Has Amazon Prime Price Hike Paved the Way for a Netflix Increase?

March 19, 2014, 1:54 am

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Filed under: Company News, Media, Netflix, Amazon.com, Rumors, Entertainment Industry, Investing

Now that Amazon (AMZN) is making its Prime service more expensive, it probably won't be long before Netflix (NFLX) follows. Both Internet darlings announced during their most recent earnings conference calls that they were exploring rate increases to help offset rising expenses.

"It's not clear that one price fits all," CEO Reed Hastings said back in January during Netflix's earnings call. "We're trying to figure out some models of good, better, best price tiering that makes sense and provide some flexibility for our customers, at least for our new customers. Our existing customers of course we would grandfather very generously."

The comments followed a letter to shareholders that offered similar comments about protecting existing subscribers as it offers what would be pricier options for new members. However, Hastings and CFO David Wells write "we are in no rush to implement such new member plans and are still researching the best way to proceed."

That's fair, but now that we've seen Sirius XM Radio (SIRI) introduce its second price hike in three years back in January and Amazon go through with a 25 percent increase to its Amazon Prime loyalty shopping membership plan, waiting may not be in Netflix's best interest.

Netflix Will Still Be a Deal

The market knows that Netflix is testing new price points, and sometimes it's better just to rip off the Band-Aid in one swift tug. The video buffs who subscribe may not like the move, but shareholders will love it. An increase that protects existing Netflix members should help retain existing users, but it would also encourage studios to offer newer movies and even more original TV shows like the acclaimed "House of Cards" since the smorgasbord would no longer be cheapening their content at $7.99 a month.

Amazon, the leading online retailer, also telegraphed an increase during January's earnings call: "With the increased cost of fuel and transportation as well as the increased usage among Prime members we're considering increasing the price of Prime between $20 to $40 in the U.S."

Amazon opted to boost its rate by $20 to $99 a year. It was the first increase since Amazon rolled out the plan nine years ago, and the 25 percent bump is less than the overall inflation rate in that time. Plus, Amazon has also improved the platform.

It's not just about complimentary two-day shipping for Amazon-warehoused merchandise and discounted overnight deliveries. An Amazon Prime subscription includes include monthly Kindle e-book rentals and a Netflix-like streaming video service, all at no additional cost.

Will Customers Pony Up?

The vast majority of Amazon Prime customers are expected to bite the bullet. Netflix will probably find a similar reaction if it follows Amazon by hiking its basic monthly plan to $8.99 or $9.99.

After all, Netflix has also made its plan more valuable by expanding its digital catalog. Sure, most offerings consist of TV shows and older movies, but we've now had two years of head-turning, award-winning original programming available only through Netflix. Netflix has proven that it's reinvesting a lot of what subscribers pay into acquiring additional content.

Netflix may grandfather in existing members -- something that Amazon chose not to do once existing Prime members hit their annual renewal date -- but the rate should head higher sooner rather than later. There are big stock gains to protect and content licensing deals to acquire.

That's entertainment.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com, Netflix, and Sirius XM Radio. Try any of our newsletter services free for 30 days. ​

 

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U.S. Current Account Deficit Hits 14-year Low

March 19, 2014, 2:08 am

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Filed under: Economic Indicators, GDP, Global Economy, Government Spending, World Markets

By Lucia Mutikani

WASHINGTON -- The U.S. current account deficit tumbled to a 14-year low in the fourth quarter as exports touched a record high, a government report showed Wednesday.

The Commerce Department said the current account gap, which measures the flow of goods, services and investments into and out of the country, narrowed to $81.1 billion.

That was the smallest since the third quarter of 1999 and followed a revised $96.4 billion gap in the third quarter.

It represented 1.9 percent of gross domestic product, the smallest share since the third quarter of 1997. That was down from 2.3 percent in the July-September period.

Economists polled by Reuters had forecast the current account deficit narrowing to $88 billion in the final three months of 2013 from a previously reported $94.84 billion in the prior period.

For all of 2013, the current account deficit averaged 2.3 percent of GDP,

the smallest since 1997.

Economists expect the deficit to narrow further as an inventory correction weighs on imports. A decline in petroleum imports as the United States ramps up domestic production is also seen helping the current account.

The shortfall on the current account has shrunk from a peak of 6.2 percent of GDP in the fourth quarter of 2005, in part because of a significant increase in the volume of oil exports.

In the fourth quarter, exports of goods and services rose 2.5 percent to $785.2 billion, while imports rose only 0.7 percent.

The surplus on income rose to $64.4 billion from $59.1 billion in the third quarter. Net unilateral transfers fell to $31.6 billion from $34 billion.

 

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Inside the Finances of a Hit Pop Song: Gold Records and Bowie Bonds

March 19, 2014, 3:46 am

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Filed under: Alternative Investment, Bonds, Celebrities, Annuities, Music & Entertainment

In 1993, Nick Lowe was a journeyman musician whose shot at fortune and fame was well behind him. A seminal figure during the British punk and new wave movement of the late '70s, Lowe had a string of moderately successful hits in his native England but never achieved the worldwide success needed to ensure a financially secure future in the music business. Unbeknownst to him, that was all about to change.

More than 3,000 miles away, famed producer Clive Davis was putting the final touches on an album for his label, Arista Records. However, Davis felt it wasn't long enough and wanted to add one more song, ultimately settling on a cover version of "(What's So Funny 'Bout) Peace, Love, and Understanding" performed by Curtis Stigers. Lowe was the composer of that song. And the album Davis added it to? The soundtrack for the movie "The Bodyguard," starring Whitney Houston.

That album went on to become the highest-selling soundtrack of all time, from which Lowe receives six cents for each copy sold -- his royalty fee for the inclusion of his song. With worldwide sales to date of 42 million, that translates into roughly $2.52 million into Lowe's pocket.

As impressive as that number may be, it took more than 20 years to achieve. Today, songwriters receive a higher royalty fee of 9.1 cents per sale and in a time when technology allows anyone with an Internet connection to purchase music with the click of a button, a hit song can make the author a lot of money.

How much money? Here are the songwriting royalties generated by some recent hits, courtesy of Rolling Stone:

Adele's "Someone Like You" - sales 9.7 million, royalties $882,700

Eminem's "Love the Way You Lie" - sales 9.5 million, royalties $864,500

Lady Gaga's "Poker Face" - sales 8.0 million, royalties $728,000

Katy Perry's "California Gurls" - sales 7.1 million, royalties $646,100

Rhianna's "Umbrella" - sales 6.72 million, royalties $611,520

Taylor Swift's "Speak Now" - sales 4.4 million, royalties $399,035

With the exception of "Poker Face," none of the songs listed above are more than 5 years old, but the earnings pattern of hit songs like these is so consistent and so stable that Wall Street has even created investments based on their revenue streams.

Back in the '90s, an enterprising investment banker named David Pullman theorized that you could create a bond offering secured by the future publishing royalties of an artist's back catalog of songs in much the same way you could create a municipal bond backed by future tax revenues or a corporate bond backed by anticipated earnings. That bond could then be sold to investors, with the proceeds going to the holder of the publishing rights.

The first of these bonds was offered in 1997 and was backed by the future royalty monies from 287 songs recorded by David Bowie before 1990. The entire offering was bought for $55 million by Prudential Insurance Company of America; they're now known as "Bowie Bonds."

That success was followed in 1998 by a $30 million bond offering based on the royalties of the Motown songwriting team Holland-Dozier-Holland whose hits included "Stop! In The Name of Love" and "You Can't Hurry Love."

Since then, such financial powerhouses as SunTrust Bank, Japanese investment bank Nomura Capital, and The Royal Bank of Scotland have created royalty-based financial products for such diverse artists as Rod Stewart, Joan Jett, and Tupac Shakur.

