fortune--2020-05-09--10 takeaways from the worst jobs report in U.S. history

Brutal. Horrific. Tragic.
Choose your description. The April jobs report showed, in harrowing detail, just how terribly the coronavirus outbreak has pummeled the U.S. economy. Most obviously, there’s the 14.7% unemployment rate, the highest since the Great Depression. And the shedding of more than 20 million jobs, by far the worst one-month loss ever.
But Friday’s jobs report from the government contains 42 pages about just how far the job market has tumbled, along with hints of what to watch for — eventually — in a possible recovery.
Here are 10 major takeaways from the April jobs report:
Even worse than it looks
The unemployment rate is catastrophically bad. Based on backdated estimates, the rate hasn’t been higher since 1939. But the scary thing is that the April figure actually downplayed how bleak things are.
Heidi Shierholz, the former chief economist for the Labor Department, noted on that 6.4 million people who were out of work in April didn’t look for a job and so weren’t even counted as unemployed. Include them and the unemployment rate jumps to roughly 19%, she tweeted.
An additional 7.5 million workers appear to have been mistakenly classified as “employed, not at work” when they were actually jobless last month and should have been counted as unemployed, said Shierholz, who now works at the liberal Economic Policy Institute. Add them into the mix and the unemployment rate screeches up to 23.6% — not far below the all-time unemployment peak of roughly 25% from 1933.
Workers are still hopeful
Of the roughly 20.6 million people who lost jobs in April, roughly three-fourths described their unemployment, perhaps optimistically, as “temporary.” This means that more than 18 million Americans expect to return to their workplaces soon. Even if they all regained their jobs quickly — something almost no one expects — the unemployment rate would likely dip below 10% but still remain high.
Most economic forecasts expect any rebound to be much slower than the coronavirus-induced collapse, which arrived suddenly and violently. Temporary layoffs could quickly become permanent. Major stores such as Neiman Marcus and J.Crew have filed for bankruptcy protection. Restaurants deprived of revenues are starting to announce permanent closures. The Congressional Budget Office estimates that the unemployment rate will be 11.7% in the final three months of this year, an indication that many jobs will not return by then.
EPOP
Before the viral outbreak, about 60% of all U.S. adults — everyone from students to working-age people to retirees — were employed. This figure is known as the “employment-to-population ratio,” or EPOP.
The EPOP sank in April to 51.3%, its lowest level on record. For African-Americans and people with only high school diplomas, it dropped below 50%. This figure might be more instructive in some ways than the unemployment rate, which reflects whether people who are out of a job are looking for a new one.
The EPOP, by contrast, simply measures the proportion of adults who are working. And with it now showing that barely half of American adults is employed, the economy will struggle to improve unless the ratio rises.
Bleak times for immigrants
Perhaps no group has suffered as dramatic a reversal of fortune as foreign-born workers. Their unemployment rate was 2.7% a year ago, even lower than the rate for native-born Americans. But it jumped to 16.5% in April as 5.7 million immigrants lost jobs compared with a year ago.
The main reason is that immigrants work disproportionately in occupations that have been especially devastated by the viral outbreak — from hotels and restaurant work to cleaning services and construction. These job losses matter for the recovery, because immigrants, who are critical to those industries, might move elsewhere if tighter restrictions are imposed on their work visas.
Republican Senators Tom Cotton of Arkansas, Ted Cruz of Texas, Charles Grassley of Iowa, and Josh Hawley of Missouri sent a letter Thursday to President Donald Trump that seeks to suspend guest worker visas for a year. With fewer immigrants, the pool of potential workers in those hard-hit industries would shrink — a risk for an eventual recovery that will depend on how quickly jobs can be restored.
College pays off
College graduates were far more likely to keep their jobs in April. Their unemployment rate was 8.4%. That’s still high, but it’s significantly lower than the national average of 14.7%. People with college and advanced degrees entered the recession with a big advantage: They held jobs that made it easier to work from home.
The Bureau of Labor Statistics reported that 41.7% of people with an advanced degree worked from home on an average day in 2018. And slightly more than a third of people with a college degree did so. But just 11.9% of high school graduates worked from home. That limitation made them more vulnerable to layoffs.
We’re working less
Not surprisingly, the job losses mean that the United States as a whole is working fewer hours. The index of total hours worked has collapsed 15% from a year ago. This matters because it cuts to the heart of how an economy grows: Economies expand only if more people are working or if the people who are working become more productive.
Fewer people holding multiple jobs
Over the past two months, 2.6 million people have lost their second or third jobs. These people are still counted as employed, but they’ve lost a chunk of their incomes. There were nearly 8.1 million people who held multiple jobs in February. By April, that total had plummeted to 5.5 million.
Nearly 1.2 million disabled Americans lost jobs
African-Americans, Latinos and high school graduates were each more likely to suffer job losses than the national average. But people with disabilities also faced harsh challenges in April. Nearly 1.2 million of them lost jobs, and their unemployment rate reached 18.9%.
These losses were a troubling reversal of the gains that disabled workers had been making in recent months as the benefits of what was the longest expansion in American history was finally reaching them.
Consumers are retreating
No sector suffered as severe a decline as retail and leisure and hospitality. The job losses there point to the dizzying falloff in consumer spending as a result of stay-at-home orders, and they hint at the devastation that could persist for years.
Retailers shed a stunning 2.1 million jobs last month. Theaters, concert halls and the sports industry lost 217,000. The film and recording industries cut 216,500 jobs as production stopped. Over the past two months, nearly half the 12 million jobs at restaurants and bars have disappeared.
Collectively, all this points to much less consumer spending and enormous uncertainty about whether or when it might recover. Economists expect the U.S. retail sales report for April being released next week will show a monthly decline of 10% after an 8.4% fall in March.
Pay growth is a false flag
In any typical jobs report, April’s average pay gains would look fantastic: Average hourly earnings jumped 7.9% from a year ago. This would normally be greeted by high-fives from economists and from lawmakers up for re-election. But it’s really a disturbing sign. Average pay rose that much only because the lowest-paid workers lost their jobs and were excluded from the calculation.
Consider what happened with all those layoffs at bars and restaurants: Average wages actually surged 9.4% because the highest paid workers kept their jobs. Likewise, pay at retailers climbed 8.8%.
By contrast, average hourly earnings in the information sector — which includes telecommunications and contains fewer low-wage jobs — increased only 3.1%.


fortune--2020-05-09--Why the stock market is up, even though all the economic data is down

Clear your throat and spit : What it was like to take my at-home coronavirus test

As unemployment rises, so does…the stock market?
It’s an equation that might not make much sense to market observers, but some strategists suggest it might not be as crazy as it sounds.
Markets rose nearly 2% on Friday, even as the Labor Department announced a record 20.5 million jobs were lost last month, as the unemployment rate jumped to 14.7% from 4.4%. However, unemployment data is considered a lagging indicator—meaning that it’s capturing data that’s already behind us.
Meanwhile, “the markets are always, always forward-looking, and the markets are trying to move ahead of the economy,” Randy Frederick, the vice president of trading and derivatives at Charles Schwab, tells Fortune.
Markets have risen steadily in the past month, with the S&P 500 up over 6% since early April.
Those like Mark Hamrick, chief economic analyst at Bankrate.com, point out that markets have long been mulling the worst case scenario in job data—and have adjusted accordingly: “We knew even upon release of the March employment report, where the unemployment rate rose from 3.5% to 4.4%, that this month was coming,” he tells Fortune. “There had to be the reckoning of disastrous statistics reflecting the real world, [and] we’ve had plenty of time to adjust for this reality.”
Others like Frederick note that “the greatest explanation” for the market’s recent resilience is “probably just the fact that the Fed, economists, and market analysts have done a pretty good job of trying to prepare everyone for these numbers being catastrophically large, being depression-level peaks or troughs,” he argues. “People have heard that again and again enough that, no matter how huge they are, they don’t react negatively as a result.” One bright sign: he points out that a large portion, over 18 million people in April, reported being on “temporary layoff”—a potentially positive sign that employment could rebound in the future.
Continued Fed support
One big reason analysts point to for the markets’ steady rise from its lows has been the unwavering, everything-and-the-kitchen-sink support of the Fed and central banks.
The Fed’s recent measures, which include rounds of quantitative easing, new programs, and rate cuts, have given investors plenty of support and security in the markets. “I’ve been calling this the ‘blank check Fed,'” Frederick laughs. “Investors understand that the Federal Reserve and other central banks have their backs,” Hamrick says.
Reopening the economy is in sight
To wit, some states are starting to slowly reopen, flushing the markets with new hope that the economy will snap back and jobs will be restored. “The market knows that the job losses are self-inflicted due to the widespread shutdowns,” Bleakley Advisory Group chief investment officer Peter Boockvar told CNBC on Friday. “Thus, now that we are beginning the reopening process the market assumes many of these people will hopefully get hired back over the coming months and quarters.”
Some states including Florida have slowly started reopening, and analysts suggest investors are more optimistic now—even though the likely-abysmal data from Q2 has yet to surface. “What the markets are telling us is that, ‘yes, maybe the worst of the economic data has not yet come,’ but the markets are looking several months down the road and saying, ‘are things going to be better? Yes they are,'” says Frederick.
Jobless claims are trending down
One of the more significant trends those like Schwab’s Frederick are noting is the steady decline in weekly initial jobless claims. While the numbers are still catastrophic (the latest weekly jobless claims came in at 3.2 million), those numbers have steadily decreased for five consecutive weeks now. They’ve “peaked, and almost inevitably the trend and direction of the data is more important than the absolute level,” he notes.
Winners and losers
But in this case, a rising tide doesn’t always lift all boats evenly, and analysts say they are seeing an even larger bifurcation between stock market winners and losers.
“Diving beneath the surface, although the S&P 500 as a whole remains down ‘only’ 11% for the year, many stocks are still down over 70%, while other stocks have already surpassed their all-time highs, reflecting investors’ attempts to pick out the winners from the losers within this awful health crisis,” Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, wrote in a note Friday.
Some of those winners have certainly seen a run-up: Netflix and Amazon, for example, both posted all-time highs in April. And tech stocks have also enjoyed a rebound as of late, with the S&P 500 information technology index up 1.9% year to date. Meanwhile, stocks in airlines, energy, and autos have taken a beating.
But with markets up a solid 6% in the past month, the resilience should be encouraging, says Hamrick: “To the degree that the markets seemed to have found some footing is reassuring, because it at least gives the impression that some return to normalcy is occurring.” But, he adds: “But we also know that in the past, the markets have given false signals and have only sunk to previous lows or lower lows, so that’s not a guarantee.”
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fortune--2020-05-09--Rocking out in your car: How Europe is staging live music events in the coronavirus age

