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Felix Salmon: Hello. Welcome to the first class food Fomo episode of Slate Money, Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. I’m here with Elizabeth Spiers.
Speaker 2: Hello.
Felix Salmon: We’re also joined by my colleague Emily Peck.
Emily Peck: Hello. Hello.
Felix Salmon: And we are going to talk about food on planes and how it’s basically a way to make people in the economy feel missing out. We are going to talk about a wonderful little piece of financial engineering in the Caribbean by Barbados, who has done some stuff with their bonds and has managed to create $50 million out of thin air to put into the oceans. It’s all good. And we are going to talk about Citrix and Twitter and high yield bonds and junk bonds. It’s all coming up on Slate. Money. So, Emily?
Emily Peck: Yes?
Felix Salmon: Do we always enjoy a moment of schadenfreude when Bank of America and Credit Suisse and a bunch of big banks lose hundreds of millions of dollars on misbegotten deals? I mean.
Emily Peck: It’s not the worst thing. When I was thinking about this story, I did wonder, does it? Has anyone been hurt by this? Oh, the big banks. Hmm. That’s fine.
Felix Salmon: It’s a victimless fuckup.
Emily Peck: It appears to be, yes. We’re talking about this gold private deal for Citrix, which is? What is it? It’s a cloud computing company.
Felix Salmon: Something. Something, software, something.
Emily Peck: Yes, that was going in January. Elliot Brothers and Vista said they’re going to take Citrix Private Associates.
Felix Salmon: We should say Eliot Associates. There’s a sun in London, but I don’t think there’s a brother.
Emily Peck: No brother. So, okay. So Eliot Associates and Vista said they’re going to take Citrix private in a $16.5 billion deal. And they were going to get that money by basically getting $15 billion of debt from these banks. And then after that, the whole the Federal Reserve started raising rates. And the the deal the $15 billion debt deal looked kind of bad. And for a while, nothing really happened. And I guess this week the banks were like, we got to we got to move this debt, we got to sell this debt. And they they lost a bunch of money. Did I describe that? Okay. Do you think you guys.
Felix Salmon: Let me let me try it again, because if we do it twice, one of them will make sense, Eliot. And it’s friends borrowed $15 billion from the banks in order to pay 16 and a half or $17 billion to Citrix. So then the banks, they’re the lenders, they have lent out this money. But being banks, what they like to say is they’re in the moving business, not the storage business. They didn’t want to just lend $15 billion to Eliot’s associates. They wanted to convert that debt into bonds and loans and things which they would then sell on the secondary market and ideally just make a profit.
Felix Salmon: Let’s say they lend it to Eliot at seven and a half percent and then they can sell on those loans at a yield of 7%. Then they make the profit there and they’re happy. What happened was the interest rates broadly went up. Interest rates for junk bonds, which is what we’re talking about here, went up a lot. And they wound up selling the debt that like 13% or something. So obviously when the yield goes up, the price goes down. They wound up selling it. I can’t remember. What was it like $0.82 on the dollar or something like that?
Felix Salmon: Yeah. And so basically, yeah, that meant that for every dollar that they had lent out to Eliot, they lost $0.18. And that’s not all of it, by the way, they’ve only managed to sell off less than half of the total 15 billion that they’ve lent. So they’re still sitting on a whole bunch of unrealized losses on top of approximately $500 million of realized losses.
Emily Peck: Yes. Yes.
Emily Peck: Although, Felix, you said that the interest rates on the bonds have gone up. But it’s my impression that the interest rates on the bonds are the same. It’s just that the bonds are cheaper. Now, does that matter? I really geeked out on this this week.
Felix Salmon: So yeah, there are two different things, right? There’s the coupon and the yield that the coupon is set, but the yield changes according to the price. So if the price goes down, then the yield goes up. And most people, when they’re talking about the interest rates on the bond, what they’re talking about is the yield, not the coupon.
Emily Peck: Okay. And one other thing I thought was interesting, big picture about this. I mean, big picture, this is just what’s happening right now is interest rates are going up, the bond market is kind of going sideways and down.
Felix Salmon: The bond market is an especially the high yield bond market. The junk bond market is in a bear market. It’s down like 20%.
Emily Peck: And the other thing is, this was a very, very big deal and it portends possibly badly for something. I hesitate to bring up, but are we going.
Felix Salmon: To talk about Elan again?
Emily Peck: Yeah, it portends badly for Ellen Ellen’s Twitter deal because it means if Elon Musk is forced to buy Twitter, which maybe could happen, then the banks that are lending him money are going to have to take a big loss on the deal on top of just the drama of this deal already.
