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More Seniors Carry Student Loan Debt into Retirement

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More Seniors Carry Student Loan Debt into Retirement
Getty ImagesUnpaid student debt can be deducted from your federal benefit payments.
By Emily Brandon

Americans are increasingly entering their retirement years with student loan debt. Outstanding federal student loan balances for people 65 and older have ballooned from about $2.8 billion in 2005 to $18.2 billion in 2013, according to a GAO analysis of Survey of Consumer Finances data. There are now approximately 706,000 senior citizen households that still have student loan debt.

Senior citizens are less likely to have student debt than young people. Nearly a quarter of households headed by people under age 65 -- some 22 million people -- have outstanding student loans, compared to 4 percent of households headed by someone ages 65 to 74. But borrowers 65 and older are much more likely to have defaulted on their federal student loans. Only 12 percent of people between ages 25 and 49 have federal student loans in default, compared to over a quarter (27 percent) of retirees ages 65 to 74 and more than half of loans held by seniors ages 75 or older.

Student loan debt after age 65 can significantly impact the finances of retirees. If federal student loans go unpaid for more than a year the Department of Education may take action to recover the funds. Borrowers who miss one or more student loan payments have a little over a year to resume payments or renegotiate the terms of the loan before collection procedures are initiated. Once the loan has been delinquent for 425 days the Department of Education can begin collection proceedings, perhaps including garnishing wages, sending the loan to a collection agency, charging collection costs, initiating litigation and reporting the failure to repay to credit reporting agencies. Federal payments to borrowers who have not made scheduled loan repayments can be withheld to repay the loan, including tax refunds and Social Security retirement or disability benefits.

The Department of Education sends a list of newly defaulted loans that have remained unpaid for more than 425 days to the Treasury each year in July. At that point any available tax refunds are used to repay the loan without prior notice to the debtor. Borrowers who receive federal monthly benefits are informed by mail that their benefits will be offset 60 days and 30 days before the money is reallocated to the debt. The Treasury also charges a fee of $15 per offset in fiscal year 2014.

A portion of the debtor's Social Security disability, retirement or survivor benefits can also be withheld to pay off the loan. Social Security offsets to pay student loan debt grew by 500 percent from approximately 6,000 in 2002 to 36,000 in 2013 among people age 65 and older. The Treasury collected about $24 million by withholding Social Security benefits from debtors in 2002, a number that increased to $150 million in 2013. However, the average monthly amount withheld from each retiree increased only marginally over the past decade from $120 to $130.

Federal Limits

Federal law limits how much can be removed from Social Security checks to repay student loans. Social Security benefits paid to debtors can be withheld by as much as 15 percent of the total benefit or the amount that exceeds $750 a month, whichever is lower. For example, a debtor with a Social Security benefit of $1,000 a month would have 15 percent of his benefit, or $150, withheld because that is less than the portion of the benefit over $750, which is $250. However, the $750 limit was set in 1998, when that amount was above the poverty line for a single adult age 65 and older, and has not been adjusted to keep up with inflation.

"Because the statutory limit at which monthly benefits can be offset hasn't been updated since it was enacted in 1998, certain defaulted borrowers with offsets are left with Social Security benefits below the poverty threshold," according to the GAO report. "This creates the potential for an unpleasant surprise for some, as their benefits are offset and they face the possibility of a less secure retirement."

Seniors may continue to have student loan debt in retirement because they chose to make small payments over a longer period of time, accumulated interest and fees on late payments or went back to school late in their career. Some adults also cosign loans or take Parent PLUS loans to help their children pay for college, but the majority of outstanding loans for those ages 65 to 74 (82 percent) are for the borrower's own education costs. Most student loan debt cannot be eliminated in bankruptcy, so the loans typically stay with individuals until they pay them off, even if that means having the money withheld from retirement benefits.

Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at ebrandon@usnews.com.

 

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Crazy Secret to Picking Stock Winners? Buy High, Sell Higher

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For investors building a portfolio of individual stocks, the fundamental goal is to find great companies whose stock price has the potential to rise dramatically. But most investors avoid buying stocks off the one list where those types of companies are guaranteed to show up -- the 52-week high list.

The desire to buy things for as cheap a price as we can is natural. It's a concept we start learning practically as soon we begin to reason -- always look for a deal. So it doesn't matter if we're contemplating the purchase of a flat-screen TV, a new car or a house, or a stock, we want to get the best bargain possible -- and at the very least, avoid "overpaying."

But this mindset turns out to be at odds with the dynamics of the stock market -- and often causes investors to avoid buying the best companies.

Stocks Aren't Wasting Assets

When you go into a store to buy a product, in almost all cases it is a "wasting asset." Over time, wear and tear -- as well as the introduction of newer models -- conspire to make the product less and less valuable, and thus less desirable. That's why Craigslist and garage sales exist - to get rid of items that once were more valuable then they currently are.

But in the stock market the goal is to buy an asset -- in the form of a share of stock -- that will hopefully be in more demand in the future and garner us a high price than we paid for it. And the 52-week high list is the perfect place to look for those type of stocks.

"It doesn't matter how smart you are; how ingenious you investing idea is," says Ivaylo Ivanhoff, chief strategist for Social Leverage 50, which selects and ranks stocks in the early stages of their price growth cycle. "Until the market agrees with you, you won't make a cent. And the market agrees with you when you see your stocks on the 52-week high list."

Those sentiments seem to be backed up not only by math, but by common sense as well.

