Legal recreational marijuana went on sale Tuesday up in the state of Washington.
Not to be outdone, there's a proposal in front of the city council in Berkeley, California — a state where marijuana is so far legal only for medicinal use — that would oblige pot dispensaries in the city to provide free pot to the poor and homeless in an amount equivalent to 2 percent of their annual sales.
And the ordinance says it's gotta be good stuff, too.
Interns at top firms in Silicon Valley and related tech firms can, reportedly, make between $5,000 and $7,000 per month. Some of them are still in high school.
It might appear insane for a high school intern to make more pay, annualized, than his or her teacher before even leaving said high school.
But it’s not. It’s a reflection of the tech sector’s realities.
Partly, it derives from competition for talent in the science, technology, engineering, and math fields (STEM). “The demand for STEM skills is increasing virtually exponentially while we aren’t turning out graduates at the same rate,” says Ross DeVol, chief research officer at the Milken Institute.
Silicon Valley and tech firms are increasingly competing with Wall Street for such graduates.
But there’s more to the insatiable drive for talent: The tech sector is a roiling mass of instability. The floor of Silicon Valley is littered with tech companies that didn’t reinvent themselves in time.
“It’s the changing of the landscape that has a lot of firms unsettled about where things are going,” says Kyle Mayer, professor of management and organization at the University of Southern California Marshall School of Business. Apple went from a computer company to making smart phones and tablets. “Amazon started out as a marketplace for selling books. Now not only are they a marketplace for selling everything, they do a lot of back-end storage, with servers that store a lot of other companies' data.”
Tech and new media firms that have to constantly reinvent themselves or die need a rare kind of creative, conceptual talent: not simply people who can solve a question proficiently, but who can redefine the question itself.
“It’s not just about the smartest person in the room,” says Mayer.
Of course, in many cases, a prospective intern or candidate may well be the smartest in the room - inventing viral apps in their spare time or hacking a network for fun. But it’s not enough.
Individuals don’t solve complex problems in the tech sector. Teams do. Having a “good fit” – someone who can work well in a team such that it becomes more than the sum of its parts.
“It’s important to remember: What’s the cost of getting the wrong person in there?” says Russell Coff, professor of strategy at the University of Wisconsin Madison. “In many cases it’s a creative endeavor, putting together product development teams, and there’s only so much you can handle in terms of a personality that doesn’t fit.” An internship is a good way to suss that out.
Given that many firms have become famous for what Mayer calls “acqhiring” - buying out smaller companies not for the product but for the highly successful team inside - $7,000 for an intern is a small price to pay.
Bloomberg analyzed Glassdoor salary data to chart out the highest-paid interns. Not surprisingly, Silicon Valley's heavy-hitters dominated the list:
We compared their salaries to a few other Bay Area companies on Glassdoor to figure out just how much more these interns are pulling in. These numbers are approximate, averaged from user submissions, but they paint an interesting picture of an intern's value in the tech sector.$4,280/mo
First, just to put things into perspective, median American household income was $51,371 in 2012, according to the Census Bureau. That's a little over $4,000 per month.$5,859/mo
Zynga, the mobile and social games giant behind FarmVille and others, didn't appear on Bloomberg's list. But according to Glassdoor, the company pays its interns nearly as much as Google, Facebook and Microsoft per month on average, edging out the likes of Apple and Amazon.$4,230/mo
Compare Zynga to Electonic Arts (EA), makers of blockbuster console gaming franchises like "Madden NFL" and "Battlefield." EA interns earn less than Zynga's but their salary is nothing to sneeze at, especially when most American households make.$4,371/mo
Pixar, the Disney-owned animation studio with Silicon Valley roots, pays its interns, on average, a measly monthly rate compared to the tech giants accross the bay.$2,952/mo
Electric car manufacturer Tesla also shares some DNA - and a co-founder - with the tech world. But Tesla interns don't make nearly as much as their counterparts in the tech sector.$6,309/mo $1,268/mo
One of these average salaries is earned, on average, by Yelp's software development interns. The other is the marketing interns' monthly rate. Guess which is which.$2,600/mo
Newspaper interns might not fare much better than marketing interns in the Bay. The San Francisco Chronicle's summer internship is advertised at $650 per week.????