Felix Salmon: Now. I’m not sure I buy that. A lot of people have been saying this. In fact, everyone is saying this. I’m in the minority of one on this. But I don’t necessarily think that the bank losses on the bank loan portion of that with the deal are going to be that big. It is true. If you look at the roughly $13 billion of debt finance that Elon Musk has put together to help by Twitter, that is stretching the limits of what Twitter can afford if you look at Twitter’s cash flows.
Felix Salmon: Right. So this is similar to what Elliott did with Citrix, though. Like, look at all of these cash flows. We can use the cash flows to pay the interest on the debt and they can barely do that and they kind of need the cash flows to increase. And so that’s why they’re junk bonds because it’s, you know, a bit dubious whether that’s possible. Same kind of thing is true with Twitter. Twitter’s cash flows are not really strong enough to support $13 billion of debt. That makes it junk bonds. Junk bond yields are higher than when the banks agreed to do this deal. And so the banks are facing losses. That’s the first all the thing going on here.
Felix Salmon: But the second the other thing going on here is the Citrix as a company, as a, you know, highflying software as a service company has decreased in value significantly as a result of the broad decline in those kind of stocks over the past few months, which means the Citrix. Now, if you if you wanted to sell Citrix tomorrow, you would get much less than $15 billion for it. The amount of debt which is associated with that company is greater than the entire value of the company. And so if Citrix defaulted on its debt, then the bondholders who had become the new owners would wind up with less than $15 billion because the entire company is not even worth $15 billion.
Felix Salmon: That’s not really the case with Twitter, right? Amount that now we agree that Elon Musk is overpaying 44 billion. We know that Twitter as a standalone company is worth less than 44 billion. But by the same token, it’s probably worth more than 13 billion. So my feeling is that even if Twitter as a company can’t afford to. Make its interest payments on its debt.
Felix Salmon: Elon Musk can. He’s like a gazillionaire, right. He’s not going to wipe out his entire equity in Twitter just because he can’t make a coupon payment on a loan. Bullet payment or whatever. You know, he. And even if he did. Even if he just decided to throw all of his toys out of the pram and go home and write off his entire $3 billion equity investment. Even then, if he basically handed it over to the lenders, the lenders could probably sell Twitter for more than 13 billion and then they would get their money back. So I don’t think that the Twitter debt is as risky as the Citrix debt.
Speaker 2: Well, do you think some of this analysis is just predicated upon the fact that you can be a chaos monkey and you don’t really know what’s going to happen?
Felix Salmon: Not really, because I’m just saying that, like, either way, it’s fine for the lenders if he’s if he’s the chaos monkey who just decides that he can write off his entire $3 billion investment, which is possible, then they’re kind of going to be okay. But more to the point, if he’s a chaos monkey who keeps on throwing billions of extra dollars into Twitter after buying it, because, you know, he wants to keep some skin in the game and keep owning the company, then that is even better for the banks.
Emily Peck: But I don’t understand. You’re saying that the Twitter deal, big picture, is less risky than the Citrix deal.
Felix Salmon: Because Twitter is fundamentally less levered, because if you think about the amount of debt and the amount of equity in Citrix, it was $15 billion of debt and $2 billion of equity. Right. In Twitter, it’s $13 billion of debt and $33 billion of equity is a very, very different ratio.
Emily Peck: But the issue with the Citrix deal is that the banks were forced to sell the debt at less money than they wanted to force it. What did they want to get it off their books? So they sold their.
Felix Salmon: Balance sheets.
Emily Peck: At 83.6 cents on the dollar. Just looking at my notes, the same thing will likely happen with Twitter. They’ll have to sell at some discount on the dollar.
Felix Salmon: Why is it a discount on the dollar? That’s what I’m saying. I’m saying like the reason why Citrix debt sold at such a discount is because the investors who are buying that debt consider it to be incredibly risky and therefore they are requiring a 13% yield in order to buy the debt because there’s so much risk, there’s so much hair on that bull. You know.
Emily Peck: Like I thought the reason they wanted the higher rate is because we’re in a higher rate environment and comparable bonds are yielding a higher rate. So why would they pay on the, you know, the same green bonds, the low rates? So what does that have to deal with to do with Citrix is.
Felix Salmon: Because the question is, what do you mean by comparable? Right. Right. Like comparable means comparable in terms of risk, comparable in terms of credit risk and comparable in terms of the amount of money you stand to lose if the debtor defaults. Right. The reason why Citrix that is Citrix that is yielding so much is because it is comparable to highly, highly risky debt where if it defaults, you lose a bunch of money and it has a high probability of default in Twitter. If it defaults, you don’t lose as much money and it has a lower probability of default. So the yield should be lower.
