fortune--2020-04-20--Why the coronavirus crisis could make Big Oil greener

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
In March, French President Emmanuel Macron went on national television from the Élysée Palace and told his countrymen that in the fight against the coronavirus, “We are at war.” Three days later, Patrick Pouyanné, chief executive of French oil giant Total, delivered to his roughly 100,000 employees a video message about the energy rout that was no less blunt. The price of oil had collapsed, “halving our share price,” noted the visibly pale CEO, speaking from the Total Tower in Paris into a microphone he was clutching in his right hand, in the style of a talk-show life coach. To stanch the bleeding, Total for 2020 would slash its capital spending more than 20%, nearly triple its planned cuts in operating expenses, and suspend share buybacks.
But one thing Total would not do, Pouyanné told his workers, was cut spending on its “new energies” division, a unit that includes investments in solar, wind, and batteries. That unit, Pouyanné declared, “will be safeguarded, as we must prepare for the future.” The upshot: This year, the approximately $2 billion Total will spend on its renewable-energy and energy-storage forays will account for about 13% of the company’s capital spending—a share that once would have been all but inconceivable for a fossil-fuel producer.
Long before this spring’s epic oil-price crash, the energy sector was struggling with a longer-term existential threat. Gone were the good old days, when oil consumption grew inexorably and the nations and corporations that controlled the most juice minted the juiciest profits. A scary new world had arrived, one in which oil demand was projected to peak in the next couple of decades even as external pressure surged—not just from environmental activists and regulators, but also from central banks and hedge funds—for Big Oil to diversify into lower-carbon energy sources.
That pressure already had begun to reshape the industry’s business strategy. Today’s energy-market carnage shows every sign of intensifying that low-carbon shift.
The plummeting oil price has changed the return-on-investment calculus for both oil executives and mainstream investors. It has slashed the profit margins of many petroleum projects to the lower levels long typical of renewable-energy projects. But the greener projects, because they typically sell their energy under much longer-term contracts than are common in the oil industry, remain lower-risk. And the oil majors’ long-term clean-energy activities are relatively unaffected by the companies’ short-term spending cuts, because those cuts aim to minimize the amount of petroleum the firms bring to market at today’s suddenly depressed prices.
A wind farm near Palm Springs. The ripple effects of the coronavirus crisis have raised the profile of renewable-energy projects, both in local power supplies and in oil giants’ investment plans. Robert Alexander—Getty Images
Right now, the oil industry is reeling from a one-two punch: a supply surge sparked by brinkmanship between Saudi Arabia and Russia, and demand destruction amid a likely recession set off by the coronavirus. The price of Brent crude, the international benchmark oil, cratered 52% between March 3 and April 1, and prices per barrel were languishing around $30s in mid-April. Global oil consumption, whose growth has been slowing for several years, actually will fall in 2020, the first full-year drop since the global financial crisis, the International Energy Agency projects. Major oil companies have scurried to retrench as their stock prices tanked; Exxon Mobil announced in April some of the deepest cuts, pledging to ax 2020 capital spending 30%, to $23 billion. Some smaller firms have begun filing for bankruptcy, among them Whiting Petroleum, a once-high-flying producer in the North Dakota–focused Bakken shale play.
As has happened so often before in the oil patch, boom has turned to bust. The industry was hoping that a mid-April agreement to curb production, particularly by Saudi Arabia, would buoy prices. But the industry’s underlying challenges remain: plentiful supply and slowing growth in demand. Particularly hard hit will be the Permian Basin, a storied and prolific oil zone spanning western Texas and eastern New Mexico. Retrenchments by major Permian producers Exxon Mobil, Chevron, and Occidental Petroleum foreshadow spending cuts in the basin this year totaling many billions of dollars.
Ken Winkles feels the coming crunch from his office in Pecos, Texas, in the Permian’s heart. Until recently in Pecos, throngs of oilfield workers had the bunkhouses known as “man camps” bursting, the burger joints breaking records, and the traffic snarled. All that is now dissipating. In March, in an ominous early indicator, the number of drilling-rig permits granted in the county was down 38% from February 2020 and 59% from March 2019. Winkles, executive director of the Pecos Economic Development Corp., considers himself an optimist. But he’s also a realist. “We’re just in the beginning of the slowdown, crash, whatever you want to call it,” he tells me.
$447,612,200,000 decline in market value of the stocks in the S&P 500 energy sector, March 2 to March 18, 2020. Source: Bloomberg
The bust came fast. When Chevron held its annual investors’ meeting in New York on March 3, amid mounting concern about the coronavirus, it forsook handshakes, prompting executives and analysts to greet each other with elbow bumps. Still, the bumpers were bullish. Executives whipped through slides outlining investment plans that assumed Brent would remain at $60 a barrel.
Three days later, the Saudi-Russia fight sent oil prices through the floor. On March 24, Chevron, scrambling to regain its bearings, announced it would cut its 2020 capital-spending budget 20%, to $16 billion. The cuts will focus on short-term production—nearly half will come by curbing production in the Permian Basin. They’ll also include layoffs. This downturn is “the most difficult one the industry has faced,” Pierre Breber, Chevron’s chief financial officer, tells me. “Assuming that oil stays at $30 for two years is certainly a stress case that we need to have our arms around.”
But Breber says Chevron’s long-term plan to cut its carbon intensity is “largely intact.” Those plans include retrofitting oil-drilling operations to make them more energy-efficient. Chevron is also ramping up, notably at a massive natural-gas field off the coast of Australia, a technology called “carbon capture and sequestration,” which grabs carbon-dioxide emissions and shoots them underground—an approach many scientists see as essential to curbing climate change.
The virus-driven economic slowdown, too, is highlighting the competitiveness of renewable energy—particularly in electricity markets, where oil companies increasingly are deciding they must play. In many parts of the world, power demand has fallen. Those declines have had the effect of increasing the percentage of power in those markets that’s supplied by solar and wind, both because their fuel is free and because of production subsidies they get. The global crash has “fast-forwarded some power systems 10 years into the future,” Fatih Birol, the IEA’s executive director, wrote in a March analysis, “suddenly giving them levels of wind and solar power that they wouldn’t have had otherwise without another decade of investment.”
A case in point is California, long a green-energy leader. As of mid-April, with the state’s population under shelter-in-place orders, weekday electricity demand was down 5% to 8% below normal levels, according to the state’s power-grid manager, the California Independent System Operator. Renewable-energy generators typically sell their power to the grid at lower prices than fossil-fuel generators do, because their energy, unlike fossil fuel, is lost if they don’t use it. So “it’s a reasonable conclusion that renewables are serving a higher percentage of the load than they would otherwise,” Steve Berberich, chief executive of the operator, tells me. That has amplified the problem that, at times of particularly strong sunshine or wind, renewable-energy sources generate more power than California can use. And that highlights the rising importance of improving the nimbleness of power grids—with technologies such as energy storage—to accommodate greater supplies from renewables.
Renewable-energy projects aren’t immune to the global economic shock. Overall growth in solar-panel and wind-turbine sales is slowing from its recently torrid levels, as factories, shipping, and electricity demand take a pause. At France’s Total, executives say that construction delays are likely for some solar and wind farms because coronavirus-related restrictions are waylaying workers. In a sense, though, that’s a sign of the progress that clean-energy technologies have made: Once a rounding error, they’re now significant enough as industries that they’re as exposed to macroeconomic forces as are the fossil-fuel behemoths.
The headwinds for clean energy, moreover, are relative. As oil heads for its worst year in recent memory, solar and wind installations remain strong, according to Wood Mackenzie. Global solar projects will dip a bit in 2020 before resuming quick growth next year, the research firm projects, and wind installations will post a new yearly record.
A version of this article appears in the May 2020 issue of Fortune with the headline “A ‘green’ silver lining to an oil-patch cloud.“
More must-read energy sector coverage from Fortune:
—The oil sector is quickly running out of storage for its unprecedented surplus
—How Global 500 companies are responding to the coronavirus
—Coronavirus fight could prove fatal for addressing climate change
—For boom-bust oil towns, coronavirus is a very different kind of crisis
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: PSEG CEO on climate change action: “It should have been done yesterday”
Subscribe to The Loop, a weekly look at the revolutions in energy, tech, and sustainability.


