Slate Money – The Backwardation Edition (May 18, 2019)

Overview

In this episode, Felix Salmon (Axios), Emily Peck (HuffPost), and Anna Szymanski (Slate contributor) gather to dissect the week’s top stories in business and finance. Central topics include South Africa's political unrest and land reform issues, the persistent costs and potential disruption of U.S. real estate broker fees, and oil market volatility with a primer on the term "backwardation." The hosts tie these discussions to broader themes, including representation in the workplace and trends in alternative meat IPOs. The episode is characterized by insightful debate, humor, and a knack for untangling complicated issues.

1. South Africa: Democracy, Land Reform & Rhetoric

Segment Start: [00:27]

Key Points

• Cyril Ramaphosa has succeeded Jacob Zuma, following a democratic election ("the country was able to have a democratic election and get rid of the corrupt guy" – Anna, [02:03]).
• ANC’s majority is reduced, suggesting increased fatigue with their corruption, while opposition parties gain traction.
• The ongoing debate over land expropriation—returning land to the black majority without compensation—remains mostly rhetorical.
• Media narratives around violence against white farmers are debunked ("The New Yorker piece is really good because she just blows up that myth" – Emily, [05:07]).
• Land reform is highlighted as both a necessary economic and symbolic act, but progress is hampered by bureaucracy and red tape.
• The land issue is twofold: agricultural (farming land) and basic residential (right to own the plot you live on).

Notable Quotes

• “There are countries where the population just understands that their government is corrupt and they don’t seem to care that much... and I want to know which one is South African. It’s kind of looking to me like the anti-corruption Democratic alliance forces have failed to tap into a kind of deep seated well of resentment….” (Felix, [03:27])
• "When people look and they say, well, which party am I going to vote that's going to support my interests?...I think it's not overly surprising that you're gonna have a lot of people who are probably going to continue to vote for the ANC." (Anna, [04:07])
• “Expropriation without compensation... this question of here we are… more than [twenty years] after the end of Apartheid, the vast majority of South African land is still owned by white people. And this is a problem for a billion obvious reasons.” (Felix, [05:45])
• "The problem is much more bureaucratic really, that there are lots of instances that Ariel Levy goes into where the government has land and is trying to give it to the people who live on it. And it takes years and years and nothing happens because there's just like a bunch of red tape and corruption." (Felix, [10:03])

2. U.S. Real Estate: Why Are Broker Fees Still So High?

Segment Start: [13:00]

Key Points

• Real estate sales in the U.S. persist with high (6%) broker fees: 3% to the seller's agent, 3% to the buyer's agent.
• Despite waves of technological “disruption” and lawsuits accusing price fixing, fees seem immune to change.
• New models: Zillow and Opendoor buy homes directly, renovate, and resell or convert to rentals, but have yet to prove profitable.
• U.S. homeownership is in long-term decline, with institutional investors buying for rental, not sale.
• Perception remains that higher-fee brokers “get better prices,” even if evidence is slim.
• Emotional value, inertia, and lack of trust in discount brokers help keep fees high.

Notable Quotes

• "Every other industry … has been disrupted by technology, real estate has been remarkably analog, especially in the fees." (Emily, [13:00])
• “I've read this story every year for the past 15 years … and nothing ever changes, as you say. So the question is, like, what reason do we have to believe that this time is different?” (Felix, [13:52])
• "If the 6% broker can get you 10% more for your house, they more than pay for themselves." (Felix, [18:15])
• "People have this idea that this is like the one big transaction they're going to be doing, like this decade, and they want a certain amount of reassurance..." (Felix, [19:03])

3. Oil Markets, Backwardation, and Global Politics

Segment Start: [21:33]

Key Points

• Despite U.S.-Iran tensions and sanctions aiming to remove Iranian oil from the market, oil prices have not spiked.
• Introduction and explanation of “backwardation” — when spot prices are higher than futures prices, implying current shortage but expectations of future price drop.
• Oil price stability is explained by compensatory production (especially from Saudi Arabia) and the dampening effect of the U.S.-China trade war.
• The relevance of oil to the global economy is linked to whether countries are exporters (e.g., Russia, Nigeria) or importers (Turkey).
• The consequences of oil price swings ripple far beyond consumer gas prices, impacting national budgets, exchange rates, and economic stability.