Why the stock market is up , even though all the economic data is down

When Denmark’s government banned concerts as a lockdown measure in early March, musician and event organizer Mark Chemnitz wasn’t sure what to do. So he and his friends brainstormed and came up with a new—yet decidedly old-fashioned—idea.
“We had to rethink the whole game,” Chemnitz says. “None of us could go out and play any gigs for the next five or six months, maybe longer. We said to each other, just because there’s COVID-19, that doesn’t mean culture is dead…You can’t hold it in. We did it because we had no other choice.”
What they did was to repurpose the century-old concept of the drive-in theater as a modern-day, continuous culture festival, called P scenen.
With assistance from the council in the city of Aarhus, they gained permission to set up a large stage in the Tangkrogen public park. Once, such a stage might have had 10,000 people thronging before it. Now, in the age of the coronavirus, the audience would sit encased in hundreds of cars, spaced out in neat rows, with their occupants enjoying the live entertainment through their windscreens and tuned to their FM radios.
For those without vehicles of their own, Mercedes and rental giant Europcar provided new cars for people to sit in—a neat marketing opportunity for an industry that is itself in crisis.
The first concert took place on April 24, featuring the popular Danish singer-songwriter Mads Langer, who took audience requests through a Zoom videoconference. Since then, events have taken place most days, ranging from concerts, stand-up comedy and theater productions to film screenings and church services.
The idea isn’t just confined to Denmark; in Germany, multiple club promoters have started holding drive-in raves. This all requires a big shift in thinking around business models. But, again, it’s not like the live music industry has much choice right now.
“A dizzying drop”
According to the European Live Music Association, the sector drew in more than $8.4 billion across the continent last year. Now, says association president Vincenzo Spera, that figure will likely drop by around 80%.
“With the COVID-19 crisis, many music companies across Europe have been experiencing a dizzying drop in turnover since February, which is draining liquidity, against [necessary payments to] suppliers, employees, tax authorities and banks,” he says.
Spera says the sector is being particularly “penalized” during lockdown because live entertainment is inherently social—which is what we’re all being told not to be. He calls for European governments to pay more attention to the live-music industry’s needs, as its complexities are “often little known.”
And what of ideas such as drive-in concerts? “This is mostly a working hypothesis that certainly cannot replace the typical use of concerts,” says Spera, while arguing that the suddenly-popular phenomenon of livestreamed concerts is “also an option, but it cannot be the solution.”
“We are seeing many important initiatives by artists from all over the world, but it is difficult to think of replacing the emotional charge and the consequent physical and emotional experience that the live event brings,” says Spera. “Then there is the complex issue linked to the economic sustainability of certain proposals.”
But neither of these factors is lost on live music’s new innovators.
New models
Chemnitz’s Front of House company and the other P scenen organizers—audiovisual firms Steady and Nordic Rentals—have certainly had to rethink the economics of live music.
Whereas a regular festival might pull in many thousands of people, they can only get 500-600 cars onto the Tangkrogen field. But the organizers are not charging more per ticket to compensate. They charge per car rather than per person—the recommendation is that people only bring the close friends or family members in their social bubble—with the price varying according to the prominence of the artist. And the result is that it generally works out cheaper for each person to attend, not more expensive.
This is largely because of the continuous nature of the festival—an idea Chemnitz says he had been toying with for years before it was forced into reality. This drives down the capital costs of the production.
“The economic model works over time, but not as a one-off,” Chemnitz says. “That is very interesting, because when we get on the other side of this, we will apply this model to other festivals. It works really well.”
The festival is also structured as a type of cooperative effort, where artists, organizers and promoters all have a stake. Chemnitz argues that this ensures the participants all work harder. If artists manage to sell out their concerts, he says, they earn much the same as they would have done in former times.
Bernd Breiter, the CEO of German electronic dance music giant BigCityBeats, has a different take on the issue of making money through drive-in concerts.
BigCityBeats’ World Club Dome festival was due to take place in Frankfurt in June, before the coronavirus forced its cancellation—Germany’s government won’t allow any big concerts until August at the earliest. It would have drawn in 180,000 clubbers over three days.
A World Club Dome Drive-In rave in Düsseldorf, Germany. BigCityBeats
The first World Club Dome Drive-In rave, which took place in Düsseldorf on May 1, could only take in 500 cars, with up to two people in each. Meanwhile, the organizers still went all-in on creating a huge show, involving fireworks and lasers.
“This makes it harder, because we’re limited to 1,000 people, and we would never expect our fans to pay €200-€400 [$217-$434] a ticket,” says Breiter. “So we made a decision to charge €40 per ticket, and we brought in some sponsors to help with the extra costs. This brought down the totals. However if you host an event like this correctly, you can offer fans huge amounts of fun, raise awareness and provide a great feeling during such a strange time…We weren’t looking to make money, or develop a business model.”
Breiter hopes clubbers will repay the favor by coming to BigCityBeats’ more traditional festivals from next January.
New experiences
The drive-in concert experience is obviously not what people are used to, but it does provide new avenues for creativity.
In the case of World Club Dome Drive-In, the DJs added elements such as car horns and flashing indicators to their performances. The crowd, sitting in their cars, synced up to the performers for a communal experience.
“Judging by the WorldClubbers’ reactions, they absolutely loved it,” says Breiter.
Aarhus’s P scenen festival experience is quite different, though no less remarkable. There, quietness is the order of the day, due to the use of old-school radio transmissions right into concert-goers’ cars.
According to Chemnitz, this makes it possible to put on a big show without bothering residents in nearby properties too much. It also has huge implications for sound production. There’s no need to worry about the acoustics of the environment or the phasing effect that can result in people hearing a washy sound, depending on where they are sitting or standing. And because there is none of the microphone feedback that would be associated with a giant sound system, it is possible to use more sensitive, high-grade condenser microphones.
“We could make it into a studio setup… Everything is crystal clear,” Chemnitz says.
Of course, it’s not just the audience that needs to adhere to social distancing—the same applies to the performers on the stage. For larger ensembles, that requires an extra layer of creativity.
“On Sunday we had a gospel church service with a choir,” Chemnitz says. “We can only have 10 people on stage, so we put the choir in cars in front of the stage. We had the camera people going around the cars, filming them and showing them onscreen. And for the preacher and the choir to interact with people, we had the Zoom app.”
Chemnitz says that, during a children’s concert, one 12-year-old boy was pressed up against the windscreen of his father’s car, crying happy tears—he suffered from intense anxiety and was for the first time able to be part of a festival crowd, while in a safe space.
“It’s opened up the experience to a whole new segment of people,” he says.
Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today.
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Subscribe to How To Reopen, Fortune’s weekly newsletter on what it takes to reboot business in the midst of a pandemic


fortune--2020-05-10--Affirm’s Max Levchin, co-founder of PayPal, on the future of money after coronavirus

