BofA Expected to Pay $200 Million Device Fine

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Well, another batch of Wall Street big banks reporting today the news giving well it was giving a lift, another lift to the trade. We're talking about Goldman, Saxon, Bank of America. Thank you Apple for breaking the markets down. Yeah, as we said, uh, well, there's a lot going on, Carold, but let's stick with

Bank of America. Excuse me, because that's a really important one. We got Katherine Doherty joining us now financi Report fort Bloomberg News. She's been in since the wee hours of the morning covering these companies, among them Bank of America. She's with us now in the Bloomberg Interactive Broker Studio. So Bank America is reaping the benefits of a rate rise, but they're also having to pay up for the use of unapproved personal devices. Give us the big takeaway from

today's report. So big takeaway, it's actually reflective in Bank of America and then across Wall Street. We started to see this last week when first Morgan Stanley JP Morgan we're reporting, and then when Wells and City came out on Friday. We expected that the focus which it was today with Bank of America would be on an I I growth. So every time yes, net interest incomes. So now that rates have have risen, the banks are able

to take in their their lending practices are becoming more profitable. UM, and we the estimates across the major banks for Morgan Stanley, Bank of America, JP, Morgan, they all exceeded analyst expectations. However, they've been impacted by expenses and fines. So you referenced UM. It really is particular to Bank of America, and the other banks have either already disclosed a two million dollar fine or they're starting to reference this probe with regulators

with regards to device use. What the heck is this about? Just tell me because it's been coming across and we're like, what don't freaking text your friends about what you're doing at work from your mobile? Simply the use of personal devices? Yes, your cell phone, um, and if they're not disclosed or if it's outside of your your work phone. Um. So

this is across all the banks, um. But we're just starting to see it really be talked about, and um that we're expecting a full settlement to come with the big number. Okay. What's surprising to me is that this is happening versus right, because it's not like you know, people were using We're talking like what's app signal? Any messaging service that we used to send messages to one another? Right? This is the same apps? So why why is this

an issue now? And it was an issue seven years ago, but it was I thought it's such also a clampdown following the financial meltdown. The this SEC and the CFTC are are both. This is I think the closure of it all. They're just really honing in. And it was after Archegos we started to hear it talked about a little bit more that brought this back into the attention

of regulators. Um so they basically went back to all the banks, saw that it was still a practice they need to clamp down on, and this is the end result. Does this also include when you guys talk with like folks in the financial community that they can't be talking to you on their cell phones and stuff like what like? Where? Does what does this encompass? Who are your sources? Cat? You know what I'm saying? Does that mean to in terms of how they communicate? Because that's an interesting area.

It's full on communication. But I believe that the communication is with regards to deals that they are working on and if they're talking to you know, if it has it really depends on the party. There have to be a potential for like a possible financial payoff and not payoff, but you know what I mean, benefit or something. We haven't seen anything come out to to say that there has been instances that the regulators are going to point out.

But perhaps in the future when a settlement is publicly disclosed and the regulators come out and say this is our findings, that's something we'll be looking for. It's so funny, Carrol, because if you think about just the way you know anectotally, the way that you and I interact. For example, sometimes I'll text you, sometimes I'll send you an I B. Sometimes I'll call you on your cell phone. And it's like, you know, if we were working at a bank, how

might that be different? And we're always talking about the show, right exactly exactly, like couldn't you be having a meeting with somebody and put something on a napkin? So like you know what I'm saying, Like that's interesting. Then do people go back to those kinds of ways of commuting because compute I mean communicating, because it's you're never gonna You're never going to capture all communication, right, But I think that the main focus here is are you communicating

on your work devices or your personal devices? And the regulators are concerned that they were seeing more use of the personal devices. Um that maybe it wasn't even you were doing something bad, they were just seeing that the use was up and that it was find work related. It was starting, I believe with some of these previous a year ago, two years ago probes that they started to see communication go offline. Okay, we only have thirty seconds left. What do we learn about the American consumer

from Bank of America. They say the consumer is resilient. Okay, yes, that's good. We're printing up consumers are resilient T shirts. Yeah, but do not send messages that to the consumer is resilient on your personal consumers are resilient. And then you go on the back and the like. But for how long? R right? No, that's what we're watching for next. This is just the data from this this past three months. But we'll see what the second half of the year

has to bring. This is fine, get some sleep, I know. Do you get some sleep tonight? Okay? Well, alright, Cat Doherty, she's finance reporter at Bloomberg News. I love our finance team all across Bloomberg. Man, you're listening to Bloomberg Business Week with Carol Messer and Bloomberg Takes Tim Stinovic on Bloomberg Radio among the most right on the Bloomberg terminal.