For what it's worth, none of the Bay Area-based Glassdoor interns have submitted their salaries to the site.
If only Crumbs had paid attention when fondue was a thing.
"Remember when we [were] all supposed to go eating fondue? "says Rita McGrath, a professor of strategy and innovation at the Columbia Business School. "I mean, in New York there must have been 20 fondue restaurants."
The reason we don’t see gaggles of fondue restaurants anymore? Because trying to build a lasting business on a temporarily popular item can be dangerous.
"People get bored, people get fat, people just want to move on to something else... and the question you have to ask is, 'Well, when the fad has run its course, what do you have to offer beyond that?'"
Adam Fleck, director of consumer equity research at Morningstar, says competition from other bakeries and other desserts meant trouble for Crumbs. Beyond fads and cake frosting, he notes, a company dependent on just one product is especially vulnerable.
"Consumer preferences can change on a dime," he says - which was especially troubling for Crumbs at a moment when kale chips and quinoa are what's for dinner.
“You know these cupcakes were very high calorie,” Fleck notes.
There are successful businesses that sell just one product. But most are in markets where it’s easy to predict demand - like steel. So, says J.P. Eggers, an assistant professor of management and organization at NYU’s Stern School of Business, “They are, in general, able to deeply understand what their customers are after, deliver what they want, how they want it, at the price that they want it.”
But there are plenty of stores that sell mostly cupcakes. Eggers says it’s unlikely they’ll all go away. He says when the cupcake bubble burst, Crumbs found itself with some odd store locations. Adam Fleck says the company expanded too quickly and got burned.
Which companies stand to learn from Crumbs' crumbling? We started brainstorming.
— Sally Herships (@sherships) July 8, 2014
Add to our list!:
The unemployment rate for Americans age 55 and older is 4.4 percent -- lower by more than 1.5 percent than the population as a whole. By contrast, the unemployment rate for 16- to 19-year-olds is 21 percent.
But older workers are also at greater risk of suffering long-term unemployment than any other age group. More than half of older workers have been unemployed for six months or longer, and many of them have been actively looking for more than one year. When older workers leave the job market for a period of time -- for instance, after a layoff, or to care for a spouse or elderly parent -- they are more likely to experience a significant decline in pay and job quality (working part-time or on contract) than other age cohorts.
And older workers often feel their age status acutely in the workforce. L.D. Kirshenbaum is 52 and lives in San Francisco. Several years ago, after a divorce and with a teenager at home to support, she found a job working half-time at a local Apple retail store.
Kirshenbaum graduated from Reed College, she’d worked as a journalist and launched a mobile news app. But she says she had to earn her cred with co-workers at the Apple store. “You’re sort of judged on your cool factor,” she says. “How clever are you with social media, do you take pictures of your lattes?”
Since then, Kirshenbaum has gone on to be an independent consultant on mobile marketing -- working with developers half her age.
“There are definitely younger co-workers that assume everyone’s uncool unless proven otherwise,” she says. “I have had colleagues who are my age, and they’re very self-conscious about showing themselves to be as young as possible. They’ll wear jeans every day, and they’ll never be caught dead wearing a wristwatch.”
The challenge is amplified when job-searching, says Ofer Sharone at MIT’s Sloan School of Management. He’s interviewed older workers extensively for his book, “Flawed System/Flawed Self: Job Searching and Unemployment Experiences.”
HR managers can easily tell how old someone is, and how old they look, from LinkedIn, says Sharone. And he says they wonder: “Will the worker stick around? Maybe they want to retire, maybe they’re not as energetic, maybe they won’t work as many hours, maybe they’re not as technologically savvy.”
Sharone says most of the stereotypes are contradicted by research data on cognitive ability and job performance as we age. For instance, he says, older workers are likely to stay in a job longer than young workers. Also, they can be trained or retrained to be competent on new machines and technologies. And they bring experience and contacts that can benefit the organization, and also younger workers, through mentoring.
