High risk, high rates — where's the reward?

There are a lot of economic balls up in the air. We are going to pick one. From American public media, this is Marketplace. What we have here is a multi-variable challenge. Tech stocks and many others cratered today because, as we have talked about, the mega-cap tech companies, the really big ones in other words, are borrowing by the hundreds of billions with at best uncertain profits in their future. There is more shooting in the Middle East, which is driving traders to the safety of US treasuries. The ten year today, closed below 5%, which is a pretty big drop, as you know, if you've been following along, and oil, do not get me started, Brent North Sea, the global benchmark, up almost 4% today within spitten distance of $113 a barrel, to also the aforementioned shooting in the Middle East. Seeing as how the show is only half an hour, though, we are going to concentrate our minds on the global commodity. And what recent events are going to mean for us? And for the rest of the world, Marketplace's Mitchell Hartman gets his going. The IMF warned recently that the global economy faces heightened risk from rising crude oil prices, along with dwindling emergency stockpiles to buffer supply disruptions from the Middle East and Russia. Now, it is true that more oil has been transiting the Strait of Hormuz lately under US naval protection. Tom Closa is an energy adviser for Gulf Oil. You'll hear that flows from the Middle East are about where they were before the war started. But here's the difference. You could move a cargo of crude oil for about $2 to $3 per barrel to China. Nowadays it costs $35 or $40. Over the past eight months, the oil market has priced in a much higher level of risk to global energy supplies, says Suzanne Maloney, an Iran expert at the Brookings Institution. She says it's now assumed not only will this current level of exports be disrupted sporadically and unpredictably by Iranian attacks. But another major US-Israeli military operation against Iran could disrupt shipments through the Strait as well. The US is a major oil exporter and thus less dependent on Middle East crude than Europe and Asia. But we're still subject to supply and price shocks because of limited refinery capacity. Tom Closa says a key Exxon refinery was just taken offline in Joliet, Illinois and "the US Great Lakes is going bananas. You may see a lot of prices above $5 a gallon." And nationwide pump prices look likely to stay higher for longer now, says Gary Schlossberg at the Wells Fargo Investment Institute. One big question going forward will be whether the inflationary effect starts to spread more widely through the economy, boosting prices on everything from transportation to food and manufactured goods. I'm Mitchell Hartman for Marketplace. In Wall Street, day blue chips actually were fine and everything else forget about it. We will have the details when we do the numbers. Procter and gamble reported profits this morning pretty good, better than expected actually. The maker of tide and pimples and bounty saw net sales up 4% from the same time a year ago. And one phrase in the company's press release caught our eye, innovation-based pricing because it was used no less than four times as a reason for why sales had grown. Marketplace's Stephanie Hughes is on the corporate euphemism beat for us today. A lot of the tasks that Procter and gamble products are used for have been around forever, washing clothes, cleaning up spills, and the innovation part of innovation-based pricing means the company is creating new products for those tasks. Bank of America's Peter Galbo says take laundry as an example. If you think about the evolution over time of going from how to detergent, to liquid detergent, to tide pods, to now, tide evo. Tide evo, in case you're not familiar, is marketed as a super concentrated tile of detergent. It came out earlier this year. Each of those successive steps up is an innovation that would come with a higher price point. Some people might not mind measuring out how to detergent for a cheaper price, but others are willing to pay more to toss a tile into their machines and be done with it. And setting prices for those different products, it's a discipline unto itself with its own cast of experts. "I'm a pricing and value thought leader." Consultant Stefan Leozoo says over a fifth of Fortune 500 companies have dedicated pricing teams. "All we do all day is pricing strategy and pricing tactics. And it's kind of a niche function, but the profit and the impact that we generate in companies is tremendous." Those teams can help companies avoid the pricing strategy, is that leave customers feeling kind of icky. Boston University professor Tal Gross points to shrinking the amount of product, but keeping the price the same, aka, "thrinkflation." It's clearly a downer for consumers, no one likes that. Another alternative is just to simply raise your prices. Gross says with innovation-based pricing, customers feel like they're getting something new for their money, even while they're doing an old chore, like laundry. I'm Stephanie Hughes from Marketplace. We've been talking a lot about bonds on the program, as you know, because when their yields and their interest rates rise, so-to-do rates throughout the economy, and that makes money more expensive, more expensive for consumers, for small businesses, and for big corporations. But those rates don't all rise at the same pace. Over the past couple of months, rates on one