Closing Bell - Closing Bell Overtime: C3.AI Falls Sharply After New Short Seller Report; Apple Big Winner In New Teen Survey 4/4/23

Episode Date: April 4, 2023

All three major averages closing lower today, the Dow and S&P 500 snapping four-day winning streaks. Vital Knowledge’s Adam Crisafulli and Macquarie’s Thierry Wizman break down the market action. Meanwhile shares of C3.AI lost a quarter of their value after short seller Kerrisdale Capital published a letter allegedly underhanded accounting. Kerrisdale’s CIO Sahm Adrangi discusses what the report claims. Piper Sandler has done its top teen choice survey for over 40 years. Analyst Harsh Kumar on why teens continue to love Apple and what it means for the stock. Plus, Marqeta CEO Simon Khalaf on the state of the consumer and Needham analyst Laura Martin makes a controversial call on Alphabet.

Well, stocks ending the day lower. The S&P and Dow both snapping four-day win streaks. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Coming up this hour, we'll keep you up to speed on all of the development surrounding Donald Trump and the just-unsealed indictment as the former president makes his way to LaGuardia Airport following his arraignment. You can see that on your screen right there. Plus, shares of C3 AI losing a quarter of their value today. Worst day for that stock since it's gone public. As another short seller takes

aim, we're going to talk to the founder of Caristale Capital about his firm's short report and his allegations of, quote, serious accounting issues at the technology company. But let's get straight to our market panel, shall we? Joining us now is Adam Crisafulli from Vital Knowledge and Terry Wiseman from Macquarie Group. Good afternoon to you both. And before we go to you, we're just going to show these videos because this is President Trump, the former president, arriving at LaGuardia after that unprecedented and historic arraignment in lower Manhattan at court just a short while ago. is in D.C. And Eamon, I'm going to go to you for the latest in terms of the headlines regarding the situation. The first time ever we've seen a former president charged criminally. Morgan, that's exactly right. And we're watching the former president's motorcade as he gets on board his aircraft, his personal aircraft. And this is so similar to so many

scenes that we saw from Donald Trump as president of the United States. But now as a former president of the United States and someone who is under criminal indictment for the first time, we see the former president there taking the stairs as he's going to head back to Florida. We expect him to have a rally in Florida in front of supporters tonight. That's expected to be in front of a crowd a little bit more favorable than the crowd he faced in the courtroom today, where he faced 34 charges of falsifying business records in the first degree from the Manhattan district attorney. And Morgan, we're learning a little bit more now about what the judge said to the former president in that courtroom. According to NBC's Garrett Haik, who was there, the judge made it clear that no one in this case is asking for a gag order. That is, he's not going to order the former president to

be silent here and he won't grant a gag order. And he dismissed the defense argument that the former president made statements about this case while he was frustrated. But he also encouraged the witnesses and the client to refrain from statements that may incite violence or unrest or words or conduct that undermine the rule of law. He said if he saw such posts in the future, he would have to take a closer look at the idea of a gag order as he leaves LaGuardia Airport heading back to Florida. But he has been warned now by a judge not to make any statements that may incite violence or unrest or words or conduct that could undermine the rule of law. So that, I think, Morgan, encapsulates just how unusual this case is for a former president of the United States to be warned in that way by a judge. The scene we have witnessed today and now the former president's airplane heading back to his new home state of Florida,

where he'll meet his supporters, Morgan. Yes. And of course, we're looking at that video on the tarmac at LaGuardia Airport as the former president is looking to exit his motorcade and get on board that airplane. Eamon, 34 felony counts. This is more than unusual in terms of what we've seen today. 34 felony counts. We've seen the unsealing of that indictment. Just walk me through some of the details around what we've heard in the last couple of hours and what it means for an American public that's tuning in,

but also for a business community and for an investor community that's tuning into all of this as well. Sure. Well, legally, I can tell you we've got 34 accounts here. They are all for falsifying business records in the first degree. What we don't see here are any separate charges involving conspiracy or any of the sort of ancillary charges that you sometimes see in a case like this, although maybe it's hard to say there is a case like this. But these are all falsifying business records charges, and they relate to how the former president accounted for hush money payments to Stormy Daniels and another woman back in 2016 during the course of the presidential campaign.

And the statement of facts that was released by the DA's office goes through a very tawdry series of events during that campaign in which the former president, the then presidential candidate, Donald Trump, was attempting to suppress stories in the press that could be negative to him. So the account by Stormy Daniels of an alleged affair that she had with the president while he was married and that the president denies. The allegation here by a doorman

that there was a child fathered out of wedlock. And an effort by a friendly media magnet to Donald Trump to do something called catch and kill, which is pay for the rights for those stories and then kill those stories and never let them see the light of day. That narrative is spelled out here in the statement of facts laid out by the Manhattan D.A. But the specific violations of law that are being alleged here and only alleged, not proven today, are that the former president falsified business records in the way he accounted for those hush money payments, making false business records, that being a crime in the state of New York.

