When Shareholders Sue, Even When They Win, They Lose

April 2, 2014, 3:00 am

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Filed under: Company News, Banks, Financial Services, Scandals and Lawsuits

On Sept. 25, 2009, Bank of America's (BAC) own shareholders took it to court. But should they have?

Led by large pension funds such as the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System and the Teacher Retirement System of Texas, shareholders sued Bank of America for a litany of sins. Not least among them was a claim that the bank had a "secret agreement" to permit Merrill Lynch -- a near-bankrupt stockbroker that Bank of America agreed to buy in the depths of the financial crisis -- to pay its executives up to $5.8 billion in bonuses prior to getting bought.

Considering that Merrill racked up more than $15 billion in losses while under these executives' control and that Bank of America itself lost a bundle in the housing market meltdown, Bank of America shareholders were understandably upset. They especially didn't like the fact that Bank of America stock, in the words of the website dedicated to the lawsuit, "plummeted from $12.99 per share to a low of $5.10 per share, causing a market capitalization loss of approximately $50 billion" after these losses were revealed.

Open Mouth, Insert Foot, Shoot Self in Foot

According to Reuters, what are known as securities class action lawsuits are regaining popularity among investors looking for someone to blame when their investments go south. After peaking during the period of investor outrage over the financial crisis several years ago and declining since, such lawsuits are growing again -- up 9 percent year over year in 2013 to 166 lawsuits filed.

But a new report out of the U.S. Chamber of Commerce's Institute for Legal Reform suggests that the shareholders who participate in such lawsuits may be making a costly mistake. As the institute explains, securities class action lawsuits, such as the one Bank of America shareholders filed, cost investors nearly $39 billion per year by driving down the stock prices of the companies sued, but the compensation that investors get from suing their companies is only $5 billion.

Now, $5 billion is a whole lot more than the aggrieved shareholders of Bank of America may wind up receiving. According to the terms of their settlement agreement with the bank, the "$50 billion" in market capitalization that plaintiffs alleged was lost will be compensated with a settlement amount of just $2.4 billion. That's less than a nickel for each dollar of losses the investors suffered.

Back to Square One

That doesn't sound very fair to the investors. But really, they have no one but themselves to blame. According to the institute's study, the instant investors set out to sue a company for stock market losses, the stock loses 4.4 percent of its market cap on average.

That 4.4 percent loss of market cap is almost equal to the 4.8 percent settlement amount that Bank of America shareholders, for example, will win from their litigation. Put another way, the end result of shareholders suing their company to recover losses is years of litigation, followed by a refund of only those losses the shareholder incurred by filing the lawsuit.

Who Profits?

Shareholders, as we've seen, lose twice from securities class action lawsuits: First, when the stock goes down due to malfeasance by the company they invested in. Second, when the stock goes down even more in response to the filing of a lawsuit.

The pennies-on-the-dollar they recover, on average, after years of litigation, are only sufficient to compensate shareholders for the second drop -- and do nothing to compensate them for the stock-drop that prompted them to join the lawsuit in the first place.

So who profits? The lawyers who file the suits. They suffered nothing from the stock's decline (because they never owned it), and they collect an average of 18 percent of any legal settlement as their fee. And of course, this comes out of the money that would otherwise have gone to the shareholders.

The Moral of the Story

When a company gets caught doing something underhanded, and it gets sued, some investors' natural instinct is to do two things: First, sue. Second, sell the stock so that if they win the lawsuit, they won't own the company that has to pay for the loss.

The study proves that this is generally a self-defeating strategy. A better strategy? Unless the company's business is in real shambles, stick around as it fixes its business -- or buy more shares.

After all, while Bank of America's former shareholders may win a few pennies on the dollar from their lawsuit against the company, shareholders who stuck out the crisis are today sitting on more than a 200 percent profit off the $5.10 share price that Bank of America hit during the crisis.

The stock's price as of this writing?: $17.21.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America.

 

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Money Savers for the Kitchen -- Savings Experiment

April 2, 2014, 3:00 am

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Filed under: Food & Beverage, Did You Know

View Poll

The way you store your food could save you thousands of dollars a year. Here, we take a look at some popular perishables.

To make onions last up to eight weeks, simply put them in pantyhose. Yes, pantyhose. Just tie a knot between each bulb and hang.

Greens are notorious for their short shelf life. Keep your salads for up to a week by storing them in a bowl, draping a paper towel over the top to absorb moisture, and then sealing it with plastic wrap.

And what about fruit? Well, the green leaves on strawberries actually cause them to go bad faster. Try snipping them off, slicing them and storing them in a Ziploc bag in your fridge. Instead of spoiling in just two days, they'll last a week or longer.

So, the next time you're putting away your groceries, use these simple storage tricks and techniques to save your food...and your money.

 

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Factory Orders Surge More Than Expected in February

April 2, 2014, 3:13 am

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Filed under: Economic Indicators, GDP, Manufacturing, Investing

By Lucia Mutikani

WASHINGTON -- New orders for U.S. factory goods rebounded more than expected in February, with shipments posting their biggest gain in seven months in a further sign the economy was regaining momentum after a recent weather-driven slowdown.

The Commerce Department said Wednesday new orders for manufactured goods jumped 1.6 percent, the biggest rise since last September.

January's orders were revised to show a larger 1 percent drop instead of the previously reported 0.7 percent fall. Economists polled by Reuters had forecast new orders received by factories rebounding 1.2 percent in February.

Shipments of new orders increased 0.9 percent in February, the largest rise since last July. Orders excluding the volatile transportation category advanced 0.7 percent in February, also the biggest gain since last July.

These orders had slipped 0.1 percent in January.

Factory activity is clawing back after unusually cold weather weighed on activity in December and January.

Still, factories remain constrained as businesses try to work through a glut of unsold goods from the second half of 2013.

The Commerce Department report showed inventories rose 0.7 percent in February, the biggest rise since October 2011.

A report Tuesday showed a gauge of national factory activity rising in March for a second month.

In February, factory orders rose across most categories, with big gains in transportation, primary metals and computers and electronic products. Orders for electrical equipment, appliances and components fell as did bookings for machinery.

The department also said orders for durable goods, manufactured products expected to last three years or more, increased 2.2 percent as reported last month.

Orders for non-defense capital goods excluding aircraft, which is seen as a measure of business confidence and spending plans, fell 1.4 percent rather than the previously reported 1.3 percent drop.

 

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5 Tips to Save on Your Child's Birthday Party

April 2, 2014, 4:15 am

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Filed under: Family Money, Shopping, How to Save Money, Savings Challenges

By Susan Yoo-Lee

Having just thrown a kid's birthday party, I know what the final cost can look like and it can be scary! From decorations to the entertainment, things can get a little out of hand if you're not careful.

In order to save you some headaches and some money, learn from my costly mistakes. Here are five tips that will guarantee savings at your next birthday party:

Budget: Who likes working with a budget? Maybe no one, but in the real world, we have real jobs, real expenses and real responsibilities. If you were to save $30 every month for a year, you would have a $360 budget to work with. If you saved $40 a month, you would have $480. For many working families, forking out $360 to $480 for a party at the last minute is way too much. By saving ahead, you can have a real budget to work with. Plus, you don't have to spend all of it.

Decorations: By making your own DIY party decorations that can be found on Pinterest and blogs, you can save over 50 percent on party decorations alone. You can get the children involved and add another personalized touch to it.

If you don't feel like you're the creative type and want to make things simpler, you can always opt to go to the dollar store and find things there. The balloons are only a dollar and you can always put candies in a bag and attach them to the balloons as a table centerpiece. For table covers, you can't beat Walmart's (WMT) value pack which contains two covers for only $1.97 and comes in a variety of eye-appealing colors.

