fortune--2020-04-20--Wuhan lab denies link to virus outbreak after Trump fans speculation that China may be ‘knowingly re

Wuhan lab denies link to virus outbreak after Trump fans speculation that China may be ‘knowingly responsible’

When red is unlucky : What we can learn from China ’ s color-coded apps for tracking the coronavirus outbreak

A top Wuhan laboratory official has denied any role in spreading the new coronavirus, in the most high profile response from a facility at the center of months of speculation about how the previously unknown animal disease made the leap to humans.
Yuan Zhiming, director of the Wuhan National Biosafety Laboratory, hit back at those promoting theories that the virus had escaped from the facility and caused the outbreak in the central Chinese city. “There is absolutely no way that the virus originated from our institute,” Yuan said in an interview Saturday with the state-run China Global Television Network.
Yuan rejected theories that the yet-to-be identified “Patient Zero” for Covid-19 had contact with the institute, saying none of its employees, retirees or student researchers were known to be infected. He said U.S. Senator Tom Cotton, an Arkansas Republican, and Washington Post journalists were among those “deliberately leading people” to mistrust the facility and its “P4” top-level-security pathogen lab.
U.S. President Donald Trump again fanned speculation about the origins of the virus at a Saturday news conference, in which he said China should face consequences if it was “knowingly responsible” for the outbreak. The U.S. president has at times referred to the disease as a “Chinese virus,” a term he said he embraced after a Chinese foreign ministry spokesman tweeted an unsubstantiated theory about U.S. Army athletes introducing the pathogen to Wuhan.
“What we know is that the ground zero for this virus was within a few miles of that lab,” Peter Navarro, a Trump trade adviser, said Sunday on Fox News. “If you simply do an Occam’s razor approach that the simplest explanation is probably the most likely, I think it’s incumbent on China to prove that it wasn’t that lab.”
The U.S.-China blame game has helped fuel scrutiny of the Wuhan lab, which was studying bat-borne coronaviruses like the one that causes Covid-19. U.S. diplomats sent back warnings about safety procedures in the lab after visits two years ago, the Washington Post reported in an April 14 commentary, citing diplomatic cables.
“They don’t have any evidence on this, what they rely on is only their guess,” Yuan told CGTN on Saturday. “I hope such a conspiracy theory will not affect cooperation among scientists around the world.”
Earlier Accidents
The P4 lab at the Wuhan Institute of Virology began operations in January 2018 and was the first of its kind built in mainland China.
It was designed with help from France as part of a joint research initiative focused on infectious diseases and equipped for the highest level of bio-containment, according to the official Xinhua News Agency. The first project undertaken at the lab was to research Xinjiang hemorrhagic fever, a tick-borne virus with a fatality rate of as much as 50% in humans, the report said.
The facility has been the center of multiple conspiracy theories, including one that’s circulated on Chinese social media since late January that the new coronavirus escaped from the lab. Multiple posts have cited previous blunders by Chinese scientists as evidence that similar research projects haven’t been executed properly.
Among them was a 2017 report by the Wuhan Evening News that said Tian Junhua, a researcher at the Wuhan Centre for Disease Control and Prevention, had to quarantine himself for 14 days after accidentally coming into direct contact with bat urine during a 2012 research trip.
Social-media users also cited a 2004 accident at a national lab in Beijing during experiments with Severe Acute Respiratory Syndrome-related coronavirus that led to infections — and one death. Five top officials at the Chinese Centre for Disease Control and Prevention were punished at the time, according to China Daily.
Some countries including Australia have urged an independent review of how the pandemic came to infect more than 2.4 million people and kill more than 166,000. “The issues around the coronavirus are issues for independent review and I think that is important that we do that, in fact Australia will absolutely insist,” Foreign Minister Marise Payne told ABC Australia’s “Insiders” program Sunday.
While many Republicans have emphasized the Chinese origins of a virus that has killed more than 40,000 Americans, Cotton has been among the most vocal urging an investigation into the lab’s role. On Friday, he told Fox News that “circumstantial evidence” was “stacking up pretty quickly that this virus may have originated in those labs in Wuhan.”
Although the first known cluster centered on a wet market in Wuhan, the ultimate origins of the virus remain a mystery and Chinese officials have raised the possibility that the virus didn’t begin in the country at all. Meanwhile, General Mark Milley, the chairman of the U.S. Joint Chiefs of Staff, has endorsed studies that have shown the virus evolved naturally, as opposed to being genetically engineered.
Shi Zhengli — a researcher at the institute known as “Bat Woman” for her expeditions in bat caves — said in a February social media post that she would “swear on my life” that the virus had nothing to do with the lab.
On Feb. 19, the Wuhan Institute of Virology issued a letter to staff, saying it received its first sample of the virus from Wuhan Jinyintan Hospital on Dec. 30, a day before Chinese authorities first disclosed the outbreak to the world. Researchers finished gene-sequencing in 72 hours and submitted its findings to the national virus database by Jan. 9, the institute said, adding “we have a clear conscience looking back on what we’ve gone through.”
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fortune--2020-04-20--China’s next coronavirus crisis: What happens after a country closes its economy

China has become the world’s pioneer on coronavirus response—a mantle assumed out of necessity. The first to encounter the COVID-19 virus in its industrial hub of Wuhan, China enacted mass lockdowns and managed to contain the outbreak. As the virus spreads across the globe, governments elsewhere are mimicking the tactic, forcing large swaths of the world’s population into inactivity, isolation, and even quarantine. But mandatory social distancing comes with a price, and Beijing’s response to the economic fallout is so far less instructional.
China’s economy endured a one-two punch under lockdown. With workers and consumers told to stay home, both consumption and production plummeted. The tradeoff was a peak and steady drop-off of coronavirus cases; the vast majority of the 83,000 people infected have recovered, according to China’s count. But when data quantifying the economic fallout started rolling in, it was undeniably bleak.
“This is hands-down the absolute worst result we’ve ever recorded,” said Shehzad Qazi, managing director at China Beige Book (CBB). The consultancy surveys over 3,300 Chinese companies to gauge the strength of the world’s second-largest economy, and in the first three months of this year, all of its headline metrics—from revenue to profits—sank into contraction territory, a result never seen in its decade of tracking.
Beijing gave a back-to-work order in mid-February, and in March, the manufacturing purchasing managers index showed a mild return to expansion after hitting a record low the previous month.
Lunchtime in an era of social-distancing at the Dongfeng Fengshen plant, March 24, 2020, in Wuhan, Hubei province. Stringer/Getty Images
While China was quick to encourage a resumption of work, it was slow to formulate an official economic answer to the shutdown. The government began subsidizing factories by offering tax breaks and cash payouts for those that returned to business. It also called for increased spending on infrastructure, releasing $90 billion in special loans to fund projects but issuing few directives for what should be built. Banks have been instructed to be lenient with loan defaults too.
By comparison, the U.S., the coronavirus’s new hotspot, earmarked $2 trillion in March to help businesses, hospitals, and workers counter the economic ails of COVID-19, while the Fed slashed interest rates to nearly zero. The U.S. is expected to inject more cash into the economy as its containment measures fail to stall the virus’s spread.
As Cui Ernan, an analyst at financial services firm Gavekal puts it, China is winning on containment but losing with its economic response.
Beijing has pledged to be more decisive. The central government said it would issue special sovereign debt and allow local governments to sell more infrastructure bonds. Its central bank has injected hundreds of billions of dollars into the economy since the outbreak began. Meanwhile, the Beijing-backed Asian Infrastructure Investment Bank issued its first emergency relief loan, lending China $353 million in April.
Consumers are getting aid too, although many may feel shortchanged by the handouts. In Nanjing—the capital of eastern Jiangsu province—the local government distributed $45 million in vouchers to encourage the city’s 8.5 million residents to spend on services, such as restaurants and tourism. By comparison, the U.S. is giving most taxpaying Americans $1,200.
Liu Qiao, dean of Peking University’s Guanghua School of Management, says some low-income and hard-hit Chinese citizens should receive cash payments too, so they can spend money on what they need. Liu says a tax cut for low-income groups would better spur consumption as well. However, observers don’t foresee Beijing handing out hard currency.
President Xi Jinping’s recent focus on de-leveraging has bound the hands of policymakers, so the measures Beijing implements in response to the coronavirus aren’t expected to match the $572 billion in stimulus it deployed in the global financial crisis.
However, the current measures won’t be nearly enough to ensure China meets its target of doubling real GDP over 2010 levels—from $7.5 trillion to $15 trillion—by the end of 2020. To hit its target, China needs GDP growth this year of at least 5.6%. Tommy Wu, lead economist at Oxford Economics, predicted in March that China was on track for 1% growth.
Bo Zhuang, chief China economist at research firm TS Lombard, blames Beijing’s measured stimulus on “policy lag” rather than a reluctance to act. The central government didn’t foresee how the coronavirus would paralyze markets outside China, Bo says—markets on which China’s exporters depend.
TS Lombard estimates the coronavirus outbreak will knock U.S. GDP growth into recession this year, contracting 3.2% over 2019 with steep retreats in the second and third quarters. The eurozone is forecast to contract 4.5%.
Together, the U.S. and the EU consume 34% of China’s exports but, with the regions under lockdown, demand crashed during the first quarter. Gavekal estimates Chinese exports will decline between 20% and 45% in the second quarter, dragging China’s economy toward a second wave of contraction—this time driven by forces beyond its borders.
A version of this article appears in the May 2020 issue of Fortune with the headline “China’s next COVID-19 crisis.”
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fortune--2020-04-20--These stocks just hit record highs, despite the bear market