fortune--2020-04-20--Big Pharma has the chance to come to the world’s rescue

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
In August 2019, barely half a year before the world changed, the pharmaceutical industry was the most disliked business sector in America: 58% of those polled by Gallup had a negative perception of the industry, more than twice the share who viewed it favorably—giving drugmakers a net positive score of minus 31, the worst by far of any business sector in the country. For comparison, airlines and the legal profession had net positive scores of plus 19 and plus 5, respectively. Even the federal government (minus 27) had better ratings overall.
Enter the coronavirus. As much as the pandemic has devastated many industries, it has offered Big Pharma a chance to shine as never before, winning back the trust of a public infuriated with years of soaring drug prices. Will they seize the moment? The answer depends in large part on how fast drug and device makers make progress in three areas essential to beating back COVID-19. The first is in the realm of diagnostic tests that can identify not only who has the disease but also who’s no longer infectious and therefore safe to return to work. Second are therapies to shorten the disease course and lessen its severity—which will be important for reducing the burden on hospital ICUs and exhausted critical care teams. And third are vaccines: Without a safe and widely disseminated vaccine to confer immunity on a huge swath of the population, it’s hard to imagine life returning to something resembling “normal.”
Success in these three areas won’t put the pricing controversies to bed. As they strive for novel therapies and medical tools, pharma companies will have to balance the need to fund innovative projects and still satisfy a public (and perhaps regulators) demanding low- or no-cost drugs and devices to combat this plague. Still to be determined is what role health insurers and governments may play in all of this.
Gilead Sciences, which likely has the most advanced anti-COVID-19 drug of the bunch, has consistently stated it doesn’t expect to make much money off of its antiviral product, remdesivir. SVB Leerink’s lead pharma analyst Geoff Porges tells Fortune the company will be under tremendous pressure to put a reasonable price tag on the drug. Indeed, the blanket uncertainty across the industry—on everything from pricing to the resiliency of supply chains to the difficulty of conducting clinical trials in an era of social distancing and overwhelmed hospitals—has prompted several firms, including Pfizer and AstraZeneca, to issue statements saying they can no longer offer financial guidance for the year.
Throw in the already fragmented nature of U.S. health care, a desperate public, a fast-changing timeline of government priorities, and anxious shareholders, and the result is something akin to an Olympic sprint in which dozens of runners are each competing on their own tracks. Predicting who’s got the lead in such a race isn’t easy. But Fortune reached out to dozens of companies, analysts, public health organizations, academics, and other experts to assess the state of progress.
One bit of good news: So far, even longtime cynics are giving the industry a qualified thumbs-up. Whether that’s enough to grant drugmakers a better grade than lawyers is another question.
Diagnostics
Fundamental to controlling the spread of COVID-19 are tests that can identify those who have been exposed to the coronavirus, which is easily transmitted by infected individuals—even, the evidence suggests, when they have no symptoms of illness. The standard test requires a quick swab of the throat or nose (or both), which grabs a tiny sample of mucus and analyzes it through a process called polymerase chain reaction. PCR amplifies the genetic material of the virus, if any is present, making it easier to identify.
PCR tests can quickly reveal who is currently infected with the virus, even if they’re asymptomatic. But they don’t show who may have previously been infected, silently or otherwise, and no longer carries the virus—thanks to the response of their body’s own immune system. In such cases, those formerly infected will have telltale antibodies in their blood. The antibodies circulate in the blood for a long while, keeping a careful vigil out for the virus should it reappear and standing ready to mount a counterattack if it does. That, in short, is an immune response.
Having an immune response (that is to say, antibodies) to a virus doesn’t necessarily mean a person has full immunity to it on subsequent exposure. But when it comes to returning people to work, it’s important to know who’s got at least some immunity and who doesn’t. Serology tests, which look for specific antibodies in a small sample of blood, can reveal that.
In recent weeks—and notably, after the Centers for Disease Control and Prevention botched its initial PCR test—a spate of private and public health labs have rushed into the breach, creating a range of diagnostics for COVID-19. As of April 10, there were 33 FDA-authorized coronavirus tests—though the question of which ones work best may not be known for months, when there’s enough data out there to compare them, says virologist Pedro Piedra of Houston’s Baylor College of Medicine.
RACE FOR THE CURE: Gilead’s antiviral remdesivir, which had previously been used for SARS and MERS-CoV patients, is seen as a promising treatment for COVID-19. ULRICH PERREY—POOL/AFP VIA GETTY IMAGES
Swiss drug giant Roche developed the first commercial coronavirus diagnostic to receive emergency authorization on March 12—with Thermo Fisher Scientific, LabCorp, Quest Diagnostics, Abbott, Cepheid, Cellex, Becton Dickinson (BD), Henry Schein, and others—following quickly on its heels.
One standout is Abbott’s latest PCR test, ID NOW, which can deliver positive or negative results within minutes rather than hours or days, which had been the standard turnaround time. That’s because it can be conducted on far more portable machinery and uses something called “isothermal” technology, explains John Frels, VP of R&D at Abbott. Typically, molecular virus tests need to cycle through multiple temperatures in order to amplify a virus’s genetic sequence in patient samples; the Abbott test can do that amplification process at a more consistent temperature, speeding up the process. The test is slated to be used in drive-thru testing facilities set up by CVS Health in several states, which may place it in front-runner status.
On the serology front, both medical distributor Henry Schein and Cellex, a smaller biotech firm, have received authorization for blood tests that screen for antibodies to the novel coronavirus. While U.S. regulators have said there are scores of companies that have signed up to create antibody tests, one major problem is the spectre of profiteers hawking fake tests, something FDA Commissioner Stephen Hahn has said the agency will crack down on.
Treatments
At press time, more than 75 coronavirus drugs are currently in development, according to research from Agency IQ. An additional 40 medicines, already approved for other indications, are now being tested as well against COVID-19.
“I think the best bet is still Gilead’s remdesivir,” says Porges, the SVB Leerink analyst, who is eagerly awaiting data from clinical trials that began in late February in China and which are expected to be published soon. Multiple other public health experts agreed.
Remdesivir, an investigational antiviral treatment, has been in development for years to treat various infectious diseases, including SARS and MERS-CoV, two illnesses caused by strains of coronavirus related to the COVID-19 pathogen. In a study of 53 seriously ill COVID-19 patients treated with the experimental drug through a “compassionate use” program, its results published in the New England Journal of Medicine in April, 38 patients (68%) showed measurable improvement. (In 15% of cases, the patients’ illnesses progressed.) Though the study, experts caution, was neither randomized nor controlled, two standard practices that help ensure results aren’t inadvertently skewed, the initial findings were promising—with response rates significantly higher, and mortality lower, than would be expected based on current data from hospitals today.
Antiviral medicines, which typically interfere with a virus’s ability to replicate, are rarely cures in the way that antibiotics (which kill bacteria) often are. But having a drug that can help patients breathe well enough to stay off a ventilator could be of enormous value in this pandemic. A single day on a hospital ventilator can cost $25,000, says Porges.
Gilead CEO Daniel O’Day released an open letter saying it would expand the number of available doses to 1.5 million, enough for 140,000 courses of treatment. A possible timeline could include emergency authorization within a few months.
Multiple other companies—including Takeda, Regeneron, and scores of other firms—are working on treatments. Those encompass antivirals, antibodies, or therapies derived from the blood plasma of patients who have recovered from COVID-19.
“There’s an incredible sense of urgency,” says George Scangos, CEO of Vir Biotechnology, a company working on both COVID-19 treatments and vaccines, including through a major collaboration with British drug giant GlaxoSmithKline. “The number of companies that want to contribute regardless of whether you make a lot of money is incredible.” Hal Barron, the R&D chief at GSK, concurs. “I meet weekly with most of the Big Pharma company heads,” he tells Fortune. “I’ve never seen a magnitude of urgency like this.”
Vaccines
Testing and treatments can only get you so far. With a virus as transmissible as the novel coronavirus, a vaccine is critical to establishing long-term public health safety. Making sure they work—and are safe—can take years, says Peter Hotez, dean for the National School of Tropical Medicine at Baylor College of Medicine. That said, time does seem to be speeding up. By mid-April, there were no fewer than 70 coronavirus vaccines in development, according to the World Health Organization; with those from China’s CanSino Biologics, Inovio, and Moderna already in human trials.
Moderna’s candidate tweaks the virus’s messenger RNA to elicit an immune response in humans. In earlier clinical stages, GlaxoSmithKline has partnered with multiple firms, including Vir and French drug giant Sanofi, that want to leverage its “adjuvant” technology—which can make it easier to produce more doses of a vaccine on a wide scale. Then there’s Pfizer’s collaboration with BioNTech in China; a partnership between Heat Biologics and the University of Miami; the Baylor School of Medicine with its investigational SARS vaccine; Novavax; and Johnson & Johnson.
70 Number of coronavirus vaccines now in development, according to the world health organization
But Johnson & Johnson seems to have produced the most buzz. In late March, J&J said its experimental vaccine might be in clinical trials by the fall of 2020 and on the market by early 2021. “Based upon our early data, we feel confident that we have got a very good candidate,” J&J CEO Alex Gorsky tells Fortune, adding this was a result of an investment in vaccine development technology made a decade ago, which “turned out to have much broader application than we anticipated.”
“This is a complicated virus that seems pretty good at avoiding the immune system,” says Vir chief Scangos. “It could be possible that COVID-19 vaccines are modeled after flu vaccines, which are somewhat effective, but would require wide-scale annual production” as new strains of the coronavirus emerge. “If we’re realistic, there’s risk.”
A version of this article appears in the May 2020 issue of Fortune with the headline “Will medicine makers come to the rescue?“
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—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Inside the surreal “Mask Economy”: Price-gouging, bidding wars, and armed guards
—The IRS just launched “Get My Payment” portal for tracking your stimulus check status
—Should you fear government surveillance in the coronavirus era?
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Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-20--What we know about COVID-19

