Everybody is racist

This is the web version of raceAhead, Fortune’s daily newsletter on race, culture, and inclusive leadership. To get it delivered daily to your inbox, sign up here.
We interrupt this Wednesday for a brief lesson on racism.
For no particular reason, raceAhead’s news blurbs are particularly grim today—nasty and insidious incidents of racist behavior, bigoted baiting, name-calling, and the persistent, systemic racism in an institution which just can’t shake it, no matter how hard they try.
Well, I suppose you could say there is a particular reason.
Before you dig in, I’ll refer you to this wonderful 2019 TED Talk from Dr. Phillip Atiba Goff, a psychologist and data scientist who is helping police departments address racial bias through the work at his think tank, the Center for Policing Equity.
Their motto: How do you measure justice?
While his work focuses on one particular segment of society, his premise will be familiar to anyone in any workplace: You can’t manage what you can’t measure, and when it comes to race, we’re measuring all sorts of things all wrong.
To begin to fix that, he says, we need to define racism correctly.
While the entire talk is affirming, this is the nugget that I believe will be most helpful to you today, and in your work in general:
“All of my research, and the decade of work I’ve done with my center—the Center for Policing Equity—actually leads me to a hopeful conclusion amidst all the heartbreak of race in America, which is this: Trying to solve racism feels impossible because our definition of racism makes it impossible—but it doesn’t have to be that way.
So, here’s what I mean.
The most common definition of racism is that racist behaviors are the product of contaminated hearts and minds. When you listen to the way we talk about trying to cure racism, you’ll hear it. ‘We need to stamp out hatred. We need to combat ignorance,’ right? It’s hearts and minds.
Now the only problem with that definition is that it’s completely wrong—both scientifically and otherwise.
One of the foundational insights of social psychology is that attitudes are very weak predictors of behaviors, but more importantly than that, no Black community has ever taken to the streets to demand that white people would love us more. Communities march to stop the killing, because racism is about behaviors, not feelings. And even when civil rights leaders like King and Fannie Lou Hamer used the language of love, the racism they fought, that was segregation and brutality.
It’s actions over feelings.
And every one of those leaders would agree, if a definition of racism makes it harder to see the injuries racism causes, that’s not just wrong. A definition that cares about the intentions of abusers more than the harms to the abused—that definition of racism is racist.”
It’s a revolutionary idea and a lifted burden for anyone who feels stymied by people who resist inclusion efforts: They don’t have to abandon, or even examine, why they are attracted to racist ideas. And, they don’t have to love people different from themselves! But, they do have to stop hurting them. And that’s a design problem worth tackling.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On Point
President Donald Trump and presidential candidate Michael Bloomberg each claim the other is racist The president said, "WOW, BLOOMBERG IS A TOTAL RACIST!" in a now deleted tweet that accompanied an audio clip of a 2015 interview in which the former New York City mayor defended his stop-and-frisk policy. Bloomberg, who has apologized for embracing the failed, racist policy, said in a statement that Trump is the one "with racist appeals and hateful rhetoric," and said that "I will do everything I can to defeat you between now and November."
NBC News
Anonymous racist comments spoil a Black History Month panel at a Utah university A student panel for Black History Month at Brigham Young University (BYU) was disrupted after students in the audience submitted racist questions that were then posted on a screen behind the speakers. The five panelists were there to discuss their lived experiences as people of color or immigrants on campus. They couldn’t see the questions, but the audience tittered along: “What is the percentage of African Americans on food stamps?” “Why do African Americans hate the police?” and “Why don’t we have White History Month?” BYU has a long history of race-related issues. Click through for more.
Washington Post
Report: White supremacist groups are expanding their racist propaganda efforts on college campuses The posters and flyers blend in with the usual college fare but are far more sinister. Messages championed by white supremacists like “America Is Not for Sale,” “One Nation Against Invasion,” and “Reclaim America,” doubled last year, according to a report from the Anti-Defamation League, an increase they attribute to greater vigilance on behalf of people to report the incidents. It’s a movement born out of the 2017 Charlottesville white supremacist rally. “This is all about optics and entry points to a broader white supremacist movement,” Oren Segal, vice president of the Anti-Defamation League’s Center on Extremism, told the New York Times. “We need to understand that there is a connection, ideologically, from a piece of propaganda on these campuses to an attack in our communities.”
New York Times
An Archbishop on the Church of England: “Deeply institutionally racist” This was the painful declaration of the Most Reverend Justin Welby, the Archbishop of Canterbury, at a meeting of the Church of England’s ruling body, the General Synod. His remarks were in response to a motion from the body to publicly apologize for racism in the Church and their behaviors toward the Windrush generation, who are Commonwealth citizens from Caribbean countries who immigrated to the U.K. between 1948 to 1971. "I'm ashamed of our history and I'm ashamed of our failure. There is no doubt when we look at our own Church that we are still deeply institutionally racist.” They vow radical change.
BBC News
On Background
Women of color are tired y’all. Can you guess why? Sayu Bhojwani, a writer and advocate, is unflinching in her answer. “Women of color leaders are guarding a dirty little secret—our work is eroding our mental, physical, and emotional health,” she begins. “We are slowly wrecking ourselves as we try to transform political organizations, foundations, media rooms, nonprofits, the publishing industry.” And it’s just getting worse. She explores our own complicity, which I admit, was painful. But it ends in a good place. “But we can’t keep playing a game in which the rules are rigged against us,” she says. “Instead, we must commit to valuing ourselves and our time in ways that feel uncomfortable at first but can lead to a shift in culture more generally…”
Medium
A stolen slave auction plaque in Virginia and an unexpected confession People don’t read the plaques—until they do. This is the tale of how a small plaque embedded in the ground of Charlottesville's central Court Square came to represent a bigger story about what gets remembered and who gets admired. The plaque commemorated the “slave auction block,” barely noticeable in the shadow of Confederate monuments. When it was stolen this week, people assumed it was white supremacist shenanigans. It was not. And then the hole in the brick pavement was replaced with another, a much better plaque. Enjoy.
Washington Post
The lost culinary history of African Americans I thought I knew a lot about a lot of things after four years on the race beat, but I absolutely had never heard of Charity “Duchess” Quamino, the “Pastry Queen of Rhode Island.” And I lived in Rhode Island for years! Quamino, originally from Ghana, had been enslaved in Newport cooking for an elite family, and eventually went on to become a culinary entrepreneur—as did a man named Cuffy Cockroach, famous for his turtle soups. Click through for more history.
HuffPost
Tamara El-Waylly produces raceAhead and manages the op-ed program.
Quote
“I am here because I was loved, and invested in, and protected, and lucky, because I went to the right schools, I'm semi-famous, mostly happy, meditate twice a day, and yet, I walk around in fear, because I know that someone seeing me as a threat can become a threat to my life, and I am tired. I am tired of carrying this invisible burden of other people's fears, and many of us are, and we shouldn't have to, because we can change this, because we can change the action, which changes the story, which changes the system that allows those stories to happen. Systems are just collective stories we all buy into. When we change them, we write a better reality for us all to be a part of. I am asking us to use our power to choose. I am asking us to level up.”
—Baratunde Rafiq Thurston, in a 2019 TED Talk.


fortune--2020-02-12--Businesses lost an extra $500 million from email scams last year. Here’s how

These are the Democratic candidates who qualify for the next debate in Las Vegas—so far

The Federal Bureau of Investigation is warning that business email scams are on the rise, despite the fact that hackers continue to use a variation of the same playbook every year.
Last year, 23,775 business email scams were reported, amounting to $1.7 billion in losses of both money and time, according to the FBI’s 2019 Internet Crime Report that was released this week. That’s a significant uptick from the $1.2 billion in losses and 20,373 reports made in 2018.
It all starts with an email that appears legitimate: A company employee emails HR to ask that their direct deposit details are changed before payday, or a vendor asks for invoice payments to be made to a new account. The money instead goes to a pre-paid card account, where the hacker can access the windfall. Hackers have also been known to target individuals through spoofed emails, posing as an authority and requesting they purchase giftcards for personal or business reasons.
Donna Gregory, chief of the FBI’s Internet Crime Complaint Center, known as IC3, said criminals aren’t focusing on new scams and are instead getting better at executing on old tricks.
“Criminals are getting so sophisticated,” Gregory said in a statement. “It is getting harder and harder for victims to spot the red flags and tell real from fake.”
The FBI report referred to the business email compromise trick as a “trending” scam, and for good reason. The FBI’s Internet Crime Complaint Center received 467,000 complaints last year about cyber crime, ranging from business scams to romance scams to lottery scams, for a total of $3.5 billion in losses.
While the business email scam accounts for just 5% of those reports, its losses of $1.7 billion show how it’s among the most lucrative scams for hackers.
It’s not just about the financial value that is lost, but businesses also lose valuable time reporting and managing the clean-up after they’ve been scammed.
“I think there is certainly some shame and embarrassment associated with it, but more companies are realizing they need to take action” and report these crimes, Kevin Lee, and Internet fraud expert, and trust and safety architect at security company Sift, told Fortune.
“Businesses are stuck between a rock and a hard spot when it comes to these bad actors,” he said.
The good news is that the FBI is getting even better at tracking down criminals and, in some cases, recouping money from scammers. Last year, the FBI’s Recovery Asset Team helped to get back more than $300 million for cyber crime victims by working with financial institutions.
In a February 2019 case, an unidentified business victim was duped by a spoofed email to wire funds to a fraudulent bank account in Florida. The FBI worked with the bank to freeze the funds. When the scammer tried to withdraw the money, they were asked to show documents to prove why they received the money. When the account holder was unable to offer proof, they were arrested by Fort Lauderdale, Fla. police.
Lee, the Internet fraud expert, said 2019 was another “banner year” for cybercrime, but 2020 will likely be even bigger. Companies can educate employees, use two-factor authentication and automated security software to mitigate threats, but nothing will ever be foolproof. That’s why increased reporting is so important.
“We aren’t dealing with theoretical stuff anymore. You see it in the news all the time. Part of it is social responsibility,” he said. “From a reporting standpoint, there is more diligence there when something is wrong. Companies are raising their hand.”
More must-read stories from Fortune:
—The strange tale of Jeff Bezos’s $16,840 parking ticket bill
—Post-Brexit U.K.’s surveillance practices could spell problems for business
—Governments deploy surveillance tech to track coronavirus victims
—How marketers are increasingly using A.I. to persuade you to buy
—Predicting the biggest tech headlines of 2020
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-02-12--Deval Patrick, last black candidate in 2020 race, drops out

