Marketplace - A weaker dollar

Episode Date: August 29, 2024

Why is the U.S. dollar losing steam? The short version: Falling demand for the currency drags its value down. Since the Federal Reserve is likely to cut interest rates soon, investors aren’t racing to buy U.S. bonds. And you need U.S. dollars to buy U.S. bonds … you get the picture. In this episode, more on currency fluctuations — and why the dollar losing value isn’t all bad. Plus: Businesses investing in themselves drove up second-quarter GDP, China has a burgeoning black market for Nvidia semiconductors and human bodies make great compost.

First of all, the economy is growing. We'll talk about that. And then, Dollar General or the U.S. dollar? Which one do you think is having a rougher time? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Thursday, today the 29th of August. Good as always to have you along, everybody. Let us pause here for a moment as we get going for two observations.

Observation number one, and generally speaking, this economy is pretty good. I mean, sure, the labor market is a bit bumpy, but by and large, it's pretty good. Observation number two, it might actually be this economy better than we'd thought. We learned from the Commerce Department this morning in its regular update that gross domestic product for the second quarter grew at an annualized rate of 3% April to June. That's more than twice as fast as the first three months of the year. Accounting for the improvement in GDP, the Bureau of Economic Analysis says increases in consumer spending, inventories, and something called non-residential fixed investment, basically

businesses spending on new plants and equipment. Marketplace's Mitchell Hartman explains what's going on. Drill down in the GDP report to Table 1, Line 11. Fixed investment in equipment up 10.8% in the second quarter. Businesses are profitable. They're making lots of money. Demand is pretty good. Mark Zandi at Moody's Analytics says one thing driving strong business investment is federal spending. The Inflation Reduction Act, CHIPS Act, bipartisan infrastructure law, all of

that requires private sector business investment. Bill Adams at Comerica Bank notes there was a big jump in transportation equipment spending. Non-defense aircraft, which are notoriously lumpy, they can cause a lot of fluctuations. But investment in trucks to haul raw materials and consumer goods was also strong. So was spending on computer equipment to help companies adopt automation and AI. Shruti Patel at US Bank says 60% of small businesses are already using chat bots, personal assistants and the like. They're hoping that translates back into upskilling and training of the employees to help combat

labor shortages. In Chicago, Jim Piper's 40-employee metal fabrication company makes air dampers for pollution control in factories. We have made this past year, despite the higher interest rates, investments in new capital equipment. Nearly $2 million includes new machines for cutting, also heavier duty machines for forming steel. Piper says that'll allow him to improve quality and productivity. Investments into this type of technology will actually increase demand for the product, thereby increasing demand for additional employees. Helping his workers and his bottom line.

I'm Mitchell Hartman for Marketplace. You can buy at Dollar General, should you so choose, everything from fake flowers to light bulbs to a plain white t-shirt. But most of that company's sales come from what the retail world refers to as consumables, things we use up on a regular basis, think milk and cereal and trash bags. And it turns out Dollar General is selling more of those. The company reported today net sales were up last quarter compared to the same time a year ago, and specifically that sales of consumables were up 6%. Profits, however, went the other way. Marketplace's Stephanie Hughes is on that one.

Jason Cordova is what you might call a dollar general regular. Yeah, I just walk over all the time, probably three, four times a week. Today in Baltimore, he was picking up a payday candy bar and chocolate covered raisins. He also buys lunch meat, bread, sometimes chalk for his kids. He shops a dollar general for these kinds of things because he likes the prices. The corner store is going to charge you a lot, like $5 for the order. Here, you get it for $2, $3. Cordova's out of work right now, so he's on a budget.

And 60% of Dollar General's sales come from households that earn less than $35,000 a year. Retail consultant Mark Cohen says price is everything for these shoppers. Especially with regard to consumable products, things they buy they feel they must buy on a regular basis. People will still shop around to get the best deal. So even when wholesale prices for consumables rise, Cohen says Dollar General can only charge so much. If their prices were to become less ruthlessly competitive, they would get clobbered. That can make profit margins on those consumables slimmer, even when sales go up. Willie Shee is a professor at Harvard Business School.