Apple for $4

For example, at the end of 2004, Apple (AAPL) was trading around $4 a share on a split-adjusted basis -- which was not only a 52-week high, but an all-time high -- and had gone up 300 percent in the previous year alone. To many, this was a sign the stock was too expensive.

But before a stock can go up 5,000 percent -- like Apple did between 2004 and 2014 -- it first has to go up 50 percent. And then 100 percent. And then 200 percent. And so on. And each time it does, chances are it is hitting 52-week highs.

"The 52-week high list is basically a short-cut into the minds of people, who can create and sustain trends," says Ivanhoff, referring to the large institutions who can move markets and individual stocks with their investments.

History shows that once a major move begins, it can continue for a long time. Look at the charts of widely held blue chip stocks like Microsoft (MSFT), McDonald's (MCD), Walmart (WMT) and Home Depot (HD), or even lesser-known names like Taser (TASR), Monster Beverage (MNST), Baidu (BIDU) and Pharmacyclics (PCYC). During their most explosive price appreciation periods, they were consistently showing up on the 52-week high list, sometimes for years on end.

The Strong Get Stronger

In the stock market the general rule -- no matter how counter-intuitive it seems to investors -- is "the strong get stronger," and those stocks that will continue to get stronger cannot do so without showing up on the 52-week high list.

Because of this phenomenon, investors would be wise to forget about finding under-performing "bargain" stocks that might someday be winners and instead concentrate on stocks that are already winners and will continue to be.

As Ivanhoff is fond of saying when it comes to stock picking, "Stop trying to find the next Starbucks (SBUX). Starbucks might be the next Starbucks."

Brian Lund has developed a list of "20 Books Every Investor Should Know About."

 

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Fracking and Earthquakes: The Risk Is Clear. Who Pays Is Not

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Fracking and Earthquakes: The Risk Is Clear. Who Pays Is Not
Doug Menuez/Getty Images
The energy industry in the U.S. has surged in the past decade thanks to advances in technology that have allowed companies to extract vast quantities of oil and natural gas from sources once deemed too difficult or expensive to exploit. Yet as unconventional drilling methods like hydraulic fracturing have become more common, scientists have noticed a disturbing pattern that seems to follow their use: a sharp rise in the number of earthquakes in areas where fracking is used.

With many shale oil and gas deposits far from the parts of the country where residents usually expect earthquakes, homeowners are becoming increasingly concerned about the threat of fracking-induced temblors damaging their homes -- and also wondering whether they're insured against the danger.

Oklahoma: Not OK for Earthquakes

Until the recent energy boom, few people thought of Oklahoma as being a potential hotbed for earthquakes. No major fault lines run through it, so residents and the government saw little risk. Although the state isn't that far from the New Madrid Fault, which runs along the Mississippi River from St. Louis to Memphis, Oklahoma didn't face nearly the same danger as areas of southeastern Missouri, eastern Arkansas and western Tennessee. In maps produced prior to the fracking boom, the U.S. Geological Survey assessed Oklahoma as having relatively modest seismic hazard risk.

Earthquake risk map
USGS
Now, though, all that has changed. In May, the USGS issued an earthquake warning for Oklahoma, the first time it had ever done so for a state east of the Rocky Mountains. Researchers from the USGS and the Oklahoma Geological Survey specifically mentioned the possibility of hydraulic fracturing contributing to quakes. Extracting oil and natural gas through the fracking process creates some pressure, but scientists believe that reinjecting fluids back into the ground creates even greater amounts of seismic instability. As a result, Oklahoma has gone from having no more than a dozen magnitude 3 earthquakes each year from 1990 to 2008 to suffering hundreds since 2009.

Similar concerns have arisen in other areas of new energy production, including Ohio and Colorado. And while the impact on the energy industry hasn't been substantial yet, residents of states where fracking activity has caused damaging tremors are now learning what residents of California have long known: Typical homeowners insurance doesn't cover foundation and structural damage from earthquakes. Homeowners need to get additional earthquake coverage to protect themselves from potential loss.

As you'd expect, interest in earthquake insurance has spiked. A recent Time article found that, at least according to one insurance producer, earthquake coverage in Oklahoma has soared in popularity from about 1 percent prior to the fracking boom to about 40 percent currently. Broader-based figures show a more modest climb, but the Insurance Information Institute has figures showing that total premiums collected for earthquake insurance in the state rose more than 70 percent between 2010 and 2012. That comes even as premiums for earthquake insurance there have soared, with the institute reporting a doubling in average costs to more than $12,000 in 2013.

Will Energy Companies Foot the Bill -- or Will You?

For consumers, the cost of earthquake insurance has long made it seem optional for homeowners outside areas most at risk. Yet even as premiums climb, greater awareness of earthquake risk will force many homeowners to consider the potential impact of seismic activity on what for many is their most valuable asset.

In the end, the cost of earthquake insurance will turn on the ability of insurance companies to link loss events to specific activities from oil and gas production companies. Insurance industry experts have already looked at research establishing definitive links between wastewater injection practices and resulting seismic activity, but any potential lawsuit by insurance companies on behalf of homeowners against oil and gas producers would need much more specific evidence that a particular operation caused the quake that led to the damage. If insurers can't collect from energy companies, then they'll have to pass through loss costs to policyholders via higher premiums.

Nevertheless, if you live in an area where hydraulic fracturing is taking place, you need to keep a close eye on earthquake activity and consider the benefits of having earthquake coverage.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google Plus. Check out our free report on high-yielding dividend stocks.

