Hindenburg Sends Block Falling With Short Attack

of some research out by Hindberg. You remember that's the firm run by Nathan Anderson bolstered its profile with that scathing report billionaire guantam Adanni's business Empire earlier this year that really took down that name. Well, right now, he and their team has set their sights on Block. They did a two year investigation, and just about one and a half hours ago, Block fought back a little bit. So let's get into it with our own Bloomberg News

finance reporter Cat Doherty. She's here on a Bloomberg Interactive Brokers studio joining myself and Mike Reagan, and I just want to check Shares a Block down, still about sixteen percent off their lows, but still taking a hit. All right, Cat, what first of all did the Hindburg research say? I know, it's out on social media, so people can read it

as well. But what were the highlights or lowlights. The lowlights that their alleging is that this company took advantage and facilitated, essentially the fraudsters who were then using government stimulus programs during the pandemic and essentially allowing folks to have multiple accounts. So even if an account the report would say had been flagged as fraud, that account was then tied to multiple other accounts and it wasn't dealt

with in a proper way. So essentially, I think that was the key here is the extent to which the

fraudsters could actually take advantage of the system. And so this report goes further into saying that they manipulated certain numbers and that they either didn't go far enough to say how many of these accounts were a fraud or that they understated especially the customer acquisitions as well, so that obviously, if true, it would have inflated Block's business correct the metrics then would be off the financial metric correct. So then Block came out and said that these claims

were inaccurate and misleading. They're saying we are registered with the SEC we report factual, accurate information and that the report that we saw from Hindenburg manipulated information and it was not an accurate depiction of what's actually going on. You know, Ken, I think when I think of block I think of the sort of point of sale, use a tablet iPad or whatever to swipe your credit card

out of small store or something like that. This seems to center on a different block product, the cash app. Is that basically the gist of that most of this fraud that Hindenberg is alleged was using the cash app a big part of it. And the report does seem to be that that this cash app was likely facilitating fraudsters taking advantage again of that government stimulus program and

in response, the state of Massachusetts. This is something that was referenced told the short seller, So this report that it sought to claw back close to seventy thousand unemployment payments from the bank behind cash app accounts. That's something that is referred to in this report. So again we'll see what the company actually comes back, and they said that they're going to take some legal action and they

probably will have further statements to provide. But this was a report that was facilitated or underwent for two years. I just want to reiterate. So the research from Hindenburgh says Block has widely overstated its genuine user accounts and has understated its customer acquisition costs. FORM employees estimated that forty to seventy five percent of counts they reviewed were fake, involved in fraud, or were additional counts tied to a

single individual. If that is the case, and I'm curious, as you guys are reporting this out, looking at Block and looking at its balance sheet, how would that materially financially change the story of Block. Well, I think the first thing to look at is regulatory or response. So this is going to be this is already a regulated company, but it's going to be scrutinized, and the report is going to be cross checked, I'm sure with the public

information that's out there. So that's the first thing that I think is going to be the next course of action. And then as information starts to come out, either a company may clarify certain things, or who knows, parts of this report could be corroborated, in which case if things are proven true, well then we have other problems, or the company has further problems that then answers that they

need to get. If I guess my case is like Mike, I think if that's the case, If that's true, right, it's a very different in terms of how you value the company, how you look at the growth in the business, lack their do they need to restate earnings or you know, is it really facing a big fine and punitive damages

that has everyone concerned in the stock price? But ket you know, one thing I think's interesting is, um they're not the only company you who's had to deal with fraud claims when it comes to the government stimulus payments. Other other banks have two. Right? Is it just that block is way at least according to Hindenberg, just way out there. As far as how many they allowed happen, I don't know the exact comparison in terms of numbers. I do know that there there have been other banks

that were caught in. It was like credit card payments when when the government was giving out stimulus on the form of what was essentially debit cards, and those were manipulated in ways where people were taking more debit cards than they actually were allowed. Um. So that's that's another case I think this is very different. It sounds I'm not I'm not exactly sure how the the app. It seems like how the app was used was just adding

more accounts and so you had one person. But they're taking advantage and using multiple accounts that they're therefore getting more stimulus when they're only supposed to be allowed to use one account. Yeah, and it's interesting. You do have the analyst community, you know, starting to weigh in. Certainly.