The benefit of these arrangements for the songwriter or musician is that they can take home a lump sum of money immediately, based upon what they'd earn over the long term, giving them a monetary cushion that will enable them to focus on their art, free from financial pressures.

In Lowe's case, the windfall from "The Bodyguard" soundtrack gave him creative freedom in his later career, allowing him to pick and choose which projects he wanted to be involved in. However, in a bit of irony, Lowe has been quoted admitting he's never seen the movie whose success changed his life. Said Lowe: "It seems terribly cheerless to say it, but I don't think it's the sort of thing I'd like very much."

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best -- Top Trading Tips for Our Time."

 

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Price Hike Got You Mad? Here Are Alternatives to Amazon Prime

March 19, 2014, 3:50 am

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Filed under: Amazon.com, Shopping, How to Save Money, Deals, Coupons

By Cameron Huddleston

Being a member of Amazon Prime certainly has its perks. Since the online retailer launched this program nine years ago, members have been able to get free two-day shipping for $79 a year -- a good deal for those who do a lot of online shopping. Membership also includes access to streaming movies and television shows and free Kindle e-book downloads. But now the question is whether those perks are worth $99 annually.

Amazon.com (AMZN) recently announced that it's hiking the price of its Prime service by $20 effective April 17. The news has elicited a lot of grumbling on the Amazon Prime forum from members, many of whom say the service won't be worth the higher price. They might be right.

There are plenty of ways to score free shipping on online purchases other than an Amazon Prime membership. You might not get your orders within two days -- as you would with Amazon Prime -- but you won't have to pay a membership fee to get free shipping with these other options. Plus, you can get free e-books through other outlets, and you can stream movies and TV shows for free or at a price that doesn't top $99 a year.

Free ahipping. Amazon orders totaling $35 or more may qualify for free shipping even if you're not a Prime member. And plenty of online retailers frequently offer free shipping on orders that exceed certain dollar amounts. But there are some retailers, such as Zappos.com and Nordstrom.com,

that offer free shipping on all purchases all the time. And ShopRunner, which offers free unlimited two-day shipping from 85 online retailers, is waiving its $79 annual membership fee for a year for Amazon Prime members who haven't renewed their membership at the higher rate. You also can find free shipping codes and coupons at FreeShipping.org.

You might be able to avoid paying for shipping by having your purchases shipped to a retailer's brick-and-mortar store. Best Buy (BBY), Target (TGT), Toys R Us and Walmart (WMT) are among the merchants that have free in-store pickup and typically drop their prices around the holidays to match Amazon's prices. In fact, Best Buy, Target and Toys R Us have price-matching policies that extend to Amazon prices year-round. So if you're shopping at one of these stores and use an app such as RedLaser to scan the barcode of an item and find that Amazon is offering it for a lower price, show a sales clerk the lower price and ask for a price match. Then you can avoid shipping costs altogether and still get the best deal. See How to Get Retailers to Match Prices for more information.

Video streaming. Amazon Prime members have access to 40,000 movies and TV episodes. However, the movies typically aren't the newest releases. You can find many of the movies and TV shows available to Prime members for free at Hulu and Crackle. You can stream new releases starting at $4 through services such as Vudu and Blockbuster On Demand. Or you could pay $8 a month ($96 a year, which is less than a Prime membership) for unlimited streaming through Netflix (NFLX). See 9 Places to Get TV and Movies Online for more options.

Free e-books. With Amazon Prime, you have access to more than 500,000 Kindle titles. However, you can borrow just one a month. You don't even have to be a Prime member, though, to take advantage of thousands of free out-of-copyright books through Kindle Popular Classics. At Gutenberg.org or the University of Pennsylvania online books page, you won't pay a cent to legally download thousands of books whose copyrights have expired. For newer titles, check out your public library. Or join a free online lending community such as ebookfling. You list your Kindle and Nook ebooks on the site, then you swap ebooks with other members. For more, see 5 Ways to Borrow and Read More Free E-Books.

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Former Credit Junkie Fesses Up So We Can Learn From Her Mistakes

March 19, 2014, 5:15 am

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Filed under: Personal Finance, Debt, Credit Cards, Marriage, Credit History

When Beverly Harzog met her future husband, she never told him about her history of credit problems. In fact, she kept it a secret from him for the first 25 years of their marriage. He only found about her past self-proclaimed "credit card addiction" when she wrote an article about it a few years ago.

It wasn't just her spouse: Harzog kept her debt a secret from everyone. "I didn't even tell my parents because I didn't want to worry them." Now, with the release of her new book, "Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made," Harzog has outed herself extremely publicly.

And after all these years, Harzog said that one of her biggest regrets is keeping her credit addiction from her husband. "Now I realize that it's better to talk about it. Couples in a serious relationship talk about whether they want to have kids, but they should also talk about money."

She Thought It Was Easy Money. She Was Wrong.

Harzog got into trouble with credit card debt almost the minute she got out of college in the 1980s. She said she wasn't raised in a family with a lot of extra spending money, so when she got a good job and the credit card offers poured in, she accepted them all.

She called this period her "decade of debt." "I maxed out seven credit cards on things like designer suits, expensive makeup and accessories and shoes. What's sad is that I had a degree in accounting, so I should have known better. But I worked with almost all men, and I thought I needed designer clothes to boost my confidence."

The worst thing she did was book a cruise to Mexico with the one card that still had available credit, even though at that time she had about $1 in the bank. "I felt like I deserved it because I worked hard. It seemed normal to me to carry a balance on every credit card every month," she said.

When she started being afraid to open her bills -- or add up how much she owed -- that Harzog realized she was in trouble. When she got up the nerve to face her financial truth, she was around $20,000 in debt -- an overwhelming amount in today's dollars, and even more so in the 1980s.

That's when Harzog put herself on a strict cash budget and stopped relying on credit to fund a lifestyle she could not afford. She said she ate a lot of peanut butter sandwiches, avoided restaurants and didn't buy anything for about two years. Even now, she doesn't buy anything without waiting and thinking about whether she really needs it.

Money Sense Should Be Part of Healthy Relationships

"I became a CPA so I could increase my salary, and cut everything from my budget, so by the time I got married I had paid off all my debt."

Although her debt issues were behind her, keeping her past a secret from her husband was not healthy. That's why she advises couples to put money front-and-center in their relationship and deal with past, existing and potential financial problems head-on.

Harzog noted that financial secrets tend not to remain secret for long, especially when couples are co-mingling their money. "If you're hiding your debt problems, they'll come out when you try to buy a house together, or even if you try to take an anniversary trip and find that you don't have the cash or the credit available."

Even after a marriage dissolves, money problems can linger. "If you have joint accounts, then there are legal implications for the debt, since you're both responsible even if only one person incurred the debt," she said.

Harzog said she talked recently with a woman whose soon-to-be ex-husband was racking up debt to be vengeful. The woman froze the account as soon as she found out, but now both partners have lower credit scores, and the debt still has to be repaid.

Credit Topics to Discuss Before you Get Married

Harzog said couples should start talking about their attitudes toward credit and their own credit habits as soon as they're involved in a serious relationship. Here are a few of her suggestions:

o. Ask about his or her credit philosophy. You could be dating a "power user" who uses a rewards card for everything and pays the balance in full each month. But you need to know if you're getting serious with someone with significant credit card debt or who expects you to help repay it.

o. Ask if your partner knows his or her credit score. "You can share your own score or just say you have good or excellent credit," says Harzog. "You don't need to be judgmental if someone has a bad credit score. There are lots of reasons for this other than just bad money management." If you're living together or engaged and one has great credit and the other doesn't, don't cosign a credit card application, because you'll both be liable for the debt. If you're the one with good credit, you should be the one to make sure bills get paid on time and that spending is kept well below the credit limit.

o. Discuss whether you'll have joint or separate accounts. "Many older women that I talk to don't have any credit history of their own," she said. "It's fine to have a joint account, but you should each have a separate credit card account, too, so you can build your own credit history."

o. Don't let fear of a disagreement keep you from opening the subject: An inability to get on the same page about your joint finances is one of the most common reasons couples end up divorced. It's far better to have some potentially uncomfortable pre-wedding moments talking about money than to become one more statistic in the future.

