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The numbers for October 21, 2014

Tue, 2014-10-21 08:20

McDonald's and Coca-Cola both reported disappointing earnings Tuesday morning, with 30 percent and 14 percent drops in revenue respectively. Both companies saw declining sales in the U.S. and Europe, and the fast food chain is still grappling with a scandal in China.

Yahoo's earnings call is expected after markets close today, it's make-or-break for CEO Marissa Mayer, who will likely address the company's acquisition strategy and stake in Alibaba.

Here are some more stories we're reading, and other numbers we're watching, Tuesday.

5

Oscar Pistorius was sentenced to five years in prison for killing his girlfriend, Reeva Steenkamp, last year. Pistorius' lawyer said the Olympian could only serve 10 months before being placed under house arrest. The sentence was handed down by the second black woman to become a high court judge in South Africa, Thokozile Masipa.

7

 The number of YouTube stars appearing in a new collaboration between Google and Lionsgate to promote the studio's new "Hunger Games" movie, AdAge reported. It's a high-profile push into branded entertainment for YouTube, and just the latest example of a big corporation exploring the value of Internet celebrities. 

$50 million

That's how much Kansas City could potentially make once business from the run-up to the World Series and the games themselves are all totaled. But other expenses, like the $225,000 parade thrown by San Francisco when the Giants won in 2012, have some questioning whether the costs involved in hosting a large sporting event mean the benefits are more modest than projected.

2

That's how many "Notorious R.B.G." shirts Supreme Court Justice Ruth Bader Ginsberg has given to NPR correspondent Nina Totenberg. Ginsberg is apparently relishing in her meme status, and has collected "quite a large supply" of the shirts.

The legacy of Oscar de la Renta

Tue, 2014-10-21 06:00

Fashion designer Oscar de la Renta died at age 82 on Monday. His clothes were well-liked by celebrities, by politicians, and also by many professionals who admired his sensibility and his style.

Vanessa Friedman, fashion critic and the fashion director for The New York Times, is someone who closely followed de la renta's career, and joined us to talk about his lasting legacy.

Click the media player above to hear Vanessa Friedman in conversation with Marketplace's David Gura.

McDonald's earnings are less than super-sized

Tue, 2014-10-21 05:00

Fast Food juggernaut McDonald’s released its earnings Tuesday. The company’s share price is less than super-sized. Comparative global sales dropped 3.3 percent in the third quarter. The Q3 report comes on the heels of the company’s troubles in China, where suppliers reportedly sold expired meat to stores.

As a result sales were down significantly in Asia, and the company upped spending on marketing to reassure customers that its food was safe.

But the bigger threat to McDonald’s is the drop U.S. and European sales, says Sara Senatore, a senior research analyst at Sanford Bernstein: “Same store sales declined pretty meaningfully in both regions."

Analyst Howard Penney attributes much of the sales slump to McCafe, the company’s rebranding of the old fashioned hamburger stand into something more Parisian shall we say. “They over indexed themselves to beverages in McCafe and that really changed the structure of the business and complicated the back of the house,” says Penney.

CEO Don Thompson acknowledged the company’s troubles in Asia the U.S. He also blamed the diluted earnings on a higher effective tax rate.

PODCAST: Lots to gain and lose from the World Series

Tue, 2014-10-21 03:00

Yahoo posts its third quarter earnings today and the company CEO Marissa Meyer looks set to provide new information on how the company will evaluate possible acquisitions and cost cutting measures. Meyer has come under increasing pressure of late. What does Meyer need to do to keep her investors happy and is her strategy working? And the designer Oscar de la Renta passed away yesterday at the age of 82. We speak with Vanessa Friedman, fashion critic and fashion director for the New York Times, about de la Renta's career. Plus, we always hear that hosting a major sporting event, like the Olympics or the World Cup, will mean bigger revenues for host cities. But there are costs as well. Security, disruptions of traffic and daily routines, and even the price tag of a victory parade eat away at that extra revenue. We tally up the potential costs and benefits of baseball greatness.

Is now make or break for Yahoo's Marissa Mayer?

Tue, 2014-10-21 02:00

Yahoo’s stock is down, and shareholders are demanding change.

The company scheduled a third-quarter earnings call which means it's make-or-break for CEO Marissa Mayer.

“She’s had two years and the strategies put in place have not worked,” says Brian Wieser, an analyst with Pivotal Research Group

One of those strategies that Wieser says hasn’t worked? Buying up more than a dozen other companies.

"Well, the problem is they bought the wrong ones," he says.

