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AT&T In Talks to Buy DirecTV for Nearly $50 Billion

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AT&T in talks to buy DirecTV for nearly $50 billion: sources
Patrick T. Fallon/Bloomberg via Getty Images
By Soyoung Kim
and Ronald Grover


NEW YORK and LOS ANGELES -- AT&T (T) is in active talks to buy satellite TV provider DirecTV (DTV) and may complete a deal in the next few weeks that could be worth close to $50 billion, two people familiar with the matter said.

The second-largest wireless operator is discussing an offer in the low- to mid-$90s a share for DirecTV, one of the people said, compared with the company's closing price of $87.16 Monday.

A bid near $95 a share would value DirecTV at more than $48 billion based on its shares outstanding, and would represent a premium of more than 20 percent to its stock price before news of AT&T's interest first emerged on May 1.

The deal price has yet to be finalized and terms could still change, the people said, adding that discussions are continuing. They asked not to be named because the matter isn't public.

Other details also have yet to be worked out, such as a break-up fee as well as a potential role for DirecTV Chief Executive Officer Mike White, the second person said.

The talks are the latest sign of a rising tide of potential megadeals in the telecoms, cable and satellite TV space, which is being roiled by Comcast's (CMCSA) proposed $45 billion takeover of Time Warner Cable (TWC) as well as market forces such as the rise of Web-based TV and surging mobile Internet usage.

AT&T and DirecTV declined to comment. Bloomberg News earlier reported that AT&T was offering to pay around $100 a share for DirecTV, whose management team will continue to run the company as a unit of AT&T. The Wall Street Journal said a deal could happen in two weeks.

DirecTV shares rose 6 percent to $92.50 in extended trading Monday.

DirecTV is working with advisers including Goldman Sachs Group (GS) to evaluate a possible combination following a recent takeover approach from AT&T, Reuters reported last week.

A combination of AT&T and DirecTV would create a pay television giant close in size to where Comcast will be if it completes its pending acquisition of Time Warner Cable. For that reason, the proposed merger is likely to face a prolonged battle to convince regulators to allow further consolidation in pay-TV.

"This is not the first time that AT&T and DirecTV have danced around the fire and thought if they could give it a go," said ReconAnalytics analyst Roger Entner.

"They both looked at each other for at least 10 years. Both kind of came to the conclusion that it was in the right environment. It makes a lot of sense to get together, but there was never the right regulatory environment for it."

A Comcast-Time Warner Cable merger would call for a counterweight like a combined AT&T-DirecTV, Entner said. He added that the merger would make sense for DirecTV given the decline of satellite TV.

"They both see the Grim Reaper at the horizon. DirecTV hasn't gone out and bought spectrum. Dish has, so DirecTV needs to find a partner, and AT&T is that partner," he said.

Some investors have also speculated about a potential tie-up of DirectTV and smaller rival Dish Network (DISH).

But Dish Chairman Charlie Egan last week said his company, which attempted to buy DirecTV more than a decade ago, wouldn't make a fresh approach at current prices even though he said such a tie-up would create many benefits.

-Additional reporting by Marina Lopes.

 

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Netflix at $8.99 is Still a Bargain

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TV-Q and A-Taylor Schilling
Paul Schiraldi/Netflix/APThe second season of "Orange Is the New Black" debuts on Netflix on June 6.
Binge viewing is about to get a little more expensive. True to its word, Netflix (NFLX) announced on Friday that the rate for its streaming plan will go up a buck to $8.99.

Netflix is freezing rates for current members at $7.99 a month for the next two years. Netflix closed out its latest quarter with more than 35 million domestic subscribers and more than 48 million members worldwide. That's a lot of people with an incentive to stick around, but it's not as if $8.99 a month will scare potential viewers away. Netflix is still one of the best deals in premium video entertainment, and it knows it.

17.5 Channels of Quality Entertainment

Letting Netflix go is easy. It's a simple service to cancel. The rub comes in finding cheaper ways to entertain oneself.

Forget cable and satellite television. Those tabs can run into the triple digits, and that's with most channels going unwatched. Ratings tracker Nielsen put out a shocking metric last week, reporting that families in this country average only watch 17.5 of the 189 TV channels in their subscription plans. Yes, we're watching just 9 percent of the channels that we pay for.

There are other forms of premium entertainment, of course. Time Warner's (TWX) HBO is the largest premium movie channel. It's home to "Game of Thrones," "Girls," "Veep" and a rotating slate of fresh home video releases. Subscribers have access to HBO Go, tapping the channel's vault of classic HBO shows and content for your streaming pleasure.

But HBO costs nearly twice as much as Netflix. Oh, and you also need to have an existing cable or satellite television plan. HBO Go is a standalone offering in select foreign markets.

Amazon.com (AMZN) has a growing catalog of streaming content that it makes available at no extra cost to members of its Amazon Prime loyalty shopping club. It can no longer be considered Netflix Lite, either, especially after landing licensing deals to content that's not available on Netflix. From "Downton Abbey" to Viacom's (VIA) Nickelodeon and Comedy Central content, Amazon's a reasonable option. Later this month several older HBO shows will be available on Amazon Prime Instant.

However, Amazon Prime went for an even bigger price hike this year, boosting its annual rate from $79.99 to $99 for the year. That does include free two-day shipping through Amazon.com on merchandise and other digital perks, but Netflix's catalog remains substantially larger for what are now comparable prices.

The Joys of an Expanding Digital Ecosystem

Netflix spends a lot of money on content. It had $7.1 billion tied up in streaming content obligations as of the end of March, up from last year's $5.7 billion in tally. Netflix has more customers so it can invest in more content. That's the beauty of this expanding and scalable model. Netflix has committed 25 percent more in future content over the past year, and it can do that because it's dividing the costs between the 33 percent more subscribers it has now than it did a year earlier.

The math works in Netflix's favor, but the math is even strong for consumers. They're getting more content. The pool of content grows, and since we're talking about digital assets, every single subscriber has access to more and more shows and movies whenever they want to watch.

Naturally this perk of escalating content will go the other way if subscriber growth stalls or begins to decline. This could be why Netflix went with a modest 12.5 percent increase in price instead of the 25 percent uptick to $9.99 a month that it had also considered.

However, as long as Netflix keeps growing -- and we're at 48.35 million streaming accounts and counting -- it should be more than worth the updated price for new subscribers.

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 and Netflix.

 

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Small-Business Confidence Springs Back to Pre-Crisis Levels

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Small-Business Confidence Back to Pre-Crisis Levels
M. Spencer Green/AP
By Lucia Mutikani

WASHINGTON --U.S. small-business sentiment jumped to its highest level in 6½ years in April, which should bolster hopes of an acceleration in economic activity in the second quarter.

The National Federation of Independent Business said Tuesday its Small Business Optimism Index rose 1.8 points to 95.2 last month, the highest reading since October 2007, when the economy was on the cusp of its worst recession since the 1930s.

"April's reading took the index to a post-recession high and a recovery high level," the NFIB said in a statement.

It adds to data such as employment and surveys on the manufacturing and services industries that have shown the economy regaining steam early in the second quarter after growth braked abruptly in the first three months of the year.

Seven of the index's 10 components advanced, with gains in job creation plans and the share of businesses optimistic about earnings. There also was an increase in the share of businesses raising inventories, which was one of the drags on first-quarter growth.

More owners reported they could not find qualified workers to fill open positions, which is leading to higher wages.

"Inflation will begin to pick up because reports of higher compensation are growing in frequency and these costs will be recovered in higher prices," the NFIB said.