The Street isn’t surprised certain “stay at home” stocks are posting all-time highs amid the coronavirus-raged market, and you likely aren’t either.
Online behemoth Amazon and streaming giant Netflix both soared to record highs last week as the stocks got bullish shout-outs from top banks. Both stocks hit their highs on April 16, as Amazon topped $2,408 per share and Netflix hit $439 per share. The overall market, meanwhile, is still down about 14% for the year.
But to those like Wells Fargo Investment Institute’s senior global market strategist Sameer Samana, it should come as no surprise that these “stay at home” stocks are outperforming the pack.
“In a market where there’s quite a bit of uncertainty, investors almost always, and even more so now, are on the hunt for growth and certainty—that’s the magic combination,” he tells Fortune. And stocks like Amazon and Netflix, who both incidentally offer services that have become essential in quarantine, fit the bill.
Yet Samana points out the popularity of these companies’ services isn’t anything new. “Investors have looked for…[what were] some of the secular trends that were already going on prior to the coronavirus, and which one of those trends has the virus accelerated,” he says. “It was happening before the virus, and the virus has only turbocharged it to a certain extent.”
Samana points out that while Gen Zers and millennials have already adopted these services, some members of the older generations who perhaps wouldn’t have turned to streaming or grocery delivery “have been forced by the virus to reevaluate their lifestyles, and have [become] customers that maybe would not have been tapped” otherwise.
However, at all-time highs, shares in Netflix and Amazon are anything but cheap right now—Amazon is currently trading around 99 times trailing earnings, while Netflix comes at a pricey 100 times trailing earnings. Still, analysts at companies including JPMorgan are advising clients to stick “with those winners.” Part of the reason is that the firm believes “they will see accelerated shifts in behavior after the crisis has passed,” analyst Doug Anmuth wrote in a client note.
In fact, Samana speculates that even once shelter-in-place orders are lifted, consumers may be hesitant to dash outside and resume normal activities right away. He looks to how China has been recovering, and notes, “Some of those structural shifts tell you that, at least right now…people are staying at home, and if they’re staying at home, they’re going to keep shopping at home, and…eating out at home through food delivery.”
Looking ahead, some portfolio managers like Saira Malik, head of global equities at Nuveen, think Amazon is a “big winner” in the transition of computing and IT infrastructure from on-premises to cloud, as tons of people are working from home, she recently told Fortune. Plus, Malik notes how positive Amazon’s food and household essentials delivery service has been: She echoes Samana and believes there will be a “structural shift in the way people shop and think about shelter, even once the restrictions are lifted.”
Plus, for Netflix, whose stock rose over 10% in the past week to its high on Thursday, the quarantine environment is clearly bolstering the streaming space.
For Netflix in particular (versus competitors), “Content additions to the platform, combined with the value of Netflix’s library to those staying home during the COVID-19 crisis, drove this [expected] outperformance [in subscriber additions], more than offsetting the lingering impact of last year’s price increase and growing competition,” Goldman Sachs’ Heath Terry wrote in a research note.
Yet as investors load up on the stocks (and no doubt seasons of The Office), Wells Fargo’s Samana advises that since those “stay at home” stocks are outperforming on a relative basis, now might be the right time to reorient your portfolio and “keep bringing them back to what your initial intention allocation was.”
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fortune--2020-04-20--4/20 dud: Coronavirus steals the cannabis industry’s Black Friday buzz

The unofficial holiday celebrating all things cannabis arrives Monday as the nation’s emerging legal marijuana market braces for an economic blow from the coronavirus crisis, with many consumers reducing spending or going underground for deals.
It was supposed to be a long weekend of festivals and music culminating on April 20, or 4/20, the code for marijuana’s high holiday. Instead, it has been reduced to an online replica because of stay-at-home orders to curb the pandemic.
Virtual parties and video chats are replacing vast outdoor smoking sessions to mark the rise of legalization and celebrate cannabis culture. The origins of the annual celebration are believed tied to a group of Northern California high school friends, who used the code as slang for smoking pot in the early 1970s.
“Stay home,” the National Organization for the Reform of Marijuana Laws, or NORML, said bluntly. San Francisco Mayor London Breed threatened arrests: “We will not tolerate anyone coming to San Francisco for 4/20 this year.”
For businesses, 4/20 is usually their once-a-year Black Friday, when sales soar. Instead, they are reporting up-and-down buying and pondering an uncertain future.
The pandemic means the world economy could face its worst year since the Great Depression in the 1930s. In a sign of what’s to come, U.S. retail sales overall dropped nearly 9% in March — a record. Millions are out of work.
As for the holiday, “there’s a somber feeling to this one,” said Jordan Lams, CEO of Pure CA, which specializes in marijuana extracts and does business as Moxie brand products. Before the outbreak, “it was going to be the biggest 4/20 in history,” Lams said.
Steve White, CEO of Arizona-based Harvest Health & Recreation, said he’s watching to see if consumers treat marijuana more like beer or toilet paper when money runs short.
When the economy tumbles, beer sales traditionally spike. With toilet paper, panic-buying might empty shelves but people do not use more of it. They just buy less later.
It will be a telling year, because no one in the relatively new industry knows if sales will plunge, stay flat or even rise.
“Do people buy less cannabis, or does it become more ingrained as part of their daily life?” White said.
The uncertainty in the market poses the latest challenge for an industry that’s expanded in some form to all but a handful of states.
The risks are spotlighted in California, where businesses contend with hefty taxes, an illicit market that still dwarfs the legal one and a tourism-reliant economy that’s crippled by virus restrictions.
Because cannabis remains illegal at the federal level, most banks don’t want to do business with pot companies and they aren’t included in the coronavirus rescue package that will help other businesses.
Before the virus, “we were already teetering on … an edge of a cannabis collapse,” said Los Angeles dispensary owner Jerred Kiloh, who heads the United Cannabis Business Association. “It’s going to be very difficult for cannabis businesses to make it through this pandemic.”
That’s despite the onset of stay-at-home orders in March that sent marijuana sales rocketing; some businesses reported single-day records as customers stocked up. New York, San Francisco and Los Angeles were among the cities that labeled dispensaries essential businesses that could remain open.
But since then, business generally has flattened or tapered off, even with deliveries and curbside pickups growing to reduce health risks. Marijuana data trackers BDS Analytics documented sales surges through much of March, but then consumers pulled back in late March and early April, with sales mostly below average.
In Oregon, cannabis retailers saw a huge spike last month — a 30% increase in average sales per retailer compared with March 2019. Sales increases mid-month were even larger.
However, the peak has leveled off and customers are coming in less frequently but buying more, said David Alport, who owns two Bridge City Collective stores in Portland. He’s hired three more employees to handle home deliveries.
In Illinois, marijuana businesses can keep operating under Gov. J.B. Pritzker’s stay-at-home order. Companies made sweeping changes that included appointment-only sales and online ordering.
The Mission dispensary on Chicago’s South Side saw an initial spike in purchases before the lockdown took effect, but that’s leveled off.
“We’ve never faced an economic downturn when cannabis was legal,” said Kris Krane, president of Mission dispensaries. “This is completely unprecedented.”
Some customers could be especially vulnerable during an economic downturn. Among cannabis users in states where its legal, 32% have incomes below $35,000 and only 54% have full-time employment, according to BDS Analytics. Anyone on a tight budget might be more apt to avoid taxes that go with legal purchases and buy from illicit market dealers.
Steve DeAngelo, co-founder of Harborside dispensaries in California, said it’s difficult to predict what’s next, with no template for how cannabis consumers will react in a deep economic downturn.
Still, he notes that the industry has endured for years through times good and bad, even when consumers had only one option — illegal purchases. Consumers who see marijuana as part of their daily routine will keep coming back, he predicted.
But, for businesses, there will be a “sorting out,” DeAngelo said. Companies with strong brands and cash reserves are likely to fare better in a poor economy; those saddled with heavy debt who made too-rosy promises to investors will face challenges.
“There is not going to be an extinction moment,” DeAngelo said. “It’s going to prove more resilient than many, many other industries.”
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fortune--2020-04-20--When red is unlucky: What we can learn from China’s color-coded apps for tracking the coronavirus ou