Entertainment: When I was young, the best part of a party was the cake itself, but these days, the cake won't cut it. If you decide to have a party at home, rather than a venue, you may think about hiring a magician, Disney characters, balloon artist, petting zoo and what other services the party world has to offer. Stop right there! This alone can range in the neighborhood of $200 and up. Unless you have a budget that allows for it, you should think of alternatives that kids will like equally and for a lot less.

Here are some ideas for you to consider: You can throw an in-home cooking party where the kids personalize their own pizza and even decorate their own cupcake in lieu of an actual cake. Older children love scavenger hunts. Whether it's in your yard or at the local mall, you can make it very fun. Girls love tie-dying parties. You can tell your guests to bring a plain white T-shirt if it's not in your budget or you can provide them with one. Jewelry-making is another popular option. You can go to Michaels and buy beads and the necessary items so that the girls can make their own bracelets or necklaces. Young kids love LEGO-themed parties, too.

Food: Your cheapest option is always pizza. I have tried all different kinds of options and even when I've hosted bigger parties, I've never spent over $100 for pizza. If you decide to be a little fancier and have room in your budget, other local restaurants might offer affordable catering options, too. As for cake, go to Costco (COST). If you don't have a membership, find someone who does and ask them to order it for you. For less than $18, you can get a sheet of cake that feeds 48 people. This alone will save you 50 percent in cake costs.

Favors: Kids love favors even if they are comprised of what we adults call "junk." Every kid looks forward to the end of the party because they get a goody bag. Keep it simple. If you put in one cool but cheap toy, some sort of candy and a bubble thing, they will be on cloud nine, and it costs less than $2 per child. If you buy stuff from the dollar store or bulk online, it should be relatively cheap.

Susan Yoo-Lee is the editor of Savings.com personal finance blog and founder of Mommas in the House blog.

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More from U.S. News

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6 Absolute Necessities for Acquiring Long-Term Wealth

April 2, 2014, 4:24 am

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Filed under: Personal Finance, Professional Development, Financial Education

Six essentials that I call the Six Circles of Wealth operate in conjunction to provide long-term and rock-solid wealth. And an optional seventh provides a huge bonus.

The six are positive cash flow, investments, guaranteed income, liquidity, long-term care and your legacy. The seventh is business ownership and the eventual sale of the business. We will break down each area for the next seven Wednesdays.

The Flow of Cash

A positive cash flow simply means that you have more income than expenses month after month and year after year. It is not gross cash flow (although the more you bring in, the better off you generally are), but net cash flow.

Say you and your spouse have a gross household monthly income of $9,000. After taxes, Social Security and the other mandates, your combined adjusted gross income is $6,000 per month. From this adjusted gross come out all your expenses, such as housing, autos, utilities, saving for retirement, groceries and entertainment. This example yields $800 net positive cash flow.

Take 45 minutes and add up all your income and all your constant expenses and see how positive -- or how negative -- you are every month. Set aside 5 percent of your income (out of your checking account) for unforeseen expenses, such as the hot water tank blowing up or the roof leaking. It has been said that life is just one darn thing after the other, so plan to have a cash reserve for them.

If you determine your cash flow is negative, then the first thing you should do is anything that gets your cash flow positive. The best and fastest way to do that is to cut your expenses. My fellow DailyFinance contributor Brian O'Connor has written a series of articles on how to save $1,000 a month. I recommend you read these and pick out a few gems you could use.

Make More Money

The next step is to make more money. This is the greatest time in history to start a simple small business from your home. You could also plan for a new job and maybe even a new profession. Or you can make more money in your current job. Before you ask for a raise, spend the next 90 days and make yourself more valuable to your boss and to your team. Your pay is very much associated with how much value you really bring to the table for the employer.

Your boss and coworkers do not care that your cash flow is not good. They only care what you can do for them, so prove you can do more and should be paid accordingly. It has been said that most employees do just enough not to get fired, and most employers pay just enough so you won't quit. Make a commitment to yourself that you will go the extra mile at work.

Start by checking your attitude and monitor self-talk at all points during the day. You hate your coworker? Find things you can like, focus on those points and build a bridge to your coworkers. If you do this for the next 30 days, you will change for the better -- and your boss will notice. Follow through hard for another 60 days and really change people's perception of you to an integral part of their operation. Track all the extras in your journal.

Now Is the Time to Ask for Your Raise

Set up a time to speak with your boss and come into the meeting and say how excited you are to be with the company and how much you like working on whatever you are doing. Now ask for your raise based on the last 90 days. Ask for more than you think you will get, but only you can know how much that figure is at your company. Many times you will walk out with that raise, and if you don't, ask your boss if you could have another meeting in 60 days to review. During that 60 days, become more valuable and keep asking until you get your raise. If it does not happen, start a job search for another position with the company. This would also be a good time to start working on your own small business.

A strong positive cash flow is the first requirement for creating wealth and a fantastic future. So look hard at your expenses and your income and work at increasing your positive cash flow.

John is the best-selling author of "The Perpetual Wealth System." Check out this week's featured video.

 

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Senator Accuses GM of 'Culture of Cover-Up' in Recalls

April 2, 2014, 4:34 am

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Filed under: Company News, General Motors, U.S. Government, Automotive Industry, Auto Recalls

By Ben Klayman
and Eric Beech

WASHINGTON -- General Motors (GM) came under withering attack for its decade-long failure to notify the public about defective parts linked to fatal crashes, as a U.S. Senate hearing opened on Wednesday with accusations that the company fostered "a culture of cover-up."

Democratic Sen. Claire McCaskill rebutted some of GM CEO Mary Barra's testimony to a House of Representatives panel on Tuesday that her company had recently cleaned up its act.

"It might have been the 'Old GM' that started sweeping this defect under the rug 10 years ago. Even under the 'New GM' banner, the company waited nine months to take action after being confronted with specific evidence of this egregious violation of public trust," the Missouri senator said.

McCaskill chairs a Senate subcommittee on consumer protection and product safety that is investigating GM. The "Old GM" and "New GM" she referred to were references to General Motors before and after its 2009 bankruptcy.

Committees in the House and Senate are investigating why it took GM more than a decade to recall 2.6 million cars that could have faulty ignition switches and may have contributed to at least 13 deaths. The largest U.S. automaker also faces a criminal probe by the Department of Justice.

Those switches, without warning, can make vehicle engines stall during operation and stop air bags from deploying and power steering and power brakes from operating.

McCaskill said that "a culture of cover-up" caused a GM engineer to deliver untruthful testimony about his knowledge of the defective ignition switch, as part of a lawsuit related to a fatal 2010 crash in Georgia.

Barra, who was promoted to CEO in January, said in her prepared testimony: "While I can't turn back the clock, as soon as I learned about the problem, we acted without hesitation."

As lawmakers over the past two days have pressed Barra for answers on who at GM was responsible for the company's slow response, Barra has referred repeatedly to an internal investigation of the problem that is under way.

Barra told senators the internal probe is "well along," adding that GM hopes to wrap it up in 45-60 days.

GM wasn't alone in the hot seat during the Senate hearing.

McCaskill, a former prosecutor, complained of the National Highway Traffic Safety Administration's "failure to spot a trend" with GM's ignition switches.

That failure came despite a 2000 law aimed at giving the agency improved resources for spotting automaker safety troubles, she said.

Nevada Sen. Dean Heller, the senior Republican on the panel, noted that in 2006 or 2007, GM replaced the troubled switch with a redesigned part, but didn't change the identifying numbers for the new switch.

"If a company sold a part that was changed in any way and did not change the model number or the serial number on that part it would cause significant problems," Heller said.

Barra responded that issuing a new part without new model or serial numbers was "completely unacceptable."

Republican Sen. Kelly Ayotte of New Hampshire shot back: "I think it goes beyond unacceptable. I believe this is criminal."

Besides raising red flags in Congress that the company's use of the same part number could have been an attempt to cover up the redesign at a time GM was insisting it had no problem, documents submitted to Congress also show that the redesigned switch didn't meet all of the company's specifications.