Max Levchin has a good track record at predicting the future of money and finance—most notably he cofounded PayPal in 1998, an era when credit card companies totally dominated the world of payments.
Today, Levchin appears to have made another successful bet with Affirm, a site that lets consumers arrange installment payments with online merchants ranging from Wal-Mart to Peloton. Since he founded the company in 2012, Levchin has seen Affirm’s user base triple every year, with the company counting 5.3 million customers as of May.
In an interview with Fortune, Levchin reflected how the pandemic will change shopping and payment habits. The most immediate effect, he says, will be a decline in the use of cash.
“People are going to start realizing cash is not just a bit dirty, but a potential viral transmitter,” he said. “On balance that’s a good thing because [a decline in cash usage] will bring more transactions into the light.”
Levchin also predicts the pandemic will lead the U.S. to broadly adopt the contactless forms of payment—waving phones or debit cards—that are prevalent in many other countries.
Unsurprisingly, Levchin is also bearish on the future of credit cards, and claims the economic crisis will cause Americans to become more disciplined about debt. Levchin thinks consumers will come to reject the card industry’s practice of encouraging them to pay a minimum amount every month—a habit that can lead people to owe money indefinitely.
While buying with Affirm likewise results in consumers taking on debt—typically with interest rates of 10 to 30%—Levchin says the installment process is superior to credit cards because it is transparent, and lets consumers know exactly when the debt will be retired.
As for the broader world of finance, Levchin predicts that mid-sized banks will be squeezed badly in the pandemic. In the long run, he says the crisis will benefit giants like JP Morgan as well as a host of digital-first “challenger banks” like Chime.
“There’s the potential for a bonanza of customer acquitions for challenger banks where you don’t have to leave the house or touch anything but your phone. It’s not just cool, but safer as well,” he says.
As for his own finances, Levchin says he is enthusiastic about neither cryptocurrency nor gold—two assets that many see as valuable in a crisis. He owns no gold but adds he does own a small amount of Bitcoin he received years ago as payment in a deal.
And, perhaps surprisingly for a financial visionary, the division of labor in his own household does not include managing the family’s investments. “In the Levchin household, my wife does the investments. She’s done extraordinarily well,” he says.
Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today.
More must-read finance coverage from Fortune:
—Saving lives vs. saving the economy is a false tradeoff, economists say
—Real unemployment rate soars past 24.9%—and the U.S. has now lost 33.5 million jobs
—17% of unemployed workers aren’t looking for work—and that’s warping the official unemployment rate
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fortune--2020-05-09--I took an at-home coronavirus test. Here’s what it was like

Make the noise of “Kruuua” from the throat to clear saliva from deep throat.
It was step No. 5 of the coronavirus test guidelines, accompanied by a photograph of a man wearing a surgical mask and holding a plastic vial, the word ‘Kruuua’ splashed across the image in white text.
I mustered my strength, took a breath, and cleared my throat as hard as I could, sounding like a weak espresso machine, and then spat into the small plastic cup in my hand.
My contribution to an at-home coronavirus test was complete.
At the end of April, I felt a tickle in my throat. By the next evening, the pain made it difficult to swallow food. I knew that a sore throat was one of the symptoms of COVID-19, and I knew that Hong Kong, where I live, had not reported a locally-transmitted coronavirus infection for almost two weeks. Besides the worry that I might be sick and could have passed it on to others, I could think of few things worse than being the one to ruin that streak.
But I had no fever and no other coronavirus symptoms—dry cough, fatigue, or shortness of breath. I also recalled that a woman I’d interviewed for a story in April, who’d recovered from COVID-19, described a pain “very low down in the throat” that felt unlike any sore throat she’d had before. Mine didn’t feel like that.
Still: the streak. The next morning I made an appointment with my doctor. I described my symptoms over the phone and confirmed that I had no recent travel history or contact with a confirmed case.
To my relief, she diagnosed me with tonsillitis, and prescribed a course of antibiotics. But then she asked if I wanted to take a coronavirus test.
For me, the administration of a diagnostic coronavirus test conjured images of patients, heads tilted back, with hazmat-suited medical workers shoving giant Q-tips up their noses or down their throats. One person likened the swab test to “being stabbed in the brain.”
“Not something I want to do every day, I can tell you that,” U.S. President Donald Trump has said of his swab experience. “Nothing pleasant about it.”
My doctor must have seen the fear in my eyes, because she added that it would be a take-home test. There would be no swab, only spit.
I went home with a doggie bag of tools: written instructions, the specimen collection bottle—a small plastic screw-cap cup—and two sealable plastic specimen carrier bags, labeled ‘DANGER OF INFECTION’ in capital letters and the spiky trefoil biohazard symbol in yellow and black, with ‘BIOHAZARD’ emblazoned underneath for good measure. (Subtlety is not a virtue in a global pandemic.)
After spitting into the cup in the next morning—before eating, drinking, or brushing my teeth, as instructed—I twisted the lid shut and sealed it in the plastic bags. The sample was labeled with my name, gender, birth date, and Hong Kong identity card number.
My take-home coronavirus test kit.
A friend dropped off the sample at the clinic that same day—I was advised to stay home, since I might have coronavirus—and the clinic sent it to the Hong Kong public health lab that processes the tests. The following afternoon, the clinic emailed me the results. (They’d called first, but I missed it.) SARS-CoV-2 RNA had not been detected in my sample. I had tested negative, and Hong Kong’s streak remained intact.
Spit vs. swab
The saliva test like the one I took is available in Hong Kong at government outpatient clinics and some private clinics, including the one I went to. All samples are sent to a public hospital lab that conducts at least 2,000 tests per day.
Hong Kong is one of the few places in the world that offers the spitting method to test for the coronavirus, said Ben Cowling, an epidemiologist at the University of Hong Kong.
Most countries use the more common swab test, which is also available in Hong Kong, and is the “standard procedure” to test whether people have viral infections, Cowling said.
Cowling said Hong Kong developed the saliva test because health workers were “reluctant” to carry out swab tests for fear of getting infected during the process that requires close interaction with a potentially infectious patient. In early February, public hospital union workers went on strike for various demands, including more face masks—there was a shortage in Hong Kong at that time—and protective gear for medical staff.
The swab test must be carried out by a health professional, who inserts the six-inch swab into the patient’s nose or throat to reach the nasopharynx (the cavity between nose and mouth) and swirls the swab around for 15 seconds to collect enough material.
The swab and saliva tests use the same process—the polymerase chain reaction (PCR) method—to detect the RNA of SARS-CoV-2, the coronavirus strain that causes COVID-19.
The saliva test largely eliminates the risks the swab test poses to health care workers and is far less invasive. The one potential downside is that it may have a slightly lower sensitivity than the swab test, Cowling said, but “it’s still an acceptable test to do for everybody.”
The nasopharynx is typically the best area to sample for respiratory diseases. People who have mild symptoms or are in the early stage of infection might have a concentration of virus RNA in the nasopharynx that a saliva test might miss. (The ‘KRUUUA’ is meant to bring up that back-of-throat sputum.) But an April 22 study by researchers at the Yale School of Public Health said the saliva tests were a “viable and more sensitive alternative” to swabbing for coronavirus.
Supply shortages
Since April 8, every single passenger flying into Hong Kong International Airport must take a deep throat saliva test and test negative for COVID-19 before they can enter the city. From the airport, travelers are shuttled to the nearby Asia World-Expo, a major concert venue repurposed as a “temporary specimen collection centre” for coronavirus testing.
Some people have raised concerns about giving their biodata and other personal information to the government. Hong Kong’s health ministry disposes of the saliva samples according to lab protocols, Bloomberg News reported, but the ministry did not specify what the protocols were.
The at-home spit test could prove helpful for places like the U.S., where there is an ongoing nationwide lag in coronavirus testing, in part due to swab supply shortages across the country. The at-home component could also ease the burden on the U.S.’s overwhelmed medical system—people could mail in their tests, instead of traveling to a clinic or hospital where workers need to don fresh personal protective equipment, also in short supply, for each patient they see.
A saliva test developed by a Rutgers University lab is now available in some parts of New Jersey, the first place in the U.S. to offer such a test.
For me, the at-home test provided pain-free peace of mind that I was not infected with coronavirus. Meanwhile, my tonsillitis has cleared up, and May 8 marked the 19th straight day with zero new local infections in Hong Kong.
More coronavirus coverage from Fortune:
—The Rebuild Program: A project to help small businesses reopen amid a pandemic
—Real unemployment rate soars past 24.9%—and the U.S. has now lost 33.5 million jobs
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Subscribe to Fortune’s Eastworld newsletter for expert insight on what’s dominating business in Asia.


fortune--2020-05-10--U.S. awards $275 million border wall contract to begin in 2021