What we know about COVID-19

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

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.
Epidemiology is a science of “seems to be” steps. Researchers plot data points on a map and speculate connections between them, conjuring up likely nodes of infection and possible vectors of transmission. Such guessing, if you will, forms the basis for hypotheses, and then the truly hard work begins: Scientists gather evidence—systematically, painstakingly—until they can prove or disprove those theories.
That’s what John Snow, history’s most famous epidemiologist, did in 1854, when he plotted deadly cases of cholera on a map of London, eventually tracing the outbreak to a single contaminated well and water pump. And that’s what’s happening now, with the novel coronavirus and respiratory disease it causes, COVID-19.
As we enter the fifth month of this worldwide crisis—a viral pandemic that has grown feverishly to nearly 2 million confirmed cases in 185 countries or regions, and more than 125,000 deaths, according to researchers at Johns Hopkins University—there are still plenty of mysteries to solve. How many people are unknowingly infected with (and possibly spreading) the virus? How long will the pandemic last? When is it safe to go back to work? Well, no one quite knows.
As to the question of how the coronavirus will reshape the global economy—How much damage will it do? Which industries will suffer the most, bounce back, be reinvented?—we have devoted this entire issue and most of our daily online coverage to investigating. Virtually our entire editorial team has spent the past few months plotting data points on unfinished maps and doing our best to draw meaningful patterns among them. It’s guesswork, to be sure—though you might think of it as financial epidemiology as well.
But in the sea of seems-to-bes, maybes, and outright unknowns, there are also things that we do know—and cataloging those lessons will perhaps keep us from repeating our mistakes again.
“Let’s start with the premise that we’ve been complacent about our preparation for such a pandemic,” says Steven Corwin, who is both a physician and the president and CEO of New York–Presbyterian hospital. “And I don’t think there’s any question—whether it’s an individual hospital, whether it’s as a country, we’ve been able to skate by.” For all the would-be plagues that have threatened American shores in the past couple of decades—SARS, MERS-CoV, H1N1 influenza, even Ebola—none delivered the knockout blow to the U.S. that COVID-19 has, even if a few were devastating elsewhere. Our false sense of security has led us to put off tackling important questions, Corwin says: “What do you need in the Strategic National Stockpile? How fragile is the supply chain? How much are we dependent upon just-in-time delivery—which, though it makes us more efficient in terms of health care, doesn’t necessarily provide resiliency?”
If we had the capacity in place in mid-February to test 100,000 samples a week, it could have made a very big difference. Scott Gottlieb, a physician and former commissioner of the FDA
As it happens, the pandemic answered those questions for us. “We’re now at the peak of this in New York,” says Corwin, in early April. “We’re using 700,000 masks a week, and we’re 20% of the New York system—which works out to 3.5 million masks this week for the downstate New York area. At that rate, the Strategic National Stockpile doesn’t go a long way.” Health and Human Services Secretary Alex Azar told a Senate committee in February that the Strategic National Stockpile had a mere 30 million surgical masks and 12 million respirators (the N95 masks that filter out most smaller viral particles) in reserve, plus a few million more that were likely past their expiration date.
We know that our medical and pharmaceutical supply chains are vulnerable. It’s not only masks and other personal protective equipment (PPE) that largely come from China. That nation, for example, is also the world’s largest producer and exporter of active pharmaceutical ingredients, the chemical feedstock of modern medicine. China also produces many of the chemical reagents that are used in disease diagnostics, such as polymerase chain reaction (or PCR) tests that identify viral strains. So, if in the midst of a pandemic, the supply starts there, the chain may break before it gets here.
On that front, we know that, when it comes to a potentially pandemic strain—a virus that is both virulent and easily transmissible from human to human—any lag in diagnostic testing can be catastrophic. That has been the case with the novel coronavirus, for which widespread testing was badly delayed due to the development of a flawed diagnostic test at the CDC. But the bigger problem wasn’t the glitch in the government’s assay; rather, it was the policy of centralizing testing at one federal lab. Centralizing, in short, just meant bottlenecking.
“Even if everything went perfectly, even if the CDC tests had rolled out perfectly, there was no way that the screening capacity in the U.S. was going to be robust enough to deal with a pandemic strain here in the U.S.,” says Scott Gottlieb, a physician and former commissioner of the FDA, which regulates such diagnostics. “You always had to get the academic labs [at universities] and the clinical labs in the game. And that takes time. So you needed to be working with them in January to get them ready for February and March.
“If we had the capacity in place in mid-February to test 100,000 samples a week,” says Gottlieb, “it could have made a very big difference.” Corwin agrees: “All the scenario planning around this type of virus was predicated on early testing and diagnosis.”
Which brings up something else we know: A plan is not a process. When I reach Bruce Gellin, the president of global immunization at the Sabin Vaccine Institute, he—like most everyone else in America—is under home quarantine, which has afforded him time to clean out his garage. There, under piles of Beanie Babies and other 1990s detritus, Gellin has found volumes of several of the federal government’s plans to fight a viral scourge. “We had a plandemic,” quips Gellin, a former deputy assistant secretary for Health and leader of HHS’s National Vaccine Program Office. In 2005, under the Bush administration, he led the creation of America’s first pandemic influenza preparedness and response plan.
This was the “bird flu” era, and federal policy makers were imagining the economic and social costs of quarantining huge swaths of the population, if it came to that. “One of the principles was outlining the backstops that needed to be in place to allow people to stay in place,” Gellin recalls. “How would a nurse be able to work if her school-age kids were home, for example? How would someone living hand-to-mouth not get kicked out of her house if she can’t work—or a homeowner not default on a mortgage? There is a huge cascade of stuff that has to happen if you’re going to force people to stay at home.” Such “community mitigation,” as they called it, was just part of the planning within the plan. In the era of COVID-19, we are all learning how essential such questions are.
Bruce Gellin is the President of Global Immunization at the Sabin Vaccine Institute and was the key HHS official in the George W. Bush administration. Sharon Gellin
Finally, the most powerful lesson of all may come from witnessing government inaction in the face of a once-in-a-generation challenge—and knowing the cost of that paralysis.
After President George W. Bush tapped Michael Leavitt to succeed former Wisconsin Gov. Tommy Thompson as secretary of Health and Human Services in December 2004, Leavitt asked all of the agency’s operating and staff division heads to come over and brief him on their respective portfolios.
“He was trying to decide who to keep, maybe, and who not to keep,” says Stewart Simonson, then a former assistant secretary for Public Health Emergency Preparedness and now assistant director-general for the World Health Organization’s office at the United Nations. “And so I went over to brief on the preparedness and response portfolio, and then at the end of the meeting, I gave him two books: The Great Influenza—John Barry’s book on the 1918 flu epidemic—and the 9/11 Commission Report.
“And what I said is—something to the effect of that we know we will have another 1918. It’s inevitable. It’s just a matter of time. And if it happens while you’re secretary, and you’re not aware of the threat, this other book’s next volume will be about you.”
A version of this article appears in the May 2020 issue of Fortune.
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—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Inside the surreal “Mask Economy”: Price-gouging, bidding wars, and armed guards
—The IRS just launched “Get My Payment” portal for tracking your stimulus check status
—Should you fear government surveillance in the coronavirus era?
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Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-20--Shake Shack, Potbelly: Companies with revenue over $100M are tapping small business relief loans

