fortune--2020-11-16--Nobody really knows which coronavirus strategy is the right one

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Good morning. David Meyer here in Berlin, filling in for Alan.
Until proven vaccines are deployed at scale, the fight against coronavirus is one without an easily-defined weapon. While some countries are faring better than others, and some approaches have been a clear failure, no COVID-stricken nation can be sure of the right way forward. As explained in this worthwhile Wall Street Journal piece from yesterday, no-one even knows where most infections are taking place.
And so, we must observe what each country does to grapple with its particular circumstances, and take notes as various experiments succeed or fail.
Here in Germany, the government responded to rising infection rates with a “lockdown lite” that shuttered many businesses in the hospitality, sports and leisure sectors, while leaving most of the economy humming—an approach that seemed proportionate to the fact that case and death numbers were significantly lower than in neighboring countries such as Belgium and Czechia.
Two weeks later, how’s that going? That’s the big question being debated today by Angela Merkel’s administration and those of Germany’s 16 states, who must decide whether the rules—provisionally set to last another couple weeks—need tightening.
Given the lag between infection and diagnosis, it’s still difficult to tell whether or not Germany’s second wave has crested. Infection rates seem to have slowed, but there are strong indications that lockdown lite is no quick fix.
“We will have to live with considerable precautions and restrictions for at least the next four to five months,” said Economy Minister Peter Altmaier yesterday in a newspaper interview, adding that Germany’s leaders “have little room for maneuver” when it comes to reopening restaurants and cinemas.
“The infection numbers are still far too high—much higher even than a fortnight ago,” Altmaier said. Reports suggest new measures could be introduced, including a ban on private parties until Christmas, compulsory mask-weaking in schools, and even quarantine and sick leave for anyone experiencing symptoms of a regular cold.
At least we’re not Austria, where a harsh new lockdown will begin tomorrow: schools will close, as will all non-essential shops, and people won’t be able to meet others from outside their households. These measures, which will run through December 6 at the earliest, suggest the failure of a more tentative approach that was very similar to ours in Germany.
But then again, the Austrian case rate per 100,000 people was 1,034 over the last two weeks, while in Germany we’re still at a markedly less-catastrophic 310. That number is still too high, though—enough to stress intensive-care facilities in many parts of the country.
Germany may have come through this pandemic relatively well so far, but progress comes one step at a time. So let’s spare a thought this morning for the political leaders—in all countries—who currently have to make the toughest calls, with no clear models to guide them.
News below.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Moderna success
Moderna's candidate COVID-19 vaccine is 94.5% effective, the company reported today, sending its shares soaring. That's even better than Pfizer's candidate vaccine, which uses similar technology, and what's more, it doesn't need the same special cooling facilities that Pfizer's vaccine does. Bloomberg
RCEP rises
The world's largest trading bloc hove into existence yesterday, with its signing by China, Japan, Australia, New Zealand, South Korea, and the 10 ASEAN countries. The Regional Comprehensive Economic Partnership (RCEP) leaves many areas uncovered, such as state-owned enterprises, labor and the environment. But, while it won't result in any immediate, dramatic economic changes, it's a big geopolitical win for China. Fortune
PNC and BBVA
There haven't been many big bank mergers since the 2008 crisis, but here's one: PNC Financial Services Group is to pay $11.6 billion for the U.S. arm of Spanish bank BBVA, thus creating the fifth-largest U.S. retail bank with over $550 billion in assets. PNC is currently strongest in the mid-Atlantic, Midwest and Southeast, while BBVA is big in the Sunbelt. Wall Street Journal
SpaceX and ISS
SpaceX's first regular NASA mission to the International Space Station successfully launched yesterday. Four astronauts are onboard, with an arrival time of 11pm ET today. and the first stage of the Falcon 9 rocket successfully landed on a drone ship after takeoff. Fortune
AROUND THE WATER COOLER
Apple privacy
European privacy crusader Max Schrems has gone after Apple a lot less than he has Facebook, Google and other Big Tech firms, but no longer: his NOYB organization has made formal complaints in Germany and Spain over Apple's iOS user tracking, which it says happens without the full and proper consent of users. Financial Times
Brexit talks
The runway is running out: Ireland has warned that the substantive problems in the post-Brexit trade talks have to be resolved this week, if a deal is to be ratified in time for the December 31 end-of-the-transition period. Meanwhile, Prime Minister Boris Johnson is back in isolation after a lawmaker with whom he'd recently been in close contact (Lee Anderson MP) tested positive for COVID-19. Yes, Johnson has famously already had it, but he's following protocol. Sky News
Now spit
Various researchers and startups are working on mouthwash-based COVID tests that promise high accuracy and speedy processing times, with a view to restarting large sports events, concerts, travel and so on. Some are basically trusty PCR tests; some use a different approach that leans on spectrometry; all should prove more reliable than today's rapid antigen tests. Fortune
Working with Biden
Businesses should not celebrate government gridlock but should instead ally with government in solving social problems and rebuilding the economy, writes Just Capital chief strategy officer Alison Omens in a piece for Fortune. Omens raises corporate disclosure and transparency, which she says business should embrace now rather than pushing back against likely Biden-era bills on such topics. She also notes that "the economy is inequitable and leading to more unrest and hardship for millions. And the climate crisis is getting worse." Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-11-16--Trump (briefly) acknowledged that Biden won the election—but is still discrediting the vote