The profit formula for a store like this is get people in the store by buying the consumables, but then they also offer some of those housewares. In Baltimore, Joseph Sammon gets all of the above at Dollar General. Today, he'd just purchased a Glade automatic spray holder. Mm-hmm. Make the house smell good. While we were talking, he opened the package to see if the air freshener itself was included. I don't think it's running here. That's okay. I'll go back.

And that is kind of the whole idea. In Baltimore, I'm Stephanie Hughes from Marketplace. Wall Street today a little up, a little down, but just a little. We'll have the details when we do the numbers. It's been a tough couple of days in the equities market for Nvidia. The AI chip designer to beat all AI chip designers reported quarterly profits after the bell yesterday made plenty of money, but it's heretofore incredible growth is becoming just a little bit less incredible. Investors were displeased. That said, demand for its chips does seem to be as high as ever.

NVIDIA's chips are at the heart of a set of export restrictions that the Biden administration has put into place over the past couple of years, blocking the sale of the most powerful semiconductors to China specifically on the grounds of national security. But as with any sort of sanction or trade restriction, closing one door often opens another, this one to the black market. Anna Swanson covers trade and international economics for the New York Times. Also, she is one of our Friday regulars. And she recently had a big investigation into China's super chip black market. Anna, welcome to the program. Good to have you on. Thank you.

So start for me where you start this piece in the market in Shenzhen. Just describe for people who haven't been there what these places are like. Yeah. So I was able to do some reporting in this Incredible electronics market in Shenzhen that stretches for about half a mile. And so Shenzhen is a City in southern China right across the border from Hong Kong. That's a center of the tech industry and in this market there It's basically notorious for selling any kind of tech device you would want. So people are selling computers, but also Apple watches. I saw various kinds of robots, robot waiters, and then also these chips, which I focus on in the article.

To be clear, those markets are, I mean, it's pandemonium in there. I've been to those kinds of markets. And what your reporting shows is that some of the world's most sophisticated computer chips are being sold in there. That's right. Yeah. So I was looking for some of the most advanced chips made by NVIDIA, chips that are used to create AI.

And I wasn't actually sure what I would find there either. And what I found was that these chips seemed to be pretty readily available. Able to find quite a few vendors in the short time that I was there who said that they could do deliveries, they regularly do deliveries. And even some people who were talking about larger volume transactions, like hundreds or thousands of chips, which ranges into like $100 million, some of these deals.

So the volume is really important because it takes a lot of chips in order to do AI. And so that for me was really notable that that large volumes did seem to be available there to be clear These are genuine articles right not fakes not not counterfeits any of that So, you know, that's a question that we were wondering about as well We talked to some experts about it and they said that given the scale it would be, you know Very difficult to counterfeit These kinds of really advanced products.

It might be that some of these chips are older NVIDIA chips that are being refurbished and sold, but some of these chips, yeah, they're very advanced tech products. Now, how is this happening? Because as you say in this article and as we've reported on this program, there are sanctions all over the place in place against selling these chips to the Chinese. Yeah I mean my takeaway just big picture is that the financial incentives to do this are just incredible and overwhelming. Mechanically I mean so these chips are all made in Taiwan. And then a lot of times they're just traveling around Asia

in the electronic supply chain. Many of them never even cross US borders, probably most of them, until maybe they're delivered to the ultimate customer. So there's also questions about how far the US can really regulate and how far the US reach extends. I was interested to read actually that not all of these chips are going to the military, right? Which is the big defense and national security concern.

And they're not even all going to AI. They're going to social media companies, they're going to game makers, they're going sort of all over the place. Oh, totally, yeah. In fact, I would say the vast majority of chips that Nvidia sent to China have not been used for military uses. Most of them are just sent to China have not been used for military uses.

