Triple-digit trouble

Ladies and gentlemen, I am pleased to be able to tell you that the markets may not be a total idiot after all.

“From American Public Media, this is Marketplace.”

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In Los Angeles, I'm Kai Rizdoll, it is Monday today, this one is the 30th of March, good as it always is to have you along, everybody.

To be fair, these are trying times indeed for traders and the algorithms they live by, in the space of literally two back-to-back sentences this morning. President Trump said negotiations with Iran are showing great progress, that's a quote. But, and if there is no deal soon, complete obliteration, his words will follow. So, with that as backdrop, and we are, by the way, going to get into the bond market just a little bit later on. But with that as backdrop, the overall theme of the program today is the economy yet to come, because as we have been reporting,

“there does seem to be a very short term focus on the war's economic ramifications at the expense of some longer term thinking.”

Oil is where we are going to begin, West Texas Intermediate, the US benchmark up better than 5% today, almost $105 a barrel. Marketplace is Christian Schwab, gets us going with the oil market yet to come. It took a month for oil to go from 60 something dollars a barrel to 100. Hugh Dagle, a professor of petroleum engineering at UT Austin says believe it or not, that's actually the market showing restraint. Now that we see that this may be a prolonged conflict, I would bet that it's more likely that the prices will climb faster than they have over the past month.

Markets are finally truly pricing in the war, because even if it ends tomorrow, it would take months for the price to come back to kind of that very baseline if it ever does. There's a saying in the oil industry, prices go up like a rocket and come down like a feather, especially in this case, because of damage to oil and gas infrastructure around the Persian Gulf. That's the sort of thing that is going to make these high prices persist for a long time. A hundred dollars a barrel is also a turning point for consumers, because it translates to moving from three something to four dollars for a gallon of gas. Tom Closa is the chief energy advisor at Gulf Oil.

You know, in the United States, the great Satan is high gas prices. Closa says four dollars is a big hurdle for people's minds and wallets. Once we go up four dollars and we'll cross that bridge in the next 24 hours, then you start to worry about demand destruction demand destruction, meaning consumers will pull back on driving and spending in general. How high oil and gas prices go depends on how long the war lasts and how long it takes for the straight of her moves to reopen. To reach day that that doesn't happen, the situation gets more severe. Alan Gelder is senior vice president of refining chemicals and oil markets at wood Mackenzie.

The international energy agency recently released 400 million barrels of oil reserves.

Gelder says we have about a month before we burn through it all. So this continues to last further than that, then the situation just exacerbates itself. Gelder says oil at a sustained price of $125 a barrel could cut into global GDP growth by as much as half oil at a hundred and fifty dollars or above means serious danger for the economy. I'm Kristen Schwab for Marketplace Wall Street on this Monday, you had the president's social post. You had Jay Powell and a talk at Harvard saying the Fed's going to look past the energy spike for now and you had the general unease.

We'll have the details when we do the numbers. Well, let's see. There's the war and it's underlying inflationary tendencies even beyond the energy spike.

There's the extra $200 billion Pentagon says it needs to bar to pay for said war.

That is a drop in the bucket overall, yes, but still it's real money. And as a result, there are bond yields higher by a good margin than they were a month and three days ago.

“If you want to know where the economy might be going, the bond market can be a pretty good guide.”

So we've called the Andrea Ice felt she's a professor of finance at UCLA to help us read the TV's press walk from the program to have you on. It's great to be here. Given all of the setup that I just did, that long list of what's what with the bond market, do me a favor and decipher it for us and help me understand what story the bond market is trying to tell us right now.

And so for now, we've seen yields increased, but not as dramatically as we might have expected given where gas prices are.

“The market is saying to us right now, I think that that inflation is the right way am I reading that the right way given the gas prices and all that.”

I think so yeah, we're seeing higher yields because we're worried about inflation that's something we've been battling since COVID and this new conflict has really made things worse. Okay, where then is the growth problem right because there are two sides to what's happening here right there's the inflation risk which we're seeing present right now. Also, sort of the the the the the economy yet to come to keep up with the program today of of growth being a challenge as this war continues and the strangled hold on the straight and all of those other things that affects supply chains and logistics continues right growth is a problem yet to come.

It is for sure growth and employment and pretty much everything we do takes energy and we're still very dependent on fossil fuels and oil and gas.

