Chapter 1: What is the main topic discussed in this episode?
On the program today, a vote for making finance boring again. We'll do some commodities and then wine. From American Public Media, this is Marketplace. In Los Angeles, I'm Kai Risdahl. It is Tuesday, today the 24th day of March. Good as always to have you along, everybody.
We're going to begin today not with the war, not with equities, not with oil or supply chains, but with a slice of the financial markets that is beginning to become just a little bit unglued.
Ever since the financial crisis going on 20 years ago now, if you can believe that, investors have been pouring money into what's known as private credit, nearly $2 trillion worth, money that gets loaned out to businesses that were unlikely, shall we say, to be able to get loans from actual banks.
Those investors, though, have been getting jittery, worried by some high-profile defaults and the future prospects of... you know, getting their money back. So a lot of them have started pulling money out of private credit. Bank run is a little bit strong here, but not by much. Marketplace's Henry Epp gets us going. Private credit has gotten as big as it has because of the financial crisis.
Banks had lost a lot of money on loans and Washington had imposed new lending regulations, says Kent Belasco at Marquette University.
That caused banks to become, you know, much more risk averse. And so therefore, it became a little harder to get credit.
Especially for mid-sized companies. At the same time, investors were looking to put their money into funds that got a decent yield, says Amir Sufi, a professor of finance at Chicago Booth. Private credit gave them that. From about 2010 to about 2024, the returns on private credit were truly impressive. Eight to 10 percent, Sufi says, and the borrowers didn't default much.
But the good vibes have changed lately. Private credit firms made a ton of loans around 2021 and 22, Sufi says, when interest rates were low. They're higher now, and a lot of those five-year-old loans are coming due soon.
And when debt comes due and the interest rate required to roll over the debt is much higher, then the borrowers are much more likely to default on the payments.
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Chapter 2: What is the current state of the private credit market?
And until she was fired by President Trump after he lied and said she'd manipulated the jobs numbers, she was the commissioner of the Bureau of Labor Statistics. Fourth quarter productivity was revised down, productivity growth to be clear. It was revised down by a lot from 2.8% to 1.8%, but the trend is still pretty good.
One important thing to think about is that even after these revisions, the U.S. has been on a very good productivity run with a growth of 2%, 3%, and 2.2% over the last three years. which puts us on pace with some of the strongest decades in American post-war history in terms of GDP growth.
That was Seth Benzel, an assistant professor of business and economics at Chapman University. And this was entirely driven by downward revisions to output, so not completely unexpected. Erica McIntyre for one more time. And hours remained unchanged. And this revision did also push unit labor costs higher. That means that businesses are paying more per unit of output.
And that's important because unit labor costs is a potential inflationary measure that the Fed does watch very closely. Ah, yes, the Fed.
The thing that economists and people who try to make policy about the economy really want is productivity growth. Productivity is amazing because you can use it on anything.
So?
The Fed is in a very difficult spot right now with a softening labor market and both tariffs and oil price shocks pushing up on inflation.
So output being solid is... good news for the economy. And that tends to also be an input into the Fed's decision. Your obligatory reminder here that this is productivity growth for Q4 last year. The interesting update is going to be what we're going to see for this quarter, you know, given the war and all.
One of the economic throughlines of the war in the Middle East has been commodities and the spiking prices thereof. We have covered, in turn, the rising costs of oil and fertilizer and helium. But there is an exception that proves the rule always, and copper is ours today. Copper has been sliding since the start of the year, hitting a low for the year over the weekend.
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Chapter 3: How is climate change affecting Oregon's wine industry?
Well, I'm highly, highly skeptical that the Jones Act waiver is going to have much of an impact at the pump or for the American consumer. If the Jones Act didn't exist, the first people that would get hit would be the shipbuilders in America, because all these vessels would be built internationally, or a lot of them would.
And then the mariner would be the next person that took a hit after their job was replaced for a cheaper option and offshore somewhere else. I think this is a situation where the impact of the waiver has been highly overstated.
This waiver is 60 days. It's more structured, I think, than past waivers have been. What do you think it's going to mean sort of in the longer-ish term, the longer this war goes on?
Chapter 4: What grape varietals are vineyard owners adapting to warmer weather?
I think there's a lot of discussion that needs to be had around our supply chain in this country. I agree completely that shipbuilding is way behind here, but there's other ways to help. initiate more shipbuilding than just waiving the Jones Act. I think you'd see investment really start to coalesce around shipbuilding if there was more guaranteed for long-term investment.
You know, the hidden devil in these details is we don't really have enough mariners now. So if we mass produce a lot of ships in short order for a demand that really might not be there and a mariner that might not be there, we can cause another problem.
Chapter 5: What challenges do winemakers face from extreme heat events?
So I'm all for increasing shipbuilding. I'm all for bolstering our ability to do that. I just really question if the Jones Act is the right first step towards that goal.
A related but slightly different question. This is now geopolitics reaching down, like at the very highest level, like at the levels of war, right, reaching down into a guy running a family business in Vicksburg, Mississippi. How often does that happen to you?
Well, you know, being at the core of the energy supply chain for a lot of these major oil companies, geopolitics is one of our probably our top five factors when it comes to evaluating our long term business. We react to the oil markets and to demand, just like you and I seem to always talk whenever we have a flood or a drought.
You know, we're at the center of a very large supply chain and we're at the very top of the supply chain. After we touch it, it moves into smaller modes, smaller vessels, smaller communities. So geopolitics, when it comes towards small percentage changes in supply or large changes in our supply chain, it impacts us just because of where we are in that stratification of supply.
Yeah, the longer this goes on, I imagine the bigger impact it has on you, right?
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Chapter 6: How are vineyard owners preparing for water shortages and wildfires?
Oh, absolutely. And I think uncertainty is not great for us. I like to have certainty, consistency, spikes, valleys. They're much harder to manage through than a consistent, rateable business.
Yeah, you're not the first person to tell me that. Austin Golding at Golding Barge Lines down in Vicksburg. Austin, thanks a lot.
Hey, thank you, Kyle.
Coming up. They'll essentially scorch from the sunburn and they'll turn into a raisin. Well, that's not good. But first, sure, why not? Let's do the numbers. The S&P 500 down 24 points. Thanks for asking. Dan Ackerman was talking about copper. How about some copper miners and processors? BHP Group, which operates several mines in South America, shined up 0.8%.
BHP also owns an Arizona mine with Rio Tinto. Rio Tinto up 1.1% today. Freeport-McMoran, which produces gold in addition to copper, increased 2.8%. We could have done gold today, too, in commodities that have fallen in price down quite a chunk. Packaged meats and pork producer Smithfield reported earnings today that beat expectations. Fourth quarter net income increased to 83 cents a share.
Analysts had expected 68 cents a share. The company's CEO cited pork's prominence standing in Latin and Asian cuisines popular with consumers. Also, Smithfield brought home the bacon to the tune of 4.25%. Bond prices down. Yield on the 10-year T-notes, it rose 4.38%. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl.
We, the American consuming public, have some expectations, among which increasingly is being able to get whatever we want on our doorsteps as soon as we want. Amazon and Walmart and Target are on board offering ever speedier delivery. And now FedEx is trying to get a slice of that action. FedEx same day local. It's its new offering companies to consumers only so far. That's B2C in the lingo.
Marketplace's Carla Javier unpacks our expectations for getting things sooner and sooner and how that whole thing works, too.
FedEx used to offer same-day delivery services, says Bruce Chan, a senior equity analyst at Stiefel.
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Chapter 7: What economic indicators are affecting labor productivity revisions?
We will see you tomorrow, everybody. This is APM.