Parler is the new Twitter for conservatives .
Here ’ s what you need to know

President Donald Trump is coming to grips with his re-election defeat, according to aides and advisers, even as he continues to publicly discredit the outcome and delay the start of the official transition to President-elect Joe Biden’s administration.
Trump began a tweet Sunday morning with the phrase “He won,” interpreted by even fellow Republicans as a possible concession. “I think that’s a start of an acknowledgment,” Arkansas Governor Asa Hutchinson, a Republican, said on “Meet the Press.”
After news organizations published stories saying Trump had acknowledged defeat for the first time, the president followed up with a tweet proclaiming, “I concede NOTHING!” But pressure is growing both from Biden’s team and from within Trump’s party for the government to begin the formal transition process, delayed by the president’s refusal to concede.
Privately, people around him say the president is increasingly aware he cannot overturn the result of the election. The people asked not to be identified discussing the matter because of Trump’s public statements.
Nonetheless, the president has made a show of fighting on. Over the weekend, he appointed his confidant Rudy Giuliani to lead his legal battles, which endured a string of setbacks last week. The former New York mayor, whose activities in Ukraine contributed to Trump’s impeachment and who led a discredited effort to tar Biden as corrupt ahead of the election, said in a statement that “my team is vigorously fighting on behalf of the president to restore legitimacy and trust in the results of this election and future ones.”
He made a series of allegations about irregularities and fraud in Michigan and Pennsylvania’s elections. Election lawyers who have reviewed affidavits Trump’s team have filed in a federal suit seeking to stop Michigan from certifying its election results say they do not constitute evidence of fraud and shouldn’t be grounds to overturn the outcome.
Biden’s incoming chief of staff, Ron Klain, said on “Meet the Press” on Sunday that it’s time for the president to accept the election outcome and begin the transition. The Trump appointee who leads the General Services Administration, Emily Murphy, has not yet acted to officially recognize Biden as the incoming president, allowing his transition teams access to federal agencies.
“It’s time for leaders in both parties to get to business of this transition, to get to business of working together to start to plan out a legislative agenda for next year,” Klain said.
Trump on Sunday tweeted “Great job, Emily!” in response to a tweet she posted about awarding federal contracts to disabled veterans.
Economy Remarks
Biden and Vice President-elect Kamala Harris have begun forming an administration-in-waiting, and they will deliver remarks on Monday outlining their plans for a post-pandemic economic recovery, their transition team announced Sunday.
Republicans outside Trump’s inner-most circle are increasingly showing their frustration with the president’s rejection of his defeat, which risks cementing suspicion and doubt about the U.S. electoral system among the more than 73 million Americans who voted for him. The GOP will need those voters to participate enthusiastically in future elections, starting Jan. 5 when Georgia holds runoffs for two Senate seats that will decide control of the chamber.
“It is important that we accept the outcome of the election,” Hutchinson said, while nodding at Trump’s “constitutional assertions” in Pennsylvania and a hand recount of ballots in Georgia’s presidential election, which Trump also lost.
“Our Department of Homeland Security indicated this week that there’s not any evidence of rampant fraud in the election that would undermine the result,” he said. “We need to accept the result once that process is completed, come together and recognize we’ve got new leadership, and we need to pull together as a nation.”
In the three battleground states where he is most seriously contesting the results — Wisconsin, Michigan and Pennsylvania — Trump trails Biden by more than 233,000 votes, or more than three times the margin by which he defeated Hillary Clinton in 2016.
Neil Newhouse, a Republican strategist, said that by continuing to deny he lost the election and contesting the results, Trump keeps his supporters fired up. The president may believe that will help Republicans in Georgia — or he may be considering running for the presidency himself for a third time in 2024.
Trump has mentioned the possibility of a 2024 run, according to one person close to him. But there are doubts Republican donors would financially back him again, the person said.
“He has potentially one eye on a path in 2024, a second one on keeping his base and also looking at the Georgia senate race,” Newhouse said.
Terry Sullivan, a Republican strategist who worked on Florida Senator Marco Rubio’s 2016 presidential run, said he isn’t certain that Trump’s goal is to further his future political aspirations.
“I think this is 100% a branding exercise for Donald Trump,” Sullivan said. “He doesn’t care about Georgia. He doesn’t care about 2024.”
Former President Barack Obama encouraged Trump to concede in an interview with “60 Minutes” on Sunday. “My advice to President Trump is, if you want at this late stage in the game to be remembered as somebody who put country first, it’s time for you to do the same thing,” he said.
Trump’s tweets on Sunday first acknowledging Biden’s win and then denying it followed overnight clashes between his supporters and counter-protesters in Washington, D.C., after thousands of Trump fans held a so-called “Million MAGA March” in the city.
The president didn’t intend to give the impression that he was conceding in his tweets, according to one person familiar with his thinking. The White House didn’t immediately respond to a message left for comment about whether the tweet signaled that a more formal concession was in the offing.
Nevertheless, it was an extension of the resigned tone that Trump demonstrated in a Rose Garden event Friday, where he first publicly hinted that he might have lost the election. Addressing the country on efforts to develop a vaccine for the coronavirus pandemic — his handling of which helped cost him the White House — Trump said that he wouldn’t order another nationwide lockdown, but another administration might.
Legal Setbacks
Trump’s team is eyeing a Tuesday court hearing on Pennsylvania’s motion to dismiss a lawsuit the campaign filed to prevent the state from certifying Biden as the winner of its 20 electoral votes.
Trump’s lawyers narrowed their case on Sunday, abandoning an argument to throw out hundreds of thousands of votes in Philadelphia and Pittsburgh. They instead argue there’s evidence voters in a half-dozen counties were improperly allowed to fix errors with their ballots.
Asked whether Trump would concede if the Pennsylvania lawsuit is dismissed, his campaign only referred to “the president’s tweets.”
So far the legal fights that Trump has mounted have proved unsuccessful. On Friday, the campaign walked away from a lawsuit over voting machines in Arizona, after state evidence showed that the number of ballots in question wouldn’t be enough to alter the results there.
Later that day, Trump made the decision to appoint Giuliani to lead his legal efforts.
Separately, lawyers with Porter Wright Morris & Arthur LLP, submitted a filing late Thursday stating that they were withdrawing as counsel in the Pennsylvania case. Trump’s campaign blamed “cancel culture” for the move.
In a Sunday evening tweet, Trump suggested more legal action could be ahead, saying that “many” of the current cases are independent of his campaign. “Our big cases showing the unconstitutionality of the 2020 Election, & the outrage of things that were done to change the outcome, will soon be filed!” he said.
He subsequently issued a series of tweets complaining that Joe Biden had been recognized as the president-elect before his campaign could mount its legal challenges, once again making false claims about irregularities and fraud in the election.
–With assistance from Jennifer Jacobs, Saleha Mohsin, Jordan Fabian and Ros Krasny.


fortune--2020-11-16--The rise of the MOOCs: How Coursera is retraining the American workforce for a post-COVID economy

The human toll from COVID-19 in the U.S. is chilling: The death count has reached nearly a quarter of a million people. But in addition to a public health crisis, the pandemic has created the worst economic fallout since the Great Depression.
In April, the U.S. unemployment rate surpassed 14%. And while the numbers have since improved, what’s become clear is that many of the jobs that were lost aren’t coming back.
In this week’s episode of Fortune’s Reinvent podcast, we explore how the company Coursera—one of the biggest platforms offering massive open online courses (MOOCs)—is helping the American workforce reimagine itself for a post-COVID world.
The company was founded in 2012 by two Stanford professors who wanted to put their courses on the Internet for free to give more people access to high-quality education. Coursera’s model has since evolved to also offer paid classes that let users earn certificates.
Now, during the COVID-19 pandemic, Coursera and its fellow MOOCs are experiencing a surge. CEO Jeff Maggioncalda says the company will probably have 30 million people signing up just in 2020 alone. “In some ways, COVID was like a huge required experiment with online learning,” he says.
The increase in users is coming from both people stuck at home with extra time on their hands, as well as from those who have been laid off or furloughed, Maggioncalda says. “This is a shock to the system due to COVID,” he says. “But there’s been a long trend toward job automation that’s been happening for years and years.” In response, people need to reskill for the slew of digital jobs that are emerging, he adds.
Science, technology, and business are the three categories of skills most in demand on Coursera. “We often say internally, ‘Skills pay the bills,’” he notes. “That’s really what people buy.”
The company’s top course in 2020 globally is “The Science of Well-Being,” out of Yale, followed by a class on machine learning from Stanford. No. 3 is a new course from Johns Hopkins University on COVID-19 contact tracing, driven by people who want training to perform this service. The fourth is English for career development, and No. 5 is “Learning How to Learn” from UC–San Diego.
It’s not just individuals who are accessing Coursera either. Maggioncalda says the company offered free courses to any government in an effort to help unemployed people during 2020 and has launched in 70 countries and 30 states in the U.S.
Democratizing education has been the vision of MOOCs all along—a goal COVID may end up accelerating. The pandemic has highlighted and increased inequality in many ways, Maggioncalda says. “But I can see a world where, a few years from now, we look back, and we see COVID as having opened up opportunities for greater social equity in the States and around the world than we’ve ever seen before.”
Maggioncalda says that’s due to two basic tenets: people realizing they can learn anything from anywhere, and remote work allowing people employment opportunities outside their communities. That is, of course, predicated on populations having access to the Internet and a basic education in areas like writing, math, or statistics.
“One of the most exciting things about digital jobs is often they can be learned online, and they can be performed online,” Maggioncalda says. “I think that could [be] a great equalizer of learning opportunity and economic opportunity post-COVID.”
To hear more from Maggioncalda and from the Brookings Institution’s Annelies Goger, listen to the episode in its entirety.


fortune--2020-11-16--Dump the dollar, stick with stocks and corporate bonds, Morgan Stanley advises heading into 2021

Morgan Stanley strategists said an expected “V-shaped” economic recovery, greater clarity on COVID-19 vaccines and continued policy support offer a favorable environment for stocks and credit next year.
In an outlook for 2021, a team including Andrew Sheets recommended investors overweight equities and corporate bonds against cash and government debt, and sell the U.S. dollar. Volatility is set to decline, and investors should be “patient” in commodity markets, the strategists said.
“This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” they wrote. “Keep the faith, trust the recovery.”
A gauge of global stocks headed toward a record Monday amid optimism that the expected roll-out of vaccines and additional U.S. fiscal stimulus will bolster the world economy. Still, skeptics argue the short-term outlook is challenging as nations resort to lockdowns to fight a resurgence in virus cases and lawmakers bicker over the size of U.S. relief spending.
Morgan Stanley joins JPMorgan Chase & Co. and Goldman Sachs Group Inc. in painting a positive outlook for equities. JPMorgan strategist Marko Kolanovic said U.S. election results create a bull case for markets, while David Kostin at Goldman Sachs expects society to normalize gradually next year.
The Morgan Stanley team doesn’t expect a smooth path upwards and noted that significant challenges remain. Risks include a worse-than-expected Covid-19 winter wave, and a return to austerity in the longer term, according to the note.
Investment calls in the report include:


fortune--2020-11-16--Last week’s vaccine-led rally was one for the record books—but is all that good news already priced

Last week’s vaccine-led rally was one for the record books—but is all that good news already priced in?