Wieser says Yahoo’s acquisition of Tumblr has yet to pay off. Investors also want to know what Yahoo will do with profits on the sale of Alibaba stock, and how to save money on taxes. And they also want to know how Yahoo will compete with Facebook and Google.

“They could build original content. They could build and invest into the underlying technology for display advertisements. They could acquire a company that has success in mobile,” says Colin Gillis, a senior technology analyst at BGC Partners.

Gillis says shareholders will give Mayer another six months or so to prove she can turn Yahoo around.

 

 

 

 

 

 

Liberians in U.S. feel Ebola's social, economic impact

Tue, 2014-10-21 02:00

Telee Brown counts out a stack of twenty dollar bills on the counter of at a Western Union on Staten Island, home to one of the largest Liberian communities in the U.S.

“I’m sending money to Liberia,” he tells the teller. “What’s the fee? $10.50?”

Brown has lived in Staten Island for about 15 years now, but many of his family and friends are still in Liberia, one of the countries hardest hit by Ebola. Nearly 2,500 people had died there from the disease by mid October, according to the Centers for Disease Control and Prevention.

There have been only three diagnosed cases of Ebola in the U.S. — none in New York. But while the outbreak has largely been limited to West Africa, local communities are feeling the effects of this disease in other ways.

For example, Brown recently started sending back about $300 a month — double what he used to — and he’s fundraising for the Staten Island Liberians Ebola Fund.

Brown says basic items have become much more expensive in Liberia and members of his family there are staying home from work. Which means they aren't earning, and they need his support.

“My cousins who cannot go out in the street to sell water definitely are calling me on a daily basis, [saying,] ‘Oh uncle Telee, how am I going to make it? I don’t have food,’” he says.

But coming up with extra money each month for family members in Liberia, is making things tight for Brown and his family in New York.

“It makes me reduce the amount of milk that I used to drink,” he says. “If I maybe ate three times a day, I have to save on a meal and eat two times a day.”

Those kinds of cutbacks can have ripple effects in the local economy.

Brown has reduced his visits to an outdoor market that sells traditional West African food like hot sauces and cooked meats.

“Nobody got money to buy food here to eat,” says vendor Sonnie Selma, explaining that many regular customers are sending all their money back to family members. She says now she’s worried about paying rent.

But it’s not just the lack of money that’s keeping people away.

Solomon Reeves, a child care specialist who’s been fundraising to send money and medical supplies back to Liberia, says there’s also a lot of fear about who might have traveled to West Africa recently.

“Because of the Ebola, people don’t really come [to the market] the way they used to come here,” he says. “They’re afraid.”

Before he came to the market, Reeves said his wife told him to be careful; he noticed recently that a friend didn’t want to shake his hand; and there have been a couple of reports of Liberians being told to stay home from work.

The entire Liberian community here is suffering economically and socially because of this disease, even though the closest diagnosed case is well over a thousand miles away.

Is the World Series a boon for the hosts' economies?

Tue, 2014-10-21 02:00

The Major League Baseball World Series gets started Tuesday in Kansas City, between that city’s Royals and the San Francisco Giants. And, as in past years, both cities involved are hoping for an economic boost.

In Kansas City’s case, as much as $50 million dollars could potentially be made once business from the run-up to the World Series and the games themselves are all added up, says Ronnie Burt, CEO of the Kansas City Convention & Visitors Association. He says businesses have already been reporting improved sales.

“Hats, T-shirts, jerseys have just been selling like hotcakes,” Burt says enthusiastically. “As well as restaurants and bars, year-over-year sales have dramatically increased.”

But there are many costs associated with hosting a massive sporting event such as the World Series games, says Robert Baade, an economics professor at Lake Forest College who co-authored a report which looked at three decades’ worth of World Series economics.

“The economic impact of mega-events are exaggerated,” Baade says. “We are much better at keeping track of the benefits than we are the costs."

For example, in 2012 the city of San Francisco spent $225,000 on a victory parade, and that’s after the Giants footed the majority of the parade bill by spending a million dollars.

There are other costs, as well, Baade says, such as the cost to police departments for providing additional security, traffic and crowd control, clean-up costs, and the price of staffing additional transportation officials.

“And so there will be negative impacts from hosting a World Series, and those have to be taken into account,” says Baade.

The amount of money spent on World Series related expenditures may also be misleading, because some of that spending may be offset by non-spending in other areas of the economy.

“The normal course of commercial activity is often disrupted,” says Baade. "And if you have people in the community, residents of the World Series host, changing their normal activities — commercially speaking — that may detract economic activity in the community overall.”

Add it all up, and Baade says the study he co-authored concluded there was an overall economic benefit to cities hosting World Series games. But the benefit was modest and temporary.