Almost a quarter of businesses reported raising prices in April. Another 25 percent plan to increase their prices over the next few months.

"Reports of increases in average selling prices have accelerated sharply in the last few months, reaching the highest level since 2011," the NFIB said.

 

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Credit Suisse Deal to Settle Tax Probe Could Top $2 Billion

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Credit Suisse deal with U.S. authorities could top $2 bln-sources
Anja Niedringhaus/APCredit Suisse Group Chairman Urs Rohner
By Karen Freifeld
and Aruna Viswanatha


NEW YORK and WASHINGTON -- New York state's banking regulator is seeking hundreds of millions of dollars from Credit Suisse (CS) in its probe of potential tax evasion involving the Swiss bank, according to sources close to the matter, which could push an eventual settlement with U.S. authorities to over $2 billion.

The New York regulator made an opening bid of $1 billion, one of the sources said, though negotiations are expected to significantly drive down the final penalty amount.

The settlement with the New York State Department of Financial Services would be in addition to the fine that Credit Suisse is discussing with the U.S. Justice Department. Reuters reported last week that the Justice Department is seeking as much as $1.6 billion from the bank.

The talks between Credit Suisse and Benjamin Lawsky, New York's financial services superintendent, are ongoing, people familiar with the matter said. Credit Suisse could reach a deal with New York and federal authorities in the coming days, they said.

Federal prosecutors have also been pushing for the bank to plead guilty to criminal charges as part of the settlement, as the U.S. Justice Department has faced criticism that it has shied away from prosecuting financial firms.

Spokesmen from Credit Suisse and Lawsky's office declined comment.

The Swiss bank is eager to move past the long-running probe by the Justice Department into whether it helped thousands of Americans evade U.S. taxes.

Credit Suisse Chairman Urs Rohner told shareholders last week, "We are doing everything we can to resolve this matter within the given framework of U.S. and Swiss law, in the best possible way and in a timely manner."

New York authorities opened their investigation earlier this year in the wake of a damning U.S. Senate report that accused Credit Suisse bankers of secretly traveling to the United States to recruit clients.

The Senate report said Credit Suisse's practices facilitated tax evasion against the United States for years. By 2008 the bank had more than 1,800 Swiss bankers who were handling one or more U.S. clients, according to the report.

In total Credit Suisse opened Swiss accounts for more than 22,000 U.S. customers with combined assets of as much as $12 billion, the report said.

In April the Lawsky's office ordered Credit Suisse to turn over employment and other records as it examined whether the bank lied to New York authorities about creating tax shelters.

The bank agreed in February to pay $196 million to resolve a related case from the U.S. Securities and Exchange Commission.

 

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Weak Retail Sales Cast Shadow on U.S. Growth Outlook

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Smallbiz Big Help for Small Business
LM Otero/AP
By Lucia Mutikani

WASHINGTON -- U.S. retail sales barely rose in April, tempering hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars and online retailers.

Retail sales, which account for a third of consumer spending, rose by a revised 1.5 percent in March. That was the largest increase since March 2010 and reflected pent-up demand after a brutally cold winter.

"You really had a spectacular March. You are now having an April hangover ... The reality of the economy is decent but not great. Some people over-extrapolated the March numbers," said Guy Berger, an economist at RBS in Stamford, Connecticut.

Economists had forecast sales advancing 0.4 percent last month after a previously reported 1.2 percent surge in March.

U.S. Treasury debt prices rose on the data, while the dollar trimmed gains versus the euro. U.S. stocks were trading higher.

Data such as employment, as well as manufacturing and services industries surveys had suggested the economy regained strength early in the second quarter. Growth was held down to a 0.1 percent annual rate in the first quarter by bad weather and a slow pace of restocking by businesses.

However, growth is likely to be revised down to show a contraction. A second report from the Commerce Department showed retail inventories excluding automobile stocks barely rising in March.

The government had assumed a big increase in these stocks when it made its advance GDP growth estimates last month. March trade, construction spending and factory inventory data, which the government did not have in hand for the GDP estimate, have also suggested downward revisions to output.

In April, a gauge of consumer spending slipped and economists said the economy's weak performance at the start of the year had probably made households more careful about spending.

"It's possible that consumers are being a bit more cautious in their spending habits as they await confirmation that the economy is, in fact, poised to reaccelerate," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.

Strong Spending Expected

So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, dipped 0.1 percent in April.

That followed a revised 1.3 percent advance in March. Core retail sales had previously been reported to have risen 0.8 percent in March.

Still, economists were largely unfazed by the drop and said consumer spending was on track to post a third consecutive quarter of robust growth.

"Despite an overall seemingly weak April retail sales report, thanks to the pop in March, the second quarter is starting off at a higher level that is consistent with strong consumption in the quarter," said Bricklin Dwyer, an economist at BNP Paribas in New York.

In a separate report, the Labor Department said import prices fell 0.4 percent last month after rising 0.4 percent in March. Economists had forecast prices to be up 0.3 percent last month. In the 12 months through April, import prices fell 0.3 percent.

Weak import prices are helping to keep inflation muted. The lack of inflation pressures in the economy suggests the Federal Reserve could keep monetary policy very accommodative for a while even as labor market slack starts to ease.

The U.S. central bank slashed overnight interest rates to a record low of zero to 0.25 percent in December 2008 and pledged to keep them low while nursing the economy back to health. The Fed is scaling back the amount of money it is injecting into the economy through monthly bond purchases.

Last month, retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores. Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.

Sales at non-store retailers, which include online sales, fell 0.9 percent.

However, receipts at building materials and garden equipment stores rose 0.4 percent and sales at auto dealerships increased 0.6 percent. There were also increases in sales at gasoline stations, reflecting higher pump prices.

Excluding gasoline and autos, retail sales fell 0.1 percent.

Receipts at clothing stores rose 1.2 percent. There were also gains in receipts at sporting goods shops.

-Additional reporting by Richard Leong in New York.

 

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Money Minute: Price of Beer Hops Up; Google Loses EU Battle

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The cost of increasingly popular craft beers could be hopping higher.

If you're a beer aficionado, you know the name India Pale Ale -- a particular type of hop favored by craft brewers. And while overall beer sales are flat, demand for craft brews has been strong. And that means the price of this particular type of hop is in short supply, and the price for it is soaring. By the way, did you know that this is American Craft Beer Week? And here's a bit of beer trivia for you: Washington state is the leading grower of hops.

It might be easier to keep your name "off the grid" following a court ruling against Google (GOOG). The European Union's top court has ruled that individuals can ask the company to remove certain links to news articles containing their name. Obviously, this could disrupt Google's entire business model -- depending upon how it's enforced. The ruling also applies to other search engines. The cause has become known as the "right to be forgotten."

Consumers in the U.S. don't think housing prices will increase by very much this year. A monthly survey by the Federal Reserve Bank of New York finds the expectation is for an increase of just 3.8 percent this year. That expectation has come down every month this year. Fed Chair Janet Yellen recently expressed concern that housing activity was "flattening out" -- due partly to the high number of people who remain concerned about their job prospects. And millennials -- the young adults who should be the first-time homebuyers that spark the market -- continue to rent instead of buy, which is keeping price in check.

Here on Wall Street, both the Dow Jones industrial average (^DJI) and the Standard & Poor's 500 index (^GPSC) rose to all-time highs Monday. The Dow gained 112 points, the S&P 500 rose 18, and the Nasdaq composite (^IXIC) rallied 72 points.

