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As Virus Spread Early On, Reports of Trump Administration Briefings Fueled Sell-Off

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On the afternoon of Feb. 24, President Trump declared on Twitter that the coronavirus was “very much under control” in the United States, one of numerous rosy statements that he and his advisers made at the time about the worsening epidemic. He even added an observation for investors: “Stock market starting to look very good to me!”

But hours earlier, senior members of the president’s economic team, privately addressing board members of the conservative Hoover Institution, were less confident. Tomas J. Philipson, a senior economic adviser to the president, told the group he could not yet estimate the effects of the virus on the American economy. To some in the group, the implication was that an outbreak could prove worse than Mr. Philipson and other Trump administration advisers were signaling in public at the time.

The next day, board members — many of them Republican donors — got another taste of government uncertainty from Larry Kudlow, the director of the National Economic Council. Hours after he had boasted on CNBC that the virus was contained in the United States and “it’s pretty close to airtight,” Mr. Kudlow delivered a more ambiguous private message. He asserted that the virus was “contained in the U.S., to date, but now we just don’t know,” according to a document describing the sessions obtained by The New York Times.

The document, written by a hedge fund consultant who attended the three-day gathering of Hoover’s board, was stark. “What struck me,” the consultant wrote, was that nearly every official he heard from raised the virus “as a point of concern, totally unprovoked.”

The consultant’s assessment quickly spread through parts of the investment world. U.S. stocks were already spiraling because of a warning from a federal public health official that the virus was likely to spread, but traders spotted the immediate significance: The president’s aides appeared to be giving wealthy party donors an early warning of a potentially impactful contagion at a time when Mr. Trump was publicly insisting that the threat was nonexistent.

Interviews with eight people who either received copies of the memo or were briefed on aspects of it as it spread among investors in New York and elsewhere provide a glimpse of how elite traders had access to information from the administration that helped them gain financial advantage during a chaotic three days when global markets were teetering.

The memo was occasionally breathless and inchoate. It appears to have overstated the gravity of some administration officials’ warnings to the group and included dire projections from the Centers for Disease Control and Prevention, without clear attribution, that do not appear to have come from the gathering. The Times is publishing only the passages from the memo whose accuracy it has independently confirmed.

But the memo’s overarching message — that a devastating virus outbreak in the United States was increasingly likely to occur, and that government officials were more aware of the threat than they were letting on publicly — proved accurate.

ImageTraders at the New York Stock Exchange on Feb. 25. By the next day, stocks had fallen nearly 300 points from the previous week.
Credit…Scott Heins/Getty Images

To many of the investors who received or heard about the memo, it was the first significant sign of skepticism among Trump administration officials about their ability to contain the virus. It also provided a hint of the fallout that was to come, said one major investor who was briefed on it: the upending of daily life for the entire country.

“Short everything,” was the reaction of the investor, using the Wall Street term for betting on the idea that the stock prices of companies would soon fall.

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That investor, and a second who was briefed on the Hoover meetings, said that aspects of the readout from Washington informed their trading that week, in one case adding to existing short positions in a way that amplified his profits. Other investors, upon reading or hearing about the memo, stocked up on toilet paper and other household essentials.

The memo was written by William Callanan, a hedge fund veteran and member of the Hoover board. A research institution at Stanford University that studies the economy, national security and other issues, Hoover has been directed since September by Condoleezza Rice, the secretary of state under President George W. Bush. Its board includes the media mogul Rupert Murdoch and the venture capitalist Mary Meeker, neither of whom attended the meetings in February, which were a series of informal, off-the-record discussions with Trump administration officials and Republican lawmakers.

Mr. Callanan described the Hoover briefings in a lengthy email he wrote to David Tepper, the founder of the well-known hedge fund Appaloosa Management, and one of his senior lieutenants about the level of concern among American officials over the spread of the virus domestically. In the email, he also touched on how ill-prepared health agencies appeared to be to combat a pandemic.

Inside Appaloosa, the email circulated among employees, who in turn briefed at least two outside investors on the more worrisome parts of Mr. Callanan’s email, according to people who received those briefings.

Those investors in turn passed the information to their own contacts, ultimately delivering aspects of the readout to at least seven investors in at least four money-management firms around the country within 24 hours. By late afternoon on Feb. 26, the day the email bounced from Appaloosa to other trading firms, U.S. stock markets had fallen close to 300 points from their high the previous week.

Credit…Chuck Burton/Associated Press

Mr. Tepper, who is also the owner of the N.F.L. team the Carolina Panthers, was one of the first prominent money managers to signal concern over Covid-19 in the United States.

During an interview at a Super Bowl event in Miami on Feb. 1, Mr. Tepper described the virus as a possible “game changer,” saying that investors needed to be “cautious” until more was known about its reach. Many investors regarded his remarks, broadcast on CNBC on Feb. 3, as bearish — reason to either sell investment positions or short the overall market.

Three weeks later, Mr. Callanan’s readout seemed to validate Mr. Tepper’s warning.

“I just left D.C. and wanted to reply to your question ASAP,” Mr. Callanan wrote to Mr. Tepper and one of his senior lieutenants in an email on Feb. 25. “If you can keep the comments below confidential, I would be grateful.”

From there, Mr. Callanan reported that numerous Trump administration officials — Mr. Kudlow, Secretary of State Mike Pompeo and economists at the Council of Economic Advisers, who had given the presentation at the White House on Feb. 24 — expressed a greater degree of alarm about the coronavirus than the administration was saying publicly. He also said he had a meeting with a Democratic senator, although it is unclear which lawmaker he met.

