TIME energy

Why Airfares Are Rising Despite Lower Fuel Costs

Delta Airlines Inc. Terminal Ahead Of Earnings Figures
A Delta Air Lines Inc. airplane departs Ronald Reagan National Airport in Washington, D.C., U.S., on Friday, July 18, 2014. Bloomberg—Bloomberg via Getty Images

Airlines stand to gain when gas costs fall

Airlines’ profits have been, yes, taking off this year, and the industry doesn’t seem inclined to change that flight path. The big carriers announced a $4 per ticket price increase Tuesday, even as falling jet fuel prices were delivering an unbudgeted bonus. Although it’s not unusual for a carrier’s announced price increase to get withdrawn when a competitor decides not to play ball, there doesn’t seem to be much resistance to Tuesday’s news.

Were you expecting the carriers to have mercy on you, given that flights are stuffed, there are upcharges for everything from baggage to overhead space to boarding early, and passengers are staging midair cage fights over knee room? Get real. As one airline consultant told me about a year ago, the semi-romantics who used to run the airlines are long gone. Instead, the folks in charge today play hardball. They are running a business, not their advertising agency’s image of air travel.

With seats in shorter supply domestically, that means pricing is going to remain tight. In Delta’s most recent quarter, for instance, its passenger yield — a measure of the average fare paid — increased 1.9%. The company’s results had Richard Anderson, Delta’s chief executive officer, crowing: “While we have more work ahead of us to achieve our long-term financial goals, we expect a record fourth quarter of 2014 with an operating margin of 10%-12%. For the full year, we expect a pre-tax profit in excess of $4 billion.” That’s following a record year last year.

Delta, like other carriers, is managing costs tighter and benefitting from the slide in oil prices. In its most recent quarter, Delta’s fuel cost declined by $23 million. According to the industry trade group A4A, a penny a gallon decrease over a year saves the carriers $190 million. Delta expects fuel to drop from $2.90 a gallon to between $2.69 and $2.74 a gallon in the current quarter.

Delta notes that there are three major drivers of airline economics: aircraft maintenance, ownership cost and fuel cost. The first two are fairly predictable costs that management has some control over. Fuel is a variable cost with a capital V. When oil was soaring, the airlines were losing billions and eventually were driven into bankruptcy. They have emerged, recapitalized and rationalized: they can make money even with much higher fuel costs. But they can make a lot more money with lower fuel costs as well as by raising prices. There is no reason not to do both. “Domestically, clearly we are in an environment where the carriers are rational, and financially motivated,” American Scott Kirby told analysts recently. ” In other words, don’t expect any free drinks any time soon.


The $64,000 GMC Sierra Denali Shows How Pickups Have Gone Crazy Luxe

A powerful engine, a moon roof, USB ports and comfortable seating for five are all signs of booms in agriculture and construction.

Even in the darkest days of the American automobile industry, pickup trucks came through. Detroit couldn’t build profitable cars to save its soul, but pickups always delivered sales and profits.

In the last couple of years, with agriculture booming and construction recovering, the auto companies have been outdoing themselves to hang on to this lucrative turf. Ford is about to launch a new, aluminum version of its top selling F-150. Chrysler has had to increase production of its Ram 1500 to keep up with demand. Meanwhile, GM is about to debut two middleweight contenders, Canyon (GMC) and Colorado (Chevy).

GMC also rolled out new versions of its heavy duty 2500 and 3500 Sierra HD models that highlight another trend: the pickup gone crazy luxe. For the successful farmer who now pilots a climate-controlled, $325,000 John Deere 9370R tractor with mission-control computer display terminals, the fully-equipped Sierra Denali 2500HD that we tested might be no less than the minimum required. This diesel-driven, high-waisted brute feels more like a working Escalade, and at $64,000 for the crew-cab, diesel version, it’s priced in the neighborhood.

Who would drop $64,000 on a pickup? Look, I’m a car guy so I really can’t answer that question, but if I had to get up at 4 a.m. every day and do actual labor on a farm or ranch, or at construction sites, I’d like to think I’d earned a cushy ride. And in the Sierra Denali you’ll get one. Once you adjust to sitting a mile high and towering over mere cars — and in Manhattan (New York, that is, not Kansas) it’s kind of a cool perspective — you realize that the Sierra doesn’t feel like a truck. On the highway, it’s one of the quietest vehicles on the highway that I’ve tested this year.

