www.tacobell.com
It's a quesadilla. It's a burrito. It's a Quesarito. Yum! Brands' (YUM) Taco Bell rolled out the Quesarito nationwide on Monday. The burrito wrapped in a quesadilla is the latest bold move by the Mexican fast food chain that's been raising the flavor bar with everything from Doritos-dusted taco shells to waffle-backed breakfast sandwiches.
The new treat is cheap, just like most Taco Bell creations. The suggested retail price is just $1.99 for ground beef. Shredded chicken is $2.79, and steak is $2.99. The decadent concoction -- where a quesadilla blankets seasoned rice, chipotle sauce and reduced-fat sour cream -- starts at 620 calories and 30 grams of fat. If early results are any indication, the Quesarito is going to be a big fat hit for Taco Bell.
A Quesarito By Any Other Name
PYum! Brands -- the quick-service giant that's also behind Pizza Hut and KFC -- claims that the Quesarito was a hot seller in Taco Bell's test markets before the national rollout on Monday. The only product that fared better is the Doritos Locos Tacos, and that was a marriage made in fast food heaven. Doritos is owned by PepsiCo (PEP), the soda and salty snacks giant that once owned Taco Bell before spinning off its eateries as Yum! Brands.
It made perfect sense that the two should come together to create taco shells flavored after popular Doritos corn chip varieties. Taco Bell has gone on to sell 825 million Doritos Locos Tacos since being introduced two years ago.
The origin of the Quesarito is unusual. It's been a "secret menu" item at Chipotle Mexican Grill (CMG) for some time. It has the same name. It shares the same concept of a quesadilla doubling as a flour tortilla in a burrito. The Chipotle Quesarito costs more and has more ingredients. It's also larger.
It's premature to say that Taco Bell is copying Chipotle because no one really knows where the decadent practice of a burrito-stuffed quesadilla originated. However, it won't be long that it becomes associated primarily with Taco Bell like the Gordita and Chalupa.
Mixing Things Up
Taco Bell doesn't have a problem taking chances. Doritos Locos Tacos was bold, and it has gone on to offer several versions. Plus, there have been other innovations in the brief timeline between Doritos Locos Tacos and the Quesarito.
Just months after the debut of Doritos Locos Tacos in 2012, it rolled out a Cantina Bell line of premium offerings drummed up by chef Lorena Garcia. Taco Bell's biggest gamble may have taken place three months ago when it dove into the breakfast market.
Most chains would've settled for breakfast burritos, but Taco Bell tweaked its CrunchWrap to feature scrambled eggs and a hash brown patty. It topped a taco-shaped waffle with scrambled eggs, cheese and either sausage or bacon. It's a safe bet that if the Quesarito is a hit, it will inspire a breakfast offshoot.
Despite posting negative same-store sales during this year's first quarter, Taco Bell has treated Yum! Brands investors well with several strong periods before this likely temporary lull. Between the breakfast rollout in late March and now the Quesarito in early June, we should see a healthy spike in comps when Yum! Brands reports its second-quarter results this summer.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and PepsiCo. The Motley Fool owns shares of Chipotle Mexican Grill and PepsiCo. Try any of our newsletter services free for 30 days.
Stock market bulls hit the pause button on Tuesday after the recent run of record highs.
The Dow Jones industrial average (^DJI) edged up 2 points to another record high, the Standard & Poor's 500 index (^GPSC) slipped by less than a point, and the Nasdaq composite (^IXIC) added 1 point.
Radio Shack (RSH) tumbled 10 percent after reporting its quarterly loss widened. It also plans to close 200 stores.
Some other retailers posted strong gains. Chico's (CHS) rose 7½ percent on a Financial Times report that the women's fashion chain has held talks to sell itself. Burlington Stores (BURL) gained 5½ percent. It swung to a profit. Pep Boys (PBY) gained 8 percent. Earnings fell short of expectations, but the auto parts chain issued an upbeat sales outlook. Best Buy (BBY) gained 2 percent after boosting its dividend. And Five Below (FIVE) rose 3 percent after naming the head of Walmart.com (WMT) as its new president.
Facebook (FB) also gained, up 4½ percent, on new hire. It brought on the highly respected president of eBay's (EBAY) PayPal unit. EBay fell 2½ percent. By the way, Facebook shares have soared about 170 percent over the past year.
Also in the Internet and social media group, Twitter (TWTR) rose 2½ percent on a Wells Fargo (WFC) upgrade, and LinkedIn (LNKD) gained 4-1/2 percent.
A big deal may be brewing in the beer industry. It's a bit complicated, but follow along. There's talk that Molson Coors (TAP) may be interested in buying MillerCoors. That could depend on whether MillerCoors joint venture partner, SAB Miller (SAB), goes ahead with its planned deal with Anheuser Busch (BUD). On the rumors, Molson Coors is up 5 percent today, SABMiller is up 6 percent and Anheuser Busch is up 3 percent.
Sticking with stuff you drink: Keurig Green Mountain (GMCR) added 1 percent after teaming up with the Subway restaurant chain.
Elsewhere, Achillion Pharmaceuticals (ACHN) rallied for a second straight day, up another 83 percent, after the Food and Drug Administration lifted a hold on its hepatitis C treatment. Achillion shares have soared nearly 190 percent in the past week.
And Receptos (RCPT) soared 37 percent as clinical tests show its multiple sclerosis drug reduces brain lesions.
What to Watch Wednesday:
The Treasury Department releases the federal budget for May at 2 p.m. Eastern time.
These major companies are scheduled to release quarterly financial statements:
Getty ImagesScammers and swindlers are targeting summer vacationers. From unscrupulous taxi drivers to credit card thieves posing as hotel receptionists, here are a few things to carefully avoid while traveling this summer.
The Bait and Switch
When we recently asked readers about their experiences using third-party booking sites, many complained about bait and switch -- thinking they were paying for one type of hotel or flight, but finding the details dramatically different when they checked in. Before booking, travelers should carefully read hotel and booking site reviews at a site like SiteJabber, and check out Oyster's Photo Fake-out, a hilarious collection of visitor-generated photos of hotels, compared to the hotel's publicity stills.
You Didn't Win a Free Trip
This spring, more than 300 people in Australia received calls reportedly from Virgin Australia and Qantas airlines, informing them that they'd won a credit toward their next vacation or other loyalty items, but they had to secure the prize with a credit card. Those who handed over the information then had money stolen from their accounts. The lesson? The good things in life aren't free, even if the voice on the other end of the line has an awesome Aussie accent.
That's Really Not a Fendi Handbag
In any major city around the world, you'll see street vendors hawking luxury items for a steal. But look closer, and you'll see that they're a little off -- crooked stitching, a misspelled logo or dye that's faded in spots. Even if the deal seems good, there are many reasons to avoid buying counterfeit products, not the least of which is the continued connection to criminal organizations, drugs and human trafficking. So if a Fendi logo's really that important, skip the knock-offs and buy the real thing.
It's Not the 'Scenic' Route
First time in town? That taxi driver may just be helpful by pointing out sites of interest, or he or she could be taking the long route and running up the fare. Even locals have been subjected to this practice in cities across the U.S.
Another scam involves drivers helping travelers unload their bags at their hotel, then driving away with one last piece still in the trunk. When entering a taxi in a strange town, write down the driver number and cab company. A quick online search from the safety of the hotel will identify the name of the local taxi commission to file a complaint, if you've been the victim of an overcharge or theft. And it never hurts to mention the incident to your hotel staff -- you might not have been this driver's first victim.
The Wake-up Call
Jet-lagged? Half-asleep? Haven't had your first coffee of the day? Thieves are preying on groggy travelers to get credit card and other personal information. The call usually comes in the middle of the night from someone who politely identifies him or herself as the hotel receptionist.
