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Red Lobster: Getting All Dressed Up, but Where's It Going?

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Red Lobster Sold To Golden Gate Capital For 2.1 Billion
Justin Sullivan/Getty Images
By CANDICE CHOI

NEW YORK -- Red Lobster wants to be seen as a purveyor of quality seafood, so it's getting rid of some of its promotional discounts and stacking the food higher on plates, as is the style at fancier restaurants.

The changes mark the latest attempt by the struggling seafood to stop a years-long sales decline as it embarks on a new era. On Monday, Darden Restaurants (DRI) said it completed its sale of the chain to investment firm Golden Gate Capital, despite contentious protests from activist investors.

In his first interview as Red Lobster's new CEO, Kim Lopdrup outlined the missteps he thought his predecessors made and why he thinks Red Lobster can win back customers.

"At the end of the day, people are not going to go a Chipotle for their anniversary or their birthday," he said.

Sit-down chains like Red Lobster have been struggling since the economic downturn as people cut back on spending. Such chains are also losing business to places such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA), where people feel they can get restaurant quality food without paying as much. And Darden's recent attempts to spark turnarounds at Red Lobster and Olive Garden haven't worked.

Amid intensifying pressure from investors, the company announced late last year it would hold onto Olive Garden but get rid of Red Lobster. The company, based in Orlando, Florida, noted Red Lobster's customers were increasingly from lower-income groups, compared with Olive Garden and its specialty chains such as Capital Grille. Investors Barington Capital and Starboard Value wanted the breakup structured differently, with the latter filing a lawsuit last week for records related to the sale.

In the meantime, Lopdrup said, many people still view Red Lobster as "fine-dining for the middle class." But changing perceptions about the quality of Red Lobster's food could be a challenge, given recent promotions like "30 shrimp for $11.99," or a lobster pot pie that had just a half-ounce of lobster meat.

Lopdrup, who served as president of Red Lobster from 2004 to 2011 before moving on to head other aspects of Darden's business, said he planned to end such steep discounting.

Red Lobster tries acting like a fancier restaurant
Red Lobster/APRed Lobster's new plating style (bottom image), in which slabs of fish are piled over the rice, marks the latest attempt by the struggling seafood chain to right its course as it embarks on a new era.
"You're not going to see any of these low-priced specials that we're not proud of," he said. Popular promotions like "Endless Shrimp" and "Crabfest" will stay, however.

About two weeks ago, Red Lobster also starting rolling out a new plating style for its fish dishes that will expand to other parts of the menu.

Previously, fish dishes were served on rectangular plates, with the fish, rice and vegetables spread out in separate corners. Now when customers order off the "Fresh Fish" menu, they get a round plate on which slabs of fish are piled over the rice, a vertical presentation commonly found at higher-end establishments.

"The food arranged in a way that's more like you'd see at a fine-dining restaurant," Lopdrup said. "The seafood is the star."

As for the food itself, that hasn't changed.

Lopdrup also said he planned to reverse the decision in late 2012 to expand non-seafood options to up to a quarter of the menu and bring the figure back down to around 10 to 15 percent by November.

He declined to provide details on other menu changes planned for coming months. But he said the chain will take a "barbell strategy," meaning it will continue to offer pricier items, including dishes that are more than $30, as well as affordable options more akin to the recently introduced lobster tacos.

 

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FAA Proposes $12 Million Fine Against Southwest Airlines

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FAA Proposes $12 Million Fine Against Southwest Airlines
Danny Johnston/AP
By JOAN LOWY

WASHINGTON -- The Federal Aviation Administration said Monday it is proposing a $12 million civil fine against Southwest Airlines (LUV) for failing to comply with safety regulations related to repairs on Boeing (BA) 737 jetliners.

It is the second-largest fine the agency has proposed against an airline. The largest proposed fine was against American Airlines for $24.2 million in August 2010. That one was ultimately settled for $24.9 million as part of American's bankruptcy proceedings, although the final settlement included other safety violations not part of the original proposal.

The FAA said that beginning in 2006 Southwest made "extreme makeover" alterations to eliminate potential cracking of the aluminum skin on 44 jetliners. An FAA investigation determined that Southwest's contractor, Aviation Technical Services Inc. of Everett, Washington, failed to follow proper procedures for replacing the fuselage as well as other work on the planes, the agency said. All of the work was done under the supervision of Southwest, which was responsible for seeing that it was done properly, the FAA said.

Southwest, which is based in Dallas, then returned the planes to service in 2009 and began flying them even after the FAA "put the airline on notice that these aircraft were not in compliance" with safety regulations, the agency said.

During its investigation, the FAA also found that Aviation Technical Services' workers applied sealant beneath the new skin panels but didn't install fasteners in all of the rivet holes fast enough for the sealant to be effective.

"This could have resulted in gaps between the skin and the surface to which it was being mounted. Such gaps could allow moisture to penetrate the skin and lead to corrosion," FAA said.

The contractor also failed to follow requirements to properly place the planes on jacks and shore them up while the work was being performed, the FAA said. If a plane is shored improperly during skin replacement, the airframe could shift and lead to subsequent problems with the new skin.

The FAA also said that Southwest failed to properly install a ground wire on water drain masts on two of its Boeing 737s in response to a safety order aimed at preventing lightning strikes. The planes were each operated on more than 20 passenger flights after Southwest Airlines became aware of the discrepancies but before the airline corrected the problem, the agency said.

"The FAA views maintenance very seriously, and it will not hesitate to take action against companies that fail to follow regulations," said FAA Administrator Michael Huerta.

Southwest Airlines has 30 days to respond to the proposed fine. Usually FAA officials negotiate extensively with an airline in cases of large fines before settling upon an amount. However, regulators and airline officials sometimes are unable to reach an agreement and the airline contests the fine.

Brandi King, a spokeswoman for Southwest, said the airline will "respond to the FAA allegations" in accordance with the agency's procedures.

"Having fully resolved the repair issues some time ago, none of the items raised in the FAA letter affect aircraft currently being operated by Southwest Airlines," she said. "As always, Southwest is committed to continuously making enhancements to our internal procedures, as well as improvements related to oversight of our repair vendors."

 

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Market Close: Stocks End Mixed Ahead of Earnings Rush

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Wall Street
Richard Drew/AP
By MATTHEW CRAFT

NEW YORK -- After dawdling between small gains and losses in a slow day of summer trading, the stock market ended little changed on Monday.

Instead of worrying about the conflict between Russia and Ukraine or trouble in the world's other hot spots, investors appeared to sit tight.

The main reason, said Robert Pavlik, chief market strategist at Banyan Partners, a wealth management firm, is that the news that's most likely to move the market comes out later in the week.

On Wednesday, the Federal Reserve wraps up a two-day meeting then issues a statement that investors will study for any hints about the Fed's next interest-rate move. On Friday, the government releases its closely watched monthly jobs report.

"If you're a professional investor," Pavlik said, "the big things you focus on this week are what the Federal Reserve says Wednesday and Friday's monthly employment report."

A scattering of merger announcements drove some trading on Monday. Family Dollar (FDO) rose the most in the Standard & Poor's 500 index (^GPSC) -- with a 25 percent gain -- after Dollar Tree (DLTR) announced plans to buy the rival discount store for roughly $8.5 billion. Family Dollar's stock surged $15.08 to $75.74.

