Marketplace - American Public Media

Facebook is dead. Long live Facebook.

Thu, 2014-01-30 12:49

When Facebook went public just over a year ago, not everyone thought it was worth the 40 bucks that investors paid. Today, that picture has changed.

Paul Sweeney, an analyst at Bloomberg Industries, said the concern back then was that Facebook basically made no money on mobile advertising.  

"It was very unsure as to whether Facebook would be a viable player in the mobile arena, and that was one of the reasons the stock had a very bad IPO," Sweeney said.

But yesterday the company said it booked about $2.6 billion in revenues, a little more than half of which came from mobile advertising. Facebook now owns 16 percent of the mobile ad market. That's still way behind Google, which owns 53 percent, but it’s quite a turnaround.  

Debra Aho Williamson, an analyst at e-marketer, says a revisioning of Facebook’s mobile app sparked that change.

“To its credit, once it realized that mobile was going to be so important to its future, [Facebook] did work fast, and it did develop an app that ended up working really well,” said Williamson.

Best of all, people actually started to use the app.

Then there was the CEO's change of heart. Williamson said Mark Zuckerberg was initially resistant to advertising, wanting to keep the site as "clean" as possible. But since the IPO, shareholder interests have trumped startup sensibilities, and the company has pursued ad dollars aggressively.

Facebook now has more than a billion users. But some investors worry the company is losing the key teen demographic. Brian Wieser, an analyst at Pivotal Research Group, isn’t worried. He said Facebook is now more than just a hangout.

“Facebook has been a utility for consumers and for advertiser alike for a very long time,” said Wieser. He means it’s like email or the telephone -- it’s where we keep our contacts, and communicate with each other.

Morever, he adds, Facebook owns Instagram, which teens love. For now!

When oil money runs dry

Thu, 2014-01-30 12:48

Quarterly earnings for Exxon Mobil weren’t as good as Wall Street types had expected. Exxon’s oil production is down. The world's largest publically-traded oil company is struggling to tap new reserves to boost production -- a challenge facing all the big American oil companies.

Oil isn’t as accessible as it used to be.

“A lot of the low-hanging fruit with respect to oil production has long ago been picked,” says Morningstar equity analyst Allan Good.

Countries like China now have state-run companies to extract their own oil. So companies like Exxon have to search farther away, even if that means the ends of the earth.

Good says: “Whether it be in Argentina, or even west Siberia, there’s a lot of opportunity there.”

Opportunity, yes. But at a price.

For example, Exxon is exploring off-shore drilling in the Arctic Ocean.

“These are much higher costs than we’ve historically had,” Good says, 

New technology is helping -- kind of.

“Fracking has opened up new reserves to all the oil and gas industry,” says Scott Tinker, the state geologist for Texas. He researches oil and gas production for the University of Texas at Austin.

Hydraulic fracturing, or ‘fracking’ has a bad reputation with some environmentalists. And companies may have stayed clear of the practice to avoid negative p-r.

But if companies waited to invest in fracking, they’ve been penalized.

“It’s more expensive, typically, if you’re late to the game in a particular basin. The price has gone up,” says Tinker.

For big oil companies, fracking is actually the safe play.

Deep-water drilling is more risky.

“Off-shore wells cost tremendously more than an on-shore hydraulically fractured well. But they produce more,” says Tinker.

Despite all these challenges, Exxon has new projects that should come online in the next few years. And Exxon’s production is expected to increase going forward.

Analysts say the oil business will remain profitable.

Just less so.


The United States of New Shoes

Thu, 2014-01-30 12:39

We got the big economic growth number out today, Gross Domestic Product, or GDP, a measure of all of the goods and services the country produces.  It’s considered to be one of the main measures of economic growth -- and in the last quarter of 2013, the economy grew 3.2 percent.

A lot of that growth was thanks to us. 

