Marketplace - Lone Star stock exchange

Episode Date: June 5, 2024

A Texas group is planning to open a Dallas-based stock exchange, it announced today. In an era when most stock trading is online, why does it matter that the exchange will be in Texas instead of New York? Also in this episode: Economists disagree on the power of the “wealth effect,” the co-working space industry tries to reinvent itself, and nanobubbles fight toxic algae in a Southern California lake.

You know, sometimes what happens in this economy really is all about how you feel. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Wednesday today, the 5th of June. Good as always to have you along, everybody. The marketplace number of the day today is three. Three followed by 12 zeros. Three trillion.

More precisely, $3.012 trillion. That's the market capitalization of Nvidia, the AI chip designed behemoth as of the closed day. And while yes, market cap is fundamentally simply formulaic price per share times the number of outstanding shares on another level, it's a measure of wealth about how people are feeling about this stock or that. At the end of last year, the total value of all stocks in the United States was almost $51 trillion. Just five years ago, it was $32 trillion. Americans are, on average, much richer now, on paper.

Whether and how much all that paper wealth actually seeps into our real-life spending, that's what economists call the Wealth Effect. And those same economists, oh, they disagree on how strong it is. Marketplace Sabri Benishaw gets us going. If you feel good, you spend good. That is the idea behind the Wealth Effect. If you see a lot of green on the screen and your 401k looks a lot fatter and you know you looked at Zillow and you saw the place was up for your home, you feel better about things? Mark Zandi

is chief economist at Moody's Analytics. Paper wealth pumps you up and you're spending too. You know go out to dinner have a nice bottle of wine or something. The reverse is true too. If your stocks are crashing you are less likely to splurge. It also depends on what kind of paper wealth you have. Stock wealth is one thing. Housing wealth is another thing. Crypto is another thing altogether. Crypto is so volatile, you might not actually trust that you are that much richer.

But the wealth effect isn't entirely psychological, especially these days. In the first quarter of this year, Americans earned $11 trillion in interest and dividends, according to the Bureau of Economic Analysis. That is the most ever. In general, on average, through time, across assets, I'd say for a dollar increase in someone's net worth, their spending will increase about two pennies. Some economists believe it's much, much higher, maybe more than 30 cents on the dollar, driven by more retirees and more household wealth.

Whatever the fraction is, the numbers are huge. Total market capitalization of all U.S. publicly traded stocks is around two times the size of the U.S. economy. Doug Ramsey is chief investment officer at the Luthold Group. Doug Ramsey is chief investment officer at the Luthold Group. The long term average is for the stock market to be a little bit smaller than the size of the GDP. If paper wealth is an engine of consumer spending, it ran hot coming out of the pandemic, argues Tuan Nguyen, U.S. economist for RSM.

He believes the wealth effect is particularly strong. It was certainly one of the main reasons why inflation reached 9% two years ago. Today, the wealth effect might be doing something different. Helping to keep the economy running strong instead of running hot. All that paper wealth could be, he says, one reason the US economy has defied predictions of imminent recession again and again.

In New York, I'm Sabri Benishur for Marketplace. Speaking of wealth on paper, the Lone Star State is getting its own stock exchange headquartered in Dallas. The announcement came today from the TXSE group, get it, Texas, TX, stock exchange group, backed by heavy hitter investors like BlackRock and Citadel Securities.

Thing is though, stock trading today is A, national you can trade from anywhere and B, it is online mostly. So does the South really need its own exchange? Reporting from her home state of Texas, but not in Dallas. Marketplace's Elizabeth Troval has the story. Word of the Texas Stock Exchange came as positive news to Rice

University finance professor John Diamond. Not just because I live in Texas but I think it's great because it adds competition. Another place where companies can go to access capital besides the Nasdaq and New York Stock Exchange. And he says Dallas is a strategic city. The financial sector there's enough web quartered public companies in Texas to make it make sense. But Jonah Crane with financial advisory firm, Clara's group says trading isn't happening where used to.