Trulia (TRLA) jumped on news that Zillow (Z), a rival real-estate listing service, was buying it for $3.5 billion. Trulia advanced $8.69, or 15 percent, to $65.04. Zillow picked up $1.46, or 1 percent, to $160.32.

The S&P 500 index edged up 0.57 of a point, or 0.03 percent, to close at 1,978.91.

The Dow Jones industrial average (^DJI) rose 22.02 points, 0.1 percent, to 16,982.59, while the Nasdaq composite (^IXIC) slipped 4.65 points, or 0.1 percent, to 4,444.91.

Wall Street is in the middle of second-quarter earnings season, when big companies turn in their springtime results and tell investors how they think the rest of the year will shape up. This week, ExxonMobil (XOM) and MasterCard (MA) are among the heavyweights posting earnings. American Express (AXP) and Merck (MRK) report Tuesday.

So far, the news has been better than many expected. Of the 229 companies that have posted results, nearly seven out of 10 have turned in higher profits than analysts projected, according to S&P Capital IQ.

Among the handful of companies reporting Monday, Tyson Foods announced higher quarterly profits as well as a plan to sell its chicken business in Mexico and Brazil for $575 million in cash. Tyson Foods (TSN) climbed $1.02, or 3 percent, to $40.56.

Tensions between Western powers and Russia remained a concern for investors. On Monday, an international court ordered Russia to pay over $50 billion to a group of investors for the expropriation of now-defunct oil company Yukos. The ruling comes as European countries consider imposing sanctions on trade in defense, technology and other goods and restricting access to European capital markets for Russia's state-owned companies.

Pavlik said most U.S. investors have managed to set aside their worries over world politics and focus on the improving economy, though the conflicts could still rattle markets

"I think the market is doing what it should be doing," he said. "It's not getting sucked into all the bad news out there. Russia is lobbing bombs into Ukraine, and that appears like it could spiral out of control. The Middle East looks out of control. But the stock market is trading near an all-time high."

In other trading on Monday, France's CAC 40 rose 0.3 percent while Germany's DAX shed 0.5 percent. Britain's FTSE 100 slipped 0.1 percent.

News that profits at China's industrial enterprises soared 17.9 percent in June over a year earlier suggested that the world's No. 2 economy has stabilized and gave Asian markets a boost. China's benchmark Shanghai Composite Index surged 2.4 percent.

The price of oil fell as traders awaited this week's economic reports. Benchmark U.S. crude oil fell 42 cents to $101.67 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils, fell 82 cents to $107.57 on the ICE Futures exchange in London.

Bonds: In U.S. government bonds, the yield on the 10-year Treasury note inched up to 2.48 percent from 2.47 percent late Friday. Bond yields rise when prices fall.

-Business writer Joe McDonald contributed to this report from Beijing.

What to watch Tuesday:
  • Standard & Poor's releases S&P/Case-Shiller index of home prices for May at 9 a.m. Eastern time.
  • The Conference Board releases the Consumer Confidence Index for July at 10 a.m.
  • Federal Reserve policymakers begin a two-day meeting to set interest rates.
  • House Energy and Commerce subcommittee hearing on EPA's proposed clean power plan and grid reliability challenges.
The following major companies are scheduled to release quarterly financial statements.
  • Aetna (AET)
  • American Express (AXP)
  • Ameriprise Financial Services (AMP)
  • Amgen (AMGN)
  • BP (BP)
  • Deutsche Bank (DB)
  • Honda Motor (HMC)
  • Merck (MRK)
  • Pfizer (PFE)
  • Reynolds American (RAI)
  • Twitter (TWTR)
  • UBS (UBS)
  • UPS (UPS)

 

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10 Signs Your Kid Could Be Headed for Financial Failure

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While parents love to look for signs that their kids are musical prodigies or potential Olympic athletes, many don't know how to recognize the signs that their teen and young adult offspring are floundering when it comes to money management skills. Dealing with your kids' disasters is one of the downsides of being a parent, yet the more proactive you are in watching for signs of potential financial failure, the easier it will be to turn around the situation.

A parent's work is never done. Throughout your offspring's life -- from childhood, the teen years, and into their 20s -- there are times you'll need to step in to educate your kids about money matters big and small. It can be a lot of work, but the payoff is worth it when you know you've done your best to raise a financially savvy person with a strong work ethic and sense of responsibility.


Michele Lerner is a Motley Fool contributing writer.

 

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Tax Moves to Make Before the End of Summer

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budget holidays   young couple...
ShutterstockEven though April isn't exactly around the corner, summer is an excellent time to ensure you're on track with your taxes.
By Kimberly Palmer

We're halfway through the year, which makes it the perfect time to take a close look at your potential tax liability for 2014. You still have time to make adjustments to ensure you're minimizing the amount you owed. These four strategies might even make it easier for you to get money back from Uncle Sam once you file your taxes.

Bulk up your retirement contributions. You can contribute up to $17,500 to your 401(k) in 2014; for those 50 or older, the limit is $23,000. If you're nowhere close to that amount, consider ramping up your contributions to take advantage of tax-advantaged accounts. The same goes for Roth IRAs and traditional IRAs, where the maximum contribution amount is $5,500 (or $6,500 for those age 50 or older). If you want to max out your retirement savings, now is the time to start putting more money away. (You can contribute up to the 2014 limit until April 15, 2015.)

Delay deductions. Because tax increases are likely at some point in the future​, tax experts recommend saving any big deductions until next year, if possible. So if you're planning to make a sizable charitable contribution, for example, you might want to hold off for the sake of your tax bill. Similarly, if you're flexible about when you receive income, you might want to get as much in the bank before December 31 so it counts as income in 2014, before any potential tax increases.

David McKelvey​, a tax and business consulting partner at Friedman LLP, says top earners should also consider ways to reduce their taxable income so they can avoid the highest tax bracket. The highest income tax bracket rate, for those earning over $406,750​ (for individuals) and $457,600 (for joint filers), is 39.6 percent. If your income is near that threshold, he says, look for ways to reduce it, such as by delaying income or taking any available deductions.

Check you've been paying enough taxes. If you received income beyond your usual paycheck because of freelance work or income from a side business, you might end up owing a lot of money in April. You're also at greater risk if you got married this year and earn a similar, relatively high salary to your spouse. That's because of the so-called marriage tax penalty, which often means dual, high-earning couples owe more when they file taxes jointly than they did when they were single.

People who earn significant chunks of their salary in cash also need to make sure they're putting enough aside to pay the appropriate amount of taxes in the spring. The Internal Revenue Service keeps a close eye on people in professions that pay in cash, like waiters, by using formulas that estimate expected income. If you report less, you could be flagged for an audit, which is not something you want.

A big tax bill cannot only shock your budget, but you might owe the government additional fines, too. Check to see if you've been paying roughly the correct amount of taxes by reviewing your payroll stubs or other documentation. If you think you're going to owe money, prepare by starting to save now.

Keep track of important receipts. If you run your own business, are self-employed or have been spending money on educational costs to boost your career, then many of your expenses may be tax deductible. Make sure you put your receipts in an easy-to-find filing system so you can claim them when you file your taxes next year. If your employer offers flexible spending accounts for health care costs, be sure to keep eligible receipts for doctor visits, pharmaceuticals and other health-related costs. You often have until April 15 to file those claims.

