Wall Street heavyweights profited as the market melted down in February after getting private warnings from the Trump administration, new report says

  • Wall Street investors knew of private concern within the Trump administration around the coronavirus and used the knowledge to position for the following market plunge, The New York Times reported Wednesday.
  • A memo penned by hedge fund consultant William Callanan described White House officials’ private wariness of a US outbreak during late-February meetings. At the same time, the officials publicly allayed concerns around the coronavirus.
  • Callanan sent the note to Appaloosa Management founder David Tepper on February 26. The memo soon spread throughout the firm and to investors at other offices.
  • Some recipients adjusted their portfolios accordingly, viewing the US officials’ private statements as a warning of devastation to come.
  • The S&P 500 plummeted 4.4% on February 27, and by March 23, it sat roughly 25% lower from the day Tepper received the memo.
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A February memo shared among Wall Street’s elite detailed the Trump administration’s private concerns around the coronavirus pandemic.

Some heeded the warning and cashed out on bearish positions when markets tanked later that month.

Senior members of President Donald Trump’s economic team privately spoke with board members of the Hoover Institution, a research organisation at Stanford University, concerning the risks of a domestic outbreak, The New York Times reported on Wednesday. One advisor said the White House couldn’t yet estimate the pandemic’s effects on the US economy, suggesting the coronavirus could have a sizable negative impact.

Yet administration officials publicly allayed fears that the virus would slam the US. National Economic Council director Larry Kudlow said the nation was “pretty close to airtight,” despite privately telling the Hoover board “we just don’t know” how contained the virus was at the time.

William Callanan, a hedge fund consultant and member of the Hoover board, wrote in a memo that almost every administration official addressed the virus “as a point of concern, totally unprovoked,” according to The Times.

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The memo quickly spread throughout the hedge fund industry just as markets began to grapple with the prospect of a US outbreak. Callanan emailed Appaloosa Management founder David Tepper about the Hoover meetings, highlighting the wariness expressed by administration officials.

In a February 1 interview with CNBC, the hedge fund titan warned investors to be “cautious” until more was known about the pandemic. Callanan’s memo, emailed to Tepper on February 25, reinforced his bearish stance.

The email spread throughout Appaloosa and, eventually, to investors outside the firm. Over the next day, at least seven investors across four money-management offices received elements of Callanan’s memo, The Times reported.

Many of the investors equipped with knowledge of the Hoover meetings adjusted their portfolios accordingly. One told The Times their reaction was to “short everything,” while another added to their existing short bets. Some even bought up essential goods like toilet paper, reading the memo as a preview of nationwide devastation to come.

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The bearish adjustments likely paid off big. The S&P 500 plunged about 4.4% on February 27, the day after the Hoover memo spread from Appaloosa to other investing firms. By the time the benchmark stock index bottomed on March 23, it sat roughly 25% lower from its February 27 level.

Tepper initially denied receiving the memo to The Times before acknowledging that, while he likely got it, he didn’t pay it much mind.

“We were in the information flow on COVID at that point,” Tepper told The Times. “Because we were so public about this warning, people were calling us at this time.”

He added that Appaloosa held a bearish position on February 23, days before he received Callanan’s email.

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