Sharone says what older workers need -- especially those who are job-hunting without success -- are groups to attend for career counseling and peer-group support, “to realize that other very competent, talented people are also not getting a job,” says Sharone. “And this lessens the fear that something is wrong with them, the degree of self-blame.”
Lauren Botney has attended a class for 55+ job-seekers at a local community college in Portland, Ore. She is 58, a lawyer by training, and she successfully ran a family-owned construction business. Now, she is trying to get back to full-time work after raising two kids (they are now teenagers) on her own.
“Back in the old days -- and I’ve been told to be careful using that phrase -- but, for my generation, once you started to have the gray hair, you were considered to be the sage expert in your field,” says Botney. “I think that now, there’s a feeling among many in the workplace that people of my vintage don’t understand anything about computers and therefore we’re too slow or we’re doddering.”
Botney’s trying to neutralize that stereotype by getting a digital marketing certificate from Portland State University.
“The one advantage that my age and experience brings,” says Botney, “is that I can usually do it faster than a newbie. And I should be able to. I’m better at knowing what the right questions are. That’s something that comes with time, experience and maybe a touch of intuition.”
In 1982 Lonnie Johnson made a discovery that would change his life and the future of toys.
“I was working on a new type of heat pump for refrigerators and air conditioners and I wanted to use water as a working fluid instead of Freon because I wanted working fluid that was environmentally friendly,” Johnson says. “So I was machining some nozzles and experimenting at home and shot some streams of water into the sink and then I turned and shot across the bathroom where I was doing these experiments and I thought to myself geez, this would make a neat water gun. So I decided to put the hard science stuff behind and start working on some really fun stuff.”
When Johnson says “hard science stuff” he means it. He’s a nuclear engineer by training who was working at the Jet Propulsion Laboratory for NASA’s Galileo Mission at the time of his discovery. He always dreamed of being an independent inventor, but knew he had to keep his day job to pay the bills. He loved his job, but he hoped his idea for a powerful squirt gun would be his ticket to freedom.
“I decided I could develop a toy and get some revenue from that and then use that revenue to really become an inventor and work on some of the more challenging projects I had in mind,” Johnson says.
Johnson built a prototype out of Plexiglas, PVC piping and a two-liter soda bottle and inquired about producing the gun on his own. “I got some quotes on what exactly it was going to take to set up a manufacturing line and I was told it was going to cost a couple hundred thousand dollars to get the first thousand guns off of the product line,” Johnson remembers. “I was a captain in the Air Force and didn’t have $200,000, so I said, ‘okay, there are some things I need to learn.’”
The Super Soaker prototype.
Johnson instead tried to peddle his high-powered squirt guns to toy companies. He wowed bigwigs over and over by accurately shooting paper cups off of conference tables from across meeting rooms, but no one wanted to take the risk on this guy with no business experience. It took seven years of near misses and failed deals before an up-and-coming company called Larami Corporation bought the license to manufacture what it called the “Power Drencher.”
The gun was released in 1990, but it didn’t make much of an impact at first. That’s when the ad wizards got involved. They changed the name to “Super Soaker” and shot a now iconic TV commercial.
The commercial helped rocket sales up, and in 1991 alone more than 2 million of the guns were sold. The brand, now owned by Hasbro, has now brought in more than $1 billion in total sales.
Johnson has been working on a myriad of other inventions since the “Super Soaker” made him famous. He’s gotten back to his original idea of an environmentally friendly refrigeration system, he’s developed a battery he believes can make electric cars more practical and is researching a new way to generate energy from the sun. But he certainly doesn’t mind that despite the more than 100 patents he holds, his name will forever be tied to a toy. In fact, he says without the “Super Soaker” he never would have learned the most valuable lesson of his career.
“The only way I was going to learn what I needed to learn to be successful was to take the risk,” Johnson says. “Put it out there and if things go wrong, as long as I learn from the experience I get to go again.”
There's something stirring in the global market.
Around the world, assets are trading at prices that are unusually high by historical standards. When prices are high, return rates for investments are low.
That's left investors with two choices: Settle with lower returns or seek out obscure, and even risky, investments that might yield more, says Neil Irwin, senior economic correspondent at The New York Times' Upshot.