Michael Sam, the first openly gay football player to be drafted into the NFL, is apparently pretty popular with fans. His St. Louis Rams team jersey is the second-best seller among the 256 college players drafted last week. Number one is quarterback Johnny Manziel, known as "Johnny Football," and he had a two day head-start on Sam.

-Produced by Drew Trachtenberg.

 

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3 Ways to Create Better Financial Habits

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BEAWA0 Overwhelmed woman holding bills in front of laptop problem debt Overwhelmed; woman; bills; front; laptop; 25-29; years; a
Alamy
There's a wildly popular notion that it takes just 21 days for a person to build a new habit. But since the idea first went viral back in the 1960s -- thanks to "Psycho-Cybernetics," a book by plastic surgeon Maxwell Maltz -- many studies have thoroughly debunked the 21-day myth. In fact, the average period it takes to create a habit is 66 days, though we all take different amounts of time.

We also respond to different motivations. But when it comes to money, the temptations are practically universal. Do you spend more than you earn? Do you have trouble sticking to your budget? Do you often buy on impulse? Those are all bad -- but common -- financial habits. Let's consider how to build better ones.

Want to Change

Building a new habit, whether it is financial or not, starts with admitting your behavior is a problem and choosing to change -- which is often the hardest step.

"Like many other things can do to make our lives better, building good financial habits all starts with recognizing that we need to change our current behaviors," says JJ Montanaro, a certified financial planner with USAA. "Until we really believe that, and get really committed to it, lasting change will be difficult to grab."

It is hard to realize that you have a problem. We often do not recognize that there's a serious issue until it is too late and quite a big problem.

Have you noticed warning signs that you may have a financial problem? Do you pay off one credit card with an advance from another? Are you confused about where all your money vanishes to each month? Like Dave Ramsey is famous for saying, "Do you have more month at the end of the paycheck?"

These are just a few warning signs that you may have a couple bad financial habits. But spotting them is just the first step. What are the best ways to change the financial path you are on?

Have a System in Place

Your actions have to seem automatic. To stick with a new financial habit, it has to seem like autopilot. This is what makes automatic contributions directly from a checking account or your paycheck to a retirement plan so powerful.

"If you have been making bad financial decisions, then reduce the number of financial decisions you make," says Gregory Rogers, a certified financial planner with Cannon Beach Consultants. "Automatically contribute to your company retirement plan, an IRA or a even a savings account from your paycheck. Link your debit card to a spending account with a set spending amount. Once [the money] is gone, then you're done spending."

Automating your investing and saving is a powerful tool to help you build new financial habits. Additionally, investing consistently puts the uses the power of dollar cost averaging to work for you. If, each month, you contribute a set amount of money; you'll be buying more shares when prices are low and fewer when they go up. This averages out your investment costs and entry points over a longer period of time.

Find an Accountability Partner

Having an accountability partner can help you stay on the straight and narrow when it comes to making new financial habits. Have you told your spouse your financial goals? If you're not married, do you have a close friend you can confide in about how you want to save, invest or pay off debt?

"Sometimes we all need checks and balances, and having someone you can count on to keep you on the straight and narrow is integral to success," Montanaro says.

There's a reason that the U.S. has three branches of government: It keeps our system honest by providing checks and balances. Having an accountability partner can do the same for you. The person can remind you what you're saving for, can help you avoid overspending, and help you keep the motivation up to build financial habits that could take a long time to establish.

Think of the Money You're Losing

We all hate to lose money. And there is no easier way to do that than through poor financial habits. So make that pain a motivating factor to spur you toward new financial habits.

"One of the things that we have learned from behavioral economics is that people weigh a loss more than a similar gain," says Julie Heath, director of the Economics Center at the University of Cincinnati. "People tend to work twice as hard to avoid a loss as they do to realize a similar gain. Therefore, one way to develop better financial habits is to focus on the loss associated with not making a change like not budgeting, not paying off credit cards and the like."

Academic studies now show that we care more about what we track. One of the easiest ways to lose weight, for example, is to rigorously track your calorie intake and expenditures. We can say the same for our money. A budget and spending plan pays dividends.

Do you know where all of your cash goes? Too many of us have the bad habit of pulling out cash from the ATM and letting it burn a hole in their pocket. It's hard to account for cash if you're not careful. But tracking spending down to the last penny can help you recognize where you're making poor spending choices.

Far too often, people see creating good financial habits as a chore. We know we should do it, but it's easier for us to talk about it, and postpone real action. Stop putting it off: Commit to making a concerted effort to change your financial stripes.

Whether you put a system in place, find an accountability partner, or repeat something 21 times or more, you have to find what works for you. But keep experimenting with these tried-and-true techniques until you find the ones that help you make your smarter new financial habits a reality.

How long does it take you to build a new habit? Do you believe in the 21-day myth? Is repeating an action 21 times enough for you to create a lasting habit?

Hank Coleman is a financial planner and the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.

 

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Why Sears Should Just Call It Quits

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Former Sears exec calls for retailer to liquidate
Scott Olson/Getty ImagesCustomers leave Sears' flagship store in downtown Chicago in January. The store closed last month.
By Krysta Gustafson | @KrystinaGustafs

Former Sears executive Steven Dennis says now is the time for the struggling retailer to liquidate.

In a commentary on his blog last week, Dennis, a former vice president at Sears who exited the company in 2003 after about a decade, listed five reasons why the company should "stop the charade and embrace the inevitable." His points were:
  • It doesn't offer a value proposition.
  • It's lost its relevance in nearly every major category, while its competitors have gained ground.
  • After years of underinvesting in its stores, it has a lot of catching up to do, and it now would be unable to fund the necessary upgrades.
  • CEO Eddie Lampert "doesn't know what he is doing," and is investing in the wrong areas, such as the Shop Your Way loyalty program.
  • Its valuable assets, including proprietary brands Kenmore and Craftsman and its real estate portfolio, are becoming "less valuable every day."
Sears (SHLD) has closed hundreds of stores in the past decade, leaving more than 2,000 stores in its footprint, when accounting for both Sears and Kmart. More closings are expected.

Lampert, who owns about a 50 percent stake in the company, emphasized on his blog following last week's shareholder meeting that turnarounds are different than transformations, and the company is taking measures to improve its profitability.

He wrote: "Turnarounds happen when a company succeeds again at doing what it had once done successfully before. Transformations are almost entirely different -- they occur when companies adapt their business model to fundamental shifts in technology, competitive landscapes, government policies and regulations, or macro trends to serve their customers [or, in our case, members] in new ways.

"Over the last decade, incidentally, Sears and Kmart have faced all of the challenges I just listed." Lampert continued, "Turnarounds are challenging, but transformations are even harder because not everyone sees the direction you're heading in or your destination. After spending our annual meeting with shareholders, associates, and other partners, however, I am hopeful that looking carefully at other companies' transformations sheds more light on the actions we are taking and why."

He also asked people to remember the transformations that took place at Apple (AAPL), General Dynamics (GD) and Eastman Kodak (KODK).

"I want to be clear that I am in no way saying that Sears Holdings is just like any of these companies, but there are lessons to be learned from them," he said.

Last month, retail expert Robin Lewis, author of online newsletter The Robin Report, made the argument that Amazon.com (AMZN) should acquire Sears. He called the idea "win-win" for both companies, as an acquisition would supply the online giant with thousands of distribution centers, while it would give Lampert a "profitable exit strategy."

Sears posted a loss of $930 million for the year ended Feb. 1. It is scheduled to announce first-quarter earnings on May 22.

Sears' shares are slightly higher since Tuesday, the day of the company's annual meeting, after falling 4.9 percent that day.