When red is unlucky: What we can learn from China’s color-coded apps for tracking the coronavirus outbreak

Wuhan lab denies link to virus outbreak after Trump fans speculation that China may be ‘ knowingly responsible ’

In January, when officials in Wuhan, China, declared a citywide quarantine to contain the coronavirus, they enforced the order with old-fashioned barricades. Walls of bright yellow and blue plastic sealed off streets, bisected neighborhoods, and isolated 11 million residents in their homes, initiating the largest lockdown in human history.
Those barriers started coming down after Wuhan lifted the lockdown on April 8. By the time shops opened, and residents ventured out, authorities had introduced a more modern method for isolating those at risk of infection. At checkpoints throughout the city, police and security guards demanded that anyone seeking to come and go present a QR code on their mobile phones that rates the user’s risk of catching the coronavirus. Green codes granted unrestricted movement. A yellow code required seven days of quarantine. Red meant 14 days of quarantine.
Local governments created the algorithms behind the ratings at the behest of China’s State Council and rolled them out in Wuhan and hundreds of other cities on apps hosted by China’s largest tech companies: Alibaba Group, Tencent Holdings, and Baidu Inc. To receive a rating, users must download an app embedded in one of the tech giants’ ubiquitous payment, messaging, or search engine platforms. The apps work differently by city and province, but they typically require users to register with basic information—name, national identity card number, phone number, and home address. Subsequent questions are more invasive, quizzing users on health status and travel history, and asking them to identify any close contacts diagnosed with the virus.
The apps largely automate the tasks of symptom reporting, contact tracing, and risk evaluation that are sucking up time and man power in other coronavirus hotspots. Global experts, including many from the West, have hailed them as vital tools that helped China contain the coronavirus and allowed it to restart its economy with speed and confidence.
The efficiency, however, comes with tradeoffs. The apps’ opaque algorithms run on sensitive information, and users’ freedom of movement is dictated by the tools’ pocket-size traffic light. Even as China resumed travel to and from Wuhan and its surrounding Hubei province, residents unable to show a green badge were denied entry to shops, public parks, residential compounds, and commercial buildings. In some places, green codes were needed to ride the subway, buy a train ticket, or take a taxi. The apps concern human rights advocates, who fear they’ll transform smartphones into an ever more powerful tool for China’s authoritarian government to spy on its own citizens.
An increase in state digital surveillance powers can threaten people’s privacy and freedom of expression, especially in places where these rights and freedoms are not well-protected by law. Doriane Lau, a China researcher at Amnesty International
But the high cost of the coronavirus—in lives and livelihoods—has reordered nations’ value systems at a stunning pace. Other virus hotspots, including those in Western democracies, mimicked China’s mass lockdowns to combat the virus—unthinkable several months ago. Now they are considering their own deployment of digital contact-tracing tools like China’s in the next stage of the pandemic, a signal that such technology might be a staple of everyday life for months—if not years—to come, even in some of the world’s most freedom-loving countries.
Hangzhou, Shenzhen, and Beijing—the hometowns of Alibaba, Tencent, and Baidu, respectively—were the first Chinese cities to deploy health apps. They did so in February, when China was reporting thousands of new coronavirus cases each day. Adoption across China was rapid, if inconsistent. There is no single centralized system. Rather, local governments decided whether to embrace an app, and, if so, what form it would take. (Though the State Council in March introduced a platform that lets disparate local health codes recognize one another.) By mid-April, Alibaba was hosting apps for more than 200 cities and Tencent had over 300. Baidu didn’t say how many apps it was hosting.
Technology’s deep foothold in Chinese society fast-tracked the rollout. More than 60% of China’s population, or 850 million people, own smartphones and depend on them for a wider range of daily activities than consumers anywhere else in the world. Local governments all but mandated app usage by making it a prerequisite for moving about.
Another reason the apps garnered wide adoption is that they seem to work. After coronavirus cases soared in February, China’s outbreak quieted by April, prompting Beijing to lift lockdowns like Wuhan’s.
“I don’t think there’s any question” China’s use of digital contact tracing helped contain the virus, says Paul Triolo, head of the geotechnology practice at Eurasia Group, a risk consultancy. The apps let officials “track who’s been tested, who’s infected, who’s not.” Countries able to leverage such systems, he argues, “will have a big leg up” in restoring growth and preventing future outbreaks.
Oxford University researchers endorsed China’s system of “digital contact tracing” in a March issue of Science, crediting it for achieving “sustained epidemic suppression.” The system can “replace a week’s work of manual contact tracing with instantaneous signals transmitted to and from a central server,” enabling authorities to make swifter and more accurate decisions about whom to quarantine.
That apparent success hasn’t quelled fundamental questions about the apps’ fairness, privacy, and infringement of individual rights.
“Technology can play a role in containing the pandemic,” says Doriane Lau, a China researcher at Amnesty International, but “an increase in state digital surveillance powers can threaten people’s privacy and freedom of expression, especially in places where these rights and freedoms are not well-protected by law.”
Alibaba, Tencent, and Baidu insist they merely host the apps in the way Apple’s App Store hosts the software of third-party vendors. The software itself, they say, is the handiwork of local governments. The tech companies claim they have no knowledge of the algorithms that dictate the health codes and that the government agencies that created them have shared no information about how the colors are assigned.
Because the color codes dictate so much—where users can go, what services they can access—their criteria are “distressingly ambiguous,” says Sophie Richardson, China director of Human Rights Watch.
Just as ambiguous is the fate of the enormous data set the apps are generating. The tech companies say they have no access to the data. If the data’s being funneled into a central repository, there’s no public knowledge of it.
Staff check travelers’ health QR codes at an expressway toll gate in Wuhan, China.
Despite those concerns, other governments are weighing how to use digital aids similar to China’s in their own fights against COVID-19.
South Korea launched an app that lets health officials track quarantined individuals. Hong Kong issued tracking wristbands to people under quarantine. Singapore’s contact-tracing app uses Bluetooth to monitor individuals who opt in and determines if they’ve been near a confirmed case.
Western democracies, too, are coming around. In late March, the European Commission persuaded telecommunications companies to share users’ mobile data to help predict the spread of the coronavirus across Europe. And in mid-April, U.S. tech rivals Apple and Google said they had partnered to build software similar to Singapore’s that will use Bluetooth to alert Americans if they’ve been close to a confirmed COVID-19 case.
None of the other models go as far as China’s apps, which are essentially compulsory in cities that use them. “It is fair to say that in times of crisis or emergencies people generally are more willing to accept new rules or restrictions,” says Richardson. But that sentiment is hard to measure in China in this case—there’s no “opting out” of an app when it’s tied to basic needs.
For now, other countries are going with more voluntary, less intrusive tools. It remains to be seen whether watered-down versions of China’s approach will be as effective.
“This is the discussion that’s been happening in Europe and North America, in the sense that yes, we have this epidemic, we need to have accurate information and to get this accurate information at a speedy rate, these kinds of modeling techniques are really helpful,” says Yuka Kobayashi, professor of China and international politics at SOAS University of London. “However, can we switch these things on and off?”
Back in China, the apps’ color codes have become a way of life, one that—at the very least—has given users a ticket out of lockdown.
Cathy Fu, a tech worker in Beijing, got stuck in Wuhan’s Hubei province for two months. She received her first green QR code on March 10. “I was so happy,” Fu said. She gladly flashed it weeks later as she finally boarded a train back to her home in Beijing.
A version of this article appears in the May 2020 issue of Fortune with the headline “When red is unlucky.”
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Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-20--To fight tomorrow’s pandemic, we need to think like the military today

