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On Monday, workers at an Amazon warehouse in Staten Island walked off the job for a second time, just one week after holding an initial strike, citing continued coronavirus fears amid 26 cases of the virus at the warehouse.
Apr.06 -- Amazon.com Inc. has played an important role in bringing groceries and other supplies to people’s doorsteps during the global pandemic. But it’s not just battling Covid-19 and the myriad logistical complexities the virus has introduced. As last week’s developments made clear, Amazon also appears to see itself as fighting a war on its other flank—against organized labor. Bloomberg's Brad Stone reports on "Bloomberg Markets."
(Bloomberg) -- The world’s biggest lockdown has brought transportation of goods in India close to a halt, even though the federal government has exempted the sector from restrictions to halt the spread of coronavirus.Daily movement of trucks has collapsed to less than 10% of normal levels, according to All India Motor Transport Congress, an umbrella body of goods-vehicle operators representing about 10 million truckers. Road transport accounts for about 60% of freight traffic in India and 87% of its passenger traffic, according to the Ministry of Road Transport and Highways.Trucking has emerged as a major chokepoint in global supply chains from food to medical supplies as governments around the world take ever more stringent steps to contain the pandemic, restricting the movement of vehicles as well as people to drive them. The stoppages in India, where Prime Minister Narendra Modi imposed a three-week lockdown on the nation’s 1.3 billion people from March 25, are a harbinger of the damage the measures are wreaking on the economy amid forecasts the country could see its first contraction in at least two decades.“Though the government has allowed movement of both essential and non-essential goods, the situation is very different at the ground level,” said Naveen Kumar Gupta, secretary general of AIMTC, the largest grouping of transporters in India. Almost daily clarifications by the government take time to trickle down to officials enforcing the rules, making operations difficult, according to the organization’s president, Kultaran Singh Atwal.The decline in road transport is another major setback for fuel demand in the world’s third biggest oil market, which has already been hit by the collapse in air travel. Fuel sales in March by India’s three biggest state-run retailers shrank by as much as 33%.One of the major problems facing truckers is loading and unloading because of a shortage of labor, according to AIMTC. And with the lockdown shutting highway food establishments and workshops, truckers can’t get the services they need even if they are on the road.How will the coronavirus pandemic shift power around the world? Join us on Tuesday at 10 am ET for a live virtual conversation exploring how a post-virus world might look. Register here for Bloomberg New EconomyCharting the Trade TurmoilThe world could be on the brink a food scare as the coronavirus upends supply chains and sends prices for key staples higher. Prices of rice and wheat — crops that account for a third of the world’s calories — are rapidly climbing.Today’s Must ReadsAbout face | President Donald Trump eased restrictions on exports of masks and other protective equipment needed to fight the Covid-19 pandemic after a backlash from allies around the world. Stranded sailors | Port restrictions and canceled flights are straining the ability to replace seafarers on board ships, further weakening global supply chains already snarled by the coronavirus pandemic. Supply concession | India partially lifted a ban on the exports of a malaria drug after Trump sought supplies for the U.S., according to government officials with knowledge of the matter. Plane challenge | The most dramatic contraction in civil aviation history poses a challenge for Airbus in how to balance its response. Pose a strike | The global health crisis is shining a spotlight on how Amazon and many of the world’s biggest companies treat essential workers. Swiss nonplussed | Switzerland, whose penchant for preparing for emergencies has won it praise, is facing a possible shortage of alcohol used to make hand sanitizer.Bloomberg AnalysisFunctions for the market | Food supply-chain risks persist even as panic buying ebbs. Rent effects | The coronavirus will reduce apartment REIT revenue and funds from operations in 2020, potentially by more than the 4% drop at the depths of the 2008-09 crisis. Swift response | On Feb. 27, ECB President Christine Lagarde said there was no obvious need for a monetary response to the pandemic. Four weeks later, she unleashed massive stimulus. Use the AHOY function to track global commodities trade flows. See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities. Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
