Chapter 1: How did business activity growth change in April?
Storms, floods, and fires are ever more extreme. And yet, the Federal Emergency Management Agency is fighting for its life.
I've never been a big fan of FEMA. FEMA's a disaster. FEMA's a dirty word.
People are waking up in droves to the FEMA camps. Can the agency survive the stories that have been told about it? And can we survive without FEMA? American Emergency, the movement to kill FEMA, is a brand new series from WNYC's On The Media. Listen wherever you get your podcasts. Coming up on the program today, a short Wall Street tutorial.
We'll talk factories, and we'll talk price caps, and we will pour one out for Florida oranges. From American Public Media, this is Marketplace. In Los Angeles, I'm Colin Risdell. It is Thursday today. This one is the 23rd of April. Good as it always is to have you along, everybody. Wall Street was in a, yeah, maybe war is not so great mood today.
Equities fell, the price action, as traders like to say, mostly to the downside. The bigger picture we will do at that spot in the program where we always do the bigger picture, but we begin today with a single company and its roller coaster of a month. Avis shares were up sevenfold the past 30 days, and they had kept on going up almost until yesterday.
On this Thursday, ticker symbol CAR, get it, Avis, CAR, C-A-R, shares down 48%, the worst day Avis has had in the markets in 28 years. The phrase short squeeze is what you're looking for. Marketplace's Kaylee Wells has today's explainer.
Short squeezes start because investors bet on a stock doing poorly, also known as taking a short position. Here's an example.
For whatever reason, I decide that I think Avis is overpriced, and I'm looking for a way to make money off of this.
In this example, Paul Shea of Bates College will borrow a bunch of shares of Avis stock, sell them while they're overpriced, and then when the price falls, he'll buy them back up and return them to his lender.
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Chapter 2: What caused the stockpiling of goods by businesses during the war in Iran?
You're now sitting on a lot of excess input inventory and your demand is falling.
Meaning those manufacturers could end up with a bunch of unsold goods later this year. I'm Daniel Ackerman for Marketplace.
If you've heard me say it once on this program, you have heard me say it, well, a lot. History matters. Truth is, though, I'm more of an armchair historian. Here's an actual one. Meg Jacobs. I teach history and public affairs at Princeton University.
We called her to ask about something that's on everybody's mind of late, the high price of oil and what, if anything, governments might do to limit the economic pain that comes with it. Jacobs wrote a whole book about the energy crisis of the 1970s. Which was perhaps the last most chaotic time in terms of uncertainty on global oil markets. There were actually two oil shocks in that decade.
The first one triggered by the Arab oil embargo in 1973. Richard Nixon was in the White House. Inflation at the start of that year was right around 8.5%. Then came the oil shock and slowing growth. Say it with me now. Stagflation made all the worse by a series of price controls that Nixon had put into place starting in 1971. I have a point of view based on the past about today.
I do not see any kind of price caps in our future. A little econ 101 here. Price caps, just like it sounds, they limit the price at which any given product can be sold below what the market price would be. It can be on one product or on all of them, which is what Nixon had done. And then the Arab oil embargo came along. The shortages we were suffering then were not super acute.
Even if you don't personally remember back that far, your parents probably do. Ask them about the lines to buy gas. But we made them more acute by our panic-like behavior, by lining up for hours and hours and traveling around with much of the country's gas supply in our tanks rather than safely underground in oil storage. It was not great.
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Chapter 3: What is a short squeeze and how did it affect Avis?
But the fact is, today's oil shock is worse, way worse. The International Energy Agency says it could take two years to recover. The key macroeconomic point here is that however much petroleum pain American consumers are feeling, it is worse in the rest of the world, which is why some of them are turning to price caps.
In South Korea, the government put a ceiling on fuel products about a month ago. Just today, they announced they would keep them in place for another two weeks. In France, the company Total Energies voluntarily capped the price of gas and diesel at its stations through the end of April. Governments and companies are going to do what governments and companies are going to do.
But if you ask an economist, they will tell you price caps can lead to some real problems. Because the price... Amihai Glazer is actually an economist, an emeritus professor of it at the University of California, Irvine. And for producers, price caps might mean deciding a product isn't worth selling at all. then it doesn't even cover my costs. So I would lose money by selling some of the goods.
You see where this could go, right? Fewer goods, more shortages. But in reality, price caps don't always follow theory, in part because they're often paired with other policies. Let me give one example. World War II, which the price controls were effective. There were also wage controls back then and rations on all kinds of things that were subject to price controls.
Meat and dairy, clothing, gas and car tires. And if someone saw his neighbor have four brand new tires, he would look askance at that neighbor. How did he get it? What connections did he have? Why is he doing that? Meg Jacobs agrees that the social dynamic was part of why those World War II price caps worked.
People largely abided by them.
It was seen to be patriotic to relinquish your ration coupons when purchasing these scarce items. And because of that, price caps did keep inflation overall low. Back then. Then is not now. And the global economy now is more global. But the longer this oil shock drags on, the more price caps are going to keep popping up. Coming up. But the situation is dire. I mean, extremely dire.
Want some orange juice for breakfast? Yeah, not so fast. But first, sure. OK, now let's do the numbers. Dow Industrials down 179 today, 0.4% closed at 49,310. The Nasdaq dropped 219 points, 0.9%, 24,438. The S&P 500 dipped 29 points, 0.4%, 71.8. Oil prices, you ask? At the end of a tension-filled day in the Middle East, another tension-filled day, I guess.
Brent crude, the international benchmark, up 3%, finished at $105 a barrel. West Texas Intermediate also jumped 3%, closed at almost $96 per. Software company ServiceNow tanked after reporting a 20% increase in subscription revenue over the last quarter. Catch is it could have been more, they said, if it weren't for some contracts in the Middle East, which were delayed by you-know-what.
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