Blaming a computer crash, he or she apologizes for the inconvenience, but says the credit card that was used to book the hotel has been entered improperly. He or she then asks the traveler to verify credit card information, home address and other personal details -- with an offer to discount the room rate for the inconvenience. Of course the caller isn't hotel staff, but a scammer who dialed into the main hotel phone number and asked for a room at random.
If you receive one of these calls, hang up. Any legitimate billing issues can be sorted out at check-out. Or go one step further and ask reception to institute a "do not disturb" on your room phone during certain hours.
Linda Matlow/Alamy
When interest rates on savings accounts hover near 0 percent, it's easy to see why so many people shrug off the question about where to park their emergency cash. Financially savvy people assume that they can get better returns by putting money in stocks or mutual funds instead of letting the it "languish" in a low-interest savings account. But everyone needs a place to keep some liquid cash.
Think of it this way: If you have your paycheck deposited into a checking account for paying bills, and sweep all your leftover savings into a retirement fund or an investment account, what will you do when you have an emergency like:
Your car breaks down and needs a costly repair the same week that you're paying your mortgage and an estimated tax payment.
Your condo association informs all owners that the cost of repairing the roof of the building after a rash of storms has depleted the condo reserves, and therefore all owners are required to pay a special one-time assessment.
Your child gets sick and needs an expensive medication, but you just dipped into the cushion in your checking account to pay the previous month's doctor's bill.
When you need cash fast, most options come with undesirable side effects. Pulling money out of an investment account can take time and sometimes incur penalty fees and taxes. On top of that, you could be forced to sell investments at an inopportune moment. Using a credit card can mean you're borrowing money at an average interest rate of 15.61 percent, according to Bankrate.
A savings account provides the necessary back-up funding for your checking account and give you the peace of mind that you don't need to rely on credit or tap into your investments when the unexpected occurs.
And while its low interest rates means that a savings account is not the go-to investment for future expenses (the "future" being anywhere from next week to five years from now), it is the right place for cash to serve as a safety net for unexpected expenses as well as a temporary parking spot for planned future purchases. That said, keeping your cash accessible doesn't mean settling for zero interest.
Why Compare Savings Accounts
A recent survey by MagnifyMoney.com revealed that 73.4 percent of Americans with savings accounts keep their money in a traditional savings account that currently pays interest rates close to 0 percent, and of those who have a savings account, the average balance comes to $28,696.
By shopping around among bank, credit union and online-only savings accounts, you can find one that will increase the interest you earn, lower your fees and still meet your needs.
The survey showed that millennials are more likely to have an online savings account (18.8 percent vs. 13 percent of non-millennials) and they're also more open to considering an online-only savings account (55.1 percent versus 28.2 percent).
Internet-only accounts often pay 0.9 percent or more on savings, according to MagnifyMoney, while bank savings accounts are paying as little as 0.01 percent. Switching from a traditional account to an online savings account means that the average American (with that $28,696 balance) would earn more than $250 a year on their cash stash instead of settling for just $5 a year in interest.
How to Compare Savings Accounts
Websites such as Bankrate.com, SavingsAccount.com, MagnifyMoney.com and MoneyRates.com offer quick rankings to compare various savings accounts rates, but your decision about which savings account to open should be based on more than just interest rates. You should also consider:
Fees. Some savings accounts charge fees unless you meet minimum balance requirements or have established direct deposit. Any fees will cut into the limited interest you earn.
Interest compounding. For the maximum interest earnings, make sure interest is compounded daily.
Overdraft protection. If you're concerned about overspending on your checking account, make sure you can link the savings account to provide overdraft protection.
Account set-up. If you're interested in saving for a variety of specific goals, such as a vacation or a down payment on a house, you may want to look for an account that allows you to set up sub-accounts so you can more easily track your savings.
Availability of funds. Find out how quickly any deposits are credited and how long it will take to transfer from one account to another. Accounts within the same bank usually allow instantaneous transfers, but some online-only savings accounts can take a day or so to complete a transfer.
Check on Federal Deposit Insurance Corp. insurance. While most savings accounts are FDIC-insured, take a moment to double-check on the insurance so that you don't risk losing your money. One of the main benefits of a savings account is the lack of risk.
Check the rules on withdrawals. Most savings accounts and money market accounts limit their customers to six withdrawals per month. Find out what happens if you make too many withdrawals.
Checking out the requirements and fees on multiple online-only accounts takes a few extra minutes longer than just opening a savings account at your usual bank. But if that time results in increased interest earnings of several hundred dollars per year, it's definitely worthwhile.
Michele Lerner is a Motley Fool contributing writer.
A recent article by David Hanson on Motley Fool took dead aim at the "invisible and brutal cost" of using a financial adviser. His premise can be summarized as follows:
A hypothetical advisory fee of 1 percent of assets per year significantly reduces net returns over time.
Net returns are further reduced by the loss of the opportunity to invest fees deducted by the adviser.
His post damns advisers with this faint praise: "I am not saying financial advisers are wicked people. Nor am I saying many advisers don't provide a deeply valuable service. However, if you do use a financial adviser or money manager, take a long, hard look ... and ask yourself, 'Am I getting my money's worth?'" These suggestions will help you do such an evaluation:
Review Vanguard's White Paper
In March, Vanguard released an extensive analysis (called "Putting a Value on Your Value") of the value alpha (a measure of an investment's performance compared to a benchmark) added by advisers. The conclusion: "Based on our analysis, advisers can potentially add 'about 3 percent' in net returns by using the Vanguard Advisor's Alpha framework." It reached this figure by placing a value, or range of values, on the following services:
Moving to low-cost funds: 0.45 percent
Annual rebalancing: up to 0.35 percent
Behavioral coaching: 1 percent to 2 percent
Tax efficiencies: zero percent to 0.75 percent
Withdrawal order for spending: up to 0.70 percent
Study Higher Returns of Investors in Dimensional Funds
An analysis of investor success at capturing fund returns with and without passive advisers, "The Value of a Passive Advisor," published by Index Fund Advisors, yielded some surprising results. The analysis was performed over various periods. The data comes from a number of independent, reliable sources, including Morningstar and "The Little Book of Common Sense Investing," by John Bogle, founder of the Vanguard Group.
It found that investors in funds managed by Dimensional Fund Advisors (available only from designated investment advisers) captured 109 percent of the returns of those funds. In contrast, investors in index funds without passive advisers captured only 78 to 88 percent of the returns of those funds. (I am affiliated with Buckingham, which uses Dimensional's funds in portfolios.)
The ability of investors in Dimensional's funds to capture more than 100 percent of the returns of those funds can be explained by two factors. Unlike many investors without advisers, investors in Dimensional's funds receive coaching to keep them from panicking and selling when the markets tank. In addition, their advisers rebalance regularly, which can be counterintuitive. Often, investors without advisers are reluctant to sell stocks when they are going up and purchase them when they are going down.
Harvest Tax Losses
Low-cost advisers may not do tax-loss harvesting at all. If they do, they may do it infrequently. Capturing losses in a timely manner can have a significant impact on your returns.
Rebalance Frequently
Many advisers rebalance once a quarter, if that frequently. A competent adviser will have software that determines reasonable tolerance ranges and will rebalance whenever it is necessary to keep your risk profile at its intended level.
Minimize the Number of Mutual Funds
A hidden cost of poor advice is caused by too many funds in your portfolio. Having a large number of funds increases the cost of rebalancing, which reduces your net returns.
