A blog about business and economics.

Dec. 19 2014 4:02 PM

The Maker of Hellmann’s Just Dropped an Absurd Lawsuit Over the Definition of Mayonnaise

Lest you think making mayo isn’t a science—it is. The U.S. Food and Drug Administration defines mayonnaise as an “emulsified semisolid food” made with vegetable oil, at least one of several specific “acidifying ingredients,” and one or more “egg-yolk containing ingredients.” Which is why Unilever, the multinational food corporation behind Hellmann's, in November decided to sue vegan (read: egg-free) mayo company and competitor Hampton Creek.

Well, on Thursday the mayo wars ended almost as abruptly as they began when Unilever said that it had withdrawn its lawsuit. Unilever VP Mike Faherty said in a statement that nixing the suit will allow Hampton Creek to "address its label directly with industry groups and appropriate regulatory authorities.” He added that Unilever and Hampton Creek “share a vision” of a “more sustainable world.”


Even before the suit was filed, Just Mayo’s label stated that its product was egg-free. The container’s label also features a white egg with a plant on top of it, which Hampton Creek CEO Josh Tetrick has said is supposed to indicate that the company uses plants instead of chicken eggs. “We were on the right side of the law,” Tetrick told the Huffington Post on Friday. “We have ‘egg-free’ on the front of the jar. It’s right there for people to see.”

Ironically, instead of stymieing Just Mayo, Tetrick told the AP that the Unilever lawsuit has benefited his company. When the lawsuit first hit in mid-November, Just Mayo sales took off. “Grateful. More jars of #justmayo were sold today than any day in @hamptoncreek history,” Tetrick tweeted at the time. Late on Thursday, Tetrick confirmed that the legal battle had been a plus for the company and had given Hampton Creek “the opportunity to tell our story to millions of people.” Probably not what Unilever had intended—but then again, it should have seen that one coming.

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Dec. 19 2014 12:56 PM

Here’s the Problem With That $35 Billion Instagram Valuation

Instagram is the hot startup of the day after landing a whopping $35 billion valuation from analysts at Citigroup this morning. “Using what we believe to be conservative assumptions around user growth and monetization,” Citi writes in a new report, “we believe Instagram is worth $35bn—up from the $19bn we had previously estimated.” The analysts cite “faster growth in its audience” and “continued monetization gains by social media properties” as two key reasons for the upgrade.

The faster audience growth that Citi’s report is talking about refers to a recent announcement from Instagram that it had reached 300 million users. That meant Instagram had added about 100 million users, or expanded its base 50 percent, since the end of the first quarter of 2014. Twitter grew its user base by 29 million, or 11 percent, during the same period. Instagram’s news led to many an excited declaration that the photo-sharing site was now bigger than Twitter. Citi’s analysts are just the latest to take up the cry. “Given the network effects present in social companies such as Instagram, we believe that Instagram can continue to rapidly add users and expect that the gap in total users between Instagram and Twitter will continue to widen,” the report states.


Chart from Citigroup


Here’s the one big problem with that reasoning: We don’t actually know for sure if Instagram is bigger than Twitter. As my colleague Will Oremus noted rightly in Slate last week, comparisons can be misleading:

Instagram is indeed larger than Twitter if you look solely at monthly active users, of whom Twitter has 284 million at last count. MAUs, as they’re called, are one useful metric of a social network’s size. But they aren’t the only one. Others might include the amount of time users spend on the network, the amount of content they post, and the number of people who see that content. Look at those, and it quickly becomes impossible to say whether Instagram or Twitter is larger.

Just because Twitter doesn’t have as many monthly active users as Instagram doesn’t mean it’s not as big. When Twitter’s most famous and influential users tweet things, those posts can go viral and reach millions of people who never sign into Twitter’s platform. That’s partly why Twitter CEO Dick Costolo has been gently pushing analysts toward different types of metrics for evaluating the company’s reach. (Again, Oremus went more in-depth on this in his recent piece.) The important point here, though, is that much of Citi’s ballooning valuation for Instagram is based on the notion that it has eclipsed, and will continue to surpass, Twitter in terms of total reach. And that just might not be true.