Disney ’ s biggest financial problem has nothing to do with the coronavirus

The U.S. government has awarded a $275 million border wall contract for construction that would begin in South Texas in January, at the start of President Donald Trump’s second term if he is re-elected.
Caddell Construction Company, based in Montgomery, Alabama, won the contract to build 14 miles (22.5 kilometers) of barriers in and around Laredo, Texas, a city of 260,000 people on the Rio Grande, the river that runs between Texas and Mexico.
U.S. Customs and Border Protection announced the contract award Friday night using funds it had previously received from Congress rather than military funding re-directed to the wall. CBP said construction would begin in January 2021 “pending availability of real estate.”
There is little existing wall separating Laredo and its sister city of Nuevo Laredo, Mexico. Much of the planned construction would cut through private land in neighborhoods close to the edge of the Rio Grande, requiring the government to take property through its power of eminent domain.
U.S. government lawyers have filed lawsuits against South Texas landowners — including homes, businesses, and a Catholic orphanage — to seize part of their property or gain access to survey it. In the adjacent Rio Grande Valley, federal courts have allowed the government to immediately seize some land to expedite construction.
Trump has pressed forward with the border wall during the coronavirus pandemic, with construction ongoing at different parts of the U.S.-Mexico border.
Since Trump took office three years ago, 162 miles (261 kilometers) of new barriers have been built along the border, according to CBP. That’s still well short of the 500 miles (804 kilometers) Trump has promised to build by the end of this year.
Caddell Construction did not return a phone message left Friday seeking comment on the contract. Caddell was one of four companies chosen to build prototype wall designs in 2017.
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—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
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fortune--2020-05-10--Why it’s suddenly harder to get a mortgage than it’s been in years

Mortgage rates are at record lows, but borrowers hoping to take advantage are running into the toughest loan-approval standards in years.
Over the past month, lenders have put in place higher credit-score and down payment requirements, and in some cases stopped issuing certain types of loans altogether, in effect shutting down a large swath of the mortgage market.
The triggers, industry executives say, include lenders becoming risk-averse during the coronavirus crisis, knock-on effects of Congress allowing millions of borrowers to delay their monthly payments, and policies implemented amid the pandemic by mortgage giants Fannie Mae and Freddie Mac. The impact has been dramatic, with one model showing mortgage credit availability has plunged by more than 25% since the U.S. outbreak of the virus.
The tightened lending could add another headwind for the nation’s besieged economy by dampening home sales just as some states lift stay-at-home orders and the spring months herald the traditional buying season. Already, mortgage refinances are coming in at a much slower pace than analysts would expect, considering the rock-bottom borrowing rates.
In March, riskier borrowers “could get a mortgage but just pay a higher price than other people,” said Michael Neal, a senior research associate at the Urban Institute Housing Finance Policy Center. “Now, some people are just not going to get mortgages.”
JPMorgan Chase & Co. tightened its standards last month, requiring borrowers to have minimum credit scores of 700 and to make down payments of 20% of the home price on most mortgages, including refinances if the bank didn’t already manage the loan.
Wells Fargo & Co. increased its minimum credit score to 680 for government loans that it buys from smaller lenders before aggregating them into mortgage bonds.
Read More: Why the Mortgage Market Needs Its Fixes Fixed
The banks’ revised standards are far above the typical minimum score of 580 and down payment of 3.5% that borrowers need to qualify for home-buying programs supported by the federal government.
Wells Fargo is no longer letting borrowers refinance their mortgages while cashing out home equity, and both Wells and JPMorgan have suspended new home-equity lines of credit. Truist Financial Corp. has suspended some cash-out refinances for jumbo loans with high balances because of economic conditions, a spokesman said.
Refinance hesitancy
There are signs that banks are even trying to limit regular refinances. Wells Fargo on Thursday quoted a refinance rate of 4% for a 30-year fixed-rate mortgage, more than half a percentage point higher than it quoted for the same loan if used to buy a home.
A Wells Fargo spokesman said the company believes its rates are within the range of what they see from other lenders. He said the company suspended home-equity lines of credit in light of uncertainty surrounding the economic recovery.
A JPMorgan spokeswoman said the bank’s changes are temporary and due to the unclear economic outlook.
Refinances surged in early March as homeowners utilized low rates to reduce their monthly payments. But refinance rate locks, a forward-looking measure of refinance activity, had plunged 80% from their peak by mid-April, according to Black Knight Inc., a mortgage information service. The company said that even the steep increase in unemployment in March and April couldn’t explain why refinance activity fell so dramatically.
Fannie-Freddie policies
Industry executives say the tighter underwriting is partly in response to policies put in place by Fannie and Freddie that make it expensive or risky to make certain kinds of mortgages. For instance, Fannie and Freddie said last month they would buy mortgages where the borrower had already entered forbearance. But the mortgage-finance companies excluded cash-out refinances. Mortgage Bankers Association Chief Economist Michael Fratantoni said that prompted many lenders to limit issuance of those products.
Fannie, Freddie and government agencies such as the Federal Housing Administration set standards for the mortgages they’re willing to back. For example, the FHA will insure loans where the borrower has a credit score of as low as 580 with a 3.5% down payment.
However, mortgage lenders sometimes set their own, stricter standards, even if they intend to sell the loans to Fannie or Freddie or have them insured by the FHA. Fannie and Freddie, which have been under the U.S. government’s control since the 2008 financial crisis, buy mortgages from lenders and package them into trillions of dollars of bonds with guarantees that protect investors against the risk of borrowers defaulting.
Mortgage credit availability has fallen 26% since the end of February, the Mortgage Bankers Association said in a Thursday statement, citing an index of lending standards. Most of the pain has been for loans not supported by the government. Still, mortgages backstopped by Fannie, Freddie and federal agencies in April did have the toughest credit terms that such loans have had in more than five years.
Servicers’ peril
Many lenders appear to have put restrictions in place in response to the $2.2 trillion stimulus bill that lawmakers passed in March. Under the new law, lenders must let borrowers with government-guaranteed mortgages delay as much as a year’s worth of payments if they were impacted by coronavirus.
Even though they eventually get reimbursed, mortgage servicers are required to advance the missed payments to bond investors. That makes lenders less eager to offer loans to borrowers who they think will need forbearance, such as consumers with low credit scores and those who can only afford minimal down payments.
The MBA’s Fratantoni said the credit crunch has been exacerbated by the reticence of federal regulators to establish a liquidity facility that would help servicers advance payments to bondholders. While Fratantoni said large servicers may not go under, they’re still protecting themselves by tightening mortgage requirements.
“I can’t imagine any lender wanting to be aggressive at all in this environment,” said Moody’s Analytics chief economist Mark Zandi. “It’s how far deep into the bunker are you.”
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fortune--2020-05-10--Disney’s biggest financial problem has nothing to do with the coronavirus