Michele Lerner is a Motley Fool contributing writer. ​

 

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Judge: Google Won't Face Group Email Privacy Lawsuit

March 19, 2014, 5:17 am

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Filed under: Company News, Technology, Google, Internet, Scandals and Lawsuits

By Joel Rosenblatt

Google (GOOG) won a major victory in its fight against claims it illegally scanned private email messages to and from Gmail accounts, defeating a bid to unify lawsuits in a single group case on behalf of hundreds of millions of Internet users.

U.S. District Judge Lucy Koh in San Jose, Calif., on Wednesday refused to let the case proceed as a class action, which would have allowed plaintiffs to pool resources and put greater pressure on Google to settle. If individuals pursue their claims against the owner of world's largest search engine, they'll need to use their own financial resources to litigate.

Email users claimed Google intercepted, read and mined the content of email messages for targeted advertising and to build user profiles. Legal experts including Stanford Law School Professor Deborah Hensler said before Wednesday's ruling that while the plaintiffs faced difficulty joining forces, the case stood to potentially become the largest group lawsuit ever. The amount at stake could have reached into the trillions of dollars if, as the plaintiffs argued, each person was eligible for damages of $100 a day for violations of federal wiretap law.

Koh's ruling has implications for email privacy cases assigned to her that were filed last year against Yahoo (YHOO) and LinkedIn (LNKD), which also have hundreds of millions of users. Similarly giant cases have been brought against Facebook (FB) and Hulu as Web users challenge how companies monetize their data for the online advertising market that generated more than $40 billion in the U.S. last year.

Koh found that the proposed classes of people in the Google case aren't "sufficiently cohesive," according to Wednesday's ruling.

Members' Consent

The judge wrote in her order that the question of whether the proposed class members consented to the alleged interceptions has been "central to this case since it was filed."

Based on the evidence presented so far, to prove the arguments on each side, "consent must be litigated on an individual, rather than class-wide basis," Koh said.

Sean Rommel, a lawyer representing plaintiffs in the case, didn't respond after regular business hours Wednesday to phone and email messages seeking comment on the ruling. Google representatives didn't respond to an email seeking comment.

At a Feb. 27 hearing on whether the case would proceed as a group lawsuit, Michael Rhodes, a lawyer representing Google, argued the plaintiffs never presented a "model that they have demonstrated will actually work" to include so many plaintiffs.

"And worse, they've never shown some statistical sampling of the data set to give you more comfort that we can test to say it will not produce enough false positives," Rhodes said.

Texas, Pennsylvania

The case started with separate lawsuits by users of Gmail and other email services from states including Texas, Pennsylvania, Maryland and Florida. Those complaints were consolidated before Koh last year.

Rommel contended in a filing that the the case is "perfectly suited for class treatment" because everyone affected by the email scanning has so much in common, from the "uniform nature" of Google's extraction of data in emails to the company's "uniform disclosures" about its privacy practices.

"This is no different than, I would assert, a shareholder case where somebody is saying yes, I bought shares within the class period and here's my share," he argued to Koh at the hearing. "You have to compare it to the company records to see the date when they bought it, to see that they are actually a shareholder."

'Very Steep'

Hensler said in an interview last month that the plaintiffs' lawyers faced "a very steep hurdle," to proceed with a group case, adding that only 10 percent to 20 percent of all cases filed as class-actions are allowed to go forward.

Koh in September rejected Mountain View, Calif.-based Google's bid to dismiss the case. In a rare early victory for plaintiffs in an online privacy lawsuit, the judge rejected Google's argument that Gmail users agreed when they accepted subscription service terms and privacy policies to let their messages be scanned.

Google faces another privacy case in federal court in San Francisco brought on behalf of everyone in the U.S. whose wireless Internet connections were intercepted by company vehicles gathering information for the Street View mapping service.

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S&P 500 Listing, Starbucks Deal Are a Double Shot for Keurig

March 19, 2014, 5:45 am

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Filed under: Company News, Coca-Cola Company, Food & Beverage

It's been a pretty spectacular year for Keurig Green Mountain (GMCR).

The company behind the Keurig platform for single-cup servings of coffee, tea and other brewed beverages turned heads last month when Coca-Cola (KO) agreed to invest $1.25 billion for a 10 percent stake in it. The fireworks have continued this month with Keurig being added to the S&P 500 on Friday, reworking its deal with Starbucks (SBUX) to allow other "super-premium" brands come on a licensed partners and changing its corporate name from Green Mountain Coffee Roasters.

The stock soared 83 percent last year, and it's up another 53 percent in 2014. That's not a bad run for a company that many investors had left for dead in 2012 on fears that it would fade in relevance once its patent protection on the original K-Cups expired. The Vermont-based company has some interesting things brewing for the future.

Keurig Green Mountain's days as a growth stock seemed over in late 2012 when key K-Cup patents expired. Anyone could legally roll out unlicensed portion packs that fit Keurig brewers, and private labels did. Growth slowed, but Keurig Green Mountain swayed many leading brands on the merits of sticking with the company behind the Keurig brewers to put out licensed K-Cups.

Keurig 2.0, Keurig Cold in the Pipeline

Keurig is working on two key lines expected to hit the market in coming months.

As its name implies, Keurig 2.0 is the evolutionary next step in the platform. Unlike the Keurig Vue, which has failed to gain serious traction with its new portion packs, Keurig 2.0 machines will accept the widely available K-Cup refills. However, it will also fit K-Carafe portion packs that can brew an entire pot of coffee. It's a move that starts a new clock on patent protection.

Keurig's biggest gamble -- and the primary reason for Coca-Cola's investment -- is Keurig Cold. The machine will make cold and carbonated beverages. This market is dominated by SodaStream (SODA), but the Israeli-based pioneer of in-home carbonation never had Coke on board. Coca-Cola will make its huge global portfolio of brands available for Keurig Cold, giving it the appeal that SodaStream has failed to grab.

Since cold beverages have wider consumption rates than warm drinks, this could potentially be an even bigger market than its coffee stronghold. It won't be easy. Soda cans are cheap and plentiful. SodaStream is a global force. It's available in 25 percent of the homes in Sweden, for example. However, that hasn't been enough to command much of a market capitalization for SodaStream.

The key here will be what Coca-Cola does to help increase this country's embrace of Keurig Cold as a small kitchen appliance to go alongside the Keurig brewer that potential buyers likely already own.

There's plenty of upside to both Keurig 2.0 and Keurig Cold, but investors also have to recognize that the stock's meteoric rise over the past year and change is already discounting a lot of these events.

Motley Fool contributor Rick Munarriz owns shares of Keurig Green Mountain and SodaStream. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, SodaStream and Starbucks. The Motley Fool owns shares of Coca-Cola, SodaStream and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any Motley Fool newsletter service free for 30 days.

 

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Uh-oh! The Student Loan Crisis Is Even Worse Than You Think

March 19, 2014, 6:00 am

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Filed under: Student Loans, Debt, College, Financial Aid, Education

By Mitchell D. Weiss

Student loans are deteriorating, the latest Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York reveals -- if you read it diligently.

The report highlights that loan-payment delinquency rates continue to improve (i.e. decline). Seven percent of all outstanding consumer debt obligations are in some stage of delinquency (30 or more days past due), and 70 percent are seriously so (90 or more days past due). The executive summary also notes that student loan balances that are 90 or more days past due represent 11.5 percent of the total outstanding. Sure, it's a troubling metric. But when the FRBNY juxtaposes that amount with the 9.5 percent of comparably delinquent (and equally uncollateralized) credit card debt, it doesn't seem so out of whack. Until you dig deeper.