So we've got a lot of uncertainty of how things are going to look going forward.

So as you have produced bond yields in the morning over your coffee, I'm just assuming you do because your professor of finance right of course. Okay, okay, what are you looking for? Looking for the direction and I'm looking at the levels over different periods in history, I looked also at dollar exchange rates with respect to other. Or safe haven currencies like the young or the euro or the Swiss frank and we've seen all of those countries have slightly higher yields. But the dollar is really holding it strength as well.

So are we then start in a rut, but are we then the United States that is doing better relative to to most other large economies on the planet right now.

“I think we are because we have more of our own energy resources, so I definitely think that's the case.”

Um, if I am a guy in a Tamil Iowa, uh, worried about, I don't know, my, my combine and making my payments on my farm and also there's a college tuition and a car loan and I have to worry about a mortgage too. Help me understand why the bond market matters to him. Uh, it matters for any borrowing cost. It also probably matters for any risk management. He does with respect to his prop prices because all of those futures prices also depend on interest rates and for any college loans. Look, it's expensive.

Yeah, it is, it is indeed. Um, how worried are you about, um, you know, let's stick to the topic at hand. The bond market specifically and borrowing costs and and how important that is to this economy and how much we don't know. About where this war is going to go. What's your, what's your stress level? I would say it's probably in eight and a half with respect to the war with the war and where it's going to go with respect to the bond market.

I'm just, I'm really impressed. I, I think we have an amazing financial system.

I think the Fed has been doing an incredible job. I think you can see that in the fact that we've had safe haven kind of behaviors. I think controlling yields on, you know, from going too high. So I'm not as worried about the bond market as I am, as you said, about the ongoing conflict. Yeah. Andrea has felt at UCLA Anderson where she's a professor of finance. Professor, thanks for your time. I appreciate it. It was great to be here, Kai.

We're not really going to learn a lot about the war's lasting impact on this economy. From the March jobs report, we're going to get on Friday. It will have some data collected in the early days of the war and maybe there will be some inferences we can make. But overall, we're going to have to wait to really get a sense. Marketplaces demand the field spend her day talking to analysts about the labor market economy yet to come.

As soon as the war started, the price of oil shot up and gas prices followed. Angela Hanks at the Century Foundation says, as gas prices rise, consumers get stretched.

“You have to get to work. You have to pay your electric bill.”

And so I think we'll see that show up as reduced demand in other sectors where people have more opportunities to make choices about whether or not they spend. The more people have to spend on gas and heat, the less they have to spend at restaurants or on clothes and trips.

Obviously ones are like restaurants, arts, entertainment, some travel.

“I think that's where people have the most ability to quickly adjust their spending.”

And those are also industries that are pretty quick to lay people off as soon as that spending dries up a little bit. The longer the war goes on, the riskier things get for other industries too, especially ones that rely on anything that passes through the straight of poor moves. Let's paint caughtty at Groundwork Collaborative is worried about agriculture. About 25% of farmers had not yet purchased their fertilizer for this growing season.

And so that is one that is quite concerning to me.

Also concerning industries that rely on helium, helium is obviously used for some medical supplies and for the balloons. You might blow up for your children's birthday, but more importantly, it's used for computer chips. And right now, I am really hoping we are not staring down the chips crisis that we saw in 2021 to and 23. During the height of the pandemic, when companies couldn't get enough chips for computers and cars, a repeat of that would hurt consumers and people who work in those industries.

Angela Hanks at the Century Foundation says the war is also coming on top of a lot of other stressors for businesses, inflation, high interest rates and tariffs. There's only so many of those kinds of shocks that business was kind of sore before we start to see job loss in multiple sectors across the economy. I'm Samantha Fields from Marketplace. [Music] Talking to analysts and economists about what's going on out there as Sam Fields was just doing is all well and good and we do a fair amount of that because it's valuable.

“But sometimes if you really want to get into sense of things on the ground, you have to talk to the people actually making this economy go.”

That's the assignment Marketplace Mitchell Hartman got this morning, this small business economy yet to come. For a while now, we've been hearing that employers are hesitant to add workers, also hesitant to lay off the ones they've already got. And that is what I heard from small business owners I connected with today. We're hiring right now because we're replacing people, but no, we're not looking to increase employment. That's Adam Orman in Austin, Texas. He's got two Italian restaurants, one casual, one more upscale.