Does this mean the valuation is entirely off? Not necessarily. As the analysts point out, Instagram has great engagement and is building a strong base of advertisers. Since rolling out ads in the U.S. on a test basis in late 2013, Instagram has added well-known brands like Disney, Taco Bell, Coca-Cola, and JetBlue to its roster. In 2014, it launched ads in three other countries—Canada, the United Kingdom, and Australia—with brands including Toyota, Estee Lauder, McDonald’s, Cadbury, and Starbucks.

Because Instagram is a visual medium, it’s also practically designed for ads to look and perform great. A beautiful photo will almost always be more compelling than a 140-character attempt at wit from a company’s marketing department. And like Twitter, Instagram has its own A-list users (although, in related news, teen heartthrob Justin Bieber lost 3.5 million followers in Instagram’s recent purge of fake and spam accounts). It’s not at all crazy for Citi to see the monetization potential—just worth questioning a $35 billion valuation that seems largely based on comparing apples and oranges.

That said, people have underestimated Instagram before. And those who mocked Facebook for paying $1 billion for it in 2012 probably aren’t laughing anymore. 

Dec. 19 2014 12:22 PM

Office Parties Suck, but They’re Not Going Anywhere

This article originally appeared in Inc.

The heart of the office holiday party season is upon us. The event is a staple in today's work environment—which isn't necessarily a good thing. In the Harvard Business Review, Julia Kirby looks at the inherent flaws of the office party and questions why this tradition exists at all. "Perhaps it's time to rethink the point of the holiday party, and whether it's still having anything like its desired effect," she writes.


Company managers and executives often think of the office party as being a good outlet for employees to bond and celebrate their hard work over the past year. But Kirby isn't so sure that that goal actually gets accomplished. First of all, people don't actually mingle at office parties. According to Paul Ingram and Michael Morris of Columbia University, we tend to stick with people we already know as opposed to branching out and meeting new co-workers. Researcher Tracy Dumas took that idea even further, Kirby writes, showing that not only do we not mingle, but we also tend to stick near to people of our own race. In her studies she found that company parties helped employees of the same race bond but failed to mix employees of diverse backgrounds.

Some companies may believe that office parties can help break down hierarchies and create a more open work environment. But again, these goals are rarely met. According to Michael Rosen of NYU, the events end up just reinforcing the organization's power dynamics.

Kirby also brings up some concerning risks from the Society for Human Resources. The group found that 6 percent of HR executives were aware of unwanted sexual advances taking place at office parties, probably in part a result of alcohol consumption.

Another issue is that most people would rather have a choice of how and with whom they celebrate the holidays. They would prefer extra vacation as opposed to being forced to attend an office event. So after all of these arguments against the office party, why does it still persist?

Maybe it's simply because it's what's always been done, and at the end of the day it's a chance for a business to give back to its employees. According to Kirby, parties also serve as a sign of the state of the business.

"The announcement that the annual party will take place, and will even be better catered than last year's, is a reassurance to the workforce, and all the company's stakeholders, that things are on the right track," she writes.

Dec. 18 2014 6:03 PM

Every Single Stock in the Dow Jones Industrial Average Went Up Today

The Dow Jones Industrial Average just had its best day since November 2011. It gained 421.28 points or 2.4 percent, and all 30 of its components rose.

This was the second consecutive huge day for the stock market this week. On Wednesday, the Dow added nearly 300 points and it is up 497.32 points, or 2.9 percent, for the week. The S&P 500 index, a better benchmark of the overall market, also added 2.4 percent on Thursday and is up 2.9 percent for the week. The numbers are sort of hard to read, but you can see the nice upward curve in the Dow and the S&P in the charts from Yahoo! Finance below:


Screenshots from Yahoo Finance


As usual, it's a little hard to say what exactly is spurring such an energetic advance in the market. The Federal Reserve reassured investors on Wednesday after saying it would be "patient" in deciding when to raise interest rates. Tech shares also jumped on strong earnings from Oracle. The Dow's Cisco Systems, Goldman Sachs, IBM, Microsoft, and UnitedHealth Group all posted gains of 3 percent or more. When stocks fall across the board for reasons that can't quite be explained, people tend to point to profit taking. So ... for now, we'll call this the opposite of that.