Emily Peck: But it will still be the comparables will still be higher now than they were whenever. I don’t even remember how long it’s been this Twitter saga, but rates have gone up for everything, so there’s still going to be some discount.
Felix Salmon: We don’t know what the cap is that Elon Musk agreed to in the loan agreement with his banks. There has been a little bit of whisper in the markets that the cap is as high as 11.5%. If it’s 11.5%, then there is, I think, a decent chance that the banks will able to sell that debt at a yield level of 11.5% and thereby not have to take any losses. Now, there is a 3 billion of the 13 billion. 3 billion is unsecured. That’s the riskiest bit. And that unsecured 3 billion tranche might be might might have to price at a discount. So you might take a loss on that. But as for the other, you know, the bulk of it, the 10 billion, they I kind of suspect they’re going to be okay. But I will hazard I will emphasize here that I’m in the minority on this one. Most people think like you that like, you know, the entire market is in the toilet and therefore, the banks, if they are forced to make this loan, are going to lose lots of money on it.
Emily Peck: That was really the nerdiest I’ve ever gotten on the show. I have to say. Bigger picture, though. No, it is okay. The nerd is good, but bigger picture, I mean, to go back to where we were at the beginning, like, who cares? But like the banks lost money, I guess who cares would be the people who work at Citrix who now have to. Deal with being over levered and in a more risky place than they were in December before they were going to go private.
Felix Salmon: Right. But that would be the case whether the banks lost money or not. Right. The amount of leverage on Citrix, the amount of debt piled on Citrix was a given and the banks could have made a massive profit on this deal and they would still have to deal with all of that debt and leverage.
Emily Peck: Elizabeth What do you think? Why should we care about this story?
Speaker 2: Yeah, I’m not sure we should. It’s the mechanics of it are interesting.
Felix Salmon: It’s the fundamental of what markets are about. Right. It’s about price discovery. And it’s about the way the prices and price discovery can move very quickly at times like this. And you make a bet that seems like a good bet at the time. And then by the time the time comes to actually sell that debt, suddenly that everything has changed. And that’s why investment banking is just a really interesting and risky business, because you can make a lot of money in good times, and then suddenly you wake up one morning, we’re in a big hiking cycle, we’re in a risk off part of the cycle, and you just can’t sell that to almost anyone. The one hilarious footnote that I think we should mention here, because it’s quite funny, is that one of the biggest buyers of the debt that was was borrowed to to allow Elliott’s associates to buy Citrix was Eliot Associates.
Emily Peck: Good for them.
Felix Salmon: As Matt Levine pointed out, they basically borrowed $1,000,000,000 from the banks and then repaid that that with 880 million or something like. Good deal.
Emily Peck: One other point he made that I thought was sort of interesting was like, it’s not like back in January, we didn’t know that rates were going to move higher. Like everyone kind of knew there was this inflation and things were going to change. But investment bankers can’t just be like, you know what? Rates are going to be higher. So we’re just going to, like, not do this big deal right now and just see how it goes. Like, you have to be in the game. There’s no opt out.
Felix Salmon: Yeah. And I think it’s naive to think that anyone has a great crystal ball about the future direction of interest rates. You know, January really was before inflation started picking up. And we can all say now with the benefit of hindsight, oh yeah, of course, rates were going to go up after January, but we didn’t actually know that at the time. No one knows where rates are going. Rates are high right now. Are they going to go up? Are they going to go down? I have no idea.
Emily Peck: They’re going to go up. I’m saying it right now because.
Felix Salmon: But let’s talk a bit about Barbados, which has done a wonderful little deal where they’ve taken advantage of rates going up and this is kind of weird and amazing and glorious. And I love this story. It’s called a blue bond. We heard of green bonds. This is a blue bond. And normally, you know, Barbados is a borrower like all sovereigns. And so what it. Does is it, you know, normally is hurt when rates go up. You know, it needs to pay more to borrow money.
Felix Salmon: But what it did is it put together this incredible deal with the Nature Conservancy and the Inter-American Development Bank, where it bought back $150 million of its debt at $0.92 on the dollar at a discount, and then used all of the savings, the borrowing, much cheaper money from TNC and the IDB. It’s using all of that savings. Over the next 15 years, it’s going to be about $50 million. And it’s investing in it’s investing all of that money into the ocean, basically, which is most of Barbados.