And his head count now is about 50 employees. It has shrunk a little bit for a number of reasons. Inflation weary consumers are dining out and drinking less plus. It continues to be very difficult to hire a lot of people left the restaurant workforce during the pandemic. And then over the last year and a half, we've seen a lot of immigrants leave the workforce either by choice or because they've been detained or deported.

Matt Hassett is CEO of New York based lofty, which sells alarm clocks, lamps, and other products designed to promote better sleep. He's got seven employees. It's stable. We've had a few people leave and I'm not hiring to fill those positions. Me 25 was a very tough year. The tariffs made it very hard to predict what our cost were going to be. Hassett now has two employees in Europe, and he's expanding international sales.

Barton O'Brien is founder of Bay Dog, an eight-year-old business based in anapolis, Maryland that makes gear like dog harnesses and life jackets, also treats and toys. O'Brien is hearing from pet store owners that consumers are now pulling back on the doggy discretionaries. The consumer walks in. They get that bag of food and the secondary purchases just aren't happening because nobody has any extra cash. O'Brien says his costs are way up. Profits are down. Still he's optimistic.

“I think I'm going to be able to continue to grow the company. I just hired two people in Q4.”

Bringing his total headcount to seven with another 45 working as contractors in production sales and e-commerce. I'm Mitchell Hartman from Marketplace. Jump it up. It's not as simple as just saying. Let's just release everyone to the marketplace. It's not.

But first. Let's do the numbers.

Downdust was up 49 points today about 10%, 45,216 in the Nasdaq.

Cisco, the country's biggest food distributor just got bigger.

“Cisco has read a $29 billion deal to acquire Jetro Restaurant Depot, which sells catering supplies and restaurant equipment.”

Cisco plunged 15 and 3/10 of 1% today as often happens. The acquire of plungers. U.S. Foods holding corporation as that for a company name increased one to hit the 1% performance food group. Approved one and a half percent on the day today. CVS Health says it's going to open approximately 60 new stores this year. That's moved the follows years of store closure. CVS Health gained it just under 1/10 that 1% on the day bonds up.

You'll down the 10 year or 10 note down just a bit 4.35 percent.

You're listening to Marketplace. This is Marketplace. I'm Kai Rizdahl. This economy needs a lot of things to work the way they're supposed to if it's going to grow. Consumers consuming companies profiting and banks lending.

“If banks are going to be able to land the hundreds of billions of dollars, the economy needs them to land.”

Those banks need deposits because that's where the loans come from. According to the federal deposit insurance corporation, bank deposits have been growing for more than a year and a half now. But that rising deposit tide does not seem to be lifting all banks equally.

A lot of smaller community banks are being left out.

Marketplace is just in home made some calls to see what's up with customer deposits and what those smaller banks are doing about it. At a community bank called bankwell in New Canaan, Connecticut, Ryan Hildebrand, the chief innovation officer, noticed something was up with deposits when the federal reserve began raising interest rates a few years ago. Customers started to look at who's going to pay the highest amount. The competition to win the positives by paying them higher interest rates started heating up.

And it wasn't necessarily just other community banks. You had a lot of fintechs that were paying the highest rates.

“In the country, you had treasuries and money market accounts that were paying high rates.”

Ever since then, many smaller banks have been having a harder time holding on to deposits.

Julie Hill, Dean of the University of Wyoming's College of Law, says big banks have big marketing budgets, sophisticated technology,

and big footprints in large urban markets. And so that means that community banks, particularly in smaller communities that aren't growing as rapidly, just have fewer deposits to attract. And that is a problem for those smaller banks. We can't lend if we don't have deposits.

That's Andrew Sillsby, CEO of Kennebex Savings Bank in August of May. He says his bank has been feeling pressure to raise deposits because customers have been clamoring for bigger loans. We do about 1,500 mortgage loans a year and the average size of those mortgages have gone up substantially. Banks, he's a few strategies to ensure they can keep lending money. We're not necessarily chasing a lot of new customers and trying to bring in new relationships.