Raymond James came out earlier today contending that the report and the short by Hindenburg doesn't include a lot of new and in quotation marks news are a bombshell and argues that the biggest risk is potentially drawing scrutiny from regulators and politicians, which would create some overhang on the stock. Right now, we've got forty one buys on block ten holes and two cells, So you know, Wall Street for

the most part, likes this. I was curious and forgive me if this is out of your purview, But when I think about short sellers, we're always so careful right when we bring up a short seller, and we always want to make sure we get a comment from the company. But having said that, what are the laws rules, if you will, if any when it comes to somebody at somebody coming out with a blockbuster report like Hindenburg and being such a short on the company, what are their responsibilities.

So we've we've seen a number of reports from Hindenburgh, most notably recently a Donnie Right UM, and we saw Clover Health UM. And these reports they are they are allowed. It's not as if once these reports come out then now yeah, exactly, it's it's it's as if another analyst is putting out UM. I mean, it's it's commentary, and it's it's you could even put out a tweet, now that's going to be scrutinized in a different way. I think this, this report actually I believe did come through

a tweet, which is did it through social media? Through social media? And I know that that's been circulated and there's been a lot of responses since then. UM. But I do think that the big question is the regulatory scrutiny of the company here. Um. The report is what it is, and it'll be used and looked at. UM. But some of the fundamental questions or I guess fundamental aspects of the company that the report is pointing out they may be looked at in a different way just

because of what they started to explore. And it's you know, it's interesting because not every activist short seller report is met with this type of reaction in the stock market, which kind of speaks to the reputation Hindenburg has. What can you tell us about sort of their track record with this type of thing. It seems to me like they're pretty good at knocking share prices down and leaving

them down for a long time. Yes, especially immediately. I mean the shares today of block were down twenty two percent. They've since recovered a little bit, especially since the company responded put out its own statement, But Donnie Clover Health, those were some of the big ones that at least I was tracking. They've recovered the six month period. Some of these stocks they lost significant market valuation and then have after half of a year gone back to before,

to where they were before the reports came out. So it really depends on the name and I think to the extent of what is included in the report, how damning actually is. And then also if there's any information that comes out even after the report, either to prove it false, or true. Yeah, that's what I'm thinking out.

I mean the stock, I mean, Block could do no wrong for such a long time and Wall Street loved it right, and then it's down I think about seventy five percent since August of I think, going back to twenty twenty one. I mean, it's way down a lot. One of those high growth fintects that it was a pandemic Darling really was, and none of them are performing too well in this environment. But you don't see that

kind of instant knee jerk reaction very often. It's pretty dramatic. Well, I guess stay tuned right and just see kind of what the next step is. The stock though shares a block still down about sixteen percent here off their loads of the day, but nonetheless a pretty significant hit. Kat, thank you so much. Glad you could come in and just kind of laid out for us. Kat Doherty, Finance reporter, apt Bloomberg News. Here in our Bloomberg Interactive Brokers studio,

you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business app or watch us live on YouTube. We want to talk a little bit about something Bloomberg News giving heads up on yesterday, and that is the Ford Motor Company.

We're getting more clarity, more specifics, the company predicting losses in its EV business electric vehicle business will grow to three billion dollars this year as it spends big on new models and factories, the deficit matching it's accumulated EV losses over the past two years. The stock right now a little bit lower, though we did see a little bit higher earlier in today's session. So let's get to it with Bloomberg News auto reporter Keith Noughton. He's with

us following this via zoom in Detroit. So, Keith, three billion dollars sounds like a lot you guys were giving us. You were giving us a heads up on it yesterday. Why the losses and put it in perspective? Well, what Ford says, Carol, is that the EV business is like a startup within side side Ford Boda company, and like any startup, they incur a lot of losses as they spend for future growth. So what that spending is they are currently working on their second generation of electric vehicles.