Most of them are just used to kind of organize people's social media feeds and serve personalized ads and search results. Some of them are even used for very beneficial things like mapping out model and climate change or making sure that high-speed trains are not derailed. But some of them have also certainly been used for defense research. And I was able to find some previously unreported instances where these chips were being used to model underwater explosions or nuclear weapons, different types of weapons systems. So about what happens next, Secretary of Commerce Raimondo has said, in essence, I'm paraphrasing

here, we're doing the best we can. The best is clearly not good enough, so now what happens? Well, I mean, one of the arguments they make is that they're working over time, but that the bureau that enforces these controls is tiny and really underfunded. Whole budget is about $200 million, which is the cost of two fighter jets. It's really small in comparison to anything we send to the Department of Defense. And then I think there's also a lot of questions about what kind of due diligence companies should be doing.

Is there more that they can do to track these supply chains? And are US government regulations going to evolve too? We're expecting another rollout of even tighter restrictions on this chip sector at some point here. It's an eye-opening piece by Anna Swanson of The New York Times, your colleague Claire Fu. Thanks, Anna. It's really good to talk to you.

Thank you. We saw a piece over at Bloomberg this morning pointing out that the U.S. dollar is down about 5% over the past couple of months, the lowest it's been now in a year. The ebbs and flows of currency markets can be complicated, to say the least, and whether a strong dollar or a weak dollar is good or bad is not always clear, no matter what the politicians say. Marketplace's Justin Ho looked into what's been happening lately and what might happen from here. The value of the US dollar, like the value of anything,

really, is affected by how much demand there is for it. And lately, demand has been weakening. The main driver is the anticipation that the Fed is likely to cut interest rates in September. That's Catherine Dominguez, an economics professor at the University of Michigan. She says investors have been demanding other currencies since lower interest rates in the U.S. make our bonds, which you need dollars to buy, less attractive. Plus, investors might be worried about the U.S. economy. Labor markets in the United States seem to be cooling and growth prospects are, I think the word is now, normalizing.

Remember, a weaker dollar isn't necessarily a bad thing. Megan Schoenberger, senior economist with KPMG Economics, says American exporters, the agriculture sector for instance, tend to see a boost when the dollar weakens. Because essentially you're exporting a cheaper product relative to the global economy. On the other hand, a weaker dollar makes imported products more expensive. But Schomburger says she's not that concerned, in large part because retailers are reluctant to pass higher import prices on to consumers. We see that in the retail sales reports, for example, that consumers are becoming much

pickier. But if you discount, they're going to come. And even though demand for dollars has been weakening, there will always be some, says Juan Perez, director of training at Monnex USA. The dollar is a safe haven during times of global chaos, but it's also a safe haven when the U.S US economy is just naturally doing OK. Because the dollar is still, after all, the world's reserve currency. I'm Justin Ho for Marketplace. Coming up...

It brings together the intersection of environmentalism and grief support. An unusual combination, but first, let's do the numbers. Dow industrial has picked up 243 points today. Six tenths percent closed at 41,335. The Nasdaq down 39 points, about a quarter percent. 17,516. The S&P 500 flat today, 55.91 there. Stephanie Hughes was telling us about Dollar General

and its move into grocery sales. Shares there plummeted 32%. Elsewhere in grocery. Walmart, yes Walmart, gained 4 tenths percent. Costco dropped 2 tenths of 1%. Kroger slid about 1.4% today. Nvidia, which we mentioned up at the top of the program, talking on a 6 and 4 tenths percent to the downside today

despite those results that beat expectations. Shares up more than 140% though since the start of the year. Bonds fell yield on the 10-year T-note, 3.86%. You're listening to Marketplace. Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like how much to spend when your pet is dying. Or what to do if you uncover a loved one's financial secrets after they've passed. It's like having this albatross, this monkey on your back that you don't want amongst everything else. I'm Rima Grace, host of This Is Uncomfortable, a podcast from Marketplace. This season, we've got a wide range of stories

about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief. Listen to This Is Uncomfortable wherever you get your podcasts. This is Marketplace. I'm Kai Rizdahl. Startups.

