Slate Money – "The Bet the Farm Edition" (August 26, 2017)

Episode Overview

In this lively late-August edition of Slate Money, hosts Felix Salmon, Anna Szymanski, and Jordan Weissmann serve up a "fruit bowl" of business and finance stories with a special focus on the worlds of strawberries and bananas—two fruits at the heart of global agribusiness innovation, risk, and culture. They're joined briefly by listener Carl from Los Angeles, whose question about the risks of index investing sparks a deep-dive on the pitfalls and macroeconomic effects of passive investment trends.

1. The Risks of Index Investing (00:55–21:05)

Key Discussion Points

• Carl’s Listener Question (02:17)
  Carl from Los Angeles asks: Is widespread index-based passive investing inflating asset prices and creating bubbles? Are we entrusting too much power to the firms compiling indices?

• Active vs. Passive Investing:

  • Jordan (04:18): “As someone who just has all my money essentially in a Betterment account… the thing that does worry me sometimes is market risk.”
  • Felix (05:39): “If you are the kind of person who wants to avoid your portfolio dropping by… 30%, you shouldn’t be mostly invested in stocks.”

• Market Dynamics:

  • The panel distinguishes between risks to individual investors (volatility, market risk) and systemic risks (misallocation of capital, bubbles).
  • Felix asserts that stocks offer the best long-term returns historically, but no one can predict if that will persist (05:39).
  • Anna warns that as passive funds accumulate market share, it could create capital allocation mismatches:
    Anna (10:15): “When passive investment represents this much of the market, what does that mean for the market, and what potential dangers could that introduce…”

• Marginal Price Setter Debate (14:35–17:25)

  • Jordan pushes for clarification on what a marginal price setter is, prompting Felix to explain how even with a majority of passive holders, the active “marginal” traders still dictate real-time prices via price discovery.
    • Felix (15:06): “The reason the market moves from day to day is that the other 10% of the market is people who trade in and out of stocks... performing price discovery.”

• Concerns About Misallocation & Arbitrage:

  • Anna suggests that if all funds flow into large indices, small-cap and unlisted firms might not get enough capital.
  • Felix counters that any imbalances should create opportunities for active managers and arbitrageurs, who will exploit these inefficiencies and restore equilibrium (19:30).
  • The discussion references Howard Marks' memo on these systemic risks.

Notable Quotes

• Felix (05:39): “If you are... uncomfortable with that kind of volatility, then yeah, that’s one problem.”
• Anna (14:12): “...both index investing and ETFs... now represent a large portion of the market, of money that is going into securities not based on any analysis of the fundamentals…”
• Felix (20:04): “The price discovery mechanism of markets does not need everyone to be doing their own independent research. It just needs a tiny minority to be doing it.”

2. "Big Strawberry": The Science and Business of Berries (21:09–32:05)

Key Discussion Points

• Driscoll’s & Modern Strawberry Innovation (21:10–22:47):

  • Sparked by Dana Goodyear’s New Yorker piece on Driscoll’s, the discussion explores how the strawberry industry is driven by continuous genetic innovation, less by traditional farming and more by R&D and branding.
    • Felix (22:08): “Driscoll’s is constantly creating and tweaking the genetics of strawberries… It’s more of a product lab than a farmer.”
    • Jordan (22:47): “They [Driscoll’s] think they design the strawberry, then they work with... farmers and then sell and market it around the world.”

• Patents in Berries (24:24–26:13):

  • Historical context on plant patents—lobbied for to protect innovation amidst rampant plant theft and to incentivize development. UC Davis becomes an important public innovator.
    • Jordan (26:13): “You actually can have a thriving, innovative economy without these patents… My strawberries are a good example of why patents don’t need to exist.”

• Rapid Variety Turnover & Obsolescence (26:13–27:04):

  • Strawberries are replaced quickly due to disease risks and the need for adaptation; the “same” strawberry seldom lasts more than a decade.

• GMO Parallels (27:04–28:43):

  • Anna notes how similar cross-breeding is to GMOs but how the language changes public perception.
    • Anna (27:36): “Normally when we’re talking about plants and modifying their genetics, we use the term GMOs… this article is essentially about creating new breeds...”

• Why Store-Bought Strawberries Taste Bland (28:44–31:04):

  • Answers Anna’s question about declining flavor—strawberries are bred for shipping durability and appearance, not always for taste.
    • Felix (29:30): “They need to be able to be shipped from one coast to the other... bred for their hardiness more than their taste.”
    • Jordan (28:50): “I actually like Driscoll strawberries... often a lot sweeter than at the farmer’s market.”

• Heirloom & Novelty Breeds:

  • The rise of “ugly” tomatoes and resurgence in wild-like strawberries caters to millennial novelty cravings (30:13).
    • Jordan (30:13): “There’s been this movement towards... experimenting with wild, ish strawberries... like Anna was finding in the bush.”