Compare Services
Many low-cost advisers offer only investment advice. A true wealth adviser will offer additional services and may not break out the cost of providing those services from the advisory fee charged to clients. These services may include:
Providing a comprehensive review of insurance policies, including life insurance, long-term care, and property and casualty insurance.
Integrating your investment plan with your estate plan.
Giving advice on when you should start taking your Social Security payments.
Providing advice on mortgage financing.
Providing advice on investments held in your retirement accounts, even though those accounts are not managed by your adviser and your adviser receives no additional compensation for doing so.
I have long been a proponent of focusing on fees and costs when making investment decisions. However, you should not view an adviser's fees in a vacuum. There can be a significant difference in both the quality of advice and the breath of services offered by different advisers. You should consider all of these factors and not just fees alone.
Dan Solinis the director of investor advocacy for the BAM Allianceand a wealth adviser withBuckingham. His latest book is "The Smartest Sales Book You'll Ever Read."
Ivaylo Sarayski/AlamyMillennials are uncertain about putting money in the stock market.By Danielle Maddox
After many millennials watched their parents suffer financial setbacks during the Great Recession and experienced their own challenges entering the workforce, Generation Y has adopted a cautious attitude toward investing. According to a January report from financial services company UBS, which surveyed more than 1,000 people ages 21 to 29, millennials keep 52 percent of their money in cash on average, and only 28 percent think investing will make a substantial difference in their financial situation.
In May 2013, Wells Fargo (WFC) released a survey that explored the financial behavior and attitudes of young adults. The online survey included 1,414 millennials between ages 22 and 32 and 1,009 baby boomers between ages 48 and 66 for comparison. It reported that two-thirds of millennials believe, despite joining the workforce in a worse economy than the baby boomers, that they will achieve a greater standard of living than their parents.
U.S. News recently fielded questions through Facebook (FB) and Twitter (TWTR) from young adults about where and how to invest their money, then solicited advice from financial experts.
1. "Which markets should I focus on as a new investor?" -- Nicholas Frazier, 21, a student in Ames, Iowa.
As a new and inexperienced investor, you should diversify your investments to minimize your risk of loss. Simon Moore, chief investment officer at Future Advisor in San Francisco, recommends that you look into both developed and emerging markets to gain broad diversification in your portfolio. Exchange-traded funds offer an easy, low-cost way to achieve diversification since you don't have to pick the individual investments yourself.
If you're investing for the long term, your portfolio should have a significant allocation to stocks, since stocks provide much better returns than bonds over a long period. Moore says a good rule of thumb for the percentage of stocks you should have in your portfolio is 100 minus your age.
It's also important to include an allocation to bonds, which can act as a cushion when the stock market experiences volatility. Moore recommends dedicating a small slice of your portfolio to real estate investment trusts to reduce overall risk. This combination of investments, Moore says, should give you a solid footing.
2. "Should I invest in the stock market or pay off student loans?" -- Laurie Wang, 28, a digital strategist and entrepreneur in New York City.
There isn't one correct answer because it depends on your financial situation and the nature of your student loans. According to the Wells Fargo survey, 36 percent of millennials consider student loans to be their most pressing financial worry. Generally speaking, it's a good idea to work on paying off your student loans while you invest in the stock market for retirement. Richard Sturm, a financial adviser at Sturm Financial in Seal Beach, California, says, "Investing in the stock market and investing in retirement can be one and the same thing." He recommends that millennials survey their workplace retirement plan options as a means of investing.
One factor to consider before you make the decision to invest, however, is interest rates. Moore says if your student loan interest rate is less than your expected return on your retirement savings, you should start investing while you pay off your loans. The higher your loan interest rate is, the sooner you should pay it off. Moore says if the interest rate on your loan is less than 4 percent, you can slowly pay it back while you begin investing for retirement.
Also make sure to take advantage of matching contributions from your employer through your 401(k), says Ellie Kay, author of "America's Family Financial Expert." If you work for a company that offers this benefit, she recommends at least investing enough to capture the match.
3. "What should I do with the $10,000 I have to invest?" -- Amber, 22, a model and writer in Chicago.
First, you'll want to put some money in an emergency fund, which should ideally cover living expenses for six to nine months. This fund will cover unexpected expenses, including major car repairs or hospital bills, and it could become especially important during unexpected periods of unemployment.
The decision to invest in bonds, stocks and other asset classes should depend on your financial goals and how much you're willing to risk. In terms of retirement investing, David Williams, director of planning services at Wealth Strategies Group in Cordova, Tennessee, says the best choice is to have both a Roth individual retirement account and a 401(k). "Roth IRAs have tax-free distributions, but you are limited to $5,500 per year contributions ... the 401(k) contributions are tax-deferred. You may contribute up to $17,500 annually, and you may gain employer matching. Combining both is a better answer for retirement planning," he says.
4. "How can I invest in real estate if I am early in my career without tens of thousands of dollars?" -- Aaron McDaniel, 31, a corporate manager and entrepreneur in New York City.
Moore says REITs are a great way to broaden your portfolio. REITs are funds that invest directly in real estate through properties and mortgages and receive unique tax considerations. They can be risky, however, and should only make up a small portion of your financial assets. Laurie Itkin, a financial adviser for the Coastwise Capital Group in La Jolla, California, says it is wise to make REIT index funds 10 percent or less of your portfolio. She says although REITs can yield high returns, they are more volatile because they are heavily affected by real estate prices.
Bank of America and the U.S. Department of Justice have reached an impasse in negotiating a multibillion-dollar settlement deal related to the bank's mortgage investments, The New York Times reported, citing people briefed on the matter.
The talks stalled Monday after the bank's latest offer of more than $12 billion to resolve state and federal investigations into its sale of mortgage investments fell far short of prosecutors' demands, the newspaper said.
On Tuesday, as Bank of America (BAC) sought to continue negotiations, the Justice Department moved to put the finishing touches on a civil complaint against the bank, the report said, citing the people.
The lawsuit, which isn't imminent, is expected to accuse the bank of selling mortgage investments that led to billions of dollars in losses.
Reuters reported in April that Bank of America said in an annual regulatory filing that a U.S. Attorney's office advised the bank it would recommend the Justice Department bring a civil case against its affiliates over mortgage bonds.
The second-largest U.S. bank faces multiple government probes over the underwriting, sale and securitization of residential mortgage bonds before the financial crisis.
Representatives for Bank of America and the Justice Department didn't immediately respond to emails seeking comment outside regular U.S. business hours.
M. Spencer Green/APA sign advertising Basecamp River North, a housing development that recently broke ground in Chicago.By JOSH BOAK
WASHINGTON -- City living has been a blessing for Tim Nelson.
The Phoenix lawyer moved downtown a few months ago into a new $389,000 home with a warehouse-style floor plan, a Jacuzzi tub and kitchen counters made of Caesarstone quartz. His favorite coffee spot is three blocks away. When the Arizona Diamondbacks play on Friday nights, he can watch postgame fireworks from his deck.
"I like the views," said Nelson, 50. "My commute is almost nonexistent."
Nelson has plenty of company.
Americans increasingly say they prefer to live near the centers of cities and towns, where commutes are typically shorter and culture, restaurants and entertainment close by. It marks a shift away from the yearning for open suburban space that drove U.S. home construction for decades.
But it carries a costly trade-off: Land in many cities has surged in price. And fewer Americans can now afford newly built homes in the walkable neighborhoods they desire.
Prices Soaring
The average price of a newly built home nationwide has reached $320,100 -- a 20.5 percent jump since 2012 began. That puts a typical new home out of reach for two-thirds of Americans, according to government data.
Yet many builders have made a calculated bet: Better to sell fewer new homes at higher prices than build more and charge less.