It's also a story that will be featured the upcoming issue of Bloomberg Business Week, which is do out later this week on newsstands already, though, as we said on the Bloomberg Terminal and at Bloomberg dot com, slash business Week such a relevant story to our world. Tim It's about how the US is exporting inflation, and it's probably going to get worse because the Fed hikes Carol ben Holland writes all about it with our other colleagues, Ender

Current and Alexander Webber. Ben joins us this afternoon from the economics editor for Bloomberg News. He's on the phone from our Washington d C. Bureau. Ben, what does it mean when you write that the US is exporting inflation? What does that mean? Well, so, I think it's happening in two ways. So the first thing is that all over the world and the pandemic, you had this kind

of change in what people were buying. Right, So people weren't buying JIM memberships, they weren't buying restaurant meals, they weren't going on vacations so much as they were buying goods. They're buying exercise bikes and TV sets. But a ship was much bigger in the United States than in other countries.

And it's the last seper longer. And it's been amplified by the way that some of the big U S resailers have been behaving because we know now that people a Walmart and Target built up huge inventories of staff, so they were basically buying even more stuff than American consumers wanted to buy, which was already a lot. Because supplies of all these goods, which were traded on global markets were constrained by COVID. The effect of Americans buying so much of them was to push their prices up

for other countries to also joining us. Of course, is Joe Webber, editor Bloomberg Business Week, and he's here in our interactive broker studio. Hey, Joel hi so Ben, I wanted to ask you, you know, how is this manifesting itself. You know, we've seen what happens when you know, we get a glood of inventory in America, and if this is getting pushed out, like, how is it showing up elsewhere?

So it does show up in the inflation numbers in other countries, but if you look at a place like Europe, then of course in the headline numbers it's this effect is swamp because you know, the biggest driver of higher inflation is energy and food, you know, a lot of which is the result of the Ukraine War. But you are seeing higher prices of important goods by comparison with

goods that are produced domestically in European countries. And then the new side of it that we're starting to see now, of course, is that the fix to this, you know, this problem if you want a very strong American demand, is higher American interest rates. Well, that is knocking the

dollar much higher. We now have like a very very strong dollar, and that makes the inflation problem for other countries even worse in a way because it means that stuff they buy from America, or stuff that is priced in dollars like oil and other commodities, also become more expensive for them. And I feel like, you know, this is not something that it's a touch and go ban ah. And this is why we continue to see the inflationary problems globally, you know, sticking with us even longer than

maybe we had all hoped. Yeah, I think so, because this is something that could outlast some of the other causes of inflation. So even if europe European energy and food problems were to sort of magically disappear, or if they were you know that that inflation was to fade away, this other stuff caused by a strong dollar, for example, might still be around. And it might still keep inflation

higher than the central magazine Europe would be comfortable with. Okay, so the Fed pretty much going to keep raising rereaths for a while. So how much worse is this, this is gonna this problem gonna get then, I mean, it could potentially get worse. I mean the caveat, of course is that you know, as I said, that the headline inflation in places like Europe is really is really an

energy story. But it could be that even when that goes away, that they are still left with a problem which is caused by first strong American demand and then second the very strong dollar. That makes their life harder.

And the thing to another thing to think about here is that it also makes the job of a central banker harder, because if you're the American, if you're the fair if you're the American central back, and you think that American inflation is at least partly being caused by strong American demand, while there's something you can do something about when you raise interest rates, you'll be addressing that.

But it leaves the European Central Bank, for example, in the situation where their inflation is not being caused by America European consumers going out and buying lots of stuff, and yet they still feel like they have to raise rates and the result might be that they just slow their economy down without really doing much to address the root of the problem. Why did Americans buy stuff at a different rate than other countries during the pandemic? Ben?