In his recent article, Irwin writes investors are treading both paths worldwide. In Spain, investors bought government bonds at the lowest interest rates since 1789. In France, a cable-television company was given $11 billion in the largest junk bond deal on record.
"It's an everything boom for now," Irwin tells Marketplace host Kai Ryssdal.
The "boom" is the flurry of investments despite economic crises and those low return rates. And, it's happening for two reasons, Irwin says. Businesses put more money in savings than in investments while world banks are printing money like nobody's business.
But, "it wouldn't take much to get into bubble territory," he says. "So, we want to keep an eye on things and make sure things don't really get out of control like they did in the past."
Why should you care?
"This affects all assets on Earth -- increasingly real estate, farm land, office buildings. The question is: Does it matter if you're not one of these Wall Street deal makers? The answer is absolutely."
Think savings, putting space on the market for rent or "if you're a person saving for retirement it means that you can't count on getting outsized returns, the huge returns you might have gotten in generations passed," Irwin says.
A new survey from the Centers for Disease Control and Prevention finds that 41% of American homes are mobile phone only. That number is on the rise, but not climbing nearly as fast as it once was. Landline cord cutting seems to be at a plateau.
“For most of the past decade, the rate has been increasing by 4 or 5 percentage points,” explains Stephen Blumberg, lead author of the report from the CDC’s National Center for Health Statistics. “In the past year, that rate of increase has slowed. The increase was only 2.8 percentage points.”
Nobody is predicting a landline renaissance. Weston Henderek, who tracks wireless use for market research firm Current Analysis, thinks cord-cutting will march on, but probably not as fast as it had been going.
“We’ve picked all the low-hanging fruit, if you will,” Henderek says. “A large percentage of the people that wanted to cut the cord already have.”
It’s not just nostalgia that keeps some people hanging on. Many homes need a landline because of poor cell phone reception in their area. Others have home phones bundled with their cable and Internet packages.
Even some mobile phone analysts still have landlines. Alongside some 15 mobile phones in his home, Henderek has a trusty old landline. His home security system requires it.
The CEO of Walmart says that positive job growth numbers are not translating to increased sales -- At least not in his stores, anyway. Is it the same story for small businesses? Plus, a new report says that more than 40% of American homes are mobile phone only. But recently, the rate of cord-cutting has slowed. A look at why the number of people abandoning landlines may have plateaued. And it's summer camp season, which means sending kids off to canoe, make campfires, and...code? More and more summer programs are offering to teach kids programming skills. The positives and negatives of training the next batch of techies.
The House of Representatives is back from summer recess, and among the items on the agenda is the Social Media Working Group Act of 2014. While the government is already working with social media to inform and interact with citizens, one of the proposals under consideration is establishing a standard operating procedure for the Department of Homeland Security's Twitter account during a crisis.
According to Nate Elliott, social media analyst at Forrester Research, typically “The hope is when government or another authority tweets something, people will share it for them.”
However, because of the noisy environment of social media platforms, that generally doesn’t happen.
“Messages wash away very quickly,” according to Elliott. It's why the government is looking for a more cohesive social media strategy.
But there are challenges. Twitter, for example, does not use an algorithm to decide what the typical user sees in the same way as Facebook manages its feed. Plus, both allow increased visibility with paid posts, giving the government another challenge in reaching citizens on these platforms.
It's the first day that residents in the state of Washington State can walk into a store and legally buy marijuana for recreational purposes. Washington is the second state to legalize pot -- Coloradans have been able to purchase recreational pot since January 1st. But there are some notable differences in how each state regulates the still federally illegal plant.
One major difference is the number of retail outlets. Washington has capped the number 334, while Colorado has no cap. And initially Colorado did not require lab testing on pot.
“Everything that is sold in a retail marijuana store in Washington has been tested,” says Brian Smith, a spokesman for the Washington State Liquor Board, which drafted Washington’s new marijuana laws.
Colorado retailers are also required to grow nearly all the pot themselves. In Washington, retailers aren’t allowed to grow their own. They have to purchase it from a licensed growers and processors. And Smith says it’s taxed heavily: “25 percent from producers to processors, 25 percent from processors to retailers, and 25 percent from retailers to consumers.”