An Indian retail group has asked a court to allow the restart of an antitrust investigation into Amazon.com Inc and a Walmart unit that is on hold following a legal challenge by the companies, a court filing seen by Reuters showed. Amazon and Walmart's unit Flipkart did not immediately respond to a request for comment on Tuesday. The appeal will likely be heard later this month at a time when both Amazon and Flipkart are battling slowing sales and logistical challenges during India's lockdown to tackle the coronavirus which has resulted in supply chain disruptions.
(Bloomberg) -- When Samsung Electronics Co. brass addressed analysts during its last earnings call, much of the talk revolved around finally turning the corner after years in the doldrums. That was in January, before Covid-19 threw the global economy into a tailspin.Now, executives are struggling to assess the damage. In the short term, Samsung’s most profitable business is riding a surge in online activity from the millions confined to home, driving demand for the memory chips that help power datacenters and cloud services. But should the pandemic persist into the second half -- a worst-case scenario -- the tech giant foresees missing its own 2020 revenue projections by a double-digit percentage, according to people familiar with internal discussions.Samsung unveils preliminary earnings Tuesday, becoming one of the first major technology corporations to paint a picture of how the pandemic impacted the global tech industry in 2020’s first three months. As the world’s largest maker of memory chips, phones, displays and appliances, the Korean giant is exposed to the economic shocks of Covid-19 like few other tech corporations. The novel coronavirus has already forced Korea’s largest company to shut plants from Gumi at home to India, costing Samsung days of lost production. While it’s expected to post first-quarter revenue growth, the question is whether the initial surge in semiconductor demand can offset a hit from what could be the worst global economic shock in at least a generation.“We are truly in uncharted waters as the tech industry in general has continued to grow, perhaps at varying rates, but we haven’t seen a broad-based, global downturn such as we may be in line for,” said Robert Maire, president of Semiconductor Advisors in New York. Chip demand in particular “will likely not be as robust as it could have been as demand for devices that contain semiconductors, such as smartphones, TVs and consumer electronics, will be reduced through negative economic impact.”Foremost among the divisions under scrutiny is the semiconductor unit, which accounts for more than half of operating profits at Samsung. It’s been pounding out memory chips -- the lubricant of the tech industry -- round the clock, essential in datacenters hosting everything from video conferences to e-commerce. But executives and investors worry that prolonged Covid-19 lockdowns may crimp final demand for smartphones and other electronics -- and ultimately deal a serious blow to the chip industry’s nascent recovery.Read more: Apple Tells Staff U.S. Stores to Remain Closed Until Early MaySamsung’s shares have dived more than 20% since their January 2020 peak, depressed by a series of analysts’ price-target cuts. Much of the hit could come this quarter since Covid-19 escalated globally in March. Revenue growth is likely to fall off steeply, according to Eugene Investment & Securities, which projects a 12.3% decline in the June quarter from a forecast for a mere 0.1% increase in the January to March period.Among the analysts that cut price targets was Hana Financial Investment, which also slashed its projection for Samsung’s 2020 smartphone sales from 300 million units to 260 million. It expects OLED panel shipments to plunge 12% to 373 million this year. Now that the Euro 2020 soccer tournament and Tokyo Olympics have been postponed, TrendForce also lowered its market forecast for TV shipments by 5.8% to 205.2 million units, warning that could slip further as the situation worsens in North America and Asia.“The current financial crisis that accompanies the pandemic has produced a lot of uncertainties and could surpass the Financial Crisis of 2007-2008 in scale,” TrendForce said on March 30. “Hence, the general economic outlook for 2H20 could become even gloomier as the pandemic is not expected to be brought under control in the short term.”Read more: Micron Gives Strong Outlook Lifted By Data-Center DemandThat’s a far cry from just a month ago, when Samsung told shareholders the memory market will stabilize this year thanks to upgrades in manufacturing processes, datacenter expansions and the rollout of fifth-generation or 5G wireless networks. Having learned its lesson from previous industry slumps, Samsung was confident it could maintain a balance between supply and demand for memory chips, the people said, asking not to be identified talking about internal deliberations. Their prime concern was avoiding a repeat of the oversupply that triggered a chip price crash in 2019, they said.The industry is still toting up the impact of the pandemic. In a positive scenario, analysts expect pent-up demand for smartphones and sustained use of online learning and work-from-home gear like laptops to engender a soft-landing for Samsung later this year. Just a week ago, Qualcomm Inc. and Western Digital Corp. said they were seeing a recovery in demand from Chinese consumers for phones and computer disk drives. And Micron Technology Inc. has predicted stronger-than-expected revenue.What Bloomberg Intelligence SaysMemory chips are likely in tight supply due to disruptions in obtaining certain raw materials and equipment on the Covid-19 outbreak. This may bolster DRAM and NAND sentiment following rising contract prices in March, supported by rising remote work access needs, despite an extended smartphone shipment slump to 2Q.