Dec. 18 2014 5:02 PM

America’s Wealth Gap Is Becoming a Wealth Chasm

This week in the great wealth meltdown: Pew reports that the wealth gap between America's middle-income and upper-income families has never been greater in recorded history. In 2013, the median wealth of what Pew defines as a middle-income family was $96,500. The median wealth, or "nest egg," as Pew terms it, of an upper-income family was nearly seven times that: $639,400.


The Federal Reserve began collecting the Survey of Consumer Finances data that Pew uses in its report in 1983, when the wealth gap between the median upper- and middle-income family was a factor of 3.4. Wealth, for a bit of context, is defined as the difference between a family's assets and debts. Those assets in this case include things like a house, a retirement account, stocks, bonds, and—unlike in other calculations—a car. (For a full discussion of why some researchers choose not to count cars, it's worth reading Jordan Weissmann's Slate post on the wealth gap between blacks and whites, but the basic point is that cars are depreciating assets.)


Thinking about the kinds of assets included in wealth is key to understanding why the gap between middle- and upper-income families might have grown so substantially over the past several years. After hitting a low point in March 2009, the stock market had rallied well over 100 percent by when the Fed began collecting its 2013 data. For America's upper-income families, which tend to have more of their wealth invested in the stock market, that translated into gains. But for middle-income families, which disproportionately keep their assets in their homes, the market's momentum hasn't made much of an impact.

According to Pew's methodology, 46 percent of families in the U.S. were classified as middle income in 2013, and 21 percent counted as upper income. "The upper fifth of households by income, their typical wealth levels have indeed started to mend from the devastation of the Great Recession," says Richard Fry, a researcher at Pew and author on the report. "But for the bottom four-fifths of households, particularly the middle income households, they’ve made no gains."

Beyond stock market gains, the other factor to consider in the growing wealth gap is household income since the recession. "When we look at the incomes of the upper-income households and the incomes of the middle class, what we see in this Fed data is that the typical incomes of upper-income households have at least held steady from 2010 to 2013," Fry explains, "as opposed to the typical incomes of middle-income households and lower-income households, which have actually have fallen."

The one caveat to this data is that the 2013 numbers were collected between March and December of 2013. In the time after that survey began, as the Fed points out in a footnote on its findings, housing prices rose and the stock market continued to surge. That means both middle- and upper-class families have likely seen their wealth increase over the last year or so. But whether gains in the housing market have been enough to start narrowing the wealth gap? That's an open question.

Dec. 18 2014 2:21 PM

Nobody Cares About Income Inequality During the Summer

Apparently the beach has a way of curing economic angst. While doing some research for a longer piece today, I found myself plugging variations on the word "inequality" into Google Trends. A sort of odd pattern emerged: Nobody, it seems, cares much about income distribution in the summer.

On Twitter, economist Justin Wolfers offered up what strikes me as a reasonable interpretation.


Ry Rivard also points out that many searches for "inequality" may be related to the math term, and those should definitely disappear when schools lets out. But interest in specifically economic uses, like "income inequality," seems to rise and fall in a similar pattern.  

So the lesson from this extremely cursory but entertaining bit of market research: If you have a big opus planned on inequality—or who knows, maybe a book—release it when a bunch of students are brooding on campus.

Dec. 18 2014 1:00 PM

The Last Time So Few People Were Starting Law School, It Was 1973

The last time this few students were starting law school, Nixon was president, Tony Orlando and Dawn were killing it on the charts with "Tie a Yellow Ribbon Round the Ole Oak Tree," and ... oh, who cares? The point is, first-year law school enrollment is down to its lowest levels since 1973, according to the American Bar Association's new annual report. Just 37,924 new J.D. candidates enrolled this fall, 28 percent fewer than when the number of new students peaked in 2010. Since then, the ABA has also approved four new law schools, bringing the grand total to 204 (in 1973, there were just 151 schools). So there are more seats to fill, and fewer bodies to fill them.


Chart by Jordan Weissmann

Which brings us to our next delightful stat. There are 186 first-year students per law school this year, down from 262 in 2010. You have to go all the way back to 1968 to find a number that low. Groovy times.