And that's what the president is facing here as he boards his airplane and prepares to head back to Florida, Morgan. OK. Eamon Jabbers, thank you. You bet. Let's bring back in our market panel, shall we? Adam Crisafulli from Vital Knowledge, Terry Wiseman from Macquarie Group. Let's get back to the market action and the close we just had. All the major averages ending the day lower. Terry, I'm actually going to start with you because it really seems like the impetus for the activity we saw today came from that jolts report that was better than

expected, lower than expected, and really led to a flurry of buying in the Treasury market? Yeah. So I think the market is effectively getting more concerned about the prospects of a slowdown in the economy. You referenced the Jolt's report. What was more important than just the fact that the job openings fell was the details in that report itself. You know, if you look at job creation in the U.S. and you look at it up in the third quarter and the fourth quarter of last year, there was definitely a slowing in non-farm payroll growth, but most of that happened because companies stopped hiring. What's happened in the last two months is that that trend has shifted

away from a lack of hiring and it's moved towards an increase in layoffs. In fact, the increase in layoffs that we've seen in the economy, judging by the details of the Jolt Report, have probably adding a drag of about negative 200,000 to nonfarm payrolls. That's a qualitative change in the labor market in the U.S. that people are inferring when they look at these details. They're getting more concerned about a slowdown in the economy. And of course, we get that on the heels of ISM manufacturing, which showed another month of contraction. Adam, is this a scenario where bad news is still good news for the market? Yeah, I mean, I know that was a big topic of conversation in the market today.

And I kind of my answer is I think it depends. So for the jolts report and labor numbers in general, they're still very, very hot. They have a long way to go before they even approach a neutral stance. For the jolts in particular, you know, there's still about two and a half million openings higher above where it was pre-pandemic. In the monthly jobs reports, you know, the average of the last six months, monthly job creation was over 300,000. A neutral rate is more 100,000 to 150,000. So the labor markets have a very long way to go before they even approach neutral.

So for the Jolt Report today, I thought it was, you know, I thought it was a clear positive for equities, just given the implications for the Fed and monetary policy. The ISM yesterday was definitely more of a concern. There were the details within that point to a slowdown in growth, and that's definitely something to monitor. But I think for the overall earnings landscape, and this is something we might talk about a little bit later, I think companies have underappreciated tailwinds that they will be able to utilize to offset reduction in aggregate demand in the U.S. So then why did the major averages end up trading lower today and breaking those multi-day

win streaks? Are we bumping up against technical levels, which we've been talking about the last couple of days? Is it just sort of a lot of uncertainty for investors ahead of whatever the next catalyst is going to be, whether it's another round of data or a jobs report or bank earnings kicking off that season next week? How do you see it? Yeah, I think definitely, you know, we're in a little bit of a news vacuum right now. The liquidity is relatively thin. I think a lot of people are extremely hesitant. Sediment is still very negative. And we're kind of waiting for the next round of catalysts. So like you said, the March economic data, got the first one yesterday with the manufacturing ISM. Tomorrow we get to services ISM. I'll be watching very closely.

If that's healthy, it would obviously help alleviate some of the concerns from Monday. You get the jobs report on Friday. And then next week, you get to CPI on Wednesday, and then bank earnings, which kick off next Friday. And those are going to be crucial. You know, so I think a little bit is just digesting the recent rally. We've moved a lot in the back half of March, coupled with just a news vacuum, kind of searching for the next catalyst, like you said. But you know, my view remains sanguine, you know, for a lot of the same reasons as before. You're seeing a reduction in the monetary tightening overhang.

And like I said, I think the key area where I disagree most with the consensus is on earnings, where I think corporate America right now, again, has underappreciated tailwinds that's going to help EPS be more resilient than many people anticipate. Okay. Due to that breaking news off the top of the hour, we're going to leave that discussion right here. Gentlemen, thank you. Adam Crisafulli and Terry Wiseman. CNBC senior markets commentator Michael Santoli joins us now from the New York Stock Exchange. Mike, what's on your radar this afternoon? Well, I just wanted to frame out exactly where we are in the S&P, Morgan,

in terms of what level of pullback from these highs we hit yesterday and this morning would be routine. And I think that the key, as you see, very much the top end of that range, 4,200 or so. If you went back to the 3950 area, so in other words, we were at 3,800 three weeks ago, three weeks and one day ago at the lows right after SVB went down. If you kind of gave back half of that gain, which is about an 8% gain, that's where you'd end up. So, so far, really nothing going on in terms of changing the trend. The only concern you would have if you're bullish is that, wow, this is starting to look more like a solid ceiling unless we make a break above it relatively soon. There has absolutely been a steady and pretty aggressive flow of cash away from risk and toward things that feel more secure.