\- Anthea Lai and Anand SrinivasanClick here for the research.It may well be that the disease will encourage shifts in consumer activity that benefit the industry in the long run, said C.J. Muse, senior managing director at Everscore ISI in New York.“The world is changing,” said Muse. “There is clearly something that, over the long term in this kind of virus world, should be positive, given how our lives are evolving and how important the cloud is to a lot of what we do now and even more than ever.”Read more: ‘Nightmare’ for Global Tech: Virus Fallout Is Just Beginning(Corrects Trendforce’s forecast in seventh paragraph to refer to industry, not Samsung, shipments)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Samsung Electronics Co.’s better-than-expected profit revives hopes that a surge in internet usage from people sheltering in place during the Covid-19 pandemic will help make up for a drop-off in demand for smartphones and other consumer electronics.Shares in Korea’s largest company climbed more than 3% after it posted operating profit of 6.4 trillion won ($5.2 billion) in the March quarter, surpassing the average analyst estimate by 3.6%. Sales rose 5% to 55 trillion won, according to preliminary results released Tuesday. The company didn’t provide net income or break out divisional performance, which it will do later this month when it releases final numbers.Samsung -- one of the first major technology corporations to unveil March quarter results -- demonstrates how the novel coronavirus outbreak is exerting an uneven impact on the global electronics sector in the short term. Soaring online activity from gaming to video streaming is driving sales of semiconductors -- the lubricant for the internet and Samsung’s most profitable business -- even as worsening employment prospects curtail spending on gadgets such as the company’s just-released flagship Galaxy S20.The Asian giant’s solid performance underscores expectations for resilient chip demand since Micron Technology Inc.’s stronger than anticipated outlook. That lifted Asian chipmakers such as Taiwan Semiconductor Manufacturing Co. and Nanya Technology Corp. Much now hinges on whether governments can mitigate the fallout from potentially the worst global economic shock in at least a generation.“Right now, we can only project a picture of the second quarter: soaring demand in server chips may offset slump in display, mobile and consumer electronics,” said Song Myung-sup, analyst at HI Investment & Securities Co. in Seoul. “The problem is, if the Covid-19 pandemic continues further, we can’t guarantee that the uptrend in expansion of servers will be sustainable in the second half of this year.”Samsung’s Symptom-Less Earnings Don’t Make It Immune: Tim CulpanAs the world’s largest maker of memory chips, phones, displays and appliances, Samsung is broadly exposed to the economic shocks of Covid-19. Despite Tuesday’s rally, the company’s shares remain down about a fifth since their January 2020 peak. The better-than-expected result unveiled Tuesday was helped by the South Korean won weakening about 5% against the dollar in the first quarter, lifting the value of income repatriated from overseas.Should the pandemic persist into the second half -- a worst-case scenario -- the tech giant foresees missing its own 2020 revenue projections by a double-digit percentage, according to people familiar with internal discussions. It’s grappling with plant shutdowns and store closures this quarter alongside rivals and customers like Apple Inc. and Huawei Technologies Co. At the same time, memory chipmakers have experienced rising demand and prices for DRAM and flash memory used in data centers and cloud service operators.Read more: Working From Home Gives Chipmakers Boost While Others SufferWhat Bloomberg Intelligence SaysSamsung Electronics’ strong 1Q operating profit beat may affirm rival Micron’s upbeat expectations for memory chip demand, despite the Covid-19 outbreak. DRAM contract prices rose in March after reaching a bottom in December, while those for NAND inched up from late 3Q. Chipmakers’ wafer cuts may tighten supply and restore inventory to normal levels.\- Anthea Lai, analystClick here for the research.Contract prices for 32-gigabyte DRAM server modules rose roughly 12% in the March quarter, according to InSpectrum Tech Inc. Prices for 128-gigabit MLC NAND flash memory chips increased about 5.6% in the first three months of 2020. Thanks to growing demand for online services from video-conferences to e-commerce and gaming, prices of server DRAM and enterprise SSD or solid-state drives are projected to keep growing in the current quarter. TrendForce raised its price-growth forecasts on server DRAM to 20%, while it expects enterprise SSD prices to rise by as much as 15%.