 

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Please Sir, Can We Pay Some More? Why Swedes Love High Taxes

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norrkoping  sweden   august 4   ...
Rolf_52/Shutterstock

Imagine a land where politicians regularly propose tax increases at election time to get votes. That's Sweden, with its comprehensive social welfare system.

"If you want to have a working community, with infrastructure and all these kinds of social benefits that you have in a civilized world, then you have to pay taxes." So says one Swedish taxpayer recently interviewed for a Swedish Institute story about residents and their fiscal relationships with the state.

And pay taxes they do. Income tax for the average Swede is 44 percent, with rates as high as 60 percent. As a percentage of gross domestic product, Sweden's income tax revenue is one of the world's highest. The value-added tax, essentially a sales tax, is 25 percent.

But what Swedes get for all these taxes is substantial. Comprehensive health care includes visits to both general practitioners and specialists at very low cost. Dental care, including orthodontics, is free for children and adults up to 20, and then subsidized for those older than 20. Throw in liberal amounts of parental and sick leave, as well as generous unemployment benefits, and you can begin to understand why the Swedes contentedly file their taxes on Tax Declaration Day.

How Would Americans React?

But if you asked even politically left-of-center Americans if they would trade high-end social services for the taxes Swedes pay, it's far from certain if they would have the same feeling about April 15.

"I have shared some examples of Swedish taxation with Americans," says Steven Schier, Fulbright scholar for American Studies at Sweden's Uppsala University, "and some of them find it just beyond belief that taxes could be so high. A 25 percent sales tax, for example ... is shocking to many Americans, because they are more suspicious of government -- suspicious of the ability of government to deliver services, as well -- and therefore less inclined to want to pay high levels of taxation."

And this cuts to the heart of why the typical Swedes are relatively happy to hand over such a large portion of their paychecks to the government. Yes, Swedes get a lot of services for their taxes, but the psychological relationship with their government makes the whole tax-and-deliver ecosystem work.

Going far back into Sweden's history, government has always loomed large. Sweden still even has a king, though true political power is exercised by a democratically elected prime minister and parliament. A culture of looking to the state for help and guidance has led to the Swedish view of individualism as one of "state individualism," as Schier puts it, where the state provides enough basic services well enough to fulfill individual needs, and thereby mitigates the desire to seriously question the system or pursue personal wealth very aggressively.

The concept of state individualism is foreign to most Americans. The U.S. was born out of a fight to throw off the monarchy, and the concept of limited government was embraced early on. The uproar over the Affordable Care Act exemplifies many Americans' queasiness about government. Far from the single-payer, government-run health-care system that most industrialized nations -- like Sweden - employ, Obamacare continues to be criticized as socialism, at least from some quarters.

 

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Warren Buffett's Win-Win Deal with Bank of America Corp

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Given its size and importance to the U.S. economy,  is always in the news.

Recently, the company came under scrutiny for revealing a miscalculation of its assets -- the result, an unexpected $4 billion loss. In the annual meeting, Buffett comments on that miscalculation, and he explains why he choose to alter the terms of the deal he made with Bank of America in 2011 -- and why it will benefit both companies. Below are my notes on this issue from the 2014 Berkshire Hathaway annual shareholders meeting in Omaha.  

Can you explain why you allowed Bank of America to make a change to convert your investment into Tier 1 capital? Does it worry you that they can't manage it properly?

Warren: Many months ago Brian Moynihan [CEO of Bank of America] asked me whether we'd be willing to change our preferreds from cumulative to noncumulative preferred. Noncumulative has certain defects and preferred holders of Freddie Mac and Fannie Mae are finding that out. They are a terribly weak form of security.

Brian said if you will do that swap, Bank of America would make your preferred non-callable for five years. Now in a world of 0.5% interest rates, I was willing to make that trade-off because it was good for Berkshire and good for Bank of America. So I get five years of non-callability, and I have no problem of being locked in forever. And, Bank of America gets the benefit for their calculation of capital base.


This was all before the recent miscalculation at Merrill Lynch, and that error they made does not bother me. We have a 20,000-page tax return, and you do the best you can. That error did not affect their GAAP numbers, and they'll pay a penalty, but doesn't change my opinion one iota about Bank of America or their management.

The probability of going to non-cumulative hurting us is very, very low and the non-callability help us.

Charlie: Well, I agree with you.


In short, it looks like Buffett smartly secured another good deal. He gave up some short-term money by giving up the right to collect past dividends, but he ensured that his preferred stock, which pays 6% annually, can't be recalled for another five years. 

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The article Warren Buffett's Win-Win Deal with Bank of America Corp originally appeared on Fool.com.

Brendan Mathews owns shares of Berkshire Hathaway. The Motley Fool recommends Bank of America and Berkshire Hathaway. The Motley Fool owns shares of Bank of America and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Meet the Analyst Who Upgraded Whole Foods

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Last week was not a pleasant time to be a Whole Foods Market shareholder.

On Wednesday, Whole Foods reported fiscal second-quarter earnings that missed analyst estimates on both sales and earnings. Compounding the disaster, Whole Foods management cut guidance for the full fiscal year. In response, investors did some cutting of their own -- lopping 19% off Whole Foods' market cap.

By the time the selling was over, Whole Foods shares were $9 cheaper than they had been prior to the earnings release. $3.3 billion worth of market cap, gone in a flash. And yet, for one bright analyst up on Wall Street, that just meant Whole Foods had become $3.3 billion cheaper to own.


Meet the analyst who upgraded Whole Foods
At last report, at least five separate analysts -- BMO Capital, Deutsche Bank, Sterne Agee, Piper Jaffray, and Jefferies & Co. -- were sufficiently spooked by Whole Foods' report to withdraw their buy recommendations. One analyst, Cantor Fitzgerald, went a step further and cut Whole Foods to "sell." But going against the grain, an analyst at Argus Research voiced another take on the quarter entirely -- and urged investors to buy shares of Whole Foods.

This contrarian suggestion quickly caught the eye of reporters at Barrons.com, who quoted the Argus analyst, Chris Graja, at length in a column on Thursday. A few excerpts:

  • "Despite management's initiatives to lower prices, we believe that a 12% growth rate remains achievable and an attractive driver of valuation."
  • "We expect comparable-store sales to grow ... We also expect WFM to gain market share. While more retailers are offering natural foods, the core shoppers are quality conscious. WFM has demonstrated its expertise in sourcing, presenting, and profitably selling high quality prepared foods, meats, cheese and produce."
  • "We expect gross margin to decline slightly, offset by improvements in the expense rate."

Logic check
So far, so good. While admitting the potential for lower gross profit, Argus is hoping that lower operating costs will offset that, and is still sticking with its original thesis that Whole Foods Market will grow earnings at about 12% annually.

I can't say I buy the idea that 12% growth is an attractive rate for a stock selling for 26 times earnings, and 36 times free cash flow, however. And the analyst's contention that Whole Foods should be bought because it has "excellent merchandising and a product offering that can not be easily offered on the Internet." That doesn't sound quite right.

We already know, for example, that organic foods are being "easily offered on the Internet" -- by grocery delivery services Peapod, by Amazon.com's new AmazonFresh service, by Harris Teeter, and even by Wal-Mart.

For a number of reasons, from convenience to saving money on gas to saving the planet, high-end shoppers are increasingly turning to Internet grocery services, and these may pose more of a threat to Whole Foods' business than Argus Research realizes. (Curiously, Whole Foods itself appears to recognize this threat, even if Argus' analyst does not. According to The Wall Street Journal, one of the things Whole Foods is looking at as a way to boost profit margins is offering an order-over-the-Internet grocery delivery service of its own).