That’s even more surprising considering that this particular Sierra Denali is powered by a 6.6 L V8 Duramax diesel tied to a 6-speed Allison Transmission. But this combo, odd to say, doesn’t shout its 397 h.p. worth of trucky-ness. Because the diesel delivers bigtime torque at low revs, (765 lb. ft. @ 1,600) the pickup’s power sounds more oceanlike as it gathers force. You’ll pay for that power, with the diesel package adding $8,845 to the standard price of $53,740. Since you are already in luxury car territory, why not throw in a power sunroof ($995), aluminum rims ($850), and 20-inch tires ($200)?

You are now styling in four-wheel drive and your buddies will appreciate it: You can fit four of them in the Sierra Denali 2500HD, and they will be properly seated in the more-than-roomy-enough crew cab. You, though, will have the best seat, one that’s heated and air conditioned and equipped with its own alarm system: The seat shimmies to keep you alert in slow traffic or if it senses you are drifting out of your lane. And because this is a work truck, the center console is loaded with storage for files, laptops, or even power tools; there’s also a power panel that includes USB ports, a couple of 12-volt ports, and a standard electrical outlet.

It would be silly of me to try to tow a trailer around New York City, but the Sierra Denali 2500HD can haul one weighing up to 13,000 lb. On the other hand, we did manage a brief four-wheel drive test on a rough patch of Harriman State Park about 50 miles north of New York. The fall foliage was beautiful and the pickup handled the high brush easily given its substantial ground clearance. I’d be looking forward to winter driving in this thing if I worked outside. Although I wouldn’t be looking forward to working outside.

TIME Diet/Nutrition

The Case Against Cooking

gas stove
Getty Images

Bill Saporito is an assistant managing editor of TIME and directs the magazine's coverage of business, the economy, personal finance, and sports.

'Not cooking doesn’t have to doom you to a life of junk food'

The guy from Con Edison comes knocking on our apartment door once a month. He’s there to read the gas meter in our kitchen, where the gas meter is located in an apartment building constructed in 1928. He needn’t bother, since that meter hasn’t budged since, oh, 2010, when we shut off the gas.

The reason my wife and I don’t cook our food is the same reason that we don’t hunt our food. These skills are no longer required to sidestep starvation. Cooking now ranks right up there with vacuuming—except that vacuuming removes a mess while cooking creates one. We have more efficient uses of our time and energy.

And it’s not just us. According to the United States Department of Agriculture, (notice, there’s no Department of Cooking) Americans spent 43.1% of our food budgets on food bought away from home in 2012, up from 25.9% in 1970. It’s the highest level ever. One reason is that food costs a lot less now then it did in 1970. We spend less of our total income on food, so we can be a little less fussy about who makes it.

Chef Mark Bittman properly rails about the empty calories Americans consume that have led to our obesity crisis, but not cooking doesn’t have to doom you to a life of junk food. I don’t eat burgers. But there are plenty of other options in my neighborhood. The Chinese takeout joints can offer steamed veggies and tofu over brown rice at a price you couldn’t possibly beat in your own kitchen. (Not that you’d want to.) There’s a vegan place — right next to the steakhouse. Burmese, Persian, Italian, Jewish, French, Mexican, Indian, Turkish, and Thai outlets vie all for my patronage with fresh deliciousness, delivered to your door in under 20 minutes at a reasonable price.

Granted, New York is a dense city that can support 15,000 restaurants, and its crazy ethnic mix yields unmatched variety, but the rest of the country is catching up fast. The growth Hispanic America has been a godsend to better options. Emerging fast-casual, healthier-food chains with names like Garbanzo Mediterranean Grill are getting traction—one reason McDonald’s is struggling. And supermarket chains offer heat-and-eat meals that are freshly made. There’s a name for it: home meal replacement, as in HMR. Bless us, even 7-Eleven is getting into the game. You’re going to be able to buy real food there along with your cigarettes and Slurpees.

When I was a kid, families cooked at home because they were too poor, relatively speaking, to eat at restaurants, and Mom was home to woman the stove. Today, it’s the opposite: many Americans are too poor to cook at home; they’re way too busy trying to scratch out a living. For working parents chasing a couple (or more) jobs and a couple of kids, the act of acquiring and cooking food is a time-consuming luxury.