When the economy gets a 20 percent discount

Mon, 2014-10-20 11:00

The impact of low oil prices is juicing American families’ pocketbooks in a way similar to a stimulus package, especially if crude stays low. Call it what you want: crude oil dividend, discount, energy quantitative easing.

Oil is 25 percent cheaper since the summer. And for drivers, the stimulus is instant.

“Every additional dollar or two you save at the pump you can use as disposable income right away,” says economist Ed Hirs of Hillhouse Resources and the University of Houston. “ Now you have more money for fast food. Or the six-pack of beer that you've been foregoing the past year or two.”

If oil prices stay low, and many bet it will, the savings will add up to a $200 billion domestic annual stimulus, estimates Citigroup. That’s about the size of the congressional stimulus in 2008. Citi figures the global economic boost is $1.1 trillion – again, annually.

Economist Stephen Brown at the University of Nevada-Las Vegas figures the typical American family saves $40 a month with today’s prices.

“Consumers in Washington D.C., New York and California, among a variety of areas in the United States will all see benefits,” Brown says.

But, he says, fortunes flip for energy producers. States like North Dakota, Wyoming and Oklahoma had benefited from high prices.

Similarly, global petro-states like Venezuela are also hurting from low prices.

“It limits the ability to be able to spend on the more expensive social programs you have within Venezuela,” says global oil analyst Jamie Webster of consultancy IHS-CERA. “It just puts additional pressure on the government there.”

When a economic driver gets a 20 percent discount

Mon, 2014-10-20 11:00

On the show Monday with Kai Ryssdal we're looking at the many potential consequences of the sustained drop in oil prices worldwide. Over the past few weeks we've examined this trend in oil prices and looked how it is effecting our domestic and global economies.

U.S. benchmark oil price dipped below $90 a barrel, earlier this month. As North America producing more than ever, some key suppliers are facing down a price war. Saudi Arabia, for example, was forced to sell at a discount rather than cut production.

But Saudi Arabia's price cuts could slow down the surging U.S. oil production. Domestic producers were in a bind, risking contributing to a downward spiral in pricing. Only "sweet spots" like North Dakota and Texas could still make money, while other operations won't be able to cover their costs. 

Oil demand growth fell to its lowest in five years last week. The International Energy Agency said demand was expected to grow by 700,000 barrels a day, 200,000 fewer than expected. Experts said that could be a sign of slow global economic recovery.

This week we'll look at the consequences in depth to try and answer the question: What happens when a major economic driver gets a 20 percent discount?

 

 

Volatility in context

Mon, 2014-10-20 11:00

So there has been all kinds of volatility on Wall Street lately — triple digit ups and downs.

Well, consider this:

27 years ago yesterday, October 19, 1987, was 'Black Monday.' The Dow was off 22 percent that day which came out to 508 points. The next day, known as 'Terrible Tuesday,' nearly caused the New York Stock Exchange to collapse. 

A similar drop today? 3607 points.

All this to say: context truly is everything.

Why IBM is paying $1.5 billion to lose a business

Mon, 2014-10-20 11:00

Monday was a dark day for IBM investors. The company's stock price fell by more than 7 percent after it released a disappointing quarterly earnings report.

But alongside that announcement came a more unconventional one: IBM is selling its chipmaking business to GlobalFoundries. But in this "sale," GlobalFoundries is collecting the check: $1.5 billion in cash over the next three years. 

"It’s the deal of a century," says Dan Hutcheson, who follows the industry for VSLI research.

The key is to look beyond the headline number. While IBM is paying GlobalFoundries in cash over the next three years, GlobalFoundries will supply chips for IBM servers for the following ten years--inputs that are key for IBM's legacy hardware.

"I know a billion and a half sounds like a lot, but it’s probably a deal for IBM, too," says Hutcheson.

"If you only look at the headline cash number, you are missing a lot of the story," says Rob Salomon, professor at the NYU Stern School of Business.

Acquisitions are complicated, and those complications can make payments to the acquirer economically sound. 

"As a matter of fact, there’s another example where this happened, which is Daimler-Chrysler’s spin-off of Chrysler. In effect, Daimler paid Cerberus to take Chrysler off its hands," Salomon says. 

In this case, there were tax benefits to be had, and the ire of the U.S. government to be avoided. Such deals are rare--Salomon doesn't believe there's been another this year--but aren't unheard of. 

"They’re almost always manufacturing-type businesses, right?" says Peter Cowen, adjunct professor at UCLA Anderson School of Management. "Ones that have heavy overhead, certain amount of infrastructure, certain amount of scale of things that need to unwind if they can’t find a buyer."