Is it? I mean, look, we know Americans love their stuff. We know we have different lifestyles in terms of the type of houses that we live in and what we have inside those houses. But was it was it a function of the length of lockdowns or changing demographic patterns here in the US? Is there any explanation for it, because we're really good at delivery, sometimes we're not going

to delivery startups. Well, I think, you know, as you said, part of it is just that the patterns of what people buy a different in different countries to start before the pandemic, but I think in the pan they make the Probably the biggest reason why that shift was, you know, it was bigger and longer lasting in America, was that the United States did a big episcal stimulus than the European countries, for example, Because it wasn't really it couldn't

really have been that the other side of it, the supply staff. What's harder to do here because because you know, more restaurants proposed in Europe than the United States. Right, So, yeah, it's a really good point. And the differences, I mean, this is why we watch kind of global central bank policy right now, Like the differences that we will see around the world is going to create problems and certainly

different investing environments as a result. One of the things I love in your stories you talk about the two economies, um may have similar rates of inflation you're talking about Europe and the US, but they have different kinds with major implications again for how the banks tackle the problem. But you talk about, you know, the distinction boiling down to how bigger share of price pressures is home grown and we really need to look at internally where the

inflationary pressures are within each country. Yeah, and what you see when you do look at that, I think is really reinforces the point that you know, more of it is homegrown in the United States than Europe, and that you know, in a way that makes the job of the FED easier I think compared with the job or the central banks, because as I said, if If you think the part of your high inflation in America is caused by strong American demand, well that's something the American

Central Bank can do something about. They can raise interest rates and they can cool down that demand. If you're Europe and none of your inflation is really being caused by strong European demand, but you still have very high inflation and you want to do something about it, and you're worried about expectations getting entrenched, the risk is that you raise interest rates, but all you're a really doing is slowing down your own economy and you're not really

addressing any of the root causes of high prices. Did you just say the Fed has it easy? I love that they would. You spoke to a lot of an I think people here. Jason Furman at Harvard was one name that jumped out at me, who's an economics professor. They're just wondering, like, of all the people you spoke to on this one, what what really pupped for you? What was an insight that you didn't know going in.

I think something that really jumped out of me was what Jason Furman said about the way that the world economy has kind of flipped. Um in the pandemic. So the problem used to be the you know, there used

to be an abundance of goods. There were plenty of goods, and the problem that countries have was to find buyers for those goods, to find demand for it um And so you know, in that story, the bad guys are countries like Germany, for example, in China that we're running big trade surpluses and sort of piggybacking off of other people's demand. But in the pandemic this has kind of been flipped because now goods are not abundant, you know,

they are scars. And in that world, the American trade deficit. You know, it used to be that the US was the kind of world's consumer of last resort and other when America ran a trade deficit. This help of Rick, and now that's kind of been turned on its head applies a lot more stuff in the rest of the world. Right, Yeah, it's makes you wonder how it plays out. Till Webber, Ben Holland, thank you so much. Check this out in

the new issue upcoming issue a Business Week. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes, Tim Stinovic on Bloomberg Radio. There's a story we wanted to bring you since it hit the Bloomberg terminal last week. It's about the noted short seller Carson Block. And I gotta say it's very telling and a very revealing story.

And perhaps that's why I mentioned that, you know, quote unquote broke Twitter, of course, an expression meaning you know, when I log into Twitter in the morning and see what people are are writing about. This was certainly one of those things. Katia Portnski is US News Legal Team reporter for Bloomberg News. She joins us on the phone from New York City. Katya, Um, I want to get to the just the crazy anecdote in this story that I think you know is one that certainly needs to

be explained. But but first off, we're talking about Muddy water 's founder, Carson Block. Who is he? So Carson is a really interesting character on UM. I wouldn't say he's on Wall Street because he's in Austin, Texas. But he he's a short seller, meaning like he's known for putting out parish reports on companies and he has delisted um or his reports have gotten eight companies delisted over the course of his career. He has a legal background,

UM finance background. He's really well known because he he made his name going after Chinese frauds, a space that not many people were looking at, and there were a lot of Chinese frauds and so he was right about a lot of these UM and he's just become really famous in the space over the last ten years, UM making his firm, which started as a research shop now into a hedge fund. Right, And I feel like he's

very well known to the Bloomberg audience. And when he often writes about something or put up some research, you know, you often see a name move UM. You mentioned he's been right about a lot of names. Has he been more right than wrong in his trades? Because I feel like when we you know this cat, when we talk about a short cellars, feels like everybody gets so nervous, But it's another side of the trade. So bottom line, has he been right in a lot of his research

and his calls? He has UM, But it's it's there's it's complicated, it's complicated, and there's different types of short reports right that that exists. There are ones that UM are saying that the a company is overvalued, and then there are ones that say this company is a fraud. And what he and his firm do specifically is they