Former Massachusetts Gov. Deval Patrick, the last remaining African American candidate in a Democratic presidential field once defined by its diversity, ended his 2020 campaign Wednesday after his late bid failed to catch fire or resonate with voters.
“The vote in New Hampshire last night was not enough for us to create the practical win at the campaign’s back to go on to the next round of voting.” Patrick said in a statement.
Patrick came in second-to-last in New Hampshire on Tuesday with just over 1,200 votes, after ignoring Iowa and focusing most of his time and resources on the first primary. His decision leaves just one other candidate of color, Hawaii Rep. Tulsi Gabbard, a Samoan American, in the Democratic contest. It brings the number of Democrats in the presidential primary race to eight.
Patrick launched his bid for president in mid-November but failed to register in polling and fundraising and never made it onto a presidential debate stage. Patrick raised just $2.2 million in the final six weeks of last year, and while a super PAC created to support his bid committed nearly that much to advertising in the early primary states last month, Patrick still barely registered in New Hampshire. He blamed in part what he characterized as a media narrative created around his late entry in the race. “I’ve met many people on the campaign trail who lament how they wished I had entered the race sooner,” he said in a statement.
“We cannot keep mistaking media narratives for political outcomes. Political outcomes are entirely up to voters,” he said.
It’s a disappointing finish for someone who, in part because of his rhetorical skills, has long drawn comparisons to former President Barack Obama. The two men are personally close and Patrick counts some of Obama’s aides and donors as part of his own inner circle. Valerie Jarrett, one of Obama’s closest advisers, was one of Patrick’s most prominent supporters.
But Obama has largely avoided wading into the race, and Patrick said throughout the primary that he didn’t expect the former president to provide a boost to his bid.
Patrick hoped that by focusing on New Hampshire, the familiarity of a neighboring state would help boost his chances in the race. He offered what aides felt was a unique message in a field that ultimately boiled down largely to career politicians with little executive or private sector experience: that he had the track record as governor and through years of business experience to deliver on Democratic priorities like fighting climate change and reforming health care.
But another New England Democrat, Vermont Sen. Bernie Sanders, won the state. Also, Pete Buttigieg, the former mayor of South Bend, Indiana, emerged as the leading moderate, winning many of the same centrist voters Patrick had sought.
On the campaign trail, Patrick made a case for compassionate capitalism, the idea that businesses and government can work together in service of public good, and he drew on his time working for Bain Capital developing businesses that promote positive social change as evidence. While some donors and moderate Democrats said both his message and the messenger were sorely needed, in a primary season dominated by progressives’ calls to break up big corporations and expand government aid programs, Patrick’s arguments seemed to fall flat with some voters.
But in his Wednesday announcement, Patrick said that he heard from many voters on the trail who appreciated his moderation, and he warned the remaining candidates to avoid getting too bogged down in political divisions.
“Patriotism demands, now more than ever, that we reject false choices. Despite our righteous anger, Democrats don’t have to hate Republicans to be good Democrats. … In that same spirit, we don’t have to hate moderation to be a good progressive,” he said.
More must-read stories from Fortune:
—2020 candidates’ positions, and records, on economic issues that affect women
—How a company with 120 Facebook likes ended up at the center of the Iowa caucus firestorm
—Europe’s refugee crisis is getting worse—for these children
—Fortune Explains: The debt ceiling
—America’s young voters could sway 2020 results. What will it take to get them to the polls?
Get up to speed on your morning commute with Fortune’s CEO Daily newsletter.


fortune--2020-02-12--‘Contagion’ writer, scientific adviser reflect on film’s newfound relevance amid coronavirus crisis