Unlike credit card balances, not all outstanding student loans are due at any given moment. In fact, of the $1.2 trillion of education debt on the books, only about half is amortizing (the other half pertains to loans for students still in school). So the 11.5 percent is really closer to 23 percent because the total amount of delinquent loans should be divided by $600 billion instead of $1.2 trillion. What's more, these are just the loans that are 90-plus days past due. What of the debts that are 30 or 60 days late? Curiously, that data is nowhere to be found, except for a strong clue in the back of the report.

A Closer Look at the Bad Numbers

One graph, "New Delinquency Balances by Loan Type," depicts contract balances that became 30 or more days past due during the preceding quarter. For the period ending Dec. 31, $29.36 billion worth of student loans migrated into the past-due column, which, when divided by the approximately $600 billion of loans that are being repaid, amounts to an additional 5 percent of delinquency.

There is also another category that doesn't get nearly enough attention: the loans that have been granted temporary relief in the form of payment deferments and other forbearance arrangements. These contracts are troubled, and accommodations of this type mask the extent to which the debts may be only temporarily relocated to "current" status from "past due."

All considered, it would not be surprising to learn that one-third or more of all education debts that are in repayment mode are troubled, particularly when -- per the FRBNY's spreadsheet -- more than $100 billion of student loan balances migrated into delinquency in each of the past few years.

How We Got Here

I can think of three answers why so many loans are deteriorating and why servicers aren't preventing that:

• At least one-third of the loans should not have been approved in the first place.
• The servicers' goals are at cross-purposes with those of the borrowers and their benefactors (the government, in the case of Federal Family Education Loans, and co-signers in the case of private student loans).
• The servicers are grossly incompetent.

My money's on some combination of the above.

The first has to do with Federal Student Aid's recently First Quarter Customer Service Performance Results. The FSA evaluated 11 nonprofit and four for-profit loan servicers for overall customer satisfaction and the efficacy of their default prevention efforts. No servicer attained the recommended customer satisfaction score of higher than 80 (out of a possible 100), and only one scored the national average of 76. Interestingly, there were no industry benchmarks for measuring these particular servicers' default prevention efforts. The data is instead compared within that 15-member pool, which undermines the metric's usefulness.

The second reason for my bet has to do with the extent to which the servicers are beholden to others. Several for- and not-for-profit loan servicing companies have successfully securitized portions of the government-backed and private student loans they administer. So when seriously troubled loans require restructuring (extensions of repayment terms) or modification (reduction in principal balance, abatement of interest rate), it would be fair to speculate that the servicers are reticent to take actions that run contrary to investors' interests.

This situation is likely to deteriorate even further as new firms stream into servicing, which is all the more reason for a national standard to govern the administration of these debts. Student-loan borrowers are suffering through substandard customer service, half-baked solutions that are crammed down their throats and one-sided contracts that limit their recourse. Their plight is real, the problem is growing, and the need for action is urgent.

This is an op/ed contribution to Credit.com. Mitchell D. Weiss says since 2008, "he's led a management consulting practice, advising banks, private equity firms, small businesses and professional practices."

More from Credit.com

• Do Student Loans Impact Your Credit?
• How to Pay for College Without Building a Mountain of Debt
• How to Consolidate Student Loans

 

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GMO Switch Fails to Boost Cheerios' Sales

March 19, 2014, 6:23 am

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Filed under: Company News, Earnings, Consumer Goods, Food & Beverage

By CANDICE CHOI

NEW YORK -- Plain old Cheerios are no longer made with genetically modified ingredients, but the switch hasn't yet translated to a boost in sales.

General Mills (GIS), the company that makes the cereal, in January announced it would start making its plain Cheerios without GMOs, or genetically modified organisms. The move came after a campaign by the group Green America, which prompted fans to express their support on the Cheerios' Facebook (FB) page.

On Wednesday, CEO Ken Powell said in a phone interview that the company has gotten supportive letters and online comments for its decision. But he said the company was "not really seeing anything there that we can detect" in terms of a sales lift.

"It's what I expected," Powell said. He added that genetically modified organisms aren't really a concern for most customers.

Americans have been moving away from cereal more broadly,

as alternatives such as Greek yogurt or breakfast sandwiches have gained popularity.

That has left General Mills and rival Kellogg (K) struggling to boost sales. Cheerios is no exception; Powell conceded that sales have been "down somewhat" for the brand.

As for GMOs, there has been little scientific evidence showing that foods grown from engineered ingredients are less safe than their conventional counterparts. But their use has become a growing issue, with some saying they could have longer-term health impacts and that people have the right to know if genetically modified ingredients are used in foods.

Cheerios boxes are now labeled as being "Not Made With Genetically Modified Ingredients," which is not an official certification.

The change doesn't apply to other boxes of Cheerios, such as Honey Nut Cheerios or Apple Cinnamon Cheerios, which still use genetically modified ingredients.

It's not the first time General Mills has adjusted its products to food trends. Executives have noted that the company was able to turnaround declining sales of Chex by rolling out varieties labeled as "gluten-free." And on Wednesday, they noted in an earnings call that they planned to renovate cereal brands by bringing such "health news" to them.

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Fed Revamps Rates Guidance, Trims Bond Buys Further

March 19, 2014, 7:07 am

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Filed under: Unemployment Rate, Federal Reserve, Interest Rates, Investing

By Ann Saphir and Krista Hughes

WASHINGTON -- The Federal Reserve on Wednesday dropped the U.S. unemployment rate as its definitive yardstick for gauging the economy's strength, and made clear it would rely on a wide range of measures in deciding when to raise interest rates.

At the same time, it said that dropping a promise to hold rates steady "well past the time" the U.S. unemployment rate falls below 6.5 percent did not indicate any change in the Fed's policy intentions.

"The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run,"

the Fed said after its two-day meeting, the first chaired by Janet Yellen, who took the helm of the central bank on Feb. 1. She is set to hold a news conference at 2:30 p.m. Eastern time.

The central bank also proceeded with its well-telegraphed reductions to its massive bond-buying stimulus, announcing it would cut its monthly purchases of U.S. Treasuries and mortgage-backed securities to $55 billion from $65 billion.

Minneapolis Fed President Narayana Kocherlakota dissented, saying that dropping the threshold could hurt the credibility of the Fed's commitment to return inflation to 2 percent.

The decision to continue to scale back its stimulus keeps the Fed on track for the measured wind down laid out by Yellen's predecessor, Ben Bernanke. The Fed repeated that it plans to continue trimming the asset purchases in "measured steps" as long as labor conditions continue to improve and inflation shows signs of rising back toward the Fed's 2 percent goal.

The Fed's assessment of the U.S. economy chalked up recent weakness to adverse weather.

The Fed had said since December 2012 that it would not consider raising short-term rates until the jobless rate dropped to at least 6.5 percent, as long as inflation looked set to remain contained.

But the unemployment rate has fallen faster than anticipated, in part because of discouraged job hunters giving up the search, and officials think the economy is still far from ready for higher borrowing costs.

Of the Fed's 16 policymakers, only one believes it will be appropriate to raise rates this year; 13 expect a first rate hike next year, and 2 others see the first rate hike coming in 2016, according to fresh forecasts published on Wednesday. But once rate hikes start, Fed officials see slightly sharper increases than they did in December, with rates ending 2015 at 1 percent and ending 2016 at 2.25 percent, according to the median of forecasts.

In December, Fed officials expected short-term rates to be just 1.75 percent by the end of 2016.

The new forecasts also show Fed officials see unemployment dropping slightly faster, to between 5.6 percent and 5.9 percent by the end of 2015. In December their forecasts called for unemployment falling to between 5.8 percent and 6.1 percent by the fourth quarter of 2015.

Keeping Markets In Line

The Fed has kept overnight rates near zero since December 2008 and has bought more than $3 trillion in long-term debt to keep borrowing costs down and spur investment and hiring.