For a fully electronic exchange, having the exchange located in Texas really just means that you have a bunch of data centers located in Texas. Most exchanges are not physical places where trading takes place in person. It's not so much about Texas, but getting away from the growing list of rules that the New York Stock Exchange and NASDAQ have imposed in recent years. One example? Any company that lists on the NASDAQ exchange has to observe certain board diversity requirements. That's

become a somewhat controversial requirement. But to compete with the New York exchanges, Michigan State University's Jiang Min says the Texas stock exchange will have to focus on attracting a large trade volume. Even if their purpose is to provide a very different set of regulatory rules. They still need to focus on the fundamentals to achieve the goal. Fundamentals like a reliable platform and lower fees. In Houston, I'm Elizabeth Troval for Marketplace. On Wall Street today, see also Wealth Effect.

We'll have the details when we do the numbers. To the labor market we return now ahead of the May unemployment report we're going to get on Friday morning. Wednesdays during the first week of the month we get data from ADP, the payroll processing company, which said on this particular Wednesday that the private sector added 152,000 jobs in May. That is fewer than were added in April, so a bit of a slowdown. Maximum employment, as you might recall, is part of the Federal Reserve's dual mandate, inflation. That is, stable prices is the other.

And as it happens, there is an idea in economics that those two things, unemployment and inflation, are linked. It's called the Phillips curve. Marketplace's Stephanie Hughes has today's explainer. Economist A.W. Phillips came up with what's known as the Phillips curve in 1958. It says that low unemployment is linked to high inflation. Anne Owen is a professor of economics at Hamilton College.

When unemployment is low, wage increases have to be larger. Companies are competing for fewer available workers, so they up their wages to bring them in. But that costs money, so? They need to be able to pass those higher costs along to consumers in the form of higher prices. In other words, inflation. And if that's the case, it's kind of a bummer, right? Because it means in order to slow inflation, more people need to be

out of work. That's why they call economists the dismal scientists, right? Because we're kind of bumming people out all the time telling you about the tradeoffs. Monetary policymakers can use the Phillips curve, says Allison Lookke, professor of economics at St. Olaf College. If you're like, I'm really going after unemployment, good. But be aware, there might be the cost of higher inflation. Except, the Phillips curve relationship sometimes breaks down. For example, even when unemployment is high and there are lots of workers available, employers don't generally cut wages, so inflation won't be zero. It also doesn't take into account other factors that also contribute to inflation.

It's a simple tool. It can't do everything. We need more tools. Claudia Somm is chief economist at New Century Advisors. She used to work for the Fed. She points out one of the factors that's led to inflation over the past few years is supply chain disruption. The Phillips curve is not useful for that. It's just not in the concept of it. So it really came down to a debate of what's causing inflation. And lately it's been difficult to use the Phillips curve to make predictions. Again, economist Ann Owen. The stability of the Phillips curve has not been great for at least 20 years.

There's no magic button to control inflation, as we've seen. Instead, Owen says it's best to think of the Phillips curve as just one way to understand the economy. I'm Stephanie Hughes from Marketplace. All right, just a little more work now. It has been a bumpy start to the year for WeWork, the once-punit-time flagship co-working business. It filed for Chapter 11 protection last November and just last week finalized a bankruptcy plan that will

get it more capital, clear off about $4 billion worth of debt and close about a third of its locations around the world. But in this age of hybrid work, the co-working industry has actually gotten bigger than just WeWork and the business model is changing too. Amanda Hoover is a staff writer for Wired where she had a story the other day on the wider co-working industry, headlined, Local Co-working Spaces Thrive Where We Work, Dared Not Go. Amanda, thanks for coming on the program.

