies are sort of getting
Speaker 1: away from that problem and creating a new one. Well,
Speaker 1: so they're still allowed to to wine and dine the
Speaker 1: physicians and whatever. They just have to report it, so
Speaker 1: they're still able to do that. Some places like Johns
Speaker 1: Hopkins don't allow the pharmaceutical reps into the hospital, but
Speaker 1: many places do. But what they're saying is these are
Speaker 1: very profitable drugs for us. We're going to try everything
Speaker 1: we can to get another prescription written, and so we'll
Speaker 1: go to the doctors. But we're also for these drugs
Speaker 1: which are not quite as effective or are much more expensive.
Speaker 1: We're also going to go to the patient and get
Speaker 1: them to lobby their own doctor. Well, give me this drug.
Speaker 1: I've read it on TV. I saw it on TV.
Speaker 1: I should be taking this drug. Why don't I taking
Speaker 1: this drug? Well, Jerry, what about doctors though, I mean doctors,
Speaker 1: I would assume they take the hippocratic oath. They want
Speaker 1: to do best by their patients. So if they have
Speaker 1: a buffet of drugs, they're going to go for the
Speaker 1: one that is going to be I would assume best
Speaker 1: for their patient and do the most. Isn't that kind
Speaker 1: of the stopgap? That is the stop gap? But now
Speaker 1: think of yourself as a doctor. You have a patient
Speaker 1: comes in and says I want this drug, and you
Speaker 1: could sit there and spend twenty five minutes explaining to
Speaker 1: them the science behind the two drugs and why this
Speaker 1: old this other drug is better or less expensive, or
Speaker 1: you could just say, Okay, I'll give you the drug
Speaker 1: that you want. It's going to cost you more, it
Speaker 1: has less effectiveness, but if you want it, I'm going
Speaker 1: to give it to you. I mean, it's it's the
Speaker 1: same as you know, we talk about obesity, and you
Speaker 1: know the doctor should talk to us about obesity and
Speaker 1: a whole variety of other things. But it would take
Speaker 1: a long time and you might alienate some patients, and
Speaker 1: some patients would say, well, if this doctor doesn't want
Speaker 1: to give it to me, I'm going to go to
Speaker 1: another doctor. But don't don't insurance companies too kind of way,
Speaker 1: and like, I've a right, I've seen situations like hey,
Speaker 1: you yeah, like don't they don't they play a role here?
Speaker 1: They do play a role. It's called prior authorization. And
Speaker 1: what they say is, you know, you've got to try
Speaker 1: this drug before you take this drug. And so they're
Speaker 1: making it hard to get the more expensive or the
Speaker 1: less effective drug. But still the doctor's lobby in some
Speaker 1: cases the insurance companies and in most cases the insurance
Speaker 1: companies end up giving up and saying, oh, okay, you
Speaker 1: know this patient better than we do, and you know
Speaker 1: you've now called me three times and bugged lea for
Speaker 1: this patient, and therefore you know, yes, we'll give you
Speaker 1: that that new and expensive drug. Um. You know, you
Speaker 1: just get lobbied enough as an insurance company. You don't
Speaker 1: want to be known as the insurance company that always
Speaker 1: says no, do we all have restless leg syndrome. That's
Speaker 1: what we really don't know. Mike's convinced we all have it. Jerry,
Speaker 1: um No. I think it's an important situation because you're right,
Speaker 1: we all see the ads. They're off and out there
Speaker 1: big time, and it's interesting that we've got to be
Speaker 1: smart and not be sold too. What interesting point the
Speaker 1: story makes two is that the US doesn't have comparative
Speaker 1: comparative effectiveness rating like other countries do, and that sounds
Speaker 1: like maybe that's an issue that I'd love a rating.
Speaker 1: I'd love a rating I'm looking at. Is this thing
Speaker 1: really worth it? Yeah? Exactly. Think it would be really
Speaker 1: smart and it would be a lot more transparent if
Speaker 1: you will, Jerry, Thank you so much. Jerry Anderson, Professor
Speaker 1: in the Department of Health Policy and Management at Johns
Speaker 1: Hopkins Bloomberg School of Public Health. Joining us from Washington.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business app, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just Say Alexa, playing Bloomberg eleven thirty. I'm a journal Yeah,
Speaker 1: but you let me drive. Oh no, no, no, no's home?
Speaker 1: All right, please, I'll do the riding gravels. I want
Speaker 1: to drive. Good question, the drive. This is the drive
Speaker 1: to the globe? Coming well up and down on Bloomberg Radio.