 

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The 7-Year Ditch: Why We're Sailing Toward a New Fiscal Crisis

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Family sitting on roof of house floating in sea
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In just a few months, the American banking sector will begin to experience a massive case of collective amnesia. And it's a predictable amnesia, with predictable consequences.

According to FICO (FICO), negative financial information -- late payments, bankruptcies, foreclosures, collection accounts, etc -- will generally disappear from your credit report after seven years. You probably already knew this: Personal finance experts talk about it often when discussing credit scores, bankruptcy, or a host of other money issues.

But let's do the math.

In 2008, the worst financial crisis since the Great Depression hit this country. It led to a record number of foreclosure filings beginning -- nearly 3.1 million filings that year. And the trend continued, with millions of homes foreclosed each subsequent year.

Fast forward to 2015, when the first of the great recession foreclosures will start to vanish from credit reports. Credit scores improve as time elapses and your score can experience a big improvement when a major negative item drops off your report. According to Experian (EXPN) data provided to the New York Federal Reserve, the average credit score in the second quarter of 2014 reached 698, the highest level in the last 10 years. We can expect those averages to keep rising as the defaults, delinquencies and foreclosures of the Great Recession begin to be wiped from people's credit records.

In addition, housing prices have started improving. The Case-Shiller house price index has experienced double-digit increases over the last few years. And, bank losses have improved. For example, JPMorgan Chase (JPM) has reduced its loan loss reserves for mortgages by $1 billion over the last 12 months alone.

So, we are experiencing:
  • Rapidly rising credit scores.
  • Increasing property valuations.
  • Improved bank balance sheets.
Can you imagine what that means?

Fire Up Those Consumer Credit Engines

As memories of the Great Recession disappear from credit bureaus, so do the lessons learned. During the mortgage boom, we witnessed a banking sector abandoning common sense in favor of big data and complex products, with eventually disastrous consequences.

Remember the Home Equity Line of Credit? In the go-go days, you could even buy a Starbucks (SBUX) latte with a credit card that automatically took funds from your HELOC. Well, the credit cards aren't back, but HELOCs have returned in a major way. According to Experian Decision Analytics, HELOC originations are up 27 percent year-over-year, with $35.2 billion of new credit lines created in the last 3 months. And, guess which state led the nation? California. The products are starting to look eerily familiar. I saw an advertisement at Santander for a HELOC that was priced at prime -- 0.26 percent.

We've seen a lot of press about student loan debt surpassing credit card debt, but don't write off the boring credit card just yet. Bank card originations were up 26 percent year-over-year, with $85.3 billion of new credit card limits were issued to consumers in just three months. And you can't watch television or open your mailbox without seeing credit card companies trying to sign up new customers.

Even subprime mortgages are coming back. You can now get a mortgage today with a 550 FICO score.

What Does This Mean for You?

There is good news. So many people were talked into mortgages by unscrupulous brokers, to buy properties they couldn't afford, during the last mortgage boom. Banks just opened the floodgates and poured mortgage money on neighborhoods, inflating prices and making rational decisions difficult for even the most rational homebuyer.

For people who suffered the pain of losing their jobs, their homes and their credit ratings during the crisis, the 7-year cycle means healing is possible. This isn't a medieval country that throws people into debtors prison. Bankruptcy gives people the same rights that corporations have to hit the reset button. I know someone who has emerged from bankruptcy to set up a new business that is rapidly hiring new employees and helping to grow the economy. And I'm happy that credit scores improve over time, so that people can regain access to credit.

What Could Go Wrong?

But I am horrified by a system that can systematically forget lessons so quickly.

And I can't believe we still have a pro-cyclical banking system that requires banks to build reserves when times are bad, only to let them release their reserves when times are good.

I just hope that while banks will have a guaranteed case of amnesia, people will never forget the mistakes, lies and pain of the last recession.

The last mortgage crisis did not happen overnight. It was the product of years of "risk layering." Thirty years ago, you needed a 20 percent down payment, a verifiable and predictable stream of income, and good credit history to get a mortgage. Then, banks slowly relaxed credit. The minimum down payment was reduced by 5 percent. The income verification rules were tweaked. Each change, on its own, did not look too scary. But, by 2008, you could be self-employed, provide no income documentation and buy a home with no money down. Even worse, it would be a very complicated product that had a very low interest rate for five years, and then increased to a dramatically higher rate.

Today, banks say that they have learned their lessons. Banks say that they will only lend to people with good credit. But, those are just the same people they lent to before, seven years later. Lenders say we won't go back, but HELOC and sub-prime mortgages have already started to reappear.

To be clear, the products being made available today are still far less risky than the products being offered in 2006. But I'm concerned that we're slowly restarting that same risk layering process. And, if you fast-forward a few more years, to a day when all the worst financial memories from the Great Recession have been expunged from our records, a no-money down, no documentation, 550 FICO adjustable-rate mortgage may look appealing to some risk manager at some major bank.

So, while the credit bureaus will experience their scheduled bout of amnesia over the next few years, we as consumers can't forget the lessons from the last crisis. Most importantly:
  • Don't trust your bank or broker to determine what you can afford. They will always give you more credit than you can afford to pay back.
  • Don't borrow money to fund a life you can't afford. Banks will try to make it easy, and they are already starting to do that again with HELOCs. Self-discipline will become more important than ever.
It is almost painfully predictable that banks, chasing earnings, will recklessly expand lending. They ultimately will make it very easy for you to borrow more money than you can afford. I just hope that while banks will have a guaranteed case of amnesia, people will never forget the mistakes, lies and pain of the last recession.