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. From Tokyo to Madrid, there’s plenty of green on the screens, with European bank stocks, in particular, leading the way forward.
Investors are in a risk-on mood even as COVID numbers worsen and more restrictions are mulled in some of the world’s biggest economies. But the markets are undaunted (that won’t be the last time you read that word in today’s Bull Sheet) as vaccine optimism proves to be the new predominant bullish force.
Let’s see where investors are putting their money.
Markets update
Asia
The major Asia indexes are climbing again in afternoon trading with Japan’s Nikkei up 2% .
are climbing again in afternoon trading with Japan’s up . Walmart’s retreat from Japan is just about complete after it sold off most of its stake in retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal valued at $1.6 billion . KKR plans to build up Seiyu and return it to the public markets.
is just about complete after it sold off most of its stake in retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal valued at . KKR plans to build up Seiyu and return it to the public markets. In his final weeks on the job, President Trump is mulling further actions against China, including “protecting U.S. technology from exploitation by China’s military, countering illegal fishing and more sanctions against Communist Party officials or institutions causing harm in Hong Kong or the far western region of Xinjiang,” Bloomberg reports.
Europe
The European bourses are in the green out of the gates with the Stoxx Europe 600 up 0.7% at the open.
are in the green out of the gates with the up at the open. The pound and FTSE are higher even as the U.K. government strikes an unyielding tone as a huge Brexit trade deal deadline looms this week. Both sides have blown through so many deadlines, but there’s now talk Brits will see “the return of quotas and tariffs for the first time in a generation,” Bloomberg reports.
and are higher even as the U.K. government strikes an unyielding tone as a huge deadline looms this week. Both sides have blown through so many deadlines, but there’s now talk Brits will see “the return of for the first time in a generation,” Bloomberg reports. Spain’s BBVA agreed to sell its U.S. operations to PNC Financial Services Group for $11.6 billion, “one of the largest bank tie-ups since the financial crisis,” the Wall Street Journal reports. BVVA shares were up nearly 15% in early-morning trade, lifting the Euro Stoxx Banks index by more than 3%.
U.S.
U.S. futures point to a solid open. That’s after all three major exchanges finished the week on a high note, with the S&P 500 closing at an all-time high on Friday.
point to a solid open. That’s after all three major exchanges finished the week on a high note, with the closing at an on Friday. Shares in Johnson & Johnson were flat in pre-market trading after the company announced its COVID vaccine advanced to a crucial third phase of testing in the U.K.
advanced to a crucial of testing in the U.K. We must be getting towards the end of corporate earnings season as the big retailers are up next. Target, Walmart, Home Depot and Lowe’s all report this week.
Elsewhere
Gold is flat, trading around $1,890/ounce .
is flat, trading around . The dollar is down.
is down. Crude is up, with Brent futures trading above $43/barrel .
is up, with futures trading above . Bitcoin is up, trading near $16,250.
***
Investor risk: bring it on (for now)
At the end of every week the “fund flows” reports land in my in-box on Fridays, almost always after I’ve pressed “send” on Bull Sheet.
I usually scroll through the reports quickly on my phone as I make coffee on Saturday morning. (Not to worry; I’ve already walked and fed the dog.) This is before my wife comes in and hijacks the radio to listen to the Rai 1 news bulletin, which always sets off grumbles about the Conte government.
The fund flows reports measure whether money has flowed into or out of the markets in the previous week, and so it’s a pretty good indicator for investor bullishness.
Last week was one for the bulls. Recap: the week had a lot of momentous news, including “the U.S. election result and positive news about Pfizer’s COVID vaccine,” Goldman Sachs writes. “Flows into mutual funds and related products suggest the events resulted in a large increase in investor risk appetite, with record net inflows into global equities, pro-cyclical rotations within fixed income, and a pickup in cross-border fund flows to emerging markets.”
Both Goldman and BofA Securities calculate the inflows this past week were at a near three-year high. The last time we saw so much cash entering the markets (as a percentage of sheer assets under management) was January, 2018.
The net-$45 billion that entered the markets, in straight-up dollar terms, was in fact a record. Most of that money went into U.S. equities. But there was also a noticeable uplift in money flowing into fixed-income (investment-graded and high-yield credit funds) and FX trades (away from the dollar).
Interestingly, BofA sees the apparent vaccine breakthrough as a big catalyst to flip sentiment going into the new year. In short, they think the market has largely priced in positive vaccine news. “We are sellers-into-strength into vaccine in coming months,” they write. “Peak positioning, peak policy, peak profits [are] likely coming [in the] months [ahead],” they tick off.
Here’s how they see the shift from 2020 to 2021 playing out:
I wish I could feel more bullish about the outlook. The COVID numbers in Italy worry me. And I’m even more spooked by the numbers in the U.S. where my mom, my siblings and so many of friends and colleagues live.
I admire anybody who can look forward, and make a statement about 2021. In my book, those who can are the true bulls.
***
Postscript
Saturday mornings are also homework time. This week’s assignment: writing compositions. Sixth-grade stuff.
Or so I thought.
It’s all in Italian, and so it’s good practice for me to test my knowledge of Italian grammar, one of the true geeky pleasures of raising bilingual kids. There’s always something that I’m learning for the first time.
This week it was the word impavido, which my daughter slipped into her composition in writing about the similarities between Acchiles, he of the world-beating strength but tender heels, and Super Girl. (I’m guessing my daughter nicked the word from my wife; she applied it to Super Girl, so it was the feminine, impavida.)
The sight of the word sent me straight to the unabridged dictionary to find the precise English equivalent.
The root is Latin. Pavidus = “weak” (which derives from pavēre, “to have fear”). Im = not. In most dictionaries, impavido is translated as “fearless” or “undaunted.” But there’s an an even more precise English word for impavido. Yep, it’s “impavid.”
… as in “the impavid investor went long on tech and growth stocks in mid-March, and made a killing.”
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
The state of the U.S. economy in eight charts. Fortune's data whiz Lance Lambert once again pores through the numbers that matter, and charts out the progress the American economy has made since the Q2 lows of the pandemic. Housing starts, job growth, manufacturing, state-by-state unemployment, GDP—taken together, these indicators show a very uneven recovery for Americans.
Consumer power. Here's a stat that would have seemed impossible just a year ago: bonds backed by consumer loans are among the highest performing investments this year, yielding a 10% return in October, the Wall Street Journal reports. It's significant in that it shows consumers are staying on top of their debt. Just a year ago, household debt had soared to a record $14 trillion.
"Meatheaded short-termism." Fortune's Katherine Dunn spoke to Michael O’Leary and Warren Valdmanis, authors of Accountable: The Rise of Citizen Capitalism, a new book that argues that Adam Smith–style invisible hand capitalism doesn't quite cut it anymore in the modern era. The authors spoke to Dunn about the rise of ESG (environmental, social, and governance) investing, the divestment movement (and whether it actually works), the Business Roundtable’s pledge to end shareholder primacy, and where companies—and investors—can be the most effective.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
Quote of the day
The circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future.
That's DoorDash, writing in its prospectus to go public that the huge pick-up it's seen in its business during the dark days of lockdown may not last. But none of that may matter to investors looking to cash in on one of the buzziest IPOs of 2020, writes Fortune's Phil Wahba. Just look at Grubhub (shares up 49% YTD) with net income still in negative territory.


fortune--2020-11-16--15 countries signed the world’s biggest trade deal—but China is the clear winner