Imagine that the United States entered into a major land and sea war, and that only then, after the conflict began, did the government begin commissioning contracts to design and build the aircraft carriers, fighter jets, and other weapons systems we would need for the fight. Well, the imagination needn’t run too far, because in essence, that is what has happened as we were sucked into our war against the coronavirus. While there is much that can be faulted in our flat-footed response to this pandemic, especially at the federal level, one clear-cut failure should be even more obvious to anyone who has ever run a business: We had glaring gaps in our supply chain and no immediate plan to fill them.
Start with the basics: We did not have anywhere near the necessary number of N95 respirator masks, gowns, and other equipment to protect our frontline troops—the medical first-responders and hospital staff. Nor did we have enough ventilators to support our most severely stricken living casualties. Witness the scramble of state governors outbidding one another and the federal government to procure ventilators and personal protective equipment (PPE). While the U.S. does have a Strategic National Stockpile (SNS), an emergency repository of antibiotics, vaccines, chemical antidotes, and other critical medical supplies, it has never been sufficiently maintained. Indeed, no administration, including the present one, has supported funding an SNS robust enough to meet even the first few months’ worth of need during a severe pandemic.
So why do we have stockpile upon stockpile of arms and matériel for combat against human foes, but only a paltry supply of weapons against pathogenic enemies that could potentially claim millions more casualties? It comes down to this: We have failed to prepare for a war against microbes with the same urgency and resolve as we do a conventional war. And the difference shows in the business models we bring to each fight.
Even in non-pandemic times, more than 85% of the critical acute drugs needed each day to keep people alive are produced offshore. Nearly all are generic, with production concentrated in China and India. Sedatives critical to intubate for ventilation, such as ketamine, propofol, and pancuronium, are already in short supply. Despite their vital importance to our national health, these fragile, just-in-time supply chains show how reliance on foreign on-demand manufacturing leaves our country highly vulnerable. During a pandemic such as COVID-19, this vulnerability can translate into tens or perhaps hundreds of thousands of lost lives.
This won’t be the last serious pandemic to hit American shores. We need to plan ahead to acquire the weapons we’ll need.
The only route to effective preparedness is to institute a military procurement and planning model similar to what we do for conventional warfare. This isn’t the first serious pandemic to hit American shores, and it won’t be the last. We need to plan and budget long-term for what we know we’ll need and steadily procure the right armaments. This model presupposes a certain amount of waste and spending on weapons that may never be used. But that is a price we have long been willing to pay on the military defense side. The infectious disease side should be no different.
Those who believe that the free market alone can serve our needs are likely failing to factor in the biological complexity of the challenge we face. For example, we desperately need new antimicrobial drugs to which the many disease-causing bacteria, viruses, and parasites have not yet developed resistance. But it’s nonsensical to ask a pharmaceutical company to spend billions of dollars developing a powerful antibiotic—then ask that it not be used or sold except in the most extreme cases, so the microbes won’t become resistant.
Similarly, the Pentagon doesn’t tell companies to develop and manufacture a new fighter plane and then only later decide if it wants to buy it. We need the same strategic capacity for PPE and ventilators as we do for rifles and tanks. The Defense Production Act is a critical tool in wartime. But it cannot magically make General Motors or Ford able to produce ventilators with more than 1,500 parts sourced from scores of countries in response to a fast-moving crisis.
The government needs to be a partner in developing microbial weapons and the muscle to quickly produce and distribute them. How might things be different if we had taken SARS more seriously in 2002, or MERS in 2012, and developed a coronavirus vaccine platform, even with little commercial market? We may not have had a vaccine targeted at COVID-19, but we would have been many months further along. And since it is beyond dispute that another flu pandemic like the one in 1918–20 is a matter of when, not if, an urgent large-scale enterprise to develop a universal influenza vaccine could be a tremendous gift to mankind.
Pandemics have become a threat on the scale of thermonuclear war. We must start treating them that way, making the investment and ensuring a stable supply chain for the tools and weapons we’ll need. We can see the consequences of past inattention right now. We must not again allow the unthinkable to become the inevitable.
About the writers: Michael T. Osterholm is Regents Professor and director of the Center for Infectious Disease Research and Policy at the University of Minnesota. Mark Olshaker is a writer and documentary filmmaker. They are the authors of Deadliest Enemy: Our War Against Killer Germs.
A version of this article appears in the May 2020 issue of Fortune with the headline “To battle a pandemic, think like the military.”
More coronavirus coverage from Fortune:
—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Inside the surreal “Mask Economy”: Price-gouging, bidding wars, and armed guards
—The IRS just launched “Get My Payment” portal for tracking your stimulus check status
—Should you fear government surveillance in the coronavirus era?
—If you’ve been a little busy lately, here’s what’s going on with the 2020 election
—The coronavirus crisis is fintech’s biggest test yet—and greatest opportunity to go mainstream
—There are 32 authorized coronavirus tests so far—here’s how they differ
—PODCAST: COVID-19 might have upended the concept of the best companies of the year
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-20--COVID-19 gives Big Pharma a chance to fix its image

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
The key to surviving the pandemic lies in the hands, not of governments, but of biopharma companies. Their ability to find and manufacture tests, therapies and vaccines will determine whether and when we can return to anything like normal life.
I spoke Friday with Albert Bourla, CEO of Pfizer, and asked him how much of his time he is spending on that effort. “Most of my time. The vast majority of my time,” he said. “In a sense, it’s the vast majority of everyone’s time” at Pfizer.
In our discussion of the company’s search for solutions, three things stood out.
First, Bourla—like other pharmaceutical executives I have talked with—says there has been an unusual degree of cooperation in the industry. “I always say to my people, the other pharmaceutical companies are not the competition. The competition is the disease. This is even more relevant today. We are collaborating like never before.”
Second, and related, the main focus is on finding science that works, not on generating profits, and not on protecting intellectual property that has driven those profits in the past. “This is not business as usual. ROI should not drive our decisions at all. The question is: Can we do it? And when can we do it?”
Third, the pandemic has dramatically enlivened the company’s work force. “The word is proud. It’s as if this were a World War. They feel very proud of what we are doing.”
That’s a big change for an industry that earned a reputation for pushing its product regardless of consequences (think opioids), for pricing that product to achieve maximum short-term profits (think Shkreli and Valeant), and for deprioritizing science and research in pursuit of profit. “Pfizer was already transforming before COVID” hit , Bourla says, from a commercial machine to a scientific powerhouse. As a result, he believes, the company after the crisis “will be at the forefront of leading the way in demonstrating contribution to society.” He was one of the CEOs last year who signed onto the Business Roundtable’s statement calling for a greater focus on companies’ contribution to stakeholders beyond just shareholders. “It was clear for us that our business model was not sustainable if we don’t create value for patients and value for society.”
As for the critical effort to develop a vaccine, Bourla was optimistic. “Vaccines normally take years to build. They presented me with a plan that would take 18 months. I said, ‘How about 6 months?’ They all stepped up to the challenge. If things go according to plan, if we don’t face technical issues, we hope to have millions of doses by the end of the year, and hundreds of millions by next year.”
A success like that could go a long way toward changing the industry’s battered public image. “It is an opportunity to reposition in the minds of everyone the value proposition of our industry.”
More news below. And be sure and read Fortune’s new list of the World’s 25 Greatest Leaders who are addressing the pandemic. You can find the list here.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Oil price
Oil has hit a new 21-year low, with soaring inventories and a storage crunch causing a plunge to below $15 a barrel in New York. There is a possibility now that American producers will soon have to pay customers to take their crude—already, buyers in Texas are offering as little as $2 a barrel for some streams. This crash is specifically a West Texas Intermediate (WTI) affair, and may be contributing to the fact that DJIA futures point to an opening drop of around 1% this morning, while some European and Asian markets have been in mildly positive territory today. Bloomberg
Small businesses
The White House and Democrats hope the Senate will this week consider a deal they've almost reached, regarding the replenishment of a crisis fund for small businesses. The $349 billion set aside for small businesses in last month's economic rescue fund has already run out. The new deal may include extra funds for hospitals ($75 billion) and an expansion of coronavirus testing ($25 billion). Wall Street Journal
Hang on…
About that $349 billion: it seems a bunch of that cash went to over a dozen publicly traded firms with revenue north of $100 million, rather than small businesses. Step forward, Potbelly Corp (where at least some stores are franchises, making the "small business" classification a little more debatable) and Shake Shack (which says it does not franchise). Shake Shack has since said it will return its entire $10 million loan. Fortune
Alibaba cloud
Alibaba is preparing to invest $28 billion in cloud infrastructure over the next few years. How big an outlay is that? It's about half of all the revenue Alibaba pulled in during fiscal 2019. So look out, Microsoft and Amazon. Fortune
AROUND THE WATER COOLER
European unemployment
McKinsey has predicted a near-doubling of unemployment across Europe in the coming months. The consultancy says as many as 59 million jobs are at risk of either being lost or being cut back in terms of pay or hours. McKinsey reckons the unemployment rate will peak at 7.6% this year, though in the worst case it could peak next year at 11.2%—and take several years to recover to pre-pandemic levels. New York Times
Second wave
Citi Private Bank is warning that U.S. markets have not priced in the possibility of a significant second wave of COVID-19 in that country. David Bailin, Citi's chief investment officer, also said the markets are not pricing in the fact that it could take up to two years for the virus to "really cycle through the globe" and for a vaccine to become widespread reality. CNBC
Uber deliveries
Uber is making a fresh push into logistics as a way of utilizing the drivers and couriers who are sitting idle due to the coronavirus lockdowns. Uber Direct will start testing its on-demand delivery booking platform with partners such as New York drug provider Cabinet, Australian pet food supplier Pet Barn, and Portuguese postal service CTT. Financial Times
Drug pricing
Small Business & Entrepreneurship Council CEO Karen Kerrigan writes for Fortune that a bipartisan proposal for reducing high drug prices—made by Senators Ron Wyden and Chuck Grassley—"embraces heavy-handed government price setting, which would cripple biotech businesses and their vendors across the country." She favors a rival proposal from Idaho Republican Mike Crapo. Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-04-20--Oil plunges again even as economies reopen for business