Take a look at the stock of FHI. That's Federated Hermes. It's a big asset management firm. It's one of the larger players in money market funds. That's what they manage in addition to other assets. But they're very skewed toward cash like product as well as gold and relative to the KBW Banks Index. And you see the direction of travel higher for those things and much lower for the banks. And obviously, a lot of that money market flow is coming out of bank deposits. And as you mentioned, gold today clicking above that $2,000 an ounce level, which is basically just above where it was in the panic in the COVID crash, Morgan. Should we be talking more about

the activity of central banks buying gold right now, too, given the fact that you are seeing all of these shuffles in terms of activity on the world stage where all of the different central banks are concerned? I think it's always one of those background factors that could kick up a little bit more. My take on gold is always that whenever it starts to move, you can always find a reason why it's going to continue to go in that direction. Right now, real yield's been falling. The dollar is definitely back on its heels. And you do have a general state of questioning of whether central banks are going to be able to maintain control of what they're doing in terms of trying to tighten against inflation. So clearly, you could start to hear a little bit more about people building gold reserves on the central banks,

but I don't know if that's necessarily what's happening here, but it's worth noting that it has been working for a few months now. Okay. Mike Santoli, thank you. And, of course, on your screen you're seeing live images of President, former President Trump's personal plane taxiing at LaGuardia Airport as he looks to make his way back to Florida on the heels of that arraignment in Lower Manhattan just a short while ago. Let's take a look at shares of a big mover today. That is C3AI. That stock is plunging on the back of a short seller report by Carisdale Capital. The investment firm is calling out the dramatic

growth in, quote, unbilled receivables, mainly from Baker Hughes, a C3 AI spokesperson telling us, quote, the Karisdale letter appears to be a highly creative and transparent attempt by a self-acclaimed short seller to short the stock, publish an inflammatory letter to move the stock price downward, and then cover the short and pocket the profits. Without comment on the legality of stock manipulation nor the innuendo replete in the letter, we will note that their allegation that C3AI's financial disclosures regarding Baker Hughes are somehow incorrect manifests a fundamental misunderstanding of U.S. GAAP accounting practices and principles. The accounting disclosures and financial statement referenced in the letter have been reviewed by our independent audit firm, for which we have an unqualified opinion and are

complete and correct. End quote. Joining us now is Sam Adrangi, Chief Investment Officer of Carisdale Capital. Sam, thanks for being on today. I do want to get your response to their response, but first, break down this report for me, this letter that you sent to C3AI's auditor, and what specifically you're alleging. Sure. I mean, C3AI uses extremely creative, very aggressive accounting to inflate its income statement metrics. And so we thought that this needs to be brought to light both for the auditors and for the investing public. And so we wrote a

letter documenting some of the very aggressive accounting that we think C3AI has been utilizing in its financial statements and sent that and made it public this morning. And you sent that letter, made it public. You sent that letter to Deloitte. Have you heard back from the auditor? No. So C3AI's fiscal year ends on April 30th. So Deloitte will be working on its audits next month. And so we've asked them to review our letter and keep those contents in mind as they go through the company's financial statements. And hopefully they can remedy some of the significant shortcomings that we see in its financial reporting. You've shorted the stock on and off for some time. Why write the letter now? Well, because the fiscal year end is coming up in about 25 days. And so now is sort of the perfect

time for the auditors to, you know, receive some pressure from the investing public to make sure that these audited financial statements are providing a clear picture of the company's profit and loss. The first thing that we mentioned is the unbilled receivables. This company made about $260 million of revenue in the past 12 months. $80 million of that is unbilled receivables. What unbilled receivables means is that you're booking revenue, and yet it's not just that you haven't received the cash, you haven't even invoiced the customer. More than 30% of the customer's revenue, they haven't even bothered invoicing the customer. Who is that customer? Baker Hughes, which is a shareholder. It's a related party and it's really a company that's just contracted to be required to purchase, to give C3AI revenue, mostly because it was given discounted shares in 2019 before the company's IPO.

So, you know, at the end of the day, this isn't real revenue in our opinion. And it's, you know, accounting for 30% of the company's revenue over the past 12 months. I just don't understand how this is at all okay. But this isn't the only company that uses unbilled receivables. So did you compare it to its peers and to other software and tech companies? I mean, just how unusual is this? Software businesses like this do not have unbilled receivables. That's 30% of the company's revenue. I mean, this is not a construction company.

Yeah. Okay, so I do want to get your response to the C3 AI response and the fact that they are saying that this incorrectly manifests the fundamental misunderstanding of U.S. GAAP accounting practices and principles and basically says that you're wrong in a very long response, but bats down your report. Sure. I like their usage of the word creative. I mean, the only thing creative here is a creative accounting that the company is using to inflate its revenue by 30 percent, inflate its gross margin. So that Baker Hughes revenue comes at a 99 percent gross margin. Does that make any sense? 30 percent of their revenue comes from a customer that has 100 percent gross margin. Does that make any sense? 30% of their revenue comes from a customer that has 100%

gross margin. I mean, these are just sort of like not real things. And we're shocked to find it in a Silicon Valley company. At the end of the day, what C3A is trying to do is they're trying to demonstrate high gross margins and demonstrate high subscription revenue, despite the fact that it's not really a software business. It's a consulting business. And unfortunately, their consulting products are just not getting much traction within the customer base.