Felix Salmon: You know, Barbados is it’s one of those countries, a bit like the Seychelles, which did a similar deal a few years ago, which is mostly ocean. And they say, well, what we need to do is invest in our oceans, keep them clean, keep them healthy. And we are going to do that with the savings we got buying back that at a discount. And the reason we were able to buy back debt at a discount is because rates have gone up.
Speaker 2: Yeah. And this is happening, you know, against the backdrop of Barbados already having a lot of debt. You know, 175% of GDP and tourism being down. And broader concern that, you know, climate related stuff is going to drive that in the future.
Felix Salmon: It’s going to drive what is.
Speaker 2: Going to drive tourism and primary sources of revenue for Barbados. So this is aligning incentives to some extent.
Felix Salmon: Yeah, I mean, I think that’s probably true at the margin. If you improve the quality of your oceans and that will drive tourism revenues. But I think there is a bigger picture here that it is just a sort of economic necessity globally to look after our oceans. And you know what what the TNC calls the large ocean states, which are often known as small island states, you know, really, they’re on the forefront of that. And this is impact investment kind of thing. Like the people buying this, hundred and 50 billion of Blue Bonds impact investors were willing to lend out money at a risk free rate of return for risk free rate in order to help out the oceans. There are some credit guarantees from the IDB and the TNC and those don’t you know, those don’t grow on trees. So it’s not easily replicable, but it’s it I really like this little piece of financial engineering.
Emily Peck: I have to see a country getting a good deal on money because I feel like so many stories are like countries getting loaded up with debt and like not. And that’s being a burden and keeping them from spending money on things that matter. And that seems like the exact opposite of of that.
Felix Salmon: Yeah. I mean, Barbados did just do a massive debt restructuring as well just a couple of years ago. So like they’ve already managed to reprofiled that debt, bring that debt service down and that kind of thing. And so this just helps them even more in terms of meaning that they get they have less money that they need to spend on debt service and frees up more money that they can spend on oceans.
Emily Peck: Why can’t the Nature Conservancy just give them a bunch of money? Why does it have to be so complicated? I don’t ever really understand that part.
Felix Salmon: So the Nature Conservancy has a massive balance sheet. They have like $9 billion of assets, something like that. But the overwhelming majority of their assets is land that was donated to them, mostly in the United States. So if they were going to just give. Money to Barbados, they would have to sell a bunch of the land. And the whole point about the Nature Conservancy, if you give them land, is they’d never sell it, right? They just sit on it and they make sure that it’s conserved. So they have the financial wherewithal to be able to guarantee this kind of thing. They have a credit rating, but they don’t have a bunch of liquidity that is just sloshing around, waiting to get spent.
Emily Peck: That’s a very good answer.
Emily Peck: So do you expect to see more deals like this happening going forward or is this sort of like a special one off?
Felix Salmon: So this is actually the third such deal. The first one was the Seychelles, the second one was Belize, and the third one was Barbados. And all of them are very different. And each of these is a huge amount of work and really custom made for that particular country and that particular country’s, you know, fiscal position and so on and so forth.
Felix Salmon: In Belize, for instance, had much weaker credit, and so it didn’t make sense for TNC or the IDB or anyone like that to just come in with flawed guarantees on the debt. So they had to do a bunch of very weird trading stuff in Belize. But on the other hand, because believes is much worse credit believes managed to buy back its debt not at $0.92 on the dollar, but at $0.55 on the dollar.
Felix Salmon: So it’s interesting that there are different structures in different countries in that it’s a lot of work to put these things together. And, you know, this is the kind of work that capital markets, bankers in big investment banks like know how to do. But maybe that the kind of people who work in Nature Conservancy organizations are not so familiar with. But TNC is a little bit of an exception here. They really do have a massive balance sheet, a bunch of super sophisticated financial professionals and stuff, and they can help to put these deals together.
Emily Peck: What are they going to do with the money to fix climate change and the ocean? Exactly.
Felix Salmon: You know, I’m such a nerd. I know that so much on the on the on the financial engineering, I forgot to ask what they were going to do with the oceans. I will I do know that they’re putting a plan together, which is costing $8.2 million. And half of that 4.1 million is coming from various philanthropists who support TNC. Mackenzie Scott and people like that that’s giving money to TNC to basically really put together a plan to help preserve and improve Barbados.
Felix Salmon: Is oceans. The the woman at TNC, who covers the eastern Caribbean told me that this is like the $8.2 million plan is like the Toyota Corolla plan. Like if they want the Lamborghini plan, it’ll be a lot more expensive. But this is a lot better than nothing. It kind of gets the job done and yeah, and then once the plans together, then they can start using those annual savings on the debt service to, to, to implement it.