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. We just came off back-to-back weeks of gains in the equities market. Can we make it three straight?
Let’s see where investors are putting their money today.
Markets update
Asia
The region’s major indices are mixed. Shanghai was clinging to small gains while Hong Kong and Japan’s Nikkei were trading lower.
was clinging to small gains while and Japan’s were trading lower. Alibaba is doubling down on its fast-growing cloud business, pledging to invest $28 billion over the next three years in the construction of data centers and other cloud infrastructure.
is doubling down on its fast-growing cloud business, pledging to invest over the next three years in the construction of data centers and other cloud infrastructure. Meanwhile, Australia looks intent on forcing tech giants such as Google and Facebook into an ad-revenue-sharing agreement with cash-strapped media companies. Regulators the world over will be watching closely how this plays out.
Europe
European bourses are mixed this morning with Germany’s Dax up 0.1% in the first hour of trade, after strong gains on Friday.
bourses are mixed this morning with Germany’s up in the first hour of trade, after strong gains on Friday. All eyes are on Germany . Beginning today, Europe’s biggest economy will ease lockdown measures, in place for the past month. Reopening German businesses gave European markets a bump at the open, but it’s already fading.
. Beginning today, Europe’s biggest economy will ease lockdown measures, in place for the past month. Reopening German businesses gave European markets a bump at the open, but it’s already fading. Meanwhile, social-distancing measures continue to show positive results. The coronavirus death tolls in Italy, France, Spain and Germany sank again over the weekend.
U.S.
The Dow , S&P 500 and Nasdaq look to open lower today, as I type, putting this mini rally in jeopardy.
, and look to open lower today, as I type, putting this mini rally in jeopardy. The Senate is close to a deal on topping up the Paycheck Protection Program by $310 billion and issuing a $60 billion lifeline to rural and minority groups. That should be a big help to small businesses, a vital engine of the U.S. economy.
is close to a deal on topping up the by and issuing a lifeline to rural and minority groups. That should be a big help to small businesses, a vital engine of the U.S. economy. Meanwhile, the Trump Administration is going soft on tariffs, postponing by 90 days select duties and taxes U.S. businesses would have had to pay under some of the tougher trade war measures enacted in recent months. The relief does not extend to American companies buying Chinese goods, however.
Elsewhere
Gold is down, slightly.
is down, slightly. The dollar is climbing.
is climbing. Crude is tanking. The triple whammy of futures contracts expiring, collapsed demand and storage headaches have sunk WTI crude to below $15 a barrel, extending last week’s losses. This weekend, Americans were able to fill up their tank for less than a buck-a-gallon in 13 states. If only motorists had somewhere to go.
The Fab 5
In February, longtime Fortune contributor Ben Carlson noted that a mere five stocks were disproportionately driving the ups and downs of the S&P 500. I’m sure you can name them. Hint—they’re Amazon, Facebook, Apple, Alphabet and Microsoft.
“These 5 companies alone now make up more than 18% of the S&P 500,” he wrote in February. (They now account for close to 20%). “This massive growth also means these companies now have an outsized impact on the performance of the market itself.”
If investors decide this “Fab 5” are too pricey, and sell them off en masse, that would almost certainly take the whole index down a notch. On the flip side, if these five rally, it would drive up the S&P. And sure enough, this quintet has had one heck of a run since the S&P hit its 52-week-lows in late March, as today’s chart shows.
The S&P is up roughly 28% since its March 23 low. Apple and Microsoft are doing even better since that stretch. Amazon and Facebook are no slouches either. They actually started their rallies a week prior, on March 16, so this chart undervalues to some extent their contribution to the incredible bull run we’ve seen on the S&P over the past four weeks.
This chart may be particularly instructive as we enter what’s expected to be a brutal earnings season. If the Fab 5 muddle through, the markets as a whole may just do the same.
Postscript
Today we start Week 7 in lockdown, and everyone here is looking north to Germany. The Germans are reopening parts of the economy. A successful reboot could put more pressure on the Giuseppe Conte government here in Italy to do the same.
The current lockdown measures here will remain in place until at least May 4. The closures are killing Italy’s economy. It’s down 5% in Q1, the Bank of Italy said on Friday. Q2 is expected to be even worse. Italy is highly reliant upon tourism and that’s not coming back any time soon.
There’s a lot of discussion—and, this being Italy, disagreement—about what Phase 2 could look like. Will it be an industry-by-industry reopening? Will the ravaged North of the country need to endure a longer lockout period than us down here in Rome?
There’s plenty of suspicion that the worst-hit regions mismanaged the outbreak, and even some fears there could be super-spreaders among the populations there. The firebrand president of the Campania region said he would even consider closing its border to Italians coming from the North.
So we have a kind of paradox emerging—those Italians hailing from the wealthiest part of the country are no longer welcomed everywhere. This tension continues to play out on the radio and TV talk shows.
Meanwhile, there are all kinds of signs here in Rome that locals intend to push the boundaries of the lockout rules. Every day, you see more people on the streets and fewer police patrols. I’ve seen businesses open their offices for a few hours in the mornings. And, a local restaurateur told me would-be diners came knocking on her door Saturday evening, asking if they could sit and eat a meal rather than do take-out.
“Three weeks ago, when we reopened for take-outs, the carabinieri stood outside to enforce social-distancing rules on each and every customer,” she told me. “I haven’t seen the carabinieri since.”
It was admirable the Romans held out this long, you could say. Besides, they point out, the number of infections here continues to go down day by day.
We may be entering the most fraught stretch yet.
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
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Today's reads
Risk-reward. Markets seem detached from reality right now. Stocks have been rallying even as the economy is effectively shut down. "If the stock market can be smoothed out by government spending and Fed actions during the worst economic contraction in 90 years, does this change investors' risk-return calculus in the stock market?" asks Ben Carlson, director of institutional asset management at Ritholtz Wealth Management.
Incredible shrinking airlines. The coronavirus pandemic looks set to bring a screeching halt to the past decade’s air travel boom. Airlines’ ability to recover will most likely rest on two factors, both of which are completely beyond their control: How long it might take before people feel comfortable boarding planes and how much corporations will cut their travel budgets, says Vivienne Walt in Fortune.
Rise of the short sellers. Short sellers have revived their wagers against the stock market in recent weeks, taking their most aggressive positions in years. After the recent sharp swings in the market, many investors have decided that the ability to hedge their portfolios—or simply bet on a selloff—is wise, The Wall Street Journal reports.
Market candy
Quote of the day.
Everybody’s just frozen. And the phone is not ringing off the hook. Everybody’s just frozen in the position they’re in.
That’s Charlie Munger, Warren Buffett’s longtime business partner, who tells The Wall Street Journal that Berkshire Hathaway is not being bombarded with calls from corporate executives begging for capital.


fortune--2020-04-20--The retailers that are smartest about shopping tech will finish on top after the coronavirus