That's why real revenue is actually declining. I mean, year-over-year revenue in the most recent quarter declined. But 30% of that revenue is unbilled receivables. And so, in fact, the revenue should be down 30%. And there's just a lot of creativity that C3AI is using in order to inflate its income statement metrics to try to keep this valuation profit at $5 billion, which is ridiculously overvalued. Okay. I do want to get your response to something else, and that is the fact that I'm seeing in reports that Caristel Capital is one of nearly 30 short-selling firms that is reportedly being probed by the U.S. Justice Department over

potential trading abuses. Have you been contacted by government agencies or regulators, and how would you respond to that? We have not. We have not been contacted by regulators. We've seen the same news articles that you've seen. We fully support the SEC in investigating short sellers and making sure that there's not abuses within the sector that we traffic in. But at the end of the day, we think the SEC views what we're doing as productive for the marketplace. Look, I mean, management incentivizes to mislead investors so they can grant themselves stock options. In this case, diluted share count is more than 38% higher than basic share count. What does that mean? They're just granting themselves stock options and restricted stock units and enriching themselves off of this extremely struggling business. Sell side is not going to call them out on it. And so it's really

the job of short sellers like us to challenge management here and challenge the auditors to do their job and make sure that the financial reporting that this company is producing to the SEC actually reflects the company's true profit and loss, because nobody else is doing it out there. And so that's why we made our letter public. And I think the SEC looks at what we do in a positive light. Okay. Samandrangi, we appreciate you joining us today. And certainly the market took notice with shares of C3 AI dropping by double digits. Thanks for being with us. Thanks for having me. You can see there we've got live images on the screen of Trump, President Trump,

former President Trump's plane on the runway awaiting a takeoff from LaGuardia Airport. Let's turn now to Apple. Piper Sandler out with its annual Taking Stock with Teens survey, naming Apple a top 10 pick in part on soaring Apple Watch interest, strong interest in Apple Pay, and near record iPhone ownership. Here to break it down for us is Piper Sandler analyst Harsh Kumar. Harsh, the details of this survey, how did you conduct it and what did you find? So the survey was conducted. This is the 45th survey. This was conducted by a retail team headed by analysts we have at Yorma. But it's basically pulling 5,600 teens twice a year to

get a pulse on how they spend their money and what they're spending their time on. And, of course, from a technological angle, as we cover Apple, we had questions in the survey regarding Apple. But look, brand loyalty is king, and the king today is Apple. You know, we found overwhelmingly— Parash, I'm going to interrupt you there just for a moment to show our viewers that President Trump's plane is in the air now, has taken off from LaGuardia, headed back to Florida on the heels of that unprecedented and historic arraignment in lower Manhattan just earlier today. Harsh. Talk to me about Apple. Okay, so basically the teen survey showed that the Apple brand really stood out. So 5,600 teens were surveyed. About 87% of the teens surveyed use an Apple phone today, and 88%, that's a stunning number, said they would buy the brand again for their next phone.

The watch commands a stunning 35 percent plus take rate within teens, and the pods stand at 73 percent. In other words, 73 percent of the teens own an AirPod. So I think what makes this brand tick is the fact that the ecosystem is very strong, everything works together, the products are flawless, clean, and extremely reliable. It also speaks to how sticky the brand is, right? Harsh. I mean, you're talking about the next generations buying into these devices, whether it's an iPhone or whether it's a watch. And so you have the purchase of that, you have the revenue associated with that, but then you have all of the services and the ecosystem associated as you have future

customers of Apple being pulled into the fold, too. So how do you monetize that? How big is that opportunity when we talk about things like saturation for Apple? So the services business is where the company is today focused. If you look at the strategy for Apple, it really breaks down into three parts. And the big focus for Apple is the software and the services pieces. Understandably, it's very high growth. Apple has something like a billion units install base. And if you could tap into a lot of these people, some portion of the billion install rate and quote unquote, sign them up for some sort of a service for a couple of dollars a month, that becomes a stunning number by itself. So as far as the focus goes for Apple, the focus is clearly on software and services.

You've got a variety of services that are already there. The Apple TV, of course, we all love Ted Lasso, which is on now, coming this Wednesday. The ad business, Apple's getting really aggressive with IDFA and trying to break the monopoly that maybe Google had on the ads and Meta had on the ad business. The iCloud business. Apple's getting really aggressive with IDFA and trying to break the monopoly that maybe Google had on the ads and Meta had on the ad business, the iCloud business, and of course, the music business. Then there are hardware products. The second part of the strategy is, you know, taking a product like Watch, which is a very kind of a simple product in theory, just shows you the time, but then adding a whole bunch of healthcare features to it.