Why it ’ s suddenly harder to get a mortgage than it ’ s been in years

The Magic Kingdom’s once sorcerous profitability is getting slammed both by COVID-19 and the drag from its acquisition of 21st Century Fox. The hit from the virus will eventually be mitigated. But the damage from the superexpensive deal is likely to saddle the new, vastly expanded Disney with far lower returns than the pre-Fox realm for years to come.
In its earnings announcement for the second quarter (ended March 31), the Walt Disney Co. detailed how the coronavirus suddenly savaged its entertainment strongholds that were thriving until midway through the quarter. Disney shuttered all of its worldwide theme parks and suspended its cruises in February and March, causing a 58% drop in operating income from its parks, experiences, and consumer products franchise, its most profitable segment. Operating income dropped from $3.8 billion in the second quarter of last year to $2.4 billion, a fall of 37%. To save cash, Disney canceled its $1.6 billion, semiannual dividend to be paid in July and unveiled a reduction in annual capex of $400 million, or around 8%. Its press release cited “significant operational and financial disruption caused by COVID-19.”
That Disney is temporarily scrapping the dividend it’s been paying since 1962 would have seemed unimaginable just weeks ago. But when the crisis passes, the traditional Disney businesses should do better than ever, boosted by the fast takeoff in its new Disney+ and ESPN+ streaming services. What will blunt the lift from those promising new ventures, and hobble the global colossus going forward is the $71.3 billion acquisition of 21st Century Fox. Put simply, the Fox deal is proving such a deadweight that even before the pandemic hit, it was seriously weighing on the company’s returns.
A rocky start
When Disney and 20th Century Fox announced the acquisition on Dec. 14, 2017, the price was set at $52.4 billion. But six months later, Comcast launched a bidding war for Fox, forcing Disney to pay 34% more than it had planned––$71.3 billion––to clinch the deal. Disney was willing to pay a king’s ransom because it’s betting heavily on streaming to drive its future profits. Fox owned a panoply of blockbuster films such as Avatar and the X-Men series, hit TV shows such as The Simpsons and Modern Family, as well as the Discovery, FX, and National Geographic cable networks.
The idea was to enhance the value of those properties, and fresh entertainment produced by Fox’s storied TV and 20th Century Fox studios, by showing them not just in theaters and cable, but on the new Disney+ streaming platform for families and children. The deal also gave Disney control of another streaming property it coveted, Hulu, a direct-to-consumer service aimed at adults. Returning to Disney’s Marvel Studios were iconic characters that Marvel had sold to Fox in the late 1990s, a gallery that besides X-Men includes Fantastic Four and Deadpool.
So far, the Fox entertainment properties have performed a lot worse Disney anticipated. The main losers have been films in the Fox pipeline released just after the acquisition. The X-Men sequel Dark Phoenix flopped, contributing to a $170 million loss for the Fox film studio in Disney’s third quarter of 2019, the combined companies’ first full quarter. Fox features Stuber, Ad Astra, and The Art of Racing in the Rain fizzled as well. Fox’s two big releases this year, The Call of the Wild and Underwater, were expected to lose tens of millions of dollars before the pandemic struck.
As early as last summer, CEO Bob Iger, who stepped down to become executive chairman in late February, acknowledged “that it would take a good, solid year or two before we can have an impact” on Fox’s troubled movie business.
The deal has shown a few positives. Disney is on track to surpass its aggressive goal of achieving $2 billion in cost synergies that would pare its expense base around 4% by the end of its September 2021 fiscal year. And Fox finally showed its stuff with the release of megabit Ford v Ferrari.
In the past, Disney has turned acquisitions into big successes by taking a long-term approach to nurturing promising brands. For example, it took two years after the $4 billion acquisition of Lucasfilm in 2012 for Disney to produce the first new Star Wars extravaganza, yet Disney patiently turned its bet into one of the most lucrative franchises in film history, following with two more galactic smashes and planning new chapters to the saga. Disney now has ambitions to turn Fox properties such as Avatar into long-running, Star Wars–style series, a strategy that also shows promise.
The best news for Disney, of course, is Disney+. The lockdown has boosted stay-at-home entertainment, and Disney+ is drawing customers at a pace exceeding Disney’s optimistic projections: Since the launch in November, it has drawn 54.4 million subscribers, nearing a goal it set for 2024. The streaming service’s quick start could boost the value of the Fox programming that will form a large part of its offering.
Still, the Fox deal is a totally new adventure. Disney’s never done a deal remotely this size. The past acquisitions that paid off––Lucasfilm, Pixar (2006), and Marvel (2009)––cost a total of less than $16 billion, around one-fifth of what Disney paid for Fox.
How to measure the Fox deal
Here’s a fair criterion for assessing the results of the Fox acquisition: How much extra profit is Disney generating from adding Fox’s TV and movie studios, and all its other vaunted entertainment assets, after subtracting a reasonable charge for the $71.3 billion Disney spent to acquire those assets?
A tool called economic value added, or EVA, provides the answer. ISS, the proxy advisory giant, licenses the EVA system to money managers and uses it as a key benchmark recommending for or against pay packages for the top brass. EVA is also deployed by Clorox, 3M, Dow, Petrobras of Brazil, and sundry other big companies.
EVA makes logical adjustments to the standard measures of Generally Accepted Accounting Principles (GAAP); it capitalizes annual ad expenditures and restructuring costs to treat them as investments rather than expenses, and, for example, amortizes advertising, a big item for Disney, over three years. The methodology incorporates those adjustments to arrive at an income measure called net operating profit after tax, or NOPAT.
From NOPAT, EVA subtracts a charge based on all the debt and equity invested in the business. That’s crucial, because regular accounting doesn’t impose a hit for the equity, either in cash or in stock, that a company spends on an acquisition, for instance. But that equity carries a real economic cost. After all, the acquirer could use that cash, or sell shares, to fund profitable new projects, or return it to stockholders who could channel the money into other investments.
If NOPAT exceeds the capital charge, then the company is generating a positive EVA, meaning that it’s producing real economic profit for its investors. As Roberto Goizueta, the legendary CEO of Coca-Cola in the 1990s, told me, “I count all my reported profits, pay a capital charge, and what’s left over is real profit, what investors are getting over and above what they’d receive putting their money into another investment with about the same risk.” Goizueta also noted that breaking even on EVA is equivalent to a professional golfer shooting par. That’s an adequate performance, but to win, you need better.
Profits were falling pre-pandemic
Disney acquired Fox on March 20, 2019. So its results for the 12 months ended in its just-reported March second quarter comprise a full year for the combined Disney and Fox. The previous four quarters, ended in March 2019, include just a few days of Fox ownership. So the most recent four quarters are all Disney plus Fox, and the prior period is pure Disney. Here’s how the traditional and expanded Magic Kingdoms compare.
The deal lifted Disney’s sales by 31% from $59.8 billion to $72.2 billion. Profits, however, went into reverse. From the start of April 2018 through the end of March 2019, Disney generated a fantastic $10.7 billion in adjusted operating income, or NOPAT. It squeezed that gusher of profit on a modest $88.5 billion in debt and equity. After imposing a 6.5% charge of $6 billion on that capital, Disney emerged with EVA, or economic profit, of $4.7 billion ($10.7 billion in NOPAT minus the $6 billion capital deduction). As Goizueta might say, Disney was shooting birdies and eagles, and scoring way under-par.
Compare that splendid romp with the Disney scorecard for 2019. It’s important to note that Disney’s profits slumped in part because of the big investments in streaming services it’s counting on to drive future profits––and that spending is well-targeted. Still, the reversal in adjusted earnings is stunning. As a stand-alone, Fox was far less efficient than Disney. In its 12 months just pre-Fox, Disney posted sales, general and administrative expenses, excluding advertising and after making other adjustments, of 9.3% of sales; in the past four quarters, adding Fox to the mix boosted the overhead burden to 12.4%, an increase of $4.4 billion. Adjusted operating earnings, or that key NOPAT number, fell from $10.650 billion to $8.230 billion.
Keep in mind, Disney earned a lot less despite heaping on the over $70 billion in new capital spent to acquire Fox’s panoply of properties. The acquisition raised the total debt and equity on its balance sheet by 85% to $156 billion. Hence, the capital charge almost doubled with total capital, rising to $9.54 billion. It was the combination of that huge capital charge and fall in NOPAT that sent EVA cratering to a negative $1.3 billion. In effect, buying Fox caused a gigantic, one-year, $6.7 billion fall in economic profit. “Disney was caught in a scissors,” says Bennett Stewart, cofounder of the firm that launched EVA and now an adviser to ISS. “Profit was falling while capital was exploding.”
It will take years for Disney to get back to even
Translated into EVA, the consensus forecast shows economic profit falling to a negative $3.8 billion in calendar year 2020, and minus $1.7 billion in 2021, and only clears its prior high-water mark in 2024, well after the effects of the virus have worn off. “Disney dug a deep hole in acquiring Fox,” says Stewart. “When a company overpays to that extent, it seldom gets its money back.” It’s not just that the timing of the Fox deal was wrong, given the unforeseen pounding from the pandemic. At $70 billion-plus, the deal was wrong to begin with.
Disney has worked incredible magic over the years. But this deal looks much more like a frog than a handsome prince.
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More must-read finance coverage from Fortune:
—Saving lives vs. saving the economy is a false tradeoff, economists say
—Real unemployment rate soars past 24.9%—and the U.S. has now lost 33.5 million jobs
—17% of unemployed workers aren’t looking for work—and that’s warping the official unemployment rate
—Does Apple’s stock buyback strategy make sense in this market?
—Goldman Sachs doubts there will be a Round 3 of PPP loans for small businesses
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—WATCH: Why the banks were ready for the financial impact of the coronavirus
Subscribe to How to Reopen, Fortune’s weekly newsletter on what it takes to reboot business in the midst of a pandemic.


fortune--2020-05-10--The perfect storm: Why the coronavirus market is particularly dangerous for individual investors