You know, they already have the electric F one fifty lightning pickup truck out there and the Mustang Makie. So now they're working on the second generation of electric vehicles, which will be ground up and cost a lot of money. And they are on a building spree. They're building their first new assembly plant in fifty years in Tennessee to build electric F series trucks, and they're building battery factories

in Tennessee, Kentucky, and Michigan. So they've got a lot of factory construction going on, and they've got a lot of spending on new models. You know, Keith, it seems to have caught the market at least somewhat by surprise that the loss would be this big. Correct me if I'm wrong about that. But what is the story? There's just that this spending, these investments they're making are a lot bigger than what they projected, or at least what

analysts were penciling in. You know, Ford has said that they're planning to spend fifty billion in total on electric vehicles by twenty twenty six. The plan is to ramp up their factory production to be producing two million vehicles a year by the end of twenty twenty six. Last year they sold about sixty five thousand in America. So it's a very steep ramp and a very big spend because you know, they don't want to be left behind in this transition to electric vehicles and they're trying to

catch Tesla. The losses are rising, not going down. They had a nine hundred million dollars loss in twenty one. They had a two point one billion dollar loss on evs last year, and then it'll be up forty three percent this year to that three billion figure we're talking about. So they're in this heavy investment period. But they say they will be profitable on an earning sefore interest in taxes basis by the end of twenty twenty six of an eight percent EBIT margin. They say on the evs, Hey, Keith,

help me out though. Like two Mike's point, And you know the stock earlier Ford was up two point six percent earlier in the session before it moved a little bit lower. And I guess you've covered this inside and out, and I feel like the Wall Street community who covers Ford gets what they have to do. I get this concept of a startup within you a bigger, broader company. Is the street to somewhat to some extent, kind of

comfortable with it. I'm not seeing any analys calls come out, any downgrades at least not yet, or any kind of moves, So the street aware that this is what it's going to take for this transition. Yeah, Carol. Actually, the three billion dollars loss, which sounds awful, I understand, is not as bad as some analysts were projecting. There are projections out there of they thought Ford lost six billion last year on electric vehicles. So while three billions bad, maybe

not as bad as the market expected. The stock was up as much as two percent in the morning. Um. During the morning. Also, Fords CFO John Lawler was doing this teach in at the NYS with analysts, so, um, you know, they are trying to explain this walk to profitability. I was listening in. The analysts seemed fairly skeptical that they could get to there from here. It's a big walk. Last year's EBIT margin on electric vehicles as negative forty percent. Yeah, it's a say, by the end of twenty six will

be a positive eight percent. That's a lot. So analysts were skeptical probably right there. So you know, Keith as a Twitter addict over here, you know, it's it's hard not to notice the distraction Elon Musk has undertaken with his purchase of Twitter and getting very political on that on the site itself, turning a lot of people off with some of his m political opinions and culture war type of opinions. So I'm wondering, like, what is the lane do you think and the strategy at Ford to

actually take some share from Tesla? Does Musk's personality play into it at all? Or is it just a matter of they want to make cheaper cars, better cars? What's their strategy entail for getting that share away from Tesla? Right? So? I mean Ford strategy is they are going straight for the mainstream. You know where Tesla's sell best is on

the coasts right there. They kind of sell to the converted, if you will, Folks who are wealthy and are inclined to take actions to either because of climate change or because that's you know, that's what is the current you know, going Trent, and they have the money to afford that. Ford's going for the big middle in America that buy

pickup trucks and buy Mustangs. The things that Ford is electrifying are these sort of classic names that have been popular in Middle America for years, and so far they're after a very strong start. You know, the F one fifty lightning plug in pickup truck head two hundred thousand reservations when it went out to sale last April. And they are doubling the capacity right now at the Mexican

factory that builds the Mustang Maki. That'll be able to produce two hundred and ten models, two hundred and ten thousand models a year by the end of this year. And you know, last year they produced fewer than one hundred thousand, So it's it's working so far, but it's very early days. For four they are the second bestseller of electric vehicles in America, but they're miles behind Tesla, which controls two thirds of the EV market in America.