Notable Quotes

• Felix (24:22): “If you’ve eaten a raspberry, it’s almost certainly either one you picked yourself or a Driscoll’s raspberry.”

3. Bananas: The Commodity Monoculture (32:05–41:00)

Key Discussion Points

• The Anti-Strawberry: Cavendish Bananas (32:05–34:48):

  • Market dominated by a single variety (Cavendish), globally cloned, highly vulnerable to new diseases.
    • Felix (33:19): “Cavendish bananas are famously really boring bananas... one species, it’s one banana, and... if a disease were to come along... there is now a disease which has come along...”

• Banana Extinction Risk & History (33:56–34:48):

  • Echoes the fate of the Gros Michel banana, which was wiped out by Panama Disease, with Cavendish now facing similar threats.

• Agricultural Monocultures vs. Innovation (34:48–35:42):

  • Contrasts strawberry R&D-driven adaptation with bananas’ commodity monoculture approach.
    • Jordan (35:15): “The strawberry industry... shows us the other approach... either academic institutions or big strawberry coming up with new strains... Bananas... just have commodity banana and sell the same thing everywhere.”

• Geopolitics of Bananas (36:16–36:57):

  • Economics and politics heavily entwined in banana-producing countries; trade wrangling over EU import preferences and Caribbean economies’ reliance on bananas.
    • Felix (36:21): “There are actual banana republics in the Caribbean whose main export is bananas and... where... trade terms... are vital to remain competitive...”

• Could the U.S. Embrace Artisanal Bananas? (37:08):

  • Would the West ever adopt diverse international banana strains? Panel is skeptical but intrigued.

• Bananas as a Loss Leader (38:50–39:17):

  • Supermarkets often sell bananas at or below cost to attract customers.
    • Anna (39:02): “Bananas are a loss leader… they bring people to your fruit stand or to your bodega and then you buy your blueberries and your blackberries that cost a lot of money.”

• Future Threats (39:17–41:00):

  • If Panama Disease devastates Cavendish, whole economies could reel, especially Ecuador, already struggling with oil price declines.

Notable Quotes

• Anna (36:16): “For the sake of poor Ecuador, I do not want us to have local bananas.”
• Felix (40:19): “They [banana producers] found this solution which worked and then there was no incentive... to create alternative bananas. And that could wind up, you know, like everything we know about the Irish potato famine, like, could basically happen to banana producers…”

4. Numbers Round (42:01–46:13)

Key Numbers & Fun Facts

• MoviePass Subscription Price
  Jordan (42:06): “$9.95 a month. This company called MoviePass… lets you go to as many movies in theaters as you want per month... AMC freaked out and started saying we’re going to try and... bar this service from our theater…”

• Quinceañera Industry Size
  Felix (43:57): “My number is 400,000, which is the number of basically Mexican American girls who turn 15 each year... The average quinceañera... costs $15,000, which... works out at a $6 billion a year industry…”

• China’s Real Growth Minus Debt
  Anna (44:46): “5.3%. The IMF said that China’s growth rate from 2011 to 2016 would have been 5.3% instead of 7.3% if they hadn’t issued as much debt as they have... They know they have to rein back all this leverage, but if they do that, they’re not going to meet their growth targets…”

5. Closing & Memorable Moments (46:00–End)

• Team Strawberry vs. Team Banana
  Felix and Jordan declare for strawberries in the great fruit rivalry, though Anna sticks with bananas.

  • Felix (45:45): “Team Strawberry.”
  • Anna (45:46): “Team Banana, man.”
  • Jordan (46:05): “No one gets joy out of a banana. No one is like, oh god, yeah, this is summer. I’m eating a banana.”

• Fruit Salad Philosophy
  Discussion ends with a lighthearted riff: what really makes the perfect fruit salad, and the necessary inclusion/exclusion of melon varieties.

Timestamps of Key Segments

• Risks of Index Investing & Market Structure: 02:17–21:05
• The Strawberry Segment (IP, Patents, Taste): 21:09–32:05
• Banana Monoculture & Trade Politics: 32:05–41:13
• Numbers Round: 42:01–46:13
• Closing Fruit Debate: 46:00–end

Memorable Quotes

• Felix (15:06): “The reason the market moves from day to day is that the other 10% of the market is people who trade in and out of stocks... performing price discovery.”
• Jordan (28:50): “I actually like Driscoll strawberries... often a lot sweeter than at the farmer’s market.”
• Felix (33:19): “Cavendish bananas are famously really boring bananas...”
• Anna (39:02): “Bananas are a loss leader…”

Tone and Style

Throughout the episode, the hosts maintain their signature witty, offbeat, and informed banter. They mix food metaphors, hard business analysis, and a willingness to nerd out on everything from berry IP battles to the geopolitical intrigues of the banana trade. The episode is an engaging blend of economics, agriculture, and pop culture—a true “fruit salad” of thought.

For listeners interested in the intersection of food science, investment strategy, and global trade—all seasoned with transparent disagreements and good humor—this episode is an essential, entertaining listen.