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.
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.
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.
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.
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.”
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.
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.