You know, I keep wondering, you know, Keith, in terms of a company like a Ford or General Motors that still think, oh, they have internal combustion engine vehicles, right, because they still make a lot of money off of that, right, And that's kind of the flip side. But having said that, I wonder how much of that is a drag, you know, in terms of really being out there with evs right Elon Musk is a pure play doing it differently, And I just wonder if that longer term is going to

be a problem for Ford or GM or not. I mean Ford and GM, but Ford is saying that, you know, internal combustion engine vehicles are still a growth business for them. They sell lots of Bronco SUVs. They sell you know, like nine hundred thousand F series trucks every year. I mean, it's the best selling vehicle in America since the first Reagan administration. Wow. So so there's a huge I mean, you have to keep in mind that electric vehicles make

up five point eight percent of the US market. So every nine and a half vehicle sold is still a gas fueled car or truck. And is the F one fifty lightning the actual performance of that vehicle enough to convert the type of people that already own the gas powered pickup truck. Yeah. You know, it's an interesting question because you know, those folks wouldn't seem to be necessary they sell mostly in Red states. They wouldn't seem to necessarily be folks who are um, you know, trying to

address climate change in their vehicle purchases. But you know what the Lightning has done. It's popularity is actually with newcomers to Ford and newcomers to pickup trucks. Ford says, you know, more than sixty percent of the sales of the Lightning go to these new beats, not to the traditional truckers. But eventually, if you're going to convert the fleet, the best selling vehicles in America are the Ford truck, the GM truck, and the you know, uh Ram truck.

It's that's that's what Americans buy. And so if you're going to electrify the vehicle fleet in this country, you have to be successful in electrifying pickup trucks, which is of course why Elon Musk is doing the cyber truck. It's so interesting in terms of all that's going on. Um, I forgot about the cyber truck. How could you forget how cyber truck? We're waiting right exactly all right? But yeah, Keith not in good stuff. Out of reporter at Bloomberg News.

Joining us via zoom from Detroit. You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty, joining Mike and myself. Bloomberg News Technology. Put Alex Barenka joining us right now. She's been up

on Capitol Hill, So all right, Alex. First of all, a lot to get to tell us about the mood in the room, how packed it was. Paint the picture for us, Carol. It was packed to the brim. Folks were overflowing, We were dropping for seats, even as credentialed media and sitting right behind TikTok was also kind of a slew of creators. All of these folks got to witness what I would say is probably one of the

more contentious congressional hearings that we heard. There was a lot of cutting off of the CEO when he was trying to give answers, a lot of pushing to try to get him to commit to these yes or no questions? Do you have any relationship with the Chinese Communist Party? Who is prepping you today for today? Was there anyone

from China in doing so. There was also a lot of emotion both when it came to the protection of US American users data, which those national security concerns have been top of mind, but there was also some really kind of emotional moments talking about the impact that social media can have on teens, particularly around users who are posting about suicide on the app. So very high stakes moment, and a lot of tension in that room between the CEO and the lawmakers who were not holding back in

firing questions his way. You know, Alex, I'd love to unpack a little bit that notion of the personal data. You know, that seems to be one of the main lynch pins here that Agger's politicians about TikTok, is all this personal data. I gotta say, I've got three teenage daughters who were all TikTok addicts. I don't know what data they have that the communists China would be interested in,

but obviously that's probably not what's wearing people. What is the type of data that's so precious and so dangerous to leak from TikTok into China. So today we heard folks talk about IP addresses, which is kind of could narrow down your location GPS data and that additional location data. And then you had some questions from TikTok CEO show to himself saying, what else should I be kind of

helping protect US user data for? You asked this question, Michael, and it's one that a lot of folks have talked about in context of TikTok. They're being national security concerns about data. The company feels like they are doing as much as they can to protect American users data. They would argue more than any of their peers by basically setting up this firewall with Oracle to bring all Americans

data onto US soil. You saw him push back today in the very few times that he did push back, basically saying, some of these concerns that you guys are alleging, they're hypotheticals. If you give us more specific information, we can kind of work for that. So, you know, young folks might say, TikTok and everyone under the sun has my information. But when that argument came up today in the hearing, lawmakers push back and said, well, we're not here to talk about everyone else, We're here to talk

about TikTok. Well, there is something to be said to like, can't the government, Like we work for a company where we've just secure our information a lot of companies do. I mean, can't the government institutions basically kind of create firewalls around these applications and maybe you know, not allow employees to use it, and that's a way of kind of protecting themselves. Absolutely, and federal workers cannot actually use