McKelvey says since the threshold for deducting medical expenses went up from 7.5 percent of adjusted gross income to 10 percent for those under age 65, you can only deduce expenses that are greater than those minimums. (Those over age 65 are exempt from the increase until 2017.) ​For expenses under those thresholds, taxpayers can rely on health savings or flexible spending accounts, where contributions are pretax or tax deductible. (Just be sure to follow all relevant rules and limits, which are often available through your human resources department or account provider.)

Talking taxes might not be as fun as planning your summer vacation, but it can pay off just in time for next year's spring break.

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

 

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How to Spend Less and Still Feed Your Family Well

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Family shopping together in grocery store
Ariel Skelley/Getty ImagesYou can keep your fridge stocked even when cutting back on your grocery store trips.
By John Schmoll

If you've gone to the grocery store lately, you've probably noticed that prices are steadily going up. Whether you're single or feeding a family, the cost of food can really add up. Prices from beef to staples like milk are all increasing so it can be difficult to shelter yourself from the rise in cost.

Recent studies indicate that some families of four can expect to spend nearly $1,200 a month on food if they're not careful. It is also important to point out that this number doesn't include costs for dining out, just simply shopping at the grocery store. If that number sounds too high to you and you're looking for ways to lower your grocery bill, these tips should help.

Shop less often: One easy way to spend less on groceries is to shop less often. If you go shopping once every week, try extending it to once every nine or 10 days. Averaged out over a month, this would cut out one major trip to the store per month and thus help you spend less.

While it might seem difficult at first, it is possible to reduce your trips to the grocery store and still keep your pantry full. Beyond spending less, the act of shopping less frequently also has two other major benefits -- it forces you to eat more of the food in your home and it helps you greatly reduce food waste. These two things together will help you stretch your groceries and thus lower your spending.

Shop around a meal plan: As simple as it might sound, shopping with a meal plan can help you lower your grocery bill. You can make this meal plan to fit your needs, whether it be weekly, bi-weekly or monthly. Having a meal plan will not only allow you to bring more discipline to your grocery shopping but it also has the benefit of giving you flexibility in when you have your meals.

If you use your meal plan strategically, you can use it to shop around sales and coupons in order to maximize your savings. If you have not given thought to a meal plan, try using one for a few weeks and you should see it help you lower costs in the long run.

Think about value: It is a common misconception that you can't eat healthily on a budget. That is an understandable belief but is largely a myth. When you take a look at your grocery spending, consider the kind of items you are spending money on. Are you stocking up on empty calories like soda and snacks? Some of that is OK, but taken to an extreme it will add up.

The often overlooked side effect of spending on empty calories is that they will not fill you for very long. Items that are higher in protein, as well as some fruits and vegetables, will generally keep you satisfied and thus cause you to spend less in the long run. While those items that are considered empty calories might seem cheaper in the short run, they generally are more expensive in the long run as you will end up buying more as well as possibly deal with poorer health. That can lead to more visits to doctors and other costly health care costs.

Be flexible: Few people enjoy eating leftovers, but they can do wonders to helping you lower your grocery costs. In fact, you can even include leftover nights within your meal plan once or twice a week. You can make this work even better if you make meals that complement each other when you pair them together later in the week.

Having leftover nights also has the dual benefit of infusing a little more creativity into your meals, especially if you feel like you're having some of the same things time and again. If leftover nights aren't desirable, then at the very least use your leftovers as a way to supplement the lunches you take to work.

Lowering your grocery costs, especially in a growing family, can be a challenge. However, with a little planning and commitment, it is possible to save money and not spend an arm and a leg at the grocery store.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting and frugal living. He is a father, husband and veteran of the financial services industry who's passionate about helping people find freedom through frugality.

 

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4 Reasons Social Security Is In Trouble - Will You Be, Too?

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Studio shot of social security card and banknotes
etra images/Getty Images
On Monday, the Social Security Trustees published its annual Trustees Report on the health of the Social Security system. The bottom line has changed very little since last year's report, and the trustees still expect the Trust Funds to empty in 2033. Once the Trust Funds empty, the program will only be able to pay around 77 percent of its scheduled benefits.

Still, while the trustees maintain their overall projection for the program, its underlying financials continue to crumble.

For one thing, the program's 75-year actuarial deficit increased to 2.88 percent of payroll, up from 2.72 percent last year. For another, the retirement-related Trust Fund -- when considered on its own -- is on the path toward emptying a year sooner than last year's projections. The table below shows the details:

Social Security
Trust Fund
2014 Trustees
Report
2013 Trustees
Report
Retirement Trust Fund Empties in 2034 Empties in 2035
Disability Trust Fund Empties in 2016 Empties in 2016
Combined Trust Funds Empties in 2033 Empties in 2033
Source: 2014 Social Security Trustees Report.

What's Driving This Decline?

There are at least four key drivers behind Social Security's weakening condition:

1: Falling labor force participation rate. This metric measures the percentage of the U.S. population age 16 and older either working or actively looking for work. Unfortunately, as the chart below from the Bureau of Labor Statistics shows, that measure has dropped substantially this century.

Source: Bureau of Labor Statistics
Social Security is primarily financed by payroll taxes. The fewer people working (or even looking for work), the smaller the potential wage base to support the program.

2: The relentless rise in the disability rate. The two charts below show the Congressional Budget Office's current and projected disability rates by age, the first for males and the second for females. The disability rates have risen relentlessly since around 1990, and the trends show no sign of stopping.

Source: Congressional Budget Office
Source: Congressional Budget Office

This is a double whammy for Social Security. For one part, the disabled often qualify for Social Security Disability benefits. The more people who are on Social Security Disability, the bigger the strain becomes on that part of the combined Trust Fund. For the other part, people collecting Social Security Disability rarely earn much (if any) income. People who aren't earning income aren't paying into the Social Security system.

3: The aging population. Longevity is a wonderful thing (especially for those of us who aren't getting any younger). Still, the longer people live and the more people who survive into their retirement years, the higher the cost of Social Security will be. The chart below from the Congressional Budget Office shows how the population of those ages 65 and older is expected to grow -- both on its own and as a percentage of the overall U.S. population.

Source: Congressional Budget Office
Once you stop working in your retirement, you stop paying into Social Security, and instead, you start collecting. Additionally, the longer you live, the higher the total amount the system needs to pay to cover your benefit.

4: Low interest rates. While most of Social Security's income comes from payroll taxes, it also makes money from the interest earned on the Trust Funds. Those Trust Funds are invested in special Treasury bonds, and like any Treasury bond, they mature. In our current low-interest-rate environment, the Social Security Trust Funds are forced to buy lower-interest bonds to replace higher-interest ones that mature.

The chart below shows the billions of dollars in annual interest lost since 2010 to lower interest rates:

Author's calculations based on data from the Social Security Administration.
Social Security is already spending more in benefits than it takes in as payroll tax revenue, and interest is the program's next largest source of income. The longer low interest rates go on, the larger the negative impact those low rates have on the Social Security Trust Fund's solvency.

What Can You Do?

For those four key reasons, Social Security is, and will continue to be, in trouble. With the Trust Funds expected to empty in 2033, you need to prepare. Your most prudent course is to invest as though you'll need to cover the gap between your expected Social Security benefit and what the program anticipates being able to pay.

The sooner you get started, the easier and cheaper it is to get there. With around 19 years before the Trust Funds are expected to empty, you've still got time to build a reasonable plan, but the longer you wait, the tougher it gets. So get moving now.

Chuck Saletta is a Motley Fool contributor. For more on ensuring a comfortable retirement for you and your family, see our new free report in which Motley Fool retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule to boost your retirement income.