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
It may be a misnomer to call anyone in retail a “winner” right now, when stay-at-home and social-distancing measures have shut down hundreds of thousands of U.S. stores and threatened consumers’ spending for the foreseeable future. But look at the few chains that have managed relatively well in this chaotic time, and you’ll gather clues about what it will take to come out ahead in the industry, both now and long after the virus has been contained.
Walmart’s U.S. sales reportedly jumped 20% in March as people stocked up on essentials—further boosted by a 190% increase in monthly downloads of its online grocery app, according to data tracker App Annie. Nike kept its China business from stalling, thanks to a fitness app that helped homebound consumers do quarantine workouts. And Lululemon Athletica has even reopened a few North American stores, not to serve walk-in customers, but to use inventory to fill online orders more quickly.
What these cases make clear is how central the full integration of stores and shopping technology has become to big retailers’ health. “The retailers that were already doing it successfully are the ones that are going to recover much more quickly,” says Kimberly Becker, senior research director with Gartner. And in a future when shoppers are likely to be skittish about staying long in any store—if they visit at all—only the tech-savvy chains will survive.
The big-box retailers proved their mettle during the rush on stores in March, as Americans stripped shelves of essentials like toilet paper and baker’s yeast. While lengthy waits for delivery were thwarting many e-commerce shoppers, Target and Walmart succeeded by offering drive-up retrieval for online orders through their apps. (This will become increasingly important now that both chains are limiting the number of shoppers allowed in stores at any one time.) And the fact that the chains now hold much more of their e-commerce inventory in stores than they once did helped them avoid shortages. “Because we’re using stores as local fulfillment hubs, we’ve been able to handle sustained, holiday-like online volumes,” Target chief operating officer John Mulligan tells Fortune.
61% Share of U.S. retail locations—258,366 stores as of mid-April—that have closed because of COVID-19 precautions. SOURCE: GlobalDATA RETAIL
Crisis-related changes in shopping habits have also accelerated a less-is-more approach to product selection. To keep shelves well-stocked, retailers have worked closely with suppliers to limit the variety of sizes, colors, and flavors of all sorts of goods, focusing only on those most consistently in demand. Unilever, for example, said last month it would concentrate mostly on large sizes of its products, like 30-ounce jars of its Hellmann’s mayonnaise, to speed up production and distribution.
Retailers like Walmart and supermarket giant Kroger have long been shifting in this direction, opting to devote more shelf space to bestsellers rather than stocking 50 varieties of the same detergent. “There’s been a slow bleed of taking out the stuff that’s just another color or another flavor and isn’t pulling its weight,” says Laura Kennedy, lead consumer and retail analyst at CB Insights. Increasingly, if you crave a company’s seventh-bestselling sandwich cookie, you’ll have to find it on the Internet.
Technology is helping retailers wring more revenue out of their inventory. Lululemon has invested heavily in RFID (radio-frequency identification) tech, enabling it to know in real time where every hoodie or sports bra is, whether at a distribution facility or in a store. That’s making it much more efficient in filling online orders from physical stores, at a time when e-commerce is its only source of income. “The race is, How much cash can you get out of inventory that’s stuck in stores today?” says Nikki Baird, vice president of innovation at retail tech firm Aptos.
Stores that can precisely track inventory are also helping their customers: The best apps can tell shoppers which items are in stock in what store and where in that store, an appealing idea for customers who don’t want to linger. (Walmart and Target have made big strides in this arena too.)
Retailers’ tech successes aren’t focused solely on logistics and efficiency: They can also keep customers interested in a brand. After most of its 7,000 retail locations in China were closed, Nike made the premium version of its workout-on-demand Nike Training Club app—which is seamlessly integrated with Nike’s e-commerce—available for free there. As use of its apps surged, Nike’s digital sales rose 30% in China during the country’s six-week lockdown, and business in stores bounced back quickly once they reopened. Nike is using the same playbook in North America now. “We know that consumers need to maintain their mental and physical health,” says Heidi O’Neill, Nike’s president of consumer and marketplace.
Still, even after the crisis has passed, no one expects shoppers to quickly return to their old comfort levels in physical stores. Some upgrades Nike has implemented, like self-checkout and contactless payment systems, seemed like nice-to-haves before the coronavirus; after stores reopen, they’ll be must-haves. “The investments you made are going to be ever more meaningful when customers come back,” says O’Neill.
A version of this article appears in the May 2020 issue of Fortune with the headline “Next-gen apps to ease new anxieties.”
More must-read retail coverage from Fortune:
—”Ugly March” leads into “hideous April” for retail as sales slip the most they ever have
—How the on-demand liquor delivery business changed overnight
—These robot-powered warehouses could save grocers
—How Fortune 500 companies are stepping up during the pandemic
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: The greatest designs of modern times
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-04-20--U.S. will let hard-hit firms delay paying import tariffs—but not Trump’s taxes on Chinese goods

The U.S. will allow companies to defer paying tariffs on many imported goods for 90 days, a move aimed at freeing up cash for pandemic-hit employers while leaving punitive measures against China and other nations intact.
“This will protect American jobs and help these businesses get through this time,” Treasury Secretary Steven Mnuchin said in a statement.
The deferral doesn’t apply to anti-dumping or countervailing duties, or so-called Section 201, 232 or 301 tariffs. So it won’t ease President Donald Trump’s punitive import taxes on Chinese goods, on steel and aluminum, or those tied to enforcement actions he took including against Airbus SE.
To qualify for the deferment, U.S. importers have to demonstrate “significant financial hardship,” according to a separate statement from U.S. Customs and Border Protection.
For several weeks, White House officials have debated tariff relief to help companies that are laying off millions of workers and clamoring for emergency federal loans to cushion the a sharp, steep economic downturn that may rival the Great Depression.
While the tariff-payment deferral might ease some short-term strain, the bigger issue now is whether it will help counter a slump in domestic consumption.
“The postponement has little effect in stabilizing the U.S. economy,” Gai Xinzhe, a senior analyst at Sino-Ocean Capital in Beijing. “The problem is with the demand side, and this postponement can hardly solve that.”
The move comes amid heightened rhetoric between the world’s two largest economies as the Trump administration blames the global spread of Covid-19 on China’s perceived lack of transparency about the initial outbreak in the city of Wuhan. Deaths in the U.S. attributed to the disease have topped 41,000.
“If it was a mistake, a mistake is a mistake,” Trump said during news conference over the weekend. “But if they were knowingly responsible, yeah, then there should be consequences.”
A top Wuhan laboratory official denied any role in spreading the new virus.
In January, the countries signed phase one of a trade deal in which China agreed to buy more American imports, including energy and agriculture commodities, in exchange for a cease fire on tariff increases. According to Bloomberg Economics, China wasn’t hitting purchase targets at the three-month mark.
As China’s economy slowly reopens, that may be about to change. A tanker carrying liquefied natural gas, which departed from the U.S. around March 21, docked at a Chinese port on Sunday, according to vessel-tracking data compiled by Bloomberg on Monday. That’s China’s first import of U.S. LNG in a year, and six more ships are en route.
More must-read international coverage from Fortune:
—U.S. small business aid is marred by delays and confusion. Germany is different.
—How Global 500 companies are responding to the coronavirus
—Trump’s withdrawal of U.S. funding would make China WHO’s biggest benefactor
—World War II offers lessons—and warnings—for the coronavirus fight
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: The global crisis in recycling
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-04-20--This time, the banks were ready: How the Big Four prepared to survive the coronavirus