Nothing spreads like fear.
Nine years after the release of Contagion, a Steven Soderbergh–directed epidemiology thriller bearing that tagline, an outbreak of a novel coronavirus in China’s Wuhan province—declared a global health emergency by the World Health Organization (WHO), which has since renamed the disease it causes COVID-19—has sent shock waves through the world’s economy and incited panic far from the disease’s apparent point of origin.
It has also led to a resurgence of interest in Contagion, which recently hit No. 10 on iTunes and has been the subject of numerous articles comparing its fictional pandemic to the real one. Both outbreaks originated in China, with the virus most likely passing from a bat to another animal before it spread to humans.
Given these surface-level similarities, screenwriter Scott Z. Burns isn’t surprised the 2011 film might be of particular interest to those rattled by COVID-19’s spread—its death toll surpassed 1,100 this week, almost entirely in China. But he questions whether viewers are keying into the film’s larger points about social panic during infectious disease outbreaks.
“The similarities between our contagion and the coronavirus are immaterial, accidental, and really not that important,” Burns tells Fortune via phone. “What is more important and accurate is the societal response and the spread of fear and the knock-on effects of that. That is proving to be accurate.”
The 2011 film “Contagion” experienced a surge in popularity on iTunes amid coronavirus fears. Warner Bros/courtesy Everett Collection
If Contagion’s virus bears tangible similarities to COVID-19, there’s a simple reason for that: Burns did his research.
In writing the script for Contagion, Burns always set out to make the most scientifically accurate version of a pandemic thriller he could, enlisting doctors W. Ian Lipkin and Larry Brilliant to help create an imaginary virus based on both science and their firsthand experiences within the field of epidemiology. It was through speaking with the scientists that Burns also hatched ideas about how society might react to such a virus, from the looting of storefronts to a messianic “fake news” vlogger played by Jude Law.
“When I originally pitched this idea to Steven Soderbergh, I said I wanted Contagion to be as grounded in science as it possibly could be,” he recalls. “I didn’t want to do a Hollywood disaster movie that played loose with the science. The heroes needed to be scientists.”
Luckily, in Brilliant and Lipkin, Burns had two “hero scientists” at his disposal. In the 1970s, Brilliant was one of the epidemiologists who finally drove smallpox off the map. He later became the first CEO of the Skoll Global Threats Fund, launched by former eBay president Jeff Skoll to combat threats against humanity.
Lipkin, meanwhile, is known in his field as a “master virus hunter,” a reputation earned across three decades of racing against time to identify and combat new viruses, from West Nile virus to the 2003 SARS outbreak. (Lipkin, the John Snow Professor of Epidemiology at the Mailman School of Public Health at Columbia University, is currently on a 14-day self-quarantine at his home in New York after traveling to China to advise local health officials on COVID-19.)
One aspect of epidemiology that fascinated Burns was experts’ widespread consensus that infectious disease outbreaks aren’t “a matter of ‘if,’ but ‘when,’” he says. “I’m not surprised that what they told me was a possible occurrence came to pass.”
“If you look at human history and go back to the Spanish flu, we get these outbreaks, and they occur constantly, and there’s no reason to believe that will change,” explains Burns. “What’s particularly disconcerting is when it’s called a ‘novel virus,’ meaning no one on earth that we know of has ever had to deal with it before. It’s a new challenge for the human immune system. It takes time for our species to figure out.”
Burns, pictured in 2019, says he “didn’t want to do a Hollywood disaster movie that played loose with the science” when he wrote “Contagion.” Vera Anderson—WireImage/Getty Images
Burns also consulted with Lipkin’s Columbia colleagues, as well as Pulitzer Prize–winning journalist Laurie Garrett (author of The Coming Plague). Says Brilliant: “We wanted to reset people’s ideas of what a real pandemic could look like, and to do it with impeccable science. What we gathered together was a team of the best scientists in the world to make sure that we, by accident or design, did not engage in hyperbole.”
To concoct the fictional MEV-1 virus that infamously felled Gwyneth Paltrow at the beginning of Contagion, the scientists—working on computers at Columbia—mimicked characteristics of two related viruses primarily found in bats but occasionally transmittable to humans: Nipah, from Southeast Asia; and Hendra, from Australia. Splicing those two together with influenza, they genetically engineered the fictional virus to spread through bodily fluids or coughing. In pursuit of something more cinematic than an agent that only causes respiratory distress, they leaned on Nipah’s classification as a paramyxovirus that infects the lungs and the brain.
“[MEV-1] swelled up out of Gwyneth Paltrow’s brain,” notes Brilliant. “It had people vomiting or going into seizures, captured on video. That’s the kind of stuff that creates more fear.”
It’s here that Brilliant stresses one key difference between MEV-1 and the real-life COVID-19. “This [coronavirus outbreak], for most people, has been a much more mild disease,” says Brilliant. “This may be a disease that turns out to be widespread, but with a low death rate.”
“Most viruses that are airborne are odorless, tasteless, and invisible,” continues Brilliant. “That doesn’t make for good theater. The symptoms we wrote about, that we concocted, are not the same symptoms as this disease.”
A culture of fear
Contagion charts the spread of two distinct viruses: the fictional MEV-1 pandemic, and the culture of fear its spread gives rise to, causing society to splinter and stymieing the international community’s ability to respond to the outbreak. Currently, Burns is preoccupied with headlines he’s seen about public responses to COVID-19, many by people making fear-based decisions that go against counsel from health experts.
Face masks are flying off shelves as healthy consumers seek to get ahead of coronavirus, creating a potential shortfall for medical workers more likely to come into contact with it. While face masks are relatively effective at preventing sick people from transmitting their illness, experts say they’re far less effective at keeping healthy people from getting sick.
People line up outside a Hong Kong pharmacy on Feb. 6 in hopes of purchasing surgical masks, which have been in short supply. Geovien so—SOPA Images/LightRocket via Getty Images
Petitions seeking to close districts and universities across the United States, citing the coronavirus as a reason to keep students home, are racking up signatures, while other school districts are erupting in panic without any confirmed cases of the virus in their communities. And though only a dozen cases of the novel virus have been confirmed inside the U.S., ride-sharing platforms are already experiencing an uptick in bigoted complaints, and Chinatowns across the country are struggling to retain business, two grim reminders of xenophobic and racist tensions that often become inflamed in times of crisis.
“Beyond the science of the virus,” says Burns, “what Steven Soderbergh and I were interested in was using it to trace a bullet through our society, and how the preexisting conditions in our society make us susceptible to fear as well as the virus.”
The key to the film, he says, is a scene in which Laurence Fishburne’s CDC official, Dr. Ellis Cheever, appears on CNN to debate the character of Alan Krumwiede (Jude Law), a conspiracy theorist who rises to fame by stoking anti-government sentiment as the pandemic spreads. At one point, Krumwiede fakes contracting MEV-1 so that he can “cure” himself on his popular video blog with a simple homeopathic remedy derived from forsythia. The public responds by overwhelming pharmacies in search of it, causing the virus to spread as infected individuals come into contact with healthy people.
“In order to become sick,” says Fishburne’s Cheever in that scene, “you have to first come into contact with a sick person or something that they touched. In order to get scared, all you have to do is come into contact with a rumor, or the television, or the Internet. I think what Mr. Krumwiede is spreading is far more dangerous than the disease.”
Jude Law plays a conspiracy theorist in 2011’s “Contagion.” Claudette Barius—Warner Bros/courtesy Everett Collection
Public overreaction and panic, inflamed by social media platforms and eroded trust in media institutions, has been on Burns’ mind a lot lately, as it was when he first sat down to write Contagion. Burns points out that the United States is already in the midst of its own health crisis: seasonal flu. According to CDC estimates from Oct. 1, 2019, up until Feb. 1, there have been between 22 million and 31 million cases of flu in the U.S.
“We have limited capacity for what Dr. Brilliant called risk assessment,” Burns explains. “If you read the paper every day, you might see a lot of stories about people dying in car accidents. There aren’t stories about people dying of high blood pressure and heart attacks. Journalists don’t really write stories about these more mundane things.
“That people are terrified of coronavirus and don’t care at all about seasonal flu comes to this large point of our inability to differentiate risk,” he adds. “People don’t go swimming because of Jaws but will do things much riskier than swimming in the ocean. That’s a problem for people in the public health sector, because once people become terrified, it’s hard to manage.”
For his part, Burns advises that you wash your hands, avoid touching your face, and trust experts within the scientific community, as well as be wary of misinformation spread on social media by fearmongering outlets, or by politicians with dubious agendas.
Late last month, U.S. Commerce Secretary Wilbur Ross commented that the coronavirus outbreak in China would help “accelerate the return of jobs to North America,” insinuating that he saw the disease as a business opportunity.
“If he said that, he’s unfit for public office, and for public trust,” says Brilliant. “Those of us in public health have a custodial and fiduciary duty to the health of the public. We can’t profit off it. But we’re in a time of rising nationalism, and you can’t make this into a political event; but I can’t not comment on the fact smallpox was only eradicated because scientists from dozens of countries—every religion, race, and language—came together against it.”
Burns added that it “terrified” him to hear Ross so dehumanize the suffering of Chinese people. “Everyone has a different socioeconomic circumstance,” says Burns. “Everyone has their own tribal views, their own confirmation biases, and preconceived notions. But fear doesn’t make us better equipped to be rational.”
Weak health care systems complicate the battle
Brilliant specializes in risk assessment, envisioning a spectrum of scenarios and preparing for each that has a “nonzero probability” of occurring. His work depends on acknowledging what no one yet knows: for example, which coefficient of risk to put on each probability—the virus could evolve to become deadlier or die out altogether, to outline two scenarios.
He and others have concerns about the preparedness of countries with far fewer resources to identify and treat infectious disease. When it comes to treating pandemics, the world’s defenses are only as strong as those established in its poorest communities, he says. Even if cities from Boston to San Francisco are well equipped to contain COVID-19, the virus could continue to spread in lower-resource countries. And if it does, the harm to those countries could be catastrophic, especially if the virus continues to evolve, in which case it could theoretically become deadlier.
“The problem is that two dozen countries have received importations of that disease, but only two people have died outside of China,” Brilliant says. “That means the disease has been met in Thailand and the United States with a speed of detection that’s prevented the disease from becoming a second, full-blown locus of disease.
“Think about a fire raging, that spews sparks everywhere, but it’s landing on fire-prepared land,” adds Brilliant. “But if you go through that list of 25 countries, what’s missing from that list? Where’s Venezuela? Where’s Zimbabwe? Where are the mining communities in Africa so many Chinese workers go to? Five million people left Wuhan before they went into isolation. They didn’t not go to Venezuela. My fear is what we don’t know. Are there countries with weak immunity systems where the virus has been there for five weeks, spreading unseen?”
Brilliant’s aware that he sounds less than reassuring. That’s just the gig. “Epidemiologists like myself have predicted 10 of the last two pandemics,” he says, chuckling. “We have to be careful what we say. But I do worry which of those countries might propagate this disease and don’t have testing labs and facilities, or adequate health infrastructure.”
While technologies that exist to help identify infectious diseases have advanced considerably since Contagion’s release, funding for public health infrastructure has not been increased, especially in less developed nations. But even in the United States, under the Trump administration, funding to the CDC has been cut, hamstringing researchers as they race to protect civilians against biological threats. This, say both Burns and Brilliant, puts humanity at risk in a profound, preventable manner.
“Public health infrastructure is something we don’t pay attention to, until it’s way too fucking late,” says Burns. “We don’t go in very much for prevention. Then, suddenly, we’ve underfunded this important part of our society, and a situation needs attention, but you’re already way behind.”
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—Stock scammers are using coronavirus to dupe investors, SEC warns
—Credit Suisse making a comeback, but spying scandal drags down outlook
—Why China is still so susceptible to disease outbreaks
—A new coronavirus red flag on the horizon—a stronger dollar
—Fortune Explains: Tariffs and trade wars
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-02-12--Popular antivirus software Avast under investigation for selling user browsing histories

Officials in the Czech Republic have launched an investigation into Avast, one of the Internet’s most popular free antivirus programs, amid accusations the company sold the search history of as many as 100 million users to third parties.
Regulators have initiated what they call a “preliminary” investigation of the company, meaning data gathering is underway. Avast is based in the the Czech Republic but widely used around the world.
“There is a suspicion of a serious and extensive breach of the protection of users’ personal data,” said Ivana Janů, president of the Czech office for personal data protection in a statement. “Based on the findings, further steps will be taken and general public will be informed in due time.”
The investigation comes following reports from PCMag and Motherboard that Avast was selling the user data through its Jumpshot subsidiary. The company said it has stripped users’ personal details from the data, but the publications said it was still easy to tie the browser histories with specific users.
Avast shut down Jumpshot in late January, apologizing for the practices.
“I realize the recent news about Jumpshot has hurt the feelings of many of you, and rightfully raised a number of questions—including the fundamental question of trust,” said Avast CEO Ondrej Vlcek in a blog post at the time. “Protecting people is Avast’s top priority and must be embedded in everything we do in our business and in our products. Anything to the contrary is unacceptable.”
More must-read stories from Fortune:
—The strange tale of Jeff Bezos’s $16,840 parking ticket bill
—Post-Brexit U.K.’s surveillance practices could spell problems for business
—Governments deploy surveillance tech to track coronavirus victims
—How marketers are increasingly using A.I. to persuade you to buy
—Predicting the biggest tech headlines of 2020
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-02-12--Luxury goods mogul Bernard Arnault was briefly crowned ‘world’s richest man.’ Then coronavirus struc

Luxury goods mogul Bernard Arnault was briefly crowned ‘world’s richest man.’ Then coronavirus struck