Fifteen countries in the Asia-Pacific region on Sunday signed a trade deal to create the largest trading bloc in the world. The new pact represents almost a third of the global population and over $26 trillion in gross domestic product.
China, Japan, Australia, New Zealand, South Korea, and the 10 countries that make up the Association of Southeast Asian Nations (ASEAN) signed the Regional Comprehensive Economic Partnership (RCEP), a pact eight years in the making that analysts estimate will strengthen economic ties within the region and add $200 billion to the global economy per year by 2030.
Many RCEP constituents already have trade agreements with one another. The new deal doesn’t cover state-owned enterprises, labor, or the environment, and it only briefly mentions controversial issues like intellectual property protections, meaning it will not result in any dramatic economic changes in the short term.
Subscribe to Eastworld for weekly insight on what’s dominating business in Asia, delivered free to your inbox.
Still, the agreement is considered a geopolitical victory for China, since it helps the regional giant formalize and strengthen links with other countries in Asia and potentially step into an economic vacuum created by President Donald Trump’s protectionist withdrawal of the U.S. from global free trade agreements.
The RCEP marks China’s first membership in a multilateral trade deal.
Chinese Premier Li Keqiang said the RCEP was “not only a landmark achievement of East Asian regional cooperation, but also a victory of multilateralism and free trade.”
According to a June 2020 working paper published by the Peterson Institute for International Economics, a nonprofit research group, the RCEP will increase the economic integration of China, Japan, and Korea, since it lowers trade costs between members. The lower trade costs will “accelerate the decoupling of the East Asian and U.S. economies,” the paper says.
The signatories inked the deal at a virtual ASEAN summit chaired by Vietnam. “I am confident that RCEP will soon be ratified and come into force, further bolstering our post-pandemic economic recovery and delivering shared prosperity to the people and businesses of all participating countries,” Vietnamese Prime Minister Nguyen Xuan Phuc said on Sunday. The deal is supposed to be ratified within the next two years.
The RCEP will lower tariffs, give RCEP members preferential access to the regional market, and lower costs for companies with supply chains across multiple countries in Asia. The latter provision could persuade more multinationals to locate their supply chains in the RCEP region.
The RCEP isn’t as comprehensive in scope as the Trans-Pacific Partnership (TPP), the proposed free trade pact among Pacific Rim countries that President Donald Trump pulled the U.S. out of in 2017.
China was not included in the TPP, which would have increased U.S. influence in the region, nor is it part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the agreement that the 11 TPP constituents signed in 2018 after the U.S. dropped out.
Compared to the CPTPP, the RCEP encompasses more than four times as many people and two times the GDP; it’s also larger than the European Union by both those metrics.
The new pact does not include India, Asia’s second-largest economy. India withdrew from talks in November 2019 over concerns that the terms of the agreement would hurt local producers and would expand India’s existing trade deficits with RCEP member nations, especially China, which represents India’s largest bilateral trade deficit. The RCEP remains open to India returning to join the agreement.


fortune--2020-11-16--Walmart is retreating from its effort to crack Japan’s retail market

Walmart Inc. is selling most of Japanese retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal that values the supermarket chain at 172.5 billion yen ($1.6 billion), as the U.S. giant retreats from its two-decade attempt to crack Japan’s retail market.
Under the agreement, private equity fund KKR will become the majority owner with a 65% stake, while Japanese e-commerce giant Rakuten takes 20%, the companies said in a statement Monday. Walmart will retain a 15% minority interest. Rakuten and KKR will seek to shore up Seiyu’s digital operations as demand for online retail grows in Japan amid the pandemic. The new owners are retaining a previously announced plan to re-list Seiyu in the future.
“An IPO is certainly common goal for us,” Eiji Yatagawa, a partner at KKR, told Bloomberg News. “What’s important is to build a business that can go public. For a company to go public, you need to demonstrate a very attractive story to the market.”
In June last year, Walmart said it would seek to relist Seiyu, following years of speculation that it was seeking to sell the chain after years of poor performance. While a 2018 report in the Nikkei newspaper said the Bentonville, Arkansas-based retailer planned to sell the business for as much as 500 billion yen, the company had repeatedly denied it was looking to exit.
Foreign Failures
Walmart first invested in Seiyu in 2002 and took it private in 2008. But like other foreign retail giants, including Tesco Plc and France’s Carrefour SA, it failed to find success in Japan’s notoriously difficult and low-margin supermarket space, and struggled to compete with local rivals such as Aeon Co. and Seven & i Holdings Co.
In 2018, it began working with Rakuten on fresh produce delivery in Japan as well an e-book operation in the U.S. The U.S. giant has been reshaping its international operations to focus on high-potential markets like India and China, and investing to build its digital operations globally as it faces cost pressures and sluggish growth in its home market.
Fresh produce is a 60 trillion yen market in Japan, but only around 3-4% of that is online sales, according to Noriaki Komori, a Rakuten executive officer, creating a growth opportunity. Books and home appliance see about a third of sales online, he said. The pandemic has boosted e-commerce in Japan, where adoption has sometimes lagged other markets, with online clothes shopping and food delivery seeing notable gains.
The combination of online retailer — Rakuten runs Japan’s largest online shopping mall — with traditional brick-and-mortar store has echoes of Amazon.com Inc.’s $13.4 billion purchase of Whole Foods Market in 2017. Whole Foods has struggled during the pandemic, however, with foot traffic down an estimated 25%. Amazon’s Japan arm already runs a grocery delivery service with Life Corp., a supermarket chain.
“The world is very different today than it was 18 months ago for all of us,” said Judith McKenna, president of Walmart’s international business. “The world has accelerated in omni channel and digital transformation in the course of this year, not just in Japan but around the globe.”
The deal is expected to close in the first quarter of 2021. Seiyu Chief Executive Officer Lionel Desclee will stay in his role through the transaction and then take a new position within Walmart. A new CEO will then be appointed by a new board comprised of managers from the three owners.


fortune--2020-11-16--J&J’s COVID-19 vaccine enters a new 6,000-person late-stage trial

A coronavirus vaccine from a unit of Johnson & Johnson is set to move to the third phase of clinical trials in the U.K. on Monday that will test the safety and effectiveness of the shot.
The testing round by Janssen Pharmaceutical Companies will include 6,000 volunteers and take place across 17 sites, according to a statement. The vaccine is the third candidate to be tested in the U.K., alongside one from an AstraZeneca in partnership with the University of Oxford and another from Novavax Inc., it said.
Progress toward creating vaccines against COVID-19 has accelerated this month, with Pfizer Inc. and BioNTech SE saying their shot prevented more than 90% of symptomatic infections in a trial. Still, hurdles for production and development remain before vaccines could reach widespread use.
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Recent data indicate “we could be on the cusp of the first major breakthrough since the pandemic began,” U.K. Business Secretary Alok Sharma said. “While we are optimistic with the progress being made, there are no guarantees and it is possible there will be no one-size-fits-all vaccine.”
If the vaccine from New Jersey-based Janssen proves safe and effective, 30 million doses could be available in the U.K. by mid-2021, according to the release. The government’s Vaccine Taskforce is partially funding the effort.
The government also announced that it will open two new “megalabs” early next year, which will together increase daily testing capacity by 600,000. The labs will be used for COVID-19, as well as testing for other critical illnesses such as cancer, according to a statement.
The U.K. recently became the first country in Europe to record more than 50,000 deaths from the virus, and England is under lockdown restrictions until early December due to a surge in cases.
J&J has been further behind other pharmaceutical companies in the vaccine hunt, while it plans to boost spending to expand a development deal with the U.S. government and catch up with rivals. The company had paused a vaccine trial in October after a participant fell ill.


fortune--2020-11-16--Why SpaceX’s Sunday launch represents a milestone

Four astronauts are cruising to the International Space Station aboard a SpaceX capsule in the company’s first regular NASA mission to the International Space Station.
The Dragon capsule is scheduled to arrive at the orbiting lab at about 11 p.m. Eastern time on Monday, more than 27 hours after blasting off from Kennedy Space Center in Florida. The first stage of SpaceX’s Falcon 9 rocket successfully landed on a drone ship about nine minutes after lift off.
The Crew-1 mission marks a crucial milestone in the development of a space industry in which private-sector companies provide business and tourism services in low-earth orbit. Following the retirement of the Space Shuttle in 2011, NASA awarded Elon Musk’s SpaceX and Boeing Co. nearly $7 billion in contracts to build new transport systems to the space station as part of the agency’s Commercial Crew program.
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“A great launch!” said President Donald Trump in a tweet. President-elect Joe Biden called it “a testament to the power of science and what we can accomplish by harnessing our innovation, ingenuity, and determination.”
SpaceX’s first operational trip to the orbital lab followed a test flight with a two-person crew that returned to the planet three months ago. The latest launch occurred 18 years after Musk founded Space Exploration Technologies Corp. with the ultimate goal of populating other planets.
The Crew-1 mission launched two days after officials at the National Aeronautics and Space Administration determined that Musk, who may be infected with coronavirus, had no physical interactions with key personnel.
Musk tweeted Sunday morning that he had “no symptoms right now,” after saying a day earlier that he “most likely” has a moderate case of COVID-19. He said late Thursday that he’d tested positive and also negative for COVID-19 in four tests, and was experiencing mild cold symptoms.
SpaceX sent its president, Gwynne Shotwell, to Florida to observe the launch. U.S. Vice President Mike Pence also attended.
Mission Crew
Beyond becoming the U.S. space agency’s first regular commercial launch, the Crew-1 mission is also the first human orbital flight licensed by the Federal Aviation Administration. The regulator is assuming responsibility for public safety because the flight will be conducted by a commercial company.
The Crew-1 astronauts are set for a six-month sojourn aboard the space station, where they’ll join two Russians and an American. The Dragon’s crew is comprised of three astronauts from the U.S. and one from Japan:


fortune--2020-11-15--Capitalism must be saved by capitalists, argue these pioneering ESG investors