"Roughly about 70 percent of the growth rate in the GDP was consumer spending," says Nicole Mayerhauser, chief of the national income and wealth division at the Commerce Department's Bureau of Economic Analysis. She helped put out today's GDP numbers. 

Mayerhauser says one of the biggest areas of spending growth was the amount of money consumers spent eating out and staying in hotels. That number saw its biggest increase in more than 20 years. Another big area where consumers spent more? Shoes and new clothes. Turns out, we spent a lot of money on us last quarter.

"One area of strength was services spending, and that would include going to the movies, or haircuts," says Michelle Meyer, senior U.S. economist at Bank of America, Merrill Lynch.  Don’t hate consumers for making themselves beautiful, she says -- the fact we’re spending like this is a good sign. "Consumers are starting to feel comfortable spending on a wider range of goods. It’s not just things that they need to have."

We may be spending more, but we’re not actually earning more. Wages were stagnant last quarter. 

"We are using our credit cards and building up those limits again," says Ken Goldstein, an economist at The Conference Board

So we were making ourselves beautiful, but on credit.

Part of the reason is that we feel wealthier. Home values have been on the rise, and the stock market made huge gains in 2013. Still, the spending trend worries economist Matthew Slaughter, associate dean of Dartmouth's Tuck School of Business. "If we don’t get continued and in fact stronger growth in employment and in income, there’s a limit to how much households can increase their spending prudently."

Slaughter says long term growth can’t hinge on steak dinners and new boots. Other parts of the economy need to start growing, so consumers can start earning and saving more and, of course, spending more.

So many shoes

Thu, 2014-01-30 12:39

Rep. Henry Waxman stepping down after 20 terms

Thu, 2014-01-30 09:08

Democratic Congressman Henry Waxman just announced this morning that he is retiring after 20 terms. Waxman was a powerful player when it came to regulation of the Telecom industry. He also was on the record for supporting what he called a "free and open internet." Tony Rahm, a technology reporter at Politico in Washington DC, discusses Waxman's career. Click the audio player above to listen to the interview.

PODCAST: Cuba seeks foreign investment

Thu, 2014-01-30 07:50

Investors are pulling out of places like Turkey and South Africa, and putting their money into older markets. How much does the Fed have to do with it?

The president didn’t say much about college affordability in his state of the union address this week, unlike in previous years, but some members of Congress are pushing the issue. U.S. Rep. Suzanne Bonamici (D-Ore.) introduced a bill Wednesday that would waive tuition at public universities. Instead, students would pay a percentage of their incomes after graduation.

Cuba is trying to lure foreign investment with a multi-million dollar shipping port. The $957 million overhaul of the port of Mariel, in west Havana, is being financed by Brazil, and is in the heart of a special economic development zone.

Putting Yankee Stadium on ice

Thu, 2014-01-30 07:29

All this week, Marketplace Tech has been talking about sports and technology for our "Gaming the System" series. Today, we take you to a hockey rink right about the spot that A-Rod usually stands -- that's right, Yankee Stadium. On the eve of a big outdoor hockey game at New York's Yankee Stadium, Marketplace Tech host Ben Johnson finds out how the NHL is converting a baseball field to a hockey arena. Click the audio player above to hear his interview with Kris King, senior vice president of hockey operations for the NHL.

How free is free enterprise?

Thu, 2014-01-30 07:10

Think about what freedom means to you at work. If you've got an old fashioned boss, does it seem like a foreign concept? Or do you want more autonomy, more independence?

The firm LRN has been surveying companies to see how free they are. While freedom may not be a concept you associate with business, LRN CEO Dov Seidman explains it this way: 

“Business, after all, is about free enterprise. And we’ve looked into, in fact, how free is free enterprise and surprisingly, business is still more shackled than free, and successful companies are flattening. People are more free to contribute their character, ideas and free to innovate. And those who can harness that kind of freedom are the ones that are winning. But 50 percent of companies still show very low levels of such freedom.”