Bernhard Arnault, the billionaire chief executive of the world’s biggest luxury goods company, LVMH, has had a memorable few months.
In November, the French dealmaker realized a long-held dream by clinching a $16 billion takeover of storied U.S. jeweler Tiffany’s. Then, in January, a surge in the value of his family’s stake (amounting to 47%) in LVMH briefly made him the world’s richest person. Oh, and the company he runs bought a tennis-ball-sized diamond, the second-biggest gem of its kind ever unearthed.
Feast your eyes on the Sewelo diamond.
This picture taken on January 21, 2020, shows the second world biggest rough diamond named “Sewelo” displayed at place Vendome’s Louis Vuitton luxury shop in Paris. Stephane de Sakutin—AFP via Getty Images
But things have suddenly become more complicated for the urbane Monsieur Arnault. Just as the LVMH shares were hitting all-time records highs, news emerged of the coronavirus outbreak in China, the company’s fastest growing market.
Arnault, LVMH’s chief executive, was unruffled by the viral threat when questioned by analysts at the company’s annual results presentation on Jan. 28. “Let’s not panic,” he said. “Let’s analyze the situation calmly.”
The severity of the business impact, he said, would depend on however long the outbreak lasted. “If it’s resolved over the next two, two-and-a-half months, then it won’t be all that bad. If it were to last two years, it would be a totally different matter.” (Rival luxury brand Kering, owners of Gucci, made similarly vague reassurances).
“Wolf in cashmere”
The sangfroid is to be expected from a businessman who has been nicknamed “the wolf in cashmere” and “the emperor of luxury” during a lifetime of hard-nosed dealmaking that has seen him grow a struggling French textiles company, bought for a symbolic one franc in 1984, into the dominant luxury goods player with a market value of $230 billion.
Arnault sits atop a sprawling empire that is a veritable who’s who of luxury brands. LVMH’s drinks brands include Hennessy cognac and Moet & Chandon champagne, while in fashion and leather goods it owns Louis Vuitton, Loewe, Berluti, Christian Dior and Kenzo. Its perfumes include Guerlain and Givenchy while its watch and jewelry brands include Chaumet, Bulgari, Tag Heuer and Hublot.
LVMH’s annual results last month did not break out revenue from China but it said Asia, excluding Japan, accounted for 30% of LVMH’s revenue last year. That was despite what the company called a “difficult environment” in Hong Kong, which was rocked by months of anti-government protests last year. But that’s far from the full story; Chinese consumers typically make most luxury purchases abroad.
The coronavirus outbreak, which has killed more than 1,100 people, has not only emptied out luxury boutiques in China, it has prevented many affluent Chinese from traveling abroad.
Arnault presented last month bumper results for 2019 with LVMH revenues rising 15% to €53.7 billion ($58.5 billion) and group share of net profit rising 13% to €7.2 billion ($7.8 billion).
LVMH’s strong performance has driven the company’s shares up by more than 40% in the last year. But it’s down 7% since mid-January, which is eating into his immense personal wealth.
World’s richest…for a moment
The Arnault family’s controlling stake in the company turned Arnault briefly in December and again in January into the world’s richest person. But the drop in LVMH’s share price as the coronavirus crisis deepened has reduced Arnault’s fortune and dropped him down the list.
According to Forbes’ real-time billionaire’s list, Arnault currently ranks third among the world’s wealthiest, with a fortune of $110.2 billion, behind Microsoft co-founder Bill Gates on $112.7 billion and Amazon’s Jeff Bezos on $131.8 billion.
Arnault insists that making quality products is his main concern, not pursuing growth for its own sake.
“What we want is to continue to produce quality products and satisfy our customers. Growth is good. It delights the shareholders. I’m also a shareholder, so I can’t say that I look askance at it, but it’s not really the objective,” he told analysts.
At 70, Arnault’s ambition to come out on top burns as strongly as ever.
Last November, Arnault sealed the biggest ever deal in the luxury goods industry, snapping up U.S. jeweler Tiffany & Co, which he had long coveted, for $16.2 billion. When the deal completes later this year, LVMH will bring global heft to Tiffany, an 183-year-old company made famous by Audrey Hepburn in the classic 1961 movie “Breakfast at Tiffany’s.”
Louis Vuitton, part of Arnault’s empire, announced another audacious acquisition in January when it revealed it had bought, for an undisclosed price, the 1,758 carat Sewelo diamond, the world’s second largest rough diamond. The purchase of the gem, which will be cut into smaller stones, underlined Louis Vuitton’s ambitions in the most exclusive segment of the jewelry business.
It is second only to the 3,107 carat Cullinan diamond, found in South Africa in 1905. Several of the diamonds cut from that stone form part of the British crown jewels.
Arnault was again in the limelight after fire ravaged Paris’ ancient Notre Dame cathedral last April. LVMH and the Arnault family pledged 200 million euros ($218 million) to rebuild the Paris landmark the day after the blaze.
In 2019, LVMH also linked up with singer Rihanna to launch a new fashion label.
Born into a family of industrialists in Roubaix, northern France in March 1949, Arnault attended local schools before going on to study at France’s prestigious Ecole Polytechnique.
He began his career as an engineer with the Ferret-Savinel construction company, which his family owned, becoming chairman in 1978. In 1984, he took control, for a single franc, of the troubled Boussac textile company that owned the Christian Dior brand.
He turned Christian Dior into the cornerstone of his fledgling empire. In the late 1980s, Arnault built up a large stake in LVMH, which had recently been formed from the merger of Moet Hennessy and Louis Vuitton. He has been chairman and CEO of LVMH since 1989.
Since then, acquisitions have followed thick and fast, including Kenzo, Guerlain, Loewe, Marc Jacobs and Sephora.
He has had setbacks. One of the biggest was in 1999 when PPR, now called Kering, bested LVMH in a takeover battle for the Italian luxury brand Gucci.
Married with five children, Arnault is a well-known modern art collector, owning works by Pablo Picasso and Henry Moore.
And, yes, he enjoys playing tennis.
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fortune--2020-02-12--3Pillar Global CEO: Put humanity, and the humanities, back in business

Have businesses become obsessed with investing in science, technology, engineering, and mathematics disciplines to the exclusion of nurturing education that cultivates the ability to think critically?
In 10 years, leaders will look back and question why corporations invested so much in prioritizing STEM skills without balancing that knowledge with the critical thinking skills a formal humanities education can provide, predicts David DeWolf, president and CEO of digital software development company 3Pillar Global.
“I think this is important and relevant because of the world we live in with A.I. these days,” DeWolf tells FORTUNE senior special correspondent Susie Gharib. “When you look at machine learning and artificial intelligence, you see all sorts of moral and ethical questions being raised about how does this impact jobs, how does this impact people? I think we need young professionals to be grounded in humanities to help us to navigate how these technologies apply to our human lives.”
DeWolf’s perspective may seem odd for a software development organization that, by its own estimate, has its hand in digital services consumed daily by an estimated 50-75% of Americans—from the code that allows Downtown Abbey enthusiasts to binge-watch their favorite episodes to the algorithms underlying the ParkMobile parking app.
But the company’s thinking is shaped by its support for the concept of conscious capitalism, the idea espoused by a recent shift in thinking by the Business Roundtable that companies serve many stakeholders beyond its shareholders, including employees and the communities in which they do business. “We need to put the humanity back into business,” says DeWolf.
That shift will require focusing on different sorts of management metrics, says DeWolf. Among the ones that get 3Pillar’s attention: how many entrepreneurs have left the company’s ranks to found startups or how many employees have worked their way up through 3Pillar’s ranks.
Watch the full video for more of DeWolf’s insights on conscious capitalism.
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fortune--2020-02-12--SARS battered the luxury goods sector in 2003. Why coronavirus could be worse. Far worse

The sale of luxury goods were hit hard, if fleetingly, by the 2003 SARS epidemic. After a few-month hiatus, Asia’s well healed consumers were once again stocking up on $2,500 Gucci handbags and $300 Hermes scarves.
Today’s investors are hoping for a sort of SARS replay. That may be too much to ask.
That’s because a lot has changed in the past 17 years. Free-spending Chinese tourists festooned with shopping bags from Chanel or Louis Vuitton are now a common sight from New York to Rome. And they’re buying even more back home. That trend is showing up on the balance sheet, and it’s defining growth strategies in board rooms around the world.
The Chinese consumer is now a force in the $300 billion luxury goods market, accounting for 35% of the global market—and most of its growth. It was just 2% at the time of the SARS epidemic.
The insatiable appetite of newly affluent Chinese for luxury items has helped deliver bumper profits for companies such as France’s LVMH, the world’s biggest luxury goods company, and Gucci-owner Kering, driving their shares to record highs in January just before coronavirus fears led to a correction.
“Switched off this growth engine”
The impact of the coronavirus outbreak on the luxury goods sector could be more severe than that of the SARS epidemic because the sector is much more exposed to China nowadays, according to Tristan d’Aboville, a London-based executive director with investment advisor William O’Neil & Co.
“Two thirds of the growth of the luxury sector globally is provided by Chinese tourists and China. So basically you’ve just switched off two-thirds of this growth engine,” d’Aboville told Fortune.
He expected analysts to cut their earnings estimates for the likes of LVMH, Kering and Moncler by an average of around 10% for this year. For now, all is not lost. He expected that their 2021 their businesses would have returned to normal.
He had already been anticipating a “soft landing” for some luxury brands in 2020 after two strong years. “Now the soft landing is moving into a little bit of a hard landing because of this coronavirus,” he said, adding that could create a buying opportunity for fearless investors.
By the numbers
When it comes to measuring the impact on the luxury sector, of course, the question on everyone’s mind is how long will the outbreak last?
The coronavirus outbreak, as of today, has killed more than 1,100 people, far more than the 774 deaths inflicted globally by the 2002-03 SARS (severe acute respiratory syndrome) epidemic.
The coronavirus crisis led to the lockdown of Wuhan, the city where the outbreak began, and disrupted the Chinese Lunar New Year holiday, a popular time for giving luxury items as gifts. Chinese buyers are staying at home, leaving luxury stores nearly empty, while travel restrictions imposed by some countries due to the coronavirus outbreak have limited consumers’ ability to shop overseas.
Italian down jacket maker Moncler said this week that the number of shoppers visiting its stores in China was down 80% while British luxury firm Burberry said last week that 24 of its 64 stores in China were closed. On Wednesday, Kering brass gave few details about the impact it’s feeling so far, but warned things could get worse.
After a big recovery today, Kering shares are down 5% since the mid-January cornavirus outbreak emerged; LMMH shares are down 7% in the same period.
The New York City-based cosmetic firm, the Estee Lauder companies, said last week the coronavirus outbreak would affect its financial results in the near term and that it was updating its fiscal year outlook.
To make matters worse, hundreds of buyers for Chinese department stores may reportedly miss crucial fashion weeks this month in London and Milan as infection fears grow. Meanwhile, luxury sales in Hong Kong were already suffering because of months of anti-government protests.
“Our understanding is that luxury consumption in China has ground to a sudden stop,” analysts at brokerage Bernstein said in a report last week that compared the current crisis with the SARS epidemic of 2003.
It said that SARS precipitated the second worst plunge in price earnings multiples in the history of the sector. Only the 2008 financial crisis had a more severe impact. For example, Gucci’s net profit dropped 97% in its 2003 first quarter due to the SARS epidemic.
How to measure a blip
2003 was a rough period in general for the sector. The U.S.-led invasion of Iraq was in full swing and with a sharp appreciation of the euro against the dollar also impacted sales, Bernstein pointed out.
With all that in mind, Berstein predicted the coronavirus impact on luxury goods firms this time around “should be a temporary blip – the epidemic goes and we are back to normal – yet, the dip could be material.”
To get an idea for how long the uncertainty could linger, Bernstein polled asset managers who told them they saw that “blip” lasting a full year.
RBC Capital Markets also ran the numbers. It looked to the 2002-03 SARS epidemic for pointers to the fallout from the current crisis. The SARS epidemic reduced international traveler flows in 2003 by 20%. If Chinese consumption were to fall by a similar amount in the first half of this year, luxury firms would then see a reduction of 4% in 2020 revenues and a 7-8% drop in earnings, it said.
The stocks most exposed to China include Swatch Group, Richemont and Burberry whilst. The least exposed were Franco-Italian eye-glasses-maker EssilorLuxottica, Puma, Pandora and Hugo Boss, it said.
The global market for personal luxury goods—including shoes, jewelry, leather goods and beauty products—rose 4% last year to a record 281 billion euros ($307 billion) last year. The luxury sector is one of the brights spots in retail, expected to grow to $365-410 billion by 2025. By then, the Chinese consumers will account for 46% of the global market.
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fortune--2020-02-12--Huawei poses a 5G spying risk, but other options are hard to come by