One thing to keep in mind: The enrollment crash hasn't hit every school evenly. The ABA notes that 33 schools saw 1L enrollment increase at least 10 percent. Another 64 schools saw drops greater than 10 percent. So some institutions may be faring fine in this storm. Others are probably drowning.

And in the end, these numbers aren't especially surprising. But they do reinforce two points I've made before. First: This year's new crop of aspiring J.D.'s will likely have a far easier time on the job market than past classes. Second, I really don't see how the legal academy makes it out of this crisis without at least one school closing.

Dec. 18 2014 8:00 AM

The Ban on Cuban Cigars Is Over. Will Their Mystique Disappear, Too?

The biggest week for U.S.-Cuban relations of the past 50 years is also shaping up to be a big one for the cigar industry. As part of sweeping measures announced by the White House on Wednesday, American citizens licensed to travel to Cuba will now be allowed to import $400 worth of goods, with up to $100 of that coming from alcohol and tobacco products. In short: Cuban cigars are no longer illegal.

Since the U.S. trade embargo against Cuba took effect, Cuban cigars have become something of the stuff of legend. Before instating the ban in 1962, President John F. Kennedy famously secured 1,200 of the cigars for himself. They are widely thought to be superior to all other varieties and command hefty prices. In 1996, the New York Times reported that a box of 50 Cuban cigars would fetch up to $850 on the black market in the U.S. Today, genuine handmade Cuban cigars tend to start at $250 for a box of 25, says Jeff Borysiewicz, president of Corona Cigar Co., an online retailer. The finest kinds can retail for hundreds of dollars more.


"It's a forbidden fruit," explains Eric Newman, president of Tampa, Florida–based J.C. Newman Cigar Co., a cigar manufacturer. "The biggest market in the world prohibits them from entering the marketplace." Rather than deterring U.S. consumers, that ban may have in fact proved the biggest selling point for Cuban cigars over the past 50 years. People in the industry compare their allure to that of Coors beer before it became easily available beyond the American West. So great was the East Coast's unrequited love for Coors in the 1970s that the quest to bring the beer from West to East was depicted in the popular 1977 film Smokey and the Bandit.

With both Coors and Cuban cigars, the question has been whether the product is ultimately worth the hype surrounding it. "Coors isn't a bad beer, but is it the best beer in the world?" Borysiewicz asks. "Cuban cigars are kind of the same way." Newman offers a different comparison: "You know how in Forrest Gump he says, 'Life is like a box of chocolates—you never know what you're going to get?' You get a box of Cuban cigars and one will be a wonderful, flavorful cigar, and the next will be plugged so that you can't even draw through it." On top of that, the market for Cuban cigars is also plagued by counterfeits.

Despite their inconsistency, the built-up mystique of Cuban cigars has been enough to cultivate a robust black market for them in the U.S. Newman estimates that 5 to 6 million are smuggled into the country each year. (In 2013, a Brooklyn artist trained dozens of pigeons to smuggle Cuban cigars across the border as part of an exhibition.) In part because of this, cigar experts don't think they'll see much of an impact on the market from the import changes. Add to that the fact that $100 worth of cigars really isn't much at all—maybe five to 10, if they're real—and the new allowance for American travelers isn't looking too disruptive.

That said, prices for Cuban cigars themselves will probably spike on the news. "People will pay the expensive prices because there's a lot of curiosity," says Newman. "If we haven't been able to partake in a product for over half a century, there's all this pent up demand. People will try it."

Dec. 17 2014 1:31 PM

The Ruble Stopped Crashing Today. Russia Is Still Screwed.

After two days of financial chaos, Russia is enjoying a tiny bit of respite. The country’s currency has stopped crashing for the moment—in fact, the ruble is up roughly 11 percent against the dollar today. Apple may have shut down its online store in the country until it can figure out how to properly price iPhones and iPads. Shoppers may be rushing to buy furniture and cars before prices go up. The country’s business press might be worrying about a possible “full-blown run on the banks.” But at least the markets are (relatively) calm.