I've had a pretty tough time the past couple of years raising money to do that startup thing. According to S&P Global Market Intelligence, the value of private equity and venture capital backed funding rounds, which is literally how much money startups got from venture capital and private equity, it was down about 7% in July from a month earlier. It's a big turnaround from early in the pandemic when cash was plentiful and interest rates low. Marketplace is a pretty big shore,

takes us through the angst in the land of venture capital right now. When batteries in like an electric car or an e-bike are running low, there's actually AI software that can squeeze as much energy out of them as possible. Our software is in everything from e-bikes to giant grid-scale batteries to expand your range on a particular drive or increase the energy availability.

Shyam Srinivasan is CEO of a startup called Zittara, which makes such power-saving software. He says between 2019 and 2022, Zittara raised $20 million. In those early COVID recovery years, there was a feeding frenzy of investment in startups generally. Where people were maybe throwing capital at us left and right. Interest rates were basically zero. So investors were looking very hard for ways to make money. And they watched a record number of startups and other companies go public, making lots

of money for their early backers. In 2019, 232 companies went public. In 2021, more than a thousand did. There was a lot of this FOMO and it had this fear of missing out on these returns. Kyle Stanford is a lead venture capital analyst at PitchBook, so investors poured into startups, making big bets. But as time went on, a lot of the 2021 tech IPOs did not make public investors money. Kyle Louie is a general partner at VC firm Bling Capital. 84% of the IPOs from 2021 are still underwater.

Also the number of IPOs tanked. So there is now a lot of investor money sitting in shares of startups that those investors paid a lot for with no way out. And so I think that institutional investors are a little hesitant to invest in this next crop of companies. Hesitant and very picky. There's been a massive flight to quality. Srinivasan, the CEO of Zetara,

has been on the front lines of that flight. He is raising another $17 million, and there's interest. AI and batteries are still hot topics, but he says things are different. Even with it going well, the investors that we were talking to were simply comparing us against a higher volume of deals. And so, you know, moved a lot slower than they used to.

There's now more than 55,000 venture-backed startups, about double the number in 2017, according to PitchBook. And they are all fighting for limited investor money. And so, so many companies raised money, so many companies went out and built sometimes great products and earned real revenue over the last couple of years. And so, even with all of us doing well, it feels like we're in line for a mass kill extinction event.

Startup software provider Carta reported that more startups closed in the first quarter of this year than in any quarter in the past decade. Dylan Thomas, a reporter with S&P Global Market Intelligence, says evidence of a turnaround is mixed at best. Investment ticked up for the very earliest stage companies just getting their start, but not for startups as a whole. If you look back through the first half of the year, both the value and the number of venture capital funding rounds were lower than they had been the year prior in 2023.

Help may come from the Federal Reserve if it cuts interest rates as expected. There is a relationship to venture funding and interest rates. Steve Kaplan is a professor of entrepreneurship and finance at Chicago's Booth School. If interest rates in the economy in general are lower, startups, while risky, look more enticing as a way to make money. On the other hand, the headwind is the exits. The exits. The IPOs. The buyouts that are not happening.

Those are how all the money stuck in earlier investments comes out to be invested again. It is the pot of gold at the end of the startup rainbow. They got so many investors to invest in the first place. The same pot of gold that has not shown up much the past few years. In New York, I'm Suri Benishur for Marketplace. Death, while coming for us all, never ever comes at a convenient time. Emotionally, of course, but more practically, too. The logistical hurdles are sizable.

Planning a service of some kind, sorting through a will, and deciding what to do with a loved one's mortal remains. About 35% of people in the United States choose traditional burial, roughly 60% choose cremation, and that's been going up. But in the past five years or so, a new method has started to take off. Since 2019, 12 states have legalized it and 10 more might. Marketplace's Kelly Wells has more. How we dispose of dead bodies isn't exactly polite dinner conversation, but it will affect all of us at some point.