The United States has finally specified its accusation against Huawei: The Chinese telecoms equipment firm maintains spying access to the traffic flowing through its products.
Governments around the world say telecoms equipment has to include this access, for the benefit of their law enforcement and intelligence agencies—in the U.S., the relevant law is called the Communications Assistance for Law Enforcement Act, or CALEA. But the makers of the equipment are not supposed to be able to poke around—accessing data such as what people are looking at online, and their emails and text messages—without permission from the operators that are their customers.
According to a Tuesday article in the Wall Street Journal, Huawei secretly maintains that access, and that is why the U.S. is begging its allies to not include Huawei products in their 5G networks—networks that will connect not just people but billions of cars, buildings, and devices, providing exciting new avenues for espionage and sabotage.
But what are these allies—and for that matter the U.S. itself—supposed to use instead?
Various ideas have been floated in recent weeks by members of the Trump administration and by the government of the U.K., a key ally that infuriated the American president by giving its carriers the green light to use Huawei’s 5G wares to a limited degree.
Here’s a rundown of those proposals—and the thoughts of industry analysts regarding their viability.
Attract another player
Huawei is the world’s leading supplier of 5G telecoms equipment. Its prices are lower than those of main rivals Nokia and Ericsson, thanks largely to cash flowing in from Chinese state support, plus the economies of scale that result from the country’s hyperactive 5G network rollout.
Telecoms operators can obviously turn to Nokia and/or Ericsson instead, but things aren’t quite that simple. Operators want multiple vendors’ equipment in their networks for flexibility, and they don’t want to pay any more than they have to, says Ian Fogg, an industry veteran who heads up the team of analysts at mobile analytics firm Opensignal.
“If you’re running a procurement process and you probably want at least two vendors on the network to have choice, you want at least three vendors in the procurement process to get competitive bidding,” Fogg says.
So who’s the third vendor, if not Huawei?
According to Nicky Morgan, the British minister responsible for telecommunications infrastructure, one option is to “get another provider who’s operating elsewhere to operate in the UK.”
Nokia and Ericsson already operate in the U.K. The other two players worth mentioning are ZTE—a non-starter given that ZTE is Chinese and potentially also poses risks—and the South Korean electronics giant Samsung.
Samsung has made some gains in the U.S. and South Korean 5G network markets, and also recently inked a deal with Canada’s Videotron, but it’s still relatively young in the space.
“It will take time for someone like Samsung Networks to scale up their business,” says Fogg. “It’s not something that can happen overnight.”
Timing is a recurring theme when considering any of these options. As Fogg puts it: “Really, these decisions should have been made three to four years ago before 5G networks started to be deployed… If a country or operator has already started deploying ,and then has to change midway, it risks distracting everyone from their day job of building a great network.”
Buy a big player
Last week, U.S. Attorney General William Barr expressed enthusiasm for the idea of the U.S. directly or indirectly (via a “consortium of private American and allied companies”) taking a controlling stake in Nokia or Ericsson, which he described as the “only two companies that can compete with Huawei right now as 5G infrastructure suppliers.”
“Putting our large market and financial muscle behind one or both of these firms would make it a more formidable competitor and eliminate concerns over its staying power,” Barr said. “We and our closest allies certainly need to be actively considering this approach… What we need today is a product that can win contracts right now.”
There are two big problems with this approach. First, as Fogg notes: “It’s not clear that ownership change will enhance the competitiveness of a company like Nokia or Ericsson. They want to be successful vendors in the mobile industry—they’re already going hell-for-leather to do that. Change of ownership could just be another distraction.”
Secondly, the Europeans would be displeased at the idea of one of their prize telecoms firms—Nokia is Finnish and Ericsson Swedish—being bought out by the Americans.
In a position paper approved Tuesday by Angela Merkel’s Christian Democrats and one of its coalition partners, the Christian Social Union, the conservative parties not only rejected the idea of a U.S.-pleasing ban on Huawei’s participation in German 5G networks, but also called for a common European industrial strategy that would push back against hostile foreign takeovers of 5G-critical European companies.
Coming so soon after Barr’s promotion of such an idea, it is hard not to see the German stance as an outright rebuff. And in the EU, Germany’s the most influential country.
Build a new player
Barr’s speech last week was notable for a few reasons, among them the fact that it made no mention of another how-to-substitute-Huawei idea that floated by a Trump administration member just a couple days previously.
Early last week, the Journal reported that the White House had corralled the likes of Microsoft, Dell and AT&T into a joint effort to build new software for 5G networks.
“The big-picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms, principally,” said White House economic advisor Larry Kudlow, who said Nokia and Ericsson could also participate as they have a significant U.S. presence.
Nokia and Ericsson aside, these may not be the most obvious players to take on Huawei. “The technologies held by [Microsoft, Dell, and AT&T] are useful for computing applications, but they don’t have the expertise in radio technology to achieve the high level of performance needed in the market,” says Joe Madden, president of the Californian analyst house Mobile Experts.
But there may still be something to the idea—though it probably won’t be to the liking of Nokia and Ericsson.
The plan appears to build on an interesting new development in the industry called Open RAN (“RAN” stands for “radio access network” and refers to the parts of the network that connect people’s devices to the core network, using cellular towers and so on.) The idea here is to have new standards that will allow operators to buy cheap, generic network hardware and run various developers’ software on it, as opposed to having to buy specialized software-and-hardware packages from established vendors.
It’s a bit like how Facebook and Google run their data centers these days, with the emphasis being on the software rather than the hardware. Notably, the Japanese e-commerce giant Rakuten is using the Open RAN approach to enter that country’s telecoms market in a relatively cost-effective fashion.
Being a new entrant without a legacy network, Rakuten gets to take advantage of new methods.
“Everyone in the industry is watching,” says Fogg. “The bigger dynamic in the industry is around Open RAN standards, and smaller vendors trying to disaggregate bigger technology vendors… [but] no-one knows how well this will work in practice.”
Perhaps this is where the real alternatives to Huawei lie. But not yet.
According to Alex Davies, a senior Internet-of-things analyst at Riot Research, Open RAN won’t come soon enough to solve the U.S. and U.K. governments’ current dilemma. “There are enough standards in place that you would be able to deploy, and I think it would function well enough, but there’s the lobbying side of things,” he says. “A very big business community doesn’t want to have the boat shaken by a commitment to open-source technology.”
“Open RAN is guiding all current [operator] purchasing decisions to some extent, and that’s only going to increase going forward, but I don’t think it’s an immediate solution to this problem.”
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fortune--2020-02-12--Fortune poll: Many Americans are uneasy about the merger of T-Mobile and Sprint