Where did we get this idea that we must commune with food through the medium of cooking? Why do I have to have a spiritual relationship with produce? (And especially with you, broccoli.) The kitchen as we know it today is a relative newcomer to the American home. Brooklyn is filled with 19th-century Federal-style row houses whose owners often fret about nailing down period details; but all these homes have retrofitted modern kitchens because the kitchen was originally in the basement. Cooking had been kicked out of the hearth and relegated to the remote part of the house.

Not cooking isn’t new, either. Until the Depression, a vast servant class existed in the U.S.—it pops up all over census reports—so that even lower-middle class families could afford hired help who did the menial work, such as cooking—in the basement. The modern-day counterparts of those servants are working at McDonalds.

The American Dream home with mom playing Queen of the Kitchen has always been more myth than reality. It wasn’t until the postwar period that companies like the Generals—Electric and Mills—began to fetishize the kitchen and the happy homemakers who would inhabit them. This is a relatively brief and booming period that began to come apart like a badly made muffin with the deindustrialization of the economy in the late 1970s and early 1980s and the advance of women in the workforce. Even GE is done with cooking: the company just sold its appliance division to concentrate on more complex and profitable stuff, like jet engines. What GE is saying about cooking is that the idea of transforming comestibles into combustibles through the application of heat in a specialized space is a relic of another age.

What I am saying is that if cooking can’t be done on my iPad, is there any point in doing it?

I love a great meal, and I’ve been lucky enough to eat remarkable ones prepared by talented chefs in Europe as well as in the U.S. I also have a friend who is a terrific cook and takes pleasure in sharing the fruits of his hobby. My wife and I are always delighted to indulge him. I can also appreciate that cooking evangelists like Bittman aren’t trying to start a cult, but rather trying to improve our wellbeing. That’s really admirable, but veneration of the stove isn’t the only way to change what Americans eat or their BMI. It’s why Con Ed’s meter reader will continue to come up empty when he reaches our door.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.


VW’s New Golf Makes the Case for Diesel

The redesigned 2015 VW Golf brings a quieter, more efficient diesel experience to the American consumer.

Diesel has been a dirty word in the American automobile industry for too long. We can’t seem to get the idea out of our heads that “diesel” means smelly, sluggish, expensive and, well, European.

And that’s always been perplexing to European car manufacturers, who have been continually improving the technology, making it cleaner and more efficient.

We may be entering a diesel renaissance in the U.S., however. Sales of diesel-powered cars increased 25% percent during the first six months of 2014, according to HybridCars.com. That’s in some measure because American car makers are increasing the number of diesel options. Chevrolet has added a 2.0L diesel option to its popular Cruz lineup, and more diesels are popping up in pickup trucks such as Chrysler’s Ram. Next year Chevy will add a diesel to its midsized Colorado and GMC Canyon midsized pickups. Mazda is also joining the party.

What’s driving diesel ahead? For one, diesel engines are much cleaner than in the past. Chevy’s Clean Turbo Diesel generates 90% lower nitrogen oxide emissions than earlier models, says the company. That makes environmental regulators happy.

But a 46 m.p.g. highway efficiency rating in the Cruz is what makes buyers happy — and it’s one reason the Cruz power plant was the third diesel engine to make WardsAuto’s top 10 engines list this year. The other two include the 3.0L V-6 turbo diesel that powers both the Ram 1500 pickup and the new Jeep Grand Cherokee; the 3.0L, 6-cylinder turbo diesel pushing both the BMW 535d sedan and X5 crossover rounded out the list.

Even better, the premium you have to pay for the diesel over a gasoline engine — the step-up price — is narrowing. In Volkswagen’s new 4-door Golf, for instance, the 2.0L TDI diesel version is priced at $21,995 for the basic S trim package compared with $20,695 for the 1.8L gas-powered model. “When you look at the step price vs. fuel efficiency, customers are seeing value,” says Doug Skorupski, powertrain strategy manager. The Golf diesel is rated 30 m.p.g. city/45 m.p.g. highway, making it 9 m.p.g. better on the interstate than then gasoline model. And some reviewers are reporting much higher figures for the diesel’s efficiency. On a practical basis, that means you can go weeks without filling the tank.

Does it pay to drive a diesel? Depends on how much you drive, how long you plan to keep your car and how much you beat it up. Diesels are more fuel efficient because you get more compression out of the engine and thus more power compared with gas. Diesel fuel is currently priced about 36c a gallon more than gasoline ($3.457 vs. $3.814, according to the U.S. Energy Information Agency), although that gap is narrower in some places, such as California.