When Michael O’Leary and Warren Valdmanis first met at Bain Capital’s offices in Asia, both were more or less conventional members of the finance profession. And yet, years later, they would become the coauthors of a book arguing that American-style capitalism—including a “meatheaded” obsession with short-term profits—is doing dire damage. Our economic system, they argue, urgently needs a reboot.
In their recent book, Accountable: The Rise of Citizen Capitalism, they argue that Adam Smith–style invisible hand capitalism is ineffective—and out of date—and that companies need to reorient themselves to serve more than just shareholders (which, by the way, they don’t think are being served particularly well, either).
Both authors, who were on the founding team behind Bain’s first social impact investing fund under former Massachusetts Gov. Deval Patrick, spoke to Fortune about the rise of ESG (environmental, social, and governance) investing, the divestment movement (and whether it actually works), the Business Roundtable’s pledge to end shareholder primacy, and where companies—and investors—can be the most effective.
This interview has been condensed and edited for clarity.
You talk a lot in the book about the skepticism or the outright cynicism regular people—but especially people in the investment world—have toward ESG and socially responsible investing. Was that the place that you guys started from?
Valdmanis: I admit that I was skeptical. I was schooled in this Adam Smith invisible hand idea, that if you just go about your business of creating more valuable companies and creating shareholder value, that’s going to have knock-on effects that are positive for the world. So I didn’t feel this need to add a social adjective in front of it. But I swiftly realized a couple of things through the effort with Governor Patrick. The first is that the invisible hand [idea] is a really attractive one, but it doesn’t always work that way. I think, frankly, even Adam Smith, if you read his work closely, you realize that he didn’t even intend the way it’s currently understood and used. But furthermore, I also realized, there is enormous potential at the intersection of the social and the commercial. I think that we have this meatheaded short-term-ism in our economy that prevents even businesses from realizing what’s in their long-term best interests sometimes.
“I think that we have this meatheaded short-term-ism in our economy that prevents even businesses from realizing what’s in their long-term best interests sometimes.” warren valdmanis, coauthor of Accountable
O’Leary: I don’t think we recognized going in how that generational difference really shows up in a lot of people’s fundamental views around capitalism. You look at the portion of millennials and Gen Z who approve of capitalism or have a favorable view of capitalism, that’s fallen from two-thirds in 2010, to just about half today. And I think millennials just approach these questions with a different view. You ask folks, “Is sustainability or ESG important to investing?” And nine out of 10 millennials will say, “Yes, of course you should be thinking about environmental and social issues in your investment portfolio.” And 40% of baby boomers, maybe less, will agree. And so I think you approach the question from a slightly different angle—I think with less skepticism—when you’re of a younger generation.
I was struck in the book how you talk about what you call this “rational hypocrisy” that companies have to deal with.
O’Leary: If you’re a CEO today, you’ve got demands from shareholders to maximize profits; you’ve got demands from all of your stakeholders to do good things for people. And when you’re faced with these conflicting demands, it’s much easier to fake good works than it is to fake good returns. So as a result, they exhibit a sort of rational hypocrisy, where they say different things to different audiences. The best evidence of this would be all the companies out there that issue two different annual reports: a 10-K and then a corporate social responsibility report, or a sustainability report, for all their stakeholders. And oftentimes, there’s no relationship between the two.
I look at the crisis of trust we have in our economy where three-quarters of people don’t trust Big Business; people don’t trust corporate executives. So you roll back the clock to last December, before the pandemic hit. And in some ways it’s so easy when you’re in the 11th year of an economic boom for CEOs to say, “No, we’re good for shareholders; we’re good for stakeholders; we’re good for workers; we’re good for everyone.” The opportunity that the pandemic gave business leaders is in times of crisis—that’s when they can actually show what they meant in their commitments. And they can show that when they said their workers are the most important thing about their business…Prove it.
You both emphasize the long term, and you even say that quarterly earnings updates should be eliminated. We’ve seen this massive, massive boom in the stock market just as the American economy is seeing millions of people unemployed. Do you think the dichotomy of that is sinking in?
Michael O’Leary. Credit: Kelly Benvenuto Michael O’Leary. Credit: Kelly Benvenuto
O’Leary: There’s been two great decouplings in our economy. The first huge decoupling was between productivity and workers’ wages, where productivity continued to go up, but wages remained flat. You look at your median wages over the past 50 years in America, and despite the growth of GDP, despite the growth of productivity, that has not flowed down to most workers.
Valdmanis: And they were in lockstep from 1945 to 1973! Lockstep! These two things moved in tandem. Productivity and wages moved in tandem for the better part of 30 years.
O’Leary: But what you bring up is this second decoupling over the past several months, where now the stock market seems to have defied all gravity to grow even as unemployment goes up, even as productivity and GDP growth has been flat to down. And you look at that—no wonder two-thirds of Americans don’t think the financial system benefits society. And I think that is what the hope from this stakeholder capitalism movement provides, is that we’re able to reestablish that link, where you understand a company not as a collection of assets owned by shareholders, but instead as an organization, a group of people that includes employees and the customers and the suppliers and voters.
You make the point in the book that through your pension, through your retirement savings, many of us are in fact shareholders, and yet that link seems to be really broken. When did that happen?
O’Leary: 137 million Americans own stock, either directly or through a pension fund, or through an investment fund by someone like Vanguard, or BlackRock or Fidelity. So we’ve got this financial system that is very distant, very anonymized, and highly intermediated. I think about my mother, a public school teacher. She has a pension fund, investment managers, advised by investment consultants that ultimately invest in companies that then have an impact in the world. And that is a very long, complicated string to get from my mother—who is the ultimate beneficiary, the ultimate shareholder—to the impacts those companies are having. And so no wonder that almost nothing can make it through that long, complicated system, except for the through line of profit.
My favorite example being, you take something like inequality, and something like three-quarters of workers think that CEOs are paid too much, right? Not surprising, given the ratio of CEO to median pay. And yet every year, shareholders have a right to vote on executive compensation packages, and every year 97% of them will pass with 90%-plus support. There’s just no connection between the actual views, interests, and values of most Americans and what’s actually expressed in our companies.
One of the other things I wanted to ask about is the kinds of paradoxes you highlight here—how you end up with the Milgram-Nixon syndrome. But can you explain what it is first?
O’Leary: We found it initially in a comment section of a Financial Times article. It so resonated with the problems that we were seeing that we had to build it out. And the way I would describe it is, how is it that we’ve got a system where, you know, corporations are doing actions that no one agrees with, that represent no one’s values. How can that be possible? And the answer is that we have a system where CEOs say, “We work for shareholders, and shareholders want to maximize profits.” Stanley Milgram was a social scientist at Yale who had shown through some studies that people will do almost anything if they believe that they’re just acting as an agent for someone else—if they’re following orders, essentially. And so CEOs say, “We’re following orders to maximize profits.”
Now, on the other hand, go back to those shareholders. They are so far removed from the decisions that companies are making every day that they’re saying, “We can’t possibly be responsible, because we own hundreds or thousands of stocks through index funds, or we own our shares through our pension fund. We’ve got very little visibility or exposure; we can’t possibly be held accountable for what companies are doing.” Nixon’s defense during Watergate, that he couldn’t possibly be responsible. He runs the entire United States government. How could he be responsible for what some small group of people are doing on his behalf?
And so then you combine these things together. CEOs claim they’re not responsible, because they’re following orders. Shareholders claim they’re not responsible, because they’re too far removed from the actual actions. You have an economy where the buck is passed around and around and around until, poof, it disappears.
“You have an economy where the buck is passed around and around and around until, poof, it disappears.” Michael o’Leary, coauthor of accountable
You start off the book with a responsible strip mine owner, and you end the book with a guy whose business was overwhelmingly coal while he was running the business [former Duke Energy CEO Jim Rogers], but you evoke both of them as examples of responsible, purpose-driven leadership. Even though they were associated with businesses that sometimes don’t get a super positive association.
Valdmanis: If the only companies that we deem good companies, or virtuous companies, are your solar panel manufacturers in Tanzania, we’re not going to fix capitalism that way. If you drive a Tesla in West Virginia, it’s probably a coal-powered Tesla, because the electricity that’s run off of comes from a coal plant. So we need to figure out how to make all kinds of businesses responsible, not just ones that already look pretty close to responsible. And so one of my issues with social impact investing is, if you draw too narrow bounds around what you think is an acceptable thing to go invest in, you end up really limiting the amount of influence you can have.
“If the only companies that we deem good companies, or virtuous companies, are your solar panel manufacturers in Tanzania, we’re not going to fix capitalism that way.” warren valdmanis, coauthor of accountable
What do you think about the commitment the Business Roundtable made last year to be accountable to more than just shareholders?
Valdmanis: I would say, listen, it’s wonderful when Larry Fink from BlackRock writes a letter, and he says, “We care about stakeholders.” It’s wonderful when the BRT makes a statement like they did last summer that they care about stakeholders. That could only be a good thing, I think, up to a point. The question is, interestingly, right after they made that statement, the Council of Institutional Investors released a statement that said, “Yeah, but let us remind you that shareholders own businesses, and companies ultimately serve shareholders, and by the way, what does that statement mean, anyway?”
I actually think that’s a really good question. What does that statement mean? A statement of good intent is great, but it needs to be followed up with action, otherwise it risks breeding cynicism. And so I think that there is a huge opportunity for that group to follow through on that statement, with a concrete action that is sitting right in front of them, which is why don’t they adopt the World Economic Forum standards on ESG measurement? The four big accounting firms think it can be done. You know, it’s consistent with what they’ve said, and they don’t have to do it all at once. It’s something that could be done over time. We talked to a prominent voice on the BRT. He called us after reading our book. And I believe these intentions are real. I think these are good people who want to change their businesses. I think sometimes they just don’t know quite what to do.
“If you’re a capitalist and you believe in this system broadly, you should want to fix it now.” WARREN VALDMANIS, COAUTHOR OF ACCOUNTABLE
What happens if we don’t, in your words, “save capitalism”?
Valdmanis: If you’re a capitalist and you believe in this system broadly, you should want to fix it now. Because I think that a lot of the issues that are here are not going away, and will only get worse if left unaddressed. And the worse they get, the more likely that the folks who are saying, “We have a way of solving this, it’s called government”—the more likely that government is going to get into realms where it doesn’t really have the tools to fix it, but it’s going to try anyway. And that could be [throwing out the] baby with the bathwater. And I think that’s really dangerous. So I’m coming at this from the perspective of a real believer in our system, but also a real believer that it’s in the interests of people like me, of capitalists, to help save the system from itself.