And one more thing...
So far, we've covered why Argus' valuation argument doesn't seem to work -- even if the analyst is right in projecting 12% long-term profits growth. We've poked a hole in the argument that Whole Foods is somehow a unique brick-and-mortar retailer, and immune from Internet e-tail competition. But there's one final reason to look askance at Argus' recommendation to buy Whole Foods when everyone else is downgrading the stock: the analyst's record.

I recently came across a new service called TipRanks, which mines historical data on individual analyst recommendations, aiming to enable investors to "instantly see the track record and measured performance of any analyst you come across online, so you know who to trust!" As it turns out, TipRanks is familiar with Argus analyst Chris Graja's record --- and what it has to say on this score is not encouraging.

Over the course of 16 measured recommendations that Graja has made over the past two years, TipRanks notes that only 8 of the 16 -- 50% -- of the analyst's picks have successfully outperformed the S&P 500. Plus, the average return per recommendation for investors who've followed Graja's advice has been negative 4.5% across these multiple recommendations (in the year following any given recommendation). (Note: These numbers will vary slightly from day to day, as stock prices fluctuate.)

Result: TipRanks' proprietary formula for ranking investment analysts has Graja pegged at less than a one-star rating (out of five possible) -- a score that places him at No. 2,774 out of a field of 3,067 analysts ranked.

Long story short: If Graja is the only analyst out there who thinks Whole Foods' 19% drop in share price last week was good news... there may be a reason for that.

OPEC is absolutely terrified of this game-changer
"Whole paycheck," you say? You think Whole Foods stores are expensive? Well, imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

The article Meet the Analyst Who Upgraded Whole Foods originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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Why Does Clean Energy Fuels Own a Compressor Company? CEO Andrew Littlefair Explains

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Clean Energy Fuels doesn't have to manufacture its own compressors, but co-founder and CEO Andrew Littlefair says owning the source of a major component makes strategic sense. IMW also gives Clean Energy a way to participate in natural gas expansion in China, Russia, and elsewhere, without diverting resources away from expanding its core fuel delivery business in North America.

He also talks about the company's reasoning for selling BAF to Westport Innovations , and how Westport has taken BAF, integrated it into its WiNG business, and taken it to another level. Clean Energy Fuels is the leading provider of natural gas for transportation in North America. Clean Energy provides CNG and LNG fuels to solid waste, trucking, and transit fleets, among others, and currently operates some 500 fueling stations in the United States and Canada, as well as manufacturing related equipment and technologies through its IMW subsidiary. 

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Jason Hall: Let's talk a little bit about IMW. How important is IMW, outside of supplying Clean Energy directly?

Andrew Littlefair: I get that question some. I think I got the question more often when we had BAF -- which was our conversion business -- and we had stuff in Peru. As you know, we sold BAF last year to Westport Innovations.

Others are in that business. We didn't really need to be in that business. We needed to be in the business when BAF was in a difficult financial situation. We needed product. We have stations; if you didn't have BAF you wouldn't have a natural gas taxicab.

I think we were in it at the right time for the right reason.

Hall: Planting seeds.

Littlefair: Yes, planting seeds and filling up our stations. Without their product -- and BAF did a really good job working with Ford and developing a full line, which Westport now has incorporated into their WiNG technology, but they did an excellent job.

They did an excellent job selling thousands of units into AT&T, and we fuel about 50-60% of those today. That made sense at that time. But others are in that business.

People used to ask me, "Do you really need to be in the compressor business?" because other people are in that business too. Well, we buy a lot of compressors, so we see it as strategic.

We have, if you look at this business today, about 95 competitors in the refueling business. Now, people say, "Oh, come on, there's not that many." Well, some of them are pretty small and some of them are kind of regional. Some of them really don't have any experience.

But, there are about 95 companies out there that say they're in the CNG business, and I don't want to stand in line with them, waiting for a compressor. For us, I think it is strategic. We're buying about 35% of IMW sales.

But natural gas fueling and transportation is happening around the world-probably faster than it's happening here. We took our company public in 2007. I remember at that time there were about 5 million natural gas vehicles in the world, and today it's closer to 17 or 18 million, so a lot's happening in a lot of places.

We're asked all the time to go into different places. Look, we're in a great sandbox. We're in the best market, here in the United States. It's one of the biggest fuel markets, so we try to stay pretty focused.

However, IMW is asked all the time to build stations around the world, so it kind of allows us a way to participate globally in this. We know more about this fueling than just about anybody else, so IMW is selling today into about 26-27 countries.

We have a big deal in China right now. We've built a couple hundred stations in China already. We don't own them.

Hall: With China Gas?

Littlefair: Yes, with China Gas. We signed recently a deal with Russian Machines to do a similar thing in Russia, but we're selling equipment today into Vietnam and Egypt and Mexico.

It took us a while to get IMW squared away. It had a little bit of growing pains. I remember when I made the first deal with IMW probably 10 or 12 years ago. In that year, they were producing 12 compressors, and we bought 6 of them. I think this year it will be closer to 300 or 350, so that business has grown a lot.

We've retooled it some, we've got some new management in there, we've beefed up our sales. Really, until recently -- that's why I mentioned on the last earnings call we like what we see there -- we really were taking orders around the world, not really selling.

We can do better than that, so we've got a new sales organization in IMW. It's important. The business can be much larger than it is and I think, importantly, we buy a bunch of the equipment so it gives us an edge that others don't have.

Hall: It sounds to me like, besides the obvious advantage of allowing you to be first in line when you need equipment for your own needs, it lets you participate in other markets without pulling away from the core resources that drive your business.

Littlefair: That's right. We've looked at other markets. We've looked at India -- they wanted us to come there -- and we've looked at Thailand and stuff.

But you know, in a lot of those places the government owns the resource, and they set the price. We don't have any business building and owning stations in Russia on long-term contracts and trying to figure out if we're going to get repaid.

But, selling them equipment that the Canadian government guarantees -- because IMW is based in Canada -- that does make some sense.

The article Why Does Clean Energy Fuels Own a Compressor Company? CEO Andrew Littlefair Explains originally appeared on Fool.com.

Jason Hall owns shares of Clean Energy Fuels and Westport Innovations. The Motley Fool recommends Clean Energy Fuels and Westport Innovations. The Motley Fool owns shares of Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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PPI Shows a Tick Up in Wholesale Inflation

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InflationThe Producer Price Index (PPI) measures wholesale inflation, and the April readings are mostly in line with those from March. The headline PPI for final demand was up 0.6% in April, above the 0.2% reading expected by Bloomberg and up marginally from the 0.5% headline reading for March.

The core reading, excluding food and energy, was up by 0.5% in April. This compared to a Bloomberg consensus estimate from economists of 0.2% and was down by one-tenth of one-percent from the 0.6% reading from March.

Where the reading gets less inflationary is when you back out food and energy and the so-called trade services. This was only a gain of 0.3% in April. Economists do not guess that reading yet, but it was flat from the 0.3% reading from March.

Both readings for goods and for services were up by 0.6% in April.

We would caution that, while these still seem low and under the Federal Reserve's inflation target, that February's PPI readings were negative. These will not be deemed inflationary by much of a measure.

READ MORE: As Business Inventories Rise, America Is Back in Business


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Wednesday's Top Health Care Stories: Isis Pharmaceuticals, Enzymotec, Incyte, and AstraZeneca

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Let's take a look at four stocks -- Isis Pharmaceuticals , Enzymotec , Incyte , and AstraZeneca -- that could make waves across the health-care sector this Wednesday morning.