Individual investors may be about to lose prodigious amounts of money during the COVID-19 pandemic—but it’s not simply due to the overall market drop over the past two months.
A confluence of factors has come together to bring about some of the worst and most value-destroying behavior by individual investors, also known as retail investors, in history. Newly granted access to high-risk markets, the appearance of zero-cost investing, historic levels of credit extended to nonprofessional traders, and an absence of other outlets for risk-taking behavior have all combined to produce a situation where many retail investors are losing money hand over fist in volatile and opaque markets they don’t fully understand.
We are beginning to see this destructive behavior play out in the data. For futures markets, something normally only accessed until recently by institutional investors, we have seen average daily volume in overnight trading nearly double in the first three months of 2020 for the E-mini S&P 500 futures contract (a security specially designed to attract retail investors due to its lower cost than the total S&P 500 contract). In the equally high-risk options markets, average monthly trading volumes jumped 58% between January and March of this year.
While this is worrisome for the average investor’s portfolio, the news in the U.S. stock market is even worse—namely the severe jump in retail investors short selling, a bet against the market where losses for investors are potentially unlimited. As equities of U.S. companies with high market capitalization (also known as large-cap stocks) bottomed out on March 23, short interest on the SPY (another favorite of retail traders that tracks the S&P 500) sat at $50 billion. Short interest expanded over the next three weeks to $66 billion, but at the same time U.S. large-cap stock rebounded almost 25%. This implies that an additional $4 billion was lost over that period as retail investors rushed to short the position.
How did retail investors gain such broad access to these markets and begin to make such bold bets? Much of this can be traced back to the proliferation of what are widely known as zero-cost trading platforms, which allow individual investors to purchase funds with no fees. Over the past two years, the rise of services like Robinhood has forced traditional players like E*Trade and Fidelity to offer similar plans.
In addition to zero-cost trades, many of these startup trading platforms offer individual investors higher-than-normal amounts of margin (loans for investing) while requiring little money down, as well as easy access to high-risk options and futures markets. These companies’ apps make trading in these markets as easy as one or two taps on a phone—you can place $100,000 in trades instantly with a balance of just $10,000.
The problem here, aside from the risk taking, is what the investor believes are the costs of trading in these new markets. Unlike traditional investing in stock markets where the costs to trade are explicit (for example, a flat fee per trade placed), in options and other derivative markets the true costs are implicit and hidden to the average investor in things such as the bid-ask spread—something most retail investors don’t factor into their decision making. So even if the explicit costs to trade are zero, investors can lose 10% or more of their investment in implied costs every time they trade a derivative.
The coronavirus crisis has forced most white-collar employees to work from home, leaving many with no outlet for the small pleasures they used to enjoy in everyday life, such as group sports activities, going out for drinks, or betting on sports. Reddit is filled with tales of some investor turning a small investment into a million-dollar gain overnight. This gives that homebound, bored retail investor some hope that they can do it too. Yet the truth is that the more “zero-cost” trades the investor places in these markets, the more fees they rack up and the more they destroy their long-term investments.
It is a scary time for those who have watched the stock market plunge this year, but retail investors need to resist the allure of trading in derivatives markets as a way to make up for portfolio losses. Now more than ever, individual investors need to remember the basics of Finance 101: minimizing costs and resisting the urge to try to time the market is the best thing one can do for their portfolio’s future.
Derek Horstmeyer is an associate professor of finance at the George Mason University School of Business.
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fortune--2020-05-10--Why a bankruptcy filing doesn’t necessarily mean your favorite store is going away

The endless headlines lately about this, that, or the other retailer heading toward Chapter 11 bankruptcy protection are enough to give any shopaholic agita.
This week, after J.Crew and Neiman Marcus each filed for Chapter 11 bankruptcy protection, social media was flooded with lamentations about the end of beloved retailers and where they had gone wrong. But the filings weren’t the end of anything: Both companies, choking on debt for years, will continue to operate, with healthier balance sheets now, and no immediate plans for store closings.
There is a popular misconception that Chapter 11 filings mean the end of a business, in retail and beyond. And it’s easy to see why: Many companies like Barneys New York, Toys ‘R’ Us, and The Sports Authority ultimately liquidated.
But countless others over the years—from General Motors to American Airlines to utility PG&E to retailers like grocer Fairway and even Macy’s (its predecessor, Federated Department Stores, filed for Chapter 11 protection in 1992)—have come out of bankruptcy to fight another day. And that’s ultimately the goal of seeking court protection.
“The whole purpose of Chapter 11 is to give a company a chance for a restructuring,” says David Berliner, bankruptcy and restructuring advisor at BDO. “If a company has good prospects for continuing in business, the balance sheet is fixed. The goal is wiping out debt to make it manageable.”
In the case of J.Crew, its debt of $1.7 billion (enormous in relation to annual sales of $2.5 billion) will be converted into equity, so its creditors become its owners. Neiman shed 80% of its debt, giving it a clean slate with which to invest and update its business rather than spend hundreds of millions of dollars on interest.
And for retailers that need to slim down, bankruptcy protection is way to break some contracts, notably store leases, at lower costs.
So chin up: If your favorite store is filing for Chapter 11, it may just be the thing that saves it.
How bankruptcy works
Chapter 11 filings are named for a section of the U.S. Bankruptcy Code. A Chapter 11 filing is a form of bankruptcy that involves the reorganization of a debtor’s business affairs, debts, and assets to give it time to try to fix its business with creditors unable to claim its assets, hence the use of the term ‘protection.’
The U.S. government says that “A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.” Most filings are voluntary but occasionally, creditors get together and force a company into bankruptcy proceedings.
This ultimately doesn’t help a company if its business fundamentals are collapsing. Barneys’ massive debt was only one of many problems it had. The Sports Authority missed the boat when it came to e-commerce, and Toys ‘R’ Us’ outdated stores made it irrelevant to shoppers—all factors a bankruptcy filing cannot fix on its own.
In contrast, Neiman Marcus and J.Crew are hardly thriving, but their sales declines have been modest, suggesting there is room for them in the market.
A company under bankruptcy protection has to run everything by the court: the sale of any assets, divisions, property, entering or breaking leases, fees to lawyers. Everything.
Such a company also lines up debtor-in-possession (DIP) financing to have money that creditors can’t try to take that can be used to fund everyday business expenses, such as paying salaries and suppliers.
A pre-packaged plan to emerge from bankruptcy protection is the ideal scenario. Under a ‘pre-pack,’ a filing comes after creditors and the company have agreed on a plan, subject to court approval, as they did in the case of Neiman Marcus. It makes for quicker emergence from Chapter 11 and less conflict and drama.
Survival via bankruptcy auction: Many brands still have a lot of life in them and attract bidders in a bankruptcy auction ready to keep them alive. Earlier this year, Simon Property Group, the largest U.S. mall operator, was part of a group that bought Forever 21, and in 2016, it was in a consortium that bought Aéropostale. Some companies specialized in licensing, notably Authentic Brands, buy intellectual property in bankruptcy court. That is how the Barneys New York name will live on as small sections at Saks Fifth Avenue stores and in stores overseas.
Chapter 7: If a Chapter 11 filing doesn’t work out, a company may file for Chapter 7 once things look hopeless that the company can continue. This simply means liquidation and deciding which creditors will get paid in what order when assets are sold off.
Chapter 22: The number 22 is a bit of bankruptcy court humor and refers to any company that has sought Chapter 11 protection twice. That illustrious group in recent years has included Gymboree and Payless ShoeSource.
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fortune--2020-05-11--How the coronavirus crisis influences Melinda Gates’ $1 billion commitment to gender equality