TikTok on their phones after that legislation pass. But we heard something along those lines of kind of cause comprehensive legislation around data policy be brought up today. Honestly, that was the argument that CEO showed Cho was trying to

push to broaden this conversation outside of just TikTok. We did hear a little bit of that, not that they were friendly voices, but voices along the lines of comprehensive legislation from both sides, from Greg Pence on the Republican side, from Darren Soto on the Democratic side, who both kind of echoed this idea that there should be kind of

bipartisan legislation that looks at all tech companies. Pence actually came out and said, hey, this is my thirty second hearing that I've been in about tech companies and data. So the push is there, but the problem is TikTok is being seen as kind of a bigger threat right now, and all of those things, those concerns that swirl around regular social media companies, what data do they collect, what are they showing me, who was influencing me, where do

the ads come from? All of those concerns have been made kind of way more sinister because of this kind of ratcheted up fear of China and those hypotheticals of

what could they do if they got your information? You know, Alex, It's such a sort of perilous political topic because it does seem like there's bipartisan support to do something about TikTok, But on the other hand, no one wants to lose those you know, millennial Gen Z voters who are addicted to the app, and I know from your coverage and elsewhere, there's several competing bills floating around Washington about what to do.

A gevity sense of where that's going, is there one piece of legislation that you think has a better chance or is gaining more support than the others. So the bill from Thune and Warner, which has backing by the Biden administration. Biden administration actually said send that to Joe's desk and we will kind of make some moves on it. That seems to be the one on pole position. I'll tell you the representatives in the room at the hearing, we're not the only ones who are kind of piling

on to the anti TikTok sentiment today. We have messages in our inbox from those sent ors on that bill who are excited to see the bipartisan kind of flogging that TikTok had to take today in that hearing room, saying hey, we should push this bill. So those folks are moving forward. They largely say that these national security concerns, these concerns around China are more important than the one hundred and fifty million people who enjoy, you know, interesting

videos on the app, the voters, you know. I talked to some creators that TikTok brought down here, about half a dozen of them. I asked, all of them, have you talked to your representative, have you talked to your senator? If they vote against TikTok, will you vote for them? Unequivocally? All of them said, my vote would be up for question for those individuals if they pass a bill that bans the app and removes it from my phone here

in the US, Alex. If this was a German company, a Japanese company, pick your country other than China, would we be going through this process? Would with the CEO of a non Chinese TikTok be going through this China

seems to be kind of the focus right now. I mean, last night to cross the Lawn from the Hill was a group of vcs and lawmakers meeting at a private dinner where Peter Teal, the billionaire and venture capitalist, was talking about the risks of China, calling TikTok likening it to the wholeless problem, as he called it here in the US, something that we cannot get away from. So that kind of rhetoric has ratted it up and ratched it up around this country in particular. You've also seen

it with the chip deliberations and the semiconductor industry. So this seems to be kind of the focus right now, and we're not hearing it about those other countries. So China seems to be kind of number one on that list. Twenty seconds now what now? What happens. Now. What happens is the company will probably be jocking to get this legislation off the table. I don't think that's going to happen. We saw such an uproar today. It seems like they lost ground on their argument to garner trust from the

US government. So we'll be kind of watching and waiting for next steps on bills and any additional national security review as a result from the Testama. All right, Well, some great coverage and reporting, Alex. Thanks so much. Alex BARMENCA technology reporter up Bloomberg News. There. I believe in our DC bureau after spending time up on the hill listening and watching that testimony. You're listening to the Bloomberg

Business Week podcast. Catch US Live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business App, or watch US Live on YouTube. Latching noted about a year ago that drug makers advertise drugs through TV and other media to

encourage patients to ask their doctors for specific medications. In that story, our reporters citing a GAO report on how manufacturers spent about six billion each year for a total of seventeen point eight billion on direct to consumer advertising for more than five and fifty drugs from twenty sixteen to twenty eighteen. They spend a lot, that's the bottom line. So looking at former advertising, a new study led by researchers at the Johns Hopkins Bloomberg School of Public Health.