In a 2013 deposition related to a suit against GM, Ray DeGiorgio, a senior switch engineer, said he was unaware of a change in the part. But documents submitted by GM to Congress show the engineer signed off in April 2006 on the redesign of the ignition switch.

He is still employed by GM, which hasn't made him available to comment. While no one has been fired for their involvement in the company's mishandling of the ignition switch, Barra has promised swift action if it is merited once the company's internal probe is completed.

Meanwhile, House Speaker John Boehner, a Republican, told reporters that it was too early to conclude that tougher auto safety legislation would emerge from the congressional investigations.

Noting that about 230,000 pages of documents have been turned over to Congress, Boehner said: "I think it's important for us to get to the facts before we begin to pronounce what we're going to do or not do."

-Additional reporting by Doina Chiacu and David Lawder.

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You Got Into College! Now, Let's Figure Out How to Pay For It

April 2, 2014, 5:30 am

≫ Next: High Court Grounds Plaintiff's Frequent Flier Lawsuit

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Filed under: College, Financial Aid, Education

Congratulations! Your high school senior just got accepted into college. Yours, and quite a few others -- a large fraction of colleges announce their acceptances around early April. Now, you can brag to all the relatives, and quietly enjoy a profound sense of relief. No more nagging the kid to write those essays. But your work isn't over quite yet.

You have just reached the next round in determining the survival of the fittest form-fillers, what I call "Darwinnowing": financial aid forms and scholarship applications. More essays, more research, and more ink for the printer, and a whole new test of your mettle as a competitive applicant.

The Name of the Game

The object of this exercise is to have your offspring graduate with as little debt as possible. The average U.S. undergrad walked across the stage to pick up his diploma carrying $29,000 in student loan debt last year, according to The Project on Student Loan Debt. So maximizing grants and scholarships is key.

You may have already received a financial aid award letter from your child's institution of choice, assuming you filed the Free Application for Federal Student Aid. Regardless of your income level, most financial aid offices require the FAFSA as a first step to financial aid. If you haven't filed this application, please do it now.

Treat the financial aid award letter as a jumping-off point. Contact the nice people at the school's financial aid office and ask if are there any other state, local, or federal scholarship programs your child qualifies for. Is this amount listed in the letter the maximum possible for your student? Are there any merit-based scholarships? Even after four years of helping my daughter apply, there are always new programs cropping up. If you are the parent of a rising college freshman, ask his or her high school guidance counselor.

Most colleges have a decent handle on what's available, but some outside sources are valuable for find less-known scholarships. Your local newspaper may occasionally mention smaller scholarships from area businesses and fraternal organizations. If you can access its archives online, it could be worth searching them. Your employer may offer scholarships for children of employees; a quick trip to HR should suffice to find out. My local grocery store chain has a scholarship competition for teenagers that work over the summer. Keep your eyes peeled everywhere.

Thinking Outside the Box

There are many free to use websites that are a treasure trove of merit and need-based scholarships. And those awards aren't all targeted to the star athlete/straight A/perfect SAT students. Consider Ball State's "C student" scholarship, endowed by alum David Letterman, or the scholarships that will be awarded to students who wore outfits made out of duct tape to the prom. Students who are the first in their family to attend college, children of active-duty military personnel, and even children of cancer survivors can find numerous programs looking to help them pay for college. Whatever your child's religion, ethnic background, hobby, interest, social affiliation, there is tuition money out there targeted at them.

Some websites try to compile the opportunities for you. Typical of these is www.fastweb.com. Fill out a profile and it matches the student to hundreds of scholarships. You will get emails of new scholarships (internships, too) year round for which a student qualifies. The best part, many are no essay scholarships and some are legit sweepstakes offering college money from major companies. Full disclosure, my daughter won a scholarship through them a few years ago.

Zinch.com is quite similar. Between those two alone, an average student should get notice of several hundred relevant scholarships per month. Here is a list of several more helpful sites. Interestingly, 60 percent of families, use scholarship search websites.

• Scholarships.com Similar to Zinch and Fastweb.
• College Answer This is hosted by Sallie Mae.
• SuperCollege.com Also has info on other college related issues.
• State Council of Higher Education for Virginia: Virginia's higher education website lists plenty of resources for students -- most states have similar sites.
• FinAid Has an Ask the Expert for financial aid queries.
• College-Scholarships.com Has links to 50 more scholarship and financial aid sites.

These should lead you to thousands of scholarships. Once you have found a couple dozen scholarships that are the equivalent of "reach," "a good shot" and "safety," pace yourself and start nagging your kid again for more essays and more recommendations. Try to stay organized and consider deadlines written in stone.

Finally, if there's a specific reason you just can't make the numbers work with what a college has awarded you may want to write them. Submitting a Letter of Special Circumstances detailing a job loss or extraordinary medical bills, for example, can't hurt.

College Cash Caveats

If you do win outside scholarship money, you must notify the college financial aid office, and be aware: It may actually lower the amount of financial aid available. You should ask the college financial aid office if anything scholarship would change its aid package before accepting an outside award. But ideally, outside aid will simply offset the amount of debt your child will be taking on.

It is a daunting process, but graduating with less debt makes it worth all the hassle.

 

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High Court Grounds Plaintiff's Frequent Flier Lawsuit

April 2, 2014, 5:30 am

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Filed under: U.S. Government, Transportation & Logistics, Travel Industry, Scandals and Lawsuits, Investing

WASHINGTON -- The Supreme Court ruled Wednesday that a Minnesota rabbi who complained about an airline's frequent flier program is out of luck.

The justices unanimously sided with Northwest Airlines and dismissed a lawsuit from Rabbi S. Binyomin Ginsberg that alleged he was stripped of his top-level frequent flier status because he complained too much.

Ginsberg said Northwest, since absorbed by Delta Air Lines (DAL), didn't act in good faith when it cut him off. But the justices ruled that the federal deregulation of the airline industry in 1978 prohibits most lawsuits like the one filed by Ginsberg.

Ginsberg and his wife flew almost exclusively on Northwest, logging roughly 75 flights a year to travel across the U.S. and abroad to give lectures and take part in conferences on education and administration.

He said he flew on Northwest even when other airlines offered comparable or better flights and in 2005, reached the highest level of the WorldPerks program.

Northwest cut him off in 2008, shortly after Northwest and Delta agreed to merge. Ginsberg said the move was a cost-cutting measure designed to get rid of the high-mileage customers.

Northwest says Ginsberg complained 24 times in a 7-month period,

including nine instances of luggage that turned up late on airport baggage carousels. Northwest said that before it took action, it awarded Ginsberg $1,925 in travel credit vouchers, 78,500 bonus miles, a voucher for his son and $491 in cash reimbursements.

The airline pointed to a provision of the mileage program's terms that gives Northwest the right to cancel members' accounts for abuse.

Writing for the court, Justice Samuel Alito said the frequent flier program is clearly connected to the airline's prices, routes or services, which are covered under the Airline Deregulation Act.

A federal trial judge cited earlier Supreme Court cases involving claims against frequent flier programs in dismissing Ginsberg's lawsuit, including his claim that Northwest did not live up to the terms of the contract. The judge said the contract gives the airlines the right to kick someone out of the mileage program at its "sole judgment."

But the 9th U.S. Circuit Court of Appeals in San Francisco said part of the suit could go forward involving whether Ginsberg and others can sue under state laws that require parties to a contract to act in good faith.

The case is Northwest vs. Ginsberg, 12-462.

 

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Don't Panic: 5 Tips for Stress-Free Last-Minute Tax Returns

April 2, 2014, 6:04 am

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Filed under: Taxes, Income Tax, IRS, Tax Refunds

It happens every year. You promise yourself that you won't wait until the last moment to file your federal tax return. But then life intrudes, and you wind up scrambling to make the deadline.