“The growing demand for server DRAM led to low inventory levels for both clients and suppliers,” TrendForce said in an April 1 note. “Also, following a new round of tenders from Chinese telecom operators in February, the supply of server DRAM has become much tighter, in turn maintaining the upward pull on server DRAM prices.”Samsung’s hardest-hit business was mobile because of disappointing demand for S20 devices released in early March. In the first quarter, the company shut its key Gumi plant several times after discovering infection among employees, prompting the shift of some of output to Vietnam. Lockdowns of major cities and store closures across North America have depressed overall business. Hana Financial Investment expects Samsung to report 62.2 million unit shipments of smartphones for the first quarter of 2020, compared with 71.5 million units a year earlier.“Although semiconductor earnings look set to increase on the back of memory chip price hikes, the divisions selling finished products” will likely see their earnings decline, said Greg Roh, senior vice president at HMC Securities.Samsung’s Beauty and Beast: Fully ChargedFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Earnings released early Tuesday by Samsung Electronics Co. show that the technology giant dodged any major impact from the Covid-19 pandemic. Expect that to change.Revenue growth was the strongest in six quarters, though 5% is hardly stellar. And while it was in line with estimates, analysts had been trimming expectations over the past few months. That also applies to the better-than-forecast operating profit, with analysts having lowered the bar in recent weeks.Investors should also note that earnings are reported in Korean won. Samsung’s numbers may have been helped by the fact that the won weakened 6.1% against the U.S. dollar in the quarter, the most in more than four years (the currency swung wildly during the period, so the company’s average exchange rate may have been different).With the coronavirus having shut down swathes of the global economy, any growth is to be lauded. Peers including Apple Inc. aren’t likely to have performed as well. But don’t be fooled into thinking that Samsung is in the clear. Much of the strength during the period probably came from its chip business, driven by the needs of internet companies like web-conferencing provider Zoom Video Communications Inc. These have had to boost server capacity to cope with higher demand from employees forced to work from home amid the pandemic.More than 40% of Samsung’s revenue comes from handsets. This sector was already looking lackluster before the coronavirus outbreak. Now, with the U.S. having reported an astonishing 10 million new jobless claims within two weeks, much of Europe on lockdown, and most of Asia in varying degrees of economic strife, it’s unlikely that consumers are eager to pony up for a flashy new smartphone.Apple’s largest supplier has already felt the pinch. On Monday, its Taiwanese assembler Hon Hai Precision Industry Co. announced first-quarter revenue dropped 12%. While Apple accounts for half of Hon Hai’s sales, the other half comes from a broad collection of companies including Dell Technologies Inc., HP Inc. and Xiaomi Corp. It’s unlikely any of them will come through this economic downturn unscathed.Samsung has the strength, and most importantly the cash, to ride out what will certainly be a tough few quarters for the global economy. That size doesn’t give it immunity.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Microsoft Corp. hired Apple Inc.’s former executive in charge of wireless technologies to work on mixed reality hardware and artificial intelligence technology.The Redmond, Washington-based technology giant appointed Ruben Caballero to a role as a corporate vice president, according to his LinkedIn profile. Caballero is working on hardware such as the HoloLens mixed-reality headset, according to his profile. The move underscores Microsoft’s investment in its growing hardware portfolio. Microsoft confirmed the hire.At Cupertino, California-based Apple, Caballero was a vice president of engineering in charge of developing wireless technology, such as antennas inside of devices like iPhones, iPads and Macs. He also oversaw Apple’s global wireless product testing efforts.Caballero worked at Apple from 2005 until early 2019 when his division’s work on modems -- chips that power cellular connectivity -- was subsumed by Apple’s custom chip division run by Johny Srouji. After leaving Apple, Caballero became an adviser at several Silicon Valley-area startups, including wireless company Keyssa and Humane, a startup run by former Apple employees.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The Dow Jones Industrial Average rose 1,232.49 points, or 5.85%, to 22,285.02, the S&P 500 gained 139.16 points, or 5.59%, to 2,627.81 and the Nasdaq Composite added 415.36 points, or 5.63%, to 7,788.44. All 30 Dow components were in positive territory, led by a gain of 17.54% in Boeing shares, while the defensive utilities, up 7.59%, was the best performing of the 11 major S&P sectors. The S&P 500 banking index jumped 6.78% and was poised for its best day in more than a week.