Isis surges on positive midstage results for diabetes drug
Isis Pharmaceuticals was up more than 13% in pre-market trading, following the announcement that its experimental type 2 diabetes drug, ISIS-GCGRRx, successfully reduced blood sugar levels in patients during a midstage study. The trial tested two doses of the drug on 75 patients with type 2 diabetes who experienced uncontrolled blood sugar levels despite receiving standard treatment.


Although this is a positive development for Isis, investors should remember that ISIS-GCGRRx is not one of the company's most advanced drug candidates.

Isis currently has one marketed product with Sanofi -- Kynamro, a treatment for homozygous familial hypercholesterolemia, or HoFH, a rare genetic disorder that only affects one in 1 million. Kynamro's only rival in HoFH treatment is Aegerion's Juxtapid, one of the priciest drugs in the world with a price tag of nearly $300,000 per patient per year. Kynamro is much cheaper at $176,000 annually.

One of Isis' most promising pipeline drugs is ISIS-TTRRx, an experimental treatment for TTR Amyloidosis, a neurodegenerative disease characterized by pain, numbness, muscular weakness, and autonomic dysfunction. ISIS-TTRRx is being tested in phase 3 trials with GlaxoSmithKline. Isis also holds several midstage pipeline collaborations with Biogen Idec, Roche, and Regulus.

Enzymotec falls despite topping analyst estimates for the first quarter
Enzymotec, a manufacturer of active bio-lipid ingredients and medical foods, was down more than 8% in pre-market trading this morning despite reporting first-quarter earnings that topped analyst estimates on both the top and bottom lines.

Enzymotec reported that its non-generally accepted accounting principles net income rose 135% year over year to $5.6 million, or $0.24 per share. Revenue, based on its equity method of accounting, rose 29% to $17.9 million. Analysts had expected Enzymotec to earn $0.17 per share on revenue of $19.4 million.

For the full year, Enzymotec forecasts non-GAAP earnings of $0.64 to $0.94 per share, in line with analyst estimates. Full-year 2014 net revenue, based on the equity method of accounting, is expected to rise 5% to 31% year over year to a range between $68 million and $85 million.

Enzymotec mentioned that two major events will impact its second-quarter earnings -- a temporary shutdown of a manufacturing plant to upgrade its capacity, and changes in Chinese regulations regarding infant formula that require the company to update its production chain. Neither change, however, is expected to impact overall full-year revenue.

However, investors should remember that Enzymotec is engaged in a patent litigation dispute with Neptune Technologies & Bioressources over products made from Antarctic krill oil -- which could result in required royalty payments eroding its bottom-line growth.

Shares of Enzymotec, which went public last September, have fallen 13% over the past three months. That decline can be attributed to concerns about Neptune and a secondary offering of 4.7 million shares in early March.

Incyte signs a new collaboration with AstraZeneca
Last but not least, Incyte just announced two new collaborations with AstraZeneca's MedImmune subsidiary to study new cancer treatments. AstraZeneca acquired MedImmune for $15.6 billion back in 2007 to expand its portfolio of biologic drugs.

The companies will test a combination of two drugs, known as immunotherapies, designed to boost the immune system's natural ability to fight cancerous tumors. A combination of the two drugs -- AstraZeneca's MEI4736 and Incyte's INCB24360 -- will be tested in a phase 1/2 clinical study evaluating their efficacy in treating multiple solid tumors such as skin, lung, head, neck, and pancreatic cancers.

Incyte notably entered into a similar agreement with Merck in February, evaluating INCB24360 alongside Merck's immunotherapy drug MK-3475 in a phase 1/2 study for non-small cell lung cancer.

These partnerships represent promising new ways for Incyte to decrease its dependence on revenue from Jakafi/Jakavi, a treatment for the blood disorder myelofibrosis. Incyte markets the drug as Jakafi in the United States, while its partner Novartis markets it as Jakavi abroad. Last quarter, Incyte reported that U.S. sales of Jakafi rose 44% year over year to $69.7 million, accounting for 78% of its top line. The remainder of Incyte's revenues are mainly generated by royalty payments and collaborative revenues. Shares of Incyte are up more than 130% over the past 12 months.

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The article Wednesday's Top Health Care Stories: Isis Pharmaceuticals, Enzymotec, Incyte, and AstraZeneca originally appeared on Fool.com.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Isis Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Marathon Oil Corporation Is Sprinting Back to America

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It was another great quarter for Marathon Oil , as investments in American operations resulted in strong liquids production growth. Three shale plays in particular, the Eagle Ford, Bakken, and SCOOP, were primarily responsible for pushing Marathon Oil's earnings higher after it updated investors on May 6. With output from those three shale plays growing by 26% year over year, the North American exploration and production segment posted $242 million in net income this quarter compared to a loss of $59 million in the same quarter a year ago.  

In order to offset production declines abroad, Marathon Oil is selling non-core assets and shifting its focus toward shale plays. Without shale, Marathon Oil's earnings and production growth would be nonexistent.

In the Eagle Ford, Marathon Oil averaged 96,000 barrels of oil equivalent per day in net production over the first quarter of 2014, an increase of 33% versus last year and 7% sequentially. To make things even better, Marathon Oil only brought 49 gross wells online last quarter due to winter delays even as it fully drilled 83 gross wells. This left 22 gross wells to be completed as of March, which will provide a strong production boost this quarter.


Marathon Oil's Eagle Ford operations production mix is 65% crude oil/condensate, 17% natural gas liquids (NGLs), and 18% natural gas. With 82% of production being high-margin liquids, Marathon Oil can produce large streams of free cash flow that can be reinvested straight back into the business.

To prolong the growth story, Marathon Oil is testing out the Austin Chalk formation just above the Eagle Ford. By bringing the Children Weston 4H appraisal well online, Marathon Oil was able to showcase the potential of the Austin Chalk, as the well had a stellar production curve. The 30-day initial production rate was 1,600 boe/d, which was comprised of 76% liquids. If Marathon Oil's other Austin Chalk wells that are due to be completed later this year turn up similar results, Marathon Oil will have found another promising stacked play.

Oklahoma
In the emerging Oklahoma Resource Basin, otherwise known as SCOOP (South Central Oklahoma Oil Province), Marathon Oil has made great strides in developing its 100,000 net acre foothold in the area. Last quarter, Marathon Oil grew output by 15% year over year to 15,000 boe/d as liquids output shot up 28%. 

Going forward, Marathon Oil plans on testing out the Southern Mississippi trend and the Granite Wash to get a better estimate of what the stacked SCOOP play can yield. The SCOOP is made up of numerous trends stacked on top of each other, making well optimization a must so that each new well brought online taps into the most prolific parts of the play. 

Continental Resources is another big player in the area that has managed to acquire 400,000 net acres in the SCOOP and STACK regions. Due to data accumulated from 300 wells in the SCOOP and the STACK (another shale play just north of the SCOOP), Continental Resources sees a 400 foot oil-shale interval just waiting to be pumped out. As mid-sized oil producers continue developing the SCOOP and STACK, expect reserve estimates to be revised upward as more data about the trends becomes available.

Williston Basin
Up north in the Bakken shale, Marathon Oil continues to see strong production numbers. Even with the abnormally harsh winter, Marathon Oil was able to boost output by 16% year over year to 43,000 boe/d, 90% of which was crude oil.

