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How Private White House Briefings Helped Hedge Funds



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In late February, the Trump administration was publicly playing down the severity of the worsening coronavirus epidemic. But in private, White House officials had a different story — and that information was shared with top traders who made fortuitous bets against the market.

Trump advisers conceded concerns about the coronavirus in private meetings with board members of the conservative Hoover Institution on Feb. 24, Kate Kelly and Mark Mazzetti of The Times report. Larry Kudlow, the White House’s chief economic adviser, told the group that the virus was “contained in the U.S., to date, but now we just don’t know,” hours after saying on CNBC that containment efforts were “pretty close to airtight.”

Here’s how the information then spread:

• William Callanan, a Hoover board member and hedge fund consultant, wrote a memo, noting that nearly every federal official had raised the coronavirus “as a point of concern, totally unprovoked.”

• He then described the briefings in an email to the hedge fund magnate David Tepper of Appaloosa Management. The email circulated among the firm’s employees. Mr. Callanan also tipped at least one financier client.

• The information was passed to at least two outside investors, who in turn shared some details with others. Within 24 hours, at least seven investors at four money managers had been tipped off to some version of Mr. Callanan’s debrief.

By Feb. 26, traders acted on the information, as markets tumbled. Some investors, believing everyday life was about to be upended, bet big against the market — “short everything” was one trader’s reaction — while others stocked up on household staples. Stocks started to slip that afternoon and dropped precipitously the next day. The S&P 500 fell more than 11 percent that week.

There are caveats:

• Mr. Callanan said that his email to Appaloosa was based on “extensive research and publicly available information,” and that a copy of the briefing provided to The Times was “materially different” from his original write-up.

• Mr. Tepper had been publicly warning about the coronavirus since early February. He initially denied receiving Mr. Callanan’s email, but later acknowledged it.

• Mr. Kudlow told The Times that he believed his private and public remarks were consistent.

The takeaway: The circulation of the briefing, Kate and Mark write, shows “how elite traders had access to information from the administration that helped them gain financial advantage” when global markets were teetering.


Today’s DealBook Briefing was written by Andrew Ross Sorkin and Lauren Hirsch in New York, Ephrat Livni in Washington and Michael J. de la Merced and Jason Karaian in London.

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ImageStarbucks’ executive pay is now tied to corporate diversity measures.
Credit…Lim Huey Teng/Reuters

Steven Mnuchin says what we’re all thinking about a stimulus package. “At this point, getting something done before the election and executing on that will be difficult,” the Treasury secretary told a Milken Institute gathering after a negotiating session with Speaker Nancy Pelosi. The two plan to speak again today — but to what end?

European stocks slide amid a resurgence in virus cases. Markets are falling sharply across the continent, as officials impose new restrictions to limit the spread of the coronavirus, including curfews in Paris and a ban on mixing households in London. With an average of more than 100,000 new infections per day, Europe accounts for about one-third of new cases reported worldwide.

Goldman Sachs reports bumper earnings. The bank earned $3.6 billion in the third quarter, far higher than expected, as trading revenue soared. Banks with more consumer-facing businesses, like Bank of America and Wells Fargo, fared worse.

Wells Fargo fires employees for coronavirus aid fraud. The bank said that some employees created fake profiles to file for payments from a Small Business Administration pandemic relief program. At least 100 people have been dismissed so far as a result of the internal investigation.

Starbucks ties executive pay to diversity targets. The coffee chain said it would incorporate “measurements focused on building inclusive and diverse teams” into compensation plans starting next year, as part of a push to raise representation of Black, Indigenous and people of color in its work force. It joins a small group of companies tying pay to diversity targets.

Credit…Jim Wilson/The New York Times

Facebook and Twitter have deemed a New York Post report about Joe Biden, his son Hunter and Ukraine so dubious that they have limited access to it on their platforms. The moves brought accusations of censorship from Republicans, including President Trump. The Biden campaign has rejected the allegations made in the report, which was based on unverified material provided by Trump allies.

The details: Twitter prohibited users from sharing the story, while Facebook said it was limiting distribution until it could independently verify its content. After a day of confusion and criticism, Twitter said that the decision was based on the personal information shared in the story; Jack Dorsey, the company’s C.E.O., called the “lack of clarity” about the block “unacceptable.”

Social media platforms are scrambling to moderate widely shared content. In recent weeks, Facebook banned QAnon posts, ads opposing vaccination and content denying the Holocaust. Google-owned YouTube has also announced a ban on anti-vaccine content. This follows months of pressure to act on misinformation, stoking accusations from the right about censorship of conservative voices and leading the left to push for stronger action.

An S.E.C. event on “interconnectedness and risk in U.S. credit markets” took a literary turn, as the diverging fortunes of large and small businesses were expressed in Dickensian terms. “Credit is a kind of tale of two cities,” said Mark Carney, the former governor of the Bank of England.