And it's been long rumored that the ultimate goal that Apple has is to be able to do blood sugar testing for diabetes, and that would make it just an absolute killer watch. And then for mature products, the phone, the Mac, and the iPod, just small tweaks and keep the brand going. Don't mess up the ecosystem. Very, very simple, but very well executed. So the stock's up 27 percent since the start of the year. You could argue that maybe valuations are getting a little stretched here, but you've got an overweight and $195 price target. Break that bullish call down for me and what the next catalyst is as we do look to their upcoming conference and the possibility of maybe a headset. Yeah, so the headset's out there.

The headset's doing extremely well, as was obvious in the teen survey. Seventy-three percent of the teens own it. The headset category grows almost every year, year by year. But look, Apple by itself, of all the mega cap companies you take, you take Amazon, you take Google, you take guys like Meta, and then you take the other one, which is Apple. Apple did the best. Apple didn't have any single blip that you could point your finger at on the last earnings call. And that's actually been the case for the last several quarters. I could argue that Apple has executed probably the best over the last six quarters or so. Now, the valuation stands at roughly 25 times,

call it next year's numbers. We are going into the recession. People are looking for brand loyalty. They are looking for flawless execution. And so those are the attributes that drive folks to Apple. Once we come out of the other side, and handsets are going to, you know, admittedly have a very lackluster year this year, maybe down 2 or 3 or 4 percent this year. But we will eventually come out of it. Apple will have some kind of a phone twist, like maybe a foldable phone in the future or perhaps a larger model or one with a better camera. And we expect sales to take off. Apple's phone's about 50 percent of Apple's sales.

OK. Harsh Kumar, thanks for joining me today. Coming up next, the pause playbook. Mike Santoli takes a look at how the market typically performs when the Fed stops raising rates. Stay with us. Welcome back to Overtime. One of the biggest unknowns facing investors right now is whether or not the Fed will pause its rate hike campaign. Mike Santoli is back. He's taking a look at the S&P 500 returns around the end of Fed hiking cycles. Mike, what'd you find? Yeah, Morgan,

and this is at the very end of those cycles. So it takes the S&P 500 from the months leading up to that final hike and then what happens in the following six months. And as you can see, on balance, it has been positive following the end of the hiking cycles all but one time. And the one time is significant. That was in 2000. By late 2000, the Fed was done. Hiking rates have been kind of a shallow recession, more or less underway. But the stock market really took it hard for another real two to three years after the Fed was done because there was a lot more overvaluation to take care of. There were these aftershocks in the tech bubble bursting based on, you know, accounting

scandals, the 9-11 attacks, things like that. But on balance, usually you do get some relief. The other caveat I'm going to throw in there is this hiking cycle has not been typical in the lead up because the market usually has done well, has been at a peak and has usually continued to gain even as the Fed starts to hike. That didn't happen this time. We were down more than 10 percent on the first hike and had a 27 percent peak. The trough declined during the hiking cycle with corporate profits at a record high. So you can't necessarily bake it in. And also, 2006, 1989, the six months were fine after that was done, but then you did have a little bit of a nasty downside shock after that period, Morgan.

This is fascinating, and it sort of gets back to this debate that we've been seeing and having in the market, right? This idea of, and I said at the top of the hour too, but is bad news good news? When does bad news become bad news? What does that mean for the economy? If you see the Fed begin to pause or begin to, you know, cut even later in the year is what's currently priced into the market. Yeah, the subtlety of that is the pause and when the Fed is on hold has generally been positive for the market, because usually the economy has not really gone south in a big way by that point. And there's a period of time where you have a belief in a soft landing. By the way, 1995 is the textbook soft landing scenario. Also, the mid 80s was one of those. But then if the Fed is going to be forced to cut, usually the first cut is not bullish for stocks.

So that's the nuance around the cadence of these cycles. All right. Mike Santoli, thank you. Let's get back to Eamon Jabbers with the latest details on the indictment against former President Trump. Eamon. Morgan, we just heard from the Manhattan District Attorney Alvin Bragg, who laid out in a press conference at the courthouse exactly why he brought this case. He said there's been new evidence since he's come into his position as the district attorney in Manhattan, and that's why he charged the case. He said these are business fraud charges.

He said these are the bread and butter of his office. He said his prosecutors have brought hundreds of similar cases. He called Manhattan the business capital of the world and said that if you don't charge these types of crimes, you allow this sort of business capital of the world to erode in terms of good business practices. That's why he felt that he needed to do this, because no one is above the law. Just moments before that, we heard from an attorney for President Trump who came out and talked to media outside the courthouse. He said today's unsealing of this indictment shows that the rule of law is dead in this country

because everybody is not above the law and no one is below it. If this man's name were not Donald J. Trump, we would not be here today. So you get a sense of the competing arguments now around the case that we saw brought today. What comes next? Well, we have some sense of what's going to happen next in terms of the legal procedure. The prosecution is going to submit evidence to the defense team within 15 days, so they'll have access to everything the prosecution has. The Trump defense team is likely going to be filing pretrial motions within the next 45 days.