really try to go afterwards. I mean, they go through a lot, they do a lot of different types of short reports, but they're well known because they pick out frauds and they have UM you know, they do this like forensic analysis, and they go through all the struggle and they have researchers around the world and they coordinate

with a lot of people. But they've been under a lot of heat, um lately, and UM you know, there's a lot of chatter about them and what they do as an institution, and not just them, but in the short the short uh market in general, the way they go about doing their work, UM in a more controversial way. Right. Well,

sometimes you do your work under duress. We have to get to how you start off your story, and I feel like it's very telling maybe about who Carson Block is in that he shared with you a very revealing and very personal story. Do you mind going there in terms of how you kick off your story? Sure? UM, you know, so we uh we went down to um to, Texas to meet with Carson and UM get a little bit of an understanding of how he does his work.

And because we have written a lot about a d J investigation into short sellers UM and have reported about Carson being um UH person and his firm being one of the firms that are being looked at by the Justice Department UM for potential market manipulation or coordinated trading. UM. We're not actually sure what precise believe the d o J is looking at at this stage, but they have taken an interest in a lot of firms and Muddy

Waters is one of them. So we went down and we wanted to know more about, you know, the wild West of short selling and what goes on there. You know, a lot of these firms, aren't, you know, they're they're they're they're they're a little bit different from the traditional hedge fund managers that you that that we may all be more familiar with, the more buttoned up or whatever. And these are a lot of independent researchers that sell

their work to funds and move markets. UM. So we wanted to know a little bit about what that life was from that world was like and asked if you know, he had in the experience with wrongdoing in that in that space. UM. You know, CD practices, and he talked very openly about a time that he believes he was front run by UM, uh you know, UH, an individual he suspects UM leaked his information of the information about

an upcoming report. He was on his way to present a short on tal education at a conference, and UM, on his way on the flight, he saw UM there was a there was a a mysterious interloper in the market building a position that would profit off of him getting up on stage and saying, go short this position. And UM. It was such a stressful moment that a hemorrhoid first. UM, well, well he was on the flight.

All right, We're gonna have to leave it there, Which is a perfect reason that you want to go read the rest of this story, because it's just I feel like it just gives you an indication of kind of the pressure, the intensity of who this person is. Katia we gotta run Katia Porzakonski, she's US Legal News team leader. Check the story out on the Bloomberg Journal. Yeah, but you let me drive? Oh no, no, no no, non, please, I'll do the ride revels. I want to drive. It's

a good question. Drive is the drive to the Clobe Music on Bluebird Radio, and we've got just about ten and a half minutes left in today's trading session, and as Charlie mentioned, we are at our lows, are just off our lows when it comes to the equity trade here with a few minutes to go out performance though, Tim, we're seeing it in the energy materials names, bottom of the pack, healthcare names, they're down about one point seven percent.

All right, let's get into it with Chris Saccarelli, chief investment officer at Independent Advisor Alliance. Chris joins us this afternoon on the phone from Charlotte, North Carolina. Chris, how are you well? How about yourself? We're doing pretty well. Look, we're not debating right now seventy five versus one hundred basis points because you know, we're not hearing from FED speakers, and it does seem like seventy is going to be

what it is. Still, though, there's a lot of consternation when it comes to the global macro economic environment with energy crisis in playing out in Europe and of course inflation crisis playing out here. How do you see things? Yeah, I think that's about right. I mean, we're in the FED quiet period and seventy five basis points looks to be what we're going to see next week. I think that's what everyone was was pricing in prior to those

really high CPI prints. But if you look at the Bloomberg applied probability for the FED rate hikes, to your point one percent was only for a very short period of time when people have that knee jerk reaction. But ultimately, we think a lot of the same headwinds are are with us right now that we have the beginning of the year. As far as inflation continues to be a problem, the FED is gonna be raising rates and tightening financial conditions,

and you're considering to have those recession fears. I think today is very illustrative about what's happening in terms of a recession on the horizon. So if I look at since the beginning of the third quarters, so I'm looking at since the end of June. If I look at the SMP five of the big cap names, Chris, Uh, your performance so far this month has come from consumer discretion are It's at UH five point six percent. Information technology, so you know we're talking about growth names. They're up

more than three percent. UH Communication services, financials, consumer staples. I mean, we it does feel like high vall stocks are all of a sudden, we're seeing out performance. You have told us do you feel comfortable putting cash to work? Where do you feel comfortable putting cash to work in this market environment and what seems to be some changes and where we're seeing out performance. Well, we've definitely been