Thanks so much for having me. So as I said, the headline of this piece is, Local Co-working Spaces Thrive Where We Work, Dared Not To Go. Where oh where did we work dare not to go that these places are thriving now? Yeah, this story was about a couple of kind of unexpected co-working spaces. I personally went to what was formerly a church on Long Island, still looks like a church, you know, big white steeple. The article mentions some other kind of places like this, like a motorcycle repair garage, some old warehouses. You know, WeWork has done some outfitting of old spaces, but mostly we think of them as a company where

they're renting office spaces in commercial downtowns. And a lot of these places are outside of those commercial downtowns, and they're in these kind of unconventional buildings now turned into offices. The really interesting part about this is, set aside the church and the motorcycle repair shop, they are distinctly suburban. They're not in, you know, like city centers. Yeah, or not large city centers. Some of the ones, some of the ones, there's company switch yards, you know, they're based

in mid to large sized cities, but maybe in more residential areas, or is where they have found a lot of success. What's the theory that, you know, says we're going to put it here, but not where office workers typically congregate? Yeah. I think people are looking for convenience and they're looking for community. And what better way to get that than walking five, 10 minutes to work from somewhere that isn't home, but is pretty close to your home.

You're kind of surrounded by your neighbors and your community, but getting out of the house and the very claustrophobic nature that working from home can definitely create. Well, you know, it's interesting, right? Because, you know, work is changing. The places we do work is changing and in a lot of ways, how we work is changing. I was struck though, by the end of your, but literally the last line. Some parts of office life will ultimately stay in place no matter where people decide to work from.

We want, not to go back to Starbucks from 15 years ago, we want that third place. Yeah. There's been so much that's come out recently about how lonely people are, how lonely Americans are, how lonely Americans are, how lonely workers are. And a lot of people have forged really positive connections that can last for years, you know, based on relationships with their coworkers. But it's much, much harder to do that, obviously, if you aren't forming those bonds that can extend, you know, beyond the day-to-day transactional pieces of work that you do together.

Which I totally agree with. But is that a good foundation for a business model? How are these companies going to do with the OG in this space, WeWork having spectacularly not done well? Well, WeWork has exited bankruptcy or they're in that process. They got their final approval to do so and they really still view coworking as a viable business and they're a much leaner company now. A lot of other companies that are smaller are finding ways to maybe own the space and not have those leases.

Are looking into management agreements and revenue share agreements with landlords, kind of changing some of the riskier pieces of the financial model that came from leasing office space and subleasing it out, hoping to, you know, make a premium from those subleases. And that was kind of WeWork's original model. So we're definitely in a moment where the future of co-working is being put to a test in the viability of it. You spent a couple hours or a morning, I guess, working out of that converted church. How was it? It was so interesting because it was kind of like any other modern office in a way. It had a gym, there were people chatting, people heating up their lunch.

You are in this beautiful older church, but it's still, you know, a Thursday at work for people. A Thursday at work. Amanda Hoover at Wired talking about co-working spaces, new co-working spaces. Amanda, thanks a lot. Appreciate your time. Thank you. Monday, Tuesday, Wednesday, Thursday or Friday at work, we we've got a podcast if you miss something on the air.

You can check it out at marketplace.org or on the platform of your choice. Just follow us wherever you like. Coming up... They're 2500 times smaller than a grain of salt. Ooh, I don't know, that's pretty tiny. First though, let's do the numbers The 500 gained 62 points, 1.2%, 53 and 54. Hewlett Packard Enterprise shot up more than 10% today after posting better than expected second quarter earnings. Tech firm also issued full year guidance

that beat expectations held by demand for its artificial intelligence servers and cloud and data storage. AI is everything these days. Discount retailer Dollar Tree pulled back about 4.9% today on worse than expected second quarter guidance. The company said it's also considering a possible sale of its family dollar unit, which has

delivered disappointing growth in profits since it was acquired in 2015. If you're not confused already between all the dollar stores, the rival discounted dollar general, I dare you to keep them straight, which said recently it expects consumer spending to be under pressure for the rest of this year was basically flat. You're listening to Marketplace. Seasons change. Why not your tech? Upgrade now during the Dell Technologies Summer Sale event and save on select PCs like the XPS 16 powered by Intel Core processors. You'll be able to bring your most intensive projects to life with built-in AI,

minimalistic design, immersive visuals, and cinematic audio. Plus, complete your dream setup with deals on select monitors, mice, and more must-have electronics and accessories. When you shop online at dell.com slash deals, you'll have access to exceptional tech and electronics plus free shipping on everything. Amazing prices await you for a limited time only at dell.com slash deals.