At those prices, you’d have to drive about 100,000 highway miles to erase the premium you paid for the diesel engine. But diesels tend to be lower maintenance, and their resale value is higher, making total cost of ownership lower. “These diesel engines really like to work,” says Skorupski. “No matter how you tend to drive the vehicle, they maintain efficiency.” Translation: You can beat the hell out of them. VW says that 23% of its sales are diesels, but 45% of Golf buyers are choosing diesel.

VW has been selling diesels in the U.S. forever and recently launched its redesigned 2015 Golf, three versions of which come with the company’s TDI (for “turbo direct injection”) diesel engine. The new Golf, the 7th version of this venerable model, represents badly needed fresh merchandise for the VW portfolio, which has suffered in the U.S. for the lack of new product.

And the diesel version can easily make a case for itself. For one, the TDI answers one of the old issues about diesels, that their power isn’t matched by their acceleration. Engineers refer to it as torque curve; as diesels go up rpms, they lose their giddyup.

That’s not the case in the TDI. There’s more than enough torque available, even if the trip up the gears is noticeable on the DSG automatic transmission. VW has made this Golf about two inches longer, an inch lower, and half an inch wider. On the road, the TDI is one of the quietest cars I’ve driven all year. Inside, you may not be dazzled by the styling, but VW sedans have always been about function and value over silliness.

So have diesel owners in general. Remember those Volvo diesel owners you made fun of in the 1980s because of their cars’ sluggish performance? Those days are over. Road & Track reports that Volvo’s five-cylinder, diesel/electric V60 hybrid delivers more torque than a Lamborghini Gallardo. Sensibly, of course.

TIME Food & Drink

Pepsi Pops Open a New Low-Calorie Soda

Pepsi CEO Indra Nooyi Courtesy of Pepsi

Meet Pepsi True

When PepsiCo and two other members of Big Soda—Coca-Cola and the Dr. Pepper Snapple Group—announced a pact with The Alliance for a Healthier Generation to reduce the number of calories people consume in their beverages by 20% over the next decade, skepticism bubbled to the top. How could the companies lower calorie intake without reducing the serving size? And if they did that, wouldn’t sales fall and wouldn’t Wall Street skewer them?

But Pepsi CEO Indra Nooyi has been on an innovation kick these past two years, and by the time the Clinton Global Initiative announced the calorie treaty, Pepsi already had an answer in place. It’s a product called Pepsi True, a cola unveiled Wednesday that’s sweetened with a combination of sugar and stevia, which is plant-based. Offsetting sugar with stevia reduces the sugar content by 30% and the calories delivered by 40%. Each 7.5 oz. can of Pepsi True will cost you 60 calories and be priced on par with plain old Pepsi. Initially, PepsiCo is going to market Pepsi True in a 24-pack of 7.5 oz cans via Amazon.com, beginning later this month.

The stevia-sugar combo is a sort of natural evolution for the company. Pepsi released a 100% stevia-based product called Pepsi Next in 2012 outside of the U.S. And although stevia is sweeter than sugar, it doesn’t necessarily deliver the same flavor profile. (Pepsi also sells a zero-calorie Pepsi Max. In combining stevia and sugar—not high-fructose corn syrup—Pepsi is trying to deliver the taste without the waist.

This latest cola twist may not be a huge risk for PepsiCo. Ironically enough, the company has been cutting back on the sugary carbonated beverages that nutritionist have been complaining about. Over the last decade or so the company acquired such non-fizzy drinks as Gatorade, Naked Juice, Sobe and Tropicana. Less than 25% of the company’s beverage sales in North America come from cola.

Still, Pepsi sells lots and lots of Pepsi, and the idea of losing more sales dollars is not a good idea for a company that has been under pressure from two distinct sets of critics. On Wall Street, investors such as Nelson Peltz have suggested to Nooyi that the company be broken in two: Frito-Lay, the snack food company and Pepsi, the beverage company. Instead, Nooyi kept Pepsi on an innovation diet that has worked. Pepsi now gets 20% of its revenue from its nutrition businesses, for instance, which helped the company beat its financial targets last year. Yet that, and Nooyi’s chairmanship of the Health Weight Commitment Foundation, an industry-related group that has removed 6.4 trillion calories from the marketplace compared with 2007, hasn’t placated her severest critics. Maybe they’ll find Pepsi True easier to swallow.