Relax. You are not alone. According to the Internal Revenue Service, 28 percent of individual tax returns are filed in the final two weeks. So take a deep breath, make yourself a calming cup of herbal tea and read these tips for last-minute filers, courtesy of the American Institute of CPAs.

1. Avoid the Last-Minute Rush

The U.S. Postal Service keeping some locations open until midnight on Tax Day -- the last possible moment to have your tax return postmarked without it being considered late -- and you can find a location with its online location tool.

Better yet, avoid the long lines and e-file your return. You can file until midnight on April 15, and there is no cost to e-file.

2. File an Extension If Needed

Individuals who need additional time should request an extension by filing IRS Form 4868, "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return."

You can either mail this in or e-file it, but either way it must be done by April 15. As long as you fill the form out correctly and submit it by the deadline, an extension is automatically granted, and you have until Oct. 15 to file you returns.

3. File a Return Even If You Can't Pay Your Taxes Yet

If you expect to owe money to the IRS, you need to estimate the amount owed and either file your taxes or an extension by April 15. But even if you file an extension, that doesn't extend the date required to pay your taxes, just the date to file them.

As the IRS puts it: "The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you."

4. Make Sure Your Return Is Complete

The pressure of trying to get your taxes filed before the deadline can cause you to make some simple mistakes that can cause your return to be considered incomplete.

The IRS has the right to assign additional charges or penalties when a person files incomplete or incorrect tax paperwork, though it usually only does so when the mistake leaves the individual owing money.

In any case, don't take any chances. Take a few minutes to review your returns to make sure you have filled in all requested information (such as Social Security numbers), attached all required forms and supporting documents and signed and dated your returns.

5. Don't Stick Your Head in the Sand

So let's say you totally blow it -- you owe taxes and you missed the filing deadline. What should you do next? Whatever you do, don't ignore the problem -- it won't go away.

First off, file and pay as soon as you can to minimize any penalty and interest charges (there is no penalty for filing a late return if you are due a refund). And if you owe tax but can't pay it all at once, you should pay as much as you can when you do file.

If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Use the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.

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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After Market: Onward and Upward as We Wait for Jobs Numbers

April 2, 2014, 9:55 am

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Filed under: Earnings, Market News, Mergers & Acquisitions, Investing

Stocks drifted in and out of the plus column Wednesday, but ended with solid gains. Investors pulled in the reins a bit in anticipation of the employment numbers we'll get Friday morning, though a number of forecasters expect a much stronger increase in jobs added than we've seen in recent months.

The Dow Jones industrial average (^DJI gained 40 points, ending just a whisker shy of its record high. The Nasdaq composite (^IXIC) added 8, and the Standard & Poor's 500 index (^GPSC) rose 5 -- scoring a record for the second straight day.

The Dow was led upward by some old-line industrials. Caterpillar (CAT) gained nearly 3 percent and United Technologies (UTX) gained 1.5 percent.

But some of the big name tech stocks lost ground. IBM (IBM), Cisco Systems (CSCO) and Intel (INTC) all fell about half a percent.

General Motors (GM) rose 1.5 percent even though CEO Mary Barra was back on Capitol Hill for a second round of withering criticism for failing to recall cars with a dangerous fault.

Some of the actively traded Nasdaq stocks had a rough day. Twitter (TWTR) fell 3 percent, Yelp (YELP) fell 6 percent, LinkedIn (LNKD) lost 2.5 percent and Netflix (NFLX) edged lower. But Tesla (TSLA) rose 6 percent.

The big winner of the day was Mannkind (MNKD). The bio-pharmaceutical company soared 74 percent after winning FDA approval of its diabetes treatment.

Myriad Genetics (MYGN) rose 11.5 percent. Cuts to the Medicare reimbursement of its breast cancer test were not as steep as feared. And Intuitive Surgical (ISRG) added to Tuesday's big gain, up another 5 percent, following approval of its robotic surgical system.

On the downside, Apollo Education (APOL) fell 9 percent after it reported that enrollment continued to decline at its for-profit University of Phoenix. Even after the day's decline, Apollo shares are up 85 percent from a year ago.

A similar patter for Tyson Foods (TSN). It fell for a second straight day, down another 5 percent. But shares of the chicken and pork producer have jumped 25 percent already this year.

Finally, Time Warner Cable (TWC) gained 2 percent on reports it could be back in play because Comcast (CMCSK) stock has dropped so much since they agreed to a buyout price.

What to Watch Thursday:

• The Commerce Department releases international trade data for February and the Labor Department reports weekly jobless claims, both at 8:30 a.m. Eastern time.
• At 10 a.m., the Institute for Supply Management releases its survey of service-sector businesses for March, and Freddie Mac reports weekly mortgage rates.

-Produced by Drew Trachtenberg.

 

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Beauty Is in the Eye of the Shareholder

April 2, 2014, 11:00 pm

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Filed under: Stock Picks, Retail, Industry News, Consumer Goods, Investing

Who wouldn't love a company that has gorgeous margins and is always in demand? Beauty companies like Revlon (REV), Estee Lauder (EL) and Ulta Salon, Cosmetics and Fragrance (ULTA) attract investors, and each has a good side -- and a flaw or two. But which one is the prettiest of all?

Out of China and Into Other Parts of the World

The smallest of these is Revlon, with a $1.33 billion market cap. Its gross margin for the last year is 69.1 percent. Revlon has prettied up its balance sheets most recently by exiting China, saving the company $11 million in costs.

A more important catalyst for the stock is the acquisition of The Colomer Group for $660 million, which gives Revlon access to salon distribution, a desirable venue for beauty companies, as well as more international reach. Half of TCG's $500 million in sales come from Europe, Middle East and Africa. It also provided Revlon with a new CEO -- Lorenzo Paldani, the former CEO of TCG -- and a lineup of professional hair and nail products.

On the third quarter earnings release, interim CEO David Kennedy said The Colomer Group will begin pulling its weight the very first year. Had this new segment's numbers been included in the fourth quarter earnings result, net sales would have been $1.9 billion instead of $1.49 billion for Revlon consumer.

Consistent Browsing on Any Platform

Ulta was the belle of the Wall Street ball in 2011 and 2012, but it was flat for 2013. For the first time in years, it missed third quarter earnings estimates (by 2 cents). This led to a dramatic 20 percent share price swoon on four-times-average volume, taking it to a 52-week low in low $80s.

To be fair, its e-commerce arm reported 74 percent growth in that quarter and is one of the main growth drivers. On this front, Ulta is up against Amazon.com (AMZN) and -- believe it or not -- Target (TGT), which in 2013 bought beauty and skin care wesite DermStore.com with 26,000 products.

Painfully aware of the importance of its online arm, Ulta revamped its website. As CEO Mary Dillon explained, "Ulta is one of the first retailers to feature Responsive web design, a new technology that enables a consistent browsing experience regardless of the device the customer is using."

Thanks to this revamp, the company recently reported fourth quarter results that pleasantly surprised analysts. More importantly, e-commerce rose 82 percent, prompting Goldman Sachs to upgrade to buy. However, Ulta's trailing 12-month margin isn't as lush as these other two, at only 39.4 percent.

Ulta is competing with mass market, department stores, beauty supply stores and most directly with Sephora, owned by Louis Vuitton Moet Hennessey. Sephora was named by Internet Retailer as one of the top ten retailers using mobile for its pioneering usage of tablets in-store. Sephora has 800,000 rewards members who have connected their account to the Apple Passbook wallet. It is also engaging in a loyalty war with Ulta, which has 12.5 million active loyalty rewards members. (Active means the customer has purchased in the last 12 months).

However, no one competitor has the variety of products nor full-service grooming salons it offers in 664 stores in 46 states. Ulta is aiming for 1,200 US stores and opening 100 in 2014.