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The merger of T-Mobile and Sprint is proceeding. On Tuesday, a federal judge ruled against states trying to block the deal on the grounds of harm to competition. This was the final roadblock for the $26.5 billion agreement, first announced in 2018. It already has Federal Communications Commission approval.
Verizon Wireless, AT&T, and T-Mobile take in 79% of wireless revenue, according to Bloomberg. After this merger, these three companies would control over 90% of wireless revenue on the continent—and an even higher share in just the U.S.
“We’ve said it all along: the New T-Mobile will be a supercharged un-carrier that is great for consumers and great for competition. The broad and deep 5G network that only our combined companies will be able to bring to life is going to change wireless,” wrote T-Mobile’s CEO John Legere in a joint release with Sprint following the announcement.
The courts and companies have made their stances clear. But how do Americans feel about having fewer mobile carriers? What do Sprint and T-Mobile customers in particular think? To get a pulse on public opinion towards this merger and the current state of wireless, Fortune-SurveyMonkey polled nearly 2,500 Americans.*
Quick numbers you should know:
45%
… of Americans are concerned about consolidation among mobile carriers, while 34% say they are not concerned.
34%
… of T-Mobile customers say the planned merger is mostly positive for them, compared to the 13% who say it’s mostly negative.
21%
… of Sprint customers say the planned merger is mostly positive for them, while 19% think it’s mostly negative.
-8 points
… is the net favorably rating of Sprint, the lowest among the four largest carriers, including AT&T (+13), T-Mobile (+13), and Verizon Wireless (+30).
Big picture takeaway:
Sprint and T-Mobile customers have very different beliefs on the benefits of the merger. Many more T-Mobile customers think it will positively than negatively impact them—the ratio is 3 to 1. Meanwhile, Sprint customers are pretty much split down the middle.
But many Americans are concerned with the prospect of having fewer cell phone carrier options. Americans concerned with consolidation among mobile carriers outnumber those not concerned by 11%.
Deeper takeaways:
Sprint is at the industry low for customer satisfaction
Sprint and T-Mobile have head in opposite directions for much of the past decade. In 2013, T-Mobile took in 9.4% of mobile carrier revenue while Sprint totaled 14.4% of the market. But they flipped by the end of 2018: T-Mobile sat at 16.9% of the market compared to Sprint’s 11.5%.
That difference in trajectory might be explained by national image and customer satisfaction. Sprint struggles the most with its national image, with only 22% of Americans viewing it favorably versus 30% viewing it unfavorably. Meanwhile, 33% of Americans view T-Mobile favorably versus 20% unfavorably. And Sprint users have the highest level of dissatisfaction while T-Mobile users have the lowest.
Sprint and T-Mobile users are the most concerned with this kind of merger
The consumers directly impacted by the Sprint and T-Mobile merger are also the most likely to say they’re concerned with increased mobile carrier concentration. But even among AT&T and Verizon Wireless customers, the share of those concerned outnumbers that of those unconcerned.
One more interesting number:
47%
… of Americans say their mobile payment is higher than it should be. And 44% of Americans say they spend more on their mobile carrier plan than their car payment.
*Methodology: The Fortune-SurveyMonkey poll was conducted among a national sample of 2,455 adults in the U.S. between December 21 to 30. This survey’s modeled error estimate is plus or minus 3 percentage points. The findings have been weighted for age, race, sex, education, and geography.


fortune--2020-02-12--The superstar investor behind some of Battery Ventures’s largest exits

This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
We talk a lot about sexy venture capital firms and the (consumer) companies they back. You know what’s sexier? Making cold, hard cash.
Since its founding in 1983, B2B tech-focused investment firm Battery Ventures has invested in 426 companies (excluding seed deals), resulting in 61 total initial public offerings and 167 M&A events.
Now, the firm is announcing a new $1.2 billion for its flagship fund, Battery Ventures XIII, and an additional $800 million for a side fund that will invest in later-stage growth and buyout deals. Battery will invest across B2B software, information infrastructure, and cybersecurity.
While other media outlets have already reported news of the funds, I want to draw your attention to someone in particular: Chelsea Stoner, the general partner who has been integral to some of Battery’s largest exits in recent days.
Stoner is a growth investor who has risen through the ranks at Battery to become the first (and only) female partner in the firm’s 37-year history. She often pursues software-healthcare companies in markets that a lot of other investors overlook.
Stoner keeps a low profile, and when I interviewed her for Term Sheet’s ‘5 Qs with a Dealmaker,’ she was not too keen on self-promotion. But her impressive track record speaks for itself. Stoner has had several hefty exits over the years—Glassdoor was acquired for $1.2 billion, Intacct for $850 million, and Brightree for $800 million. Groupon, Guidewire, Marketo, Avalara, and RealPage all IPOed. Her other portfolio companies, including WebPT, Data Innovations, and ClearCare, were also acquired but their financial terms weren’t disclosed.
Brightree’s CEO credits Stoner and her team for helping boost the company’s revenues from $8 million to over $100 million. “We do deals for a living, so we should be able to be on the ground helping them execute acquisitions,” she told Term Sheet in 2018. “In Brightree’s example, I was helping them develop relationships with acquisition targets, create models, and negotiate the docs.”
Although Stoner’s been flying under the radar for many years, she’s an investor you don’t want to bet against.
WHAT’S UP WITH AIRBNB? The Wall Street Journal published a story yesterday claiming that Airbnb lost $322 million over the first nine months of last year. The losses could potentially hurt Airbnb’s valuation as it looks to go public later this year. You can read the fullstory here, and I’ll have more analysis on this tomorrow.
Polina Marinova
Twitter: @polina_marinova
Email: polina.marinova@fortune.com
VENTURE DEALS
- Fenergo, an Ireland-based digital enabler of client and regulatory technology for financial services, raised $80 million. DXC led the round and was joined by the venture arm of Dutch bank ABN Amro.
- SoundCloud, a Berlin-based open audio platform, raised $75 million in funding from SiriusXM.
- Carbon Relay, a Boston-based provider of AI driven solutions to data centers, raised $63 million in funding. Insight Partners led the round.
- Nova Credit, a Palo Alto, Calif.-based cross-border consumer credit reporting startup, raised $50 million in funding. Kleiner Perkins led the round, and was joined by investors including Canapi Ventures and existing investors Index Ventures, General Catalyst, Nyca Partners, Sound Ventures, Alex Rodriguez and U2 guitarist the Edge.
- Hazelcast, a Palo Alto, Calif.-based open source in-memory computing platform, raised $28.5 million in funding to bring its total Series D round to a total of $50 million. Investors include The European Bank for Reconstruction and Development and Deutsche Investitions-und Entwicklungsgesellschaft mbH, C5 Capital, Bain Capital Ventures, Earlybird Venture Capital and Capital One Growth Ventures.
- Deep Instinct, a New York-based cybersecurity company, raised $43 million in Series C funding. Millennium New Horizons led the round, and was joined by investors including Unbound, LG Technology Ventures, NVIDIA, HP Inc. and Samsung.
- Course Hero, a Redwood City, Calif.-based online learning platform, raised $40 million in funding at a $1.1 billion valuation. Investors include New View Capital.
- Alpha Foods, a Glendale, Calif.-based producer of plant-based foods, raised $28 million in funding. AccelFoods led the round, and was joined by investors including New Crop Capital, Green Monday Ventures and Blue Horizon.
- PredictHQ, a New Zealand-based demand intelligence company, raised $22 million in Series B funding. Sutter Hill Ventures led the round.
- Stilla Technologies, a France-based provider of digital PCR solutions for high-precision genetic analysis, raised €20 million ($22 million) in Series B funding. Investors include TUS-Holdings, Illumina Ventures, Kurma Partners, LBO France, Paris Saclay Seed Funds, BNP Paribas Développement and Idinvest Partners.
- Model9, an Israel-based cloud data management for mainframes, raised $9 million in Series A funding. Intel Capital led the round, and was joined by investors including StageOne, North First Ventures and GlenRock Israel.
- Nerdio, a Chicago-based definitive Microsoft Azure automation solution for managed service providers and IT Professionals, raised $8 million in Series A funding. MK Capital led the round.
- Aiera, a New York-based event intelligence and insights platform, raised $7 million in funding. Fin Venture Capital led the round, and was joined by investors including Macquarie Group, Citi Markets FinTech Investments, and Franklin Templeton.
- Bit Fry Game Studios, a Portsmouth, N.H.-based arcade-action sports video game developer, raised $3.5 million in funding. Investors include 1Up Ventures and BITKRAFT Esports Ventures.
- Dealroom, a Netherlands-based operator of a platform that connects professional investors, corporates, and local governments for sharing data, raised €2.75 million euros ($3 million) in Series A funding. Shoe Investments and Knight Venture Capital co-led the round.
PRIVATE EQUITY DEALS
- Entrepreneurial Equity Partners acquired Kronos Foods Corp, a Glendale Heights, Ill.-based manufacturer and distributor of Mediterranean food products. Financial terms weren't disclosed.
- Trilantic North America acquired Gorilla Commerce, a Westport, Conn.-based e-commerce platform specializing in the development and sale of home and pet products through direct-to-consumer channels. Financial terms weren't disclosed.
IPOs
- PT Triputra Agro Persada, an Indonesian plantation company backed by Singapore’s sovereign wealth fund GIC Pte, is preparing for an initial public offering in the country that could raise about $500 million, per Bloomberg citing sources. Read more.
EXITS
- Enhanced Healthcare Partners sold West Dermatology, an Irvine, Calif.-based provider of dermatology services, to Sun Capital Partners, Inc. Financial terms weren't disclosed.
- The Raine Group sold Parchment, a Scottsdale, Ariz.-based education platform for issuing and receiving academic and professional credentials. Financial terms weren't disclosed.
FIRMS + FUNDS
- KKR, a New York-based global investment firm, raised $1.3 billion for its KKR Global Impact Fund SCSp.
PEOPLE
- Underscore VC promoted Lily Lyman to partner.
- David Eisenberg joined Cambridge Associates as a managing director.
- The Angel CoFund named George Whitehead and Alliott Cole partner and non-executive director.
- Derick Prelle joined Butterfly as partner and head of portfolio operations.


fortune--2020-02-12--John Legere will go down in corporate history as one of the greatest turnaround stories of all time