Emily Peck: It’s interesting because of Barbados primary revenue sources, tourism, it’s my understanding that tourism can actually be kind of degrading environmentally. So I wonder how that will play into this.
Felix Salmon: Well, flying in and out, you know, involves involves a bunch of carbon emissions. But the fastest growing sector of, you know, tropical tourism is definitely the eco lodges and the eco tourism and that kind of stuff. It’s it’s a good question. And we should probably have someone on who knows about such things like just how eco are these eco lodges, especially in fragile island nations. But as you say, like these fragile island nations really need the tourism revenue. So you minimize the environmental impact while keeping the revenue excellent, you know, is the best outcome really good.
Emily Peck: Well, that’s a positive bond story.
Felix Salmon: Yeah. How often do you have a positive things? Do you know.
Speaker 2: Do you say nice things about bankers?
Felix Salmon: How often do we say nice things about bankers, even if they are bankers who work for nonprofits? Yeah.
Felix Salmon: But talking of tourism and luxury travel. Elizabeth, what is going on at Singapore Airlines?
Speaker 2: So there was a great story in the F.T. earlier about the growth of luxury food and high end airlines, and particularly in business in first class, because despite the fact that business in first only account for a third of airline seats, they account for 70% of all revenue. And so one of the biggest marketing attractions is having ridiculous food in first class. So Singapore Airlines has a special pressurized cabin where they test all of their new food to simulate airplane conditions. And apparently your taste works differently on an airplane. So above 35,000 feet, about a third of your taste buds don’t work. So they’re trying to engineer food to sort of account for that. And, you know, that sort of leans into very high end luxury services, like got an Emirates. You can get unlimited caviar service if you’re in premium. So in Singapore Airlines.
Felix Salmon: And caviar being one of those like super salty foods, that is nice even in the air. Yeah. Famously, tomato juice has lots of umami and that’s what people want in the air as well. So the taste for thing is real. Although yeah, the article did throw a little bit of cold water on it. The thing that really fascinated me about this article was the way that it looked at it from the airline perspective and basically framed this very swanky food service as a Fomo thing for people in the economy.
Speaker 2: Oh, yeah. There’s a great quote from a catering executive where he said The only real reason to serve food in first class is to make economy passengers feel bad about themselves.
Emily Peck: Yes.
Felix Salmon: Because and I think I’m just going to come out and plug my book a little bit, because this is one of the themes of my book. But I think this is a pandemic thing, which is that pre-pandemic business to us is business. Right? It was business travelers and they were like, I need to fly from A to B and my company will put me in business class. And that’s what I did. And so that was a very easy way for the airlines to sell business.
Felix Salmon: First plane tickets. The business class travel has really not recovered from the pandemic plunge in terms of business spending. It has recovered in terms of people spending their own money to fly business class. So at that point, it’s not just an automatic thing anymore. At that point, you really want the richer folks in economy to want to upgrade anyone in the economy who’s like, it’s the plane. It gets me from A to B in exactly the same amount of time. No matter where I sit in the plane, why on earth would I spend an extra $3,000 to sit up front when I can get the same travel service? Basically, if I sit in the back? Anyone thinking like that is bad for airline revenues. They want that person if they can afford $3,000 to spend the $3,000. And yeah, at that point you really need to start selling it.
Speaker 2: Yeah. Now it’s a function of making first class feel like a, you know, holistic experience, not just, again, getting from A to B and even eating great food. So you see all these kind of performance elements that high end airlines are putting into food service. There’s a thing Finnair does called Sonic Seasonings or they’ll playing music while you eat something. And it’s the audio effect apparently influences how you think about it.
Felix Salmon: Thank you. Finns. Finland to the rescue. Clearly, this is what I should do in every restaurant.
Speaker 2: Nice crackling fire while you’re eating a steak. And first.
Emily Peck: I want to thank Katie Drake in the FTA for explaining why tomato juice tastes good on an airplane. Because that is one of those things where it’s just for some reason you’re flying and you’re like, Tomato juice is what I want when you never, ever want it anywhere else, ever dull.
Speaker 2: And then the Omani tastes are enhanced for some reason. But I, you know, my go to cocktail, if I get cocktails on planes, it’s always a Bloody Mary. No, now I know.
Felix Salmon: I’m just being.
Speaker 2: Brainwashed.
Emily Peck: And I loved the insight in the piece about it has nothing to do. I mean, maybe besides the tomato juice, it has little to do with the actual taste of the food or the quality of the food, but sort of like the performance, the service, the feeling that like you’re being looked out for. At one point when she’s trying out all this stuff, someone comes to her and says, you know, just relax. And when it’s time for you to board, we’ll let you know. You don’t even have to look at your watch. And that does sound amazing. Take a nap.