Nick Clements is the co-founder of MagnifyMoney.com, a website that makes it easy to compare and save money on banking products. He spent nearly 15 years in consumer banking, and most recently he ran the largest credit card business in the United Kingdom.

 

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Feds Threatened Yahoo With Huge Fine Over Emails

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Price of Surveillance
Paul Sakuma/AP
By PETE YOST

WASHINGTON -- Yahoo's free email service could have cost the company an extra quarter of a million dollars a day.

The government called for the huge fine in 2008 if Yahoo (YHOO) didn't go along with an expansion of U.S. surveillance by surrendering online information, a step the company regarded as unconstitutional. At stake, according to the government, was the nation's security.

"International terrorists, and [redacted] in particular, use Yahoo to communicate over the Internet," the director of national intelligence at the time, Mike McConnell, said in a court document supporting the government's position. "Any further delay in Yahoo's compliance could cause great harm to the United States, as vital foreign intelligence information contained in communications to which only Yahoo has access, will go uncollected."

The outlines of Yahoo's secret and ultimately unsuccessful court fight against government surveillance emerged when a federal judge ordered the unsealing of some material about Yahoo's court challenge. Sections of some of the documents were redacted, such as the names of the terrorists McConnell cited.

In a statement Thursday, Yahoo said the government amended a law to demand user information from online services, prompting a challenge in 2007 during the George W. Bush administration.

"Our challenge, and a later appeal in the case, did not succeed," Yahoo general counsel Ron Bell said.

The new material about the case underscores "how we had to fight every step of the way to challenge the U.S. government's surveillance efforts," Bell added. "At one point, the U.S. government threatened the imposition of $250,000 in fines per day if we refused to comply."

Bell said the Foreign Intelligence Surveillance Court upheld the predecessor to Section 702 of the FISA Amendments Act. Section 702 refers to the program called PRISM, which gave the government access to online communications by users of Yahoo.

Former National Security Agency systems analyst Edward Snowden disclosed the program last year.

Yahoo said it is committed to protecting users' data and that it will continue to contest requests and laws that it considers unlawful, unclear or overly broad.

"We consider this an important win for transparency, and hope that these records help promote informed discussion about the relationship between privacy, due process and intelligence gathering," Bell said.

The newly released documents show that the Bush administration was taking a hard line and was miffed that Yahoo had even been allowed to get into court with its complaint.

In sum, the FISA court erred in permitting Yahoo to challenge the directives, said a court brief signed by then-Attorney General Michael Mukasey.

Constitutional Rights

Yahoo was arguing that what the Bush administration was doing violated the Fourth Amendment rights of customers of Yahoo customers.

"The government has conducted warrantless foreign intelligence surveillance for decades, and such surveillance has been upheld under the Fourth Amendment by every appellate court to decide the question," Mukasey wrote.

"The government's implementation of the Protect America Act is consistent with decades of past practice and adequately protects the privacy of U.S. persons," Mukasey said.

In its court papers, Yahoo urged that the government be reined in.

Yahoo requested that the Foreign Intelligence Surveillance Court of Review reverse the lower court's judgment and find that "the surveillance authorized by the directives is not 'otherwise lawful,' " wrote Marc Zwillinger, a lawyer representing the Internet service provider.

Yahoo lost the battle in the surveillance review court.

In a statement late Thursday, the Obama administration said it is "even more protective" of the rights of U.S. citizens than the law upheld by the review court.

The American Civil Liberties Union said the case shows the need for more openness about government surveillance.

"The secrecy that surrounds these court proceedings prevents the public from understanding our surveillance laws," ACLU staff attorney Patrick Toomey said. "Today's release only underscores the need for basic structural reforms to bring transparency to the NSA's surveillance activities."

-AP Technology Writer Michael Liedtke in San Francisco contributed to this report.

Yahoo Wins Fight to Release NSA Legal Battle Documents

 

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Olive Garden Investor Says: Back Off on the Breadsticks

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A Olive Garden restaurant.
Kristoffer Tripplaar/Alamy
By CANDICE CHOI

NEW YORK -- Maybe there is such a thing as too many breadsticks.

In a nearly 300-page treatise on what's wrong with Olive Garden and its management, investor Starboard Value suggests the Italian restaurant chain is being reckless with its unlimited breadsticks. The hedge fund notes the chain's official policy is to bring out one breadstick per customer at a time, plus an extra for the table.

But Starboard says servers bring out more than that, leading to waste -- and cold breadsticks. Starboard notes that it isn't pushing for an end to unlimited breadsticks, just more control in how they're doled out.

"Darden management readily admits that after sitting just 7 minutes, the breadsticks deteriorate in quality," Starboard said in its presentation.

The incredibly detailed document was released Thursday and lays out how Olive Garden could improve its performance. It's part of Starboard's push to take control of the board of the chain's parent company, Darden Restaurants (DRI).

The company, based in Orlando, Florida, has come under fire for failing to fix declining sales at its flagship chain. In the latest quarter, Olive Garden's sales fell 1.3 percent at established locations as fewer diners visited.

Darden said in a statement that its "Olive Garden Brand Renaissance" is already underway. It said it will review Starboard's plan, but noted that many of the strategies "are already being implemented across our company and are showing results."