Joining us right now to talk about it is Gerard Anderson, professor in the Department of Health Policy and Management at this school, of course, supported by Michael R. Bloomberg, founder Bloomberg UP and Bloomberg Philanthropies. He joins us now via zoom in Washington, DC. Gerard, nice to have you here with us. Tell us about this study, what you looked at and what you found out. Sure, it's good to

be back. So there are only two countries in the world that allow direct to consumer advertising, United States and New Zealand. And so what we wanted to understand is why are they doing this and what's so important? And as you said in unroduction, many of us watch it on television. And my wife and I were watching it on television and I would look at him and I'd say,

why are they spending so much money on advertising? And what if you looked at the fine print on TV or something like that, you'd see that many of these drugs really don't work very well. They do a little bit better than nothing, they don't work very well. So we wanted to take a look at whether or not they actually are very good compared to the drugs that are other ones that are also being provided, and it turns out that most of them are not. And it

sort of makes sense. They're going to go to the consumer when they can't go to the physician because the physician knows that the drug isn't particularly good or is equally good but much more expensive, and so it's not going to prescribe it. So you go directly to the consumer and you say to them, go ask your doctor. And the doctors hate this because they know that the drug is either much more expensive and therefore are not good for the patient, or not as good or just

as good as another drug. So we basically published a paper that said, be cautious when you watch an advertisement, well, right, Jerry, because it seems like it must work. Right. They wouldn't be spending this type of dollars if it wasn't working. So some doctors able to be convinced. I guess or is it that some patients? You know, maybe I'm a hypochondriac. Sometimes I'm watching the commercials that I'm like the restless legs? Do I have restless legs? What we all do? You know?

How does this work that the doctors actually end up prescribing the drugs that patients are seen on TV. So you're gonna understand how much these drugs cost. Some of these drugs are ten thousand dollars. Some of these drugs are fifty thousand dollars. Some of these are drugs are more than one hundred thousand dollars. The more so if you just get a few patients watching this ad going to the doctor and saying, you should, you know, get

I prescribe this drug for me. And doctors really don't like to disappoint their patients, so they do so if they can just get a few patients that decide to do this. They've made money on this particular ad, so they're going to do this just because the high prices of these drugs that they're being advertised on TV. So

where are regulators on this? Like, why isn't the FDA in their analysis creating some kind of metrics, especially when there's maybe a couple of drugs used for some ailment and saying this one's more effective, this one's more effective than this one. You know, why isn't that part of it? Because the FDA is not responsible for doing that. In fact, there's nobody in the United States responsible for making that

decision we have. Unlike other industrialized countries where there are entities sponsored by the federal government, sponsored by insurers, sponsored by a variety of things that make those recommendations to people, we in the United States don't have anybody making those recommendations. The FDA says the drug is safe and effective are afflications. That's what it says. It doesn't say it's better than another drug, it's more expensive than another drug. It is

just saying this drug is safe to take. And that's only the responsibility they have. There's nobody saying, well, you could take this drug but it's not quite as good, or you could take this drug but it's three times more expensive. There isn't anybody out there in the United States that essentially is making that on that recommendation to people.

You know, Jerry, one line popped out at me in this story It says since nineteen ninety six, annual direct to consumer advertising budgets for prescription drugs have increased from one point three billion to six billion in twenty sixteen. And I'm thinking back to the nineties when there was a sort of a lot of scandals, I guess you could call it about drug reps, you know, who would go in wine and dine doctors and take them goffing or take them on vacations. And there was a big

backlash to that and a crackdown on that. Do you think this is sort of the modern version of that? Is this how the drug companies are sort of getting away from that problem and creating a new one. Well, so they're still allowed to to wine and dine the physicians and whatever. They just have to report it, so they're still able to do that. Some places like Johns Hopkins don't allow the pharmaceutical reps into the hospital, but many places do. But what they're saying is these are

very profitable drugs for us. We're going to try everything we can to get another prescription written, and so we'll go to the doctors. But we're also for these drugs which are not quite as effective or are much more expensive. We're also going to go to the patient and get them to lobby their own doctor. Well, give me this drug. I've read it on TV. I saw it on TV. I should be taking this drug. Why don't I taking this drug? Well, Jerry, what about doctors though, I mean doctors,