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A few months after John Legere got the top job at T-Mobile in 2012, Verizon ran a commercial belittling rivals by name for their lesser network coverage. Some people around Legere were furious, but the boss was pleased. “We made the list, they talked about us,” he recalled to me years later. “They are gonna regret the day that they put us on that list.”
T-Mobile went on to lead the industry in customer growth year after year, outgaining Verizon, AT&T, and Sprint combined. The fourth quarter of 2019 marked the 27th quarter in a row that T-Mobile gained at least 1 million new customers—it added 1.9 million. A good T-Mobile quarter is better than a rival’s entire year. As a result, T-Mobile’s stock price has increased six-fold since the company effectively went public in 2013. (Verizon’s stock price is up just 9% since then and AT&T’s 2%.)
Legere’s is a journey that will go down in the annals of corporate history as one of the greatest turnaround stories of all time, rivaling Lou Gerstner at IBM or Steve Jobs at Apple.
He took over a fading, fourth-place also-ran that was struggling to remain relevant and built a titan that drove the wireless industry. If Legere’s deal to take Sprint off Masayoshi Son’s hands finally closes in a few weeks, as now seems likely, the combined company will rank second in the industry by some measures and likely be worth more than $100 billion on the stock market.
Not a lot of people outside of T-Mobile were buying into Legere’s vision when he stormed CES in 2013 and declared that T-Mobile would become the “uncarrier” and do away with two-year contracts. Along the way, T-Mobile dumped all sorts of wireless plan “features” hated by customers, including roaming fees, data overage fees, and international usage fees. And don’t forget the numerous clever marketing campaigns, such as the time they gave away free pizzas.
Executives at competing carriers used to rail against the F-bomb-dropping, Twitter war-engaging, magenta tee shirt-wearing Legere and claim his early success was unsustainable, uneconomic, and downright fake. No one’s saying that anymore. When activist hedge fund Elliott Management released a lengthy letter attacking AT&T’s strategy last year, it cited Legere’s company as the model for success: “T-Mobile was the disruptive innovator.”
Certainly, just like Jobs and Gerstner, Legere benefited from some forces beyond his control, like the smartphone revolution that created massive growth for the entire wireless industry. And he had a powerful team, starting with president and CEO-in-waiting Mike Sievert and including networking genius Neville Ray, financing wiz Braxton Carter, and customer care guru Callie Field. I chronicled their approach in a feature story two years ago.
Now Legere is at the other side of his journey running T-Mobile. After eight years as CEO, the lifelong tech and telecom exec is stepping down at the end of April, handing the reins to trusted lieutenant Sievert. Legere hasn’t said much about what he’ll do next, though we know he won’t be running the bananas real-estate startup WeWork, despite rumors (that job went to an actual real estate exec).
As Legere sits in his 10th-floor corner office in Bellevue, Washington, perhaps packing up his T-Mobile-branded Segway and T-Mobile-branded sneakers that he gives to visitors, he’s no doubt smiling and thinking of his next challenge. It should be a pretty good story.
Aaron Pressman
Twitter: @ampressman
Email: aaron.pressman@fortune.com
NEWSWORTHY
I'm ready for my close up. At its annual Unpacked event, Samsung unveiled three flagship smartphones in its new Galaxy S20 line, all with 5G connectivity and 120Hz displays. When I got an advance peek last week, I was particularly impressed with the Ultra model's 10X optical zoom that goes to 100X with software, though it costs $1,400. There was also a new folding phone, the Z Flip, and of course, more earbuds.
It's your kids, Marty. We can't revisit the past but maybe we can undo it via some kind of antitrust voodoo? That seems to be the point of recent demands from the Federal Trade Commission to Google, Apple, Facebook, and Amazon seeking information about all of their acquisitions made between 2010 and 2019.
From the department of too good to be true. Looks like the game-streaming wars are going to go a lot like the TV streaming wars, and that's not good. Activision Blizzard has decided to pull popular games like Call of Duty and Overwatch off of Nvidia's new GeForce Now online gaming service.
All the money in the world. San Francisco-based e-commerce site Brandless is closing despite significant backing from SoftBank Group. A $240 million investment in 2018 failed to get Brandless going, now making it the first SoftBank-backed startup to go under.
Can't please all of the people. Ride-hailing service Lyft reported fourth quarter earnings beating analyst expectations, but without making any promises about reaching profitability. Its stock price, already up 25% this year, lost 5% in pre-market trading on Wednesday.
FOOD FOR THOUGHT
Be careful where you buy your security gear. That seems to be the bottom line of a fascinating Washington Post story by reporter Greg Miller titled "The intelligence coup of the century." Turns out one of the leading sellers of encryption devices, a little company called Crypto AG, was actually owned by...the CIA. And the spooks at Langley had fixed all of the gear so that they could read any message. Oops. It didn't fool everyone, however.
The program had limits. America’s main adversaries, including the Soviet Union and China, were never Crypto customers. Their well-founded suspicions of the company’s ties to the West shielded them from exposure, although the CIA history suggests that U.S. spies learned a great deal by monitoring other countries’ interactions with Moscow and Beijing.
There were also security breaches that put Crypto under clouds of suspicion. Documents released in the 1970s showed extensive — and incriminating — correspondence between an NSA pioneer and Crypto’s founder. Foreign targets were tipped off by the careless statements of public officials including President Ronald Reagan. And the 1992 arrest of a Crypto salesman in Iran, who did not realize he was selling rigged equipment, triggered a devastating “storm of publicity,” according to the CIA history.
IN CASE YOU MISSED IT
My boss wants me to travel during the coronavirus. Do I have to go? By Jeff John Roberts
How DoorDash took the lead in food delivery By Alan Murray
Amazon is No. 1 in ‘brand intimacy,’ beating some big rivals By Don Reisinger
White House proposes big increase in A.I. and quantum spending while cutting other sciences By Jonathan Vanian
Can Amazon convince a federal court to depose Trump over a $10 billion Pentagon contract? By Morgan Enos
Robot surgery could be the future of health care in remote areas By Ryan Madder
Energy emissions plateaued in 2019, as advanced economies gave up coal By Katherine Dunn
BEFORE YOU GO
Before photography took off, book and magazines were filled with detailed illustrations and artists' renderings. The Open Culture blog notes that thousands of these beautiful pieces of art from the 1880s through the 1920s are now online at the site Artcyclopedia, cataloged by artist, date, and other metadata. If you're in the mood to be dazzled, take a look.


fortune--2020-02-12--‘Parasite’ Oscar shock made one tiny Korean hedge fund very happy

For a tiny South Korean hedge fund, the shock Oscar win of dark comedy “Parasite” couldn’t be better news.
The fund, run by Seoul-based Ryukyung PSG Asset Management Inc., has invested around $500,000 in the movie that became the first foreign-language film in history to win the coveted Oscar for best picture. “Parasite” cost $11 million to make and has raked in $165 million so far, and ticket sales are set to climb even more after the award.
The privately-sold fund invests only in movies distributed by Korea’s CJ Group, and it has returned 72.1% since its launch in July 2018, according to data compiled by KB Securities Co. seen by Bloomberg News. It’s also profited from other Korean cinema hits including “Extreme Job” and “Exit.”
The fund’s success underscores how investors are parking their money in ever-more obscure alternative investments such as film-financing funds in the face of falling global interest rates. The film’s Oscar comes as cultural exports such as K-Pop and Korean soap operas become more important for South Korea’s economy at a time when the country is pivoting away from manufacturing-focused industries.
“Film funds are in the limelight at the moment,” said Andy Kim, an analyst at Samsung Securities Co. in Seoul. While the popularity of “Parasite” may help attract more demand, it may still be hard to widen the investor base significantly given the niche investment’s high volatility and the difficulty of assessing whether a movie will sell well, he said.
Shares Benefit
The fund isn’t alone in benefiting from the accolades “Parasite” received. Shares of Barunson Entertainment & Arts Corp., the movie’s production company, have surged about 90% this week. CJ ENM Co., the main investor and marketer, jumped 4.5% during the period.
NongShim Co., which makes instant noodle products featured in the film, has soared about 11% this week.
The four-year fund manages 3.1 billion won ($2.6 million) in assets. Ryukyung PSG Asset Management, which runs it, oversees 1.7 trillion won of assets.


fortune--2020-02-12--Men like the idea of evolving gender roles, but still don’t do their part at home