fortune--2020-11-15--Who is Michelle Flournoy? Meet Biden’s likely pick to head the Pentagon

President-elect Joe Biden is expected to take a historic step and select a woman to head the Pentagon for the first time, shattering one of the few remaining barriers to women in the department and the presidential Cabinet.
Michele Flournoy, a politically moderate Pentagon veteran, is regarded by U.S. officials and political insiders as a top choice for the position.
Her selection would come on the heels of a tumultuous Pentagon period that has seen five men hold the top job under President Donald Trump. The most recent defense secretary to go was Mark Esper, who was fired by Trump on Monday after pushing back on issues including troop withdrawals and the use of the military to quell civilian unrest.
If confirmed, Flournoy would face a future that is expected to involve shrinking Pentagon budgets and potential military involvement in the distribution of a coronavirus vaccine.
Democrats have long sought to name a woman to the top post in a department that didn’t open all combat jobs to female service members until about five years ago. Flournoy had been the expected choice of Hillary Clinton if she had won the 2016 election. Her name surfaced early as a front-runner for Biden’s Cabinet, said officials who spoke on condition of anonymity to discuss personnel matters.
Seen as a steady hand who favors strong military cooperation abroad, Flournoy, 59, has served multiple times in the Pentagon, starting in the 1990s and most recently as the undersecretary of defense for policy from 2009 to 2012. She serves on the board of Booz Allen Hamilton, a defense contractor, which could raise concerns from some lawmakers. But her moderate views would likely ensure wide bipartisan support in a position that requires Senate confirmation.
Few other names have been mentioned, though former Department of Homeland Security chief Jeh Johnson was listed as a possible choice at one point. Choosing a woman would be consistent with Biden’s pledge to have a diverse cabinet.
She has been outspoken on American foreign and defense policy, particularly over the past year. She favors closer international cooperation after four years of a Trump White House that touted an “America First” policy and was more distrustful and critical of allies.
“Whoever the next president is,” she said in March, “whether it’s a second Trump term or Vice President Biden or whoever it is, one of the top agenda items is going to try to, I think, repair some of that perception” that America may no longer be a reliable partner. “But I don’t think it’s going to be easy or happen overnight. I think it’s going to take a lot of work over a number of years to recover that trust and that standing.”
She has also cautioned against drastic, immediate changes.
“One of the most dangerous tendencies is for—after a change of administration, particularly when there’s a change of party—for the new team to come in and use the term ‘repudiation.’ But to come in and assume that everything their predecessors did was wrong, you know, they throw the baby out with the bathwater, basically, and they overcorrect in another direction,” she said in a Hudson Institute forum.
Arnold Punaro, a retired Marine two-star general and former staff director of the Senate Armed Services Committee under then-Democratic Sen. Sam Nunn of Georgia, said recently that he regards Flournoy as “incredibly well-qualified” to lead the Pentagon.
The Defense Department is one of three Cabinet agencies—the others being Treasury and Veterans Affairs—that have never been led by a woman. Some of the 28 men who have held the top defense job since it was created in 1947, including three who served in Trump’s administration — Jim Mattis, Esper and current acting Secretary Christopher Miller — have been military veterans. Flournoy did not serve in the military.
Like Mattis and Esper, Flournoy views China as the most significant long-term challenge to American predominance on the world stage. In July, she said the United States is losing its military technological advantage over key competitors like China and that reversing this trend must be the Pentagon’s top priority.
She has, however, also warned against abandoning the Middle East and instead advocates “more modest levels of continuous presence” there. As an example, she has backed a limited role in Afghanistan that focuses more on countering the terror threat and less on rebuilding the country.
“We want to reduce our commitment, but we want to do it in a way that’s smart and that safeguards our interests in the process,” she said in March about Afghanistan, adding that she hopes “we don’t just cut and run.” Trump has pushed for a full troop withdrawal from Afghanistan by the end of the year, but so far the Pentagon has no orders to do that.
On North Korea, she said in an October online forum that while nuclear disarmament should remain the ultimate goal, she finds it “hard to see” Kim Jong Un agreeing to give up all his nuclear weapons, which she said he sees as his regime’s “survival card.”
On Iran, Flournoy has argued for a revised approach of deterring the Islamic Republic by breaking the familiar pattern of sending more American forces to the Gulf in response to Iranian provocations, as the Trump administration did in May 2019 after what it called credible threats to U.S. interests in the region.
Flournoy is a co-founder of Westexec Advisors, a consulting firm that provides advice and geopolitical risk analysis to corporate clients. She works with a mixture of former senior government officials — including Antony Blinken, a former deputy secretary of state and currently Biden’s top foreign policy adviser — and military experts such as retired Army Gen. Vincent Brooks, who led U.S. forces in Korea until 2019.
In 2007, Flournoy helped create a think tank, the Center for a New American Security.


fortune--2020-11-15--Free money, big addictions: Inside the booming world of online sports betting