Part of Olive Garden's troubles stem from the growing popularity of places like Chipotle, where people feel they can get food comparable to a sit-down restaurant for less money.

But Starboard also criticized Darden's management of Olive Garden, including its "outdated" advertising strategy, which it said focuses too heavily on TV commercials. It also took issue with the chain's new logo, quoting a tweet by restaurant analyst Howard Penney that said it looked like "a second-grader's cursive practice."

Among Starboard's other complaints were Olive Garden's failure to salt the water used to boil its pasta, noting that "If you were to google 'how to cook pasta,' the first step of Pasta 101 is to salt the water." It also criticized Olive Garden's liberal use of salad dressing, which it said drives up costs. And rather than making its soups from scratch, Starboard said Olive Garden should save money and improve consistency by using an outside supplier for the bases.

More Alcohol Sales, Please

Starboard also noted Olive Garden gets only 8 percent of its sales from alcohol, while other Italian restaurant chains get more than twice that.

As for Olive Garden's popular breadsticks, Starboard said quality seems to have declined and compared them to hot dog buns.

Jonathan Maze, editor of Restaurant Finance Monitor, compared such criticisms by activist investors to election campaigns.

"The activist is going to use what it can find to convince shareholders. The company is like the incumbent that has to defend what it's doing," Maze said.

Still, Maze noted that level of detail in Starboard's report was extraordinary. He said that's likely because Starboard is getting input from its slate of board nominees, which includes Brad Blum, a former president of Olive Garden.

Despite the criticisms, Darden can point to at least one recent success: its promotion offering customers the chance to pay $100 for seven weeks of unlimited pasta. The stunt gained widespread media coverage and the 1,000 pasta passes made available online sold out in less than an hour this week.

The company's annual meeting is scheduled for Oct. 10, when shareholders will get to vote on who gets control of the board of directors.

 

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Consumers Push Retail Sales Higher; Sentiment Perks Up

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Retail Sales
Richard Drew/AP
By Lucia Mutikani

WASHINGTON -- U.S. retail sales rose broadly in August and consumer sentiment hit a 14-month high in September, which should ease concerns about consumer spending and support expectations for sturdy growth in the third quarter.

The Commerce Department said Friday retail sales increased 0.6 percent last month as Americans bought automobiles and a range of other goods after an upwardly revised 0.3 percent gain in July.

"It is further indication that the underlying positive momentum in the U.S. economy is being sustained," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Separately, the Thomson Reuters/University of Michigan's consumer sentiment index rose to 84.6 in early September, the highest reading since July 2013, from 82.5 in August.

August's increase in retail sales, which account for a third of consumer spending, was in line with economists' expectations. July's retail sales were previously reported to have been flat.

So-called core sales, which strip out automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product, increased 0.4 percent in August.

The dollar held near a six-year high against the yen, while U.S. Treasuries' prices extended losses after the data. U.S. stocks were trading lower, with the S&P 500 retail index down 0.15 percent.

August's increase in core retail sales followed an upwardly revised 0.4 percent gain in July, which was previously reported as a 0.1 percent rise. While core retail sales were up 4.1 percent in the 12 months through August, they remain well below their pre-recession growth pace of about 5.5 percent.

Even with the increase in August, retail sales are lagging other relatively bullish economic data such as manufacturing, housing and employment. Strong gains in consumer confidence are yet to translate into robust sales growth.

"There might be some pressure from the lack of real wage growth," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

Still, the solid gains in core retail sales in July and August bode well for economic growth this quarter, with some analysts predicting output could top a 3.5 percent annual pace. The economy grew at a 4.2 percent pace in the second quarter.

Auto Sales Accelerate

In August, receipts at auto dealerships jumped 1.5 percent after advancing 0.6 percent the prior month. While sales at service stations fell 0.8 percent, that reflected declining gasoline prices, which should free up income and support discretionary spending in the months ahead.

Sales at clothing retailers gained 0.3 percent and receipts at sporting goods shops increased 0.9 percent.

Sales at electronics and appliance stores rose 0.7 percent, while receipts at building materials and garden equipment suppliers rebounded 1.4 percent. Sales at non-store retailers, which include online sales, edged up 0.1 percent.

A separate report from the Labor Department showed import prices recorded their biggest drop in nine months in August as a sharp decline in the cost of petroleum products eclipsed rising food prices, keeping imported inflation pressures subdued.

Import prices fell 0.9 percent last month after slipping 0.3 percent in July. In the 12 months through August, prices dropped 0.4 percent.

-With additional reporting by Richard Leong in New York.

 

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Retail Sales Make Strong Recovery in August

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consumer electronicsThe U.S. Department of Commerce has released the retail sales report for the month of August. After another consecutive disappointing month in July, retail sales changed their tune and made a strong recovery for August — and the July reading's revision makes it look better than the initial report indicated.

Retail sales for the month of August rose by 0.6% to match up perfectly against the Bloomberg estimate of 0.6%. This is up from July, when retail sales were revised to 0.3% from its initial reading of completely flat, and that was on the heels of June's reading of 0.2%.

The August report showed that the retail sales ex-autos were up by 0.3%, also matching the Bloomberg consensus estimate of 0.3%. The month of July had a retail sales ex-autos revised to 0.3% and June's reading was 0.4%. The retail sales less autos and gas was up 0.5%, against its estimate of 0.4%. The retail sales less autos and gas in July was revised to 0.3%, after jumping to 0.6% in June.

What stands out here is that as gasoline prices have been dropping, the consumer has more money to spend on other things.