Don’t expect it to last. Russia’s currency seems to have stabilized today for a handful of mostly fleeting reasons. Early Wednesday, the country's finance ministry announced that it would sell dollars and buy rubles to push up their value, which perked up investors. Unfortunately, it only has about $7 billion to spend—not enough to make a long-term difference. Meanwhile, Reuters reports that the country’s major exporters swept in and purchased rubles today “in preparation for monthly tax payments due this week.” And, perhaps most importantly, Russia’s central bank said it would inject money into the country’s banks to keep them financially sound.


In the end, Russia is still facing the same bleak scenario that set off this week’s panic. Its economy is stuck in a vise between low oil prices and Western sanctions over its invasion of Ukraine. Cheap crude is killing the economy, while the sanctions have cut off banks and energy companies from the credit markets.

That combination is crushing for Russia, because, as Carl Weinberg of High Frequency Economics points out in a client note this morning, the country’s public and private sectors owe roughly $680 billion worth of foreign debt, which has gotten harder to pay off as the ruble has fallen. There’s certainly not enough oil money flowing to safely cover those loans. And without full access to the world’s financial system, Russian companies can’t count on borrowing to roll them over either. As Weinberg writes, some businesses “may fail. Others may default.” All of Russia is starting to look like one giant subprime borrower, which may well drive even more investors away from the country, and drive its currency lower. The central bank’s promise to support Russian financial institutions helps. But unless it turns on the printing press (which would hurt its oh-so-fragile currency), it doesn't have unlimited resources to spend.

Propping up the ruble would help. But how to do it? The Central Bank has tried the shock and awe approach of a massive interest rate hike this week, meant to tempt people to keep their money in Russian deposits. The move did nothing. And the higher rates go, the deeper the country is bound to sink into a recession, which will exacerbate its debt problems.

Some are hoping that the central bank will come to the rescue more directly, by using some of its $416 billion worth of cash reserves to simply buy rubles, much like the finance ministry said it would. Traders are already gearing up for it to start unloading some of its sizable gold reserves for that purpose. But that, too, doesn’t seem like a solution so much as a stopgap. The Central Bank has already spent $80 billion buying rubles in a vain attempt to stop its slide. Maybe even more money will help (the Financial Times quotes one estimate that $20 billion to $30 billion per day could add 15 percent to the ruble’s value). But as long as oil prices stay low—which could be a while—and sanctions stay in place, spending down the country’s reserves looks a little like burning furniture to keep the house warm. It can’t go on forever.

Many, like the Washington Post’s Matt O’Brien, are arguing that this all leads to one inevitable conclusion: Russia needs to put capital controls in place, which would essentially ban Russians from selling off their rubles. But that seems, at best, like a partial cure. Assuming they were successfully enforced—and in Russia especially, it’s an open question—it would stop money from leaving the country and keep the ruble stable. It wouldn’t fix the basic problem that, without expensive oil to rely on, Russia has lost its growth engine.

As long as Russia is stuck with cheap oil and painful sanctions, its economy will only get sicker, and its ability to repay its debts will remain in question. There’s no exit here. Except, maybe, getting out of Ukraine, and getting somewhere close to the West’s good graces.

Dec. 16 2014 4:25 PM

Court Rules Walmart Must Pay Up for Inadequately Compensating Workers

A week after a National Labor Relations Board judge ruled that a Walmart manager in California could not legally threaten to "shoot the union," a Pennsylvania court handed down another decision against the mega-retailer. The Pennsylvania Supreme Court ruled on Monday that Walmart must pony up $188 million to employees whom it failed to compensate properly during breaks and total hours worked.

The Pennsylvania Supreme Court upheld a 2007 judgment in favor of the workers. It affects roughly 187,000 people who were employed at Walmart between 1998 and 2006, and is expected to take a chunk out of Walmart's earnings for the current quarter, according to Reuters:

Monday's ruling on the class-action lawsuit will reduce Wal-Mart's earnings for the quarter ending on Jan. 31 by 6 cents a share, the company said in a securities filing. That amounts to roughly 4 percent of its profit forecast of $1.46 to $1.56 for the period.

On Tuesday, Walmart said it might appeal the court's decision. "We disagree with the decision, and continue to believe that these claims should not be bundled together into a class-action lawsuit," the company said in a statement on Monday. Walmart also said last week that it disagreed with parts of the NLRB judge's decision, and planned to appeal them.