It began to scale back its stimulus in December, announcing it would trim its monthly bond purchases by $10 billion, after it saw the economy pick up speed in the fall. In January, the Fed said it would cut the purchases by a further $10 billion.

At the same time, it has sought to tamp down any market expectations that rate rises will soon follow with its so-called forward guidance. But as the actual jobless rate neared the threshold, officials began to seek a more durable way to telegraph their view on when they will tighten monetary policy.

They want to keep market expectations aligned with their own forecasts. If traders start to price in earlier rate hikes, the result would be tighter financial conditions that could deter the very investment and hiring that the Fed wants to promote.

Many Fed officials, including Yellen, have said recent weakness in economic data, from jobs and retail sales to industrial production and home building, appears largely due to the unusually harsh winter and should soon dissipate.

 

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After Market: Stocks Stumble After Hawkish Fed Cuts Stimulus

March 19, 2014, 9:34 am

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Filed under: Market News, Economic Indicators, Economic Recovery, Federal Reserve, Interest Rates

The Federal Reserve did what the market expected on Wednesday, and that may have been the problem. It continued to taper -- that is, trim the amount of stimulus it injects into the economy each month. The Fed also dropped a specific target for the unemployment rate, though it vowed to keep short-term interest rates near zero for a considerable period of time. But investors worried about some of the nuances in Janet Yellen's comments.

The market was flat when the Fed statement was released, but immediately turned lower. The Dow Jones industrial average (^DJI) lost 114 points on the day, the Nasdaq composite (^IXIC) lost 25 and Standard & Poor's 500 index (^GPSC) fell 11 points.

KB Home (KBH) took home a 6 percent increase after reporting a profit versus a loss a year ago, but other homebuilders gave back their gains following the Fed news. And despite Wednesday's gain, KB shares are still about 10 percent lower than were a year ago.

Financial stocks were generally higher following the Fed statement.

And FedEx (FDX) stock was flat, which has to be considered a win following a disappointing earnings report. The company said results were "significantly affected by severe winter weather."

A lot of companies have used that excuse recently, but investors apparently believe FedEx.

Elsewhere, Starbucks (SBUX) gained 2 percent. Its CEO told CNBC that it has no plan to raise prices, despite the sharp rise in wholesale coffee prices.

Hewlett-Packard (HPQ) rose another 3.5 percent, on top of Tuesday's big gain. And another IPO debuted with a blowout day. Paylocity (PCTY), which makes cloud-based software, soared 53 percent above its $17 a share IPO price.

First Solar (FSLR) jumped 20 percent after announcing a new pact with General Electric (GE) to develop a photovoltaic power plant. But Solar City (SCTY) fell 5.5 percent after posting earnings that fell shy of expectations.

Some of the biggest names in tech gave back some of their recent gains. Google (GOOG), Facebook (FB) and Amazon (AMZN) all lost about 1 percent.

Finally, Prothena (PRTA) was a standout gainer, soaring 26 percent after presenting some positive data on treating an abnormal build-up in protein.

What to Watch Thursday:

• The Labor Department reports weekly claims for unemployment benefits at 8:30 a.m. Eastern time.
• At 10 a.m., the Federal Reserve Bank of Philadelphia releases its March survey of manufacturing activity in the Mid-Atlantic region; the National Association of Realtors reports February existing home sales; Freddie Mac releases weekly mortgage rates; and the Conference Board releases leading indicators for February.

These major companies are scheduled to release quarterly financial statements:

• ConAgra (CAG)
• Delia's (DLIA)
• Lennar (LEN)
• Nike (NKE)
• Shoe Carnival (SCVL)
• Wet Seal (WTSL)

-Produced by Drew Trachtenberg.

 

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Tycoon Got $201 Million In Life Insurance. What Do You Need?

March 19, 2014, 11:00 pm

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Filed under: Family Money, Personal Finance, Estate Planning, Life Insurance, Estate Tax

Life insurance plays a valuable role in helping protect families from the financial impacts of an unexpected tragedy. For one billionaire, that was so attractive that it led to the biggest life insurance policy ever written. According to a CNBC report, an unnamed Silicon Valley tech tycoon bought the record-setting policy with a death benefit of $201 million, which required 19 insurance companies to participate in order to spread the risk.

You face some of the same financial risks -- albeit on a smaller scale -- that inspired this single entrepreneur to buy that policy. Here are four tips to make sure you choose the right life-insurance protection.

Consider the Long Run In Choosing Policy Size

Life insurance isn't just something you buy for today. Typically, the needs that prompt you to buy a life insurance policy now, such as the birth of a child or taking on a big financial obligation like a mortgage, will last for decades. What seems like a huge policy amount today might not look nearly as big after considering the impact of inflation over that time. When you choose a policy, consider the rising needs for your family, and also inquire about potentially adding coverage down the road without having to cancel your existing policy.

Make Sure You Pick a Healthy Insurer

Many people simply look for the lowest premiums. But choosing a life insurance company that doesn't have the financial strength to back up its policy obligations could leave you or your loved ones unable to collect on the benefits when they need them the most.

Although most states have guaranty associations that will give you a measure of protection if your insurance company goes insolvent, there are usually caps, with a typical maximum of $300,000 for life insurance death benefits. That's another reason why the tech tycoon's coverage comes from many companies.

One way to assess the strength of your insurance company is to look at third-party ratings. For instance, A.M. Best rates financial strength, with A++ and A+ indicating superior ability to meet insurance obligations and A and A- showing excellent capacity to pay claims. Grades further down the scale indicate rising uncertainty about a company's prospects. The peace of mind of not having to worry about your insurer's solvency can be worth the extra cost.

Be Wary of Insurance-Based Investment Products

Many insurance professionals will recommend more comprehensive life insurance products that include an investment element. Although these products aren't universally bad, they often come at an added cost, and they're almost always more complicated than similar non-insurance-based investments.

It's typically much easier for you to take whatever extra amount you would have spent on a whole or universal life policy and simply invest it in ordinary investment vehicles. Even if some of the unique features of insurance-based investments appeal to you, make sure you understand them completely before you commit to buying.

How You Own a Life Insurance Policy Matters -- Especially If It's Big

Most people own life insurance policies in their own name. But if your policy is big enough to have implications for estate planning, then alternatives can be a smarter move.

In particular, if you own a policy in your own name, then the death benefits your policy pays out will be included in your estate, subjecting that money to estate taxes of as much as 40 percent. One way to avoid that result is to create a life insurance trust to own your policy, thereby removing death benefit proceeds from your estate and delivering the full benefit amount to your policy beneficiaries. Creating a trust typically involves the added expense of a lawyer, but long-run savings can be worth the effort.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google Plus.

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How to Manage Money in Your 30s

March 19, 2014, 11:00 pm

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Filed under: Family Money, Personal Finance, Retirement Plans, Financial Education

By Kimberly Palmer

Your 30s can be a pretty significant decade. You might be transitioning from the more carefree days of a post-collegiate lifestyle and hitting major life milestones, such as buying a home, getting married or having kids. Or you might be planning major life adventures, climbing up the career ladder or all of the above. Whatever your path, you likely face some significant money decisions, and the choices you make can end up impacting your finances for years to come.

A report released from the Pew Research Center earlier this month shows that millennials, the oldest of whom are just entering their 30s now, face higher student debt and unemployment levels along with lower income and wealth levels compared to previous generations at the same age. At the same time, they are optimistic about their economic futures, with most (80 percent) saying they have enough money now or will one day to "lead the lives they want."