And then look at the date for the next court hearing. It's not set until December 4th, 2023. So this year at least, but this is going to be a long process, Morgan. We're going to be dealing with this now for months to come before this is all said and done. So a long process ahead of us, but the DA saying no one is above the law in the United States and the Trump attorney saying no one should be below it either. Morgan, back over to you. Long process, I think, being the takeaway there. I mean, we're talking about 34 counts of falsifying business records in terms of this. I thought it was interesting what you just said,

this idea that there's new evidence that has emerged. Because I think it is worth noting, it's important to note that the feds passed on this. The New York State District Attorney, the former New York State feds passed on this. The New York State district attorney, the former New York State district attorney, passed on this. The former Manhattan district attorney passed on this as well. And yet here we are today with the unsealing of this indictment, the arraignment of a former president, the first time ever in American history we've seen something like this.

Certainly the broad contours of this have been known publicly for years, Morgan. I mean, the idea of these hush money payments to Stormy Daniels, Michael Cohen's view on that. He's participated in media interviews for years and years about all of this. We'll have to get more detail from the Manhattan D.A. about what specific new evidence he's saying he had access to here that hadn't been part of the public discourse here. This case, not necessarily a slam dunk at all for the Manhattan DA. You remember John Edwards, the Democratic presidential candidate, was caught up in a similar hush money episode. And the jury in that case ended up deadlocked and prosecutors dismissed the case, didn't come back to it and try to get another jury because it was clear that they weren't going to be successful. So juries tend to look askance at some of this political hush money stuff and

think, especially when it comes to mistresses and personal infidelities or personal peccadillos and say, you know, that's not really a huge deal for us. So we'll see whether the DA is able to make his case here in front of a jury. These, what we saw here today, are simply allegations. He's going to have to prove this in court now. That's right, and I think that is key. These are allegations, and this is a situation with an indictment in the past week and the arraignment today in which a case can actually move forward, and it will be a long process, as you just laid out for us.

Eamon Javers, thank you. You bet. Up next, we will discuss the outlook for consumers and business spending in an exclusive interview with the CEO of credit card issuer Marketo. Stay with me. Welcome back to Overtime. JP Morgan CEO Jamie Diamond writing in his annual shareholder letter that he sees a healthy consumer saying balance sheets are, quote, in great shape and that credit card debt is, quote, simply normalizing. For more on business and consumer spending, let's bring in Marketo CEO Simon Kalaf. Marketo sells payment technology and customers include Affirm, Block, Klarna and Instacart. Simon, welcome to the show. Thanks for joining me today.

Thank you, Morgan, for having us. And thanks for thinking about Marketo. Those comments I just referenced from Jamie Dimon, do you agree with that? Do you think credit card spending and debt is normalizing here? Well, it is. I mean, before we talk about credit card debt, I think we do live in unprecedented times. I mean, on one end, you've got a stubborn inflation. You've got interest rates that are going up. And at the same time, we're talking

about a looming credit crisis. But on the other end, we're still talking about a hot job market, despite the cracks we saw today in the Jolt Report. And at the same time, we're still seeing GDP growth. So the consumer, the U.S. consumer in general, has shown resilience. That's true. So I agree with Jamie Dimon, but that's not everybody. We're seeing cracks in the 50 percent of the U.S. population that actually lives paycheck to paycheck, and that's wage and shift workers. That's 82 million Americans, and I don't think their balance sheet is healthy. I want to get into that, this idea that you're seeing cracks, because you do issue virtual and physical cards for just-in-time financing. One of the things you do is you

enable companies to not have to partner with traditional banks to issue some of these debit cards. They're going to go out to employees, for example. So when you talk about cracks, what does that mean? Where are you seeing them? Yes, absolutely. You do have 83 million Americans that actually live paycheck to paychecks. Those are shift workers, which means they cannot spend until they get paid. And if somebody does not bridge that, that's when they resort to credit cards. And unlike, I'd say, the top 10 percent who can get good rates, these folks are actually paying 19 percent and 20 percent APR. So you add 7 percent of inflation on top of that, they're losing

27 cents on the dollar. So that's what we're seeing, Prax. And that's why we've been working with our partners to introduce accelerated wage access, to allow large companies that employ millions and millions of these folks to actually accelerate access to these wages, to bridge them between the payroll, which could happen the same day, and a payable, which is a bill they have to pay. Do you find companies are increasingly turning to you? Is this a business that continues to grow and grow robustly right now? Or given the fact that we are hearing about and seeing belt tightening among many companies across many industries, is this an area that you expect is going to be affected, especially if you do start to see an easing in the labor market?

We are seeing some cracks like today we saw in the jolt report in the tight labor market, but it's still very red hot. So you still have about 10 million jobs open. So every company has to make an extra effort to retain its labor. And in the survey that we will be releasing next week, 80% of the workforce is saying getting paid immediately is the number one thing they look for in a job. So yes, that's something that's been growing on our platform and growing extremely fast. Actually, it grew about 100 percent since last quarter because it makes sense, because it's a win for the consumer, which is the worker. It makes sense for the company that employs them because it's using its balance sheet. And some of them are sitting on very healthy balance sheets in order to accelerate payroll for their workers and hence creating a lot of loyalty. So yes, we do anticipate that's going to be something that's going to grow on our platform.