A new bankruptcy law could prove a big help for small businesses .
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The Bill & Melinda Gates Foundation is working overtime responding to the coronavirus pandemic, from vaccine research to protecting the communities most vulnerable to the virus. But Melinda Gates is simultaneously tackling another problem being illuminated by the present moment: the crisis in caregiving that threatens to set women back in the U.S. workforce.
Accessible, affordable childcare will be essential to restarting the economy—and ensuring that women still have a place in it, Gates argues. She talked to Fortune about how the U.S. can use this inflection point to transform childcare, why women leaders have come to the fore during the crisis, and how the pandemic affects her $1 billion commitment to gender equality. This interview has been edited and condensed.
Fortune: You recently wrote an op-ed for the Washington Post about the crisis facing the caregiving industry. What are the risks facing our economy, workers, and women right now if we can’t scale caregiving, as you describe, during the pandemic?
Melinda Gates: If we don’t scale, you’re going to see a lot of women who can’t go back to work. If you look at our economy, 85% of nurses are women. If there’s not a caregiving solution and their kids are out of school or their elderly parent isn’t cared for, they can’t work. Sixty-two percent of low-wage workers are women—they won’t be able to go to what we call those essential jobs.
It would be tragic for women. We will set women back if we don’t address this issue. This crisis is exposing weaknesses in our system—something that’s been hidden is now visible—and we need to use this opportunity to do the right thing. It’s time.
Do you think we will use this crisis to fix those problems that have been made visible?
People are definitely talking about it, partly because of the stress in their homes. Parents with two kids at home, parents who had to bring their elderly grandparent back into the home. The stress in the home right now is high. The stress is visible. People are saying, I’m barely making this work from home. What happens when my company reopens? It’s there, it’s exposed, people are seeing it, talking about it. Now is the time that leaders need to step up and do the right thing.
For example, we’re the only industrialized nation without paid family and medical leave. If we don’t see it now, we’re never going to see it. This is the time.
You’ve made a $1 billion commitment to gender equality. How does that long-term commitment change as the world changes with this pandemic?
That long-term commitment stays exactly the same as it was. Things I was addressing up front were barriers for women: domestic violence, caregiving—this invisible work that is now visible. My commitment stays the same.
Now I’m looking at: Where do we put more pressure? We were already working to put pressure on Congress, but I hadn’t thought through the deeper pieces—how about more flexible work hours for workers? We’ll go deeper into those business pieces: more credits for childcare options, some businesses doing on-site childcare. We need to expect more from businesses than we have.
Part of your $1 billion commitment is to fast-track women in sectors with outsized impact on society. Has the pandemic affected how you view which sectors have that outsized impact and need?
Political leadership was already on my list, but is now more deeply on my list. We need far more women and people of color in Congress and in our statehouses. When you have people living in today’s society who understand the stresses on families, they are the ones who can help us pass the right policies. We need to have them in these positions of power.
My desire and plan to go deeper on that is emboldened by this crisis because I see leaders stepping up. I see which ones are listening. I see what Nancy Pelosi and Chancellor Angela Merkel are doing, and I respect that. We need more of those kinds of voices at the table so we design the right policies.
Why, in your view, have we seen effective leadership from women leaders during this crisis?
They understand. They have been wearing these hats their whole lives. They saw their mother struggle to care for the kids and have employment and get an education. Women know the barriers—they’ve lived the barriers that women have been up against in society. They see the needs of our kids and elderly parents. They’ve been trying to hold it together and make it work. And they’re finally saying, we can do this, in a smart way, a compassionate way, and take care of everybody. Boy, are you seeing it with Jacinda Ardern in New Zealand, or German Chancellor Angela Merkel. Women get the full picture. They get to live their full lives.
I feel for men. We’ve said to men, you need to go off to work. But we haven’t let men live their full lives. We need everyone to live their full lives. As we look at rebuilding society, we need many voices at the table saying this is what we want for our country going forward.
Are male leaders around the globe coming away from this crisis with those same realizations?
You have to go leader by leader and say who sees it and who doesn’t. Generally, a younger male leader sees it. They tend to see it more, versus an older generation of males because the workforce was different. The expectations were different. We need to amplify the ones who do, quite frankly, get it.
How do we stop repeating history and get people to listen to these lessons this time?
There’s a quote: never waste a good crisis. I look at what came after World War II and people coming together and the institutions that were founded, like NATO, like the World Health Organization. As we come out this crisis and we’re rebuilding, that’s the time to make sure we have diverse voices at the table so we design the future we want. And so we don’t just design these multilateral institutions that keep the world safe, but more.
If there had been more women at those tables, we would have kept the “war nurseries” of World War II open. We would have built a more robust childcare system. It was a missed opportunity because we didn’t have more women at those tables. As we rebuild, we need to have lots of diversity at those tables to decide what we want society and the world to look like.
This is possible. We can put the right policies in place. Part of America’s ingenuity is that we know how to imagine and build things. On this one, it’s just time that we pay attention and build what we need.
More on the most powerful women in business from Fortune:
—Chrissy Taylor on keeping Enterprise’s rental fleet moving, and her family’s business afloat
—A Harvard Business School professor reimagines capitalism
—Sheryl Sandberg: The pandemic is creating a “double double shift” for women
—Inside Lyft’s coronavirus response team
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: The double burdens that hold women back
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fortune--2020-05-11--The founder of wedding florist startup Poppy on going into business for yourself

This is an installment in a special series, Startup Year One, interviewing startup founders about the major lessons they learned in the immediate aftermath of their businesses’ first year of operation.
Cameron Hardesty started in the flower industry as a side hustle while she was working in communications at The White House during the Obama administration. After being so impressed with the flowers in the Christmas decor at the home of the First Family while giving her parents a tour in 2012, Hardesty worked up the nerve to email Laura Dowling, the chief floral designer of the White House.
“She couldn’t have been kinder or more welcoming to me, and invited me to volunteer in the shop,” recalls Hardesty. Her first volunteer experience was setting up for First Lady Michelle Obama’s 50th birthday party. For the next few years, she spent nights and weekends learning from Dowling and traveled to Germany to learn from master florist, Gregor Lersch. Back at her day job, Hardesty’s colleague’s husband and college friend started UrbanStems, a floral delivery e-commerce, and she started helping them out from the time they first launched their website in 2014. That evolved into a full-time role a year later, when she became head of products.
“That’s when I started to complement my floral design skills with supply chain and business expertise,” Hardesty explains. “I built UrbanStems’ international supply chain, adding farms from Colombia, Ecuador, Mexico, and Holland to our vendor list, and met a ton of key industry leaders along the way.”
Not long after she designed the flowers for her own wedding (which was featured in Martha Stewart Weddings), Hardesty launched Poppy in 2019 in Washington D.C., catering specifically to weddings and other significant events.
Fortune recently spoke with Hardesty to learn more about her first year in business, the lessons learned, the hurdles overcome, and her plans for the next year.
Cameron Hardesty is the founder of Poppy, a Washington, D.C.-based wedding and event flower company that launched in July 2019. Courtesy of Poppy
The following interview has been condensed and lightly edited for clarity.
Fortune: The floral industry, especially catering to weddings, is big but busy. What inspired the launch of Poppy, and how does it stand out from the bunch?
Before I joined UrbanStems, I did a lot of research on the flower industry and found that wedding and event florals was almost double the market opportunity of floral gifting, comprising nearly half of the $10 billion flower market in the U.S. So I urged our team at UrbanStems to pursue that market segment, but it didn’t really work out.
When I managed the flowers for my own wedding in 2017—buying flowers by the pallet, hiring five designers, and coordinating design and execution—I realized why UrbanStems wasn’t set up to succeed in the weddings space. Even though at a commodities level, the product—flowers—is the same, wedding florists operate very differently from retail florists. UrbanStems’ business model centers around on-demand delivery and standardized products. Wedding customers are the opposite of on-demand (time generally isn’t a constraint for them) and they want lots of customization.
I thought that was a really interesting problem to solve at scale, and because it’s a $4 billion to $5 billion market opportunity, it seemed like one worth solving.
Poppy stands out in three ways. We’re leveraging technology to provide highly customized client proposals—meaning our speed of service is higher than a traditional florist, freeing up our designers to spend time with the customer, not on paperwork.
We source directly from the best farms in the world, giving us access to the highest quality product at very competitive prices—savings we pass on to our clients. And we are your flower friend for any occasion. Because we’re able to ship individual orders nationwide, we’ve had wedding clients of ours send our Poppy At Home kits to their bridesmaids, moms, friends, and even to themselves.
Hardesty on her wedding day with a bouquet she designed. Cameron Hardesty
What were some of the biggest hurdles you faced in the last year? What surprised you the most?
We only started marketing ourselves online in early February, and we were getting up to 25 customer inquiries per day. We were overwhelmed with interest, to be honest, and had to staff up our customer care team significantly—and fast. I was looking to hire a full time customer care team member when COVID-19 hit, and the week after the national emergency was announced, site traffic fell off a cliff. I think everyone was scared and trying to get their bearings. Wedding planning was the last thing on anyone’s mind.
Within two weeks, we pivoted to selling Poppy At Home, DIY floral kits shipped directly from our farm partners to anywhere in the U.S. I thought we would sell 10 boxes in the first week, but we sold 150, without advertising. The farm we’re working with told me it was the best start to a client engagement they’d ever seen. It was clear we had hit on something. Sales have stayed steady since then and are now increasing in advance of Mother’s Day. That has been the biggest surprise—in this time of economic uncertainty, flowers are still a priority for people. It’s been incredible to see.
One of the Poppy at Home bouquets. Courtesy of Poppy Floral
What kind of feedback have you received from your customers, and have you (or will you) apply that feedback to how you sell your products in the future?
The feedback we’ve gotten has been so positive, but I actually love the constructive feedback more. That’s what makes us better. The biggest thing customers, investors, and friends wanted from us was to be able to send multiple Poppy At Home kits in one transaction, so we threw all of our engineering resources at that and this week announced Poppy Party, just in time for Mother’s Day orders.
Obviously, amid the coronavirus pandemic, events—including weddings—have been postponed for months or outright canceled. How has this affected your business, and how are you maintaining your business through the shutdown?
Yep. This was a big shock to our system because we had reached operational capacity for weddings this spring and summer, and we were gearing up for a huge surge in operations. Then, all of a sudden, that all got wiped out, along with the 75% of the revenue we expected to realize. (We take a 25% deposit from our clients, which is on the low end for our industry.)
The silver lining was that all of a sudden, we had every weekend free in April and May. And they all became working weekends as we pivoted rapidly, like so many other businesses.
First, inspired by one of our couples whose wedding plans were disrupted by COVID, we quickly launched The Courthouse Package: one bouquet and one boutonnière for $152. Then we launched our Poppy At Home flower kit, inspired by how I first got into floral design more than seven years ago. The response has been phenomenal. Poppy At Home has not only made April a banner month in terms of revenue, we’ve also set a record in the most new wedding bookings in one month. I think with the stay-at-home orders and social distancing, wedding planning for those couples getting married later this year or in 2021 has been a welcome and fun distraction, and we’ve had the time to really dig in with those clients, which has been so rewarding.
How many employees do you have on your team? Have you been able to keep your entire workforce?
We’ve got three W-2 employees (two full-time, one part-time), a stellar intern, an incredible customer sales representative, and a communications pro and photographer, whom we work with on a contract basis, but who are really part of the team. I feel incredibly lucky we’ve been able to keep everyone on board—largely thanks to their flexibility, government aid, and our quick pivot.
Hardesty set out to create a platform for couples on any budget to get beautiful, fresh flowers from ethical farms and for designers and local florists to earn a fair wage building the bouquets. Cameron Hardesty
Beyond sales, what does cash flow look like right now for you, especially with so many events on hold? Are you venture-backed or self-funded? Have you had any luck with the Paycheck Protection Program?
When this all hit, I thought, “This could be lights out for us.” We operate in two industries that have been materially impacted by COVID: the flower industry and the events industry. By the grace of God and FedEx, we were able to pivot quickly to selling DIY floral kits, and the response has exceeded my wildest expectations.
That said, we have priced these kits very affordably for a couple reasons. First, I wanted to move as many flowers off our farms as possible, which meant putting more stems in the box. And second, I wanted these flowers to be as accessible as possible, which meant we weren’t going to launch a $250 luxury product in the middle of a pandemic. Our mission here is to bring people happiness during a dark time.
We raised a small friends and family [round] and an angel round last winter, and I haven’t taken a salary for over a year and have self-funded in addition to the raise. My investors have been incredibly supportive, even during a time that must be scary for them and their families. This whole thing has made me beyond grateful to be surrounded by the team I have.
Hardesty was already well known in the D.C. lifestyle and entrepreneurial community as she was previously the head of product at UrbanStems and learned flower design from Laura Dowling, the chief florist at the Obama White House. Cameron Hardesty
Looking beyond the post-pandemic era, which could be anywhere from a year to a few years from now, what kind of business do you want Poppy to grow into five years from now?
I have spent a lot of time and headspace scenario planning for Poppy. Our business is set up to serve customers that florists traditionally reprioritize or turn away because they don’t have $10,000+ floral budgets. Before COVID hit, investors were predicting an economic downturn in general, and I believed Poppy would actually thrive in a recession, which is why I pressed ahead.
It’s fundamentally true that people, regardless of the economy, have gotten married and celebrated with weddings for thousands of years. Flowers have been an important part of weddings (and all celebrations) for nearly as long. And in a recession, weddings—and flower budgets—tend to become more modest. Our business is structured to cater to that customer exactly. Tiny weddings, micro weddings, elopements, and even weddings with bigger guest counts but more modest floral budgets.
Our sweet spot are weddings with an average floral spend of $2,500, but our order minimum for weddings goes all the way down to $152, and we love the creativity that we can put into budgets up to $10,000. I set up Poppy with this level of budget flexibility because I saw a lot of floral designers flat out ignoring couples spending less than $5,000 or more on their flowers, and, frankly, I don’t think that’s right. Everyone deserves beauty. But if wedding budgets downshift, that actually is an advantage for us.
Five years from now? I want us to be developing and empowering hundreds of independent floral designers across the country, sending them top-of-market pay and the ability to generate income for themselves and their families. I want to provide them with the best floral training available, like the kind I received from Gregor Lersch, and to give them the pathway to the creative life that I was able to carve out in The White House flower shop with Laura Dowling starting seven years ago. I want to be working with not just the best farms on earth, but the farms with the biggest hearts. My biggest angel investor is a major flower importer in Miami, and he wears a pin everywhere he goes that says “Helping people express feelings with flowers.”
Both of my parents are psychologists, so growing up, I was used to expressing my feelings. I see flowers as a form of therapy, and there’s actually scientific research proving that flowers improve mood. I hope that coming out of this pandemic, we all emerge with a deeper connection to the beauty of nature, and flowers and plants are really emblems of that connection. I want to help awaken that in all of us.
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fortune--2020-05-11--Sue the Germans? A power struggle between the EU and its biggest member could turn into an epic lega