Revenue projections in both states are, like many residents, high. Washington predicts nearly $600 million over the next four years.
“What people forget," says Mark Kleiman, “is the high price of cannabis today reflects the legality. But once you don’t have to hide, you can do things much more efficiently.”
Kleiman is a UCLA professor of public policy and the author of several books on drug policy. He predicts that in the long run, legalization will drive pot production costs down. As a result pot prices will plummet, along with tax revenue.
For more of Marketplace's coverage on the legalization of retail marijuana sales in Washington, check out the links below:
Here at Marketplace, we've covered the growing marijuana industry in Washington since it was first approved for recreational use -- From the search for a marijuana consultant by the Washington State Liquor Control Board (which they later found), to figuring out a price structure, to the advent of businesses hoping to take advantage of legal sales.
And remember when the Denver Broncos took on the Seattle Seahawks at this year's Superbowl, and advocates for legalizing marijuana spent $5,000 on pro-pot billboards near the stadium? The event sprouted a lot of nicknames -- "The Stoner Bowl," for example.
But growing a business that's illegal most everywhere else can be tricky, especially when it comes to managing finances.
That's because most banks have decided that the venture is too risky, and are reluctant to do business with the marijuana industry. It's forcing many pot-related businesses to use cash only, which is nearly impossible as operations and revenue grow. With the amount of money involved things like sales, taxes, and licensing fees, it's difficult for businesses to operate without access to bank accounts.
Talk about a buzzkill.
Mexico might be out of the World Cup, but this year, the country is poised to beat rival Brazil on another global stage: For the first time in a decade, Mexico is expected to become the top Latin American automobile producer. And that bodes well for its economy overall.
Consultant IHS Automotive says Mexico has been making and exporting more cars than Brazil in 2014, and it should keep up pace through the rest of the year.
Analysts point to cheaper labor and proximity to the United States, one of Mexico’s biggest customers, as contributors to the surge in auto production. There's also new investment from foreign automakers.
"Audi, Nissan, Mazda, GM, Ford and many, many others," says Shannon O’Neil, a senior fellow for Latin America studies at the Council on Foreign Relations. "These are the types of firms where you’ve seen huge growth and innovation and productivity among Mexican workers that have made it really a competitive sector."
That momentum could jump start productivity across Mexico’s economy, according to Lisa Schineller, an analyst for Standard & Poors.
"The key challenge is trying to tackle outside the manufacturing sector, and improve education, infrastructure, et cetera," she says.
Schineller adds that S&P is also watching legislative reforms that would open Mexico’s energy industry to foreign investment.
SLUG: Mexican Auto Production
REPORTER: S.Mullen (Johnston)
Host lead: Mexico might be out of the World Cup, but the country is poised to beat rival Brazil on another global stage.
For the first time in a decade Mexico is expected to become the top Latin American automobile producer this year.
And that bodes well for Mexico’s economy overall, as Shannon Mullen reports.
* * *
MULLEN: So far this year, Mexico’s been making andexporting more cars than Brazil.
And consultant I-H-S Automotive says that should keep up through 2014.
One factor: cheaper labor. Another proximity to the U.S., one of Mexico’s biggest customers.
Then there’s all that recent investment from foreign automakers…
O’NEIL: Audi, Nissan, Mazda, GM, Ford and many many others…
MULLEN: Shannon O’Neil is a senior fellow for Latin America studies at the Council on Foreign Relations.
O’NEIL: These are the types of firms where you’ve seen huge growth and innovation and productivity among Mexican workers that have made it really a competitive sector.
MULLEN: That momentum could jumpstart productivity across Mexico’s economy, says Lisa Schineller, an analyst for Standard & Poors.
SCHINELLER: the key challenge is trying to tackle outside the manufacturing sector, and improve education, infrastructure, etcera.
MULLEN: Schineller says S&P is also watching reforms that would open Mexico’s energy industry to foreign investment.
I’m S-M for Marketplace.