particular kind of corporate bond have been rising, especially quickly, as Marketplace's Justin Ho reports. Different kinds of corporate bonds work like the different loans that you might take out. On one hand, you've got investment-grade corporate bonds, which are kind of like mortgages. They're considered relatively safe, because the lenders are probably going to get its money back. Even if the homeowner can't pay the mortgage back, the bank gets the house, and they're going to get their money back in another way, so it's low risk from the bank's perspective. Drew Pascarella teaches finance at Cornell University. Then, you get into riskier kinds of credit, say a subprime auto loan or credit cards. If a borrower runs into trouble and stops making payments, the lender might not be made whole. Without that safety of the bank being able to, say in a mortgage, reclaim the house itself, it's a riskier proposition for a bank, and with that additional risk comes additional interest rate. But the corporate version of these risky loans is known as high yield debt. You may remember them as junk bonds. Pascarella says the risk of default by companies that issue bonds of that type could come from a variety of factors. A company might struggle to change with the times, think radio-shack, or toys or us. It might be really exposed to rising energy prices. Or Pascarella says it might simply have too much debt to begin with. And they could find themselves in a similar spot, not because the business is necessarily going downhill, but because the amount of money that they have to pay back is too much for what the operation can afford. Over the last few months, interest rates have been rising the most on the riskiest high yield debt. Corporate bonds with what are known as triple C ratings, which is one of the lowest credit scores a company can get. When he sees her, global head of strategy at credit sites says firms in that category include rental car companies, movie theaters, telecom companies, several retailers. That's smart, Michael's guitar center. Those are kind of three big retailers in the triple C cohort currently. Cesar says many of those companies are dealing with challenges unique to their own industries. But a common theme is that they're all having trouble paying off their debt. And it's getting even harder for them as rates rise. They're highly sensitive to changes in the borrowing cost environment, because oftentimes that interest expense is a big chunk of their cash flow. Stress in the corporate bond market can become a vicious cycle. Randy Vogel had a fixed income with Wellington Trust says when a company has to pay more and more interest on its debt, unless you have to create new products, update machinery, things that you would hope will have a benefit cash flow in the future. As interest rates on riskier debt continue to rise, investors might not even want to buy those kinds of bonds anymore. Drew Pascarella with Cornell University says that could cause even bigger problems when companies have to raise money. If a company is in need of money because they have an existing loan that's coming due, or to make payments to employees or to suppliers, if you need money and you can't borrow it, you're in trouble. Pascarella says if they can't issue new bonds, some of them might go bankrupt. I'm Justin Howe from Marketplace. (upbeat music) First time claims for unemployment benefits drop last week to a near 57 year low. Another sign, not that we needed it, of this low higher, low fire job market. The low higher part of that equation is a challenge for people who are looking for a change. And that gets us to today's installment of our series, My Economy. - My name is Colleen Tigrasse. I'm a CPA living in Southern California. (upbeat music) I started in public accounting right out of college, and I was in the tax department, and I just hated it. (upbeat music) So about five years ago, I made the transition into corporate accounting, which was slightly better. It was still a touting, and after five years, I was just burnt out. You know, I'm married, and my husband was still working, although my income was the main income. I would say that if I didn't have that backup financially, I would not have quit my job with no backup plan. I was thinking it won't be that hard to find a job. I'll have a job lined up in two weeks, and then I'll tell them that my start date will be two weeks after that, and so I'll have an entire month off of work. It did not go like that this time. I met with a lot of recruiters. Nothing was coming from that. I had applied to 44 jobs. 14 got back to me, but of those 14 I had over 30 interviews. It was this constant stress that was hanging over me. And so being jobless, I made the commitment to do at least one fun thing every day. You know, I went to a theme park by myself. I made handmade pasta, roller skating, cross stitching, watercolor, I learned the Dallas Cowboys cheerleader dance. I think it was good that I had that because I didn't realize how much my purpose in life relied on my job. All in all, I was thinking you would take me two weeks to find a job. It took me over two months. And it's hard to picture myself working in accounting for the next 30 years. I don't think I'll fully ever view it as like my, especially now, like my purpose in life. It pays for the things that I want to do. But it's not my reason for living. Colleen DeGrasse, she just started a new accounting job as it happens in Orange County, California. You can tell us your job hunting