In other words, costly businesses — that would be even costlier to shut down.

CORRECTION: A previous version of this story misspelled Rob Salomon's name. The text has been corrected.

The numbers for October 20, 2014

Mon, 2014-10-20 09:01

Apple Pay launches today, and many are predicting the company - at an advantage with millions of existing iPhone users - could bring mobile payments into the mainstream. Many banks are aggressively advertising the service, the Verge reported, as part of a race to become the default card on users' lock screens.

Apple will report earnings after markets close today. In the meantime, here's what we're reading - and the numbers we're watching - Monday.

43 people

At the 21-day mark since Thomas Duncan was admitted to a Texas hospital and diagnosed with Ebola, 43 of the quarantined contacts have been released, among them Duncan's fiance and her son. Officials pleaded for compassion as their reintegrations began, the Washington Post reported. Additionally, Senegal and Nigeria were both cleared of Ebola over the weekend.

20 seconds

The length of Snapchat's very first ad, a commercial for a movie based on a board game. Snapchat, which is valued at $10 billion, hasn't made money yet, but that could change with the introduction of ads. Universal didn't actually use Snapchat's camera to make a "native" video, AdAge reported, but it did edit the trailer for "Oujia" to look like the app's "stories."

1

That's how many albums have gone platinum this year. Only the soundtrack to Disney's "Frozen," which has moved 3.2 million copies, has the distinction. Every other record has floated under 1 million in sales. By this time last year, Forbes reported, five albums had passed the 1 million mark.

10 percent

The approximate percentage of American Indian and Alaska Natives who have earned a bachelor's degree or higher, compared to about 30 percent of all U.S. adults. Natives have the lowest educational attainment rates of all ethnic and racial groups in America. The American Indian College Fund, founded 25 years ago, was created to assist the country’s more than 30 tribal colleges and universities. These are federally-funded schools located on or near native lands.

1 billion

The tech industry likes to talk about "The Next Billion." It's shorthand for the next billion people that will become online consumers and that makes them the target of tech giants like Google, Facebook and Samsung. This new, targeted market lives in emerging economies like China, India, Brazil and Africa, and have very different needs than the American smartphone user.

What scares you the most financially?

Mon, 2014-10-20 08:16

It's closing in on Halloween, so we're going to get financially spooky.

We want to hear your stories of the scary side of finance. Have you ever fallen victim to a scam? What was that like for you? What did you learn?

Tell us about it by email, or on Twitter, we're @MarketplaceWKND.

Quiz: Where school never stops

Mon, 2014-10-20 07:54

The number of year-round public schools is small, but growing fast, according to a report by the Congressional Research Service.

Which region of the United States has the most year-round schools?

IBM will no longer make its own chips

Mon, 2014-10-20 07:00

IBM just announced that it’s no longer making its own chips, a part of its business that it was losing money on. IBM is paying $1.5 billion to GlobalFoundries Inc. — a company based in Santa Clara, California but owned by an Abu Dhabi sovereign wealth fund — to take over its the division.

GlobalFoundries has a lot to gain by acquiring IBM’s chip division. The company will get access to IBM’s engineers and intellectual property.

“GlobalFoundries will also pick up some semiconductor process technology expertise that hopefully makes the company more competitive going forward,” says Needham analyst Quinn Bolton.

Fewer and fewer tech companies make their own chips. Apple, Dell, Qualcomm all rely on outside manufacturers. It makes sense economically because chip companies have the advantage of scale, says Gartner analyst Sergis Mushell. “If you are making ten of something vs a million of something from a price point perspective it’s more attractive when you make millions.”

The largest contract chip maker, Taiwan Semiconductor Manufacturing Company, quadrupled its capital spending in the last five years from $2.5 billion to $10 billion. If you are a company like IBM you have to look at those numbers and ask yourself, does it make sense to take a loss in chip making when you could just buy them from someone else?

IBM’s answer as of today is no, it doesn’t.

Social media that doesn't compromise privacy

Mon, 2014-10-20 05:08

Four college students came together to create a social network that does not collect users' personal data. They wanted to build something better than Facebook or an alternative to Facebook. They did end up building that site, but it's by no means a rival to Facebook. That site is called Diaspora.

Author Jim Dwyer documents the start-up story in his latest book, "More Awesome Than Money." He says that Diaspora is supposed to be a decentralized social network focused on privacy, while giving users the sense of connection they crave.

"What they did that was important — and will continue to be worked on — is to look for ways to keep the web a democratic institution where people have authentic control over what they share and who they share it with," Dwyer says.