Felix Salmon: Bloomberg had this wonderful article about how late you can’t find the seat in the lounges anymore and the airlines will desperately trying to reduce the number of hours you’re allowed to spend in the lounge. And like sometimes the queue to get into the lounge is like 20 minutes long. And by the time you’re in there, you need to turn around and leave and everything is really picked over and crappy and it kind of. Just doesn’t have any luxury vibes at all anymore because I guess the same thing, right? Which is that insofar as business class is now more leisure travel, is that getting to the airport early? They’re going to hang out in the lounge, they’re going to get some free champagne. And that just increases the stress on lounges, some of which are still closed from the pandemic.
Emily Peck: It is a little confusing, actually, to think about that Bloomberg piece in conjunction with the FTP is like, am I going to get a first class experience or not?
Felix Salmon: I not think.
Emily Peck: This is a concern.
Felix Salmon: I have. No, I do think that no, I do think that for the first time ever, there is a real and noticeable difference between first and business. Like in my mind, it was always like, you know, there’s that massive jump up from economy to business which, you know, obviously some airlines try to create this sort of in-between class. But once you’re in business, why on earth would you even bother with first? It’s all the same thing. You get the life that that flatbed, you know, once you’re there and you have the lovely service and whatnot, why would you ever want first? Like what extra fabulousness can you get first that you can’t get in business now?
Felix Salmon: I think this is it, right? You get even more exclusive lounges where you really can get space to have an app and stuff and you’re not surrounded by Harry travellers and crowds. It really is a relative positioning thing, right? You just need to spend enough money to get away from the crowds. And it used to be that in business that was enough money to get away from the crowds. But now, now you have spent even more to get away from the business class growth. And you have to buy first.
Emily Peck: You have to buy first and get your bottomless caviar. Hurry.
Speaker 2: Yeah.
Speaker 2: It seems like this is this is largely applicable to long haul flights, though. I mean, most of the business travel I have to do, there really is no difference between business and verse. They’re literally the same section.
Felix Salmon: Yeah. No, this is this is definitely this is why everyone is talking about Air France and Singapore Airlines and Emirates, because those are international airlines, domestic airlines, a totally other kettle of fish. And yeah, I don’t even think for us it’s barely a thing domestically.
Speaker 2: And the airlines like Emirates have kind of sold the service as, you know, a luxury experience in and of itself. Like that’s part of why you travel so right.
Felix Salmon: There are people who literally go to Dubai just so that they can fly first class on Emirates. And when they’re there, like, okay, I’m here, big deal. I guess I’ll take a spin around town and see if there’s anything to do, and then they just get on a plane and do the same thing backwards because the flight is the point. You know, they’ve sold it so well. Those people are weird.
Emily Peck: That’s super weird. If there’s a someone like that listening, please write in. Let us know. I don’t I don’t get it. Like flying. Even the most luxurious flight it’s still flying is still book.
Speaker 2: And also tell it tell us what.
Felix Salmon: I can tell, Emily, that you know someone who’s never flown private.
Emily Peck: Obviously.
Felix Salmon: I have never flown private either, I hasten to add.
Speaker 2: If someone would like to fly us all a private to try it out and talk about it.
Emily Peck: Yes, please write in.
Felix Salmon: Now, I think there really is still a sort of weird, atavistic holdover from the 1920s or whatever when, you know, flying was actually glamour for the 1950s or 1960s. Sixties. Yeah. And there is a certain very, very small subset of people who enjoy it and all power to him.
Speaker 2: Those people are insane.
Emily Peck: Yeah. I mean, you lose. What did you say? Elizabeth a third of your tastes when you’re flying in the air and you can’t hear as well because of the judging of the of the air and stuff, I mean.
Felix Salmon: Yeah. But you know, that’s when you get those incredibly expensive headphones that they give you in first class antennae, they think of everything.
Emily Peck: Okay.
Felix Salmon: So we have a numbers round. Yes. Have seven numbers round. I have no idea if I have a number this week, but I’m sure, Emily, that you do.
Emily Peck: I do. And actually, I have this number because of a story you shared earlier this week. And my number is 450. Okay. Okay. Dollars $450. That is the price of a new Yeti Tundra Hall wheeled cooler, which can hold 45 beer cans using a 2 to 1 ice can I ice to can ratio. And the reason I’m telling you this is because you could spend $450 or you could go to Alaska and comb the beach because yeti coolers are washing up on shore up in Alaska because a cargo ship spilled 109 containers of them over there. And now people in Alaska are going to the beach and getting Yeti coolers for free and then posting videos and such on Tik Tok of their nice yeti coolers which are very expensive way to store your beer, but they do look very nice. Yeah.