 

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Fed Seen Pressing Forward on Bond-Buying Pullback

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Yellen
Pablo Martinez Monsivais/AP
By Michael Flaherty

WASHINGTON -- The Federal Reserve looks certain to press forward with its plan to wind down its bond-buying stimulus, and could offer some vague clues on how much nearer it might be to finally raising interest rates.

The central bank is widely expected Wednesday to cut its monthly asset purchases to $25 billion from $35 billion, which would leave it on course to shutter the program this fall.

With little drama expected from the decision, and no fresh economic projections and no news conference to guide investors, financial markets will be left to scour the Fed's announcement for any hint on whether officials are growing more anxious to start to reverse their monetary accommodation.

The Fed has kept overnight interest rates near zero since December 2008 and has more than quadrupled its balance sheet to $4.4 trillion through a series of bond purchase programs.

However, with unemployment dropping and inflation firming, the Fed could suggest that the days of this monetary largesse are increasingly numbered. A report on Wednesday is expected to show the U.S. economy grew at a healthy 3 percent annual clip in the second quarter.

"It is possible that the Fed will begin to alter its view on how much slack remains in the labor market," Paul Dales, of Capital Economics, said in a research note.

After its last meeting six weeks ago, the Fed said unemployment "remains elevated." Since then, the jobless rate has fallen to a near six-year low of 6.1 percent.

JPMorgan (JPM) economist Michael Feroli said in a research note that the central bank could modify the language to say "somewhat elevated." Such a change would allow the Fed "a more gradual pivot in communications toward recognizing they are making progress toward their mandate," he said.

To a good degree, the health of the labor market holds the key to the Fed's decision on rates.

Fed Chair Janet Yellen believes there is more slack in the jobs market than the unemployment rate alone would suggest, but she warned earlier this month that a rate hike could come "sooner and be more rapid than currently envisioned" if labor markets continue to improve more quickly than anticipated.

After a stronger-than-expected reading on employment early this month, the median forecast of economists polled by Reuters put the first increase in rates in the second quarter of next year. Previously, it had been the third.

The forecast is in line with the prediction offered by interest-rate futures, which imply an increase in June 2015.

While less likely, officials could also acknowledge the modest uptick in U.S. prices, which has put inflation closer to the central bank's 2 percent target.

But economists expect the Fed to hold fast to its guidance that a "considerable time" will elapse between the end of its bond buying and its first rate hike.

 

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Small Cars Fare Poorly in Crash Tests

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Small Cars Fare Poorly in Crash Tests
Nam Y. Huh/APA 2014 Mini Cooper Countryman on display at the Chicago Auto Show last February.
By DEE-ANN DURBIN

DETROIT -- The four-door Mini Cooper Countryman was the only one of 12 cars to earn a top rating of "good" in new frontal crash tests.

The Nissan Leaf, Nissan Juke, Fiat 500L and Mazda5 wagon all fared worst in the tests performed by the Insurance Institute for Highway Safety, an Arlington, Va.-based safety group that's funded by insurers.

The Chevrolet Volt, Ford C-Max, Mitsubishi Lancer, Scion FR-S and Subaru BRZ all got the second-highest rating of "acceptable." The Hyundai Veloster and Scion xB were a notch below that, with "marginal" ratings.

The small overlap front crash test, introduced in 2012, replicates what happens when 25 percent of a car's front end strikes a rigid object at 40 mph. It's a difficult test because a small area of the car's front end must absorb and manage the energy from a severe, high-speed crash.

To earn a "good" rating, a car must keep the cabin around the occupants largely intact and protect them with a combination of seat belts and air bags, the institute said. When a car's cabin collapses, as it did in the crash tests of the Juke, Leaf, 500L and Mazda5, it can move the seats and air bags out of place, increasing the risk of injuries.

The institute said 19 of the 32 small cars it has now tested have earned "good" or "acceptable" ratings on the small overlap test. The institute said the Mazda5 was among the worst performers it has tested. Its side air bags didn't deploy at all and its driver's side door unlatched, which shouldn't happen during a test.

In a statement, Mazda pointed out that the Mazda5 has earned "good" ratings on other IIHS tests, including a front moderate overlap test and a roof strength test. It earned a "marginal" rating in a side-impact crash test performed by the institute.

"We take these results seriously, and are studying the results of these IIHS tests as we consider the design of future vehicles," the company said.

The Chevrolet Volt was the only car in the group to be labeled a "Top Safety Pick Plus," because it has an optional front crash prevention system. The C-Max Hybrid, Countryman, Mitsubishi Lancer, Scion FR-S and Subaru BRZ earned "Top Safety Pick" awards because they don't have front crash prevention systems.

To be a top safety pick, vehicles must earn "good" or "acceptable" ratings for small overlap protection and "good" ratings on the institute's other four crash tests.

 

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GDP vs. FOMC vs. Unemployment and Payrolls

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investing24/7 Wall St. wanted to make an update for its readers about the dual importance of economic reports. It is unemployment that rules the roost in most months, but this week will be an exception. Wednesday morning brings the report on second-quarter gross domestic product (GDP), and then there is the result of the Federal Reserve's Federal Open Market Committee (FOMC) meeting Wednesday afternoon.

The GDP report is due at 8:30 a.m. Eastern Time on Wednesday morning, and economists are looking for a snapback recovery from the final 2.9% drop in the first quarter. It is that severe drop in the first quarter that makes this quarter so important. Bloomberg has a consensus estimate of 3.1% for GDP in the second quarter. If you back out the consumer prices and inflationary components, the GDP price index gain is expected to be only 2.0%.

24/7 Wall St. has been worried that GDP projections have been too strong, even if Goldman Sachs and Morgan Stanley trimmed their estimates. Durable goods may have saved the report from sagging too far south just last week, but the report is not out of the woods. Several cautionary flags ahead of GDP were as follows:

  • The June Consumer Price Index showed higher inflation, which may artificially boost the number outside of that inflation index in GDP.
  • The last reading on retail sales was not exactly the most GDP-friendly, and some 70% or so of GDP is measured under consumer spending.
  • The Chicago Federal National Activity Index showed decelerating growth around the nation.
  • Corporate earnings are still being driven by buybacks and cost cuts rather than due to systemic revenue growth in the domestic market.
  • Capacity utilization remains stubbornly under the 80% mark.

ALSO READ: 10 Cities Where Wages Are Soaring

Keep in mind that fourth-quarter GDP was up 2.6% on an annualized basis before the weak drop of 2.9% in the first quarter. The economy is recovering, but this rosy 3% plus growth expected by economists just feels as though it is too much when you see how little the underlying revenue growth is from major companies. Here are the July Employment Situation estimates from Bloomberg, as of Wednesday:

  • Unemployment rate 6.1% vs. 6.1% in June
  • Nonfarm payrolls 233,000 vs. 288,000 in June
  • Private sector payrolls 233,000 vs. 262,000 in June
  • Average hourly wages +0.2% vs. +0.2% in June
  • Average workweek 34.5 hours vs. 34.5 hours in June

And also, do not forget that at 2:00 p.m. Eastern Time on Wednesday we will get an FOMC statement on rates and quantitative easing. The projection there is slow and steady on zero percent interest rates and another $10 billion to be tapered in new bond buying on behalf of the Federal Reserve.