We're more likely focusing on existing customers who are expanding their business or folks that are already doing business with us. Smaller community banks are also asking their borrowers to park money with them. My area of the bank is deposits, so I may say to the chief loan officer, "Hey, have we asked if they could open up a deposit account here?" That's Kevin Boyce, founder of a Delphi Bank in Columbus, Ohio. He says the bank isn't forcing its borrowers to deposit money with the bank.

It's playing the long game. You know, when you come to our doors, we want a loan, that's we're going to focus on. Yes, we want your deposit, but it is not core to give you the loan. It is a hope that we want to earn that, so that it's a meaningful relationship for both of us. Pulling in deposits can also be a matter of simply paying the right interest rate. Generally speaking, the best option you have is you can pay more.

Dominic Miartin, CEO of American Pride Bank in Maken, Georgia. He says even though the Federal Reserve has been cutting interest rates over the past couple of years, his bank has kept rates relatively steady. Because we actually have an opportunity in the cloning rate environment to maybe pick up some customers that are a rare rate sensitive and want to join a bank that's still paying a good strong rate.

Martin says the last few years have taught people to be a lot saviour about interest rates. I'm Justin Haugh, from Marketplace. In most states, 32 out of 50, if you're counting. Electric utilities are monopolies, sole providers, consumers can't pick and choose.

But with electricity bills basically everywhere going up, lawmakers in some of those states are asking whether that regulation is actually effective,

“or whether maybe a free market might do a better job of controlling prices.”

From KBIA and Columbia Missouri, general slice reports. Don Mayhew believes in the free market. We have choice in a lot of different things, go to a grocery store. There's four different brands of green beans you can buy. We know that competition in any marketplace is the foundation the cornerstone of our capitalist system.

Which is why the Republican who represents a mostly rural Missouri house district has proposed a bill that aims to break up the state's monopoly utilities,

which is currently awaiting a hearing in the state house. Corporate energy companies in most states are vertically integrated, which means they both make energy and distributed to customers.

“Under Mayhew's plan, Missouri utilities would have to sell off their power plants,”

and other energy producers would be able to enter the market. The idea is that breaking up the monopolies would create competition and curb rising prices. Things like this seem theoretically appealing, but the details can get pretty complicated pretty quickly.

John Kaufman is an attorney with the Consumers Council of Missouri, a group that advocates for affordable utility rates for residential customers.

He says this sort of free market for electricity can actually lead to more volatile prices. It's not as simple as just saying, let's just release everyone to the marketplace and the marketplace will take care of things. Power companies argue that restructured markets can also come at the cost of reliability. Rob Dixon is a lobbyist with corporate utility amaran, which operates in both Missouri and in Illinois's restructured market.

“Dixon points to what happened in Texas during a 2021 winter storm.”

When temperatures drop to extreme lows, resulting in widespread power outages and astronomical electric bills. Generators failed their state and Texans played the pricing. We don't want that to happen here in Missouri. Approximately 13 states have what's called restructured or deregulated utility systems. Much of that deregulation took place around 30 years ago.

States that have restructured and have quality retail competition have seen prices go up far slower than states that stuck with their vertically integrated utilities. Kent Chandler is an energy policy researcher at the R Street Institute and the former chairman of the Kentucky Public Service Commission. The state government agency that oversees utility rates. Chandler says the tools available to most utility regulators are insufficient to protect consumers against the drawbacks of a monopoly system.

In my best day as a regulator, I still couldn't hold a candle to the sort of forces for good that competitive markets can create. In Illinois, deregulation followed years of consumer frustration with spiraling electricity prices. Says Sarah Moskoitz, executive director of the state citizens utility board. Moskoitz says the dream of shopping around to find the best deal on energy worked. At least for the state's largest electric consumers such as manufacturers.

It's definitely not so easy for the small energy user. Someone with just a house worth. Moskoitz says in states that have restructured freedom of choice has not yet reached all customers. I'm Janna Rochleis, Burmarket Place. The final note on the way out, the quote of the day goes to Jay Powell at that talk.

He did up at a Harvard that I mentioned at the top of the broadcast. Confidence, the Fed Share said, is what you feel before you really understand the problem. Good lifeless in there, no? Amir Bhabawi, Caitlyn Esch, John Gordon, New York, Karst, the Mullis and Stephanie Seek are the marketplace editing staff. Kelly Solvara is the news director.

I'm Kai Rizdahl, we will see you tomorrow, everybody. [Music]