TIME Infectious Disease

How to Get to Monrovia and Back

A Brussels Airlines plane bound for Monrovia at Brussels Airport in Brussels on Aug. 28, 2014.
A Brussels Airlines plane bound for Monrovia at Brussels Airport in Brussels on Aug. 28, 2014. Dominique Faget—AFP/Getty Images

People, and viruses like Ebola, can go anywhere these days

None of the passengers who flew with Ebola Patient Zero from Monrovia, Liberia to Dallas, Texas will have to worry about catching the deadly virus. The patient wasn’t contagious in-flight. Airlines may be called carriers, but airplanes themselves are not particularly good at spreading viral diseases such as Ebola.

What they are good at is transporting people infected with viral diseases from a seemingly far off and remote city such as Monrovia to a big American town such as Dallas. But the global economy has brought cities a lot closer together, and changed disease vectors accordingly.

Need to get to Monrovia? Easy. We can book a trip for you immediately if your passport is handy and you have the visa. There’s a flight leaving JFK in New York City at 5:55 p.m. on Thursday that gets you into Monrovia 21 hours and 25 minutes later. (Relax, Delta passengers; the airline serves Monrovia through Accra from New York, but suspended that connecting service on August 30.) The current itinerary is JFK to BRU to DKR to ROB, airline code for New York to Brussels, where you’ll change planes, then a stop at Dakar, Senegal, before heading to Monrovia’s Roberts International Airport. All that travel takes place aboard Brussels Airlines on wide body Airbus 330s. Indeed, the worst part of the trip may be flying to New York on a commuter jet from Dallas.

You have other options, too: the airline-listing site Kayak offers 1,673 combinations that will get you to Monrovia from New York. Or you can make 574 connections through Chicago. And Open Skies agreements that freed global airlines to fly point-to-point across continents have, as the State Department puts it, “vastly expanded international passenger and cargo flights to and from the United States.”

You can hop an A380 on Emirates Airlines from Dallas to Dubai, change there for a Qatar Air flight to Casablanca and then find a Royal Maroc 737-800 to Monrovia via Freetown. Or fly non-stop to London and then connect via Casablanca or Brussels to Monrovia.

The point is, you can get anywhere from here. And so can the germs.


Corvette Stingray: All American Muscle

TIME's Bill Saporito test drives the new Corvette Stingray and finds it's as fast and powerful as advertised.

The guy standing on the traffic island seeking donations didn’t want one from me. He just walked over to the car, gave the thumbs-up and then moved on to the unremarkable vehicle behind me.

The 2015 Corvette Stingray ZF1 convertible I was driving is the type of car that can do that. You park it at Home Depot and guys start circling, taking pictures. Parking lot attendants, who see everything on wheels, nod in admiration. New cars that attract this kind of attention are relatively few: The awesome Audi R-8 comes to mind, as do the recently remade Camaro and the old Jaguar XK8. Even that funky little Fiat 500 was a head turner when it first landed.

For Chevrolet, the Corvette is an iconic automobile and you redesign it at your peril. Yet as Ford proved with its Mustang this year, and Chevy itself with Camaro, you can remake trophy cars without denting their heritage. This Vette is a perfect example of heritage brought smartly—and swiftly— forward.

The Stingray did show up with a surprise: an eight-speed automatic with paddle shifters. The automatic trans adds $1,725 to the base price of $58,000, and the other goodies on the car I drove—including a performance data and video recorder—pushed the price up to $71,255. Who would want to drive a Vette with an automatic? Turns out, lots of people, and fully 65% of new Vettes being sold are automatics, according to the company. And it’s not just Corvette owners. Manual transmissions simply can’t match the efficiency of a new generation of 8-, 9-, and 10- speed automatics now being introduced into high performance cars. (In fact, the new Porsche GT3 isn’t available with a manual transmission. It rides a dual-clutch automatic called a Doppelkupplungsgetriebe.) The manual transmission is going the way of the manual window. Do you miss cranking?

Although I absolutely doppelkupplungsgetriebed at the thought of a stickless Corvette, any disappointment disappeared when I stomped on the pedal at a highway on-ramp. Very instant gratification. Chevy has equipped this Vette with its LT1 6.2 liter V-8 engine, the latest version of a famous power plant known as the small block V-8. In GM lore, this engine actually saved the Corvette when it was introduced in 1955, because sales had been languishing with the underpowered 150-hp engine then in use. The small block V8 put the muscle in muscle cars. This updated one has variable valve timing that deactivates cylinders when you don’t need them—say cruising when the tachometer’s barely pushing 1,500 r.p.m.—which helps the car’s impressive 29-m.p.g. highway fuel rating.