Their calculation is partly a consequence of the growing wealth gap in the United States. Average inflation-adjusted income has declined 9 percent for the bottom 40 percent of households since 2007, while incomes for the top 5 percent exceed where they were when the recession began that year, according to the Census Bureau.
Buyers have historically paid about 15 percent more for a new home than for an existing one, a premium that's reached 40 percent today, according to the real estate data firm Zillow (Z). An average new home costs about six times the median U.S. household income. Historically, Americans have bought homes worth about three times their income.
The high prices and sparse construction are no help for a still-subpar U.S. economy. With new-home sales well below their historical average, construction firms need fewer workers. The economy remains 1.49 million construction jobs shy of its total in December 2007, when the Great Recession began.
Shift Away From Suburbia
After 60 years of migrating to car-dominated suburbs, polls show more Americans want out of long commutes in favor of neighborhoods where jobs and stores are nearby.
Stuck with pay that's barely budging, many face a tough choice: Keep renting. Pile up huge mortgage debt to buy a home near their job. Or buy a cheaper home that requires a lengthy commute.
Middle-class Americans are [being] squeezed out.
"Middle-class Americans are [being] squeezed out," said John McIlwain, a senior fellow at the Urban Land Institute.
Low mortgage rates have eased some of the pain from rising prices. But the desire to live near town centers on costlier land could depress home ownership rates to as low as 60 percent, McIlwain estimates. That would be down from 65 percent today and 69 percent during the housing bubble.
About 40 percent of Americans still live in a suburb "where most people drive to most places," according to a new poll by the American Planning Association, a trade group for community planners. But just 7 percent say they hope to stay in car-dominated neighborhoods. Those findings mesh with a March report on the preferences of millennials by Nielsen Holdings.
No More Cheap Land
The construction business thrived for decades by bulldozing cheap farmland into suburban networks of streets and houses. But as farmland grew costlier, land prices in cities and towns with attractive amenities soared, says Christopher Leinberger, a professor at George Washington University and an industry strategist.
Homebuilder Toll Brothers (TOL) spent $24 million in 2012 to buy two-thirds of an acre near Nationals Park in Washington. That's equal to roughly $830 a square foot, compared with $5 a square foot before the ballpark existed, Leinberger said.
At the Walnut Hill Townhomes in Chattanooga, Tennessee, prices start at $610,000. The figure reflects a revival of that industrial city. A pedestrian bridge spans the river, carrying locals to gastropubs, gourmet tacos and a waterfront park.
Dale Mabee, who's building the homes, said his material and land costs meant prices had to be $243 a square foot, nearly three times the average in the metro area.
"It's almost a necessity to build at a higher price point to make the numbers work," Mabee said.
Commuting Woes
Among the buyers was Spencer McCallie, a 77-year old former school headmaster. McCallie initially retired to a lakeside cabin about 30 miles outside the city. But its quiet pleasures were undercut by long drives downtown for symphony concerts and Rotary Club meetings.
"We didn't want to have to come in 28 miles because we knew we'd have to come home late at night," McCallie said.
The shift in tastes is among factors that are eroding home affordability despite still-low mortgage rates. Among other factors: tighter lending rules and difficulty producing down payments.
All of which helps explain why construction has yet to rebound with vigor. Just 433,000 new homes were sold on an annualized basis in April. Over the previous half-century -- when the United States had a smaller population -- annual sales had averaged 660,000.
Builders noted in recent earnings calls the higher prices and the decline in construction.
Richard Dugas, CEO of PulteGroup (PHM), says building entry-level homes isn't profitable enough anymore.
Builder D.R. Horton (DHI) says escalating prices have left first-time buyers "underserved." It's introduced a low-cost division with homes priced as low as $120,000, targeted in part at millennial buyers but located at the edges of suburbia where land is cheaper.
Tight Supply
For those able to live downtown, the tight supply of new homes has forced them to act fast.
Crews broke ground last month on a 47-rowhome luxury development in Chicago. Every apartment -- starting at $562,900 -- sold before digging began. The rooftop decks survey the city skyline. Buyers are waiting 12 to 16 months for construction to finish before moving in, said Heather Gustafson of CMK Realty.
The homes are built in the Cabrini-Green area, once occupied by a housing project notorious for gang violence. The city began to demolish the project in 1995 and resettle residents, clearing prime real estate just a 20-minute walk from the office towers and trendy restaurants of Chicago's Magnificent Mile.
Adam Kriticos, a mortgage broker, bought the last available home at the development, known as Basecamp River North. He had less than four days to make an offer after touring a model home. That didn't faze him.
"It's not like we're overpaying for where the market is now," he said.
Andrew Harrer/Bloomberg via Getty ImagesBy Caroline Valetkevitch
NEW YORK -- Applications for U.S. home mortgages rose last week as both purchase and refinancing applications jumped, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 10.3 percent in the week ended June 6.
The MBA's seasonally adjusted index of refinancing applications rose 11 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, increased 9.3 percent.
Fixed 30-year mortgage rates averaged 4.34 percent in the week, up 8 basis points from 4.26 percent the week before.
The survey covers more than 75 percent of U.S. retail residential mortgage applications, according to MBA.
WASHINGTON -- Insurers want to change President Barack Obama's health care law to provide financial assistance for people buying bare-bones coverage. That would entice the healthy and the young, the industry says, holding down premiums.
So-called catastrophic plans are currently not eligible for the law's subsidies, and only 2 percent of the 8 million consumers who signed up this year picked one. Subsidies bring down the cost of monthly premiums.
The proposed change is part of a package of recommendations that America's Health Insurance Plans, the main industry trade group, plans to release Wednesday. Others address how to smooth transitions for consumers who switch insurance companies, as well as making it easier for patients to find out which hospitals and doctors are in particular plans and whether their medications are covered.
"What is crucial for public policy leaders is to balance access and affordability," said Karen Ignagni, head of the trade group. "Unless people feel that coverage is affordable, they won't participate in the system."
Adults ages 18-34, the health care law's most coveted demographic, are under-represented among those enrolled for subsidized private insurance this year. Insurers are currently filing their proposed premiums for 2015, and increases of 10 percent or more are anticipated. Nonetheless, the new state insurance exchanges are poised to grow, with more carriers entering the market to compete for business.
Given the polarized politics of health care in Washington it's unclear how the industry's latest proposal might advance. It might get a chance if Republicans in Congress abandon their crusade to repeal Obama's law and start focusing on making changes to individual components.
The proposal could also encounter opposition from consumer groups, which take a dim view of catastrophic plans. Some consumer organizations have instead called for reducing out-of-pocket costs borne by consumers who buy a midlevel silver plan, the pick of 65 percent of those signed up this year.
Catastrophic plans offer low monthly premiums but require consumers to foot a hefty share of their annual medical costs. They are designed to protect healthier people from financial ruin due to an accident or an unexpected diagnosis of serious illness. Catastrophic plans are only available to people under 30 in the new insurance exchanges.
The industry proposal would create a new catastrophic plan open to people of any age and eligible for tax credits provided by the law. It would have an annual limit on out-of-pocket costs and preventive care would be covered at no charge to the patient.
Other elements of the insurers' plan can be voluntarily adopted by the companies or codified by government regulation.
They include a 30-day transition period for certain patients who switch insurance companies or whose doctors no longer participate in the plan. During the transition, patients would be able to remain under the care of their current physician while paying lower in-network rates. Similar transition policies would apply to medically necessary prescriptions.
The health insurance industry has a complicated relationship with the health care law.
Insurers spent tens of millions of dollars to defeat the legislation as it was being debated in Congress and still seek to roll back taxes and Medicare cuts that affect the plans.