While Continental Resources continues to lead the pack with its 1.2 million net acre leasehold in the well known Bakken shale, Marathon Oil will be able to piggyback off of Continental Resources' success. One example is how Marathon Oil is testing out downspacing in the Williston Basin, trying to complete eight wells on a 1,280-acre unit. Continental Resources has already had great success with downspacing, which was proven by its ability to bring 14 wells online in a 1,320-acre unit. 

Foolish conclusion
Marathon Oil posted a solid quarter, and this statement sums up what to expect for the year:

With strong execution, we remain confident in our plans to grow production from our three U.S. resource plays by 30[%] in 2014 over 2013. The combination of downspacing with improved completion productivity has consistently improved our well results. Across the resource plays we continue to aggressively pursue co-development opportunities for the Austin Chalk in the Eagle Ford, Three Forks in the Bakken, and vertically stacked horizons in Oklahoma.

Not only do investors have these three plays to watch, but Marathon Oil is divesting its North Sea assets. When Marathon Oil sold its Angola assets, it used the additional cash to buy back shares. With $1.5 billion of its share-repurchase plan left, expect Marathon Oil to keep buying back stock after the monetization is completed.

Booming American output from shale plays coupled with share buybacks make Marathon Oil's short-term outlook very bullish, supplemented by an even stronger long-term growth story. In the long term, Marathon Oil can bank on offshore Gulf of Mexico projects coming online over the next few years.

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The article Marathon Oil Corporation Is Sprinting Back to America originally appeared on Fool.com.

Callum Turcan owns shares of Marathon Oil Corp. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Why Comcast Should Be Happy About the AT&T Deal

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Telecom giant AT&T  might acquire satellite TV company DIRECTV . Should investors fear this deal?

Today on Investor Beat, Chris Hill and Motley Fool analyst Mike Olsen talk about the biggest proposed deal of the day. In the wake of the news, both AT&T and DIRECTV stocks were down Tuesday. While many investors may feel like hanging up on the deal, Olsen sees some unappreciated nuances to it. Dow Jones Industrials component AT&T is best known for telecommunications, but many may be surprised to learn the company is also in the video business, with 5.5 million subscribers to its U-verse service. By acquiring DIRECTV, AT&T can become a meaningful provider in the converged-media space, which includes telephone, computer, Internet, and television consumption.

Hill and Olsen then discuss the influence of content providers and how Comcast  should feel about the possible deal. Olsen notes that while the deal isn't good for consumers, the acquisition will maintain the cable oligopoly. With Comcast's acquisition deal with Time Warner Cable  soon to exert its influence on content providers, AT&T continues the trend.


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The article Why Comcast Should Be Happy About the AT&T Deal originally appeared on Fool.com.

Chris Hill has no position in any stocks mentioned. Michael Olsen, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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BlackBerry Is Taking New Aim at Old Territory

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BlackBerry's Z3 on the company's Indonesia website. Source: BlackBerry.

This week, BlackBerry launched the new Z3 in Indonesia, focusing on a previously lucrative market for the troubled handset maker. The company is bringing the right phone to one of its most valuable markets, which, at the very least, is a step in the right direction. But the Z3 will face massive competition from Samsung's low-end devices.

Building back "BlackBerry Nation"
Indonesia used to be called "BlackBerry Nation" because of the device's popularity there. But those days are long gone. 


In its fiscal 2014 annual report, BlackBerry said that revenue in Asia-Pacific -- which includes Indonesia and India -- accounted for 16.2% of consolidated revenue. That's down about $457 million in its fiscal 2013 filing.

The Z3 'Jakarta Edition' is a full touchscreen device. Source: BlackBerry.

The drop has come as Android has taken the top smartphone OS spot in Indonesia and left BlackBerry trailing. According to IDC, BlackBerry held 43% of the Indonesian smartphone market in 2011, but took just 13% in 2013. BlackBerry's loss has become Samsung's gain, as the Korean phone maker is currently the No. 1 vendor in the country.

For the past several years, BlackBerry's new devices have been priced too high for Indonesian buyers -- the Z10 sold for $750. But the Z3, which starts at $190, should help fix the pricing problem. In addition to that, the device specifically caters to Indonesian consumers.

The Jakarta Edition phone sports a five-inch touchscreen display, local BlackBerry Messenger stickers created by an Indonesian illustrator, and limited devices with a "Jakarta" inscription on the back.

In a press release, BlackBerry CEO John Chen said, "Priced affordably, the BlackBerry Z3, Jakarta Edition will extend the full capabilities of the BlackBerry 10 Operating System version 10.2.1 experience for a new generation of customers in Indonesia."

Of course, all of this doesn't guarantee the Z3's success.

Fighting Samsung
BlackBerry's toughest competition in Indonesia are Samsung's prevalent cheap phones. In 2013 alone, Samsung released a several new devices cheaper than $100 for sale in Indonesia and other emerging markets.

In a Wall Street Journal interview last year, Samsung's co-chief executive, J.K. Shin, had this to say, "In markets like Indonesia, consumers are switching from feature phones to smartphones and the low-end market is developing quickly." Samsung understood this early on, and capitalized on BlackBerry's failure to sell devices to the low-end market.

Samsung is known for creating a wide-range of phones, at varying prices and flooding markets with them. In Indonesia, it's clearly paid off in keeping BlackBerry down.

Foolish thoughts
Considering the BlackBerry Z3 isn't a low-end device, investors shouldn't expect the device to go like gangbusters in Indonesia. But that's not an entirely negative thing. BlackBerry is likely trying to balance the margins of the Z3 with the previous popularity of its devices in the country. If it released a low-end device right now, it may not generate the revenue the company is looking for.

With Z3 sales starting later this week, BlackBerry investors may need to wait a few quarters to gauge how well the device has been received. BlackBerry needs to at least make mediocre gains in operating system market share or it could be one of its last pushes in the country. The Z3 appears to have the potential to do that. Now, it's up to Indonesian consumers to respond.

Will this stock be your next multibagger?
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The article BlackBerry Is Taking New Aim at Old Territory originally appeared on Fool.com.

Chris Neiger has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Microsoft Corporation Just Saved the Xbox One

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Microsoft announced several major changes to its Xbox One video game console on Tuesday, all of which should make the device far more attractive to gamers. Although Microsoft has fallen far behind Sony in terms of console sales, its new initiatives could help it regain lost ground.

Kinect is now optional
Starting next month, Microsoft will offer a version of the Xbox One that retails for just $399 -- the same price as Sony's competing PlayStation 4. Rather than a price cut, however, Microsoft is simply removing the Kinect add-on -- the camera/microphone accessory that allows Xbox One owners to control their console with voice commands and hand gestures.

Although Microsoft had insisted that Kinect was integral to their overall vision, forcing it on Xbox One owners generated a great degree of backlash in the gaming community. The Kinect adds many smart TV-like features in terms of navigating the user interface and allowing for Skype video calls but little when it comes to actually playing video games.


Dedicated gamers, looking to utilize their Xbox One as nothing more than a video game machine, may not have found much value in Kinect. Even worse, because of the Kinect's always-on voice commands and built-in camera, it raised privacy concerns with some -- "Spybox" became a popular derogatory term for the console.

Microsoft will still sell a version of the Xbox One with the Kinect, and will eventually sell the Kinect as a separate add-on for those who want to take advantage of its features. But making it an optional purchase was a smart move, and puts its console on an even playing field with Sony's.

Entertainment apps don't require a subscription
In addition to making Kinect optional, Microsoft also announced that all entertainment apps (Hulu, HBO Go, etc.) would no longer require a subscription. Until now, owners of the Xbox One and Xbox 360 that wanted to use these apps had to have an active Xbox Live Gold account ($60 per year).