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
For the past decade, the big U.S. banks have endured arduous annual Federal Reserve “stress tests” gauging their strength to weather another Great Recession–like crisis. Critics groused that forcing financial titans to build gigantic war chests—modeled to withstand a replay of double-digit joblessness and an eight-point drop in GDP—was unnecessarily cautious. But, lo and behold, banks are suddenly confronted with a scenario even worse than the regulators’ worst case. “The banks were kicking and screaming while the government made them build capital and liquidity,” says Mike Mayo, an analyst with Wells Fargo. “But that’s why they’re in such good shape today.”
Indeed, the stress-test policy appears absolutely crucial now, given the damage that the coronavirus pandemic is unleashing on Wall Street. From the start of 2020 through early April, the KBW banking index dropped 33.6%—20 points more than the S&P 500. JPMorgan Chase CEO Jamie Dimon warned in his annual letter that the bank’s earnings would “be down meaningfully” this year, conceivably endangering its dividend. And both boutique firm Wolfe Research and investment bank KBW forecast that profits for the Big Four banks—JPMorgan, Bank of America, Citigroup, and Wells Fargo—could crater more than 60% if a recession extends into 2021.
The crisis has pushed the major commercial and investment banks into a new cycle of much lower earnings. But in a reversal from 2008, their profits should remain positive even in the direst scenario. Plus, they’re entering a sharp downturn flush with capital and liquidity. Whereas Wall Street was the problem in the Great Recession, today the lenders and underwriters have the resiliency to be part of the solution—as conduits for channeling as much as $4 trillion in emergency funding to businesses large and small, and continuing to extend credit to their regular customers, from automakers to hairdressing salons.
Partly dictated by the Fed, the big banks entered 2020 boasting their strongest capital levels since 1940.
The banks built up their finances in what has been a near-golden period for the industry over the past 10 years. They benefited from a combination of a strong economy and conservative management—partly dictated by the Fed, and partly imposed by such leaders as Dimon and BofA CEO Brian Moynihan. Banks diversified into areas that generated steady earnings, notably by building and buying wealth management franchises. Most of all, pushed by the stress tests, the banks shored up their capital. From late 2008 to 2019, equity capital as a share of the balance sheet rose 51% at JPMorgan, more than doubled at BofA and Wells, and tripled at Citi. Entering 2020, the big banks boasted their strongest capital levels since 1940.
That staying power is crucial to seeding a recovery. The major banks are a giant source of funding to small- and medium-size businesses, or SMEs—typically enterprises that employ up to 10,000 and issue paychecks for over 70% of U.S. workers. At year-end 2019, the Big Four held $836 billion in “commercial and industrial” or C&I loans to SMEs. That was 45% of the total for all U.S. banks. The Big Four also provide the likes of hotel owners and developers $422 billion in financing, equal to 28% of all commercial real estate lending provided by America’s banks.
The economy’s shutdown is starving SMEs for cash. The stimulus plan marshals the banks to originate and service government-guaranteed loans to as many as 17 million of these enterprises. The aid designed to flow through the lenders comes via two main vehicles. The first is the $349 billion Paycheck Protection Program (PPP). It makes loans of up to $10 million mostly to companies with 500 or fewer employees. And if a company’s payroll stays the same for eight weeks after it gets a loan, the debt is forgiven. The PPP is a good thing for America’s banks, including the Big Four. The lenders take no credit risk, and, according to interviews with bankers, the fees paid to originate the loans make them profitable, especially for amounts up to $2 million.
Since most of the loans are likely to become grants, the PPP will help bridge their clients through to the recovery without adding to their debt load. Plus, fragile businesses can use the new loans, charging 1% interest, to pay the interest on existing, at-risk borrowings at, say, 4% or 5%—lifting their cash flow. Put simply, the PPP lowers the banks’ credit risk by providing either grants or cheaper, guaranteed financing to small businesses, and lowering the number of bad loans going forward.


fortune--2020-04-20--Alibaba will invest $28 billion in the cloud as it challenges Microsoft and Amazon head-on

Alibaba Group Holding Ltd. will invest 200 billion yuan ($28 billion) on cloud infrastructure such as datacenters over the next three years, a major effort to extend one of its fastest-growing businesses to more countries.
That huge outlay — equivalent to about half the revenue the entire company generated in fiscal 2019 — underscores the importance of a division Alibaba relies on to spearhead its international expansion. The Chinese e-commerce giant now plans to build more datacenters to complement an existing network covering 21 regions globally and support the development of technologies in areas such as AI-inference chips, it said in a statement.
Cloud computing has become one of Alibaba’s fastest-growing initiatives beyond the traditional e-commerce sphere. The division’s revenue rose 62% to 10.7 billion yuan in the December quarter as Alibaba chipped away at Amazon.com Inc.’s and Microsoft Corp.’s global lead in the business of providing online computing as a service. The Chinese company is now recognized as one of Asia’s leading cloud players, though Tencent Holdings Ltd. and Baidu Inc. are stepping up competition at home and abroad.
“The key focus in the medium term is to gain scale, in customers, infrastructure and product offerings,” Bloomberg Intelligence analyst Vey-Sern Ling said of the cloud division. “Profitability is not a near-term focus. The amount they are spending over three years should be just about equivalent to the revenue they generate, keeping the segment at near-break-even level as it has been for the past few quarters.”
Like Amazon’s, Alibaba’s cloud service emerged from the computational power needed to handle millions of online shopping transactions. But unlike its U.S. counterpart, it enjoys home-field advantage in a vast Chinese market where web-based computing is still novel to many enterprises. Its push into the cloud, where software and services are provided to customers via server farms the size of football fields, could help cushion Alibaba against domestic consumption shocks to its core operation.
Even before China recorded its first economic contraction in decades, Alibaba had warned that the novel coronavirus outbreak would have a broad impact on its business. The cloud computing division is also key to the company’s efforts to harness the enormous amounts of data generated daily — what Alibaba co-founder Jack Ma once referred to as “new oil.” The unit now accounts for about 7% of Alibaba’s revenue but is expected to climb.
“By increasing our investment on cloud infrastructure and fundamental technologies, we hope to continue providing world-class, trusted computing resources to help businesses speed up the recovery process, and offer cloud-based intelligent solutions to support their digital transformation in the post-pandemic world,” Jeff Zhang, president of the Alibaba Cloud Intelligence division, said in the statement.
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fortune--2020-04-20--How the American economy can recover from the coronavirus pandemic