Speaker 1: All right, just got about seventeen and a half minutes
Speaker 1: left in today's trading session. We're just bouncing off our
Speaker 1: loads of this session when it comes to the equity trade.
Speaker 1: But we're well well off our highs of the day.
Speaker 1: Bank stocks still seeing some pressure. Looking at the Spider
Speaker 1: SMP Regional Banking Index, it is still down about three
Speaker 1: percent in the trade. And Mike, we've got that two
Speaker 1: year note with the yield of three point seven eight,
Speaker 1: so staying well below that four percent mark. We were
Speaker 1: up there I think earlier in the session. Yeah. Absolutely,
Speaker 1: anytime you see those lower yields, it signals a few things.
Speaker 1: I mean, are people worried about growth? Is it they
Speaker 1: think the Feds done? But the best she can say
Speaker 1: is it does perhaps alleviate a little bit of the
Speaker 1: banking stress that we've seen, especially the further out the
Speaker 1: curve you go. You know, those mark to market We're
Speaker 1: not losses on bank's bonds. So right, yeah, I think
Speaker 1: I think everyone's happy to see a drop in yields
Speaker 1: these days. All right, well, let's see what our next
Speaker 1: guest has to say about all of this. Time for
Speaker 1: a drive to the closed guest Amanda, Amanda Agatti. She's
Speaker 1: back with us, chief investment officer at P and C
Speaker 1: Asset Management. She is with us today on the phone
Speaker 1: in Philadelphia. I may had a good to have you
Speaker 1: back with us. It's been an interesting twenty four hours.
Speaker 1: The FED decision, the continuing bank questions and nervousness, the
Speaker 1: dialing back. It feels like from Treasury sectary Janet Yellen
Speaker 1: when it comes to maybe backstopping bank deposits. How has
Speaker 1: any of it, if at all, change you're thinking about
Speaker 1: investment strategy, the right strategy in today's environment. Well, thank
Speaker 1: you so much for having me. There's a ton to unpack.
Speaker 1: We could be on the line together all day going
Speaker 1: through all of those variables, a lot of competing narratives.
Speaker 1: I would say, at the end of the day, it
Speaker 1: hasn't really changed our approach to investment strategy or portfolio positioning.
Speaker 1: We've been running a defensive playbook for the last few
Speaker 1: months here trying to keep our investors invested, not pulling
Speaker 1: ripport and raising a ton of cashier saying well, diversified,
Speaker 1: focusing on quality. I'm not sure that anything over the
Speaker 1: last twenty four hours has changed that dynamic at all,
Speaker 1: but certainly the end state for monetary policy is becoming
Speaker 1: a lot clearer and probably sooner than what the market
Speaker 1: has expected. So that's driven a lot of market leadership
Speaker 1: and rotation. The flip side of that is, you know,
Speaker 1: is there another shoe to drop? What are the signs
Speaker 1: of stress that are building here? And so I think
Speaker 1: this is the arm wrestling match that the market's just
Speaker 1: going to continue to face here, and it's sort of
Speaker 1: leading to overall kind of a directionless market, but under
Speaker 1: the surface, clearly a lot of volatility. You know, Amanda,
Speaker 1: It's interesting. I think the cliche that you hear that
Speaker 1: everyone hears on their first day of trading school or
Speaker 1: investing school, whatever it is, is don't fight the Fed.
Speaker 1: But in this case, you know, I wonder which way
Speaker 1: you shouldn't fight the FED, because on one hand, they
Speaker 1: are obviously raising rates. Chair Pale said there's no plans
Speaker 1: to cut them this year. But on the other side,
Speaker 1: everyone is fixating on that FED balance sheet and the
Speaker 1: discount window is wide open. The FED has you know,
Speaker 1: flooded the financial system with cash in the last few weeks.
Speaker 1: So which way, you know, should you not fight the
Speaker 1: FED on the balance sheet side or the interest rate side.
Speaker 1: I think it's really more on the interest rate side.