READ ALSO: U.S. Credit Card Debt on Track to Rise by $55 Billion in 2014


Filed under: Economy

 

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Import and Export Prices Fall in August, Led by Oil

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Oil TankerThe U.S. Bureau of Labor Statistics has released the import and export prices for the month of August. Prices fell on the overall readings, but this was driven down by specific sectors.

Export prices for the month of August fell 0.5%, against the Bloomberg estimate of -0.1%. The reading for the month of July was 0.1%. Over the course of the year, export prices have increased 0.4%, which has remained the same as in the previous year.

Excluding agricultural products, export prices fell 0.3% in the month of August, resulting in the increase of the yearly rate of 0.5%.

Import prices fell 0.9% against an estimate of -1.0%. The reading for the previous month was -0.3%. Over the course of the year, import prices have fallen 0.4% from the previous reading of an increase in 0.8%.

However, import prices were skewed for August by a 4.4% fall in petroleum products. Import prices, excluding petroleum, only fell by 0.1% in the month of August, compared to a fall of 0.2% in the month of July. Excluding petroleum products and looking at the year over year, we see import prices adjust back to 0.8% from -0.4%.

Initially a look at prices of finished goods, for both imports and exports, showed no major red flags. The largest yearly increase is exported consumer goods at 1.0%. Exported capital goods and imported consumer goods both increased 0.8% on the year.

Imported motor vehicles are down on the year at -0.7%, which is a small upturn from the July reading of -0.9%, the largest fall in motor vehicles since December 1992.

READ ALSO: Treasury Budget Deficit Narrows in August


Filed under: Economy

 

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Netflix and the 'Network Effect': It's Now Too Big to Beat

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www.netflix.com
As well as things have been going for Netflix (NFLX) these past two years, its stockholders appear to have even better times to look forward to. Shares of the leading premium video streaming service hit yet another all-time high on Tuesday after RBC Capital Markets analyst Mark Mahaney bumped his price target on the stock from $530 to $600.

Mahaney was already bullish on Netflix, but his new price target finds him perched at the high end of the 30 major Wall Street pros tracking the dot-com darling. Netflix shares may seem expensive gauged against conventional measuring sticks, but there is also a healthy amount of short interest activity that Mahaney feels will keep any frothy enthusiasm in check.

More important -- at least, based on Mahaney's comments in his bullish note -- it seems as if it will be hard for anybody else to catch up to Netflix.

"We continue to believe that Netflix has achieved a level of sustainable scale, growth and profitability that isn't currently factored into its stock price," he writes.

The Rich Get Richer

Streaming will never be a "one size fits all" business. There are too many content creators out there, and it won't just be Netflix inking exclusive licensing deals. If you want to stream "Downton Abbey," "The Sopranos" or "SpongeBob SquarePants," you're going to need a Prime account at Amazon.com (AMZN). If you're hungry for "Game of Thrones," you'll need to have an existing cable or satellite television subscription with Time Warner's (TWX) HBO tacked on as a premium channel to stream HBO Go.

There could be many winners here as even more of our video consumption goes digital and on-demand. However, it's highly unlikely that anyone other than Netflix will be leading the way. That became painfully apparent earlier this month when Time Warner -- Netflix's most vocal rival -- struck a licensing deal to hand worldwide streaming rights for its new series, "Gotham," to Netflix. The show detailing the early professional lives of Batman and Commissioner Gordon debuts on Fox later this month, but after the first season has aired, it will be made available in its entirety to Netflix subscribers worldwide.

There are a lot of potential viewers. Netflix topped 50 million customers at the end of June, and that figure is expected to close in on 54 million by the end of this month. If you're a content creator -- and that certainly fits the bill at Time Warner across its many media properties -- you can't afford to make Netflix your enemy. Studios have sought out Netflix as a distribution outlet, and they're continue to do so. Netflix can pay better than anybody else for streaming rights given its unmatched membership base, but it's also important for movie makers and producers of TV shows to have their products showcased in front of the widest possible audience. That stirs demand for more seasons, sequels or franchise reboots.

Stream On

Netflix is now topping $1 billion in quarterly revenue. It has $7.7 billion lined up in future streaming content obligations. Even though it recently raised its monthly rate for new subscribers from $7.99 a month to $8.99 a month, it's apparently not having any problem attracting more users.

In short, Netflix has become a perfect example of the network effect: It's the place to be for viewers because that's where the content can be found, and it's the place to be for content creators because it's where the viewers can be found.

It doesn't seem likely that anyone else is going to be as successful in offering up a growing smorgasbord of digital content at a reasonably low price. Mahaney's $600 price target may be ambitious, but fundamentally speaking, Netflix keeps moving in the right direction and padding its lead over any potential competitor.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks.

 

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Consumer Sentiment on the Rise

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135093244The Consumer Sentiment Index from Reuters and the University of Michigan was released Friday morning. The trend through August has been overall positive posting sentiment gains. The consumer sentiment reading for mid-September came in at 84.6, against a Bloomberg estimate of 83.4 and a Dow Jones estimate that was slightly lower at 83.0. The previous sentiment level read at 82.5 for late August and the mid-month reading was 79.2.

Current economic conditions fell to 98.5 and the sentiment's inflation expectations fell to 3.0% from 3.2%.

An article on CNBC showed that the survey director Richard Curtin had this to say about the current reading:

All of the early September gain was in the Expectations Index, while consumers judged current economic conditions slightly less favorably than in August. Although consumers anticipated a slowdown in employment growth, (they) expected the highest rate of growth in their wages in six years.