Simon Kloff, Marketo CEO. Thanks for joining me today. Thanks for having me, Morgan. Appreciate it. It has been a busy hour and we are getting busier. We've got breaking news on Johnson & Johnson. Meg Terrell has the story. Hi, Meg. Hey, Morgan. Well, you know that J&J has been dealing with these ongoing thousands of claims over its talc products and claims that they have caused cancer. Well, now J&J has put out a new, much larger settlement offer for all of these claims, increasing it to $8.9 billion from the previous $2 billion and saying as part of this offer,

it has commitments from more than 60,000 current claimants to support a global resolution on these terms. So that is almost $9 billion up from $2 billion. My understanding is that there are about 100,000 claimants here and that they will need to take this to a vote and get 75 percent buy-in from claimants in order for this to go forward. Importantly, J&J saying in a statement here, quote, the company continues to believe that these claims are specious and lack scientific merit. They say, however, as the bankruptcy court recognized, resolving these cases in the tort system would take decades and impose significant costs on their company, their spin-out company they called LTL,

and the system, with most claimants never receiving any compensation. So this year, driving J&J's shares higher in the hopes that this actually does start to resolve all of these things, because this was really turning into a big headache for J&J. Morgan? It's pretty incredible. Nearly $9 billion, and the market's reacting positively. It speaks to what an issue this has been for this stock and this company. Meg Traul, thank you. Let's get to a news alert now on Walmart. CNBC.com's Melissa Repko joins us on the news line from Walmart's meeting in Tampa, Florida, not Arkansas. Yes. Hi, Morgan. So I am at the investor event. It started today and it will continue tomorrow.

And there's really two main things that Walmart has announced thus far. The first thing is it's reiterated its forecast for the year. It expects net sales to grow 2.5% to 3% in the fiscal year and adjusted EPS to be $5.90, between $5.90 to $6.05. It's worth noting that both that sales growth number and the EPS is lower than the past year. And as Walmart braces for a slowdown in sales, they're really playing up efficiency. The other main announcement to come out today was that they plan to make a big automation push. By the end of the fiscal year for 2026, they expect to have roughly 65 percent of its stores serviced by

automation. And today, one of the highlights of the investor event was giving a tour of a distribution center that has a bunch of robots powering both the breakdown of pallets and putting together pallets that ultimately take all the types of groceries and merchandise to stores in a more efficient way that Walmart said will boost profit. Interesting. Okay, Melissa Repko, on day one of this meeting for Walmart, shares are down about half a percent in the after-hours trade right now. Alphabet is cutting down on everything from employee laptops to staplers to save money. Up next, a top analyst on how Google's belt tightening could impact the stock.

We're back in two. Despite pulling in $76 billion in profit last year, even Alphabet isn't immune to some cost cutting around the office. That now includes a pause on new laptops and desktops for employees, Chromebooks by default instead of the option of Apple MacBooks, and even reductions in staplers and tape around company printers. That info reported by CNBC.com tech reporter Jennifer Elias. Shares are up about 18% so far this year, just about even with an ASDAC 100. Joining us now is Needham Senior Analyst Laura Martin. Laura, thanks for coming on the show. I just want to get your thoughts on this belt tightening on the heels of layoffs that were announced at the company earlier in the year. Is this positive for the stock, the fact that it's actually starting to

rein in some of these expenses? You know, I would go with no, because employees haven't wanted to go back to the office. Now they're in the office and they can't use the Apple they've been using for three years and they can't get staplers and they can't, these little nickel and dime things are the kind of thing that really irritate employees. And so bringing them back to office, which is inconvenient, and then limiting their access

to these sort of small little picky things just irritates some of the most valuable employees in the software industry. You still have a buy rating on the stock, right? You still like it here? Valuation works for you? Yep, we do. And we really hope they, we hope the government splits it apart. We hope they make them spin off ad tech. We'd love to see YouTube spun off. We think the more entities that get further away from that wonderful search engine profit center, the better it is for shareholders.

I want to get your thoughts on AI, regenerative AI, the AI arms race. Microsoft is really sort of first out of the gate with ChatGPT and the partnership and the investment there. And it seems like, at least to start, BARD has had some stumbles. Your thoughts? Agreed. I think it is sort of disgraceful that five years ago, 80% of all machine learning engineers were either at Meta or Alphabet. And today we don't have an actual product in the market from Google or from Alphabet. And we have one from Microsoft, which didn't have any engineers in AI five years ago. So I would say there's something wrong in the culture

of Google that for some reason it has to follow other products, which means it doesn't set market parameters. It doesn't have pricing power. Like in cloud, it's losing money versus Amazon who created the market is making 30% margins. So being a fast follower, you know, is not as good as being a leader if you're creating new markets, which AI is a new market. It sounds like you're saying put down the staplers and focus on broader restructuring. Yes. And I also think FTEs that don't get along like between Google AI and deep brain should all be fired because these are businesses and they're supposed to be have a common goal and analyses of maximizing profits. So when engineers don't speak, they all need to be fired, in my opinion. Laura Martin, you're never one to