But the industry has also become one of the administration's main allies in carrying out the law, enduring the cascade of rollout problems last fall and working behind the scenes to make sure consumers whose old plans got canceled were able to maintain coverage. That's earned insurers public expressions of gratitude from top health care officials in the administration.
United Airlines is changing the way it doles out frequent flier miles, and it may hurt many travelers.
How many reward miles you rack up at United (UAL) will no longer depend on the number of miles you fly, but on how much you spend for those flights. United Club members will get five miles for every dollar spent, and premier-level fliers will get 7 to 11 miles for each dollar spent. The change takes effect next March. Earlier this year, Delta Air Lines (DAL) made a similar change to its frequent flier plan. Some consumer finance experts say these changes reduce the value of frequent flier rewards for people who shop for travel bargains.
There were more jobs available in April than at any time in seven years. The Labor Department says job openings totaled 4.5 million, up from 4.2 million the month before. However, businesses aren't necessarily rushing to fill those openings. The number of people hired in April was little changed from March.
Of course, more jobs is good news for people who are out of work, but this isn't: House Democrats say more than 3 million Americans have stopped receiving unemployment benefits because the Republican led House refused to take up a bill to extend those payments. Last year, Congress cut the number of weeks that someone could receive jobless benefits to 73, and then at the end of 2013, the maximum dropped to 26 weeks. About 72,000 additional people lose their benefits each week. By the government count, there are 3.4 million people who have been out of work for more than 26 weeks. That is what's considered long-term unemployment.
Wall Street on Tuesday, the three major averages closed within 3 points of where they began the day. Still, the The Dow Jones industrial average (^DJI) eked out a fourth straight record high.
Finally, Amazon.com (AMZN) is reportedly preparing to launch a new operation focusing on local services. Reuters says it could help you locate plumbers, babysitters and other service providers in your neighborhood -- and present a major challenge to Angie's List (ANGI), Yelp (YELP) and others.
Karen Bleier/AFP/GettyImages
Barnes & Noble (BKS), America's only remaining big brick-and-mortar bookstore chain, is hoping to grow its business from the nation's colleges.
The company has a long tradition in the segment, and a surprisingly large chunk of its business derives from academia. In May, it revealed that it's looking to boost the number of its stores on college campuses by nearly 50 percent. How much of a shot does the bookseller have in a field that hasn't been high-growth of late?
Comfortable on the Quad
The modern Barnes & Noble got its start on the college market. In 1965, Leonard Riggio, the company's chairman, founded a textbook-heavy bookstore in New York. It did well enough for Riggio to buy the assets of the storied but down-at-heel Barnes & Noble, which at the time consisted of a single store.
In 2009, Barnes & Noble paid $600 million to buy Riggio's privately held Barnes & Noble College Booksellers. Now, it's one of the firm's three business divisions, responsible for around one-fourth of its revenues. It also rivals the company's key retail division in terms of physical presence. Both units have almost 700 outlets around the country.
EBIT-DArling
Lately, the college unit has been the best performer of those three divisions. For fiscal third quarter of 2014, the firm reported revenues of $486 million for the unit, far outpacing the $157 million brought in by the Nook tablet division (which, confusingly, the college division is technically a part of).
And in terms of earnings before interest, taxes, depreciation and amortization, the college unit was the only one of the trio to grow its profit -- by nearly 4 percent on a year-over-year basis to $34 million. By contrast, the big retail division's EBITDA slid by 7.5 percent (to $216 million) across that span.
College is also arguably struggling the least. Retail has famously taken a beating from the online world, particularly from Amazon.com (AMZN). Nook came late to the tablet party, and its full-featured HD line hasn't made much of a dent in a world ruled by Apple's (AAPL) iPads, Amazon's Kindles and Samsung's (SSNLF) Galaxies.
Even a $300 million investment in the Nook division from Microsoft (MSFT), made in late 2012, doesn't seem to have had much impact, and the future of a recently announced Nook co-branding deal with Samsung is unclear.
So a renewed attack on the higher-education market makes a lot of sense. Still, there are goings-on in the college stores market that give us cause to worry.
Sophomore Slump?
Barnes & Noble hopes to boost the number of college stores from the current 696 to roughly 1,000 over the next five years. The idea is to make money from items beyond the usual textbooks, pens and other student necessities. Barnes & Noble wants to feature large cafes and a wider selection of products, such as clothing and cosmetics.
But college kids aren't spending that much. According to the National Association of College Stores, the market crept up by only 2 percent, to $10.45 billion, from fiscal 2011 to 2012.
And that figure was around $50 million lower than the 2006 amount. This, despite a higher number of available customers: From 2006 to 2012, enrollment grew by 3.7 million students to a 21 million, for a rise of 21 percent. So, more people are going to school, but collectively, they aren't spending more money at campus stores.
Dropping Out
Another possible reason for the college push is that the division might be a big part of a new company. For several years now, rumors have had it that Barnes & Noble will spin off the Nook unit into a separate company, or sell it entirely (perhaps to partner Microsoft).
If that happens, given the struggles of the Nook tablets, such an entity will be even more dependent on the country's higher academic institutions to help drive its growth. Regardless of whether College/Nook wanders off on its own or not, Barnes & Noble is certainly hoping that those students will start opening their wallets a little wider in the near future.
Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple and owns shares of Amazon.com, Apple, Barnes & Noble, and Microsoft. Try any of our newsletter services free for 30 days.
NEW YORK -- Fans of Vitaminwater are demanding that parent company Coca-Cola drop a new formula that uses stevia, a low-calorie sweetener known for its metallic aftertaste.
Coca-Cola (KO) changed the formula for its full-calorie Vitaminwater in May, and the new bottles have been hitting shelves nationwide ever since.
Previously, the drinks were sweetened with a mix of crystalline fructose and sugar. Now they are sweetened with a mix of sugar and stevia, a natural sweetener companies use to reduce the sugar content in drinks. The new Vitaminwater still has the same 120 calories a bottle, however.
The change has prompted fans of the drink to inundate Vitaminwater's Facebook (FB) page with complaints about the taste, and demands that the company bring back the old formula.
A spokeswoman for Coca-Cola, Danielle Dubois, said the company loves hearing from its consumers and has been listening to the feedback via social media and its call line.
"We really like our new formulation and hope consumers do, too. That said, we always have our ear to the ground and genuinely appreciate all feedback," she said.
When asked why Coca-Cola made the change, Dubois said the company is "always innovating and evolving our products and packaging."
The company, based in Atlanta, already used stevia in Vitaminwater Zero, a diet version of the drink that has no calories.
Last year, Vitaminwater's sales volume in the U.S. was down 18 percent, according to the industry tracker Beverage Digest. The decline seems to be in part because the enthusiasm for enhanced water from a few years ago has cooled, said John Sicher, editor and publisher of Beverage Digest.
Sicher noted that Coca-Cola may have been trying to innovate with Vitaminwater to return it to stronger performance.
Coca-Cola bought Glaceau, the parent company of Vitaminwater and Smartwater, for $4.1 billion in 2007.
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It may or may not be enough to retire on, but a $1 million nest egg can be achieved by many families living on middle-class incomes. It takes persistence, sacrifice and dedication to a solid investing strategy, over a time frame measured in decades, but it can be done.
According to an analysis of the Current Population Survey done by Sentier Research, the median American household income was $52,959 as of April. The key to turning that kind of income into a $1 million nest egg is simple to describe (if harder to practice): You must be willing and able to live on less, and then invest the money you save towards that goal.
How Much of Your Salary Do You Need to Save? For How Long?