Speaker 2: It’s what I think of as redneck luxury consumption. Well, they’re sort of a big deal where I grew up. Like, people have Yeti merch and they buy all the Yeti things.
Emily Peck: I mean, it looks. It’s a very nice looking cooler to store your beer and to do your tailgating in. And this is the tailgating season. So I mean, and you could travel first class to Alaska, I guess, and then and then do this. I don’t know if there’s any left at this point. It was an article in Outside magazine.
Speaker 2: My number is $28,000, and that’s the average cost of a wedding in 2021. This is from a New York Times story about.
Felix Salmon: Is that up?
Speaker 2: Yeah. Yeah.
Felix Salmon: What was it in pre-pandemic times?
Speaker 2: I think it was around 24. I Googled it. I don’t remember what it was pre-pandemic, but I don’t remember what year. But part of what’s driving it is now there are companies that will do have a buy now pay later for your wedding. Oh, which strikes me as a horrible idea. Really good way to how.
Felix Salmon: Long you want to keep. How long do you want to keep on paying for your wedding? But Bnpl is how.
Speaker 2: Long do you want to be married?
Felix Salmon: Yeah, yeah, yeah. The whole idea of continuing to pay for your wedding even after your divorce but being built is normally short term. How long do you have to pay off your.
Speaker 2: It didn’t say. Seems like they’re deals are highly customized. They’re not as automated as you would think. There’s a company that does this called a Meru and they are oyo and they work with.
Felix Salmon: How do people come up with these names? Seriously? Oh, yeah, I’m getting married. I’m not getting married and getting married.
Speaker 2: Like, is the URL available? That’s the big thing.
Felix Salmon: My number is 1.09 Emily. You know what that one is?
Emily Peck: I’m no, I don’t know.
Felix Salmon: Elizabeth?
Speaker 2: No, but.
Felix Salmon: It’s the number of dollars that you would need to spend to buy Emily.
Emily Peck: A pound, a British pound.
Felix Salmon: British pound. We are plunging down towards parity. Bill $1.09 to the pound. This is the lowest it’s been. As long as I can remember.
Felix Salmon: And this is all thanks to Liz Truss, the new Prime Minister. I’m not blaming, but it’s.
Emily Peck: Not just Liz Truss as far as I mean.
Felix Salmon: It’s most of.
Emily Peck: That country has been messing up for a while.
Felix Salmon: But the big latest plunge in the exchange rate is a function of her bizarre tax cut that she just announced, that everyone’s like, well, this is going to be a complete disaster and it’s going to force the Bank of England to raise rates even more, and it’s going to be even more inflationary. And yeah, everyone’s just selling the heck out of the pound. Yeah, I’m going to the UK in December, so with any luck it will be relatively easy.
Emily Peck: Yeah, you could travel first class because it’s going to be so cheap on the exchange rate.
Felix Salmon: Exactly. Take advantage people. If you if you want to go to Britain in the winter, I know that’s top of your list of vacation destinations, but if you want to go to the Britain in the winter, this is it’s cheaper than it has been in decades.
Emily Peck: Christmas in London doesn’t sound so bad, but it’s nice.
Felix Salmon: It’s it’s gray and wet and kind of chilly and miserable. But yeah, other than that’s great. I think that’s it for Slate Money this week we’re going to have a Slate plus on the economics of timeshares as requested by Jessamine Molli. Other than that, thanks for listening. Thanks for emailing us on state money to come and we will be back next week with even more sleep. Honey.
Felix Salmon: Okay. So. The Fabulous Jessamine Molli wants to know what’s up with timeshares. Are they still a thing? Apparently that’s still the thing. People own multiple timeshares. Does that make financial sense? What is your gut feeling? Elizabeth.
Speaker 2: My only experience with timeshares or the number of people who solicit my parents to join them, and they’ll give you a seminar and then a free vacation somewhere if you just sit through the seminar.
Felix Salmon: Timeshares, a legend, timeshares, a legendary for very, very high pressure sales tactics. This is mostly what they’re famous for. And in general, my Harris stick, my little rule of thumb on anything is that if it’s the thing that needs to be sold rather than bought, then it’s not generally a very good idea.
Speaker 2: Yeah. I think, you know, when people complain about them, it’s usually because the timeshares are so heavily split up and you know, you can’t get the times that you want. And so you’re stuck with, you know, your, your, your sort of the timeshare is in some part of the year that you wouldn’t possibly be there.