dollar cost averaging. I don't know that we've been comfortable trying to pick a bottom, but we've We've absolutely been putting cash to work. We've really tried to stay with a balanced portfolio. We've been balancing between value and growth. We've been recognizing the fact that with the market down about year to date, that offers value, but we haven't been trying to predict when and if we're going to hit that bottom. We do think a recession is more

likely a little farther down the road. We're not quite as worried about recession in two because of the strong consumer spending and you've seen a little bit of that in the consumer discrationary stocks. I think if you heard a little bit of the Bank of America commentary, they talked about how spending has remained strong. But then you have that news out of Apple today about employment, and that's really the other half of the picture. And so we do think that there was a recession more likely

in four. Ultimately, you know, you kind of have to take advantage of the levels that you have at the time you have them. So I appreciate hearing your macro views here, but I do wonder where you you know, ultimately you could of figure out where to put your client's money to work. So where do you you say this balance between value and growth? What? More specifically, um,

what is what? What sectors? Where are you doing it? Yeah, so more specifically within the value side of things, we have been adding to some energy news over the last few months. We're looking within oil and gas. We do think having an inflation hedge in the portfolio is important. We've also been looking at some consumer staples and in order to make sure that we have some more resilient

earnings on the value side. On the growth side, we're looking for those those larger tech names, ones that have sold off a lot um potentially could go down farther, but we think have durable businesses. And ultimately, if you have Netflix, which has really been beaten up, and we're gonna get a check on their results. Is that a name that you feel confident enough to play into. We we we more sick with probably the larger tech names in terms of like Apple, Amazon, Microsoft, some of some

of the bigger players that have those bigger franchises. Without a doubt, Netflix is a large company, but we view Netflix as both an entertainment and consumer discretionary play, not just the technology play in the typical hardware software way of thinking. So Apple, which came out and really brought the market down, our Mark German exclusive about them slowing hiring and maybe where they're going to be investing as they look at the economic outlook that's down two percent?

Is that a buying opportunity in your view? It all the times on your time horizon, if you have you know, a one to three to five year time horizon or longer. Absolutely, we think Apple at this price is going to provide really good returns going forward. But if you're a trader, you're looking up for the next couple of weeks, even even for this year, it's gonna be challenging. Clearly, day by day as the news comes out, there's there there

can be more downside ahead. And if we go into recession, and it's a deeper recession than most of the stock markets are going to go to farther. It's just it's impossible to know on any given day how soon that will happen. And again, if you have a long enough time horizon, we think there is a lot there are a lot of good companies on sale right now. And I'm sure we're not the only ones thinking that way, but it all depends on your audience, right if you

have short term traders versus longer term investors. How when you say there are a lot of companies on sale right now, how are you valuing them? Are you valuing them based on what their earnings are are? Are you know what they said about forward earnings lately? Are you valuing them like? How are how are you getting to

that price where you're saying they're good value? So for for us, we're typically again longer term investors were not necessarily going to look at what this quarters earnings are gonna be, with this year is going to be, We're looking more franchise values, just kind of looking over a

whole cycle. You find those companies with great franchises. I think Apple and Micros for great examples where yeah, cyclically their earnings could be down if we go into recession, but if you think over the next five, ten, twenty years, we think it's very likely they'll continue to grow those earnings.

So we'd be looking more at earnings of our last let's say five to ten years, projecting, you know, through a few a full business cycle going forward, less so quarter by quarter or even you know, calendar year where don't you want to be? So right now, we still think you don't want to be in those speculative names, those ones with either extremely high price to earnings ratios or ones without price to earnings ratio because there aren't earnings if we are going to go through a recession,

do you ever really want to be there? To be quite honest with our in our investment styles, But but I do understand that there's a time for momentum, there's a time for speculation. We think if there ever was a time for that, that time has passed. You won't see that again until we actually are in recession. All right, We're gonna leave it on that now. Hey, listen, we covered a lot of ground. Uh, And when I said do you ever want to be there? Teams like yeah,

want to be there. Yeah, you wanted to be there until you didn't write exactly. The problem is is a lot of people don't know when you know when to pull from those rights in the timing right. Chris Ecarelli, thank you so much, Chief Investment Officer to Independent Advisor Lliance, joining us on the phone from Charlotte, North Carolina. Thanks

for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube. Search to Bloomberg Global News