“How are we doing?” asked Jay Clayton, the S.E.C. chairman who moderated a panel yesterday. “I don’t think anyone’s going to be critical,” said Gary Cohn, the former Trump economic adviser and Goldman Sachs executive, commending Mr. Clayton’s work in a difficult time. He argued for more fiscal stimulus, noting that “sequencing” issues in the last relief effort — “who got what when, who got theirs first” — had made it harder for small businesses to get aid than bigger players that weren’t as desperate. For all the interconnectedness of the markets, Mr. Carney said, there is minimal “trickle down” to the smallest players.

• In a research note this week, Goldman analysts noted the widening divergence between corporate bond spreads (easing) and bank loan availability (tightening). “While easier conditions in public credit markets are a welcome relief for larger companies that have access to them, small businesses — who are more reliant on bank financing — do not currently have the same easy access to credit,” they wrote.

Things get philosophical. At the roundtable, Mr. Clayton responded to criticism of continuing market dislocations by paraphrasing Voltaire, reminding the group not to let the perfect be the enemy of the good. But Glenn Hutchins, the billionaire co-founder of Silver Lake, said that the economy had shifted from a crisis phase to the “grind” of a recession, and that mismanagement of the pandemic could lead to “a real credit problem in the real economy.”

Credit…Pool photo by Stefani Reynolds

The technology giant came up unexpectedly during the Senate Judiciary Committee’s questioning of the Supreme Court nominee Amy Coney Barrett yesterday, highlighting corporate funding to secretive groups that try to influence the judiciary.

Friends of the court? Senator Sheldon Whitehouse, Democrat of Rhode Island, asked Judge Barrett if she was aware of donations to “pop-up” organizations that write amicus briefs in support of companies’ interests but do not reveal their financial connections. He noted Oracle’s donation of as much as $99,000 to the Internet Accountability Project, which filed a Supreme Court brief this year backing its copyright case against Google.

• The I.A.P. was founded in 2019 by the conservative advocate Mike Davis, a former adviser on judicial nominations for the Senate Judiciary Committee. (Its website features a “Google is Evil” page.) The organization is transparent about its stance but coy about its funding: it operates as a 501(c)(4), or “dark-money” group, exempt from disclosures. Its ties to Oracle were spotted by reporters in a disclosure by the tech company.

Amicus briefs are a legitimate part of a public relations arsenal, but some companies also fund outside groups that try to sway the court without revealing their ties — Oracle is not alone in that. Judge Barrett said she was unaware of this issue. But that is the point of dark money, after all.

Credit…Hiroko Masuike/The New York Times

Literally. The co-working company’s parent is once again calling itself WeWork as it — and its notorious co-founder, Adam Neumann — attempts a comeback.

Goodbye, “The We Company.” The company is reverting to the WeWork name, Reuters reports, abandoning the brand devised to show it was expanding beyond office space. (It paid $5.9 million to Mr. Neuman to license the name, though he later refunded the money.) The move is meant to return WeWork to its roots, the company’s C.E.O. wrote in a memo.

• The change also comes as WeWork tries salvage its core business, which has been ravaged by the pandemic. The company is offering steep discounts to tenants on a case-by-case basis, according to The Financial Times.

Mr. Neumann has also returned to the spotlight. His family office invested $30 million in Alfred, a start-up that provides services like a concierge and maintenance request software to residential buildings. It’s his first major foray into public life since resigning from WeWork last fall after its failed I.P.O. and near-collapse.


• The private equity billionaire Robert Smith has reportedly agreed to pay $140 million to settle a criminal tax investigation. (WSJ)

• ConocoPhillips is reportedly in talks to buy Concho Resources, in what would be one of the biggest oil and gas takeovers this year. (Bloomberg)

• Shares in Big Hit Entertainment, the music agency behind the Korean pop band BTS, nearly doubled in a market debut, valuing the company at more than $8 billion. (NYT)

Politics and policy

• Joe Biden raised a record $383 million last month, giving him $432 million in the bank in the final days before the election. (NYT)

• The media intrigue behind dueling town halls for President Trump and Mr. Biden. (NYT)

• Britain’s most popular politician might be its finance minister, the former Goldman Sachs banker Rishi Sunak. (NYT)


• France and the Netherlands urged the E.U. to enact strict regulations on American tech giants. (FT)

• A hot new commodity on the dark web: brokerage account logins, with Robinhood user data fetching the highest prices. (CNBC)

Best of the rest

• Motel 6, Home Depot and others have cut ties with the ad agency Richards Group after its founder called one ad “too Black” in an internal meeting. (NYT)

• Senator Elizabeth Warren criticized Disney for laying off thousands of workers while buying back shares and giving big payouts to top executives. (Bloomberg)

• Will Amazon’s Prime Day hurt the U.S. Postal Service’s ability to process mail-in ballots? (WaPo)

Thanks for reading! We’ll see you tomorrow.

We’d love your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.


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The Trump campaign celebrated a growth record that Democrats downplayed.



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.



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.



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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