ALSO READ: 10 States With the Most Student Debt


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ADP: Employers Add More Jobs, but Fewer Than Expected

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ADP employment report
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By Jeff Cox | @JeffCoxCNBCcom

Private businesses created 218,000 jobs in July, a number that while solid and in line with previous months fell below expectations, according to ADP.

The number also fell well short of the 281,000 created in June -- the initially reported total was not revised -- and could cause economists to alter their projections for Friday's nonfarm payrolls report. Consensus has the economy adding 225,000 total for the month.

Employment growth fell across the spectrum, with service industries again leading the way with 202,000 new positions, down from 238,000 in June. Goods-producing businesses rose 16,000, off from 43,000, while construction gained just 12,000, less than half the previous months' gain.

However, Mark Zandi, the top economist at Moody's Analytics, which formulates the report along with ADP, said the overall direction of the jobs market is decidedly positive.

"There's job growth everywhere, in every industry, increasingly in every corner of the country," Zandi told CNBC. "You can see across all occupations, across all pay scales. Early in the recovery it was mostly lower-paying jobs. Now, it's across the board."

Markets reacted little the report, with stock market futures indicating a slightly positive open and government bond yields edging higher as well.

 

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U.S. Economy Roars Back to Life in Second Quarter

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By Lucia Mutikani

WASHINGTON -- The U.S. economy rebounded sharply in the second quarter as consumers stepped up spending and businesses restocked, putting it on course to close out the year on solid footing.

Gross domestic product expanded at a 4 percent annual rate after shrinking at a revised 2.1 percent pace in the first quarter, the Commerce Department said Wednesday.

Previously, the government had said the economy contracted at a 2.9 percent rate at the start of the year. The second quarter's expansion was much stronger than the 3 percent economists had expected and bolstered the outlook for the remainder of the year.

"The economy came back and even though there may have been a little extra inventory building ... solid activity was so widespread that you cannot call this number an aberration," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Despite the pickup, growth in the first half of the year badly lagged the economy's estimated 2 percent to 2.5 percent potential, a reminder that the nation's recovery from the worst recession since the 1930s remains the slowest on record.

A separate report showed private employers added 218,000 jobs to their payrolls this month, a decline from June's hefty gain of 281,000. Still, hiring remains solid and consistent with expectations for a stronger second half of the year.

U.S. stocks initially rose on the growth data before faltering, while the dollar hit a 10-month high against a basket of currencies.

Prices for U.S. Treasury debt fell, with the yield on the two-year note touching its highest level since 2011 as traders speculated about an early interest rate increase from the Federal Reserve.

Eyes on the Fed

The GDP data was released only hours before Fed officials were to end a two-day policy meeting.

The U.S. central bank is expected to announce further reductions to the amount of money it is injecting into the economy through monthly bond purchases, but it is not expected to raise rates until June of next year.

"We do not feel the report calls for pulling forward the Fed rate hike. The first quarter's bad weather didn't change the story, but simply delayed when that train gets to the station," said Tim Hopper, chief economist at TIAA-CREF in New York.

The government also published revisions to prior GDP data going back to 1999, which showed the economy performing much stronger in the second half of 2013 and for that year as a whole than previously reported.

The economy in the second quarter was buoyed by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods, mostly automobiles, and spent a bit more on services.

It had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending.

Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which bodes well for future spending.

Inventories contributed 1.66 percentage points to GDP growth after chopping off 1.16 points in the first quarter.

The economy also received a boost from business investment, government spending and investment in home building.

Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports. Domestic demand rose at its fastest since the third quarter of 2011.

Solid domestic demand, which underscores the economy's firming fundamentals, led to some pick-up in price pressures in the second quarter, a welcome development for Fed officials who have long worried about inflation being too low.

A price index in the report rose at a 2.3 percent rate in the second quarter, the quickest in three years, after advancing at a 1.4 percent pace in the prior period.

A core price measure that strips out food and energy costs increased at a 2 percent pace, the fastest since the first quarter of 2012.

The Fed targets 2 percent inflation.

"The inflation picture should lend support to the Fed hawks who want to hike interest rates sooner rather than later," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo.

-Additional reporting by Richard Leong in New York.

 

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Q2 GDP Blowout — at Least on the Headline Data

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SmokestacksIt turns out that the first quarter drop of 2.9% in gross domestic product (GDP) was truly a blip, just like economists had been saying all along. What is more of a surprise is just how strong the GDP report was — a massive gain of 4.0% for headline GDP, and that first quarter drop of 2.9% was revised to a drop of only 2.1%.

There is no way to deny that this seasonally adjusted GDP report from the Commerce Department was stronger than expected. After all, Bloomberg had a consensus estimate for a gain of 3.1% and was right in the middle of two lowered estimates last week from Goldman Sachs and from Morgan Stanley. Still, annual revisions are making this second-quarter GDP report harder to use on an apples-to-apples basis.

If you back out the inflationary component and look at the personal consumption expenditure price index, that rose by 2.3%. Bloomberg was calling for 2.0% or so in the report.

The implication here is that the negative first quarter and the very positive second quarter now puts the first half of 2014 with GDP growth of roughly 1%. The annual revisions also put the GDP growth during the second half of 2013 at 4.0% — the best reading in 10 years.

Household spending was shown to have risen by 2.5% in the second quarter. That was only a gain of 1.2% in the first quarter. Another driver was a change in private inventories, adding more than 1.6 points to the second quarter. Business spending was up by 5.5%. Exports rose by 9.5%, but imports rose even more at 11.7%.

Government spending and investment also contributed, with gains of 1.6% in the second quarter. Interestingly enough, the Federal spending was down but local government spending was up.

A final note here is that the GDP report was much better on the headline. These revisions and new inclusions make the number much harder to use a direct comparison. We would point to the price-weighted report being much closer to estimates at 2.3% vs. 2.0% expected as evidence that the report might not be quite what it seems if you just read the headlines.

On FOMC watch for 2:00 p.m. Eastern Time on Wednesday: We still expect no change in rates and a $10 billion tapering to $25 billion in the Fed's bond buying program per month from $35 billion.

ALSO READ: The 10 Most Oil-Rich States


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Very Mixed Yet Positive Payrolls Data From ADP and TrimTabs

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187980110This week is a very busy week for employment data. We are still awaiting the Friday unemployment and payrolls report from the Labor Department, but we now have two preliminary views that economists try to use as bogeys to tweak expectations for the government's formal payrolls report.

The ADP Private Sector payrolls report increased by 218,000 jobs from June to July in the ADP National Employment Report. Wednesday's report was derived from ADP's actual payroll data, and it measures the change in total nonfarm private employment monthly, on a seasonally adjusted basis.

This 218,000 payroll gains in July from ADP compared to a Bloomberg consensus estimate of 235,000 and to the June ADP payroll gains of a whopping 281,000. Small businesses accounted for 84,000 of the total gains, and medium-sized businesses added 92,000 in the month. Large businesses accounted for 41,000 of the total gains.

TrimTabs Investment Research shows a much rosier picture for July. This report showed that the United States added a whopping 306,000 jobs in July. This was put at the highest growth in four years and TrimTabs showed that this employment growth was more than sufficient to keep pace with population growth.

TrimTabs' employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 140 million U.S. workers subject to withholding. They are historically more accurate than the initial estimates from the Bureau of Labor Statistics. The TrimTabs summary is that there is no reason to expect the Federal Reserve to deviate from its plan to end its bond purchases by October.