More than a hundred truckers who work at the ports of Los Angeles and Long Beach are on strike, calling for better pay and safety and accusing transport companies of hindering their efforts to unionize. The trucking companies say they pay fair wages and that drivers striking are only a small slice of the total workforce.
It’s the latest workforce disruption at an important trade gateway with a long history of labor unrest.
The ports are a key point for trade with Asia, with hundreds of billions of dollars in goods moving through. You probably own something with a "Made in China" label, and it most likely came through these California ports.
Right now, only three trucking companies are affected by the strike. Others are still rolling. The picketing isn’t large enough to cause a major disruption.
But if dockworkers walk off the job in support of the truckers, it could snarl trade, with nationwide impact if the strike drags on.
Forget your typical summer camp experiences: swimming, campfires, telling ghost stories.
“I thought it was really cool to know how to make an app,” said Aurora, who is spending the week at iD Tech camp at UCLA. “I’m only a kid. I’m 11. You don’t see a lot of kids making apps in the app store that might actually sell. So I thought it would be cool.”
The room at iD Tech — this one on the campus of UCLA — is humming. Kids are enthralled by their computers: clicking, staring, thinking, asking questions, clicking again.
It’s mostly boys. The camp says 15 percent of its 36,000 campers nationwide are girls.
There are rows of students working on computers tucked inside individual cubbies. Bright signs on the wall say "Game", "Code", "Tech", and "Create."
There's no threat of poison ivy here. No surprise run-ins with spiders. No chance a water fight will break out.
“When I was younger, I had gone to more traditional camps, where it was all fun, all games,” said 14-year old Gavriel, who is learning 3D modeling and animation. “But I felt like it was time to get more serious about what I want to do for the future.”
More serious about the future...at 14.
The pamphlet for iD Tech camp plays straight into that. It's there on page one: “Right now there are over 1 million unfilled jobs in STEM.”
The message is that $900-plus for this week-long camp can help prepare a kid for those high-skilled jobs.
“Technology is great. Computers are great. It is going to be a part of our future,” said Peg Smith, head of the American Camp Association. But, she says, you can learn 21st century skills at traditional camps, too. Skills like creativity, communication, collaboration.
“For kids to be able to be outside, in nature, actively involved, in authentic situations with other people, is a real advantage in today’s world.”
The funny thing, said Smith, is that computer camp used to be where kids went to play with exotic devices.
Now, computers are everywhere.
And it’s traditional camp where they experience the exotic: nature.
When a big American company tries to buy a small company overseas, it’s always worth asking the question: "Why?" Sometimes, it’s because the acquisition gives the big company access to a new and growing market. Sometimes, it’s because the small company has some cool technology the big company wants. And sometimes … it’s a big fat tax dodge.
Take AbbVie, a U.S. pharmaceutical company that wants to buy an Irish drugmaker called Shire. Shire won’t give AbbVie access to an exciting new market, or bring it any sexy new technology. What it will provide – if the merger happens – is headquarters in a country with much lower tax rates than the U.S.
This is called a corporate inversion. Companies that do this behave a bit like the homeowner who sells her beautiful, perfect house in one city and uses the cash to buy a hovel in a town with a great school. The house may be outrageously expensive, and it may be falling down, but the buyer doesn’t care about any of that – she only cares about being able to send her kid to the local school. She can work out the other stuff later.
The same goes for Abbvie: it doesn’t care much about Shire, it cares about paying less in taxes. The same goes for another U.S. pharma company, Pfizer, that tried to buy British drugmaker AstraZeneca earlier this year, as well as a company called Destination Maternity, which tried to buy British maternity retailer Mothercare recently.
The list of companies that have inverted is a long one. It includes Applied Materials, which acquired a Japanese company and reincorporated in the Netherlands; Chiquita Brands, which bought Irish company Fyffes and shifted to Dublin; Power Management company Eaton Corp. did likewise after it bought Cooper Industries; pharma company Perrigo bought Irish company Elan and moved; and publisher Omnicom shifted to the Netherlands after it bought French rival Publicis Group.
Moving overseas to save tax money isn’t a new phenomenon, and companies are careful to obey the law. But, the law has made things more difficult. Companies used to be able to just open an office in Bermuda and move, but they’re not allowed to do that anymore. Hence the inversion activity that we’ve seen recently – at least 20 in the last two years, according to sources cited by the New York Times.