Felix Salmon: You’re like, Great, I’m in Miami on a Wednesday in June.
Emily Peck: But I mean, it makes sense to me. I think to have a vacation home is an expensive thing to own. So it makes sense to me to not own one outright and to sort of like share the costs with other people, you.
Felix Salmon: Know, ownership of vacation homes. And there’s a there’s a startup, I think it’s called pickup. Yes. That does this kind of thing, which, you know, is inevitably causing all manner of NIMBY ish protests. The question really is the opportunity cost and also just your own. Comfort zone. Well, do you like going back to the same place every year, or do you like going somewhere new every year? If you’re someone who likes to explore and who likes to travel and likes to see new places, then obviously timeshares are a terrible idea because like, you know, all of the amount of time that you’re spending your time, so you could be off doing fabulous things in somewhere exotic and new. On the other hand, if you are a person of habit, if you have a family and you’re like, Oh my God, we have found somewhere that the kids like and we just want to keep on going back there because we finally found some way that the kids like maybe it makes sense.
Speaker 2: Yeah. The other thing, though, is the corporate owned timeshares are notoriously hard to get out of. Like there’s a whole legal practice now of just extracting you from your timeshare.
Felix Salmon: Right. This is the thing that when they’re sold, this the sales pitch is always and then this isn’t just a consumption expense. This is an investment. You can when you when you finally know when to no longer want to stay in the timeshare anymore, you have fractional ownership of this property and sell it to someone else and make money. And then when you actually comes to trying to sell the the object or the timeshare, it, it proves much harder than you thought and there’s lots of fees involved. Reminds me a lot of the art market. You know, if you buy a painting from an art gallery and they’re like, this painting is going to go up in value. And then, you know, ten years later, you’re like, has the painting gone up in value? And they’re like, Yeah, but if you want to sell it, you know, they start sucking the teeth a lot and you wind up getting much less than you paid for it. The one thing I would say, given that dynamic, is. If you buy a timeshare, buy it on the secondary market.
Emily Peck: I think you’re better off just like going to Verbio and just renting out the same house every year and you get all the same benefits and you’re not, like, locked into anything.
Felix Salmon: Make sense to.
Emily Peck: Me. Like, I don’t understand why you would lock in anything.
Speaker 2: I don’t understand why you would buy fractional ownership of something without staying in it significantly for a period of time, which you sort of can’t do. I don’t think if.
Felix Salmon: I mean, depends how much of a fraction you buy. If you buy like 75%, you can more or less.
Speaker 2: And then if you hate it, you’re just yourself.
Emily Peck: I learned recently related point I don’t know if this will interest you, but I learned recently that it’s more expensive now to get a second to get a mortgage on a second home, because federal regulators felt like too much lending was going on for people to buy their vacation homes and second homes. So that upped the fees to sort of push that kind of mortgage lending out. Just I don’t know. I don’t know. I had anyone get a mortgage on another another house on a second a second home.
Felix Salmon: Because you are going to make so much money in the stock market, it’s better than paying cash. But of course, if you’re in the business, you’re in the market for a second home, then you could pay cash, right? No. The reason is you want a second home and you don’t have whatever. I don’t think.
Emily Peck: People should be buying second homes.
Felix Salmon: Lying around.
Emily Peck: That’s what I just decided right now. Okay.
Felix Salmon: I agree. So you think that people shouldn’t be. Just to be clear, in terms of the things that Emily believes. Yes. Number one, people shouldn’t be buying second homes. And number two.
Emily Peck: Definitely billionaires should pay more.
Felix Salmon: Taxes.
Speaker 2: And I think we should we should say of this.
Emily Peck: Oh, right. Yes, sure. But I’m just saying, I don’t see a benefit. Or maybe I do, but I don’t think it’s a good idea unless you’re really rich, I guess.
Felix Salmon: What do you think about renting second?
Emily Peck: Oh, that’s fine.
Felix Salmon: Okay. So it’s not the second home thing that’s bad. It’s just the owning it.
Emily Peck: It just seems like adding on. Like if you have to get a timeshare and you can’t afford to pay cash for a second home, I don’t know, it seems.
Speaker 2: Is the idea of having to maintain a second home.
Emily Peck: Stretch. Oh yeah. I can’t even maintain a first home, but. So maybe it’s just me. I don’t know.
Felix Salmon: That’s that’s where the timeshare comes in, right? They have all the invisible people who do all the work of maintaining free. Hmm. All right, there’s a slate glass. Thank you, Jasmine.