Diaspora's goals:

  • Not compromise people's privacy: What drove the project from the beginning was the idea that you didn't really need to compromise your privacy to have a good social experience on the web.
  • Keep it decentralized: The entire project of the web as invented was not intended to be in the hands of giant corporations. It was sort of a democratic, decentralized setup.
  • Put control into the user's  hands: You can take your data off of Diaspora. Facebook now says you can take your data off of their servers although that takes a while and they don't really want you to do that.

Why it didn't succeed, as planned:

  • It lacked organic networks: Users' real life friends weren't using it, that causes people to lose interest in using it.

Some consultants see a payday in super PACs

Mon, 2014-10-20 04:24

A super PAC is sometimes born out of a strong sense of mission – maybe its founder cares about gun control or education reform. But other times, says Stefan Passantino, a partner at McKenna Long & Aldridge, “part of that mission is to create a client for their own consulting firm.”

Political consultants can create super PACs or political nonprofits to raise money, Passantino says, and then they can use that money to pay themselves.

“Yeah, I would say it is the new growth industry,” says Trevor Potter, former chair of the Federal Election Commission and general counsel to John McCain’s two presidential campaigns. “If you are a consultant who is part of the control group that forms a super PAC or one of these nonprofits, then you get to figure out how you are going to compensate yourself, and it is not always a matter of public record.”

Inside a ‘black box’

There are a few ways this can work. A super PAC can pay a fee to a consulting firm that is run by the same consultant who started the super PAC. That firm could charge fees on ads the super PAC buys. According to Potter, this happens in what he calls “a black box.”

“It’s actually pretty hard to figure out how much administrative costs many of these groups have, and then, how much of that is ending up back in the consultant’s pocket,” he notes.

A super PAC’s founder can be an employee of his own super PAC. “Under election laws, there is nothing improper about taking a salary out of your own super PAC,” says Ken Gross, who spent most of his career as an FEC attorney. That money is taxable, however. He notes there is also nothing improper under election laws about taking money you have raised and spending it on personal items.

“Right now, there are 109 super PACs in our data that reported spending money but have made no independent expenditures,” says Sheila Krumholz, who tracks political spending at the Center for Responsive Politics. All they are doing, Krumholz explains, is paying staff and consultants to help them raise more money. “They are capitalizing on political interests in order to siphon off money that would otherwise go to support candidates and parties, and instead, they are using it for their own personal enrichment.”

Krumholz worries that is weakening civic engagement and making the electorate even more cynical.

Easy to set up

Super PACs have only been around since 2010, and according to Potter, one reason they have proliferated is they are so easy to set up. “It has an incredibly simple one-page form you file with the FEC,” he says.  “You need a treasurer and a bank account, and that’s it. You’re off and running.” And creating a political nonprofit that doesn’t have to disclose donors is not much harder.

There are, according to the FEC, about 900 active independent expenditure-only committees, commonly called super PACs, and on top of that, there are hundreds of political nonprofits that have registered with the Internal Revenue Service as 501(c)4s and 501(c)6s.

Potter says that, because there are so many super PACs and nonprofits, political consultants are busier than ever. “The good ones used to just have a campaign or a party they could work for,” he points out. “Now they have all these super PACs; so, people end up bidding for their services.”

Of course, every cycle, some super PACs whither on the vine. Richard Briffault, an election law expert at Columbia Law School, says this highlights something eve the savviest consultant should keep in mind: “At some point, they do have to get donations.”

You can start your own group, hoping it will become a steady source of income, but you have to make sure there is money in the coffers.

PODCAST: The next billion

Mon, 2014-10-20 03:00

Leave the chip-making to Frito Lay: International Business Machines will sell off its microchip factories. More on that. And SolarCity, the country's biggest installer of rooftop solar-power systems, has a new product: Bonds for consumers to buy into the future of solar in thousand dollar increments. SolarCity has $200 million in bonds for sale. But it already has billions in capital from banks and the stock market. So why go after retail investors? Plus, we've been hearing about Apple and what could be their record profits due out later today. Meanwhile, Google, Facebook, and Samsung are interested in what they see as a new frontier. The catch phrase is The Next Billion...the next billion customers for digital devices. Who are these people and where do they live?

What local government can learn from Hurricane Sandy

Mon, 2014-10-20 02:00

Just two years ago, Hurricane Sandy knocked out power stations and shut down Wall Street.

Now, Scientists say by the middle of this century, low lying areas from Boston to Baltimore will flood frequently due to climate change, with recovery becoming increasingly expensive. A storm on the level of Hurricane Sandy could cost as much as $90 billion in 2050.

These kinds of changes in the weather will put increasing pressure on state and local governments to boost their financial resilience. 

Click the media player above to hear more.

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