If you can’t get through a football game or Twitter scroll without seeing an in-your-face promo for online sports betting lately, well, you’re not alone.
Offers such as “Bet $20, win $125 if Aaron Rodgers throws for one passing yard” or “Place your first bet up to $500 risk free” have become ubiquitous, as sportsbooks continue to dangle the prospect of essentially free money in hopes of acquiring a customer base that will bet and—more often than not—lose money over the long haul.
These offers have exploded as a pandemic-weary public has proved the perfect target for betting startups, many of which are rushing to exploit ever-loosening state rules on betting. “Throughout the pandemic, there’s definitely been a sharp increase in mental-health issues and addiction,” says Eric Fields, a psychologist who specializes in addiction therapy. “This time has been extremely vulnerable for people who’ve already had an addiction or mental health issue, and for people that haven’t had one, they now may be at risk for developing one. Being home all that time just leads people to have this kind of susceptibility to do short-term fixes, to get some kind of instant gratification.”
Estimated to generate between $7 billion and $8 billion in annual revenue by 2025, the U.S. legal sports betting market as a whole already pulled in just over $900 million in revenue in 2019, and that’s with less than half of states having legalized the practice. Chris Grove of the research firm Eilers & Krejcik Gaming said that sportsbooks are generally paying several hundreds of dollars in customer acquisition costs in hopes of acquiring lifetime values in excess of a thousand dollars per paying customer.
Currently, 25 states and Washington, D.C., have passed bills that legalize sports betting to date, with Louisiana, Maryland, and South Dakota joining the club this election cycle after ballot initiatives passed, according to the American Gaming Association. A few top players, such as DraftKings, FanDuel, and more established casino gambling operators William Hill and BetMGM, hold a significant lead, but that hasn’t stopped others—New Jersey currently has upwards of 15 operators duking it out—from further clogging the already overcrowded sector. Thus, operators are turning a blind eye to profit margins, sponsoring these free-bet and odds-boosting campaigns in what could be an ultimately futile effort to grab a portion of the multibillion-dollar mobile gambling market.
At least 10 Premier League clubs soccer teams have betting company sponsors branding on their uniforms. Including Burnley. Tim Markland—MI News/NurPhoto via Getty Images
“With regards to the free bets and promotional intensity, it’s almost a race to the bottom,” said Daniel Stone, head of data at Vixio GamblingCompliance, a gambling industry intelligence firm. “Even if DraftKings wanted to pare back and become a bit more conservative, they are kind of led by what their competitors are doing. If Barstool comes in in Pennsylvania and goes all guns blazing, throwing free bets and being hugely generous, with the NFL season having recently kicked off, it’s hard for FanDuel and DraftKings to turn off the taps and become more cautious.”
Stone mentions DraftKings and FanDuel specifically because they’re the two biggest players in the market and have been for some time. Well before the U.S. Supreme Court overturned a federal law banning sports betting in May 2018, DraftKings and FanDuel rose to prominence as a result of their Daily Fantasy Sports offerings. Once states began to legalize mobile sports betting, DraftKings and FanDuel already had access to a user base that other competitors didn’t.
New England Patriots cornerback Stephon Gilmore (24) stretches during the New England Patriots practice session in Foxborough, Mass., on Oct. 22, 2020. Photo by Barry Chin—The Boston Globe via Getty Images
“DraftKings and FanDuel have established this lead really on the basis of this huge, ready-made DFS user base just sitting there ready to be cross-sold,” Stone said. “They’ve been able to monetize those people and build huge sports betting businesses at a far lower customer acquisition than an MGM or a Caesars that is starting from more of a standing start, trying to cross-sell older slot players in their databases in Indiana or Illinois which might not be such a perfect fit for sports betting.”
Starting with a large active user-base hasn’t necessarily meant that either DraftKings or FanDuel are profitable, though. DraftKings reported operational losses in both 2018 and 2019, and while the pandemic’s interruption of the sports season certainly didn’t help matters, the company failed to turn a profit again throughout the first six months of 2020. FanDuel, despite 45% year-over-year revenue growth in 2019, also turned a loss last fiscal year. Revenue will keep on growing as more states continue to legalize the practice, but betting operators still must spend to both fend off new competitors with huge marketing and promotional campaigns and invest in product improvements and employee growth in an industry that already runs on tight margins.
“Now, we’re hugely in growth mode,” Mike Raffensperger, CMO of FanDuel, said. “We are investing to launch in new states, and that is a function of getting a lot of customers and having them try our products. And so, ultimately, that means in these early stages, we’re investing more than we’re making at a revenue standpoint.”
While the established players like FanDuel, DraftKings, BetMGM, William Hill, and BetRivers vie for market share, there is a flood of competition from newer entrants. PointsBet and Barstool Sports, owned by Penn National Gaming, are just two of the latest companies to try to get in on the action, and they’ve brought with them their own flurry of promos as they enter new states. Barstool in particular has caught Stone’s eye. “Their audience is kind of perfect to cross-sell to sports betting,” Stone said. “I know there will be people under 21 among those, but these are young, sports-obsessed guys who are already sports bettors. They’re invested in the Barstool brand as evidenced by their success in other areas. They think they have this captive, ready audience to parlay into sports betting quite effectively.”
FanDuel was the primary sponsor of the tournament Legends Classic, played between the LSU Tigers and the North Carolina State Wolfpack at the Barclays Center on Nov. 24, 2015, in Brooklyn. Porter Binks—Getty Images
The economics of mobile betting
Out of all of the money wagered on legal sportsbooks, operators keep only around 5% to 7% as revenue, according to both the American Gaming Association and Stone, and that’s before paying out regulatory fees and taxes, which can be as high as 50% of revenue in some states. Throw in employee salaries, overhead, and marketing expenses—which Vixio said can make up over 50% of overall revenue alone—and online sports gambling just isn’t a moneymaking business at this point.
In fact, DraftKings recently reported $133 million in Q3 revenue––good enough for a 98% increase from the same period last year. However, the company’s sales and marketing expense increased to $203 million in the same quarter, as it spent on deals with the Chicago Cubs, MLB, ESPN, the New York Giants, and Michael Jordan, among others. Such spending allowed DraftKings in part to grow its user base––measured in monthly unique payers––by 64% in Q3, but also was a signal that profitability still may be far down the line.
“At the moment, it does feel like it’s growth at all costs, market share at all costs,” Stone said. “People don’t care about losing money—DraftKings is losing a fortune yet has this eye-watering valuation. It’s not about rational cost control seemingly; people want to be among those winners in four or five years. Maybe then, the focus will shift to cost control and profit from that point on.”
For now, the emphasis remains on becoming one of those “winners.” If Stone is right and the U.S. sports betting market ends up mirroring that of the much-further-along U.K. one, then there will likely be only five to six betting operators, if that, that amass more than 10% market share. With far more than six players in the market right now, that means there will be a whole lot of losers.
The New York Rangers and St. Louis Blues skate in front of a dasher board advertising the betting website DraftKings at Madison Square Garden on Nov. 12, 2015. Bruce Bennett—Getty Images
The competition has led to some rather creative marketing ploys.
FanDuel, for example, is offering some previously unheard-of concepts like refundable “Same Game Parlays” and crowdfunded sports bets. Both of those offers, if you are unfamiliar, function to almost completely minimize risk while keeping the rate of return (or the odds) untouched.
“We are investing to launch in new states and that is a function of getting a lot of customers to try our products,” Raffensperger said. “Fundamentally, we do want to be generous to our customers and make sports betting fun. We believe over the long run, and we’ve seen it in our numbers thus far and in the market share reports, that that generosity pays off in retention and loyalty.”
Danger ahead?
It certainly does pay off—to the tune of up to $2,000 in average customer lifetime value in some cases, according to Stone. While that number is attractive to gambling operators for obvious reasons (and is the primary driver of this current promotional environment), it also has the potential to be a problem for both the industry and its customers.
Keith Whyte, executive director of the National Conference on Problem Gambling, said to look no further than what has happened throughout Europe. Legalized across most of the continent well before it was in the U.S., online sports gambling erupted a few years ago in countries like the U.K., Spain, France, etc. Seeing a multibillion market, sports betting operators began a massive race for market share.
Soon enough, advertisements were everywhere. On soccer clubs’ jerseys, constantly throughout television broadcasts, in sports stadiums, on streaming platforms, across social media, etc. Sports betting operators were willing to spend hundreds of millions of dollars to eventually capitalize on the massive amounts bettors will end up losing over the long term. Pay upfront marketing expenses, win market share, then reap the rewards. Simple enough, right?
Well, not exactly. The boom in betting was quickly followed by backlash from the public, media, and government as problem gambling habits became more and more common. According to Fields, it’s the intermittent nature of these promos that drives compulsive behavior.
“They want you to win that first bet, because that’s going to make you feel like you’re actually good at it,” Fields said. “And then kicks in the intermittent reinforcement schedule, and this is the strongest reinforcement of behavior. If you keep losing, and you never win, it’s easy to give it up. If you keep winning, and then all of a sudden start losing consistently, it will be easier to give it up. However, according to research, if you win once in a while, it will be the most difficult to break that behavior pattern.”
Indeed in Europe, restrictions were soon placed on where and when they could advertise, and operators were required to invest money into gambling addiction prevention messaging.
Within a few years, Whyte warns that the exact same progression could happen in the U.S.
He argues state governments and operators should instead play the longer game of making customers more sustainable. In other words, they should reduce the frequency and intensity of the ad campaigns, invest more into addiction prevention efforts (treating gambling as if it were alcohol), place limits on betting amounts and numbers of transactions, and, in turn, ensure that customers don’t burn out. Whether operators will heed this advice or proceed without caution remains to be seen.
“Obviously, it might not be popular with some shortsighted operators, but the longer-term ones know that if they keep someone around, they have better lifetime value because acquisition costs are really expensive,” Whyte said. “So spending a little bit of time trying to make these customers a little bit more sustainable is clearly in their economic best interest, not just their ethical best interest.”