The chart below shows what percentage of that median salary you'll have to sock away each month -- starting with nothing in your nest egg -- based on various expected rates of return and number of years you can devote to working toward that $1 million mark.
The color coding serves two purposes. First, it indicates just how much of a sacrifice you'll have to be willing to make -- starting now -- to become a middle class-millionaire. Second, it also helps you choose between the tools to achieve that goal.
Data from author's calculations.
The green values are ones you can reach by investing within an individual retirement account. People under age 50 with wage income can contribute up to $5,500 per year to their IRAs.
The yellow values are the ones you can reach by investing within a 401(k) or other qualified employer-sponsored retirement plan. People under age 50 with wage income can contribute up to $17,500 per year to those plans. In both IRAs and 401(k)s, people ages 50 and up can make additional "catch up" contributions.
The orange value is reachable if you can almost completely fund both an IRA and a 401(k), but at 38.5 percent of a median income, it's quite a stretch.
To reach millionaire status with the red values will require both saving above and beyond retirement focused accounts, and a tremendous sacrifice, especially for someone who hasn't previously been saving.
The Hardest Part of the Journey
If you're looking at that chart and wondering if 6 percent or even 10 percent average annual returns are possible, consider this: Over the long haul, the S&P 500 (^GSPC) has delivered around 10 percent average annual returns with dividends reinvested. Exchange-traded funds like the SPYDER (SPY) are low-cost ways to invest in that index. Of course, there are no guarantees that the trend will continue, but it's not an unreasonable expectation to build into your plan. If you're worried that your portfolio won't reach that level of returns, the wise approach would be to sock away more (planning for those lower returns), then scale back your savings later if you find yourself ahead of target.
In reality, though, the returns aren't likely to be your biggest challenge. The tough part will likely be regularly coming up with that cash to invest.
To reach that $1 million target with those savings levels and those return rates, you'll need to consistently sock away that much of your paycheck every month for all those years. Fortunately, though, it's a journey you don't have to take on your own.
Uncle Sam and Your Boss to the Rescue
The amounts represented in those green, yellow and orange cells all can be saved within qualified retirement accounts. Qualified retirement accounts have several advantages that make it much easier for you to save money for your retirement. Key ones include:
Tax-deferred growth: Money in your qualified accounts grows without being taxed until you withdraw it in retirement. That helps you compound your dividends and capital gains more efficiently.
Potential for tax deductions on your contributions: Traditional 401(k)s and other employer-sponsored plans let you contribute directly from your paycheck with pre-tax dollars. Those contributions reduce your tax burden in the year you make them, and put some cash to work for you that otherwise would have gone to Uncle Sam. In some cases, you may also be able to deduct a traditional IRA contribution as well, but the rules are complicated.
Direct contributions from your boss: Many employers offer matches for employees contributing to their 401(k) or other employer sponsored plans. If your 401(k) offers you a 50 percent match, you only need to contribute two-thirds of the total amount to reach your goal. In other words, if your target is to save 15 percent of your income to reach that $1 million goal, you only need to come up with 10 percent and let the match cover the other 5 percent. Most employers limit the level of their match, but every dollar your company chips in is one fewer you have to save yourself.
Get Started Now
The one thing that should be crystal clear from that chart is how important it is to start saving early. It's a lot easier to invest a little bit of each paycheck throughout your career than it is to start later in life and have to come up with huge chunks of your salary to try to reach your retirement goal.
If you want a shot at becoming a millionaire on a middle-class salary, there's no time like the present. Every year you delay brings you that much closer to the red part of that chart.
Motley Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. For more advice on saving and investing for the future, see The Motley Fool's new special report "The IRS Is Daring You to Make This Investment Now!" for advice that could help you cut taxes for decades to come.
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Single-day admissions to some of the country's most popular theme parks hit $99 this summer. Tack on transportation, lodging and in-park purchases, and costs quickly add up. By the time the coasters have been conquered and your thrills have been chronicled on Facebook's (FB) Instagram, you're going to be out a lot of money. Let's dive into how to save some at the park this season.
1. Find the Local Discounter
Amusement park chains and most theme park operators realize that you can't succeed without having a steady flow of locals. They often team up with area supermarkets or restaurants to offer discounted tickets.
If you're heading to a local park, you probably know the area businesses offering discount admissions as either coupons you present at the gate or prepaid entrances. If you're heading out to a park while you're traveling, find the name of the grocery store or burger haven offering deals through the park's website, social media page or park forum.
2. Do the Math on a Season Pass
For essentially the price of a one-day ticket, SeaWorld's (SEAS) "Fun Card" tickets are good for unlimited admissions through the end of the year at many of its parks. There are some blackout dates, and some annual pass holder perks like complimentary parking aren't included, but it's too cheap to ignore.
Six Flags (SIX) and Cedar Fair (FUN) have annual passes that typically pay for themselves after the second or third visit. It will take longer to offset the purchase of Disney (DIS) or Comcast's (CMCSA) Universal annual passes.
3. Head Out With a Pass Holder
If you and your family decide that a becoming an annual pass holder isn't the right call -- or it isn't in your budget -- see if you know anyone who's an annual pass holder and join them at the park.
Attractions are always more fun with more people, and your pocketbook will probably thank you for this tip. Annual passes typically include free parking, and many premium varieties come discounts on food and shopping. Six Flags even has "Bring a Friend Free" days for owners of season passes.
4. Go Online Before You Get in Line
Days if not weeks before heading out to a park, start following the park's Facebook and Twitter (TWTR) feeds. It's a great way to learn more about the park, and it's where the park promotes deals and opportunities to its biggest fans.
You may also want to start following Groupon (GRPN) or LivingSocial for the park's home city. Last year we saw SeaWorld and Legoland offer deals this way. At the very least, you may score a great bargain for a nearby eatery to hit up before or after a day at the park.
5. Save Money on Park Purchases
There aren't too many parks like Holiday World in Indiana that offer complimentary sodas and sunscreen to guests once they get inside. Most gated attractions know that they have a captive audience and are not afraid to take advantage of the situation with overpriced snacks and merchandise.
No one is forcing you to buy any of these items. Folks can often load up on grub and even souvenirs outside of the park. There's no shame in having free iced water with your in-park meal instead of a soda. If you have to splurge, ask around for the best bargains. Even the high-end theme parks have closeout racks of unsold trinkets.
Have fun, and enjoy the marked down thrills.
Motley Fool contributor Rick Munarriz is spending the summer in Celebration, Florida, covering all of the new attraction openings. He owns shares of Walt Disney. The Motley Fool recommends and owns shares of Walt Disney. Try any of our newsletter services free for 30 days.
Alamy
Savvy consumers know that credit card debt is something to banish from your financial home if you can. But just how bad is your debt situation compared to others'?
Getting a definitive answer can be a challenge. Sources have different ways of gathering and looking at "average" credit card balances. For instance, MagnifyMoney.com recently released survey data that showed that 42.4 percent of Americans carry credit card debt:
$10,902: Average balance for those with credit card debt.
$8,864: Average credit card balance for millennials.
$12,026: Average credit card balance for Generation X.
Those numbers, while based on a survey of 1,435 people in April, are not far off from numbers reported by NerdWallet.com that are based on government data, including Federal Reserve statistics.
$7,087: Average household credit card debt.
$15,191: Average balance for households that have any credit card debt.
In NerdWallet's analysis, households with zero credit card debt skew the overall average lower, and households with debt skew higher because of a relatively small number of households with extremely high credit card balances.
In 2013, CreditCards.com studied average credit card debt with different variables. For example:
$5,047: Average balance per American adult with a credit card.
$2,720: Average credit card debt per U.S. adult with a credit report and a Social Security number.
$3,364: Debt per person for all resident American adults.