(Bloomberg) -- When Donald Trump toured an Austin, Texas, factory in November alongside Apple Inc. Chief Executive Officer Tim Cook, the president promoted the event as a celebration of U.S. manufacturing and the return of good-paying jobs to the country.The Apple CEO had successfully made his case to the administration that some components for his company’s products should be excluded from Trump’s China tariffs in exchange for keeping production in the U.S.“Today, I opened a major Apple Manufacturing plant in Texas that will bring high-paying jobs back to America,” Trump tweeted on Nov. 20.But the facility Trump visited is owned and operated by contract manufacturer Flex Ltd. and has been open for 30 years. For decades, it has been producing various devices for many companies including Cisco Systems Inc. Apple has been at the Flex plant since 2013.Computer Parts“He doesn’t have to worry about tariffs,” Trump said of Cook during the Nov. 20 factory tour. “Because when you build in the United States, you don’t have to worry about tariffs.”Two months earlier, the iPhone maker was exempted from tariffs levied on components it imports from China that are used in the Mac Pro desktop put together at the Flex plant. The removal of a 25% surcharge on items like power supplies and printed circuit boards that house the main components of the computer lowered Apple’s costs and, according to Cook, was the reason why the Cupertino, California-based company continued its manufacturing at the Austin factory.But other companies, like San Jose, California-based Cisco, didn’t receive the same treatment. Now jobs related to the manufacture of its products are at risk.In July 2019, Cisco asked the government to exempt the company’s power supplies for U.S.-made servers and switches from the same 25% tariff. Cisco said neither this China-made product nor a comparable one is available in the U.S. or from sources in third countries.Tariff ExemptionsCisco, like many other U.S. companies, was making the same plea to the Trump administration as Apple had: The exemptions were necessary to save good-paying American jobs.After months of being stuck in the process, Cisco was told March 5 that its application for the tariff exemption was denied.“After careful consideration, your request was denied because the request concerns a product strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs,” Joseph Barloon, general counsel for the Office of U.S. Trade Representative, wrote in the denial notice.The applications for an exemption from Apple and Cisco were strikingly similar, particularly when it came to the question of whether their products helped China expand its industrial might.Power Supply“The subject power supplies are not strategically important or related to ‘Made in China 2025’ or any other Chinese industrial policy,” Cisco wrote. “The manufacture of these products in China is unrelated to China’s efforts to develop indigenous, advanced Information and Communications Technology products.”Apple used nearly identical language, saying: “This product is a component of a consumer electronic device. It is not strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs.”Indeed, the power-supply boxes imported from China don’t require cutting-edge technological know-how. They are mostly made up of large spools of copper wire, capacitors and other basic wiring. They haven’t been made in the U.S. for years and don’t require highly paid skilled labor.Apple’s application to get a tariff exclusion was approved in September 2019.Tariff ReliefA USTR spokesman didn’t respond to a request for comment when asked why Apple’s power supply unit doesn’t constitute a product that’s strategically important to China’s industrial programs if an almost identical one from Cisco does.Cisco representatives specifically told USTR and others in the administration while the applications were pending that jobs were at risk, according to sources familiar with the process who asked not to be identified discussing private talks.In a statement after the decision, Cisco said the exemptions it sought “would support the competitiveness of this domestic manufacturing.”The company said it would continue to work with the trade representative’s office for tariff relief on other items, including “for communications equipment that we believe are vital to support the medical response to the coronavirus.”USTR doesn’t make public the reasons why it approves a company’s exemption requests. The business community writ large has complained about the lack of visibility into why certain companies get what appears to be preferential treatment over others.San Jose, California-based Flex, which works for both companies, said in a statement that “securing waivers for tax exemptions is an individualized process based on each customer situation” and