More than a dozen publicly traded companies with revenue of more than $100 million, including Shake Shack Inc., Potbelly Corp. and a Tex-Mex restaurant chain with more than 10,000 employees, received loans through a massive relief program aimed at small businesses.
With a $349 billion lending package for small business owners now exhausted, a review of regulatory filings shows that restaurant chains and companies in industries ranging from mining to manufacturing to cruise travel received large amounts, while much smaller businesses like neighborhood eateries and hair salons were locked out.
The disclosures could fuel calls for Congress to provide another round of funding to keep thousands of mom-and-pop firms afloat amid state lockdowns. Negotiations to replenish the tapped-out fund hit a stalemate last week, with Republicans calling for adding more money and Democrats also demanding changes to ensure smaller firms get loans, plus more funding for state and local governments and hospitals.
Asked whether such large, publicly-traded companies should be eligible for PPP funds, President Donald Trump on Sunday spoke about the role of franchisees as small businesses.
“I don’t know much about any of those companies. But a lot of times they’re owned by franchisees, where they own one or two places,” Trump said at a White House press briefing. “So a lot of that would depend on what the formula is.”
Certain branches of Potbelly sandwich stores and Ruth’s Chris steak houses, which also received PPP funds, are operated as franchises. Shake Shack says on its website that it doesn’t franchise. (Shake Shack has since said it would return its entire $10 million loan.)
As talks stretched into the weekend, Trump signaled a possible compromise that could add $75 billion for health facilities, in addition to $250 billion more for the small-business program. House Speaker Nancy Pelosi said Congress is “very close” to striking a bipartisan deal in an interview with ABC News “This Week With George Stephanopoulos” that aired on Sunday.
Many small firms that flooded banks with applications are livid that they were left out in the cold. One of them is Florida business owner Edgar Comellas, owner of Aces Wild Entertainment, which supplies “Vegas-style” activities and staffing for birthday parties, fundraisers and corporate events. He said he tried to get $10,000 from Bank of America Corp., but was unsuccessful.
Comellas said he’s upset that money went to larger businesses like Ruth’s Hospitality Group Inc., which received $20 million in loans, according to a Securities and Exchange Commission filing. Ruth’s Hospitality didn’t respond to a request seeking comment. The restaurant chain racked up $468 million in sales last year and employed about 5,700 people.
Ruth’s Hospitality has the individuals “work the papers and lobby and get things to what they need to get $20 million,” Comellas said. “We don’t.”
Lawrence Summers, the former U.S. Treasury secretary, said on Saturday that eligibility for the PPP should be tightened to “open the window for the smallest businesses, florists, pizza shops, etc.”
In the next round “we need to cut out hedge funds and reinforce the smallest businesses that hold communities together,” Summers said in a tweet summarizing a CNN interview. “We also ought to give money to those who aren’t in life for a profit but are here to help others.”
Some business owners like Lupe Rose found the process disheartening. The co-founder and chief executive officer of SHE Beverage Co., a Lancaster, California, beverage manufacturer and distributor, unsuccessfully applied for a loan through Wells Fargo & Co. as well as online companies PayPal Holdings Inc. and Kabbage Inc. Rose said she and her team “jumped on a conference call and literally cried with each other” when they heard the money had run out.
“It’s just pretty disgusting that you hear about all of these other businesses who have been funded and who are able to pay for their employees,” Rose said. “While you have businesses like mine that are being buried, small businesses being buried because we believed what we heard.”
The rescue financing — known as the Paycheck Protection Program — is intended to help companies that employ up to 500 people, pay workers and certain expenses such as rent for two months. Loans convert to grants if a company maintains its payroll and salaries.
But because the 500-employee cap refers to a single location operated by hotel and restaurant companies, chains like Shake Shack could apply.
Shake Shack is one of the fastest-growing restaurant companies in America, with $595 million in annual sales. While the burger chain has fewer than 500 workers at each site, it had about 7,600 employees spread across numerous locations as of the end of last year. It received the maximum $10 million under the program. In a
Shake Shack, the U.S.-based burger chain, will return its entire $10 million loan from the U.S. government, the company’s leaders said in a statement, amid widespread criticism over who got access to the funds aimed at saving small businesses before they were depleted.
The U.S. Small Business Administration program, working with almost 5,000 lenders that disburse the loans, approved applications for $342.3 billion in just 13 days, with the rest of the $349 billion going for fees and processing. There’s no accounting of how much money small businesses have received so far.
A statement from the SBA and the Treasury Department said, “The vast majority of these loans — 74% of them — were for under $150,000, demonstrating the accessibility of this program to even the smallest of small businesses.”
But an SBA report showed that about 2% of the firms approved for loans accounted for almost 30% of the funding. The National Federation of Independent Business, the largest group representing small businesses in the country, is calling on Congress to approve $400 billion more for the program — with not less than $200 billion going to firms that have 20 or fewer employees.
Nine percent of the pot went to companies, such as Fiesta Restaurant Group Inc. that got loans of at least $5 million. Fiesta, which owns and franchises Pollo Tropical and Taco Cabana restaurants, said in a regulatory filing that it got $10 million. The company’s annual sales totaled $661 million and it had about 10,500 employees at the end of last year.
Sandwich chain Potbelly Corp., which had sales last year of $410 million and employed 6,000 people, also received $10 million.
Other companies that reported getting small-business funding are Zagg Inc., which makes protective coverings for smart phones and had $522 million in sales last year; Hallador Energy Co., a coal-mining company with $323 million in 2019 revenue; adventure-travel and cruise company Lindblad Expeditions Holdings Inc., which reported $343 million in sales last year; and data storage company Quantum Corp., with $403 million in sales.
A Potbelly spokesman said Congress allowed funding for restaurants because their workers are “vital to our economy.” Representatives for the other companies didn’t respond to requests for comment.
John Arensmeyer of Small Business Majority, an advocacy group for small firms, said he has been disappointed that larger companies have been able to take advantage of the loan program over smaller ones.
“Most of the money has gone to much larger entities and the very small entities for the most part have been left behind,” he said. “We’re dealing with finite dollars,” Arensmeyer added. “Even if more money is put into the system, we really need to prioritize very small businesses over publicly traded companies.”
When asked early in the rollout about concerns from small-business owners that they wouldn’t get funding, Trump praised the program. “It’s been flawless so far, far beyond our expectations,” he told reporters April 4. “These are great loans. These are loans that get immediately paid off. These are loans that get businesses back.”
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Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-21--IBM shares tumble on coronavirus impact

IBM shares tumble on coronavirus impact

Who will pay for the coronavirus bailout ?
If you ’ re under 50 and working , you will

International Business Machines reported a drop in first-quarter revenue and pulled its profit forecast for the year, signaling that the COVID-19 pandemic has become another hurdle for the company in its transition to cloud computing.
Sales declined 3.4% to $17.6 billion in the period that ended March 31, the Armonk, New York-based company said Monday in a statement. Analysts, who recently updated their projections to adjust for the pandemic, expected revenue of $17.7 billion, according to data compiled by Bloomberg.
New CEO Arvind Krishna, who took the reins from Ginni Rometty earlier this month, has the challenge of leading the 108-year-old tech giant through the economic shocks stemming from the coronavirus. Many organizations have delayed major information technology purchases to avoid projects that are expensive, complex and sometimes disruptive to existing business processes. Even before the coronavirus emerged, IBM had struggled to increase sales on a consistent basis.
“This announcement shows Arvind Krishna needs to do a little more than just stay on track,” Ian Campbell, CEO of Nucleus Research, said in an interview.
The company has been trying to boost its share of revenue from hybrid-cloud software and services, which lets customers store data in private servers and on multiple public clouds, including those of IBM rivals Amazon.com and Microsoft IBM bought RedHat for $34 billion in 2018 to boost this effort. It has also heavily promoted its Watson artificial intelligence systems.
“For the next few months, we have to be focused on the stability of the business and be sure we preserve our liquidity and balance sheet,” Krishna said on a conference call with analysts, becoming the first IBM CEO in decades to join an earnings call. Moving forward, the focus will be on hybrid cloud and AI, with quantum computing “coming down the road,” he added.
Shares fell about 3% in extended trading after closing at $120.41 in New York. The stock has declined 10% this year.
IBM saw a sales slowdown in cognitive software in March as the pandemic took hold and the economy wound down. In the near-term, the company expects that clients will postpone projects, particularly involving software, while demand for hardware should remain stable, executives said on the call. Earlier this month, German software maker SAP reported a similar downturn in cloud licenses.
Earnings, excluding some costs, were $1.84 a share in the quarter, compared with the average analyst estimate of $1.81. IBM is on target to trim expenses by $2 billion this year, Chief Financial Officer Jim Kavanaugh said on the call.
The technology giant reported cloud revenue increased 19% to $5.4 billion in the first quarter. That increase was driven by Red Hat, which contributed $719 million to IBM’s sales in the period, after a financial adjustment related to the acquisition. IBM uses a broad definition for cloud computing, which includes applications, infrastructure and professional services such as consulting into its reporting.
Global Technology Services, which represents about 37% of IBM’s total revenue, continued to decline. The technology consulting unit had sales of $6.5 billion, which is down 5.9% from the same period last year. Global Business Services also narrowly declined, to $4.14 billion — less than a percentage point from a year earlier.
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fortune--2020-04-20--Who will pay for the coronavirus bailout? If you’re under 50 and working, you will

Quibi ’ s launch : What the critics and analysts are saying ( so far )