Speaker 1: You know, you look at the sad fund futures market,
Speaker 1: there's still a disconnect between what the FED has been saying,
Speaker 1: what the FED is actually doing, and what the market
Speaker 1: thinks the FAT is going to do. And so I
Speaker 1: think it's it's much more of a focus there and
Speaker 1: don't fight the Fed. I have gone on record many
Speaker 1: times of fighting the FED is the target to critique
Speaker 1: what they're doing or not doing. But for you know,
Speaker 1: the last call at six or seven months, I've been
Speaker 1: really trying to stay close to what the FED signaling
Speaker 1: effect is and what they're actually doing. I think they
Speaker 1: remain very much committed, as Kal said yesterday, to fighting
Speaker 1: this inflationary battle, but obviously we're starting to see some
Speaker 1: signs of stress and so makes total sense for them
Speaker 1: to slow down here. But I think the market trying
Speaker 1: to call the Fed's loss that we're going to see
Speaker 1: a number of cuts here in the very short run
Speaker 1: feels kind of delusional. Banks. Is there an entry point
Speaker 1: for you with the selling that we've seen. Well, I
Speaker 1: don't know that I want to necessarily comment too much
Speaker 1: on the investment thesis around banks or an entry point,
Speaker 1: but we definitely think that there's a lot of high
Speaker 1: quality assets, especially relative to deposits out there, and sure
Speaker 1: there's signs of stress building in the system, but on balance,
Speaker 1: we feel like see industries in pretty good shape. I mean,
Speaker 1: of course, we're watching financial conditions tighten here said took
Speaker 1: a step you know further in that direction yesterday, So
Speaker 1: I'm not saying that we're you know, out of the
Speaker 1: woods yet, but you know, I think on balance we're
Speaker 1: in pretty good shape. A lot of people, you know,
Speaker 1: making a lot of comparisons to the financial crisis, and
Speaker 1: I hate to say, but it's a little bit different
Speaker 1: this time. A lot of controls, a lot of oversight,
Speaker 1: a lot of stress testing, a lot of really stringent
Speaker 1: capital and liquidity ratios in place make the industry in
Speaker 1: a much better shape overall this time around relative to
Speaker 1: last time. Conversely, if I may in terms of I mean,
Speaker 1: financials have been on our radar. They're the worst performing
Speaker 1: major industry group in the S and P five hundred
Speaker 1: over the past two weeks, surprise, But at the top
Speaker 1: of the list are the second best performing. Is information technology?
Speaker 1: The best performing his communication services. We've seen investors moving
Speaker 1: into some of the big tech names. What's your call
Speaker 1: on that group? Well, I would say that group probably
Speaker 1: has gotten a bit far ahead of itself, you know.
Speaker 1: But we're not of the opinion that we're going to
Speaker 1: see meaningful rate cuts here in the short run, and
Speaker 1: we're certainly not headed back towards a zero interest rate
Speaker 1: policy dynamic, and so the tail winds for those areas
Speaker 1: are not going to be anywhere near what they have
Speaker 1: then over the last few years. And I think this
Speaker 1: is just the market trying to quickly claim victory in
Speaker 1: the battle against inflation and thinking that rates are going
Speaker 1: to come down a lot. We certainly have seen rates
Speaker 1: come in and come down a lot here in the
Speaker 1: last couple of weeks, and so I think it's just
Speaker 1: simply that I don't know that there's a formula kind
Speaker 1: of rates come down. Growth stocks, the discount rate associated
Speaker 1: with them should be improving, but I'm not sure there's
Speaker 1: a fundamental backdrop justifies how far growth exposures have rallied
Speaker 1: here today. You know, Amanda fetchhair pal obviously likes to
Speaker 1: talk about the long and variable effects of raising interest rates.
Speaker 1: Obviously we've seen that crop up very suddenly with the
Speaker 1: stress and the banking sector commercial real estates seen better days.
Speaker 1: Where else would you be looking to see some stress
Speaker 1: build up because of this aggressive rate campaign we've seen
Speaker 1: a Man, it just got about twenty five seconds. Yeah,
Speaker 1: go ahead, Yeah, I think it's really hard to answer that,
Speaker 1: but I think there's I think there is probably broader
Speaker 1: stress underneath the surface there in terms of balance sheet
Speaker 1: management across the market spectrum, across the market capitalization spectrum,
Speaker 1: though I'd be a little concerned about them allering the
Speaker 1: exposures environment. Well, good to check in with you really
Speaker 1: appreciate it again, Amanda Agatti, She's chief investment officer at
Speaker 1: PNC Asset Management. On the phone from Philadelphia. This is
Speaker 1: the Bloombird Business Week podcast, available on Apple, Spotify and
Speaker 1: anywhere else you get your podcast. Listen live weekday afternoons
Speaker 1: from three to six easterning on bloomberg dot com, the
Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You
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Speaker 1: always on the Bloomberg Journal