To increase the chances that such an optimistic outlook comes true, here are seven money moves that financial experts say you should consider in your third decade:

1. Save when you can. "If you've gotten your salary up to the point where student loan debt is not wreaking havoc in your life anymore, but before you have a lot of responsibilities, that's a great opportunity to super-charge your savings," says Jean Chatzky, financial editor of the Today Show and author of "Money Rules: The Simple Path to Lifelong Security." When parenting responsibilities and mortgage costs take off, for example, it can be hard to save more. "You want to take advantage of the opportunities you have to sock away some money so when the leaner years come around, you don't beat yourself up," she adds.

2. Create solid habits. It's also time to establish financial habits that will serve you well for the rest of your life. Kerry Hannon, personal finance expert and author of "Great Jobs for Everyone 50+," says in her 30s, she maxed out her retirement savings accounts and even set aside a portion of her extra freelance income for retirement. "Those funds have served me well over the years as mad money to help pay for vacations and more. I still save outside of retirement accounts religiously in my 50s, too. It's a habit I started back in my 30s," she says.

3. Plan out your goals and priorities. "Hopefully you're starting to become established in your career and can begin to contribute, if you're not already, to an employer-sponsored retirement plan,

and begin to think about other savings goals, too, like a home purchase or college savings," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.

Trent Hamm, founder of the personal finance website The Simple Dollar and a U.S. News My Money blogger, says at age 35, he's now reflecting on his career goals for the next 30 years. "What would I like to be doing with my time and my life? I don't want the rest of my life to be a repetition of what I'm doing now and then an abrupt retirement. I have dreams and goals, and right now is the best time to get started on them," he says.

For many people, a financial adviser helps with that. Bart Astor, author of "AARP Roadmap for the Rest of Your Life," says your 30s is the ideal time to sit down with a financial adviser and talk, which is what he started doing in his mid-30s. He says he and his adviser met once a year to review savings and other financial goals, especially since he and his wife were meeting their goals. "When I hit 40, the plan showed that we should have about $188,000 in assets based on our salaries, and we had over $200,000, and boy, did that make us feel good," he says.

4. Talk about money with your partner. If you have a spouse or partner, then getting on track together and working out any disputes can prevent conflicts later. "People often comingle finances with their partner, and open communication is key. Make sure you talk about your finances and life goals with your partner, and align on how you will get there together," de Baca urges.

5. Get comfortable with negotiation. Nancy L. Anderson, 52, a certified financial planner in Park City, Utah, says while she did a lot of things right in her 30s, including investing 20 percent of her income, buying a home, investing in rental property and saving for her child's college education, she also wished she had negotiated her salary more assertively. "If I'd negotiated a higher salary each time I changed companies in my career, I'd be wealthier today," she says. Since most people change jobs about 11 times in their careers, negotiating those transitions can end up making you more than $600,000 richer over your career, she adds.

6. Be a good role model. For those 30-somethings who are already parents, Beth Kobliner, author of "Get a Financial Life" and member of the President's Advisory Council on Financial Capability for Young Americans, says it's important to model smart financial choices for the little eyes watching you.

"You lose all credibility lecturing your little kids about not needing every new toy or tech gadget if you, behind closed doors, have loud arguments with your spouse about not being able to keep up with your credit card bills," she says. You don't have to be a money genius, she adds, but it's important to talk about money - making financial discussions as commonplace as soccer practice or Sunday dinner.

7. Shore up your cash reserves. While many experts emphasize long-term investing and retirement savings, Tim Maurer, director of personal finance for the BAM Alliance of independent advisers, says he wishes he had kept more money in pure cash savings to give himself a better buffer for unexpected needs and expenses. "Much, maybe too much, financial planning is focused exclusively on the long, long-term," he says, "and while it's true that real estate can be a great way to build wealth and one should start saving as early as possible for retirement, it's the unexpected changes in life that often derail 30-something households. Our financial plans should address the short-term, too."

Maurer points out that your 30s are often a time of "volcanic change" in your personal and professional life, and having a nicely padded bank account can help smooth over some of those transitions.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.

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More from U.S. News

• How to Manage Your Money in Your 20s
• 11 Money Moves to Make Before You Turn 40
• Your 10-Step Financial Recovery Plan

 

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U.S. Fine to Settle Probe Delivers Relief for Toyota

March 19, 2014, 11:00 pm

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Filed under: Company News, Toyota, Automotive Industry, Scandals and Lawsuits, Auto Recalls

By YURI KAGEYAMA

TOKYO -- Toyota Motor (TM), headed to a record profit, can afford the $1.2 billion fine levied by the U.S. government for hiding information about defects in its cars. If anything, the settlement may even deliver relief for Toyota shareholders and customers as a sign the automaker has put the four-year recall debacle behind it.

Toyota President Akio Toyoda declined to comment directly Thursday on the U.S. settlement, in which the Japanese automaker said it hid information about defects that had caused unintended acceleration in Toyota and Lexus vehicles, resulting in injuries and deaths.

All that Toyoda told reporters was what he has repeatedly said before: "We have returned to basics and are putting customers first."

He said he had nothing to add to a company statement that reiterated it had changed its operations to become more responsive.

The recall fiasco has prompted Toyota to take measures, including empowering regional management, speeding up checks into complaints and taking more care and time with product development.

Starting in 2009, Toyota announced one recall after another for a variety of problems, spanning sticky gas pedals, faulty brakes and ill-fitting floor mats that eventually covered more than 14 million vehicles. The $1.2 billion fine is the largest of its kind ever imposed on an auto company.

"Toyota can now bring the curtain down on the whole affair and focus on its real business," said Shigeru Matsumura, analyst with SMBC Friend Securities. "Its momentum is back in the U.S."

When the recall mess began, Toyota was still reeling from the hit it took from the global economic slowdown after the collapse of Lehman Brothers.

More recently, Toyota was badly hurt by the earthquake and tsunami disaster in northeastern Japan in 2011, which destroyed suppliers of components and disrupted car production.

These days, Toyota is on a roll. It has been helped by a weakening of the yen, which boosts the value of overseas earnings for Japanese exporters.

Toyota, which makes the Prius hybrid, Corolla subcompact and Lexus luxury models, is expecting a record profit of 1.9 trillion yen ($19 billion) for the fiscal year ending March 31,

a doubling of profit from the previous fiscal year.

Sales are doing so well that Toyota, the No. 1 automaker in the world in vehicle sales for the last two years, says it's on its way to selling more than 10 million vehicles a year -- a feat never accomplished in auto history.

There is also a chance Toyota could benefit from the U.S. government investigation into General Motors (GM), which is beginning as Toyota's ends, allowing Toyota to grab market share in the U.S., although manufacturers such as Ford Motor (F) that make models similar to GM are the more likely beneficiaries.

The U.S. market is still a big money-maker for the world's automakers. But they are all trying to grow in other markets, such as China. Toyota may face unexpected obstacles in other markets, even as it gets over the U.S. crisis.

Toyota suffered a sales drop in China in 2012, when anti-Japanese sentiment exploded over a territorial dispute.

Toyota officials are still banking heavily on China, where a government decision to support hybrid vehicles to counter epic pollution could work as a plus for Toyota. Toyota is a world leader in hybrid technology.

Potholes wait elsewhere in the world as shown in the lockout of workers at Toyota's India plants, outside Bangalore, which began this week over a wage dispute.

Even good fortune can prove frightening.

Toyota is doing so well some superstitious pessimists are pointing to the 10 million-vehicle mark as a possible omen, Matsumura said jokingly.

It was right after then-president of Toyota, Katsuaki Watanabe, announced a sales target of 10 million vehicles that quality lapses began to skyrocket

Satoru Takada, analyst at Toward the Infinite World, a research firm in Tokyo, laughs at the idea, noting the global pie is growing as sales expand in emerging markets and 10 million vehicles no longer sound highly ambitious.

"That will just be another passing milestone for Toyota. Next, it's going to be 20 million vehicles," he said. "What counts for Toyota is that it avoided further criminal consequences. It's over. I am sure it feels totally refreshed."