To hear Lizzie O'Leary's interview with Dov Seidman, click the audio player above.


Cuba makes bid for foreign investment with a multi-million dollar port

Thu, 2014-01-30 06:58

Cuba is trying to lure foreign investment with a multi-million dollar shipping port. The $957 million overhaul of the port of Mariel, in west Havana, is being financed by Brazil, and is in the heart of a special economic development zone. The BBC's Sarah Rainsford in Cuba says the upgrade of the port is the biggest project there for many years. Click the audio player above to hear her story.

Americans who have bought Obamacare are getting a good deal

Thu, 2014-01-30 05:49

Over the past several months, some 3 million Americans have bought health insurance through a state or federal exchanges. According to a new report out this morning from PricewaterhouseCoopers, contrary to many initial concerns, consumers might actually be getting a pretty good deal.

PWC’s Ceci Connolly says the average premium on an exchange is lower than the average premium of an employer-sponsored health plan, and that when the exchanges opened in October, there was concern these new products might be flimsy and expensive.

“That’s one of the misperceptions out there. That somehow they are barebones or you are not really getting adequate medical insurance,” she says.

Connolly says even when you factor in all the out-of-pocket costs, the average top tier gold and platinum plans are similar to employer ones.

And that’s just how insurers want it.

“They see an opportunity to capture new customers. We believe part of the strategy was to be competitive,” she says.

But Matt Eyles with Avalere Health says there is an important difference between employer and exchange plans. “One of the big ways insurers have achieved this is by having a more limited choice or narrower network of providers,” he says.

Restricting doctor choice is a key way insurers keep costs down.

Eyles says if exchanges do well, he can imagine the 156 million people who get insurance at work may one day find themselves shopping on private exchanges a lot like the public ones. 

DONG brings Danish government to the brink of collapse

Thu, 2014-01-30 05:35

Things aren't looking so great for Danish Prime Minister Helle Thorning-Schmidt. Socialists have quit her three-party coalition government, and Danes are protesting a bid by Goldman Sachs to take over state-owned utility, DONG Energy. The parliament approved the deal approved by this morning. The BBC's Marie Keyworth has the latest on the story from Copenhagen. Click the audio player above to listen.

DONG brings Danish government to the bring of collapse

Thu, 2014-01-30 05:35

Things aren't looking so great for Danish Prime Minister Helle Thorning-Schmidt. Socialists have quit her three-party coalition government, and Danes are protesting a bid by Goldman Sachs to take over state-owned utility, DONG Energy. The parliament approved the deal approved by this morning. The BBC's Marie Keyworth has the latest on the story from Copenhagen. Click the audio player above to listen.

A different way to pay for college

Thu, 2014-01-30 05:19

The president didn’t say much about college affordability in his state of the union address this week, unlike in previous years, but some members of Congress are pushing the issue. U.S. Rep. Suzanne Bonamici (D-Ore.) introduced a bill Wednesday that would waive tuition at public universities. Instead, students would pay a percentage of their incomes after graduation.

The concept is known as “pay it forward,” because ultimately the money graduates pay into the system would help fund college for those who come after them. Too many students are daunted by high tuition and expensive loans, says Bonamici. The average debt load for the class of 2012 was more than $29,000.

“We’re hoping that this actually encourages more students to enroll and complete college, knowing that they’ll be able to finish and pay back a percentage of their income,” Bonamici says.

Like a version already introduced in the Senate, the House bill is modeled after a pilot program in Oregon. Similar plans have been floated in states like New Jersey, Rhode Island, and Washington.

Critics say forking over a chunk of their paychecks for 20 or 25 years could actually cost students more over their lifetimes.

“Changing what you call the financial obligation doesn’t mean that it’s not a financial obligation,” says Lauren Asher with the Institute for College Access and Success.

The idea is to test out a new way of paying for college, says Bonamici. If it passes the bill would provide federal funding for states that want to try it.