stories or anything else that's going on with you in this economy at Marketplace, that award you. (upbeat music) - Coming up. - My car was having a persistent problem of not starting. - I mean, that's a pretty significant problem. But first, let's do the numbers. All right, the Dow and Dullstrills, up 11 points. We'll call that flat 52,067. The NASDAQ, down 694.2 and 610s of 1%, finished at 26,000 to end eight to the S&P 500. Colleen 93 points, that's 1.2%, 93 and 74 there. AI-related stocks. Yeah, that meta, down almost 7% today, advanced micro devices, down 8 and 1/10% in video, decreased 4 and 4/10 to 1% today. Proctor and gamble, up about 5 and 6/10% on the day. Bonds up, yield on the 10-year T-note down, 4.97% you're listening to Marketplace. - This is Marketplace, I'm Kyle Ristall. My all-time favorite candy is peanut M&Ms. But Reese's Cups are a very, very close second. And if you've had one of late, you might have noticed it tastes a little different as in not as good as you might remember. And therein lies a saga. Rachel Handler is a features writer at New York Magazine and Vulture and in her most recent story, she fell way down the rabbit hole of commercial chocolate and how and why it has changed. Thanks for coming on the program. - Thank you so much for having me. - Tell me, would you please, how you came upon this story? - So, I read about this a bit in the piece. I think everyone can sort of relate to eating something and feeling like this tastes different than it used to, but it's probably my fault. And I'm sure I remember remembering improperly. And then my editor reached out and said, did you see this Brad Reese thing? It's kind of gaining some momentum and do you want to look into it further? And I can really write about anything as long as I actually care. And I actually really did care. I was very interested. - Oh, it's just gonna say, it turns out you really care about chocolate. Brad Reese, right? He is the linchpin of this story. Tell us who he is, would you please? - So Brad Reese is the grandson of the founder of Reese's. So, Hershey bought Reese's in I think 1963. And he's never worked for the company. He has no formal attachment to it. He's just very passionate. When I first started talking to him, he was like, I used to eat a Reese's cup every single day of my life. He was sort of a whistleblower. Sort of like the Aaron Brockovich of Reese's and he just came out and came out swinging on LinkedIn in February and basically said, this doesn't taste the same anymore. And Hershey says, ruin the formula. And then that kind of snowballed into this story. - There are rules from the FDA on what chocolate is and isn't, yes? Yes, there are. But it's complicated because you can call something chocolate as long as it has a certain amount of cocoa butter in it and chocolate liquor. But once you start adding vegetable oils to the chocolate and taking the cocoa butter out, which is a cheaper solution that also changes the taste in the texture, you can no longer call it chocolate, but you can say on the wrapper, you can say chocolate candy, chocolate E. And that is where it gets really murky on purpose for the consumer because most people don't know to look for that. No idea until now and now I'm always on the lookout for that. - And how you are at chocolate expert. So let's talk about the guts of this piece. It's a recreation you did in an actual sort of professional kitchen of what you guys call, I suppose, the OG Reese's Cups and then like a 1960, 70 version and then the today version. Give us the synopsis of what happened there. - So I was speaking to a food scientist who has a company called Attribute Analyst X and it was Beth Kimmerley. And as we were talking, you know, she talked about doing, you know, a lot of taste tests in her kitchen and we both kind of simultaneously were like, should we do that? Should we create a taste test and get really, really granular and she offered to put it all together for me and it was amazing and she talked to people who used to work at her. She, this guy named Jason Liebig has this huge candy wrapper collection and she went back and got all the old wrappers, basically very, very, very painstakingly recreated. The original Reese's, one from the 60s that Brad had described really loving as a child and then we tasted it next to you, the one that's in on shelves today. - And you actually, so you did this over two days. Second day, you couldn't figure out which one was which, right? - I know, well, that was really funny too because, you know, I felt really cocky. Like I say in the piece, I was like, okay, I know. I just was like, okay, yeah, this is definitely one of the OGs but you know, I was wrong and I thought that was fascinating. I think, I think we've been trained as consumers to not to trust ourselves, not to trust our palettes, not to trust our own experience. I did lose some trust in myself that day but it's interesting, there's so much more. How we experience chocolate and nostalgia and you know, it's a really deep rabbit hole that I couldn't even, you know, get all the way at the bottom of. - No, that's a really good point. Chocolate is kind of nostalgic. Hershey's the company, which owns Reese's. The recipe has changed a little bit. It tastes a little bit different. Why is Hershey doing this? - I mean, to save money, for shareholder value, it's very bleak, at this late stage of capitalism, it's no longer about the consumer experience, it's no longer about what people like. It's about these companies