$7,100: Average debt per household with credit card debt.
What data is gathered is yet another reason for all these variations in average credit card debt. As mentioned, the numbers vary dramatically depending on whether or not people who have credit cards at all are included in the calculations.
Another factor is the way "credit card" is defined -- for example, whether store and gas credit cards are factored in. While those cards typically have low credit limits and balances that don't influence the overall amount of debt on a national basis, they do increase the number of people who can then be defined as "credit card" users.
Another issue is that some people charge items on their credit card and pay off the balance in full every month. But even that balance is included in statistics.
CreditCards.com asked Experian in March 2013 to separate its data:
$8,220: Average balance for credit cards that usually carry a balance.
$1,037: Average balance for credit cards that are typically paid in full each month.
Paying Off Credit Card Debt
No matter what level of credit card debt you have, you're likely to be eager to pay it down to a zero balance.
Keep in mind that while you need to have an emergency fund in the bank, you're earning minuscule interest on that money if it's in a traditional savings account. (There are better alternatives.) Even a "high-yield" savings account in 2014 pays barely 1 percent in interest, while your credit card interest rate is likely to be more than 15 percent. MagnifyMoney's survey found that 75.7 percent of people with credit card debt were paying an interest rate higher than 15 percent in April.
Some of the tried-and-true strategies to eliminate credit card debt include:
Use the "snowball" plan: Pay as much as you can on your lowest balance while you keep up with the minimum on all other cards. As soon as that card is paid off, apply what you've been paying plus the minimum (and more if you can) to the next highest balance, and so on until you're throwing all available funds at the last credit card.
Pay off your high-interest debt first: Rank your credit cards in order from the one with the highest interest to the lowest, and then apply the snowball strategy to debts in that order instead of according to the balance.
Use balance transfers: Eliminate interest payments while paying down your debt, but be aware of the interest rate if you don't pay off the balance in full before the 0 percent interest period expires. Typically you also need to pay a fee of 2 percent to 4 percent of the balance when you transfer the debt.
Cut up your cards to cut off temptation: Make sure you don't use your credit cards and build up the balance again. But don't close the accounts; that can hurt your credit score. Keep one card available for a true emergency.
Accruing too much credit card debt is a lot easier than eliminating it, but you'll find it much easier to save toward other goals if you stop sending your paycheck to the credit card companies. Plus, when it comes to credit card debt, it feels a lot better to be way below average.
Michele Lerner is a Motley Fool contributing writer.
Manuel Balce Ceneta/APTreasury Secretary Jacob LewBy MARTIN CRUTSINGER
WASHINGTON -- The U.S. government's monthly budget returned to deficit in May after a big April surplus. But the overall imbalance so far is far smaller than it was the same period last year, putting the country on track for the lowest annual deficit in six years.
The Treasury Department said Wednesday that the May deficit totaled $130 billion after a surplus of $106.9 billion in April, a month when the government usually runs surpluses because of a flood of tax revenues.
For the first eight months of this budget year, the deficit totals $436.4 billion, down 30 percent from $626.3 billion for the same period in 2013. It was the smallest imbalance since 2008. The Congressional Budget Office is forecasting a deficit of $492 billion for the full budget year ending Sept. 30.
The government has run a deficit in May, a month when there are no major tax payments, for 59 out of the past 60 years. This year's May deficit was slightly lower than the $138.7 billion deficit in May 2013.
The improvement this year reflects a stronger economy and labor market, which translates into more income and higher tax revenues. The government has also trimmed spending to gain control of soaring deficits in recent years.
Revenues this year totaled $1.93 trillion through May, up 7.5 percent from the same period a year ago. Government spending over this period totaled $2.37 trillion, a drop of 2.3 percent from a year ago.
In 2008, the government recorded a deficit of $458.6 billion, which was the record high at the time. But that record was soon eclipsed as the government ran annual deficits surpassing $1 trillion for the next four years. Those deficits reflected a deep recession, which reduced tax revenue, and higher government spending to stabilize the financial system and pay benefits to people who had lost jobs.
After peaking at $1.4 trillion in 2009, the deficit has been falling. It dropped to $680.2 billion last year.
Over the next decade, CBO is projecting that deficits will total $7.6 trillion, $286 billion less than it projected in February. The biggest factor in the improvement is $165 billion less in projected spending on health insurance subsidies for policies sold through exchanges created by the Affordable Care Act. Those policies are proving less costly than CBO originally thought, mainly because of tighter management of treatment options.
The CBO is forecasting that the deficit will fall to $469 billion in 2015 before rising again and topping $1 trillion annually starting in 2023. The increases will be driven by spending on the government's major benefit programs, including Social Security and Medicare, as baby boomers retire.
Republicans have accused Obama of failing to propose significant cost-cutting measures to reduce soaring entitlement costs. Democrats counter that Republicans would rather impose sharp cuts on needed government programs than impose higher taxes on the wealthy.
Neither side is expected to make major concessions in this congressional election year. But the budget wars of the past three years have subsided at least for a brief time. An agreement was reached in December on the broad outlines for spending over the next two years. The agreement will allow Washington to avoid the gridlock that culminated in October's 16-day partial shutdown of the government.
The budget cease-fire also includes legislation that will suspend the government's borrowing limit through March 15 of next year. That puts off another battle over raising the debt ceiling until a new Congress takes office in January.
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Shares of RadioShack (RSH) took another hit on Tuesday, slammed by yet another problematic quarter. Revenue plunged, fueled by a 14 percent drop in same-store sales. Its adjusted operating loss from continuing operations nearly quadrupled.
You won't find too many retailers posting double-digit declines at the individual store level. And you'll be hard-pressed to find chains doing so on cascading gross margins with red ink expanding.
RadioShack is in trouble, and the once popular small-box retailer is running out of chances to dig its way out it.
Herding Scapegoats
RadioShack argues that an "industry-wide decline in consumer electronics and a soft mobility market" put the strip-mall chain in a tough spot. However, that makes it seem as if these are circumstances beyond its control, which is not entirely accurate.
It's true that many retailers are struggling, but none of its competitors is faring as poorly as RadioShack. Best Buy (BBY) saw its consumer electronics comps slide 4 percent, but its mobile sales improved at the store level. Smaller big-box chain Conn's (CONN) fared even better. Same-store sales for consumer electronics rose 3 percent.
There might be an industry-wide decline in consumer electronics, and smartphone sales growth is decelerating. This still doesn't explain why the average RadioShack store is selling 14 percent less than it did during the same quarter a year earlier.
Small Box Getting Smaller
There was a time when RadioShack was buzzing. It was the place to get Tandy computers, blank media and hard-to-find components. Rent was cheap for its bite-sized stores in neighborhood strip malls, making RadioShack one of the more profitable chains out there.
A lot of trends have been working against the now-profitless chain. Media has gone digital, and cloud storage has made blank media less popular. Amazon.com (AMZN) may not have the instant gratification factor down pat, but its deep savings and even deeper catalog have been monumental in driving traffic away from RadioShack.
RadioShack's response was to double down on mobile. It would become a one-stop shop, stocking all of the hottest phones across most of the leading carriers. This would seem to be a smart strategy. Even Best Buy decided to open up dedicated Best Buy Mobile stores to address this market. However, too many smartphone owners simply upgrade directly through their carriers.
There was also a backlash against devoting more of its limited store space to mobile products. An emphasis away from traditional consumer electronics probably pushed away its already thinning base of loyal customers, and mobile products don't lend themselves to the kind of repeat purchases as its original core business.
Carousel of Progress
"We are making progress on our turnaround strategy," CEO Joseph Magnacca said on Tuesday. It's hard to call cascading sales, thinning gross margins and mounting losses the signs of success, but RadioShack isn't going to give up.