Banks look to exit commodities

Thu, 2014-01-30 05:13

JPMorgan is rumored to be selling its commodity business. The deal could be worth around $2 billion for the bank.

Commodities have been profitable for banks in the past. But now several banks are changing course.

To understand what’s changing, let’s start with how this business actually works.

Banks do more than trade commodities. Their holding companies will actually take possession the physical commodities, like aluminum or oil.

“So it might mean that you own tankers that sit off-shore, filed with oil, waiting for the price to rise. Most people don’t associate that kind of business with a traditional banking business,” says Duke University finance professor Campbell Harvey.

Government regulators aren’t crazy about the idea either.

“Federal agencies have been taking a much closer look at this kind of activity,” says law professor Michael Barr. He now teaches at the University of Michigan. From 2009 through 2010, he worked at the Treasury, helping to reform the rules for Wall Street.

He says the feds are reconsidering whether banks should be in the commodity business. Barr says, “If it’s traded for short-term swings in profit, commodities trading could be one of the activities that would be curtailed by the Volcker rule.”

JPMorgan and other banks have been looking for an exit.

Campbell Harvey says it would be good for the banking industry to move away from commodities.

“I don’t feel that good about bailing out a bank because of some bad bets they made on commodities,” says Harvey.

Inequality: Capitalism's 'squeaky wheel'

Wed, 2014-01-29 16:35

Minimum wage has been in the news, of course, most recently thanks to a hike in the lowest rate for federal workers

But really, it's kind of a proxy for a bigger discussion about rising inequality in this country: the rich getting richer and the poor...not.

So what does that mean for corporate America? Harvard business school historian Nancy Koehn says:

"The average person in that top 1 percent [of the population] makes about $717,000 a year, versus $53,000 for everyone else. So even these very, very rough ballpark numbers: That's a lot of people with a lot less money to buy things, and very little hope, in some sense... of getting more purchasing power... "

That lack of what Koehn calls "hope" can have a multiplier effect on other parts of the country:

 "We know large amounts of social and economic mobility produce more GDP, more social order, more kind of national prosperity and political stability. You can reason inversely that lots and lots of inequality is not a good thing."

And speaking of multiplier effects? The wiggle room afforded by a larger paycheck not only increases the top 1 percent's purchasing power, it also allows them to reinvest:

"You want to put money directly in the hands of the bottom 90 percent so it will get spent, so it will generate jobs, and so it will oil the wheel of capitalism." 

Punch Pizza's 'incredible' post-State of the Union boost

Wed, 2014-01-29 15:26

One final note on the State of the Union.

The president mentioned a bunch of companies last night. Most of them are big enough they don't need a presidental shoutout.

But then he said this:

"Nick Chute is here today with his boss, John Serano. John's an owner of Punch Pizza in Minneapolis, and Nick helps make the dough. And now he's making more of it."

We had to call them up, right?

We got ahold of John Puckett. He's a co-owner of Punch Pizza along with John Serrano. I asked him what happened when the White House called:

"We really thought it was a practical joke at first... It's been incredible, [especially] on social media. The nice thing is, it's warming up above -20 today in Minnesota, so we'll probably see it more today than we did last night. I think everyone was still hunkered down, watching the State of the Union.

Turns out, tragically enough, the president didn't even get to taste the pizza:

"You know, it doesn't transport that well from St. Paul to Washington. Ours is wood fired Neopolitan pizza and it's best when you get it right out of the oven."

Why the dollar dominates global currency

Wed, 2014-01-29 13:51

What the Fed does on interest rates matters not just to Americans, but the entire global economy -- and that's because the dollar continues to tighten its grip as the world's reserve currency.Foreign investors holding trillions in securities and dollar assets have an incentive to the keep the currency afloat — even when the value of the dollar declines.

It's what Cornell economics professor Eswar Prasad calls the "Dollar Trap."