mince words when you come on CNBC. Appreciate your insights today. Thanks for joining me. My pleasure. It's the end of an era for Virgin Orbit, which filed for bankruptcy. Find out whether there will be sky high demand for the company's assets when overtime returns. Welcome back to Overtime. It's now time, now the latest in the Virgin Orbit news. Sir Richard Branson Satellite launched company filing for Chapter 11 bankruptcy after failing to secure a new funding lifeline. The company suffered a cash crunch exacerbated by an unsuccessful launch earlier this year. CEO Dan Hart saying in a press release, quote, we believe that the cutting edge launch technology that this team has created will have wide appeal to buyers as we continue in the process to sell the company.

I asked Leanne Corrette, the former CEO of Boeing Defense Space and Security, about Virgin Orbit recently. Here's what she said. It was heartbreaking because, you know, there is there they had a vision and they were making they were continuing to focus on having it. And those dedicated, brilliant engineers at Virgin Orbit, they're going to be highly sought after. There are going to be people clamoring today trying to pick those folks up. And there's still room in the investment space. This is a hard business. And Maureen, I always come back to that. And I know that might strike you as rather odd.

But I do think today in society, there is not as much appreciation for the complexities of going to space. I am not certain if the mandate that came out in the 1960s was the mandate that came out here in the 2020s, that everyone in the public would rally behind it quite as much because it isn't at any cost. It isn't at any option. We want to do things safely. We want to do things safely. We want to do them efficiently. When Virgin Urban went public via SPAC in late 2021, it touted a list of big investors, including Boeing, which has since spun off its HorizonX venture fund to private equity. But for more of my conversation with Leanne Corrette, please check out my podcast,

Manifest Space, on Spotify, Apple, or wherever you get your podcasts. It's a wide-ranging conversation. Okay, CNBC hosting an equity and opportunity event today on bridging the wealth gap. Sharon Epperson spoke to the CEO of TIAA on creating a strong economic future and joins us now with the highlights. Hi, Sharon.

Hi, Morgan. Tashonda Brown-Duckett, who is the CEO and the president of TIAA, outlined some dire statistics about retirement savings this afternoon. About 40 percent of Americans do not have enough savings to retire, and that number is more pronounced even for people of color. Black Americans have 54 percent of them have not enough money to retire. And the issue for many Americans, regardless of race, right now, may be having enough money to manage their daily financial lives. That's the stress that they're facing. The recent survey from TIAA Institute and George Washington University

found that 19% of Americans can't come up with $2,000 for unexpected need, 30% have difficulty making ends meet, and 39% don't have one month of non-retirement savings. And so this CEO said the answer to this issue is financial education. Not just in schools, though. This should also happen in the workplace. It is our responsibility to make sure that we say are our employees engaging? Are they using the information? Is it helpful? Are we providing time? Are we making it in snackable bites? Because people are really busy and have to have little information to consume each step of the way. Duckett also said it's very important to make sure that there is

auto escalation as well as auto enrollment of retirement plans, making sure that workers are automatically contributing and their contributions are increasing every year so that if they do need to opt out when times are tough, they can do so. But regardless of the economic environment, they are continuing to save. Morgan. Sharon Epperson, thank you. Let's bring in Mike Santoli as we near the end of this hour. Mike, it was a down day for the major averages. It's relatively, it's like the calm before the storm because we're going to be getting a lot of market moving news next week. But as we look to Wednesday, what's on your radar? Yeah, the market coming into this week is mostly kind of reacting to its own field position,

which was a little bit overbought, a little bit stretched. The question was, would investors rotate within the market or exit? So far, it's kind of a rotation, a little more anxious today when banks go down 2 percent in a day. It's not going to be a comfortable one for the average stock. But looking ahead, we are going to get ISM services. It's second tier. It's a part of the economy people are a little bit less worried about, but might be more important in some respects in terms of resilience against a potential recession. And then I mentioned earlier, the ADP private sector employment report comes out. It's usually one that the markets are free to kind of set aside and not really trade off of. But again, we have a jobs number Friday.

The market's going to be closed. So we'll see if we're spying for clues in any trend change for what had been coming into February, at least, this idea that the job market was unusually strong to the point of overheating. And that may have changed to some degree with the takeaway from today's Jolt's report on job openings. Yeah, and of course, I think it's worth noting as investors focus here on whether the Fed's going to pause and what that next move or lack of a move is going to look like. We did see a pause from the Bank of Australia overnight. And now New Zealand, the central bank there is in focus again tonight as as well. So it sort of speaks to not only a U.S. environment,

but a global environment that has been combating this high inflation versus the possibility of recession, I suppose. That's going to do it for us here at Overtime. Fast Money begins now.