I would assume they take the hippocratic oath. They want to do best by their patients. So if they have a buffet of drugs, they're going to go for the one that is going to be I would assume best for their patient and do the most. Isn't that kind of the stopgap? That is the stop gap? But now

think of yourself as a doctor. You have a patient comes in and says I want this drug, and you could sit there and spend twenty five minutes explaining to them the science behind the two drugs and why this old this other drug is better or less expensive, or you could just say, Okay, I'll give you the drug that you want. It's going to cost you more, it has less effectiveness, but if you want it, I'm going

to give it to you. I mean, it's it's the same as you know, we talk about obesity, and you know the doctor should talk to us about obesity and a whole variety of other things. But it would take a long time and you might alienate some patients, and some patients would say, well, if this doctor doesn't want to give it to me, I'm going to go to

another doctor. But don't don't insurance companies too kind of way, and like, I've a right, I've seen situations like hey, you yeah, like don't they don't they play a role here? They do play a role. It's called prior authorization. And what they say is, you know, you've got to try this drug before you take this drug. And so they're making it hard to get the more expensive or the

less effective drug. But still the doctor's lobby in some cases the insurance companies and in most cases the insurance companies end up giving up and saying, oh, okay, you know this patient better than we do, and you know you've now called me three times and bugged lea for this patient, and therefore you know, yes, we'll give you that that new and expensive drug. Um. You know, you just get lobbied enough as an insurance company. You don't want to be known as the insurance company that always

says no, do we all have restless leg syndrome. That's what we really don't know. Mike's convinced we all have it. Jerry, um No. I think it's an important situation because you're right, we all see the ads. They're off and out there big time, and it's interesting that we've got to be

smart and not be sold too. What interesting point the story makes two is that the US doesn't have comparative comparative effectiveness rating like other countries do, and that sounds like maybe that's an issue that I'd love a rating. I'd love a rating I'm looking at. Is this thing really worth it? Yeah? Exactly. Think it would be really smart and it would be a lot more transparent if

you will, Jerry, Thank you so much. Jerry Anderson, Professor in the Department of Health Policy and Management at Johns Hopkins Bloomberg School of Public Health. Joining us from Washington. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station,

Just Say Alexa, playing Bloomberg eleven thirty. I'm a journal Yeah, but you let me drive. Oh no, no, no, no's home? All right, please, I'll do the riding gravels. I want to drive. Good question, the drive. This is the drive to the globe? Coming well up and down on Bloomberg Radio. All right, just got about seventeen and a half minutes left in today's trading session. We're just bouncing off our loads of this session when it comes to the equity trade.

But we're well well off our highs of the day. Bank stocks still seeing some pressure. Looking at the Spider SMP Regional Banking Index, it is still down about three percent in the trade. And Mike, we've got that two year note with the yield of three point seven eight, so staying well below that four percent mark. We were up there I think earlier in the session. Yeah. Absolutely, anytime you see those lower yields, it signals a few things. I mean, are people worried about growth? Is it they

think the Feds done? But the best she can say is it does perhaps alleviate a little bit of the banking stress that we've seen, especially the further out the curve you go. You know, those mark to market We're not losses on bank's bonds. So right, yeah, I think I think everyone's happy to see a drop in yields these days. All right, well, let's see what our next guest has to say about all of this. Time for

a drive to the closed guest Amanda, Amanda Agatti. She's back with us, chief investment officer at P and C Asset Management. She is with us today on the phone in Philadelphia. I may had a good to have you back with us. It's been an interesting twenty four hours. The FED decision, the continuing bank questions and nervousness, the dialing back. It feels like from Treasury sectary Janet Yellen

when it comes to maybe backstopping bank deposits. How has any of it, if at all, change you're thinking about investment strategy, the right strategy in today's environment. Well, thank you so much for having me. There's a ton to unpack. We could be on the line together all day going through all of those variables, a lot of competing narratives. I would say, at the end of the day, it hasn't really changed our approach to investment strategy or portfolio positioning.