Prestige Means Profits

Since 2012, Ulta has been opened 100 Clinique boutiques in Ulta stores. Clinique is one of 30 Estee Lauder brands, which includes Smashbox, La Mer and M-A-C. It also acts as a fragrance licensee for Michael Kors, Coach, DKNY and more high-end well known designers.

On the 2014 second quarter earnings call, CEO Fabrizio Freda called online one of its highest-margin channels and performing well in a high-margin industry. Estee Lauder's trailing 12-month gross margin is already a stunning 83.8 percent.

Estee Lauder operates in 150 countries. It also sells in airport duty-free shops and cruise ship stores in which sales have risen 70 percent over the last three years. Estee Lauder plans for more high-growth freestanding retail stores like the one at the Champs Élysées in Paris.

Estee Lauder has been performing well with $10 billion in 2013 sales, cash flow of $1.5 billion plus, and net earnings of $1 billion.

China is a big part of the bullish thesis. While Revlon and L'Oreal's Garnier exited China, premium prestige brands of all kinds still do well. Estee Lauder is expanding in smaller Chinese cities. It's also a shareholder-friendly company, raising the dividend by 37 percent in 2013 alone and buying back shares worth $388 million. The yield is now 1.20 percent, and the forward price to earnings ratio is 20.66 compared to 22.45 at Ulta and 12.68 at Revlon.

Who's the Prettiest of Them All?

Ulta has Goldman's seal of approval but also now has a higher e-commerce bar to vault. Revlon could perform well with its two divisions, consumer and the promising professional lines. Despite the lowest forward price to earnings ratio, it is still the most speculative. Of these, the prettiest one would have to be classic beauty Estee Lauder with its rising yield and beautiful prestige channel growth globally.

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Is Your Credit Score Ready for Mortgage Shopping?

April 2, 2014, 11:00 pm

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Filed under: Mortgages, Refinancing, Home Buying, Credit History, Credit Score

Ah, the credit score. This almost-mythical three-digit manifestation of financial responsibility is among the most important numbers in a person's life. Unfortunately, many of us are confused about how credit scores are formulated, what they affect and where we stand. That's a big problem, especially for potential home buyers.

Both consumer credit scores and the real estate market have improved in recent years from the doldrums of the housing collapse and ensuing recession. Not only are there fewer distressed homeowners these days, but we're also on pace for a 9 percent increase in annual home sales during 2014 as well as an until-further-notice continuation of Federal Reserve policies designed to keep interest rates low and stimulate economic growth.

"Current mortgage rates remain very attractive by historical standards, though they have climbed just over half a percent from the levels in 2012," Michael L. Bognanno, chairman of the economics department at Temple University, told WalletHub in a recent interview. "Because current inflation and expected future inflation are at low levels and unemployment, while gradually falling, remains high, I expect the Federal Reserve to continue the course of depressing interest to promote growth, employment and the recovery of the housing market."

In other words, even though home prices are on track to rise 11 to 12 percent in 2014, the current landscape is very appealing for consumers who have solid credit and the ability to place a sizable down payment on a home. Why are those factors so important? Because the higher your credit standing and down payment are, the better your odds of mortgage approval will be and the less you will pay when all is said and done.

For starters, people with good credit are in a position to save more than $2,000 per year on mortgage-related finance charges relative to those with bad credit.

Good credit will also help you save on mortgage insurance if you don't have the recommended 20 percent for a down payment. According to a recent WalletHub Study, low-down-payment applicants can save roughly $3,500 to $13,000 in just five years by opting for private mortgage insurance instead of a Federal Housing Administration loan, with the upper bounds for people with strong credit.

The question, therefore, is how to make sure your credit standing is ready for prime time. While much depends on your purchase timeline, there are a few steps that all potential homebuyers should take to prepare their finances for the big day.

• Determine where you stand. There are a number of free ways to estimate your credit standing, and doing so will enable you to evaluate your starting point as well as develop a plan to improve your applicant profile if necessary.

• Check your credit reports for errors and fraud. The National Consumer Law Center reports that research by consumer groups shows that up to 25 percent of consumer credit reports contain errors significant enough to cause a denial of credit. Finding unauthorized financial accounts listed on your credit report is also one of the easiest ways to spot fraud. And since we are all entitled to a free copy of each of our major credit reports once every 12 months, there's no reason not to make sure everything is in order before getting too deep into the home buying process.

• Pay bills on time and minimize credit utilization. Payment history and amounts owed together account for roughly 65 percent of your credit score. Given that potential lenders are likely to be most concerned about recent performance, it's important that you pay all credit card and loan bills by the due date and use only a fraction of the credit made available to you in the months leading up to a home purchase.

• Maximize savings. The bigger your down payment, the more you will save on a home purchase. That's obvious, since you'll be borrowing less, paying less in interest over the life of your mortgage and assuming full ownership of your home sooner. Making a budget that eliminates unnecessary expenses and maximizes savings should therefore be a no-brainer for anyone seriously contemplating buying a home, especially considering the added cost of moving and furnishing a new home.

• Be strategic about opening a new credit card. Credit cards are the most efficient credit building tools available to consumers, as they report account information to the major credit bureaus monthly without necessitating that you get into debt (unlike a loan). As long as this information reflects timely payments and low credit utilization, it will lead to credit score improvement over time. But opening a new credit card account can diminish your credit score for a few months. That means it's wise to get a new card only when you have the better part of a year before your planned home purchase.

A home is one of the most important purchases that anyone will make in their lives. And much like you can't expect to do well on a big test without studying, you can't expect to buy your dream house and minimize the cost of the transaction without first making sure your financial house is in order. So give some love to those credit scores, squirrel away some savings and you'll take down that for sale sign in no time.

Odysseas Papadimitriou, a widely respected personal finance expert, is CEO of the credit card comparison website CardHub and the new social network WalletHub, where consumers can compare home loans and read reviews on mortgage brokers.

 

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Is Bank of America's New Checkless Checking Right for You?

April 2, 2014, 11:00 pm

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Filed under: Banking, Banks, Checking Accounts

Bank of America (BAC) wants to sign you up for a checking account -- but once you do, it won't allow you to write checks.

According to the bank, there are two main benefits of the new "Safe Balance" account:

• Customers will pay an account maintenance fee of $4.95 per month. No other fees will be charged.
• Customers can be certain that they will never bounce a check and get hit with the $35 fee that Bank of America charges on overdrafts.

Customers will give up a lot in exchange for this transparent, one-fee-fits-all arrangement.

For example, since the age of widespread "free checking" has ended, lots of banks charge maintenance fees on checking accounts. Most will waive such fees if you satisfy certain conditions -- having your paycheck direct-deposited, for example. Or making a certain number of debit card transactions (from which the bank collects a fee) in a month. Or keeping a few thousand dollars in the account.

The first key difference about Safe Balance, therefore, is there's no possibility of getting that $4.95 monthly fee waived. It's there for good -- $59.40 a year.

A second downside -- depending on whether you consider the right to temporarily overdraw your account, and make up the difference later, to be a blessing or a curse -- is that you won't be allowed the right to "overdraft." Try to pay our more money from your account than you have in it, and your entire transaction will be declined.

The kicker is that this "checking" account doesn't actually allow you to write checks. As the bank explains: "You have many payment options available. Use Online Bill Pay, your debit card or cash... Other options include cashier's checks and money orders, which are available for a fee in our banking centers." But "you cannot use paper checks with this account."

Who Benefits?

So, does this new Safe Balance account make sense for anyone? Perhaps.

If you never find yourself in a situation in which you have to write a check -- if you never need to top off your kids' lunch money account at school, for example, or to pay those nice Girl Scouts for their annual cookie delivery -- then the ability to conduct all your business through debit card and online bill pay transactions might be enough.

If you overdraw your account periodically, $35 each time, Safe Balance at $4.95 a month could save you money.

Of course, the Safe Balance account benefits Bank of America. The $59.40 it gets in annual fees helps make up for other checking accounts that are not profitable for the bank.