America’s cable TV anchors and policy experts are paying scant attention to what’s arguably the most damaging and enduring aftershock from the COVID-19 pandemic: the outbreak in deficits and debt to levels not witnessed since World War II.
The U.S. was facing a dire fiscal future before the crisis struck, but the economic lockdown, and the gigantic new spending enacted to combat it, brings the day of reckoning far closer. By borrowing multiple trillions at a pace never before seen, the U.S. is endangering the sterling credit that makes Treasuries and the dollar the safest of havens for global investors. It is likely that within the next decade, the U.S. will need to impose monumental tax increases. What America’s leaders aren’t saying is that it’s the middle-class Americans working today, the autoworkers, nurses, and deli owners, and not just their future generations, who’’ll foot most of the bill.
Says Brian Riedl, a budget specialist at the conservative Manhattan Institute: “Even though the spending to battle the coronavirus has made our fiscal outlook far worse, the administration is calling for another round of tax cuts, and both Congress and the administration are talking about spending trillions more on infrastructure and other programs. If the U.S. government keeps spending like the Europeans, the American middle-class will be taxed like Europeans.”
The reality of stimulus checks
To grasp why the U.S. budget will enter the danger zone on a shortened timeline, let’s examine the factors that get us to the two crucial numbers. The first is the amount of new borrowing that will swell future debt beyond the already-mountainous heights previously predicted. The second: The additional interest payments on those extra trillions that will boost projected deficits and compound to bring total debt, a decade hence, to rank with that of Italy or France. That is, unless another crisis along the way forces the giant tax increases needed to plug the hole.
Most of the new spending is incorporated in the CARES or Coronavirus Aid, Relief, and Economic Security Act, signed on March 27 by President Trump. The CARES measure, along with two previous, much smaller bills, appropriates $2.4 trillion, chiefly to assist businesses and families. But all of the CARES spending won’t, over time, translate into bigger borrowings. The program allocates around $1.6 trillion in direct payments, including $290 billion to families, $180 billion to support health care, and $119 billion for education. Passenger airlines are getting capital injections of $25 billion. It also earmarks $366 billion in “loans” for small businesses, mostly provided by the Paycheck Protection Program (PPP). But most of that cash is likely to turn into grants. If the restaurants, landscapers, physician practices and the like maintain their pre-crisis payrolls for eight weeks after they receive the aid, the loans can be forgiven.
The CARES Act also encompasses a second category, loans that companies are obligated to repay. That comprises $454 billion for midsize businesses with up to 10,000 employees under the Main Street Lending facility, a number that the Fed will leverage to deliver hundreds of billions in credit, and $56 billion for passenger and cargo airlines, the U.S. Postal Service, and “firms vital to national security,” notably defense contractors. All told, the loans, including an estimate of the PPP credits that won’t become grants because some companies couldn’t afford to keep employment at pre-crisis levels, comes to around $600 billion.
We’ll make two, best-case assumptions. First, the U.S. enjoys a sharp, V for victory recovery that lifts national income at the end of 2021 back to the mark at the close of 2019. Second, the rebound enables businesses to repay all or almost all of that $600 billion owed the Treasury. Then how much more does the U.S. need to borrow this year and next, with some sums in fiscal 2022, versus what was predicted before the crisis? In other words, how more indebted is the coronavirus going to make America?
Here’s what Treasury needs to borrow to get through 2021 and, probably, part of the following year. Once again, the bill from the CARES Act and two previous measures, come to $2.4 trillion. The shutdown is hammering tax revenues, and ballooning spending on existing aid programs such as Medicaid and standard unemployment benefits, excluding the extra assistance included under CARES. In a letter to Congress released on April 17, the Congressional Budget Office (CBO) forecast that the combination of cratering inflows and surging emergency spending will add $1.76 trillion to the shortfall. That’s not all. The PPP blew through all of its $349 billion in funding over just two weeks. On April 20, Congress neared an agreement on another $370 billion infusion for PPP, plus $100 billion for hospitals and COVID-19 testing, hiking the tab by $470 billion.
Here’s how it all adds up. CARES and other legislation cost $2.4 billion, the recession another $1.76 trillion in lower taxes and higher outlays on programs such as Medicaid. The new funds to replenish the PPP and aid health care providers add $470 billion. Those numbers bring the total of new borrowings through the close of fiscal 2021 to over $4.6 trillion.
Keep in mind, the U.S. could collect as much as $600 billion in repaid loans next year and beyond, and will also recoup around $200 billion in levies due from the temporary payroll tax holiday granted to ease the strain on businesses. This emergency borrowing also comes on top of an already ballooning deficit that the CBO forecast at $1.073 trillion for 2020.
So where does that leave us? With an expected $1 trillion–plus yearly shortfall, $4.6 trillion in new borrowing, minus that $800 billion or so the Treasury could well collect in loan repayments and catch-up on payroll taxes. So it’s reasonable to assume the national debt will grow by $4 trillion more through early fiscal 2022 than was planned for in early March. That would mean America’s debt will jump from a previously forecast $17.7 trillion at the end of 2021 to $21.7 trillion, a 23% rise unmatched since 1942 as America mobilized to fight Germany and Japan.
The impact of all this debt
The $4 trillion haymaker both deepens future deficits, and in one stroke, undercuts a crucial measure of financial strength, America’s debt as a share of GDP. In March, the CBO issued pre-crisis projections for the next decade that included forecasts for outlays, revenues, deficits, and total debt. But the CBO is required to make its forecasts under the assumption that “temporary” tax cuts slated to sunset actually do expire, and restraints on expenditures remain in place. For example, the CBO’s numbers show the rates lowered in the 2017 tax act snapping back to their old levels in 2025 as scheduled, and congressional budget caps holding discretionary spending to tiny increases staying in force. In reality, Congress and the administration almost always renew middle-class tax breaks, and agree to bust the restraints to satisfy Republican demands for higher defense spending and Democrats’ push to strengthen social programs.
The CBO does issue “alternative” budget numbers showing the almost certain scenario that the tax reductions continue, and that the spending curbs are broken. To get the most realistic projections, I adjusted the CBO’s official forecast by incorporating the “alternative” outlook from June of 2019, and plugged in the new numbers brought on by the crisis.
The alternative budget predicts a gap between expenses and revenues that expands from $1.073 trillion or 4.6% of GDP in fiscal 2019 to $2.16 trillion in 2029, rising to 7% of national income. Total debt jumps to $32.4 trillion, rising from 79.2% to 105% of GDP. Thereafter, unbridled growth in Medicare and Medicaid in future decades keeps deficits and debt on a rapidly climbing escalator.
Now, let’s add the impact of the $4 trillion thunderbolt. First, the U.S. will be paying much more in interest than previously forecast, cash that can’t go to hiring more teachers or paying for hospital stays for the elderly. Right now, the Treasury is borrowing at extremely low rates. But the CBO predicts that cheap money won’t last, especially since huge borrowings could erode America’s vaunted creditworthiness. The CBO forecasts average rates in the 2.6% to 2.7% range over the next decade.
The coronavirus-driven debt swells the yearly interest burden that in turn, expands the debt load. Compound interest is working against the U.S. big-time. Each year through fiscal 2029, the U.S. would on average pay an extra $130 billion in interest, lifting annual spending by 2.3%. Interest expense would rise from $375 billion in 2019 to roughly $1.2 trillion in 2029, or 14% a year, becoming the fast-growing expense in the budget. That’s more than double the rate of growth for Medicare and Medicaid. Driven by ballooning interest, the deficit would reach almost $2.4 trillion in fiscal 2029, or a huge 7.7% of GDP, versus 4.6% in 2019. The U.S. would be borrowing 33¢ on every dollar it spends, compared to 22¢ last year.
The relentless compounding would increase the national debt to $38 trillion in 2029, more than double the $16.8 billion in 2019.
If that scenario plays out, the U.S. would shoulder a staggering 123% of debt to GDP in a decade, 18 points higher than under the CBO’s already scary alternative budget projections. That’s approaching Italy’s current 135%, and exceeds France’s ratio of 98% by one-fourth.
Could the U.S. impose a VAT?
The outbreak makes this future burden so much more crushing that America probably won’t get to those 2029 numbers. Piling on that unforeseen $4 trillion makes it much more likely that a credit crisis will strike sometime in the next several years, forcing radical action. The idea that taxing the wealthy will come close to solving the problem is an illusion. Riedl points out that seizing all income over $1 million would increase revenue by 3.4% of national income, only three-quarters of what’s needed to close the pre-crisis deficits. The rub is that the U.S. middle class is where the big money is, and middle-class families pay extremely low income taxes. Trump lowered their rates in 2017, and no major politician advocates increasing them. In fact, the rate paid by the median family making $59,300 a year is just 3.3%.
Balancing the budget in the next few years would require a combination of a 20% value-added tax (VAT), similar to a national sales tax, and an extra 10% to 15% levy on payrolls. Big new revenues from those sources were the only solution before the outbreak. But the timetable was different. It looked like the U.S. could wait well beyond a decade to impose the big hit, because debt was climbing relentlessly but slowly. But piling on $4 trillion overnight, and heightening the interest burden, could scare foreign investors who keep our rates low and the dollar strong. Until COVID-19 hit, it appeared that the baby boomers were simply offloading the burden onto generations that might not start working for 20 years. Now, today’s middle-class workers in their forties and even fifties will likely get stuck with the huge tax increases.
A few years ago, I wrote a story on the one thing former House Speaker Paul Ryan, an advocate of reining in spending, and economist Paul Krugman, champion of a large and active government, agreed on. Both predicted that imposing a big VAT was the only way America could deliver on all the benefits that it’s promised its citizens. Ryan advocated lowering the trajectory of spending to avoid a VAT, but still thought it would probably happen, while Krugman thought it was both inevitable and the way to go. The pandemic just lifted the odds of European-style taxes to a virtual certainty. The middle class will start paying for those IOUs soon, and it’s the virus that has brought the reckoning from a dot in the distance to a daunting fiscal future that’s approaching fast.
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Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-04-20--Quibi’s launch: What the critics and analysts are saying (so far)