"The financial crisis had its origins in the U.S., the federal reserve has been pumping huge amounts of dollars into the global financial system, which ought to cheapen its value." Prasad says. "[But] In times of turmoil, the world wants safety, and the U.S. is still seen as the safest place to invest."

So what happens if the world loses faith in the dollar?

Prasad examined several tipping-point scenarios. He found this could result in turmoil for the U.S. financial market, and in turn, spread to the rest of the world.

"The dollar's value is stronger than it ought to be. That means fewer jobs, less exports, so it's not all together a good thing for the U.S.," he says.

myRA retirement plans, explained

Wed, 2014-01-29 12:37

President Obama unveiled the new "MyRA" plans in his State of the Union speech last night. He stumbled a bit over the name, and there's still some confusion about what they'll be called -- some of the folks we talked to are pronouncing it "Myra," like the name. But the idea behind the accounts is simple, according to Karen Friedman, executive vice president and policy director of the Pension Rights Center. 

"It’s a starter plan," she says. "It at least enables people to save in a secure, government-backed account."

The new accounts are aimed at low-income workers, who have few retirement saving options.

"Roughly half of the workforce right now doesn’t have a pension plan at work," says David Certner, legislative counsel with AARP. "Which is where most people prefer to save -- by having these monies deducted automatically from a paycheck."

And that’s how the new accounts would work. Employers and their workers have to volunteer to participate in the plan. But once they do, money will be deducted automatically, and invested in safe, government bonds. The initial investment could be as little as $25.

"The little amounts are what end up being the big amounts later on," says Stuart Ritter, a senior financial planner at T. Rowe Price. "So we shouldn’t be poo-pooing the smallness of getting people started."

In fact, the Obama administration already has plans for when the accounts get big. Once they hit $15,000, they have to be transferred into a private-sector IRA. 

Can two TV stations share the same airwaves?

Wed, 2014-01-29 12:11

There's a bit of a technical issue in this country: The amount of data being gobbled up by smartphones is increasing ad jnfinitum, but the digital plumbing has limits. Only so many tweets and YouTube videos can flow through it.

The FCC has proposed a solution, one that takes its inspiration from a pre-school lesson: Sharing is Caring. The FCC wants TV stations to share the spectrum with one another other, essentially doubling up on a single channel. And the very first experiment of this digital sharing idea is about to begin.

The two stations taking part in this experiment are KLCS, a PBS station, and KJLA, a commercial Spanish language station, both in Los Angeles. "We decided we would rather be informed than not informed," says Alan Popkin, director of TV engineering at KLCS.

In describing this experiment he uses this analogy, "You don't jump out of an airplane and then invent the parachute on the way down."

The experiment will begin off-air, then move to non-peak hours, and eventually, the entire schedule of both stations will be transmitted from one channel. The results will show whether two channels can be packed into one without compromising the quality of the broadcast, and will look at out how TV's will know which channel to display, when faced with two programs on the same part of the spectrum.

If channel sharing works, it could save stations a lot of money because two stations could share the cost of transmission.

"There would be one tower and one transmitter and that would cut down a lot on the cost of operation," says Lonna Thompson, chief operating officer* and executive vice president of the Association of Public Television Stations. In addition, she says, each station would be able to sell its unused bandwidth to the FCC in an Incentive Auction next year.

"The incentives auction is an effort that the FCC is leading to create incentives to use spectrum as efficiently as possible and to free spectrum for mobile broadband services," says Scott Bergmann, vice president of regulatory affairs with CTIA-The Wireless Association, a trade group.

Companies like T-Mobile, AT&T and Sprint are currently arguing over how much of the spectrum each company should get. Bergmann says mobile carriers could use their share to improve services for customers by providing greater capacity, faster speeds, and less congestion.

"The channel sharing pilot is an effort to make the incentive auction successful," Bergmann says.

The auction is scheduled for mid-2015 and is expected to generate $25 billion.