Here's the Workaround

If overdraft fees that are your primary worry, there are easy ways around them that don't involve cutting off your access to paper checks.

Keeping an accurate tally of the money in your account is the easiest solution. If you know your balance, there's no reason you should ever "overdraw" it.

A second solution -- and a good idea for many reasons -- would be to spend a bit less and save a bit more, until you've built up a buffer in your account that you're unlikely to accidentally overdraw it.

But if good record keeping and self-control aren't your forte, the nuclear option is still available. Keep your ordinary checking account, but tell your bank not to let you overdraw it. You'll probably have to fill out a form to do this, but if "opting out" of the right to overdraw your account saves you $4.95 a month, and that's worth a few minutes of form-filling. And that way, if you ever do need to write out a paper check, that option will still be open to you.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Bank of America and owns shares of Bank of America.​

 

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10 Federal Taxes You Might Not Realize You're Paying

April 2, 2014, 11:00 pm

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Filed under: Taxes, IRS, Tax Changes, Tax Laws

The time of year when many taxpayers log into their tax software program, or receive a call from their tax accountant, and receive a happy surprise: They're getting a tax refund.

Unfortunately, not all surprises are so pleasant. For instance, in March, the independent Tax Foundation published the 2014 edition of its annual Facts & Figures: How Does Your State Compare? tax information booklet. Alongside expected topics, such as rankings of the 50 states by tax burden and taxes paid per capita, was an "Easter egg" surprise of a list of federal excise taxes that you may not be aware you're paying.



Motley Fool contributor Rich Smith has no position in any stocks directly affected by any of the above excise taxes. At least, he doesn't think he does. But then again, up until a few weeks ago he didn't even realize that most of these taxes existed.

 

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7 Simple Ways to Stay On Budget

April 2, 2014, 11:00 pm

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Filed under: Family Money, Personal Finance, Shopping, Budgeting, Mobile Technology

By Sabah Karimi

If you struggle to stay on budget every month and find it difficult to reach your savings goals, it might be time for a new approach. Setting yourself up for financial success may require taking a closer look at your spending habits and figuring out your weaknesses. You can also adopt habits that will make you more mindful about your spending choices and shopping routine.

Try these seven ways to stay on budget:

1. Always shop with a list -- even for the small stuff. You may already shop with a list when you go to the grocery store, but do you make a list for everyday purchases like household items, gas or laundry services? Even if it seems unnecessary, making a list for these items can make you more aware of the money you're spending. This in turn can help you prioritize your purchases so you can better manage your cash flow. Make a list even when you're heading to the hardware store, convenience store or clothing store, so you aren't tempted to buy things you don't really need.

2. Use a budgeting smartphone app. Maybe you already use a digital budgeting tool on your computer such as Mint or You Need a Budget. But if you don't,

using a smartphone app to keep track of your budget goals can help you maintain awareness of your spending in real time. Mint, Expensify and ReadyForZero are a few easy-to-use apps that can help you monitor your budget with just a few easy taps.

3. Log expenses every day. Instead of waiting until the end of the week, or even the end of the month, to tabulate your expenses, get into the habit of logging your expenses every day. Request a receipt whenever possible so you can go over the day's expenditures with ease. Or pay for every purchase using the same debit card or credit card so you can track all activity for the day online. The goal here is to become more aware of your daily spending habits, so you can make positive changes.

4. Share your financial goals. Confide in a friend, family member or financial adviser about your goals, and set up a plan so that person holds you accountable. For example, you could set up a weekly meeting, or send an email reporting any spending problems or challenges you are having.

5. Only spend dollars you can see. Shopping with cash can make it easier to manage your budget and be more mindful about how much you spend. When you become used to using a debit card or credit card regularly, it can be easy to forget the value of those dollars because the transactions are processed electronically, and you never see the exchange of physical dollar bills. If you have trouble sticking with a budget, try spending only cash for a few weeks so you become more cognizant about your purchases.

6. Refurbish and recycle. Instead of trying to make room in your budget for new items or saving up to replace goods that are in relatively good condition, focus instead on fixing or refurbishing your possessions. Household furniture, appliances and home decor may just need to be refreshed with new paint or given a tuneup. Take inventory of your home, and think of ways to update your living areas without having to buy new items.

7. Reward yourself without spending money. Creating your own rewards system for reaching your financial goals can help you break a pattern of bad spending habits and set you up for long-term success. Think of ways to reward yourself without spending money. Spend an afternoon enjoying a free event in your area, block off time to try a new recipe, enjoy a relaxing bath or schedule time with a friend or loved one you haven't seen in awhile. Find ways to make the goal-setting process a positive one, so you reinforce good habits and get rid of habits that might be holding you back.

Sabah Karimi is a columnist for the blog Wise Bread, where you can find consumer tips like how to select the best balance transfer credit cards.

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More from U.S. News

• 11 Expenses Destroying Your Budget
• 9 Ways to Stretch Your Paycheck
• 10 Savings Strategies That Can Backfire

 

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GM Dealers: Customer Anxiety Rising, Sales May Take Hit

April 2, 2014, 11:00 pm

≫ Next: More Americans See Middle Class Status Slip Away

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

Andrew Harrer/Bloomberg via Getty ImagesGM CEO Mary Barra testifies before a Senate subcommittee Wednesday.

By Tim McLaughlin

BOSTON -- An ignition switch defect linked to deadly crashes and mounting recalls are raising anxiety in General Motors (GM) showrooms, according to dealers who increasingly are fielding calls from customers concerned about the safety of GM cars.

The Ancira Auto Group in San Antonio, Texas, expected a banner March after a strong February, but it came up 28 vehicles short of its goal of selling 200 cars and trucks, Vice President April Ancira said in an email.

GM Chief Executive Mary Barra on Wednesday endured a withering attack at a U.S. Senate hearing that opened with accusations that the company fostered "a culture of cover-up," and Ancira said the bad news centered on the ignition switch issue contributed to her group's sales miss.

"It will take some time for the brand to gain back the customers it lost," she said. "But I have got to believe that General Motors will use this opportunity to really focus on improving the safety of their product."

Interviews with more than 20 U.S. GM dealerships this week revealed concerns that sales would be pressured, even in a recovering auto market.

Dealers also made clear there's an escalating number of jittery current GM owners, and demands for repairs threaten to clog some repair facilities.

"They are calling for information. People are a little confused about what they need to do. There are a lot of these cars out there," said Al Belford, fixed operations director at Ed Bozarth Chevrolet in Las Vegas, which has been getting about 50 customer calls a day for the last three weeks.

Jacqueline Aguilar, service coordinator at Brickell Buick GMC in Miami, said the dealership handles was getting up to 40 calls a day between 2 p.m. and 6 p.m.

Holland, Michigan's DeNooyer Chevrolet has been getting 10-15 calls a day, sales manager Dominique DeNooyer told local television, adding that the dealership was finding the "influx" of people challenging.

Since February, GM has recalled 2.6 million vehicles due to concerns about ignition switches that unexpectedly turn off engines during operation and leave airbags, power steering and power brakes inoperable. And so far this year, GM has recalled a total of nearly 7 million vehicles, or about the same number recalled in the previous four years combined.

Toyota's Recall of 2010

In January 2010, Toyota Motor (TM) recalled nearly 2.6 million vehicles in the United States and Canada to fix sticky accelerator pedals. The recall and the controversy leading up to the decision punished sales.

Less than two weeks after the recall, Toyota reported a 16 percent drop in January 2010 U.S. sales. Sales fell again in February before rebounding in March. Still, the automaker's U.S. market share hasn't regained its peak of 17 percent, set in 2009.

In contrast, GM's numbers improved in March, the month after the first stages of the recall were announced. Dealers delivered 256,047 vehicles in the United States in March, fueling a 4 percent increase in total sales from year-ago levels. Retail sales were up 7 percent and GM said it gained retail market share.