That's dell.com slash deals. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama.

What happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now. This is Marketplace. I'm Kai Rizdal. There is something we need to tell you about a lot of the economic data that we cover on this program. It's a little weedy, but it's important, the idea of seasonal adjustments, because all times of year are not created economically equal. Here's Marketplace's Dan Ackerman. Earlier this year, the January jobs report came in hot. No, come on, this labor market? 353,000 new jobs. 353,000 new jobs.

That's what the headline said. But what was actually happening to real people in the economy? According to Johns Hopkins Professor Jonathan Wright? I'm going to guess they lost well over a million jobs. We can go and look it up. Wait, what?

I did look it up. And he's right. January this year saw 2.8 million fewer workers on non-farm payrolls. There were a lot of people who were hired for the Christmas holiday season, and those were temporary jobs, and they're gone in January. This happens every year. Gift shop retailers, delivery drivers, mall Santas, millions of those jobs disappear. If you just looked at the raw payroll numbers, you would say that there is a massive recession

every January. Which there isn't. And that's why when economists look at data to figure out how the economy is trending, they often seasonally adjust the data. Betsy Stevenson is professor of economics and public policy at the University of Michigan and former chief economist at the Department of Labor. She remembers wondering about seasonal adjustment as a student. What is this seasonal adjustment?

It sounds so fancy, like there's nothing to see here, ma'am. It's just some seasonal adjustment happening on the side. And I'm like, but what is it? What it is, is raw numbers smoothed out to remove those seasonal swings that we know happen every year, like how retail jobs and hard alcohol sales boom each December, or how construction jobs and beer sales spike every summer. What we want is to be able to see through those patterns, which can be so big that they would mask

and make it hard for us to see real fundamental problems that might be, say, slowing the economy. So when we hear Kai felling about January employment. 353,000 new jobs! Jonathan Wright says, We should remember that deep inside the BLS, somebody has been doing this adjustment. And deep inside the Bureau of Labor Statistics is where I found Stephen Mance. I am a supervisory mathematical statistician.

He says the BLS has been publishing employment data since the 1800s. Back then it was the raw jobs numbers, how many actual humans on payrolls each month. But in the 1920s, one of the most important users of that data decided those raw numbers weren't good enough. The initial seasonal adjustment, a lot of it was done by the Federal Reserve. The Fed, of course. What, is it going to slash interest rates each January when mall Santas hang up their hats? Fed economists needed a clearer picture of how the fundamentals of

the economy were shifting year over year. So they got to work. With mechanical calculators and graph paper and draftsman's tools. And created their own seasonally adjusted employment data, which they used to conduct monetary policy. But other folks needed seasonally adjusted data too, like economists, academics, and business journalists. So in the 1960s, thanks to the advent of fast and cheap computers, the BLS decided, all right, we'll do it ourselves

and publish the seasonally adjusted data for public radio programs and everyone else to enjoy. Because, says Betsy Stevenson, you don't really need government stats to tell you that fewer people have a job in January coming out of the Christmas holidays. She says what you need is to know whether getting a job this January is harder than it was last January. I'm Daniel Ackerman for Marketplace. Sea level rise is already a pretty big part of the climate change conversation. Less talked about is what a hotter planet is doing to some freshwater lakes. They are getting warmer, which is leading to lots of toxic algae, the kind that can

end up killing every other living thing in any given lake. That's exactly the problem at Lake Elsinore, about halfway between LA and San Diego. The small city that surrounds it has spent years trying to keep the lake healthy without too much success. So now it's trying something new. Marketplace is Kaylee Wells headed to the shore to see how it's going. Last time Danny Taylor came out to Lake Elsinore 15 years ago, the algae was in bloom and the lake was not what he was hoping for. Brown, smelly. Not exactly a site he was racing to return to.