Toyoda, the grandson of the automaker's founder, has acknowledged afterward that he had headed to the 2010 grilling by U.S. Congress over unintended acceleration problems, prepared to have his career ended. Toyoda had become Toyota president a few months earlier.

When the Congressional ordeal was over, he cried at a meeting of American dealers selling Toyota cars. Four years later, he has emerged one of the most successful Toyota presidents in recent history.

He has said the automaker had grown too quickly. But today it is still growing and as fast as ever.

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Starbucks to Bring Alcohol Sales to Thousands of Stores

March 19, 2014, 11:29 pm

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Filed under: Company News, Starbucks, Food & Beverage, Celebrities, Mobile Technology

By Leslie Patton

Starbucks (SBUX) is going big on booze.

Starbucks will expand its evening alcohol and light bites menu, which includes bacon-wrapped dates and Malbec wine, to thousands of stores, Chief Operating Officer Troy Alstead said in a phone interview. The rollout, which can help boost sales, will take several years, he said.

"We've tested it long enough in enough markets -- this is a program that works," he said. "As we bring the evening program to stores, there's a meaningful increase in sales during that time of the day."

Starbucks has been focused on selling more non-coffee items, such as alcohol, juice, Teavana tea and food, to stoke U.S. growth. The company also is expanding and improving its rewards program and mobile applications. Earlier this month, Starbucks said it would soon test a way for customers to order items ahead of time with their smartphones.

The shares rose 1.8 percent to $75.91 at the close Wednesday in New York. The Seattle-based company has dropped 3.2 percent this year, compared with a 0.7 percent increase for the Standard & Poor's 500 index (^GPSC).

The company first sold alcohol in October 2010 at a Seattle store. In January 2012, Starbucks said it was expanding the test to as many as 25 locations in Chicago, Atlanta and Southern California. In Chicago, the after-4 p.m. menu includes fare such as truffle macaroni and cheese, chicken skewers, Chardonnay and chocolate fondue.

Urban Areas

The evening food and drinks, which are in about 40 stores now, won't work in all Starbucks cafes, Alstead said. He said they've seen success in some urban areas, near other restaurants and theaters, where people are out at night.

Last month,

Chief Executive Officer Howard Schultz handed over the company's day-to-day operations to Alstead, so Schultz could focus more on digital, mobile, loyalty and electronic-commerce initiatives. The company said Wednesday in a statement that its mobile-payment application has been gaining traction.

Mobile payment now accounts for 14 percent of in-store transactions in the U.S., up from a 10 percent rate disclosed in July. Starbucks also said it will open at least 20 additional Teavana stores in the current fiscal year.

"Mobile is very important," Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in a phone interview. "The companies that are taking share are the companies that have some mobile, digital platform -- Papa John's (PZZA), Domino's (DPZ), Starbucks, Dunkin' (DNKN)."

Loyalty Program

Starbucks's loyalty program entices diners by offering free beverages, food and refills in return for points they've accumulated from purchases. Customers can pay with mobile phones or Starbucks cards that are linked to their account.

As part of its effort to sell more tea, the company will begin offering Oprah Winfrey-branded chai tea on April 29 at stores in the U.S. and Canada, Schultz said at the company's annual meeting Wednesday. Winfrey, the television personality and entrepreneur, tasted different tea varieties and helped Starbucks create the blend, which includes black and rooibos teas.

"This felt like something that I really loved, that I really cared about," Winfrey told Schultz at the meeting. Starbucks will donate money from the tea's sales to charities that support youth education.

Starbucks bought Teavana Holdings last year in a transaction valued at about $626 million. It has since been expanding the brand and plans to open tea bars in Chicago and Los Angeles this fiscal year.

Starbucks has more than 20,100 locations worldwide, including about 11,500 in the U.S.

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New Fed Chair's 'Dashboard' of Job-Market Gauges

March 19, 2014, 11:49 pm

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Filed under: Unemployment Rate, Economic Recovery, Federal Reserve, Interest Rates, Investing

By CHRISTOPHER S. RUGABER

WASHINGTON -- The Federal Reserve on Wednesday downplayed the unemployment rate as a guide to the U.S. economy's health. But Janet Yellen, the new Fed chair, didn't leave investors in the dark.

Instead, she listed five gauges that make up her "dashboard" for tracking the economy. She also specified, in some cases, when those measures would signal a healthy economy.

The issue arose because Fed policymakers, like many economists, worry that the unemployment rate might be overstating the health of the economy. The rate has fallen by a full percentage point in the past year. But much of the drop occurred because fewer Americans are working or looking for work. The government doesn't count people as unemployed unless they're actively searching for jobs.

For those who want to track the economy along with Yellen, here are the items she listed during a news conference Wednesday, her first as Fed chair:

The U-6:

It might sound like the name of an Irish rock band. But it's a broader measure of the job market. It includes not only the unemployed but also those working part time who would prefer full-time work and those who have stopped searching for jobs. Last month, the U-6 rate was 12.6 percent, much higher than the unemployment rate of 6.7 percent. Yellen said the number of Americans forced to work part time is "unusually large." It suggests that she believes the Fed could do more to boost the economy.

Long-Term Unemployed:

One particularly brutal aspect of the Great Recession and its aftermath is that millions of laid-off people have struggled to find jobs. In April 2010, 45 percent of the unemployed had been out of work for six months or longer, a record. This proportion has since declined to 37 percent. But that's still far higher than the pre-recession figure of just 17 percent. Yellen said it "has been immensely high and can be very stubborn" to bring down.

Labor Force Participation Rate:

This measure is critical to evaluating the job market's health. It tracks how many people are either working or looking for work. In December, it fell to its lowest level in 35 years before recovering slightly. More retirements by baby boomers account for much of the drop. But Yellen said this rate has also fallen because some of the unemployed have given up looking for work. They could start searching again as the economy improves. If so, they could push up the unemployment rate.

Quitting and Hiring:

In a healthy economy, more Americans quit their jobs. That's because they either have a new job -- usually with higher pay -- or they're confident they can find another. That makes quitting a reliable measure of the job market's health. The government also tracks the overall number of people hired each month. That's separate from the net increase in jobs included in each month's employment report, because a strong net job gain can reflect mainly very few layoffs. Yellen wants to see whether employers are actively adding workers. The number of people quitting jobs has partly recovered from the recession. But Yellen noted that hiring "remains extremely depressed."

Wage Growth:

Yellen highlighted what everyone who has gone without a decent raise for several years knows: "Wage growth has really been very low." Average pay is rising at a 2 percent annual pace, before inflation, she said -- well below the 3 percent to 4 percent rate she cited as typical of a healthy economy.

Many of these indicators point to a weaker job market than the unemployment rate would suggest. That's probably why Yellen said the economy is "not close to full employment," despite the steady decline in the unemployment rate.

But her assessment wasn't all gloomy. The "dial on virtually all of those things is moving in a direction of improvement," she said.

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'I Didn't Buy That': Friendly Fraud Costs Retailers $11.8 Billion a Year

March 20, 2014, 12:00 am

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Filed under: Identity Theft, Credit, Retail, Credit Cards, Internet Fraud

By ELIZABETH HARPER

The words "friendly" and "fraud" may not seem to go together, but friendly fraud -- also known as chargeback fraud -- is a real problem for a lot of online merchants. Friendly fraud happens when a customer fraudulently reports to their financial institution that a charge on their credit card isn't legitimate; the customer will typically be refunded the money immediately, leaving the merchant on the hook for the cash.

Friendly fraud may be intentional theft, like shoplifting, but some customers may do it accidentally -- reporting a charge because they don't realize another member of their household made the purchase or the charge information on their statement doesn't match up to a recognized retailer name, which can happen if the retailer uses a third-party payment system like PayPal. With identity theft at an all-time high and banks eager to reassure consumers that their identity (and their money) is safe with fraud protection guarantees, it's become increasingly easy for cardholders to use these protections to commit fraud.