Overall, the auto market is in recovery mode, and a lot of dealership executives, are staying optimistic, including Brad Sowers, owner of Jim Butler Chevrolet in the St. Louis suburb of Fenton, Mo.

"I'm still in the mode that it's going to be a good year for us and the marketplace has cars that are 11 or 12 years old and rates are really low," Sowers said.

"Our sales have been average," said James Mardenli, general sales manager at Cerrone Chevrolet Buick & GMC Truck dealership in South Attleboro, Mass. "April should be a good month in terms of sales because April, May, and June are usually the months where the most cars are bought."

But Morgan Stanley (MS) analyst Adam Jonas wrote in a research note that his uncle, a car dealer in Canton, Ohio, was concerned.

"I think April's gonna hit rock bottom for us. We know we'll get through this, but are just hoping this issue passes as soon as possible," Jonas quoted his uncle as saying. Jonas didn't name his uncle or respond immediately to a call about the discussion.

At GM dealerships near the major U.S. cities of Boston, Cleveland, Los Angeles, Miami and San Antonio, managers agreed they were spending a lot more time allaying customer concerns.

They reported offering more rental cars, agreeing to more trade-ins and telling customers to lighten their key chains.

Several dealership executives conceded the bad news is distracting their teams from making their sales pitch in the showroom.

Some customers, however, don't want to wait weeks for their cars to be repaired. GM has offered some incentives for trade-ins and dealers say the offer is being taken up.

Andy Sweis, general manager at Jennings Chevrolet in the north Chicago suburb of Glenview, Ill., said the dealership has taken in about a half a dozen Chevy Cobalts for trade-in since the recall.

-Additional reporting by Ben Klayman, Svea Herbst, Jim Forsyth, Timothy Reid, Kim Palmer, Zachary Fagenson, Jason McLure and Lily Jamali.

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More Americans See Middle Class Status Slip Away

April 2, 2014, 11:46 pm

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Filed under: Cost of Living, Economic Recovery, Job Market, Unemployment

By CHRISTOPHER S. RUGABER

WASHINGTON -- A sense of belonging to the middle class occupies a cherished place in America. It conjures images of self-sufficient people with stable jobs and pleasant homes working toward prosperity.

Yet nearly five years after the Great Recession ended, more people are coming to the painful realization that they're no longer part of it.

They are former professionals now stocking shelves at grocery stores, retirees struggling with rising costs and people working part-time jobs but desperate for full-time pay. Such setbacks have emerged in economic statistics for several years. Now they're affecting how Americans think of themselves.

Since 2008, the number of people who call themselves middle class has fallen by nearly a fifth, according to a survey in January by the Pew Research Center, from 53 percent to 44 percent. Forty percent now identify as either lower-middle or lower class compared with just 25 percent in February 2008.

According to Gallup, the percentage of Americans who say they're middle or upper-middle class fell 8 points between 2008 and 2012, to 55 percent.

And the most recent General Social Survey, conducted by NORC at the University of Chicago, found that the vast proportion of Americans who call themselves middle or working class,

though still high at 88 percent, is the lowest in the survey's 40-year history. It's fallen 4 percentage points since the recession began in 2007.

The trend reflects a widening gap between the richest Americans and everyone else, one that's emerged gradually over decades and accelerated with the Great Recession. The difference between the income earned by the wealthiest 5 percent of Americans and by a median-income household has risen 24 percent in 30 years, according to the Census Bureau.

Whether or not people see themselves as middle class, there's no agreed-upon definition of the term. In part, it's a state of mind. Incomes or lifestyles that feel middle class in Kansas can feel far different in Connecticut. People with substantial incomes often identify as middle class if they live in urban centers with costly food, housing and transportation.

In any case, individuals and families who feel they've slipped from the middle class are likely to spend and borrow less. Such a pullback, in turn, squeezes the economy, which is fueled mainly by consumer spending.

"How they think is reflected in how they act," said Richard Morin, a senior editor at the Pew Research Center.

Downward Mobility

People are generally slow to acknowledge downward mobility. Many regard themselves as middle class even if their incomes fall well above or below the average. Experts say the rise in Americans who feel they've slipped below the middle class suggests something deeply rooted.

More people now think "it's harder to achieve" the American dream than thought so several decades ago, said Mark Rank, a sociology professor at Washington University in St. Louis.

Three years ago, Kristina Feldotte, 47, and her husband earned a combined $80,000. She considered herself solidly middle class. The couple and their four children regularly vacationed at a lake near their home in Saginaw, Michigan.

But in August 2012, Feldotte was laid off from her job as a special education teacher. She's since managed to find only part-time teaching work. Though her husband still works as a truck salesman, their income has sunk by more than half to $36,000.

"Now we're on the upper end of lower class," Feldotte said.

Americans' self-perception coincides with data documenting a shrinking middle class: The percentage of households with income within 50 percent of the median -- one way to define a broad middle class -- fell from 50 percent in 1970 to 42 percent in 2010.

The Pew survey didn't ask respondents to specify their income. Still, Pew has found in the past that people who call themselves middle class generally fit the broad definitions that economists use.

Roughly 8.4 percent of respondents to the General Social Survey, last conducted in 2012, said they consider themselves lower class. That's the survey's highest percentage ever, up from 5.4 percent in 2006. NORC is a social science research organization at the University of Chicago.

Tom Smith, director of the survey, said even slight shifts are significant.

Class self-identification "is traditionally one of the most stable measures" in the survey, he said.

By contrast to the most recent recession, the severe 1981-82 downturn had little effect on class self-identification in Smith's survey.

Why do so many no longer regard themselves as middle class? A key reason is that the recession eliminated 8.7 million jobs. A disproportionate number were middle-income positions. Those losses left what economists describe as a "hollowed out" workforce, with more higher- and lower-paying and fewer middle-income jobs.

Rob McGahen, 30, hasn't yet found a job that paid as well as the purchasing agent position at Boeing's (BA) defense division that he left in 2011. Nervous about the sustainability of that job because of government defense cuts, McGahen quit after buying a bar near his St. Louis home.

The bar eventually went bankrupt and cost him his house. He and his wife moved to Pensacola, Fla., where he's had little luck finding work in defense contracting.

'A Step Back'

Now, he works in the produce section of a supermarket. His wife earns the bulk of their income as a speech pathologist. Their household income has been cut in half, from $110,000 to $55,000, and he and his wife have put off having children.

"It's definitely been a step back," McGahen said.

Now living in an apartment, he misses the couple's three-bedroom house on a quiet cul-de-sac in a St. Louis suburb.

Home ownership is among factors economists cite as markers of middle-class status. Others include being able to vacation, help children pay for college and save for a secure retirement.

Yet stagnant middle-class pay, combined with steep price increases for college, health care and homes, have made those expenses harder to afford. Median household income, adjusted for inflation, hasn't budged since 1996, according to the Census Bureau. Average college tuition has soared 174 percent in that time.

Many of the formerly middle class are still struggling with student debt. McGahen, who has an MBA, estimates he'll be making $600 payments on student loans each month for the next decade. Feldotte, with two master's degrees, says she has "lots and lots of debt."

And she isn't prepared to help her children pay for college.

"There's no money to help them," she said.

Some people feel they've fallen out of the middle class even as their incomes have remained stable, because their costs have risen. One is Richard Timmerman, 66, a retired postal employee in River Falls, Wis.

He's been living off his pension since retiring five years ago. His wife, a sales manager at a hotel and conference center, hasn't had a raise in that time. The recession hammered the hotel's business, though it's slowly recovering.

'Down a Notch'

Yet his cost of living has risen in the past decade or so. Gas prices have surged over that time. So has food. And only this year did the value of Timmerman's retirement savings regain its level of six years ago.

"I see my position in the social structure having gone down a notch," Timmerman said. He considers himself lower-middle class, compared with middle class a few years ago.