declined to identify other customers that use the Austin plant. “Flex’s global footprint provides our customers with options for manufacturing locations, however, we also work closely to help our customers secure tariff exemptions based on their needs.”A group of Texas lawmakers in a letter to trade chief Robert Lighthizer last year underscored that jobs are on the line in Cisco’s case. “Cisco’s operations in Texas directly support more than 1,150 jobs in our state and indirectly support thousands of related jobs in logistics, warehousing, distribution and transportation,” the lawmakers said in their Sept. 13 letter.The decision by the trade office means it’s now a lot cheaper for Cisco to put together its servers, switches and routers in Flex plants in Mexico and export the finished device tariff-free to the U.S. The company declined to say what actions it would take regarding jobs or manufacturing in light of the denial of tariff exemption.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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The U.S. auto industry took a hit in the first quarter due to COVID-19 that forced people to stay home for the most of March, denting business of one of the nation's largest industries.
(Bloomberg Opinion) -- How can we determine the state of the housing market when we lack data? That is the challenge facing those in the real-estate industry today, says this week's guest on Masters in Business, Jonathan Miller, co-founder of Miller Samuel and a master appraiser and consultant to the industry. The contract data we do have reflects transactions entered into a month or so ago, before most of the shelter-in-place orders were adopted.Miller’s expertise on real-estate appraisals and transactions comes from the data he assembles and analyzes. He has created a variety of real-estate data analytics for regional and national markets. He is sought after as the go-to appraiser for the most expensive dwellings in Manhattan. Miller, who also writes at the Matrix Blog, explains how real estate is responding to the lockdown: The industry move to online listing services, such as Street Easy and Zillow, is all but complete. But some online sites are removing crucial data from their listings, including “days since listed” that show how long a property has been on the market. We also discuss the challenges appraisers are having doing interiors inspections, now in New York City but eventually the rest of the country. Appraisals that are “desktop” by computers, or “curbside” drive-bys are becoming more common, he said.Part of the problem the residential market is facing is that the spring selling season most likely is lost; how soon the market returns to normal won't be known until the pandemic passes. Although virtual tours and live videos are an option for some buyers, the human element requires being physically present to see, walk through and even smell a home, which is usually a person’s largest purchase.His favorite books are here; a transcript of our conversation is available here. Our 2014 conversation with Miller can be found here; our 2016 MiB is here.You can stream and download our full conversation, including the podcast extras, on Apple iTunes, Spotify, Overcast, Google, Bloomberg and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.Next week, we speak with James Montier, a member of GMO UK Lt.’s asset allocation team. Before joining GMO in 2009, he was co-head of global strategy at Societe Generale. He is the author of several books including “Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance”; “Behavioural Finance: Insights into Irrational Minds and Markets” and “The Little Book of Behavioural Investing.”This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- “In the United States, credit cards, debit cards, people love these cards,” Jamie Dimon, JPMorgan Chase & Co.’s chief executive officer, said during last year’s second-quarter earnings call. “They use their credit cards far more than they use their debit cards. I don’t remember the last time I used my debit card.”It’s not just American consumers drawn to credit cards, of course. They’ve become a bigger part of JPMorgan’s kingdom, too. Gordon Smith, who leads the consumer division, said at the Feb. 25 investor day that in the past several years it has increased market share to an industry-leading 23% from about 13.5%. A presentation showed digital card sales grew 13% year-over-year, which was 3 percentage points higher than the sector a whole.JPMorgan, the biggest U.S. bank, has been a pioneer in the space, with its Chase Sapphire Reserve reimagining what premium cardholders want and how much they’ll pay in annual fees to get it. The card exploded onto the scene in August 2016 with a sign-up bonus of 100,000 points, which was worth about $1,500 in rewards, easily making up for the steep $450 annual fee. JPMorgan featured late night host James Corden in a marketing campaign called “Reserve What’s Next.” In an interview with the New York Times about the series, Kristin Lemkau, JPMorgan’s chief marketing officer at the time, said this about the card, which also offered triple