This is the web version of the Broadsheet, Fortune’s daily newsletter for and about the world’s most powerful women. To get it delivered daily to your in-box, sign up here.
Good morning, Broadsheet readers! Sen. Amy Klobuchar surges in New Hampshire, a deadline is here for Vice Media, and men favor evolved gender roles at home—in theory. Have a wonderful Wednesday.
– All talk. What’s not to love about a second paycheck? Millennial husbands certainly seem into the idea: Young men are increasingly comfortable with women working outside the home, in part because of the financial benefit. But those same men are still not picking up the domestic work that piles up for families without a stay-at-home parent.
That’s according to a new report by Claire Cain Miller in the New York Times. Cain Miller looks at a new survey from Gallup that finds that, despite changing attitudes toward gender roles—favoring women working and running for office, growing acceptance of nonbinary genders—opposite-sex couples between the ages of 18 to 34 are no more likely than their parents to divide domestic labor equitably. In other words: All talk, no action.
The findings reminded me of another report we covered last year, this one about gender diversity on companies’ boards of directors. In that report, male board directors said they strongly supported increasing the representation of women on boards—but that they were sick of hearing about that under-representation or being pressured to do something about it.
In both cases, it’s encouraging to see that men’s attitudes about gender issues are evolving. But without behavior change to go along with those fresh outlooks, gender equality will never be anything but a shared fantasy.
To be fair, Gallup did pick out one bright spot on the home front: younger men are doing more childcare than their forebears. Next up, the dishes.
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
ALSO IN THE HEADLINES
- Klobmentum. In New Hampshire's primary, Sen. Klobuchar pulled off a surprise third-place performance behind winner Sen. Bernie Sanders and Mayor Pete Buttigieg. To appeal to New Hampshire voters, she had frequently mentioned her support for the state's Sens. Jeanne Shaheen and Maggie Hassan. Sen. Elizabeth Warren, meanwhile, came in a disappointing fourth place for a candidate who was at one point seen as the frontrunner. In her speech last night, she congratulated Klobuchar "for showing just how wrong the pundits can be when they count a woman out."
- Past deadline. In 2017, Vice Media agreed to a $450 million funding deal with a catch: quarterly $10 million payments starting in January 2020. At the time, execs bet that Vice would sell or go public before the bill came around. CEO Nancy Dubuc, who took over after the terms of that deal were set, has renegotiated some of the terms and executed strategies like Vice's acquisition of Refinery29. Wall Street Journal
- Break-up boss. Politicians calling for the breakup of tech giants like Facebook has become a regular thing. But Sarah Miller was one of the first to bring the idea into the mainstream. Now leading the American Economic Liberties Project, Miller (whose husband, Faiz Shakir, is Sen. Bernie Sanders's campaign manager) wants to lead the antitrust movement to completely reshape the American economy. New York Times
- Monthly maven. Melissa Suk is the Queen of Tampons (a.k.a. associate brand director of Tampax). Although the company has an undisputed market share on tampons, it's facing competition from upstarts similarly seeking to hook women for "about 480 periods, 8,640 tampons, [almost $2,000]"—in other words, for life. Read about Tampax's history and its early 20th century female founder, its fight with the startups, and the view from the factory floor: Guardian
MOVERS AND SHAKERS: Maryam Banikarim, former global CMO of Hyatt Hotels, joins Nextdoor as head of marketing. Ipsy hired Emine ErSelcuk of Morphe as SVP of merchandising.
IN CASE YOU MISSED IT
- Producer turned powerbroker? Carla DiBello is a former Keeping Up With the Kardashians producer and a former assistant to disgraced casino mogul Steve Wynn. In the past half-decade, she's become enmeshed in the Kingdom of Saudi Arabia and its $300 billion sovereign wealth fund. DiBello is helping the fund negotiate a deal to buy the majority stake in Newcastle United, providing executives with access to the fund's chief, and more. Her role is mysterious—both because of the unusual nature of having a woman involved in the Saudi kingdom's investments and because of her reportedly murky relationships and responsibilities. Wall Street Journal
- Early birds. How much does a pre-term birth cost? For one family: $4 million. Between shrinking coverage in the private insurance market, transportation costs, childcare for older siblings, lost wages, and more, early births can destroy families' finances. New York Times
- Disease differences. As scientists study coronavirus, they're coming to one possible conclusion: it affects men more than women. While women are more prone to autoimmune diseases, men seem to contract these types of viruses more often; the original 99 patients admitted to the hospital in Wuhan included 67 men and 32 women. Some scientists now think that discrepancy is due to biology rather than differences in exposure. Financial Times
- Must-see spots. Looking to celebrate the centennial of the Nineteenth Amendment this year? Here are some options: a pilgrimage to Seneca Falls, New York, visits to exhibits throughout the Midwest that will honor the first three states to ratify the amendment granting (white) women the right to vote, or a stop by the Library of Congress's exhibit. Civil rights tours in Montgomery, Alabama, meanwhile, will give special attention to the women at the heart of the movement. You can check out more of the NYT's themed travel guide here: New York Times
ON MY RADAR
Former CNBC anchor Michelle Caruso-Cabrera will challenge Alexandria Ocasio-Cortez in House Democratic primary CNBC
How Birds of Prey director Cathy Yan saved Harley Quinn from Joker and the male gaze The Daily Beast
Is the patriarchy too big to fail? The Baffler
PARTING WORDS
"One of my favorite things is seeing a woman on a ladder with a tool belt. Yes girl, do it!"
-Director Ava DuVernay on having gender parity in her crew for new OWN show Cherish the Day


fortune--2020-02-12--3 reasons ballooning stock buybacks are worrisome

It’s hardly news that share buybacks are now by far corporate America’s favorite vehicle for returning cash to investors. But is the explosion in repurchases really the best use of a company’s cash, and are they a good or bad sign for shareholders? The short answer is that while buybacks are widely lauded as the market’s salvation, Corporate America is choosing to repurchase its shares at extremely high prices, so that each buck spent delivers a relatively puny bang. That choice also implies that they can’t find much in their own business to fund that that yields a bigger boost for their dollars.
In general, repurchases are often an excellent choice for rewarding shareholders. They deliver capital gains taxed at lower rates than dividends. When a company chooses to buy back stock instead of splurging on overpriced acquisitions and low-return projects, shareholders benefit, and it’s a sign that management is showing excellent discipline. Hence, the hostility to repurchases that’s rising in Congress is misguided. The best policy is to let freedom ring.
Here’s how repurchases deliver capital gains. If a company buys back 2% of its stock, its earnings-per-share rise 2% (in addition to the rise in overall earnings). If its P/E multiple remains the same, the share price will also rise by 2%, handing an investor a 2% capital gain from buybacks alone.
Buybacks are expensive
The question revolves around timing. You’d think that CEOs would accelerate repurchases when their stocks are cheap. But the current surge coincides with a huge run-up in prices. It’s remarkable that so far, the rush to repurchases is looking like a brilliant move, because S&P shares overall, no matter how pricey they may have looked last year, are a lot pricier now. Using the broad assumption that big cap companies made their buys at average prices for the index during 2019, valuations have risen so sharply that those purchases came at a 14% discount versus today’s record prices. That makes the huge outlays in 2019 look like a bargain. CEOs can boast that although it didn’t look that way at the time, their stocks were undervalued, and they had the good sense to pounce.
The rub is that those buybacks won’t look like such a bargain if stocks retreat from these historically high P/Es. CEOs also seem hard-wired to keep gorging on buybacks no matter how high their share prices climb.
A recent report from Yardeni Research, “Corporate Finance Briefing: S&P 500 Buybacks & Dividends,” provides a revealing look at the scale of today’s buybacks, especially when viewed in combination with dividends.
For the four quarters ending in Q3, 2019, buybacks rose to a record of $770 billion, the equivalent of 60.4% of the S&P’s operating earnings. Dividends added $484 billion, for a record total of $1.247 trillion in cash returned to shareholders. Repurchases and dividends provided a combined “yield” of 5.05%, with buybacks accounting for 60% of the total or 3.12%, meaning that the payouts amounted to just over five percent of the S&P’s total capitalization late last year of around $25 trillion.
Sounds great. You’re getting a 5% return if the market’s P/E just holds steady! Sure beats collecting 1.5% on the ten-year Treasury. But the stampede is questionable for three reasons. First, big companies are issuing lots of shares at the same time they’re buying them. In the four quarters through September of 2019, the S&P sold approximately $200 billion in stock, effectively erasing 26% of the buybacks. Hence, the “net” buyback yield is lower than advertised at 2.3%.
Not as much bang for the buck
Second, the giants of the S&P have repurchased stock over those 12 months at an average P/E of 21, which is pricey by historical standards. At a 21 multiple, each dollar spent on buybacks raises each dollar of earnings-per-share by 4.8 cents, or just 4.8%. Compare that with the average multiple of 15 that reigned following the financial crisis from 2010 to 2013, when $1 in buybacks yielded 6.7 cents, or an almost 40% greater bump in earnings-per-share.
The example of Google parent Alphabet illustrates the recent payoff, and potential pitfalls, of making huge buybacks at high prices. Last year, Google spent $17.4 billion to repurchase 15.4 million of class of shares owned by the public, at an average price of $1130. Google was buying at a P/E multiple of around 31, meaning that each dollar of spent raised EPS by only about 3 cents or 3% per share. Still, the gambit looks inspired. On February 11, Google shares were selling at $1518, one-third above the price Google paid last year.
If high valuations are the new normal, CEOs may have made a decent choice so far. But the big cap boom has done nothing so slow the buyback craze, and the phenomenon of momentum-fueled buybacks should trouble investors. Companies are now getting even less return on their buyback dollars than last year, since the P/E has jumped from 21 to a current 24.4 (based on the last 12 months of GAAP earnings), meaning that each dollar of repurchases returns just 4.1 cents, or 4.1%, on every dollar in earnings per share, 15% less than last year.
If interest rates return to anything resembling historic levels, valuations will plunge, and it will look like Corporate America is way overpaying when companies could have waited, and lowered the float by the same amount for many billions of dollars less.
Scrimping on investment
Third, the Yardeni report points out that buybacks and dividends combined amounted to 97.6% of all operating earnings in that four quarter period. Since operating earnings don’t include taxes and interest, the two outlays absorbed far more than than the net earnings those companies booked. That means America’s CEOs were so intent on buying back stock, even at big prices, that they borrowed heavily to fund the record splurge.
That trend sends a disturbing signal. America’s big companies are scrimping on new investments in plants or fabs that they’re convinced would return less than the 4.1% current EPS bump that they’re getting from buying back their shares at hefty prices. The tepid capital investment figures of late confirm their reluctance to plow earnings into the new project that more than any other factor, lift productivity and economic growth.
The buyback rush could foretell tough times for shareholders as well as slowing GDP. For the S&P to wax in double digits, the share of earning that are reinvested in their businesses must produce returns a lot higher than the under-5% generated from buybacks. The more companies choose repurchases, the more they’re signaling that the opportunities for channeling retained earnings into new products or factories that produce outsize returns, are diminishing.
More must-read stories from Fortune:
—The strange tale of Jeff Bezos’s $16,840 parking ticket bill
—Trying to make sense of Tesla’s unbelievable run
—Credit Suisse braces for an awkward earnings call
—Stock scammers are using coronavirus to dupe investors, SEC warns
—WATCH: Biggest investing opportunities and risks for 2020
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