*CORRECTION: In an earlier version of this story, we misidentified Lonna Thompson’s position at the Association of Public Television Stations. She is the chief operating officer. The text has been corrected.

What tapering in the U.S. has to do with Turkey and South Africa

Wed, 2014-01-29 10:37


India, South Africa, Turkey, Argentina – they’ve all had currency depreciations.  Brazil has faced inflation concerns.  The MSCI Emerging Markets Index, an average of emerging market stocks, has fallen nearly 7 percent this month, recently reaching a five month low. Emerging market equities have lost more than $995 billion in value since May. 

To explain this, we have to talk about money -- and how money moves. 


"There are trillions of dollars sloshing around global markets looking for high returns," says Gerald Epstein, director of the Political Economy Research Institute at the University of Massachusetts Amherst.  That money belongs to hedge funds, institutional investors, sovereign wealth funds, and regular investors alike. 

With productive investments few and far between, "there’s more money out there, more money looking for more speculative investments."

During the depths of recession, the one place you wouldn’t be getting higher returns was in developed countries like the U.S. On the one hand, their economies weren’t doing well. And on the other, Central Banks were keeping interest rates low. 

"It’s kind of simple," says Andrew Burns, manager of Prospects at the World Bank. "In the past, if you’re an investor, you have options.  You could invest in U.S. Treasuries; they were giving a return of 1.5 percent last April. Or you can invest in Brazil where you’re getting return of 5 or 6 percent, maybe it’s a little bit risky."

So investors put money into developing economies.


At the same time, commodity prices were high, fueling emerging markets to the point they were leaders in global growth.

"The last four or five years, supported by very strong commodity prices, we’ve had very material capital flows into these countries," says Robert Kahn, senior fellow at the Council on Foreign Relations.   "These are small economies relative to the U.S. or Japan, and their ability to absorb this capital is not as great, and there is a tendency for these markets to go through boom bust cycles."

EASY GO.....

When the Fed first started talking about tapering last May, it became clear to investors that the economy was getting better, and interest rates in the U.S. would start to rise.  And they have.  The return on some treasury bonds has nearly doubled since then.

"In that context you say, ‘You know what? I had $100 over here in Brazil. I’m gonna pull some of it back in the United States,”" says the World Bank’s  Burns.

“The Fed’s decision to taper was a trigger for these outflows,” says Kahn, “but at the end of the day, it’s not the primary reason for it.”  Rather, it was the simple realization that there are safer -- and possibly better --  investments reappearing elsewhere in the developed world.  


And indeed, money moved out.  Local currencies continue to fall. As a result, it becomes more expensive for people in affected emerging markets to buy food and energy from abroad.  Inflation sets in.  Politicians in these countries then have to make a “Sophie’s choice”, says Professor Epstein.  In order to fight that inflation, and in order to incentivize investors to keep their money in the country, governments have raised interest rates.  That creates a drag on the economy.

"Turkey doubled the interest rate, interest rates have gone up in South Africa, Argentina," says Epstein. "And not only does this slow down their economy -- which if they already have a high unemployment rate is a big problem -- but it might also backfire." Backfire as in "push some companies into bankruptcy, further scaring off international investment."

Epstein argues there are few good options for lower income countries other than to control capital flows, a tool which has its own risks.


On the one hand, many emerging markets came out of the global financial crisis in fairly good shape.  But it doesn’t mean they’re not vulnerable – as has become evident.

"Policy makers got complacent in these countries," says Kahn, "because they had access to very cheap money... We’ve seen before when things reverse – when commodity prices fall and capital flows turn around – it can be pretty hard. We’re at the beginning of that cycle."


"It’s not going to be smooth," says Kahn, "and there’s still more turbulence to be seen."

The process of global capital reallocation is not over.  Throw in the fact that developing countries aren’t making as much from commodities, China is buying less from them, and a spate of political scandals, and it may be a very rough ride for lower income countries, indeed.

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