points for dining and travel anywhere in the world:“Millennials do travel differently,” she added. “What's different is they're the first generation that can find anything on Google, including travel. They clearly like experiences more than stuff. They clearly want to make their own decisions about everything, including travel. It's more fun to post a picture of a fish taco or of a sunset over a beach than of a new couch.”These days, though, Americans of all generations are spending a lot more time on their couches. The coronavirus pandemic has decimated the two industries most directly targeted by the Chase Sapphire card. With airplanes largely grounded and restaurants limited to delivery or takeout, is this card, which was once so popular that the manufacturer ran out of metal used to make it, now destined to be sent to the scrap heap? Earlier this year, my Bloomberg Opinion colleague Barry Ritholtz interviewed Brian Kelly, also known as the Points Guy. His website served as a launch partner for the Chase Sapphire Reserve card, which as of January was its pick for best personal card. Wirecutter had a different view, posting an article titled “The Slow Sudden Death of the Chase Sapphire Reserve” on Jan. 13.Regardless of the card’s rank among peers, Kelly’s life as described by Ritholtz probably seems positively alien to those starting their fourth consecutive week on lockdown:Kelly travels professionally, amassing millions of miles and holding the highest status levels at his favorite airlines. We discussed his preferred travel gear: He always has a laptop or similar device filed with movies, podcasts and TV shows because you cannot rely on the in-flight entertainment system, and if you get stuck somewhere for hours you could keep yourself entertained. He has a Dual Sim iPhone 11, which allows him to use the phone just about anywhere in the world. Google Fi is his carrier abroad. Also important for stressful travel these days: an InsightTimer meditation app. How long will it take for Sapphire Reserve-carrying millennials to return to their jet-setting ways? It’s really anyone’s guess, and it depends on how successfully governments around the world contain the coronavirus. But to think the travel industry will bounce back to what it once was in short order seems more dubious by the day. And I doubt people will immediately clamor to eat and drink in packed restaurants and bars after being hyperconscious about social distancing and wearing masks when interacting at grocery stores. The psychological toll can’t be dismissed so quickly.That will change the credit card calculus. Anecdotally, I surveyed a handful of friends from across the country who I knew had Chase Sapphire Reserve cards (from splitting the bill while dining out, of course). They said they were thinking about canceling, or at best re-evaluating whether it was worth it — the card now includes a Doordash “DashPass” and $60 worth of credits per year. That’s a nice perk in the coronavirus era but hardly comes close to the travel benefits. JPMorgan seems to understand cancellations are a risk: It had said it would boost the card’s annual fee to $550 as of April 1 but announced last week that it would give a $100 credit to those whose cards come up for renewal though July 1, effectively rolling back the increase. “We know Covid-19 has affected people in many different ways,” the bank said, calling the credit “a way to help.”Of course, for those who still find that cost too steep while staying home, JPMorgan has any number of options to keep customers with them. And it’s not as if it’s the only card issuer feeling the sting from the lack of travel: American Express Co., which once called the Sapphire Reserve a “full frontal assault” on its offerings, had told shareholders its fastest-growing expense this year would be spending on membership services. Bank CEOs had frequently marveled at the strength of the American consumer on earnings calls. When they report their first-quarter earnings starting next week, they’ll likely have a much different perspective. Bloomberg Intelligence’s David Ritter wrote last week that credit-card revenue could drop 5% to 10% in a recession similar to the last one, though banks with diverse revenue streams will be less exposed to the fallout than the likes of Synchrony Financial and Discover Financial Services. Capital One Financial Corp. could feel the pinch too, Ritter wrote, though the Points Guy considers it to have the best card for flat-rate rewards and the best one with no annual fee.Dimon, who returned to JPMorgan last week after emergency heart surgery on March 5, noted on that second-quarter 2019 earnings call that the Sapphire brand was introduced in 2009, just months after the recession ended. “Marketing money is usually better spent in a downturn, the returns on it usually double,” Dimon said.He published his annual letter to shareholders Monday, noting that the coronavirus pandemic will most likely send the U.S. economy into another rough stretch. “At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” Dimon wrote.With the travel and hospitality industries facing a reckoning, it’ll be up to Dimon and his colleagues to innovate once more.