This won't have much effect on the Xbox One, as most gamers that purchase the console will likely have an active account -- gamers without them cannot take advantage of online multiplayer, a key aspect of most of today's biggest games.

But it's still a welcome change. Sony has never required that PlayStation owners have a PlayStation+ account (Sony's version of Xbox Live Gold) to access entertainment apps on the PlayStation 3 or PlayStation 4. Microsoft, then, is giving consumers one less reason to consider Sony's alternative.

Microsoft plans aggressive digital discounts
Lastly, and perhaps most significantly, Microsoft will begin offering aggressive discounts on digitally purchased Xbox One games. Buyers will need an active Xbox Live Gold account to take advantage of the savings, but Microsoft has promised to offer some of the console's hottest games at 50%-75% off their regular retail price.

Next month, Microsoft will discount Forza 5 and Ryse -- two of the Xbox One's most popular launch titles -- and has promised more sales in the future. In addition, it will give Xbox One owners with an active Xbox Live Gold account a couple free games each month. Sony has been engaging in something similar for quite some time, giving PlayStation+ subscribers free games and offering occasional sales on digital titles.

Although both consoles require a significant up-front investment, over the long haul, this policy could give gamers far more value than anything else. With console video games regularly retailing for $60, buying just seven games is more expensive than the actual console.

Microsoft's Xbox One could bounce back
Last month, Sony announced that it had sold 7 million PlayStation 4s. Microsoft, meanwhile, had shipped just 5 million Xbox One consoles.

With Sony's console 20% less expensive, offering gamers far more value, the state of Microsoft's console business appeared hopeless -- given that it was outselling Microsoft 2-to-1 in the U.S., and keeping in mind its historical strength in foreign markets, Sony seemed poised to dominate Microsoft over the long haul.

But Microsoft's new initiatives could help it close the gap. With a larger install base and a more powerful console, Sony still has the upper hand. But the two consoles are now closer to a level playing field than ever before.

Microsoft's is helping to fuel the next great living room trend
By allowing owners to access entertainment apps without an Xbox Live account, Microsoft is helping to facilitate cord-cutting, a growing trend. You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, or Apple.

The article Microsoft Corporation Just Saved the Xbox One originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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As U.S. Oil Imports Decline, Questions About Oil Exports Are Raised

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This article was written by Oilprice.com -- the leading provider of energy news in the world. 

U.S. crude oil imports are down 23 percent since production from tight oil plays started to increase in 2008. While some industry officials and observers wonder if the U.S. should position itself as an energy superpower, the debate may be influenced in large part by domestic refiners.

"The issue of crude oil exports is under consideration," U.S. Energy Secretary Ernest Moniz said from a two-day energy summit in South Korea.

U.S. oil exports are restricted by legislation enacted in response to an oil embargo from Arab members of the Organization of Petroleum Exporting Countries (OPEC) in the 1970s.


OPEC, in its May market report, said total U.S. crude oil imports dropped from an average 10.08 million barrels per day in January 2008 to 7.76 million bpd in December, 2013. That decline is in part a response to the increase in crude oil production from shale reserve areas in the United States. Of the six most prolific shale basins in the United States, only the Haynesville play is expected to hold its production level steady; the other five should see an increase.

The U.S. Energy Information Administration (EIA) said the Eagle Ford basin in southern Texas and the Permian basin, which straddles the Texas border with New Mexico, should post a combined 48,000 bpd production increase in June. Next month, the Bakken play, which sits on the border between North Dakota and Montana, should see production increase by 22,000 bpd to reach 1.07 million bpd, EIA said.

Six shale basins -- Permian, Eagle Ford, Bakken, Niobrara, Haynesville and Marcellus -- accounted for almost 90 percent of oil production growth since 2011. OPEC, in its market report, said North American oil production has increased five years in a row and U.S. oil production is now at its highest rate since 1972.

With oil output accelerating, strong cases have been made for and against reversing the ban.

In April, Erik Milito, director of upstream operations for the American Petroleum Institute, said oil exports would make the United States a "global energy superpower." But Leo Gerard, president of the United Steelworks lobby, said the previous month that lifting the ban would harm domestic refiners who may be forced to pay higher prices for domestic oil.

Right now, U.S. refiners who utilize regional crude enjoy a lower price than for oil sourced from overseas markets. Since January, when TransCanada's Marketlink pipeline came online, the gap between the price for West Texas Intermediate, the U.S. benchmark, and Brent, the overseas benchmark, has narrowed, however, and that discount in price is now lower.

U.S. oil production is on pace to increase, though the forecast for WTI is uncertain. As of May 13, it was holding steady about $100 per barrel. Moniz, the U.S. energy secretary, said several agencies are studying what role U.S. oil should play on the international stage. For now, however, it may be more of a downstream concern.

"A driver for this consideration is that the nature of the oil we're producing may not be well matched to our current refinery capacity," he said.

So while global influence is always a concern for Washington, issues closer to home may be the deciding factor for policymaking in the shale era.

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The article As U.S. Oil Imports Decline, Questions About Oil Exports Are Raised originally appeared on Fool.com.

Written by Daniel J. Graeber at  Oilprice.com.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

 

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1 More Connected Car Threat for Sirius XM

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General Motors is about to throw some serious weight behind the connected car revolution, and Ma Bell is calling shotgun. Starting with the 2015 Chevy Malibu that hits showrooms next month, GM will offer 4G LTE connectivity in 30 different Chevy, Buick, Cadillac, and GMC vehicles. 

GM is partnering with AT&T for the connectivity that was originally announced 15 months ago at the Mobile World Congress. Cars with mobile hotspots have often come with stiff pricing plans, but that won't be the case here as a result of AT&T's Mobile Share data plan. Just $10 a month will allow an AT&T customer on a Mobile Share plan to add the in-car router to the devices that can access the pool of data. 

This is a pretty big deal. GM will make sure that connected cars become more prolific with the wide rollout. AT&T will make sure that these hotspots get connected with economical plans for drivers that already have ample data to spare every month.


One company that isn't going to like this is Sirius XM Radio . The satellite radio provider hasn't shied away from the inevitability of cars with wireless connectivity. In fact, Sirius XM has embraced the trend. Last year, it was CFO David Frear pointing out how its retention rate for buyers of connected cars is holding up just as well as, if not better than, the rate for drivers of cars without mobile access. 

He dismissed the threat of the GM alliance with AT&T at the time, telling conference attendees that most GM drivers aren't on AT&T. It wasn't much of an argument, but it's true. Drivers will have to pay between $30 and $50 a month for connectivity if they're not existing AT&T subscribers. 

It's not as if Sirius XM has been asleep at the wheel. It's been beefing up its online offerings with on-demand programming and personalized radio. Sirius XM sees its satellite receivers as a way to enhance Web-served audio entertainment -- and the other way around. 

Sirius XM has survived the threat so far. Despite the growing number of drivers in connected cars through in-car routers, mobile hotspots, or Bluetooth-tethered smartphones, it closed out the March quarter with a record 25.8 million subscribers. This will still be a challenge. GM hopes that its reasonably priced AT&T 4G LTE plans will help differentiate its vehicles from the competition, and it will likely invest in marketing that advantage as soon as next month.

The connected car revolution is about to put the pedal to the metal. Sirius XM will need to make sure that it can keep up.

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The article 1 More Connected Car Threat for Sirius XM originally appeared on Fool.com.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends General Motors and owns shares of Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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