Now, you may think that it’s fair enough for companies to do this: It’s entirely legal, and the 35 percent tax rate that corporations pay is a lot higher than in other countries. So why shouldn’t these companies move and save? They do it within the U.S., after all, moving from state to state to get tax benefits. Some Congressional representatives might agree with you. Others, like Republican Senator Charles Grassley, says inversion may not be illegal, but it’s “immoral.” I guess he doesn’t like seeing all those dollars leaking away overseas.
It looks as though the Obama Administration feels the same way. The New York Times reported recently that “the House Ways and Means Committee and the Senate Finance Committee are working on draft legislation for comprehensive tax reform that is expected to include new rules intended to curtail inversions while also trying to make the United States a more competitive place for multinationals to call home.”
From the pages of The Hollywood Reporter: Tyler Perry has moved one step closer to owning the trademark on the phrase "What Would Jesus Do?"
For whatever it's worth, he can only use it for entertainment purposes - a movie, live show or TV show - not wrist bands or tattoos or the like.
And, no, your T-shirt won't have to say "Tyler Perry presents," because there's a separate "WWJD?" trademark for clothing.
Food processor Archer Daniels Midland (ADM) is getting its first taste of the flavor market. ADM says it will buy a company called Wild Flavors for almost $3 billion. Wild Flavors specializes in natural flavors for beverages and food, and natural means big business these days.
To start, we should say that flavor people are a very tight lipped crowd.
“You got that right,” laughs John Leffingwell, president of Leffingwell & Associates, which consults for the flavor and fragrance industry.
He says the flavor industry is competitive. Flavorists keep their discoveries secret as long as they can. But one trend is clear.
“When I started in the industry about 30 years ago,” he says, “about 70 percent of the flavors were artificial flavors. Today it’s close to 80 percent or maybe even more that are all natural flavors.”
That’s an estimate. But foods labeled ‘natural’ did rack up more than $40 billion in U.S. retail sales last year, according to Nielsen.
The problem is healthier foods aren’t always appealing to consumers.
“People would love to have lower sodium or lower sugar in the diet, but when companies reformulate with these changes, a lot of time consumers don’t buy them,” says Devin Peterson, a University of Minnesota professor who works with the Flavor Research and Education Center.
He’s researched solutions like getting salt to release more efficiently in the mouth, so a lower sodium chip tastes just as salty.
Flavor companies are also tackling the low sodium taste conundrum.
“What flavor companies do, they help food companies to reduce the salt content but save the flavor of the crisp,” says Evgenia Molotova, a chemicals analyst at Berenberg.
She says that’s one reason why the flavor business is appealing right now.
“Sales of flavors are growing much faster than the sales of food products,” she says.
Wild Flavors specializes in natural flavors for beverages. That helps ADM diversify its commodities business.
Food prices are rising, and the reasons run the gamut.
A disease known as porcine epidemic diarrhea virus has killed millions of piglets and young hogs, driving up the price of pork and bacon. A drought in Texas and Oklahoma cattle country has caused a spike in the price of beef. Coffee rust in Central America could raise the price of a cup of high-end joe, and a disease called citrus greening is wiping out orange and grapefruit trees in Florida. And yet, consumers in the U.S. spend a smaller percentage of their disposable income on food than citizens of any other country in the world.
It's not simply that food in the U.S. is cheaper. "Americans on average have a higher income level and when you're talking total income and the amount spent on food, it's just a lower percentage," said Anne Marie Kuhns, an economist with the Department of Agriculture's Economic Research Service. People who live in developing nations have incomes that are far lower than those of a typical American. Food is bound to eat up a larger percentage of a typical family's budget.
Graphic by Shea Huffman/Marketplace
Americans, though, also spend less on food than people in higher-income European countries like France, Sweden and Germany.
A number of factors are in play, including the amount of farmland in the U.S., estimated, says Dan Basse, president of the consulting firm, AgResource Company, at "around 350 million acres," and different quality standards. Genetically modified plants are restricted in Europe, but, are considered technological advances that help increase the productivity of farmland in the U.S.