(Updates to add comments from Dimon’s letter to shareholders in the 13th paragraph.)This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Todd Garner was in Puerto Rico filming his latest comedy “Vacation Friends” — for 20th Century Studios and starring John Cena — when it started to become evident that the coronavirus was going to be a serious problem. While the U.S. government wasn’t quite yet relaying such severity, “I could see the anxiety on everybody’s faces” among the cast and crew, Garner recounted on a recent episode of his podcast. Questions arose that filmmakers haven’t had to confront before: Should so many people be working in such close quarters? Is it safe for makeup artists to be touching the actors’ faces? Two weeks into production, and with six weeks to go, they put the film on ice.It’s hardly the only movie that’s had to temporarily stop filming and send everyone home for an unknowable period of time. Indeed, “show business” is neither right now. Garner, who co-produced “Paul Blart: Mall Cop,” said he also had two TV series for Netflix Inc. that were already far along and had to cease production. Netflix’s “Stranger Things,” HBO’s “Succession,” ABC’s “Grey’s Anatomy,” AMC Networks Inc.’s “The Walking Dead,” Hulu’s “Handmaid’s Tale” and Apple Inc.’s “The Morning Show” are among other series with highly anticipated returning seasons that will be delayed by national stay-at-home orders. And it’s not just scripted shows. For example, it seems unlikely that the “Friends” reunion special can still be filmed in time for the arrival of HBO Max, a new streaming-TV service launching in May from AT&T Inc.’s WarnerMedia, which reportedly paid $425 million last year to snatch away from Netflix the streaming rights to the popular 1990s-early aughts sitcom.Movie theaters are closed and there aren’t any sports to watch. For an audience bored by the isolation on a good day, and entirely dispirited by it on the bad ones, it’s all the more devastating to not be able to look forward to our favorite shows.The Hollywood shutdown hit just as media giants like Comcast Corp. and Walt Disney Co. are getting their streaming products off the ground, each looking to spend billions of dollars on new content. Disney+ and Apple TV+ both launched in November, while Comcast’s NBCUniversal is introducing its Peacock service April 15. Quibi, a startup created by a pair of media and tech veterans that’s reportedly raised $1.75 billion in funding, launched Monday. With everyone home and glued to their TVs and devices, these companies will have a chance to attract more subscribers, while viewers gain more options for passing the time.Even so, none of these apps on its own may have enough to watch or offer sufficient variety for the average household. The most sought-after programs have been divvied up among the different services, which each charge their own monthly fees. Viewers might just grow tired with of any of these streaming apps when forced to spend so much extra time with one, potentially creating more volatile churn rates — the closely tracked measurement of customers canceling subscriptions. It’s a test for the streaming newbies and even Netflix that’s made all the more challenging if new content stops flowing in.New theatrical releases have gotten caught in the middle of this, too. For a big-budget film like “F9,” the latest installment of “The Fast and the Furious” franchise, bypassing hundreds of millions of dollars in box-office revenue isn’t really an option. That’s why Universal Pictures pushed back the release by almost a whole year to next April. But with “Trolls World Tour,” Universal decided to make the movie available to rent on-demand for $20 instead of just delaying its theatrical debut. Other studios are having to make similar decisions. It raises the question of how all these delayed movies will fit into exhibitors’ schedules once theaters do reopen. As movie-goers grow accustomed to being able to see first-run films at home, and as streaming services try to juice their subscriber bases, a potential outcome may be shorter theatrical windows and an industry that’s forever changed.The pain is also being felt by contractors and local businesses in Atlanta, which became the new U.S. hub for TV and film production in recent years. About 400 works were filmed, resulting in $2.9 billion invested in Georgia for the fiscal year ended June 2019, according to the state. “Film & Entertainment” is featured prominently on the Georgia Department of Economic Development website, but visit the “now filming” section and you’ll find a bare page that reads: “Production in Georgia has been largely suspended due to the Covid-19 outbreak.”Hollywood isn’t the only industry where workers’ safety has been suddenly put at odds with their livelihoods. Still, as housebound viewers devour more content than ever, new shows and movies aren’t getting made. That makes TV entertainment one area where the effects of the pandemic could be most striking for the everyday consumer.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.