A slowly improving U.S. economy could lift some people back into the middle class. Still, the recession and slow recovery have left permanent scars.

McGahen and his wife are trying to rebuild their savings. They no longer have credit cards. Timmerman travels much less than he thought he would in retirement.

"I have really beat myself up a lot over the last 2½ years," McGahen said. "Until I get myself up and going again and in a good place ... it is tough."

-AP Writer Melissa Nelson in Pensacola, Fla. contributed to this report.

 

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Weekly Jobless Claims Rise, Trade Deficit Widens

April 3, 2014, 1:31 am

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Filed under: Economic Indicators, GDP, International Trade, Unemployment, Investing

By Lucia Mutikani

WASHINGTON -- The number of Americans filing new claims for unemployment benefits rose more than expected last week, but the underlying trend continued to point to some strength in the labor market.

Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 326,000, the Labor Department said Thursday. Economists had forecast first-time filings for jobless aid rising to 317,000 in the week ended March 29.

The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, hovered near six-month lows, indicating a firmer bias in the labor market.

"It's broadly consistent with moderate growth in the jobs market," said Michael Hanson, a senior economist at Bank of America Merrill Lynch (BAC) in New York.

Despite last week's increase, claims have been generally stable in March, which should support expectations of an acceleration in job growth during the month.

The government's closely watched employment report on Friday is expected to show nonfarm payrolls increased by 200,000 jobs last month after rising 175,000 in February, according to a Reuters survey of economists. The unemployment rate is seen falling one-tenth of a percentage point to 6.6 percent.

A report Wednesday showed private employers stepped up hiring in March for a second straight month.

The labor market suffered a setback in December and January when unseasonably cold weather gripped large parts of the country. With temperatures rising, a pick-up is in the cards, which should help to unleash pent-up demand and put the economy on a stronger growth trajectory.

Trade Gap Widens

In a separate report, the Commerce Department said the trade gap increased 7.7 percent to $42.3 billion in February, the largest since September last year, as exports fell to their lowest level in five months.

January's shortfall was revised to $39.3 billion from a previously reported $39.1 billion.

"It should be a modest drag on first-quarter GDP," said Pierre Ellis, senior global economist at Decision Economics in New York. "It's relatively strong on the U.S. side but the rest of the world is not helping."

Economists had forecast the trade deficit falling to $38.5 billion. In addition to weak exports, February's rise in the deficit likely reflected an increase in the price of crude oil.

Declining petroleum imports as a domestic energy production boom reduces the nation's dependency on foreign oil have helped to shrink the trade deficit.

That saw the current account deficit hitting a 14-year low in the fourth quarter of 2013.

Trade was one of the key drivers of economic growth during the last three months of last year, a trend that is unlikely to be repeated in the first quarter.

Growth in the first three months of 2014 is expected to have slowed to an annualized pace below 2 percent. The economy grew at a 2.6 percent rate in the fourth quarter.

When adjusted for inflation, the trade gap widened to $50.1 billion in February from $48.5 billion the prior month.

Exports slipped 1.1 percent to $190.4 billion in February. That was the lowest level since September. Imports edged up 0.4 percent to $232.7 billion.

Exports to China fell 4.6 percent in February. Imports from that country tumbled 19.5 percent, narrowing the politically sensitive U.S. trade deficit with the world's second-largest economy to its smallest since March 2013.

The drop in imports was probably due to the Chinese New Year holiday.

 

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Money Minute: Microsoft Hits 'Back' on Windows; U.S. Middle Class Shrinks

April 3, 2014, 1:32 am

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Filed under: Microsoft, Market News, Economic Recovery, Computer Industry

Microsoft goes back to the future.

Many computer users have had trouble adapting to Microsoft's (MSFT) Windows 8 operating system, so the company is coming out next week with an update that brings back some features of Windows 7 and Windows XP. For instance, you'll be able to hit the start button and get the traditional looking desktop. It's also bringing back the familiar "X" and minus buttons to close and minimize various programs. The company calls the updates Windows 8.1. You can call it Windows Classic.

The definition of what's middle class varies, but this much is certain: fewer and fewer Americans consider themselves to be part of that vast middle.

A University of Chicago survey finds the number of people who place themselves in the middle class is now at the lowest level since it began measuring this 40 years ago. This has a very real impact on how much people spend, save and borrow.

Here on Wall Street, the Dow Jones industrial average (^DJI) gained 40 points Wednesday, closing within 4 points of its record high. The Nasdaq composite (^IXIC) rose 8 points, and Standard & Poor's 500 index (^GPSC) gained 5, moving to its second straight all-time high.

There are all sorts of theories about how to read the market, but one of the oldest is called the Dow Theory. It holds, in part, that when the Dow industrials and the Dow Jones Transportation Average (DJT) reach records at the same time, that's called confirmation and it signals more gains ahead. Well, the Dow transports are there and the industrials are very close.

Not much has gone right for Detroit lately. It's the largest American city ever to file for bankruptcy. But now a bankruptcy court judge has given the city the okay to borrow $120 million in order to buy new police and firefighting vehicles and make other purchases to improve urgent needs. The judge said the city isn't meeting "the basic needs of its citizens."

-Produced by Drew Trachtenberg.

 

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Haven't Filed Your Taxes? Avoid These 3 Costly Mistakes

April 3, 2014, 2:44 am

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Filed under: Taxes, IRS, Tax Credits, Tax Deductions, Tax Refunds

In the rush to get your tax returns out the door, it's common to make costly mistakes. Let's look at three of the most common last-minute issues.

Getting An Extension? Don't Forget This Vital Step

If you can't get your taxes finished by the April 15 deadline, the Internal Revenue Service will freely grant you a six-month extension to file your taxes, giving you until Oct. 15 to get all your numbers and records together and put together a final return for filing.

But just because you can get a free extension to file doesn't mean that you get extra time to pay. Even if you request and receive a six-month tax filing extension, you're still liable for any tax you still owe. If you don't pay, then the clock will begin on interest and penalties for failing to pay.

At current rates, those charges will include 3 percent interest on the underpaid amount, plus an extra 1/2 of 1 percent in penalties for every month your unpaid tax is late. The penalty maxes out at 25 percent if you're 50 months or more late on your payments.

Still, extending is a smart move even if you can't pay, because if you don't request an extension and file 60 days late or more, then the minimum penalty becomes $135 or 100 percent of your unpaid tax, whichever is less -- regardless of what percentage of your total tax liability that ends up being.

In general, it makes sense to slightly overpay your expected taxes with your extension request so as to give yourself some breathing room in case your initial calculations prove to be incorrect.

Take All the Credits You're Entitled to Receive

Remembering to claim all the tax breaks that you deserve often gets lost in the shuffle.

The IRS estimates one out of every five federal tax filers don't claim the money they're entitled to with the Earned Income Tax Credit. The worst thing about missing it is that, unlike most credits, it is a refundable credit -- meaning that you can get money back from the federal government even if you don't owe any tax. Depending on how many eligible kids you have, we're talking about credits of as much as $3,250 to $6,044.

Other credits can also bring in big money. Whether it's the American Opportunity Tax Credit for education or the Child Tax Credit and Child and Dependent Care Credit for families, make sure not to miss out on any chance you have to cut your tax bill.

Make Sure Your Money Goes to the Right Place

For those of you expecting a refund, waiting can be the hardest part. Yet if you give the IRS the wrong information, it can be a lot harder for you to receive your hard-earned tax money back.

Direct-deposit options are a great way to get your refund, with turnaround times that are much faster than with mailed refunds, especially in combination with electronically filed tax returns. But it's essential that you get your bank account information correct, paying attention to your financial institution's routing number, your account number and your type of account. Make a mistake, and you could end up in IRS refund limbo -- especially if the incorrect information you use corresponds to someone else's existing bank account.

There are plenty of other mistakes that people make, but these three can be among the most costly and time-consuming to fix.

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

 

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