Nearly two weeks have passed since Quibi, the new short-form mobile video streaming service, launched on April 6 on Apple iOS and Google Android. The app is the product of nearly $2 billion in fundraising and an array of top-flight Hollywood collaborators, but its launch came in the midst of a global health crisis that has warped many of its expectations of success.
How, then, should we assess Quibi’s arrival? Here’s what analysts and film and television critics think so far:
The content
As they say: Content is king. Quibi’s video offerings are all under 10 minutes and accessible exclusively on a smartphone (Quibi’s name is a shortened combo of “quick bites”). It may sound like a mix of YouTube and TikTok, but Quibi distinguishes itself with a lengthy cast of high-profile stars and creators as well as a polished, Hollywood look.
Among the offerings: a plane crash survival drama starring Game of Thrones actress Sophie Turner, a Most Dangerous Game adaption with frontman Liam Hemsworth, and a documentary series on LeBron James’ I Promise School. More than 50 original shows launched with the service, an assortment of movies divided into chapters, documentaries, reality TV, and daily talk shows.
Reactions to the first batch of series has been mixed. “With nary an exception, Quibi’s offerings feel like they’ve jumped (or limped) off the block of channels that comes between old-school networks and premium providers like HBO,” wrote Wired’s Peter Rubin. CNET’s Alison DeNisco Rayome was a bit more positive, writing: “While the dramas I watched didn’t do much for me, the comedy and reality shows were fun, and the news shows were solid sources of information.”
Writes PC Magazine’s Ben Moore in a three out of five star review: “Quibi’s quick-clip structure surely works for some genres such as national and sports news, but others, which require buy-in and emotional investment from the audience, don’t do as well.”
The launch
Chief executive Meg Whitman made a CNBC appearance on Monday to announce that the app had racked up 1.7 million downloads in its first week. “It turns out people have in-between moments at home,” she said, alluding to the theory that Quibi’s strategy targeting daily commutes, queuing, and other unstructured time wouldn’t hold up under stay-at-home orders caused by the novel coronavirus.
For context, the recently launched Disney+ app was downloaded 3.2 million times in its first day, according to estimates by research firm Apptopia, and attracted more than 10 million subscribers, according to Disney. The comparison is hardly apples to apples: Disney is a multinational media giant that controls established intellectual property from Pixar, Star Wars, and Marvel; Quibi is a pedigreed startup offering 50-plus launch programs that are completely original.
One industry veteran was impressed with Quibi’s rollout. “This is an incredibly successful launch, especially given 11th hour need to pivot campaign WHILE finishing product/content + [work from home],” media analyst and former Amazon Studios strategist Matthew Ball wrote on Twitter, noting the coronavirus pandemic’s impact on Quibi’s launch.
A market researcher was not as bullish. “Quibi was likely hoping for a better launch. The highest it hit on the U.S. App Store Top Charts was No. 4 overall on launch day,” wrote Adam Blacker, Apptopia’s vice president of insights. “It’s no secret that when you’re launching a big app like this, you expect to hit the No. 1 overall spot. The coronavirus has definitely had an impact. It’s clear from using the app that it’s best used while commuting to work, which is not happening for many people right now.”
(It’s worth noting that Apptopia estimates that Quibi’s first-week downloads totaled just over 1.1 million. A Quibi spokesperson tells Fortune that Whitman’s 1.7 million figure is accurate and that the total “significantly exceeded the company’s expectations and made it one of the most successful app debuts of a completely new brand.”)
The technology
One major criticism Quibi heard from customers and reviewers in its first week was the lack of ability to watch its mobile device-optimized shows on televisions. On CNBC, Whitman said Quibi had intended to implement casting—a common feature that allows someone to view a mobile video on a larger device—after launch but is now accelerating the timeline, given that many of its customers are in quarantine. “We’ll eventually get there, but it was never a part of the launch,” she said. “If we had known about COVID, maybe it would have been.”
John Giegengack, a digital media analyst at Hub Entertainment Research, praised the casting decision in a post on LinkedIn. “This is a good move,” he wrote. “It probably goes against the ‘spirit’ of what Quibi was created to do. But pragmatically it’s smart.”
“In our Quibi research and others,” he added, “the fact that you couldn’t watch on a TV screen was the biggest stumbling block among otherwise interested consumers.”
As far as user experience is concerned, critics noted the Quibi app’s clean look and thoughtful design. “As you scroll through the different shows, you feel a nice haptic feedback under your thumb, a gentle signal to stop and consider each show,” Wall Street Journal columnist Nicole Nguyen wrote. She added that while the Turnstyle feature that allows a seamless switch between landscape and portrait orientation is fun, it felt like more of a gimmick. “All of the content is edited to be watched both ways, but that doesn’t seem particularly useful,” she wrote.
The Verge was also a bit lukewarm in its review. “At launch, the Quibi app is by no means bad, and Turnstyle is fun to experiment with,” Chris Welch wrote. “It just feels very much like a version 1.0. Maybe that’s by design to complement the ‘quick bite’ nature of the content.”
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fortune--2020-04-20--‘Unreal’: Oil prices go negative for the first time in history

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Crude oil prices dropped into negative territory for the first time in history Monday, as financial fireworks collided with evaporating demand and scarce storage. The decline below zero means that sellers are effectively paying buyers to take the oil off their hands.
By late Monday afternoon New York time, the front month WTI contract was sitting at minus $38.45/barrel, down an eye-watering 310.45% on the day.
“It’s like trying to explain something that is unprecedented and seemingly unreal,” said Louise Dickson, an oil analyst at Oslo based Rystad Energy.
That descent into negative territory marks a remarkable, apparently unstoppable, decline over the course of the day. However, while analysts warn the market is weak, the sheer scale of the decline is largely a reflection of a technical clash—rather than real-world trading.
The price currently reflects the May contract, which will expire on Tuesday, rather than the June contract—which is currently seeing the bulk of the trading, and is therefore far more reflective of the WTI price as a whole.
The May contract, therefore, is hugely illiquid—and whoever is left holding the contracts when it closes could be forced to take delivery of barrels of oil that no one, it is safe to say, currently wants. (Think of it like a very expensive game of musical chairs.)
“What’s very apparent is someone lost their shirt,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo. A drop to negative $40/barrel is “pure financial action”, rather than a reflection of the true market, he said.
The June WTI contract on Monday, for example, settled at $20.43/barrel—similar to prices seen last week. The gap between May and June, which was at points at least $60/barrel, was the largest gap between two back-to-back month contracts ever seen, Bloomberg reported—reflecting that the market is dramatically weaker in the near term than it’s expected to be later on in the year.
It also represents a huge divergence from the Brent crude contract, for example, which only weakened 7.55% on the day, sitting at $25.96/barrel shortly before the close.
However, the global oil market is undoubtedly weak—driven by the utter demand collapse due to worldwide lockdowns as a result of COVID-19, which has produced a market so oversupplied it has triggered a price collapse it appears even production cuts by OPEC+ have so far been powerless to halt.
That oversupply is so extreme, in fact, it has triggered a storage crisis—creating a backlog that has made storage space more valuable than the oil itself. That is already causing “shut ins”, industry jargon for halting drilling and refining, because there is nowhere for the oil to go.
In the physical world of oil trading, this makes negative prices highly likely—until production halts totally, just to make space for more oil, many producers could forced to pay for someone else to take it off their hands. Last week, Bloomberg reported that some sellers in Texas were already selling off crude for as little as $2/barrel.
Analysts have been warning for weeks that quickly disappearing spare storage capacity would mean that drilling and refining of oil in many regions would have to be stopped. Rystad Energy said on Monday that the hardest-hit regions were Alberta, Venezuela, and Iraq, and that shut ins had already resulted in an estimated 1.9 million barrels/day being taken offline so far in April. Storage in the U.S. is also under pressure—space in the Cushing facility in Texas was also rapidly disappearing, according to the U.S. Energy Information Administration.
There is likely more volatility to come, warned Schieldrop—and it will likely come from the two most common news making sources on oil markets: OPEC, and U.S. President Donald Trump.
“If OPEC doesn’t say anything now, or Donald Trump doesn’t say anything now, who would say anything?” Schieldrop said. “This is just overboard!”
But while a tweet or an OPEC statement have made prices jump before, the question now is whether the oil markets are even listening.
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fortune--2020-04-20--Pour yourself a glass of this cannabis-infused wine