Graphic by Shea Huffman/Marketplace
And while food is susceptible to price hikes, Americans eat a very varied diet, and if one product becomes expensive, there are others that can be swapped in to take its place. Think substituting chicken for beef when meat prices are high.
Finally, some researchers say European consumers simply have different standards of quality.
"Consumers take their food a lot more seriously in Europe than we do here," said Timothy Richards, the Morrison Chair of Agribusiness at Arizona State's W.P. Carey School of Business. "They're more likely to buy higher-end things. Here, Walmart is the dominant food supplier because it's cheap."
You or I might borrow money from a bank, put up our house as collateral, and pay interest on the cash. Financial institutions do this too amongst themselves; they borrow cash and put up bonds as collateral. Or they’ll lend cash in order to get collateral. This is called the repo market. Banks use this to cover pulls and pushes on the financial system. Traders use it to make short sales.
But some odd things have been happening in this market over the past few weeks and even years.
For starters, negative interest rates. “It’s like if the bank lends you money, they would paying you interest to be able to lend you cash,” says Peter Anderson repo trader with Potomac River Capital.
For example, just this morning, lenders were willing to loan cash for -0.1 to -0.15 percent interest -- meaning they would pay -0.1 to -0.15 percent interest in order to lend that money if it meant they would get their hands on the newest five year treasury notes as collateral.
Why? Because they really, really need collateral. Collateral to make other deals, collateral to cover short sales.
There isn’t enough to go around, and this means that deals are failing. Fails happen all the time, but their volume has been increasing.
In 2012, the average volume of failed deals per week was around $30 billion. In 2014, it’s about $67 billion.
Some fails can be particularly bad. For example, when one entity fails to find the collateral it needs to complete a deal with another party, who needs that collateral to complete a deal with another party, and so on. “It creates a daisy chain of fails, a chain reaction of fails,” says Anderson.
This is what happened at the start of the financial crisis. Fails now are nowhere near that level, but they still present a source of unease.
“The fact that we are seeing repeated episodes where security doesn’t clear up for days at a time is a sign of a market that’s not functioning very well,” says Louis Crandal, chief economist at Wrightson ICAP.
Among the reasons for the tighter repo market is a new set of rules on bank capitalization that make banks less willing to tighten their grip on bonds being sought for use as collateral.
“Banks have been required to hold more capital against trades that prior to the crisis were seen as being relatively low risk, and which are low risk in good times.” However in a crisis, trades can create systemic problems like the daisy chain effect that took out Bear Sterns and Lehman Brothers. Regulators have insisted more capital be held against such trades, and so fewer trades are made.
“Thats not an unintended consequence,” says Crandal. “One of the points of Dodd-Frank and all the other changes in regulatory structures globally was to increase the cost of financial intermediation,” the fear being that razor thin margins amplified financial risk.
But regulators didn’t intend to increase the number of failed deals per se. In 2009, they developed a new rule to incentivize institutions looking for collateral to keep looking. Simply put: it’s a fee for failure. A financial institution looking for collateral to finalize a deal somewhere else now has to pay a 3 percent fee if it fails to find it.
This penalty should keep a lid on fails, says Joseph Abate, short rate strategist for Barclays. “I think this is transitory and will resolve itself within a week or so,” he says, speaking of the recent spike in fails. Periodically as economy improves and people begin to foresee interest rate rises, “the demand to borrow securities is picking up,” as people seek to short securities. In the process, they are applying demand side pressure on those securities in the repo market.
As treasury bonds are auctioned in tranches over a quarter, there are choke points at the beginning of an auction period where there are fewer bonds, and towards the end of the quarter, financial institutions will have used up
Crandal, at Wrightson ICAP, says the increasing fails rate is unlikely to blow up, but “it’s a case of existing market structures not really making sense in a new capital framework, and we haven’t developed new avenues for sourcing those bonds.”
If the issues persist, either the financial system on its own or regulators down the road will have to figure out a new way of doing business -- such as a central clearing house for all repo trades, or a new type of financial entity tasked with handling that process.