We've been running a defensive playbook for the last few months here trying to keep our investors invested, not pulling ripport and raising a ton of cashier saying well, diversified, focusing on quality. I'm not sure that anything over the last twenty four hours has changed that dynamic at all, but certainly the end state for monetary policy is becoming a lot clearer and probably sooner than what the market has expected. So that's driven a lot of market leadership

and rotation. The flip side of that is, you know, is there another shoe to drop? What are the signs of stress that are building here? And so I think this is the arm wrestling match that the market's just going to continue to face here, and it's sort of leading to overall kind of a directionless market, but under the surface, clearly a lot of volatility. You know, Amanda,

It's interesting. I think the cliche that you hear that everyone hears on their first day of trading school or investing school, whatever it is, is don't fight the Fed. But in this case, you know, I wonder which way you shouldn't fight the FED, because on one hand, they are obviously raising rates. Chair Pale said there's no plans to cut them this year. But on the other side, everyone is fixating on that FED balance sheet and the

discount window is wide open. The FED has you know, flooded the financial system with cash in the last few weeks. So which way, you know, should you not fight the FED on the balance sheet side or the interest rate side. I think it's really more on the interest rate side. You know, you look at the sad fund futures market, there's still a disconnect between what the FED has been saying, what the FED is actually doing, and what the market

thinks the FAT is going to do. And so I think it's it's much more of a focus there and don't fight the Fed. I have gone on record many times of fighting the FED is the target to critique what they're doing or not doing. But for you know, the last call at six or seven months, I've been really trying to stay close to what the FED signaling

effect is and what they're actually doing. I think they remain very much committed, as Kal said yesterday, to fighting this inflationary battle, but obviously we're starting to see some signs of stress and so makes total sense for them to slow down here. But I think the market trying to call the Fed's loss that we're going to see a number of cuts here in the very short run feels kind of delusional. Banks. Is there an entry point

for you with the selling that we've seen. Well, I don't know that I want to necessarily comment too much on the investment thesis around banks or an entry point, but we definitely think that there's a lot of high quality assets, especially relative to deposits out there, and sure there's signs of stress building in the system, but on balance,

we feel like see industries in pretty good shape. I mean, of course, we're watching financial conditions tighten here said took a step you know further in that direction yesterday, So I'm not saying that we're you know, out of the woods yet, but you know, I think on balance we're in pretty good shape. A lot of people, you know, making a lot of comparisons to the financial crisis, and I hate to say, but it's a little bit different

this time. A lot of controls, a lot of oversight, a lot of stress testing, a lot of really stringent capital and liquidity ratios in place make the industry in a much better shape overall this time around relative to last time. Conversely, if I may in terms of I mean, financials have been on our radar. They're the worst performing major industry group in the S and P five hundred over the past two weeks, surprise, But at the top

of the list are the second best performing. Is information technology? The best performing his communication services. We've seen investors moving into some of the big tech names. What's your call on that group? Well, I would say that group probably has gotten a bit far ahead of itself, you know.

But we're not of the opinion that we're going to see meaningful rate cuts here in the short run, and we're certainly not headed back towards a zero interest rate policy dynamic, and so the tail winds for those areas are not going to be anywhere near what they have then over the last few years. And I think this is just the market trying to quickly claim victory in the battle against inflation and thinking that rates are going

to come down a lot. We certainly have seen rates come in and come down a lot here in the last couple of weeks, and so I think it's just simply that I don't know that there's a formula kind of rates come down. Growth stocks, the discount rate associated with them should be improving, but I'm not sure there's a fundamental backdrop justifies how far growth exposures have rallied

here today. You know, Amanda fetchhair pal obviously likes to talk about the long and variable effects of raising interest rates. Obviously we've seen that crop up very suddenly with the stress and the banking sector commercial real estates seen better days. Where else would you be looking to see some stress build up because of this aggressive rate campaign we've seen

a Man, it just got about twenty five seconds. Yeah, go ahead, Yeah, I think it's really hard to answer that, but I think there's I think there is probably broader stress underneath the surface there in terms of balance sheet management across the market spectrum, across the market capitalization spectrum, though I'd be a little concerned about them allering the exposures environment. Well, good to check in with you really appreciate it again, Amanda Agatti, She's chief investment officer at

PNC Asset Management. On the phone from Philadelphia. This is the Bloombird Business Week podcast, available on Apple, Spotify and anywhere else you get your podcast. Listen live weekday afternoons from three to six easterning on bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Journal