These numbers from ADP and TrimTabs were dwarfed by the monstrous 4.0% gain in second-quarter GDP and by the revised drop to 2.1% in the first quarter from the "prior final" GDP report of -2.9%.

ALSO READ: The 10 Most Oil-Rich States


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Worst Things to Buy Before Your Kid Heads Back to School

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Worst Things to Buy Before Your Kid Heads Back to School
Patrick T. Fallon/Bloomberg via Getty Images
By Cameron Huddleston

Whether your child is heading off to kindergarten or college, you don't want to send him or her to the classroom without the necessary supplies. So you visit your favorite online retailers or head to the mall to buy notebooks, pencils, folders, clothing and maybe even big-ticket electronic items. But buying all the items you think your child needs before he or she heads back to school can be a mistake.

Some school-related items won't drop in price until after the back-to-school sales are over. Plus, if you rush to buy everything now, you might discover that many of those purchases weren't even necessary once school starts. So to avoid spending more than you have to, here are seven things you should avoid buying before your child heads back to school.

Fall apparel. Fall clothing already is appearing in stores, and some retailers might offer small discounts on some items during back-to-school sales or over the long Labor Day weekend. But markdowns of 40 percent or more likely won't show up until mid- to late fall. Not only will you spend more than necessary if you buy fall clothes for your kids now, you might end up purchasing things your kids decide aren't cool enough because the other kids are wearing something else, says Kristin Cook, managing editor of Ben's Bargains. If your kids need clothes, she recommends taking advantage of ongoing clearance sales on summer clothes that can be worn the first month or two of school when it's still hot outside.

HDTVs. You might not consider a television as a back-to-school purchase. But if your child is heading off to college, she might ask for a small HDTV for her dorm room or apartment. The summer months are usually a bad time for TV deals, though, says Mark LoCastro, spokesperson for DealNews.com. Wait until November when HDTV prices are the lowest of the year during Black Friday sales.

School supplies. Wait until you get a supply list from your child's teacher before purchasing anything. Otherwise you could end up with the wrong type of supplies or an abundance of things your child won't use. If possible, try to get by for a couple of weeks with what your child still has from the previous year because big-box retailers such as Target (TGT) and Walmart (WMT) will dramatically mark down school supplies after Labor Day, Cook says.

Smartphones. Even elementary-age kids are taking phones to school now. So if your child has been pestering you to buy one, hold off until later in the fall. After new models are revealed, older versions will be available for deep discounts, says Jon Lal, founder and CEO of BeFrugal.com. In particular, don't rush to buy the new Amazon Fire Phone, LoCastro says. DealNews.com research shows that Android phones, even popular ones, see discounts of about 50 percent within the first two to three months after release. There's a good chance that Amazon (AMZN) will discount its Android phone in order to remain competitive in a crowded market, LoCastro says.

Tablets. You won't see deals on many tablets now because demand is high, says Joe Warner, assistant managing editor of Ben's Bargains. Wait until Black Friday (the day after Thanksgiving) to find deals, he says. Or consider buying your child a laptop, instead, especially if he's heading off to college. With so many sales on laptops now through the start of school, they're cheaper and more practical than tablets, LoCastro says.

Textbooks. Don't buy textbooks for your college students until they've attended one class and are sure they won't drop it, says Trae Bodge, senior editor of RetailMeNot.com. Look for used, rather than new, textbooks on sites BigWords.com and CampusBooks.com. See How to Cut Your Textbook Costs in Half -- or More for more ways to save.

Trendy gear. If you buy your child a backpack or lunchbox before school starts, you run the risk of having your child change her mind about what she wants after she sees what the other kids are using to bring their books and lunch to school, says Regina Novickis, savings expert at PromotionalCodes.com. Encourage your child to use her current gear for a few weeks. Then you can make a safe investment knowing your child has what she wants, Novickis says. Plus, by waiting, you might score discounts on items that didn't sell during the back-to-school rush.

 

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Monkeys' Behavior Reveals Hidden Threat to Our Wealth

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Portrait of capuchin monkeyKeywordsanimal, ape, best friend, camera, capuchin monkey, companion, facing camera, friend, inte
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Your money is threatened by a Trojan horse that comes in the form of a wide grin, a wink and maybe a hug. This threat is like a computer virus. It runs without your awareness, takes hold of your operating system and undermines your intentions. This threat affects nearly everyone -- myself included.

I was recently in Las Vegas telling more than 50 NFL athletes how to turn sudden wealth into lasting wealth. In my keynote address, I identified some common threats -- such as divorce, lawsuits and injuries -- but I focused on this hidden threat.

It's been said that we are the average of the five people we're closest to. If you're making $40,000 a year, and all of your friends are making $100,000, you tend to to spend more than you can afford to match their lifestyle. You may start to buy the same types of clothes or the same kind of car. You might take up the same expensive hobbies or move into the same neighborhood. Contrary to what most financial advisers suggest, the biggest threat to creating lasting wealth is not your poor friends. It's your rich friends.

Such financial creep is hardwired within us. We are social creatures. We are constantly looking at others and learning and modeling from them. It's in our DNA through evolution and natural selection. Our ancestors who saw and learned from others about what worked and what didn't were the ones who survived. Animals do it, too.

Going Bananas Over a Grape

If you're unable to watch the video, imagine two monkeys in separate cages. A researcher gives the first monkey a slice of cucumber. The monkey grabs this and starts to eat it because monkeys like cucumbers. The researcher then gives a grape to the second monkey. The second monkey devours it because while monkeys enjoy cucumbers, they love grapes. The first monkey is looking but doesn't really think much of it. The researcher then gives another cucumber slice to the first monkey. The first monkey takes it a little more slowly and starts to eat it, but now he's watching the researcher and the other monkey more closely. The researcher then gives another grape to the second monkey. Again the second monkey gobbles it up.

If you watch the first monkey, you can tell something is not right. He's trying to figure out why he's getting cucumber slices and his buddy is getting grapes. Finally the researcher gives another cucumber slice to the first monkey. The first monkey takes it, looks at it, looks back at the researcher and throws the cucumber slice through the cage -- and it hits the researcher right on the chest. This monkey is irate. He does not understand why he is stuck with cucumber while his friend gets grapes.

Just two minutes before, he was thrilled with his cucumber. And now he is enraged. Why? It's called relative deprivation. We're constantly comparing ourselves to those in our immediate circle and looking for areas where we're not getting what we think we deserve.

Unsatisfied by a Dream Car

Let me give you a human example. Imagine someone who has worked hard for many years to buy a Porsche 911. He has finally saved enough to throw down $100,000 at the dealership and drive off in a new Porsche 911. The windows are down, the radio is up, and he's cruising. But when he drives into a parking lot, he pulls up next to ... what? A fancier car? A faster car? A more expensive car? He gets out of the Porsche, shuts the door and feels disappointed. It's an internal tug that whatever we have isn't quite good enough -- that maybe we're not good enough.

This seriously threatens our finances. You know what's going to happen to the guy with the Porsche. In three months, he's going to sell it at a huge loss and borrow money or lease a car that's much more expensive then he can afford.

This virus is almost impossible to delete. The best defense is awareness. The next time you buy something, ask yourself why you want what you are buying. Do you truly want it or are you just buying it so you look better or to assuage an internal battle to feel good enough?