RadioShack may have $615.4 million of debt on its balance sheet, but it still has $361.9 million of untapped credit. In short, it's not going anywhere in the near future despite eyeing what should be its third consecutive year in the red.
RadioShack's hoping that new products will bring "differentiation and newness" to its stores through high-margin private label and some exclusive merchandise. Wait a minute. It wants to be Sharper Image now? Along the way, it's closing down stores, with plans to shutter another 200 locations this year.
The chain may be hoping to return to its glory days of the 1980s, but the changing marketplace will make living in the past more dangerous than it seems.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and owns shares of Amazon.com. Try any Motley Fool newsletter service free for 30 days.
Competition is about to get tougher for telecom major Verizon Communications . Although the stock has gained momentum after reporting its first-quarter results in April, Verizon will need to stay on top of its game to sustain that performance. The company is facing threats from different quarters; while AT&T is busy bolstering its network, Sprint and T-Mobile US are considering a merger to create another powerhouse in the U.S. telecom industry.
Will Verizon's strategic moves and investments be enough to counter the impending threats?
Steady moves Verizon's is making steady and consistent investments in its network and platform to support innovative products and services. The company is focusing on bolstering its wireless and wireline networks to build competitive advantage going forward. Moreover, its focus on operating efficiency and cost controls will help it compete effectively against rivals and drive profitable growth.
As a part of this initiative, Verizon's wireless spending is aimed at adding capacity to its existing 4G network, and utilizing the spectrum to further optimize the network. As the company has already completed the LTE rollout in the U.S., its latest moves will enable it to provide faster services to customers.
Moreover, Verizon's additional capital deployments to add density to its network, and deliver new services such as VoLTE and multicasting to enrich its customers' wireless experience, will enable it to attract even more customers.
Additionally, the company recently signed agreements to acquire the wireless licenses of Cincinnati Bell, along with some power leases. These investments in the wireless segment will improve Verizon's network quality, reliability, and the overall customer experience.
Key metrics show improvements Verizon's moves are already delivering the desired growth. For example, in the first quarter, postpaid gross additions were 3.6 million, up 4.1% from last year. Around 56% of its gross additions were smartphones and 33% were tablets and other Internet devices.
Overall, Verizon added 549,000 new retail connections in the first quarter. Postpaid net additions were 539,000 and prepaid were 10,000. It had 103.3 million total retail connections at the end of March. More importantly, Verizon's industry-leading postpaid connections base reached 97.3 million, and prepaid totaled just over 6 million. The first-quarter postpaid additions mix included 866,000 4G smartphones and a record 634,000 tablets. The company also added 56,000 other connected devices, primarily home phone connections.
Around 1.5 million, or 27% of its smartphone upgrades, were from basic phones. Verizon is looking to drive smartphone penetration and 4G adoption, which is why the company is seeing strong upgrade numbers. More than 50% of the remaining smartphone upgrades were from 3G to 4G, which Verizon monetized through higher data usage and a lower cost-to-serve. Thus, as the company upgrades more customers to the latest devices, it will see better monetization.
Smartphone penetration for Verizon is at 72% of its total phones. It ended the first quarter with 61.3 million smartphones, but approximately 64% of those were 4G. Hence, the company still has about 22 million 3G smartphones, and just above 23 million basic phones, which means that it has a good opportunity to move more customers to 4G devices.
Competition is getting stronger Verizon's primary focus is on making its 4G service as strong as possible, resulting in higher customer upgrades. However, competitors are also making impressive moves. AT&T, for example, added more than 600,000 postpaid subscribers in the previous quarter, along with 255,000 prepaid smartphone subscribers. AT&T is offering attractive data plans to customers, while its Mobile Share value pricing plan is making it easier for subscribers to move off the traditional subsidy model.
In addition, AT&T is also bolstering its network. The company plans to roll out a high-speed fiber network across 21 metro areas in the U.S., covering more than 100 cities. With this deployment, AT&T plans to deliver ultra-fast broadband to users. On the back of such moves, AT&T could attract a higher number of customers going forward.
On the other hand, Sprint and T-Mobile might pose a serious threat. According to reports, Sprint and T-Mobile, which are the third and the fourth-largest mobile networks in the U.S., are planning to merge. If they do, Verizon will face another strong contender besides AT&T. Sprint already has 225 million people covered by its 4G network, and its enhanced LTE service, Sprint Spark, is also gaining steam.
Sprint Spark claims to deliver speeds of up to 60Mbps, and the carrier is trying to bring this service to 100 million people by the end of the year. Moreover, if Sprint and T-Mobile do combine, they will be able to offer a fast and comprehensive network that will threaten Verizon's prospects.
The bottom line There are stiff challenges ahead for Verizon, but the company has tackled those problems so far, thanks to solid execution. Its efforts at bringing more customers onto the 4G network are bearing fruit and leading to better monetization. If Verizon is able to maintain this momentum going forward, it might prove a solid investment, but if it falters, then competitors will eat into its market share.
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The Dow Jones Industrial Average is down today as strong retail sales reports are offset by rising oil prices as the situation worsens in Iraq. As of 1:30 p.m. EDT the Dow was down 80 points to 16,764. The S&P 500 was down 11 points to 1,932.
The majority of Dow stocks are down today after some mixed U.S. economic releases.
Report
Period
Result
Previous
Retail sales
May
0.3%
0.5%
Retail sales ex-autos
May
0.1%
0.4%
Import price index
May
0.1%
(0.5%)
Business inventories
April
0.6%
0.4%
The one to pay attention to is the retail sales report. While at first glance growth of 0.3% in May was worse than analyst expectations of 0.7% growth, April's 0.1% growth was revised upward to 0.5% growth. Thus, May's growth was 0.3% above the revised level on a seasonally adjusted basis.
Not all retailers are increasing sales. Today, lululemon athletica is down 15% to $37.55 after its profits fell 60% from $0.32 per share, to $0.13 per share this quarter. The company also lowered the high end of its guidance for revenue for the year to $1.77 billion to $1.80 billion, down from $1.77 billion to $1.82 billion. Second, CFO John Currie announced his retirement. Finally, founder and 28% shareholder Dennis Wilson voted against Chairman Michael Casey and another outside director at the company's annual meeting yesterday. Wilson complained that the board is too focused on short-term results at the expense of the long term. Casey replaced Wilson as chairman of the board in December after continuing fallout from last year's yoga pants recall.
Despite the positive retail sales report, stocks are down as oil prices spiked today. Brent crude, the main international crude price, is up 2% to $112 while WTI crude is up 1.5% to $106.
Oil prices are rising as the situation in Iraq is worsening. The Islamic militant group the Islamic State in Iraq and Syria, also known as ISIS, has grown increasingly powerful the past few years as Syria has fallen apart in civil war. ISIS has significant control of northeastern Syria. On Saturday, ISIS attacked Mosul, Iraq's second largest city, and gained complete control of the city by Tuesday. Yesterday, ISIS moved south and gained control of Baiji and Tikrit. Baiji has key power stations and refineries while Tikrit, less than 90 miles north of Baghdad, is known for being the birthplace of former President Saddam Hussein.
Iraq is the currently the eight largest oil producer in the world. Prices are rising as oil production is being threatened, but you won't see a huge spike until it becomes apparent that Iraq is falling apart. As oil prices rise consumers and businesses need to spend more on oil and gas, crowding out investment into more productive uses. We will likely see some response by the U.S. soon as it is in the U.S.' and Saudi Arabia's interest to try to keep the situation in Iraq contained.
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Dan Dzombak has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica. 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.