A handful of startups are hoping cannabis-infused beverages become a trend. But while other CBD purveyors have leaned more heavily toward fizzy drinks, these producers are reaching for the brass ring with the development of “cannabis wine.”
A wine-like product, these THC- and CBD-infused concotions are made with wine grapes sourced from reputed regions, including California’s Sonoma County and Napa Valley. But instead of getting a buzz from alcohol, the sensation stems from the addition of a water-soluble cannabis mixture added to dealcoholized wine. And like real wine, you’ll feel the effects in a matter of minutes.
But legal restrictions, skepticism regarding cannabis, and the newness of the infused beverage are keeping the product rather niche. It currently represents only 1% of the drinkable cannabis category—such a small percentage, that trend predictors at the Wine Analytics Report, which follows all sorts of beverages, doesn’t even track it. But that will increase in the future, producers say, as more cannabis fans discover new methods of consumption and the canna-curious gravitate toward a familiar product.
“Californians love cannabis, and they love wine, and we knew cannabis wine would be a hit,” says Josh Lizotte, cofounder and CEO of Rebel Coast, which, in 2018, became the first brand to launch a cannabis wine. “People are really curious about it. It drums up a lot of attention from consumers.”
Rebel Coast’s cannabis beverages—including the Sauvage (made from Sonoma-grown Sauvignon Blanc grapes)—are in more than 200 dispensaries in the state of California, a huge success for the brand in just a few years. When Rebel Coast first launched a cannabis wine, consumers had no idea what the product was exactly. (Many of them don’t today, either.) He and his team spend a lot of their time educating people about the beverage—starting with how it’s made.
Rebel Coast winemaker Muiris Griffin studied in Bordeaux and has worked for big Napa Valley names like Opus One and Ridge. Courtesy of Rebel Coast
The first step, once the wine is in hand, is to remove the alcohol, as California law states that products cannot have both alcohol and cannabis. The process is tricky, though, as the dealcoholization can also extract important natural flavors and aromas from the wine. It’s a careful system to keep it all intact.
Next, producers mix carrier agents with cannabis oil, turning a non-water-soluble product into a water-soluble one that is tasteless and odorless. It’s then spun into nanometer-size droplets via a nana-emulsion technology, so that the cannabis integrates with the liquid and is more quickly absorbed when sipping. Activation can take anywhere from five to 15 minutes—comparable to how long it takes to feel the alcoholic effects of a glass of wine.
“None of this is easy, and especially not cheap, but we know we are setting the foundation for what we hope will become the gold standard in infused beverages,” says Tracey Mason, cofounder and chief executive officer of House of Saka, a line of cannabis-infused beverages that uses exclusively Napa Valley base wines.
It’s been a challenge, though, given restrictions around marketing and selling the product. For one, Lizotte says, cannabis wine brands are not allowed to use “wine,” “dealcoholized,” or any term associated with wine, such as “rosé,” on the labels or marketing. Then, of course, there are the massive 30% state and local taxes, which, he says, are “burdensome to consumers” and therefore the growth of these brands. Thirdly, consumers still don’t quite understand what the beverage is, meaning the onus is on the brands to educate consumers. And lastly, well, cannabis still remains illegal in many states, so brands like House of Saka and Rebel Coast are only sold in California.
“The revenue from the cannabis industry is expected to reach $5.5 billion by 2024, but only about 35% of that is from the legal sector,” Mason explains. “The illicit market is the industry’s worst-hidden secret. It’s relatively unpoliced and puts us at an extraordinary disadvantage when it comes to pricing and access to the consumer.”
House of Saka Pink is handcrafted from grapes grown in select vineyards within California’s Napa Valley. Courtesy of House of Saka, Inc
All of that aside, the category appears to be growing. Mason’s House of Saka Pink and White branded beverages hit the market in October, driven to attract the female consumer who is a fan of luxury wines from Napa Valley. Mason explains she wanted to create a product that echoes the familiar social applications of a bottle of wine. In fact, the brand’s namesake is an ancient tribe of female warriors who actually used cannabis-infused wines as part of their pre-battle rituals.
Viv&Oak just launched its first-ever cannabis-infused red wine in February; it’s made from 100% Zinfandel grapes, also sourced in California. The Shimmering Scarlett, as it’s called, is available in three dosing levels as way for consumers to regulate their input based on the high they want: 50 milligrams of THC per bottle; 100 milligrams of CBD with four milligrams of THC per bottle; and 25 milligrams of THCV with 25 milligrams of THC and 25 milligrams of CBD per bottle.
“For me, it didn’t make sense to make one dose for everyone,” says Alana Burstein, Viv&Oak founder and president, noting other cannabis products are sold in different doses. “Every customer requires a different dosing style that suits them.”
Viv&Oak proposes its cannabis-infused beverage as a “healthier alternative,” with only four grams of sugar and 24 calories per glass. Courtesy of Viv&Oak
But critics charge cannabis wine is an unfounded idea, stealing a chunk of the market away from wine and other alcoholic beverages. Instead, producers reply, the prime target audience for their cannabis beverages are cannabis fans who usually don’t drink alcohol anyway. “They are excited for a new, delicious way to consume,” Burstein says. And the canna-curious, she adds, are excited to try a cannabis product made more relatable in the form of wine. “We see the wine industry as partners not competitors,” Burstein says. “Wine connoisseurs love their wine just the way it is.”
Lizotte echoes that sentiment—he’s not trying to get a wine snob to switch to his product. Most big-time wine drinkers probably wouldn’t even like his beverages, he says: “If you pick up a bottle of cannabis-infused wine and assume it’s going to taste like a stellar Napa wine, you’ll probably be disappointed.” Lizotte thinks the pitting of cannabis against the wine industry is all media hype. “We’ve worked with quite a few vineyards and winemakers over the last couple of years, and they’re all really excited about what we’re doing,” he says. “They don’t think of us as detrimental to their craft.”
Cannabis wines may well open up a new consumer base for wine growers and a new sales channel for the wine industry as a whole, since, after all, these cannabis-infused beverages are made with wine. Add to that increasing consumer interest in the plant, and these producers are all banking that their beverages will be a hit—no pun intended.
“The fact is cannabis isn’t going away,” Mason says. “What’s different now is that we have room for innovation, for real conversation, and especially for more education about the plant, its extraordinary benefits, and responsible means for consumption. Probably the best place to start is with a glass.” And there’s another important detail to consider, says Burstein: “no hangovers.”
More must-read stories from Fortune:
—Diary of a lockdown: What it feels like in 17 cities during the coronavirus pandemic
—How my job as a yoga studio owner has changed during the pandemic
—Will the coronavirus finally get Americans to embrace the bidet?
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—Italian winemakers grapple with the coronavirus lockdown
—WATCH: Can San Francisco Be Saved?
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fortune--2020-04-20--‘The Batman’ and other Warner Bros. theatrical releases are officially delayed

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Warner Bros. is delaying a batch of theatrical releases including “The Batman” and “The Sopranos” prequel “The Many Saints of Newark.”
The studio says Monday that “The Sopranos” film will be pushed from September 2020 to a March 2021 release, while “The Batman” starring Robert Pattinson will be delayed four months to October 2021.
Many studios have shuffled release dates due to both shuttered productions and the closure of movie theaters to prevent the spread of the coronavirus.
This year also lost the Will Smith drama “King Richard,” which has been moved back a year to November 2021, and a biographical drama about Black Panthers activist Fred Hampton set for August which now has no release date.
Baz Luhrmann’s yet-to-be-titled Elvis film that Tom Hanks was shooting in Australia when he and Rita Wilson tested positive for COVID-19 was delayed a month to November 2021.
The studio has not abandoned summer 2020 entirely, however. Warner Bros. still has Christopher Nolan’s “Tenet” dated for July 17 and “Wonder Woman 1984,” which was pushed back from June, for an Aug. 14 theatrical release.
And one film even moved up on the calendar: The DC superhero film “The Flash” is now expected in June 2022 instead of July.
More must-read stories from Fortune:
—How Mrs. America designers revived a ’70s feminist showdown
—Peacock’s early preview kicks off, with national launch still on track for July
—How movie theaters can make a comeback after the coronavirus pandemic
—After Fleabag, Vicky Jones was ready to Run toward a tricky HBO thriller-comedy
—Tigertail director Alan Yang on making the past not “a memory, but a beautiful dream”
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-04-20--Big banks’ trading revenues soar 30% amid coronavirus-related stock market volatility