saying how can we, you know, make this for the cheapest amount possible? That's the world that we're living in. - And meanwhile Reese's cups just don't taste as good anymore. - And they don't taste good, but they don't care. You know, that's the thing is Hershey, they care to the extent that people notice, but as long as people are still buying it, they don't care. - Yeah, and to be fair to Hershey, you had a conversation with them and you talked about the regulations and fundamentally, you landed on, you know, changes different depending on who you are. - Yeah, that was what was really interesting for me. And some people have compared it to the Nathan Fielder. You can see everything, movie, which is just sort of about the, you know, the collapse of meaning and the sort of unknowability, the way that people communicate and what was so fascinating to me about talking to Hershey, and this is not unique to them. I think this is true, a lot of companies, right? Like they're saying, you know, this hasn't changed. It's evolved, you know, and I'm like, okay, so it's changed. But we really couldn't agree on the definition of change, which is, you know, frightening on its own level. - Yeah, Rachel Hitler, she writes at the New York magazine, also Vulture, amazing piece. on chocolate. You ought to read it. Rachel, thanks a lot. I appreciate your time. Thank you, too. In inflation news today, we turn to your car. The cost of getting it fixed has increased 50%, 50% since the start of the pandemic. And that's at least in part because there aren't enough mechanics, the number who retire or find another line of work every year, outnumber the newcomers by nearly 40,000. And that's happening at a time when wrench-wielding mechanics have to have IT expertise as well. James Bennett, the second, has more. Charlie Solino runs the auto repair shop in Park Slope that his dad bought back in the 1980s. My father's a mechanic in technician. I basically did it on my summers, growing up, did one year of college, and then I went right into the workforce. That was 15 years ago. Now he's 35, which makes him younger than the average auto technician. And finding younger technicians to help out at the shop, it's a challenge. The industry is facing a shortage of 37,000 trained techs annually, according to the National Automobile Dealers Association. Solino thinks there are a few reasons for this. First, technicians at the beginning of their careers are largely tasked with grunt work. They feel stuck in the profession. They don't really feel like they've grown in their skills, because they're stuck doing the same things over and over again, bouncing tires, doing brakes, oil changes, they're not doing like the heavy burden stuff. Second reason, better tools mean better opportunities, but tools are expensive. Those massive tool chests, you see? Sometimes techs buy their own and they can go for up to $15,000. Paying off those purchases eats the majority of a paycheck. And third, there's the issue of modern cars. My car was having a persistent problem of not starting. Shauncey Matthew is a longtime customer of Solino's. She drives a 2021 Mazda. I learned the name of my local triple A guy because he kept coming out and jump starting my car and he was like, you again? And I was like, yeah, me again. She took her car to Solino. He unplugged everything that could be unplugged, trying to figure out what was going on. And then he said, I think it's time to take this over to the service center at the dealership. So she drove it to the Mazda dealer. The solve was in resetting the software system in some way. They had to reboot the car. Repairs like these require certain software tools. Dealerships have those, but for indie techs, they pose problems. Some car manufacturers won't sell them at all. On the ones that do, it's pricey. If I spend 15 to $20,000 on, let's say, a piece of Audi software, the repair that you're going to charge a customer may be only 500 to 1000. So who knows when you'll see the rest of that? That could take weeks, that could take months. Solino says that apart from service on brakes, tires, and suspension, he passes on working on newer BMWs involved those and other European cars. Software services for airbags, key and ignition, detailed wiring. That's a little limited to dealerships. And over a year, the work he passed up adds up. It's hard to really put an over on it, but man, I could tell you probably at $50,000 to $100,000, I mean, easy. Solino knows what shape his industry is in. It's not a profession many aspire to. Parents right away, they put that in their kids head. Yeah, you know, maybe it's good to learn how to work on your cars, but don't become a mechanic. And I think my dad told me this thing, don't become a mechanic. But sometimes you're just good at something, he says, and you like doing it. So you just go with it. In Brooklyn, I'm James Bennett, the second from Marketplace. This final note on the way out today, in which I'm going to roll out my high school French. The bonds of increasing interest to global traders, no disrespect to the US 10 year, are known as Oats, OATS, Obligation, Asimilables du Trésor, French Treasuries, the 10-year Oats closed above 5% today, as the French debt crisis and public unrest about it continue. Andy Corbin, Mika Ellison, Maria Hollenhorst, Sara Leeson, Sean McHenry, and Sofia Torenzo. Our the daily production team on this program. Well, stories is the supervising senior producer. I'm Kai Rizdal, we will see you tomorrow, everybody. This is APA.