I've been in the area, so I just never came back down to the water because of that. When the algae runs rampant like it did 15 years ago, the city has to close the lake to prevent people from getting sick. Putting fresh water in the lake makes the bloom recede. The city of Lake Elsinore can pump it in or it can fall from the sky. And after a while, the algae dies off and the cycle starts again. The city wants to keep the algae to a minimum because it relies on tourists like Danny Taylor, who spend time and dollars

when they visit the lake. Jack Ferguson with the Elsinore Valley Municipal Water District says the city has invested in a marina, it's spruced up the lakeside RV camp. It's booked out. I don't think you can get a weekend right now. It's already booked out for the weekends through the summer. Then there's the big annual fishing tournament that just happened. I think first place is $10,000. Then there's the big annual fishing tournament that just happened. I think first place is $10,000. The real guy is a serious fisherman come out. And when the bloom is bad enough, business dries up. Freshwater bodies across the globe are falling victim to this problem as the climate crisis

makes water warmer. According to the EPA, 40,000 bodies of water are impaired just in the U.S. Lake Elsinore is the largest natural freshwater lake in Southern California. Now, the city on its shores is spending $2 million to try out a new technology to fix it. This is a very natural process that occurs in all healthy, balanced water ecosystems. Nick Deiner is the CEO of Moliere. His company's tech is in the lake right now, and as he explains, it doesn't use any chlorine or harmful chemicals. Instead, it uses trillions of really tiny oxygen bubbles,

nano bubbles. Nano bubbles are extremely small bubbles of gas, hence the word nano. They are 2,500 times smaller than a grain of salt. Bubbles that small aren't light enough to float to the surface. They stay at the bottom of the lake, where oxygen is in short supply. Plants and animals then get the oxygen they need to stand a fighting chance. The algae starves, and everyone, but the algae, lives happily ever after. In simplest terms, nanobubble treatment is helping the lake restore itself.

Standing on the shoreline next to a pair of fishermen, the water district's Jack Ferguson points to a big white cube sitting quietly about an impressive stone's throw from the water's edge. That's a nano bubbler machine right there on that barge. That's it. It's probably 80, 90 feet offshore. The machine has been there since December. And if you look down into the water now, it's a deep blue.

Hardly recognizable compared to what Danny Taylor saw 15 years ago. I came back here to visit and it's very clean. I'm really impressed. Probably back here definitely. It's really, really nice. So far, it seems to be working. A kayak appearing over the edge can see 12 to 14 feet down. It's some of the best visibility the city has ever recorded. Now, it was a really rainy year and that usually helps with the lake's water quality. In the hot summer months, the bubbles will have more work to do. The water district's Jack Ferguson is...

Waiting to see how long this lasts and the water stays clear and dark blue but I've never seen it like this. You've never seen it this dark blue? Never. This is the first ever. The city says its measurement of the water's resiliency has doubled, and algae concentrations have dropped by half in the worst spots and disappeared almost entirely in the best ones. In Lake Elsinore, I'm Kaylee Wells for Marketplace. This final note on the way out today saw this in Axios.

It's data from the National Association of Restaurants, so, you know, grain of salt. But the restaurant lobbying group says total spending at food service establishments, that is their nomenclature, not mine. Spending there is gonna hit $1.1 trillion this year. That's a better than 5% bump from 2023. So look, where do you wanna go for dinner, right? Our media production team includes Brian Allison, Jake Cherry, Jessen Duller, Drew Jostet, Gary O'Keefe, Charlton Thorpe, Juan Colostrado and Becca Weinman. Jeff

Peters is the manager of media production and I'm Kyle Rizdall. We will see you tomorrow everybody. This is APM. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares

about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now.