It's uncomfortable and inevitable and significant and something Sean Hanna had to wrestle with a year ago when he lost his partner Stephen Staunton to brain cancer. Staunton was an avid gardener and a really big fan of eating mushrooms. And he just thought that might be like a really cool idea as if he became a mushroom. In the end Staunton fertilized some of his favorite houseplants after his body was teramated which means, and there's no polite way to say this, composted. The company that provided the service is called Earth Funeral. Co-founder and CEO Tom Harry says it's a simple, four-step process. Step one is gently washing a body and wrapping it in a biodegradable shroud. Step two is placing the body in a vessel.

The vessel is a giant, sleek cylinder, kind of like a small MRI machine. On the bed of organic mulch, wood chip, and wildflower. You add that stuff because you need a balance of nitrogen and carbon to make everything decompose properly. Step three is optimizing temperature, moisture, and oxygen levels. That creates the perfect conditions for microbes to break the body down. And step four, after 30 days of periodic agitation, just like turning the backyard compost pile, they pull out 200 to 300 pounds of nutrient-rich compost. Most families keep a small portion of it.

And then any remaining soil is sent to conservation land. And it costs less than traditional burials and about the same as cremation. We're like $5,000 typically, so really quite affordable relative to traditional options. Earth Funeral just opened a brand new facility in Las Vegas to serve the Southwest. On opening day, workers are installing some of the 75 tarimation vessels. Harry's is showing officials and stakeholders around, including the co-sponsor of the bill that just made this legal in Nevada, Assemblymember Max Carter. It brings together the intersection of environmentalism and grief support.

The environmental argument for this is that the process creates almost no pollution, unlike other options. The traditional funeral industry as it exists right now in the U.S. is really resource heavy. Bree Smith works for Return Home, another taramation service. She says it's not just the embalming and the headstone. We have casket production. We have, you know, obviously vault for the outside of the casket. The vault is a concrete and rebar casing for the casket. Cremation uses up a lot fewer resources, but still. It's just a bunch of propane and high volumes of carbon releasing into the atmosphere. The Las Vegas Center hadn't opened yet when Stephen Staunton died.

His partner Sean Hanna arranged for his body to be sent up to Washington State for terramation. The soil that Staunton became fertilized trees in the Olympic Peninsula. That was one of my favorite rainforests is the Olympic National Forest. When Hannah's time comes, he has options closer to home, but he wants to be in Washington State too. I was going to try not to cry. But yeah, I think I'd want to be where he is. A small portion of Staunton's soil returned to his family.

His brother spread his portion on a campground they visited when they were kids. His mom used the soil to fertilize her vegetable garden in Maine. And a small container went back to Hannah in Los Angeles, which he spread over the plants that they potted together just before Staunton died. In Los Angeles, I'm Kaylee Wells for Marketplace. This final note on the way out today, just because we talked about it a lot on the way up, seems only fair to talk about it on the way down. The average rate on a 30-year fixed-rate mortgage fell again this week down to 6.35%, says Freddie Mack. Not all that long ago, say end of last year, 7.8%.

Not to get too geeky on you here, but the word you're looking for is priced in. As in the mortgage markets have already priced in, a rate cut by the Federal Reserve at their next meeting. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Pietra, and Stephanie Sieck are the Marketplace Editing staff, Amir Bibawe is the Managing Editor, and I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM. Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like how much to spend when your pet is dying.

Or what to do if you uncover a loved one's financial secrets after they've passed. It's like having this albatross, this monkey on your back that you don't want amongst everything else. I'm Rima Chreis, host of This Is Uncomfortable, a podcast from Marketplace. This season, we've got a wide range of stories about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief. Listen to This Is Uncomfortable wherever you get your podcasts.