fortune--2020-11-15--Patients struggle to access prescription opioids after New York tax drives away suppliers

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Mike Angevine lives in constant pain. For a decade the 37-year-old has relied on opioids to manage his chronic pancreatitis, a disease with no known cure.
But in January, Angevine’s pharmacy on Long Island ran out of oxymorphone and he couldn’t find it at other drugstores. He fell into withdrawal and had to be hospitalized.
“You just keep thinking: Am I going to get sick? Am I going to get sick?” Angevine said in a phone interview. “Am I going to be able to live off the pills I have? Am I going to be able to get them on time?”
His pharmacy did not tell him the reason for the shortage. But Angevine isn’t the only pain patient in New York to lose access to vital medicine since July 2019, when the state implemented an excise tax on many opioids.
The tax was touted as a way to punish major drugmakers for their role in the opioid epidemic and generate funding for treatment programs. But to avoid paying, scores of manufacturers and wholesalers stopped selling opioids in New York. Instead of the anticipated $100 million, the tax brought in less than $30 million in revenue, two lawmakers said in interviews. None of it was earmarked for substance abuse programs, they said.
The state’s Department of Health, which has twice this year delayed an expected report on the impact of the tax, did not respond to questions for this story.
The tax follows strong efforts by federal and New York officials to tamp down the use of prescription opioids, which had already cut back some supply. Now, with some medications scarce or no longer available, pain patients have been left reeling. And the law appears to have missed its target: Instead of taking a toll on manufacturers, the greater burden appears to have fallen on pharmacies that can no longer afford or access the painkillers.
Among them is Epic Pharma. Independent Pharmacy Cooperative, a wholesaler, confirmed it no longer sells medications subject to the tax, but still sells those that are exempt, which are treatments for opioid addiction methadone and buprenorphine and also morphine. AvKARE and Lupin Pharmaceuticals said they do not ship opioids to New York anymore. Amneal Pharmaceuticals, which manufactures Angevine’s oxymorphone, declined to comment, as did Mallinckrodt.
Since the tax went into effect, Cardinal Health, which provides health services and products, published an extensive 10-page list of opioids it does not expect to carry. Cardinal Health declined to comment.
The New York tax is slowly gaining attention in other states. Delaware passed a similar tax last year. Minnesota is assessing a special licensing fee between $55,000 and $250,000 on opioid manufacturers. New Jersey Gov. Phil Murphy proposed such a tax this year but was turned down by the legislature.
The company that makes the first point of sale within New York pays the tax. That isn’t always the drugmaker. It can mean wholesalers selling to pharmacies here are assessed, explained Steve Moore, president of the Pharmacists Society of the State of New York.
Independent Pharmacy Cooperative said about half its revenue from opioid sales in New York would have gone to taxes.
Mark Kinney, the company’s senior vice president of government relations, said the law is putting companies in a very difficult position.
When wholesalers like IPC left the opioid market, competitive prices went with them.
Without these smaller wholesalers, it’s hard for pharmacies to go back to other wholesalers “and say, ‘Hey, your prices aren’t in line with the rest of the market,’” Moore said.
Indeed, nine independent pharmacies told KHN that when they can get opioids they are more expensive now. They have little choice but to eat the cost, drop certain prescriptions or pass the expense along.
“We can trickle that cost down to the patient,” said a pharmacist at New London Pharmacy in Manhattan, “but from a moral and ethics point of view, as a health care provider, it just doesn’t seem right to do that. It’s not the right thing to ask your patient to pay more.”
In addition, Medicare drug plans and Medicaid often limit reimbursements, meaning pharmacies can’t charge them more than the programs allow.
Stone’s Pharmacy in Lake Luzerne was losing money “hand over fist,” owner Leigh McConchie said. His distributor was adding the tax directly to his pharmacy’s cost for the drugs. That helped drive down his profit margins from opioid sales between 60% and 70%. Stone’s stopped carrying drugs like fentanyl patches and oxycodone, and though that distributor now pays the tax itself, the pharmacy is still feeling the effects.
“When you lose their fentanyl, you generally lose all their other prescriptions,” he said, noting that few customers go to multiple pharmacies when they can get everything at one.
If pharmacies have few opioid customers, those price hikes have less impact on their business. But being able to manage the costs is not the only problem, explained Zarina Jalal, a manager at Lincoln Pharmacy in Albany. Jalal can no longer get generic oxycodone from her supplier Kinray, though she can still access brand-name OxyContin. New York’s Medicaid Mandatory Generic Drug Program requires insurers to provide advance authorization for the use of brand-name prescriptions, delaying the approval process. Sometimes patients wait several days to get their prescription, Jalal explained.
“When I see them suffer, it hurts more than it hurts my wallet,” she said.
One of Jalal’s customers, Janis Murphy, needs oxycodone to walk without pain. Now she is forced to buy a brand-name drug and pays up to three times what she did for generic oxycodone before the tax went into effect. She said her bill since the start of this year for oxycodone alone is $850. Lincoln Pharmacy works with Murphy on a payment plan, without which she would not be able to afford the medication at all. But the bill keeps growing.
“I’m almost in tears because I cannot get this bill down,” she said in a phone interview.
Several pharmacists raised concerns that patients who lose access to prescription opioids may turn to street drugs. High prescription prices can drive patients to highly addictive and inexpensive heroin. McConchie of Stone’s Pharmacy said he now dispenses twice as many heroin treatment drugs as he did a year ago. Former opioid customers now come in for prescriptions for substance use disorder.
Trade groups and some physicians and state legislators opposed the tax before it went into effect, voicing concerns about a slew of potential consequences, including supply problems for pharmacists and higher consumer prices.
New London Pharmacy said one of its regular distributors stopped shipping Percocet, a combination of oxycodone and acetaminophen. Instead, the pharmacy orders from a more expensive company. The pharmacist estimated that a bottle of Percocet for which it used to pay $43 now costs up to $92.
“Even if we absorb the tax, we’re not getting a break from reimbursements either,” a pharmacist who spoke on the condition of anonymity explained, adding that insurance reimbursements have not increased in proportion to rising drug costs. “We’re losing.”
Latchmin Raghunauth Mondol, owner of Viva Pharmacy & Wellness in Queens, has also seen that problem. The pharmacy used to be able to purchase 100 15-milligram tablets of oxycodone for $15, but that’s now $70, she said, and the pharmacy is reimbursed only about $21 by insurers.
Other opioids are just not available.
Mondol said she has been unable to obtain certain doses of two of the most commonly prescribed opioids, oxycodone and oxymorphone—the drug Angevine was on.
After Angevine lost access to oxymorphone, his doctor put him on morphine, but it does not give him the same relief. He’s been in so much pain that he stopped going to physical therapy appointments.
“It’s a marathon from hell,” he said.
KHN (Kaiser Health News) is a nonprofit news service covering health issues. It is an editorially independent program of KFF (Kaiser Family Foundation) that is not affiliated with Kaiser Permanente.


fortune--2020-11-17--Introducing Measure Up, our partnership with Refinitiv to measure racial diversity

Warren Buffett is going all in on the vaccine rally , piling into these stocks

It’s hard to make meaningful change without measuring it. This is why so many companies have introduced key performance indicators, also known as KPIs, as ways to analytically look at how projects, initiatives, and employees are succeeding. But while many companies made a renewed commitment to improving racial and ethnic diversity following the killing of George Floyd by a white police officer in May, most have failed to report the metrics on how well they are executing on these promises.
The journalism industry is a great example. The American Society of News Editors has been conducting an annual diversity census since 1997, but it was recently paused as the researchers rethought the approach because not enough news organizations were contributing. As pressure has mounted on companies across industries to diversify, many know their numbers won’t cast them in a positive light, and executives are reluctant to participate.
We want to change that. Fortune has teamed up with Refinitiv, one of the world’s largest providers of financial markets data and insights, to launch Measure Up, an initiative to encourage companies to self-report their racial and ethnic diversity data.
This data will be used in a few key ways. After crunching the numbers, Measure Up will give executives access to data-driven insights and in-depth conversations about where they’re at and how they can improve. We will also add a diversity and inclusion filter on our annual Fortune 500 list, along with launching a new list in 2021: the Most Progressive Companies in Racial Inclusion.
The Measure Up program is now live, and we encourage companies of all sizes to participate by inputting your data. You can request access via the ESG section on the website, and reach out to ESGContributorTool-OPSTeam@refinitiv.com with any questions.