The coronavirus pandemic and the related economic shutdown may be devastating for the American economy at large, but Wall Street trading desks have raked it in amid one of the most volatile periods in the stock market’s history.
Trading revenues at the “big five” U.S. banks—Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Morgan Stanley—swelled 30% in the first quarter of the year on the back of a market correction that resulted in “a spike in volatility,” Fitch Ratings said in a report Monday.
As the pandemic sent the stock market into historic, topsy-turvy fluctuations last month, investors desperately sought to move their money around and traders were more than happy to assist them—with the market’s wild swings proving an opportunity for some.
Overall, capital markets results at the five major banks grew 23% in the first quarter—hitting their strongest level in nearly a decade, per Fitch—thanks not only to heightened trading activity, but also an uptick in debt issuances by companies seeking liquidity to ride out the economic shutdown.
Goldman Sachs experienced its strongest fixed income, currencies and commodities (FICC) trading revenues in five years, while Bank of America registered its best-ever equities trading results and JPMorgan saw record debt underwriting revenues, the ratings agency noted.
But while the increase in client activity is proving a boon for banks at the moment, lower interest rates and declining economic activity “could prove to be a headwind for banks later this year,” according to Fitch managing director Christopher Wolfe. Activity on the IPO underwriting and mergers and acquisitions fronts also came to a relative standstill in March, and will likely remain a challenge in the months to come.
As such, Fitch—which revised its ratings outlook for the U.S. banking sector to negative last month—reiterated that “most U.S. banks will face meaningful profitability challenges” in the near future, with the drop in interest rates hampering spread revenues “for a number of quarters.” Fee income will also be hurt as corporate and institutional clients continue to pull back from the market.
Those dynamics explain why bank stocks—like financial sector stocks at large—have taken a pounding this year as the economic impact of coronavirus pandemic became apparent. The five major banks cited by Fitch have lost anywhere from 21% to 45% of their market value this year to date, while the S&P 500’s financials sector is down 29% in 2020 so far.
More must-read finance coverage from Fortune:
—5 veteran investors on how to approach the coronavirus stock market
—These countries’ stock markets have been hit the hardest by the coronavirus
—China’s next coronavirus crisis: What happens after a country closes its economy
—This time, the banks were ready: How the Big Four prepared to survive the coronavirus
—How the American economy can recover from the coronavirus pandemic
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
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fortune--2020-04-20--Trump and Congress ‘very close’ to a deal to boost small business loans, hospitals, and coronavirus

Trump and Congress ‘very close’ to a deal to boost small business loans, hospitals, and coronavirus testing

The Trump administration and Congress are trudging toward an agreement on an aid package of more than $450 billion to boost a small-business loan program that has run out of money and add funds for hospitals and COVID-19 testing.
The package is nearly double the $250 billion that President Donald Trump requested almost two weeks ago. Trump was nevertheless among those offering optimistic assessments on Sunday, telling the public “we are very close to a deal” during a White House briefing.
But the timeline for a deal wasn’t immediately clear. The Senate is scheduled for a pro forma session Monday afternoon that could have provided a window to act on the upcoming measure under fast-track procedures requiring unanimous consent to advance legislation. But it’s has become clear there won’t be a deal in time to pass it by then.
One option is to set another Senate session for Tuesday if an agreement appears likely to be sealed and written up by then.
The House announced it could meet as soon as Wednesday for a vote on the pending package, according to a schedule update from Majority Leader Steny Hoyer, D-Md. The chamber is likely to have to call lawmakers back to Washington for a vote, which will present logistical challenges.
With small-business owners reeling during a coronavirus outbreak that has shuttered much economic activity, Treasury Secretary Steven Mnuchin — the administration’s point man in the talks with Democrats — said he was hopeful of a deal that could pass Congress quickly and get the Small Business Administration program back up by midweek. But optimism of an immediate deal was being tempered.
“I heard today from our legislative affairs team that they are hopeful we can get a deal this week,” top White House adviser Kellyanne Conway said Monday on Fox News. “The secretary feels very confident. He said that yesterday that a deal is happening. Much better position than we were, say, a week ago.”
The emerging accord links the administration’s effort to replenish a small-business with Democrats’ demands for more money for hospitals and virus testing. It would provide $300 billion for small-business payroll program, and $50 billion would be available for small business disaster fund. Additionally, it would bring $75 billion for hospitals and $25 billion for testing, according to those involved in the talks.
On a conference call Sunday afternoon that included Trump, Mnuchin and Republican senators, Senate Majority Leader Mitch McConnell, R-Ky., indicated the only remaining item for discussion involved the money for testing, according to a Senate GOP leadership aide who spoke on condition of anonymity to discuss a private call.
Democrats have been pushing to boost funding to cash-strapped states and local governments whose revenues have cratered. They had proposed $150 billion for the effort but GOP leaders stood hard in opposition, at least regarding the current package of COVID-19 aid.
“The president is willing to consider that in the next bill, but wants to get this over the finish line with a focus on small businesses, hospitals and testing,” Mnuchin said Sunday on CNN.
The government’s Paycheck Protection Program for small businesses, slated to get more than $300 billion under the emerging deal. The program has been swamped by companies applying for loans and reached its appropriations limit last Thursday after approving nearly 1.7 million loans. That left thousands of small businesses in limbo as they sought help. An additional $50 billion in the evolving deal would go for disaster loans.
About $75 billion would go to U.S. hospitals, for those straining under a ballooning coronavirus caseload as well as those struggling to stay financially afloat after suspending elective surgeries during the pandemic. About $25 billion would be added for COVID-19 testing, something states have said was urgently needed.
The SBA loans, based on a company’s payroll costs, offer owners forgiveness if they retain workers or rehire those who have been laid off. The law provides for forgiveness for companies in any industry — even businesses like hedge funds and law firms. There’s a limit of $100,000 on the amount of employees’ compensation that can be considered when loan forgiveness is calculated.
More politics coverage from Fortune:
—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—American companies laid off 22 million in the past month. Europe chose a different path
—To fight tomorrow’s pandemic, we need to think like the military today
—If you’ve been a little busy lately, here’s what’s going on with the 2020 election
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: As unemployment skyrockets, the labor market’s future looks grim
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fortune--2020-04-20--Why the IRS stimulus check portal may be saying ‘payment status not available’ when you try to track

Why the IRS stimulus check portal may be saying ‘payment status not available’ when you try to track your money

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Gerald Plummer logged into his bank account last week expecting to find his stimulus check had been direct deposited. Disappointed not to see the money, he headed over to the new IRS portal to try and track his check. But like many frustrated users, he was instead given a message saying the IRS did not have enough information to deposit his check.
His reaction, having dutifully used TurboTax for more than 20 years to prepare and file his taxes: “Seriously?”
And Plummer is far from alone. As Fortune has been reporting, ever since the IRS last Wednesday launched its Get My Payment portal, to track the status of stimulus checks, many users have been getting the same message: Payment Status Not Available. In fact, the term was even trending on Twitter last week.
The IRS has clarified several reasons on its site that users may get the error message, including:
They haven’t finished processing your 2019 return
You entered your data on the Non-Filers portal, but it hasn’t yet been processed
You receive an SSA or RRB Form 1099 or SSI or VA benefits, and that information has not been loaded onto the IRS systems yet for people who don’t normally file a tax return.
The IRS also added another key point to its FAQs. One reason you could be receiving an error message is that, “The application doesn’t yet have your data; we’re working on adding more data to allow more people to use it.” In other words, the agency is racing to keep up with the massive amounts of information filers and non-filers have been uploading over the past two weeks.
Richard Winchester, a Professor of Law at Seton Hall University School of Law and an expert in federal tax policy says, “It takes time for the IRS to process information that a user may have provided through the web portal designed for people who do not file a tax return. Until the IRS verifies and processes that information, the “Payment Status Not Available” message will appear whenever the user tries to get an update.”
The agency says it updates the Get My Payment information once per day, overnight, so checking back multiple times during a given day will not be effective. A press release on the agency’s website last week read in part:
“The Get My Payment site is operating smoothly and effectively. As of mid-day today [April 15], more than 6.2 million taxpayers have successfully received their payment status and almost 1.1 million taxpayers have successfully provided banking information, ensuring a direct deposit will be quickly sent. IRS is actively monitoring site volume; if site volume gets too high, users are sent to an online “waiting room” for a brief wait until space becomes available, much like private sector online sites. Media reports saying the tool “crashed” are inaccurate.”
But Winchester also notes another pain point: Some taxpayers routinely elect to receive refunds via debit cards from their tax preparers, such as H&R Block. But when it came time to send stimulus checks, the IRS erroneously sent their stimulus money to the tax return preparers, Winchester says. “It’s not yet clear how this situation will be rectified or how long it will take,” he says. “However, people who receive same day refunds from a tax preparer tend to be at the lowest end of the income ladder. So, they probably need the money more than anyone. That means it’s a very big problem if they have to wait to get access to it.”
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Must-read stories from our May 2020 issue:
—How the American economy can recover from the coronavirus pandemic
—Our 2020 list of the World’s 25 Greatest Leaders is dedicated to heroes of the pandemic
—The coronavirus crisis could make Big Oil greener
—For airlines in freefall, the return route will be long and bumpy
—Chart: How each industry is fueling the U.S. unemployment rate
—Everyone is using Zoom, but is that what Zoom wants?
—WATCH: How Seattle’s corporate giants banded together to combat coronavirus
More personal finance coverage from Fortune:
—What to do if you can’t pay your bills this month
—Stimulus checks are depositing: How people are spending the money
—Couldn’t track your stimulus check? Errors and long waits plague IRS portal rollout
—What you should know about mortgage forbearance and skipping payments
—Everything you need to know about furloughs—and what they mean for workers