But when you want’em, all eight cylinders snap to attention and report for duty, ready to throw out 455-to- 460 h.p. —the higher figure if you get the optional multimode exhaust option ($1,195) that is exquisitely tuned to zoom. This Vette will get you from here to there—0 to 60 mph—in a throaty 3.7 seconds. The eight-speed automatic is even a tick faster than the seven-speed manual, although the thrill of rocketing up the speedometer is very much the same. And if you insist on shifting the gears yourself, go right ahead and use the paddles. Automatic or no, this thing is still low, wide, and nasty. The two competition seats in the Z51 version come with adjustable side bolsters to lock yourself in on tight turns.

It’s not all about speed, I guess. The Stingray includes a 5-position Drive Mode selector (Sport, Track, Tour, Eco, Weather) that adjusts the performance to suit conditions or your whims. And on nice days, there’s that drop-top, which can be popped while moving at up to 30 m.p.h. if you’d like to really show off.

Chevy is also making the convertible available on a supercharged Z06 racing model rated at 650 h.p. that it will introduce next year. Which is going to provide a whole new definition of driving with the wind in your hair. You are probably going to need that automatic. Because you’ll be too busy hanging on to your hat to work a stick.

Correction: a previous version of this story stated the Corvette has a dual-clutch transmission.

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TIME Companies

Alibaba Is Overpriced and Overhyped — So What Else Is New?

China-Based Internet Company Alibaba Debuts On New York Stock Exchange
Founder and Executive Chairman of Alibaba Group Jack Ma attends the company's initial price offering (IPO) at the New York Stock Exchange on September 19, 2014 in New York City. Andrew Burton—Getty Images

Alibaba may be a Chinese company, but this IPO is an all-American way for inside holders to get rich

Jack Ma was lousy at math as a kid, and began his career as an English-language instructor in Hangzhou, China. He seems to have addressed that deficiency quite nicely. Ma, 50, is executive chairman of Alibaba, China’s biggest internet commerce company, which just launched an Initial Public Offering on the New York Stock Exchange that raised some $22 billion. It’s the biggest IPO on record. Alibaba’s shares were priced at $68—the high end of the range set by investment bankers—but when trading started the price jumped to $92.70. That values the company at about $232 billion, bigger than Facebook, IBM, Amazon and that tech fossil IBM. Ma’s shares are worth close to $18 billion, even after selling some $867 million in the IPO.

Alibaba does little retail business in the United States; it was originally designed to provide an online wholesale marketplace that connected Chinese companies with buyers all over the world. But the company now includes an e-Bay knockoff called Taobao that did indeed knock e-Bay out of the way in China; Tmall.com, a brands and retail platform, a cloud computing operation and other retail and wholesale businesses. “Alibaba is synonymous with e-commerce in China,” the company said in its filing statement.

And it is also synonymous with the frenetic tech IPO market in the U.S. The companied initially tried to list its shares on the Hong Kong Exchange, which would seem to be a friendly home. But its byzantine ownership structure, with Ma at the center of a web of interrelated companies tied to Alibaba, wasn’t deemed fairly structured enough to meet the Hong Kong exchange’s rules. Nor did Alibaba list with NASDAQ, always seen as friendlier to tech IPOs and to companies with multiple share classes. Instead, Alibaba listed with the old-school New York Stock Exchange. According to the NYSE, Alibaba is the 25th tech company to list its shares this year.

Except that you are not actually buying Alibaba’s shares directly, since China’s government won’t allow foreigners to control one of its most prized companies. Investors are buying shares in something called a variable interest entity that has a claim on the company’s earnings. The VIE is registered in the Cayman Islands—yes, the Cayman Islands!—that black hole of offshore money. And did I mention that Alibaba is in China. As global auto companies are learning, political risk is not unknown in that country, and even though Alibaba is a home team favorite, foreign holders are just that.