The takeaway is to be conscious of how your environment and those around you affect your motives. Use money to create a better, fuller and richer life. Don't use money to attempt to keep up with friends or to mitigate feelings of inequity. It might not be fair that your friends enjoy grapes while you get cucumber, but if you act like the monkey, you'll have neither grapes nor cucumbers to eat.

Robert Pagliarini is a best-selling author and financial adviser who focuses on sudden wealth recipients. Connect with him on Twitter at @rpagliarini.

 

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No, You Didn't Win the Jamaica Mega Millions Lottery

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Jamaica US Lottery Scams
Elaine Thompson/APAnother version of the Jamaica lottery scam is by mail. Con artists are stealing an estimated $1 billion a year, largely from elderly Americans, the federal government estimates.
The phone rings, and your caller ID shows an 876 area code. Unless you're expecting a call from Jamaica, you probably shouldn't answer. It's likely going to be a scam.

The Federal Trade Commission on Tuesday warned consumers that the foreign lottery scam has once again reared its head. Foreign lottery scams are like other scams involving promises of a free trip or other prizes. They just make it seem like you've won a lot more.

The scam comes when you're asked to pay in advance for the taxes and fees so you can receive your huge prize from the nonexistent "Mega Millions" lottery in Jamaica. This time, according to the FTC, victims are being asked to make their payments using prepaid cards.

It has long been tradition in scams to make payment via money transfer services like MoneyGram and Western Union (WU) but sending money using a prepaid cards is the flavor of the month among criminals. Why? The money can't be traced, and once it's transferred, it's gone.

Many Reasons to Be Suspicious

Cracking down on the scams has been serious business of late in Jamaica. The Jamaica Constabulatory Authority's Lottery Scam Task Force won its first convictions earlier this year. It arrested 41 people last week and another 10 suspects a few weeks earlier. But the calls keep coming, costing some victims tens of thousands of dollars.

Here are some warnings to keep in mind:

  • Playing a foreign lottery is against the law in the U.S. Plus, you don't get calls from lotteries telling you that won. And you certainly won't hear from a lottery that you never entered.
  • 876 isn't the only sketchy area code. The Better Business Bureau notes that 809, 284 and 649 calls also have been attached to a variety of scams. All are area codes from Caribbean islands. They're among the few area codes outside the U.S. that allow calls to be placed directly, without the use of a country code.
  • Beware of spoofing. Just because a call comes from an area code that isn't tied to the Caribbean doesn't mean it's legit. Today's technology allows crooks to pose as just about anyone they care to, making your caller ID show whatever number they want. Never pay in advance to collect something you supposedly have won.
The FTC notes that some consumers who have gotten these scam calls have been threatened by the callers if they don't pay up (another tactic not common to legitimate lotteries). The agency suggests hanging up the phone as soon as you realize something's amiss.

 

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Easily Earn Money With These 3 Lucrative Side Hustles

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Sometimes it's tough to juggle monthly bills, debt repayment, regular savings and contributions to investment accounts for things like retirement.

Cutting costs and utilizing the savings to meet your financial goals is a great idea. But eventually, you'll run out of expenses to eliminate. When you reach that point, what's next? Side hustles.

An ideal side hustle will combine something you're good at, something you love to do and something that other people want to pay to have you do for them. You probably have interests or hobbies you would love to get paid to do. Convincing someone to pay you for that work is the tough part.

We've done the hard work for you by developing this list of three side hustles that will have people lining up at your door to pay you for.

1. Creating Websites and Coding

If you have a love for tech, consider building websites or writing code. This is a skill not everyone has or even understands, and many people don't have the patience to learn it. That leaves a big gap in a market where nearly every business requires a professional-looking website. If you know how to build things online, this could be lucrative.

And if you don't know how to code, you can teach yourself -- for free -- with resources like Codecademy. Wordpress is also a popular content management system to learn.

2. Taking Photos

It may be difficult to break into certain photography niches -- like weddings -- that require hefty portfolios and lots of experience. But if you have a dSLR and know how to use it, you can work as a photog. People want to hire someone who knows how to use a fancy camera for everyday things.

The web is a highly visual place, and high-quality images are required for any digital presence.
Young professionals are booking photo sessions for things as simple as social media profile photos, and bloggers increasingly need more than stock images to go with their content to (visually) keep up with their competition. And with the influence of sites like Pinterest, families want professional-style photos for birthday parties, reunions and other occasions.

3. Helping Others in Your Community

We're all busy, but some of your neighbors -- and nearby people you don't know -- may be swamped with more jobs to do than they can handle:

  • Landscaping or yard work.
  • Babysitting or nannying.
  • Cleaning houses or washing cars.
  • Running errands.

For more ideas, join a site like TaskRabbit. Usually anyone can handle these tasks -- but many people don't want to. They're tired from work, parenting and other responsibilities, and they would rather pay for the convenience of outsourcing them.

Sophia Bera is a virtual financial planner for millennials and the founder of Gen Y Planning. She is location-independent but calls Minneapolis "home." Do you want to be better with your money than 90 percent of your friends? Then sign up for the free Gen Y Planning newsletter.

 

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Confessions of an Out-of-Control Penny-Pincher

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By Victorine Lamothe

In our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your respectful responses.

Today, one woman shares how her constant anxiety over money caused her to go overboard with her frugal habits, which adversely affected her life in many ways
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I was a pretty lucky child growing up in a suburb of New Orleans. I attended summer camp, went to private schools and learned to play the piano and dance ballet. With their upper-middle class incomes, my parents were able to provide for me in a way that many families can't.

Courtesy: Victorine LamotheVictorine's penny-pinching only elevated her anxiety over money.
But while I never knew what it was like to want for anything, my parents did think it was important for me to learn the value of money. Once I became a teenager, they encouraged me to get a part-time job, so I could foot the bill for hanging out with my friends and any shopping excursions. At 14, I got my first gig as a babysitter, moving on to restaurant host and daycare worker during the rest of my high school years.

My paychecks were mine to manage, and I had my own checking account. By the time I graduated, I felt financially independent because I was responsible for all my own spending money.

So I naturally figured I would be able to juggle jobs with school in much the same way once I got to college. But college was a totally different world -- and it didn't take me long to realize that "having enough" would take on a whole new meaning.

My Path to Obsessive Penny-Pinching

In the fall of 2007, I entered Barnard College in New York City. And although I was a straight-A student in high school, keeping up with undergraduate coursework was decidedly more difficult.

From 9 a.m. to 10 p.m., I attended classes, studied, wrote papers and managed to sneak in meals. Unlike many of my fellow classmates, my parents didn't give me spending money. They took care of my tuition, room and board, and plane tickets home, but I was responsible for scrounging up money for day-to-day expenses.

Because of my nonstop schoolwork, I could work only on the weekends. By my senior year I'd held a medley of odd jobs: babysitter, translator, English tutor, dog sitter, house sitter, model and personal organizer. I never made a lot of money -- $200 a week at most -- and that didn't go very far in Manhattan.

As a result, I developed some extremely frugal habits that helped me reduce my spending and save some of the little money I was making -- but also launched me on a path to a near-crippling obsession with cutting costs.

My groceries and toiletries were all generic brands. I didn't shop for new clothes. I didn't go out to bars or clubs with cover charges. I also looked up campus events where free food was advertised. I even went to a meeting for a campus organization that I was completely uninterested in just so I could take some cookies -- that was breakfast for the next two days.

Even when I had a little extra, I felt the need to save it for the weeks when I couldn't find work or didn't have time to work because of my studies. I never got a credit card because I was afraid of spending more than I earned, and I never asked my parents for help because I felt like I needed to be an adult and figure things out on my own.