To those on the front lines of the coronavirus crisis, it’s ultimately about fear. “People are terrified,” says Kathryn Lott, executive director of Houston’s Southern Smoke Foundation, a crisis relief organization for people in the food and beverage industry. “All are afraid they will lose their homes, and the terror in their voices is something I have never experienced. I have done casework for years, during natural disasters, people who have been gunned down, new mothers on the streets with infants during winter. I have never heard this.”
No one has ever heard this, the pleas for help from so many Americans rendered jobless with stunning suddenness—more than 16 million and counting as of early April. For them, the COVID-19 pandemic has triggered intertwined crises of personal health and personal finance, threatening disaster for them individually and, in the aggregate, for the country. The great challenge facing each person—and the nation overall—is overcoming the two crises together. In the modern economy there is no playbook for how to do it.
More than in any past economic collapse, U.S. consumers are at the heart of this one. Not only do they face the threat of getting sick, but they’re also getting fired or furloughed by the millions because their workplaces are being shut down to prevent others from being infected. As a result, they can’t spend, forcing more businesses to close, and so on—“an aggregate demand doom loop” says Glenn Hubbard, chairman of the White House Council of Economic Advisers from 2001 to 2003. “The problem is radiating from consumption demand by households,” says Matthew Slaughter, a CEA member from 2005 to 2007. “It’s unprecedented—an involuntary shock to consumption demand. The magnitude of it is huge.”
For consumers, the cosmic injustice of it all is head-spinning. The U.S. economy has long been consumer-driven, and over the past five years consumers have powered economic growth even more than usual, expanding America’s economy faster than those of most other big, developed economies. Consumers’ share of GDP reached a towering 68% in last year’s fourth quarter, higher than it got even in the 2006 to 2008 shopping festival that preceded the financial crisis and recession. Yet unlike then, consumers in recent years have increased their buying responsibly, saving a prudent 8% of their disposable personal income on average vs. near 0% back then. Household debt reached 99% of GDP in the last boom; at the end of 2019, it was just 76%.
Mainstream economists forecast that U.S. GDP will shrink 30% to 50% in the second quarter. Lane Turner—The Boston Globe/Getty Images
And now, having kept the economy cruising along, consumers are suddenly under intense financial pressure. Of those who still have jobs, millions cannot work from home and must choose between risking their health (and potentially their lives) by working in grocery stores, warehouses, post offices, hospitals, and other high-contact settings, or not working.
On top of it all is a crowning irony: Because the U.S. is still fundamentally a consumer-driven economy—and can’t transform overnight—consumers as a group will have to get themselves and the whole economy out of this.
No one knows how deep a hole they’ll have to climb out of; everything is happening too fast for official statistics to keep up. But we know this is the steepest economic plunge in modern history. More people lost their jobs in two weeks in March than in the entire 2008–2009 recession. In the Great Depression, real GDP declined for 43 months, eventually shrinking by 30%. This time, Morgan Stanley forecasts a 30% decline in the second quarter; Goldman Sachs says 34%; and St. Louis Fed president James Bullard says 50%. For now, the most important indicators to watch aren’t economic ones. They’re the weekly trends in new COVID-19 cases, number of deaths, and governors making isolation orders more stringent or lenient.
Breaking the “doom loop”
Consumers can’t bring back the economy without help. Reviving consumption is a major goal of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the many other actions by federal agencies, states, and the Fed to put more cash in consumers’ hands. But doling out money isn’t enough. “There’s the immediate loss of the job, but the bigger issue is uncertainty,” says Hubbard, who advised Senate Republicans on the CARES Act. Getting a $1,200 check, augmented unemployment benefits, and tax relief may offer some respite, but consumers won’t spend much and employers won’t hire if they’re braced for still worse to come.
That’s why the Paycheck Protection Program, an innovative element of the CARES Act that got off to a rocky start, is especially worth watching. It offers small businesses (up to 500 employees) Small Business Administration loans equaling about 20 weeks of major expenses, including payroll, mortgage, and rent. If a business gets the loan by June 30 and restores staffing and pay to pre-Feb. 15 levels, while also meeting other tests, the loan can be forgiven. The effect could be significant: Firms with 500 or fewer workers account for over half of U.S. employment.
We will be different. We’ll make different product choices … Our hard wiring changes. Ulrike Malmendier, University of California at Berkeley economist on how the crisis will affect consumers
In theory it’s a sensible policy response, helping to break the doom loop by giving businesses and workers certainty. Employers will know they can keep paying employees, even if there’s no work to do, confident that it won’t cost them a thing; employees will know their employer has a strong incentive to keep paying them, so they’ll be more inclined to spend. At least it’s a certainty until June 30, by which time, the policymakers hope, the pandemic will be in decline, and the economy will have turned up.
But at least initially the program has spawned massive uncertainty among prospective borrowers and the banks through which loans are being made. The hastily written law only outlined the program, leaving the Treasury to write, at warp speed, 31 pages of regulations. The SBA was entirely unprepared to lend 10 times as much money in a few weeks as it normally lends in a year, and the amount appropriated for lending, $299.4 billion, was clearly far too little. A larger risk: Maybe the pandemic won’t be under control by June 30; either the economy will sink back into the depths when the program ends, or Congress will extend it at a cost of still more hundreds of billions.
Long-term “scars” for consumers
For the moment that’s unknowable. But we can say with some confidence how this already traumatic experience will change the behavior of shaken consumers. In the near term, those who have income will save more of it if they possibly can. The dominant feeling of consumers in an economic meltdown is loss of control, and having money put away, even just a little, gives them a feeling of more control. Of the money they spend, they’ll spend more of it on necessities, again because they feel more control when their necessities are on hand. The NPD Group, a retail research firm, has observed this shift already and says that “wrestling with necessities vs. discretionary products will play a huge role” in how retailers adjust through the pandemic.
In the longer term, the pandemic experience will change consumers for decades. “We will be different,” says economist Ulrike Malmendier of the University of California at Berkeley. “We’ll make different product choices, consumption choices, human capital choices.” This is beyond economics; it’s neuroscience. A crisis experience is deeply emotional, and “stronger emotions get anchored more strongly in our memories,” she says. “Our hard wiring changes.”
We will buy differently. “Macroeconomic crises appear to leave long-term ‘scars’ on consumer behavior,” write Malmendier and coauthor Leslie Sheng Shen in a pioneering 2018 study. They found, for example, that regardless of income, households that experience high unemployment personally or in the macroeconomy consume less, including less food, than other households. They use significantly more coupons when they shop and buy more sale items and products of lower quality, again regardless of their income. Such households also save more. Those effects fade over time but are still measurable years later.
It’s a similar story with investing. In a separate study, Malmendier and coauthor Stefan Nagel found that households’ financial risk-taking is strongly related to how well or poorly markets have performed during their lives, and again, the effects are long-lasting. “Even returns experienced decades earlier still have some impact,” they report.
One more key finding: In addition to recent experiences being most influential among all age groups, they are most powerful by far among the young, who increase consumption more during booms and cut back more during busts. They may be living on way, way less for some time.
For two groups of young people—those graduating from high school or college this spring—that’s just the beginning of the dispiriting news. College students who graduate into the labor force during a recession suffer reduced earnings for 10 years on average, and for those with the lowest predicted earnings (based on college and major), the earnings penalty may last much longer. It gets worse. Some research finds that in midlife, recession graduates on average work more and earn less, are less likely to be married and more likely to be childless, and suffer higher death rates. One researcher on this topic, Northwestern University’s Hannes Schwandt, sums up the findings thus: “The bad luck of leaving school during hard times can lead to higher rates of early death and permanent differences in life circumstances.”
If past trends from serious recessions hold true, the pandemic might alter the economy’s structure, diminishing the earning power of the labor force—potentially for years. Lack of funds will force some prospective college students to postpone or abandon their plans. If the recession is long, many of the newly unemployed may remain jobless for many months or even years, during which their skills might deteriorate and become outdated, as happened in the last recession. Even if they get jobs eventually, they may well be less valuable workers.
Apart from its effects on workers’ earnings, the pandemic may do other lasting damage to the labor force as well. If the unlikely worst-case scenarios play out and COVID-19 kills over 100,000 Americans plus millions more worldwide, the simple shrinkage of the labor force would reduce output for years. Even without that extreme circumstance, the same factors that have caused schools to close will significantly curtail early childhood education, a proven factor in better educational achievement later in life.
Researchers have also uncovered an unexpected effect of the 1918 flu pandemic that could potentially recur: It reduced educational attainment by people who hadn’t been born yet. Americans who were born in the months after the pandemic, and thus were in utero during it, were less likely to graduate from high school than the cohorts immediately before and after them. In any long-term economic recovery plan Congress and the White House hammer out, policymakers would be wise to invest in incentives that help young people finish school.
Planning for the next catastrophe
As businesses respond to this grand-scale reordering of their world, some implications are already clear. Remote work will become mainstream, if only because so many people will have an online meeting app and know how to use it. Companies are slashing capital spending as they scramble for cash, weakening the foundation of future economic growth while also fueling a B2B doom loop in the present. They’ll diversify supply chains beyond China when demand returns, further slowing that country’s decelerating economy.
As in all recessions, companies will learn to do more with fewer people, so the already spiking unemployment rate may well continue to rise at least briefly after this recession ends.
It’s a safe bet that many companies will compile pandemic plans for the future—surely a wise move, but if that’s all they do, they’ll be missing a crucial lesson of this experience. A global pandemic is the most predicted disaster since Hurricane Katrina, yet, now as then, businesses and governments were caught flat-footed. When the urgency of this calamity abates, it will be time to start thinking through other plausible catastrophes—a major earthquake strikes California; some group or nation detonates a nuclear bomb; a large electrical grid gets hacked and shut down. You’ll never foresee exactly what happens, but the exercise of working out the second- and third-order effects will put you miles ahead of competitors if one of these events occurs. It’s a lot of work. But remember the conclusion of Mohamed El-Erian, CEO of bond trading firm Pimco during the financial crisis: “It’s better to be prepared for events that don’t happen than unprepared for events that do.”
As we look ahead to days that will probably remain challenging, what can be offered to the supremely important, terrified consumer, the hero and victim of this saga? Only hope—based on history. Forecasts of multiplying deaths and unprecedented economic collapse come with percentages and decimal points. Yet human ingenuity, passion, and energy are beyond any economist’s ability to predict, and those are what get us through times of trial. It’s unsatisfying to say that a better future awaits us because of forces and factors that we can’t exactly describe. But we mustn’t forget that it’s true.
3 keys to leading in a crisis
This crucible experience will be career-defining for many leaders. In any crisis—especially a historic global catastrophe in which the main factor is uncertainty—people want leaders to give them information, reassurance, and a plan. Yet this is exactly when all of those are maddeningly difficult to deliver. History says leaders will benefit by following a few principles:
1. Remember that people want to be led.
We understand in our bones the simple efficiency of it, that no group accomplishes much if no one is in charge. In a life-threatening historic crisis, we want direction more than ever. We also need a leader to be, in effect, a repository for our fears, someone who has the power to do what we cannot. The leader assumes part of our burden and helps us sleep at night. If you’re in charge—be in charge.
2. Be decisive.
In a crisis, even people who would normally be at one another’s throats accept that major decisions must be made quickly. These decisions will be debated—but after they’re made, not before. That’s a valuable opportunity for leaders. The difficulty is that just when decisions are most easily accepted, they’re hardest to make. Every leadership decision is made with incomplete information; in a crisis the problem is worse and the stakes are higher. Don’t let that fact stop you from making firm decisions.
3. Define reality and give hope.
People hunger for the unvarnished truth about their organization and its prospects, and they can sense evasion a mile away. The news in a crisis is rarely good. The leader’s art is outlining reality unflinchingly and framing it as a challenge that can be met, not as a disaster that must be endured. Effective leaders never make a promise that can’t be kept with 110% certainty; they do offer realistic reasons for hope.
Even these principles will be of limited value to any leader who hasn’t built trust and credibility. You can’t change the past, but a crisis is an excellent time to start changing the future.
A version of this article appears in the May 2020 issue of Fortune with the headline “Has the coronavirus crisis changed business? You bet it has.”
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