Sue the Germans? A power struggle between the EU and its biggest member could turn into an epic legal battle

Germany and the European Union are escalating a legal power struggle that could undermine the euro.
On Sunday, the European Commission threatened to sue the EU’s dominant economy after the German top court questioned the legality of the European Central Bank’s bond-buying program. With the 27-nation bloc ravaged by the coronavirus pandemic, the standoff has major implications for the European project itself and the monetary policy that underpins it.
Here’s a look at how the legal nightmare might play out.
1. What infringement would the EU claim?
Germany’s constitutional court decided last week it wouldn’t follow a 2018 judgment by the EU Court of Justice that cleared the central bank’s debt purchases, totaling 2.7 trillion euros ($2.9 trillion) since 2015. But under EU treaties, the top European court ranks higher. The German judges said they could deviate because the bloc’s top judges overstepped their powers when they backed the ECB’s policy in a previous ruling. It was a stinging challenge to the 68-year-old EU tribunal. That prompted a rebuke by European Commission President Ursula von der Leyen on Sunday. “The final word on EU law is always spoken” by the European court, she said. “Nowhere else.”
2. How can the EU sue a member country?
The European Commission, the EU’s executive and administrative body, has the task of policing whether member states are abiding by EU law.
If it finds that an EU country isn’t complying, it has to take action. The commission first informs the country that it’s in breach and tries to negotiate a solution. If that goes nowhere, the commission files a court case.
3. How real is the risk of the case going to court?
This warning by the Brussels-based guardians of the EU doesn’t necessarily trigger an infringement procedure. Yet von der Leyen also has to consider the deterrent effect. “The commission cannot simply ignore this challenge to EU law,” Miguel Maduro, a former advocate general at the EU Court of Justice, said in an interview. Otherwise, such national challenges “might be replicated by other states. What would the commission do if the Hungarian constitutional court or the Polish constitutional court, or others, do something like this.”
4. Is there a road map for such lawsuits?
So-called infringement proceedings aren’t unusual. Most of them don’t make headlines because they often address very technical questions on EU regulations. However, they’ve usually resulted in a kind of give-and-take where EU complaints are resolved with policy changes or, in extreme cases, fines. Yet it’s unlikely that Germany’s top court would reverse its ruling if the European court ruled against it. That could trigger an institutional crisis for the EU. “Making this statement that they’re considering opening an infringement procedure without actually opening it is a smart, prudent approach,” Maduro said.
5. Would the EU sue the German court or the German government?
The EU can only sue member states. That kicks in if an institution in a country—even a court—allegedly breaks EU law. Under international law, countries need to ensure that their agencies are in line with the law and must fix any transgressions.
6. Which court would hear the EU’s suit – and is that a problem?
The case would be heard by the EU’s top court, the same one the German judges attacked in their May 5 ruling. A 15-judge panel handed down the December 2018 judgment on the ECB’s asset purchases. Since the court has 27 judges, that gives it some leeway to make sure that all of the same judges don’t rule on this case if it goes to court.
7. What will the ECB do?
President Christine Lagarde has signaled that the ECB doesn’t plan on taking action, arguing that the institution is accountable to European parliament and remained under jurisdiction of the EU Court of Justice — with national agencies having no say.
Yet there are ways to diffuse the situation. The ECB could write a paper explaining that its policy meets the proportionality test, UniCredit’s Chief economist Erik Nielsen wrote in a note. “While tedious, it’s an easy paper to write,” he said. “After all, according to the minutes of the governing council meeting from 2015 when the program was agreed on, proportionality was indeed considered.”
The document could be released as a study or working paper — without any reference to the ruling — to allow the ECB to cooperate without jeopardizing its independence or being perceived as bowing to national laws.
8. What can Germany do to salvage the situation?
For the German government, the situation is tricky. Its constitutional court has been a hallmark of civil liberties and has very high approval rates with citizens. Its independence is enshrined in the constitution, and the government can’t just order it to reverse a ruling or set it aside.
Behind the scenes, Chancellor Angela Merkel and her team may want von der Leyen to file a lawsuit. If Germany loses that case, its leaders could say it is forced to fix the situation and take measures without causing a constitutional crisis.
9. What are the politics behind the dispute?
German opponents of the use of euro-area bailouts and ECB bond-buying to protect the shared currency repeatedly challenged the policies in the country’s courts, which until last week broadly went along with the rescue measures. Former German Finance Minister Wolfgang Schaeuble, a veteran of Europe’s bailout battles, warned that letting nations cast doubt on the EU court’s authority could eventually threaten the euro’s survival.
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