Looking back on my college years, I realize my stress levels were much higher than my classmates' because -- in addition to worrying about grades -- I was constantly worried about money.

Why My Problem Only Got Worse Post-Graduation

When I graduated in May of 2011, I landed my dream job at a publishing company. I thought that having a steady paycheck would help alleviate some of my financial stress, but despite my frugal ways, I still wasn't prepared for the reality of living on an entry-level salary.

After taxes, medical insurance and other payroll deductions -- except for retirement, which was a pipe dream at that point -- I had $1,600 a month to live on. In some cities, that's doable, but it doesn't go very far in New York. Determined to stay in the city and advance my career, I had to find a way to make that money work.

I avoided most social situations that involved spending money -- it got to the point where I'd only accept invitations from friends who I knew would pay for my dinner, coffee or drinks.

This meant finding new levels of frugality that put my cheap college habits to shame.

First, there was the little matter of rent. I found some decent roommate situations in nice neighborhoods, where I would have paid between $800 to $1,000 a month. But once I calculated how much disposable cash I'd actually have, I decided the best option would be to rent a room in a not-completely-safe area for $550 a month.

Then I came up with detailed spreadsheets to track every single penny spent. I only allotted money for rent, utilities, groceries, transportation, toiletries, cleaning supplies and other essentials. Dinner usually consisted of $3 microwavable meals, and going out was out of the question.

I also couldn't bring myself to shop, even when I was sorely in need of a new outfit. I remember showing up to work once in a hole-ridden dress and overhearing some co-workers snickering about me behind my back.

And what little I managed to save always seemed to get eaten up by unexpected expenses -- like getting stuck with a $500 "lab fee" from my doctor's office. I was always in fear of the next financial emergency.

My anxiety over finances meant that I lived a pretty lonely existence. I avoided most social situations that involved spending money -- it got to the point where I'd only accept invitations from friends who I knew would pay for my dinner, coffee or drinks. I was upfront about the fact that I was uncomfortable spending money, and most of my friends would say they understood -- but deep down I felt like nobody really could.

It wasn't until I met Cecilia that I realized my frugal ways were getting out of hand.

Reaching My Thrifty Tipping Point

I met Cecilia at work, where she noticed that whenever I'd get invited to an after-work party, I'd order the cheapest thing on the menu -- or nothing at all. When we started dating, I made her aware that I wasn't making much money, so she footed the bill on a lot of our dates.

Cecilia accepted my cheapness, but there were times when it created tension between us. The turning point for me came when we were celebrating her birthday as a couple for the first time.

For my birthday, she had gone all-out with a night at a hotel and dinner at a nice restaurant. When her birthday rolled around, I was incapable of purchasing a real present, mainly because my cheap mentality had become so engrained in me. My gift? A bagel with lox, because I knew it was one of her favorite foods.

She smiled when I offered it to her, but mentioned later that she would like a "real" present for her next birthday. While she made a joke of it, I could see in her face that she would have liked for me to make an exception to my cheapness for her birthday.

I realized my frugality went from being a good habit to an unhealthy obsession when I couldn't even buy the person I love a proper gift.

I knew it was time for me to let up on my extreme frugality.

Now that we're married, I haven't completely changed my ways, but I have loosened my grip on money. Cecilia and I have mostly separate bank accounts, but we do have a joint checking account for household expenses. Although I still track all my spending, I also know that splurging on a nice restaurant isn't the end of the world.

To be sure, I'm not saying that being thrifty didn't, and doesn't, have its benefits. A lot of my friends live paycheck to paycheck, either because they don't make much or because they feel pressured to consume -- whether it's a $15 cocktail or the latest tech gadget. Many of them have racked up thousands of dollars in credit card debt.

By contrast, I never draw my checking account down to zero, I've started contributing to retirement and I have enough savings to cover myself for five months if I lost my job. I'm never caught off-guard when confronted with an unexpected expense, and am now focused on saving up for a down payment on a home. Compared to other 20-somethings in New York, I feel like I'm ahead of the game.

But I realized my frugality went from being a good habit to an unhealthy obsession when I couldn't even buy the person I love a proper gift. Looking back, there were times when I could have let myself have fun, make some memories, and allow myself the occasional splurge -- as long as those things were the exception and not the rule.

 

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Airline Stocks Are Flying High Now but Won't Forever

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NEW YORK - JANUARY 12: Airbus A330 approaches at dusk to JFK Airport located in New York, USA on January 12, 2012. Delta is one
Chris Parypa Photography/Shutterstock
Investors are starting to embrace airline stocks again. American Airlines Group (AAL), United Continental (UAL) and Delta Air Lines (DAL) are up 60 percent, 23 percen, and 39 percent, respectively, so far in 2014. All three of the legacy carriers have seen their shares more than double off of last year's lows.

Last week we even saw American Airlines do something that the iconic airline hasn't done in 34 years when it reinstated the quarterly dividend that it suspended in 1980. It's also not the only way that these air heads are returning money to their stakeholders. The boards at American Airlines and United Continental authorized $1 billion in buybacks.

Ascending stocks prices, mailing out dividend checks and cranking out the kind of free cash flow to accommodate 10-figure stock repurchases are as unusual as a flight out of O'Hare or LaGuardia leaving on time. The airline industry is starting to take off, but you may want to respect that "fasten your seatbelt" light.

Cleared for Takeoff

With sector consolidation and modest jet fuel rates helping improve margins, air carriers have been big winners in 2014. And the good times are expected to continue in the near term. Analysts see earnings per share soaring 93 percent at American Airlines this year. It will earn more this year than the carrier's market cap was in early 2012.

It's not the only one expected to make big strides. United Continental's profitability is expected to climb 56 percent this year. Delta isn't growing its bottom line as quickly, but there's always the possibility that analysts aren't aiming high enough here. Over the past year the three leading carriers have combined to beat Wall Street income estimates in 10 of the 12 quarters.

If this was any other sector, flourishing in an ideal climate with mergers making the remaining players even stronger would be the feel-good story of 2014. Unfortunately we're talking about airlines, and we've seen these highs come undone by turbulence before.

Making Our Descent

"Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results," Warren Buffett, arguably this generation's greatest investor, said in 2013. "It's been a death trap for investors."

Buffett was asked about the airlines after merger activity and share prices began to pick up. He was probably being kind. A dozen years ago he had a more vivid reaction: "If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright," he reportedly said at the time. "He would have saved his progeny money."

Buffett's argument then was that the industry's high fixed costs, strong labor unions and commodity pricing made it a dangerous area to invest. He should know. He bought some US Air debt in 1989 and was lucky to get out a couple of years later without losing his hide.

Pressures From Consumers, Competitors, Unions

Buffett's concerns are still valid today. Despite the popularity of frequent flyer programs, we're still using online sites to make sure that we grab the cheapest fare on any carrier. This will always be a business where desperate carriers will launch price wars. Sector consolidation helps, but this won't change, because this will never be a monopoly.

We're years removed from the latest organized labor strikes, but unions are working to keep employees well paid regardless of the ups and downs of fuel costs and passenger demand. All of this adds up to planes that need to operate at high occupancy levels to remain consistently successful. It has happened over stretches of time.

Airlines are clearly successful right now. However, there's a reason why Buffett has said that the industry has "eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in."

It could be happening again.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.


 

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