Notable Quotes

• "We get to talk about backwardation and contango and there's nothing which makes Emily more excited." (Felix, [23:01])
• “You have a downward sloping futures curve … people are willing to pay more for a barrel of oil right now than they would be willing to pay in three months.” (Anna, [23:18])
• “The oil price has not risen. Why is that?” (Felix, [25:04])
• “The idea that a lot of people have is that Saudi Arabia can simply increase production and that they’ll be able to make up … for that oil that’s going to be taken off … from Iran.” (Anna, [25:46])
• "Oil has such a big impact on those economies [in the Middle East, etc.]... So I don't think we can say that it necessarily doesn't matter." (Anna, [31:26])

4. Numbers Round: Workplace Discrimination, Payday Loan Racket, and Beyond Meat's IPO

Segment Start: [32:04]

Key Points

• Emily’s number: 60% — Percentage of male managers now uncomfortable working with women; up 14 points post-MeToo (Lean In survey).
  • Suggests persistent and possibly worsening gender discrimination (“You can't not interact with women at work. That is called discrimination… Especially if you’re a manager…” – Emily, [32:48])
• Felix’s number: 216 — Number of nearly-identical letters sent to the CFPB supporting payday lenders, likely a manufactured PR effort (“It’s such a coincidence.” – Felix, [36:32])
• Anna’s number: $5.5 billion — Beyond Meat’s market cap, post-IPO surge despite broader IPO struggles.

Notable Quotes

• "The only solution is that all managers should be women." (Felix, [33:10])
• “The record number of women CEOs in the Fortune 500 is 33.” (Felix, [35:40])
• "Beyond Meat is pea protein. That's like their big thing." (Anna, [37:28])

5. Memorable Moments

• Debunking the "white genocide" myth in South Africa ([05:07])
• Anna finally gets to explain backwardation, much to Felix and Emily’s amusement ([23:01])
• Consensus among hosts that U.S. homeownership isn't as desirable as it’s often portrayed ([21:26])
• Playful banter about Beyond Meat vs. Impossible Burger and the reality of vegan burger adoption ([37:14])

6. Conclusion

The Slate Money crew delivers a multifaceted tour of political, social, and market dynamics, blending data, history, and skepticism. They leave listeners with a deeper understanding of the week’s headline topics and a reminder that, whether it’s land in South Africa, apartments in New York, or barrels of crude, the underlying systems are more complicated and stickier than they seem.

Most Memorable Quotes

• "There are countries where the population just understands that their government is corrupt and they don't seem to care that much ... and I want to know which one is South Africa." – Felix, [03:27]
• “When people look and they say, well, which party am I gonna vote that’s going to support my interests?...I think it's not overly surprising that you're gonna have a lot of people who are probably going to continue to vote for the ANC.” – Anna, [04:07]
• “You have a downward sloping futures curve … people are willing to pay more for a barrel of oil right now than they would be willing to pay in three months.” – Anna, [23:18]
• “The only solution is that all managers should be women.” – Felix, [33:10]

Timestamps for Notable Segments

• South Africa’s Political Transition and Land Reform: [00:27] – [13:00]
• U.S. Real Estate Broker Fees and Disruption: [13:00] – [21:33]
• Oil Markets and Backwardation Explained: [21:33] – [32:04]
• Numbers Round (Workplace, Payday Lending, Beyond Meat): [32:04] – [38:48]

For more, including a Slate Plus discussion of the $91 million Jeff Koons rabbit, subscribe to Slate Plus.