Consumer expectations increased to 75.6, against a forecast of 73.0. The late-August expectations index had a reading of 71.3, which was up from its mid-month reading of 66.2.

As a reminder, we consider the University of Michigan sentiment reading less than a 100% accurate measure of broader sentiment. That is simply due to the size of the pool of responses, but not necessarily about how the data are tabulated. The Conference Board's consumer confidence reading is more representative of the broader sentiment, but it released much later each month, so this consumer sentiment reading can actually make for a broader market move than the more accurate reading.

READ ALSO: Retail Sales Make Strong Recovery in August


Filed under: Economy

 

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Huge iPhone 6 Demand Crashes Websites, Causes Glitches

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At midnight Pacific time, when everyone who wanted to be first to preorder their iPhone 6 or iPhone 6 Plus hit the Apple (AAPL) Store website, they found the door closed. And hours after that, the site was still down, according to the technology website cnet.com.

Others sites set to take orders for the latest offering from Apple, T-Mobile (TMUS) and Sprint (S) also had problems dealing with the flood of consumers who want the newest technology as soon as it's available. Those who place preorders through Apple are offered either free shipping or pickup at an Apple retail store. For those who don't want to play the online game, Apple stores are scheduled to begin selling the iPhone 6 at its physical stores at 8 a.m. Sept. 19.

Complaints Expressed on Social Media

Those trying to get the new phones took to social media to complain that even when they got on an order site that they found certain models and colors unavailable. It was something of an embarrassment for a technology company that was well aware of how many consumers clamor for its devices when they are first released.

After the initial feverish burst of interest died down, Apple appeared to get things under control. At about 3 a.m. Pacific time, users reported the site was working and taking orders for all types of phones.

Still, some noted that specific colors, like gold, apparently were in such demand that orders are showing delivery dates several weeks out. For in-stock units, buyers can expect to get them on Sept. 19. The iPhone 6 Plus appears to be the most popular offering, with some mobile carriers not offering delivery until mid-October.

Apple has had a history of huge demand for its new devices when they're released and has not always been able to keep up with it. With the 2012 release of iPhone 5, Apple couldn't supply enough devices to avoid a sellout on launch day. This time, though, the company has said it has ordered far more devices be built to avoid disappointing those who want to be the first on their block with a new toy.

 

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More Women Taking the Lead in Personal Finance Decisions

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When it comes to making personal finance decisions, women are taking the lead, a recent survey by Ameriprise Financial called "Women and Financial Power" reveals. The survey, which included women ages 25 to 70 with at least $25,000 in investable assets, found that 56 percent of women say they share in making choices with a spouse or partner. Another 41 percent said they're making financial decisions on their own, including 37 percent of this group that are in long-term relationships.

The percent of women who believe it's their responsibility to understand their financial situation is higher among older women: 91 percent of baby boomer women, compared to 84 percent of Gen X women and 80 percent of millennial women.

Financial experts have suggestions for women in different age groups to help them take responsibility for their money.

Baby Boomer Women

Seventy-six percent of the baby boomer women (ages 55 to 70) surveyed by Ameriprise have a financial plan, compared to 56 percent of younger women. Overall, of women who share financial decision-making with a partner, baby boomer women are more likely to be involved in all five aspects of planning the study covered -- budgeting, saving, investing, insurance and estate planning -- than younger women.

"Baby boomer women face some of the biggest financial decisions of their lives between retirement and Social Security choices, so having trusted partners in their spouses and financial professionals is incredibly important," says Michelle Young, an Ameriprise financial advisor in Edina, Minnesota. "For those boomer-age women who are primary financial decision-makers in their households, we learned that this role can make older women feel anxious. These women are less likely to be in this role by choice. Asking for advice and help from a trusted friend, family member or financial professional can make financial decisions less intimidating, and creating a long-term financial plan can also help reduce anxiety."

Gen Xers

The Ameriprise survey showed that 62 percent of Gen X women say they're afraid they aren't saving enough and 30 percent don't feel in control of their finances.

"The most important thing women ages 35 to 54 can do to feel more financially confident is to set aside some time during their busy lives to focus on their finances and to create a financial plan that includes a monthly budget, retirement savings, proper insurance coverage, and an emergency fund," says Young. "Having these things in place will help these women mitigate some of the expensive life events -- expected and unexpected -- that can occur at this stage of life."

Pamela Yellen, a financial expert, author and editor in chief of The Women's Financial Edge, says that Gen Xers are frequently sandwiched between elderly parents who need may need financial help and kids who are either still at home, off in college or back at home because they can't make it on their own in this economy. All of those pressures often lead Gen X women to put their own financial futures in jeopardy.

"To get in control of their finances, Gen X women need to work toward adopting the 10/10/10 savings strategy," says Yellen. "Set aside 10 percent of your income for short-term needs such as vacations and gifts. Set aside another 10 percent for anticipated mid-term needs and emergencies, like a new car, college tuition or replacing a roof or major appliance. Set aside another 10 percent for long-term retirement planning. The money that's left over? That's what you have to spend."

Millennials

More millennials say they learned about finances from one or both of their parents than do women from older generations (62 percent compared to 45 percent of older women). And 26 percent say that making informed financial decisions defines success in their lives, vs. just 19 percent of the Gen Xers. In addition, more of these women said that a milestone or challenge in their life caused them to revisit their financial strategy and save more.