Ma is more than familiar with the way the investment cycle works, as well as the Chinese government. He was introduced to the Internet in 1995, in Seattle, and set out to become China’s web pioneer. He linked up with Yahoo co-founder Jerry Yang for a $1 billion investment 2005 that will paying off enormously for the otherwise struggling American firm. Throughout it all, he has done things his way. In this regard, Ma has a lot in common with Amazon’s Jeff Bezos and News Corp.’s Rupert Murdoch. If you are a big fan of shareholder democracy, you might have the wrong outfit in Alibaba.

All of this should tell investors to tread very cautiously. Yeah, right. Even as talk of another tech bubble keeps bubbling up in Silicon Valley, investors have demonstrated over and over that they are not going to be dissuaded from taking the plunge in the red-hot IPO pool. There are some compelling things about Alibaba. Yes, China, for one. The company’s IPO cites data claims there are 500 million mobile internet users in China and 279 million active buyers. Better yet, only 8% of all shopping is currently done online in China. And the Chinese government is not only raising wages but wants consumer spending to become a greater force in its economy.

The potential is enormous, of course, and Alibaba is not a startup. It’s a company with $7.3 billion in sales that earns actual profits. But the question for investors is always about how much you want to pay for growth. And when it comes to tech, the answer is often: too much. Alibaba may be a Chinese company, but this IPO is an all-American way for inside holders to get rich, or in Ma’s case, dynastically rich.

TIME Investing

The Triumph of Index Funds

CalPERS’ move is a vote for passive investing

It would be reasonable to assume that the professionals running CalPERS, the California pension fund with $300 billion in assets, would be good at picking stocks. Or at least reasonably good at picking other smart people to pick stocks for them. But in the past year, CalPERS has made two decisions that are telling for all investors when it comes to trying to outperform the market.

Late last year, the pension fund signaled its intention to move more assets from active management into passively managed index funds. These are funds in which you buy a market, such as the S&P 500 or the Russell 2000, unlike mutual funds that try to select winners within a given class of equities. More recently, CalPERS said it would also pull out the $4 billion it has invested in hedge funds. Although hedge-fund honchos make headlines with their personal wealth, the industry has significantly lagged the market in the past three years. “Call it capitulation or sobriety: it’s saying that we can’t beat the market and we can’t find managers who can beat the market, and even if they can, their fee structures are overwhelming,” says Mitch Tuchman, CEO of Rebalance IRA, an investment adviser focused on index-fund-only portfolios.

The CalPERS move is a nod to University of Chicago economist Eugene Fama, who won a Nobel for his lifelong work on “efficient markets.” That theory says that because stock prices reflect all available information at any moment–they are informationally “efficient”–future prices are unpredictable, so trying to beat the market is useless. According to the SPIVA (S&P Indices Versus Active) Scorecard, the return on the S&P 500 beat 87% of active managers in domestic large-cap equity funds over the past five years.

Why can’t expert money managers succeed? Researchers from the University of Chicago say there are so many smart managers that they offset one another, gaining or losing at others’ expense and winding up near the market average, before expenses. “Unless you have some really special information about a manager, there’s really no good reason to put your money in actively managed mutual funds,” says Juhani Linnainmaa, associate professor of finance at Chicago’s Booth School of Business. He says the median managed fund produces an average –1% alpha–that is, below the expected return. Some funds do beat their index–what’s not clear is why. “What is the luck factor?” he asks. “Given the noise in the market, it’s kind of hopeless to try to figure anything out of this.” Linnainmaa’s colleague, finance professor Lubos Pastor, also found that mutual funds have decreasing returns to scale. Size hurts a manager’s ability to trade.

Yet even if managers match the market, they’ve got expense ratios that then eat into returns. Index-fund proponents like John Bogle at Vanguard have long preached that fees dilute performance. A 1% difference can be huge. “It’s not 1% of all your money,” says Tuchman, “it’s 1% of expected returns: that’s 16% to 20%.” The average balance in Fidelity 401(k) plans was $89,300 in 2013. While 1% of that is $893, if you earned 8% compounded over 10 years, your balance would be $192,792; at 7% it’s $175,667, a difference of $17,125. Real money, in other words.

Investors are getting the message, pouring some $345 billion into passive mutual and exchange-traded funds over the past 12 months vs. $126 billion in active funds, says Morningstar. “At the end of the day,” says Tuchman, “an index fund is run by a computer, a robot. We don’t want to believe that a robot can beat Ivy League M.B.A.s–and I’m one of them.” What CalPERS seems to be saying is that the game is over. The robot wins.

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