Retailers Shoulder the Burden

Whether chargeback fraud is intentional or not, retailers are losing billions; Visa estimates $11.8 billion was lost to friendly fraud in 2012. For online merchants, who never physically swiped a card, it can be difficult to prove that a charge was legitimate -- making chargebacks a game of he said, she said, where the customer usually wins. What's more, if a merchant has more than 1 percent of their charges reversed as chargebacks, they can find themselves shut down by Visa (V) and MasterCard (MA) -- which can mean going out of business entirely.

As a result, businesses are fighting friendly fraud in a lot of different ways. To protect themselves from chargebacks, many merchants require customers to enter credit or debit card' security codes in order to prove ownership and physical access to the card. Some merchants will only ship to the address associated with a charge card, which can be a nuisance when purchasing a gift. Merchants are also more likely to fight chargebacks, putting the burden back on the consumer.

Why Customers Should Care About Friendly Fraud

Friendly fraud may sound like a problem for merchants, and not consumers. But friendly fraud affects all of us. The most obvious side effect is an increase in a merchant's cost of doing business, which is often transferred onto the consumer in the form of higher prices and shipping charges.

Friendly fraud is also what's making credit card fraud protection weaker. Instead of just taking a consumer's word for it, banks are treating fraud or identity theft inquiries more cautiously. So, at the very least consumers will have to jump through more hoops for refunds and, at worst, may be liable for fraudulent charges that can't be proven as such.

Fortunately, there's no reason to panic. As we mentioned, retailers are pushing hard to reduce friendly fraud. Unfortunately, that push probably means that common consumers will have to accept some inconvenience as both retailers and financial institutions work to make chargeback fraud more difficult.

So, have you ever disputed a charge on your credit card? Was the process easy or more time consuming than it was worth? Let us know your experience with "friendly fraud" or fraud protection in the comments below.

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Money Minute: Why Your Car Is a Money Pit; Walmart Grows a Green Thumb

March 20, 2014, 1:33 am

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≪ Previous: 'I Didn't Buy That': Friendly Fraud Costs Retailers $11.8 Billion a Year

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Filed under: Market News, Personal Finance, Food & Beverage, Celebrities, Home & Garden

Your car may be costing you a lot more than you think.

AAA says the average driver driving the average midsize car -- for example, a Toyota Camry going 15,000 miles a year -- will cost nearly $10,500 a year to operate. That includes gasoline, insurance, maintenance, depreciation and some other items. A small car would cost about $2,000 less, but an SUV could cost $2,500 more. These are shocking numbers that could punch a SUV-sized hole in your budget.

Walmart Stores (WMT) wants to become your gardener. The retailer is making a direct challenge to home improvement giants Home Depot (HD) and Lowe's (LOW) by offering what it calls "Black Friday-like prices" on outdoor and garden items such as mulch, lawn mowers and outdoor furniture. The nine-day sale begins Friday, the first full day of spring, with discounts of 30 to 50 percent off regular prices.

Burger King (BKW) is going mobile -- and we're not talking about the drive-through. The company is about to unveil a new app that allows customers to get discounts and make payments via their smartphones. Eventually, you'll be able to pre-order your Whopper, too.

Starbucks (SBUX) already offers those mobile features, and now it's adding a new drink to the menu.

At the end of April it will offer Oprah Chai, a tea-blend created by Oprah Winfrey. It will be available at both Starbucks and Teavana stores. Separately, Starbucks said it won't raise coffee prices, despite the surge in wholesale coffee prices.

Here on Wall Street, the Dow Jones industrial average (^DJI) lost 114 points Wednesday, the Nasdaq composite (^IXIC) fell 25 and the Standard & Poor's 500 index (^GPSC) dropped 11 points.

The FAA has put its stamp of approval on the safety of Boeing's 787 Dreamliner. Government and company experts have completed a review following a pair of fires involving the plane's lithium-ion batteries. It concludes that the Dreamliner is "fundamentally sound" and comparable in safety to other new Boeing (BA) models, despite some problems with the manufacturing process.

-Produced by Drew Trachtenberg.

 

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Google Plans to Crush Dropbox, Box With Cheaper Prices for You

March 20, 2014, 2:49 am

≫ Next: DIY Swiffer Refills -- Savings Experiment

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Filed under: Company News, Technology, Google, Market News, IPOs

There is no doubt that Google (GOOG) is one of the tech world's 800-pound gorillas, and when it gets you in its sights, you better be careful or you will get crushed. Standing in its cross-hairs now are two cloud-storage companies, Dropbox and Box, which are anticipated to have a two of the hottest IPOs of 2014.

Last week Google announced that it was slashing data storage prices on its own cloud product, Google Drive, in a move that should send shivers through Dropbox and Box boardrooms and is sure to have repercussion for the sector. Of course Google has plenty of experience in dominating its smaller (and sometimes larger) competitors.

Even with a four-year head start, Alta Vista, a once-dominant search engine, and Yahoo (YHOO) could not keep pace with Google. Once its search page went live in 2004, it was only a matter of time before Google put the former out of business and relegated the latter to a second-tier search engine.

But Google's ability to crush companies hasn't just been limited to search. Google Maps effectively did away with MapQuest. Microsoft's (MSFT) Hotmail has been largely supplanted by Gmail. And even the BlackBerry (BBRY) smartphone operating system has largely been replaced by Android OS devices.

Much More Space for Free

Google's advantage is its ability to scale products quickly and efficiently, making it hard for smaller or less-well-run companies to compete. This is especially true in areas like cloud storage, where products are commoditized and difficult for the consumer to differentiate.

Google Drive now offers up to 15GB of cloud storage for free, compared to 2GB for Dropbox and 10GB for Box respectively. But Google really turns up the heat with paid storage, offering 100GB for only $1.99 per month. That same amount with Box will cost you 2.5 times as much and almost 5 times as much with Dropbox. And for those in need of mega-space, Google offers 10TB+ for $99 per month.

Of course, Google has been unable to crush a few competitors -- at least not yet. Just over a year ago, it launched Google Keep, a product designed to save, organize and sync notes and content, which was squarely aimed at the leader in that market, Evernote. Yet, Keep has faded into semi-obscurity, while Evernote has reached a $10 billion private valuation and is regularly rumored to be planning an IPO of its own.

Part of the reluctance of consumers to switch from Evernote to Keep has to do with Google's annoying habit of abandoning much-loved products with seemingly no rhyme or reason. Only time will tell if Keep is playing possum, waiting for Google to allocate intellectual and financial capital towards its success or if it will be the next Google Reader (2005-13, RIP).

However, nobody is counting Dropbox or Box out quite yet. They both have loyal user bases and can operate better in niches that Google is too big to care about. But this latest move should be a wakeup call for both companies, one they best be ready to answer.

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best -- Top Trading Tips for Our Time."

 

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DIY Swiffer Refills -- Savings Experiment

March 20, 2014, 3:00 am

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Filed under: Home & Garden, Did You Know

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Swiffer makes quick and easy cleaning tools, but they're also quick to cost you money. The Sweeper pads and WetJet cleaning fluid refills aren't cheap, but there are ways to replace them and tidy up your home for less.

Every box of sweeper pads can cost you $6, but you can buy one item and never have to purchase the refill pads ever again. That's right, all you need is a chenille sock, which you can buy from a dollar store. It fits perfectly over the sweeper's head and makes an instant, washable Swiffer static cloth.

The refill bottles of WetJet cleaning solution may be tempting to buy since they're difficult to refill yourself, but here's a trick to help you save. Just bring a little water to a boil and dip the empty bottle in it just deep enough so that the cap is submerged.

After 30 seconds to a minute, the cap should be easy to twist off and you can fill the bottle with a homemade cleaning solution of your choice. Follow these tips and you can enjoy the ease and convenience of the Swiffer without the pricey upkeep.

 

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