At about the same time, Mr. Callanan also informed at least one of his clients, a wealthy private investor, of the more notable aspects of the Hoover briefing, including that Mr. Kudlow signaled more fear over the effect of the virus in the United States to the Hoover group than he had earlier on CNBC.

In a statement, Mr. Callanan said his email to Mr. Tepper contained “personal and professional views based on extensive research and publicly available information,” showing his “concern on the global pandemic that was emerging.” The email was shared with others without his knowledge or consent, he said, adding that a copy of it provided to him by The Times to answer questions about it was “materially different” from its original form. He declined to explain how.

He noted that the email was a combination of his observations from a visit to Washington and his own analysis, and that the C.D.C. outbreak projections were drawn from estimates already circulating in the public domain. The request for confidentiality, he added, was necessary because the email’s recipients were not bound to client restrictions intended to protect his intellectual property.

Credit…Desiree Rios for The New York Times

Mr. Tepper initially denied receiving Mr. Callanan’s message, then acknowledged in a later interview that he most likely received the email but that it was not memorable.

“We were in the information flow on Covid at that point,” Mr. Tepper said of late February. “Because we were so public about this warning, people were calling us at this time.” He said that Appaloosa already had its bearish position in place on Feb. 23, when the Hoover gathering began.

By then, some top Trump administration officials were already predicting an impending disaster. On Feb. 23, Peter Navarro, one of the president’s economic advisers, distributed a memorandum predicting that the virus could affect as many as 100 million Americans and kill up to 2 million of them.

He warned that the country was unprepared for a pandemic, arguing that an emergency funding request to Congress for personal protective equipment and other measures to mitigate the spread of the virus were needed.

In a book published last month, the journalist Bob Woodward revealed that Mr. Trump told him on Feb. 7 that the novel coronavirus “goes through the air” and is “more deadly than even your strenuous flus” — the opposite of what the president was saying publicly.

On Feb. 24, the White House asked lawmakers for $2.5 billion in additional funding. That afternoon, the Hoover group traveled to the White House grounds for a panel discussion with members of the Council of Economic Advisers. That talk struck some audience members as worrying for the economy, according to Mr. Callanan’s memo and interviews with three people who were there. Of particular note, one of the people said, was the reluctance of Mr. Philipson, the council’s acting chair, to estimate the potential effect of the virus on American economic growth for the year, given that the situation was still unfolding.

Mr. Philipson confirmed that he had conveyed a message to that effect, though he could not recall specifics. That morning, he had told the National Association for Business Economics in a public gathering that the Trump administration was taking a “wait-and-see approach” to the virus and noted that manufacturing shutdowns in China were likely to affect the American economy. He said that the potential economic effects, however, had “been exaggerated.”

Credit…Melissa Lyttle/Bloomberg

At midday on Feb. 25, a top official from the C.D.C. gave the first public glimpse of internal government assessments about the potential spread of the virus, and it was bracing.

“It’s not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen,” Dr. Nancy Messonnier told reporters.

Shortly after, Mr. Kudlow made his “airtight” comments on CNBC, adding that the virus would not be “an economic tragedy.” Two hours after that, however, his Hoover presentation struck Mr. Callanan as backpedaling.

Mr. Kudlow “revised his statement about the virus being contained,” Mr. Callanan wrote to Mr. Tepper, saying “we just don’t know” whether it was at the time — even as Mr. Kudlow continued to downplay its consequences to the private audience. Mr. Kudlow “did add that he has recommended to the president a period of ‘tariff tranquillity,’ as markets don’t need more uncertainty now.”

Mr. Kudlow confirmed making both assertions at the Hoover meeting, adding that in his mind, they were essentially the same as his remarks on CNBC. “There was never any intent on my part to misinform,” he said, noting that the number of diagnosed Covid-19 cases in the United States at the time was no more than 20, and that he had expected travel restrictions to limit further spread.

The national case count at the time was 17, according to a Times database; in addition, more than three dozen American cruise ship passengers had confirmed infections.

The Hoover Institution has close relations with the Trump administration, and the White House has pulled from its ranks to fill top positions. Joshua D. Rauh, one of the White House economists addressing the Hoover crowd on Feb. 24, has returned to the institution, where he worked previously. Kevin Hassett, who moderated the panel and has served as the chairman of the White House Council of Economic Advisers, is now a Hoover Institution fellow.

Dr. Scott W. Atlas, a Hoover fellow and Stanford professor known for his unorthodox positions on encouraging “herd immunity,” was named to Mr. Trump’s coronavirus task force in August.

Credit…Anna Moneymaker for The New York Times

Mr. Callanan spoke to Dr. Atlas one-on-one at the Hoover gathering in February, said a person who attended the meetings. According to Mr. Callanan’s message to Appaloosa, a Hoover health care fellow and former official of Stanford’s medical school informed him that San Francisco’s decision to declare a state of emergency when thousands of people were self-quarantining in the Bay Area was a sign that the government there foresaw a serious crisis. The person at the meetings identified Dr. Atlas as Mr. Callanan’s source.

Dr. Atlas did not respond to requests for comment.

The government is investigating financial transactions made in early February — before the market spiraled — by Senator Richard Burr, Republican of North Carolina, who was forced to step aside as the chairman of the Senate Intelligence Committee in May over the inquiry.

Mr. Burr sold stock after he received government briefings about the looming health and economic crisis from the pandemic. The senator has denied wrongdoing.

But legal experts say the briefings by administration officials are a very different situation, and it is not apparent that any of the communications about the Hoover briefings violated securities laws. The Justice Department and the Securities and Exchange Commission would have several hurdles to clear before establishing that Appaloosa or other funds that received insights from Mr. Callanan, either directly or through intermediaries, acted improperly.

Kitty Bennett contributed research.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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