Millennial women are more optimistic about their financial future than Gen Xers, says Young. "More of these women [than in the other generations] who are primary financial decision-makers for their households say it's because they want to be or because they feel more knowledgeable than their spouse or others who help them with finances," she says.

"To gain control over your finances, every young millennial woman needs to stop taking the path of least resistance." - Pamela Yellen

In fact, 50 percent of millennials say they are "more knowledgeable than my spouse/partner" (compared to 47 percent of Gen Xers and 35 percent of baby boomers) and 41 percent "enjoy making these kinds of decisions" (compared to 25 percent of Gen Xer and 23 percent of baby boomers). Yellen says millennials are the most risk-averse group and the most committed to funding their retirement, but she suggests that millennials avoid target-date retirement funds.

"To gain control over your finances, every young millennial woman needs to stop taking the path of least resistance," says Yellen. "Rather than throwing your money and trust into the default investments of your employer's retirement plan, you need to do your homework and insist that your money gets invested in truly low-cost indexed mutual funds benchmarked to the broad stock market."
While the Gen Xers in the survey face more challenges and hurdles than the millennials or baby boomer women and are currently the least likely to have a financial plan, hopefully the example set by the older generation that values financial security will encourage Gen Xers to seek financial advice to improve their situation.

Michele Lerner is a Motley Fool contributing writer. To learn more on ensuring a comfortable retirement for you and your family, see our 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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Lululemon Shapes Up Its Financial Results

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Lululemon Athletica Store Launch
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There are signs of life again at lululemon athletica (LULU). Shares of the retailer of high-end yoga apparel opened sharply higher on Thursday after it posted better-than-expected quarterly results. Offering up a rosier near-term outlook also isn't hurting. The encouraging report comes at a welcome time for roughed-up investors. The stock was closing in on another three-year low ahead of the financial results.

Net sales climbed 13 percent to $390.7 million in Lululemon's fiscal second quarter, comfortably ahead of the mere 9 percent advance that analysts were forecasting. The path down the income statement wasn't as kind. Margins contracted, leading to a dip in operating profits. At the bottom of the income statement we see net income sliding 14 percent to $48.7 million, or $33 cents a share. The good news for investors is that Wall Street was bracing for an even larger drop, targeting earnings of just 29 cents a share for the period.

Investors are cheering the news. It certainly beats the 16 percent plunge that the stock suffered the day it posted its fiscal first-quarter results three months ago. Given everything that the 270-store chain has gone through since early last year, shareholders will take the relative victory over the absolute one.

Sheer Madness

For a few years it seemed as if Lululemon was the belle of the mall. Affluent shoppers didn't have a problem spending $100 for a pair of yoga pants or other workout essentials. Sales per square foot and comparable-store sales were off the charts, and that's a big deal for landlords who collect rent based on what a tenant is making and benefit from what Lululemon does to attract well-to-do customers to the mall itself.

Sentiment started to show signs of turning in 2011. Printing "Who is John Galt?" on shopping bags may have delighted fans of Ayn Rand's "Atlas Shrugged," but it proved polarizing, alienating those who disagree with Rand's political ideals. Founder Chip Wilson made the call to pay tribute to the novel that helped shape his philosophy when he was young and his corporate vision as he got older. There was also the tragic 2011 incident in which a Lululemon employee at a Maryland store brutally murdered her manager after the store closed for the night.

However, the clear tipping point at Lululemon had to be the recall of its black Luon yoga pants last year. Quality-control checks failed to realize that the proprietary pants that it was selling in March 2013 were too sheer. They were see-through in some cases when they were stretched, and that's a problem given the wide gamut of yoga poses. The recall stung more than any of the 2011 events because it devalued the quality of the actual product. These were $100 pants, after all. Under a flurry of controversy, the chain's popular CEO stepped down.

Then there was Wilson. The founder and chairman's John Galt stunt wasn't the only thing that backfired. He was known for making controversial comments, but then he went too far in addressing the struggle to grow sales in the aftermath of the recall. He called out some of the retailer's more full-figured shoppers.

"Some women's bodies just actually don't work for it," he told Bloomberg TV in light of the pilling problem that its yoga pants were having. "It's really about the rubbing through the thighs, how much pressure is there." It was the last straw. The board persuaded him to step down as chairman.

Down the Stretch

There was plenty to like in Thursday morning's report. Sales are growing, and inventory levels are back in control. More important, Lululemon easily surpassed its own guidance issued three months ago when it was forecasting a profit of no more than 30 cents a share on $375 million to $380 million in revenue. Lululemon also boosted its outlook for the balance of the year, a welcome break from having had to lower its guidance in previous quarters.

Things still aren't where they need to be to call this a turnaround. Comparable-store sales declined 5 percent for the quarter. It was new sales and a spike in consumer-direct orders that fueled overall revenue higher. However, Lululemon does see that getting better in the current quarter. Things could be bottoming out here, and given all of the things that have happened over the past year and change, it's a yoga pose worth appreciating.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica. Try any of our Foolish newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks.

 

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Darden Is in the Weeds With Olive Garden

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www.darden.com
Olive Garden continues to drag parent Darden Restaurants (DRI) down. Darden posted another problematic quarterly report on Friday morning. Sales from continuing operations rose from $1.53 billion to $1.6 billion, but that was no thanks to the restaurant operator's flagship Italian restaurant chain. Olive Garden suffered a 1.3 percent decline in U.S. same-restaurant sales. It's the fifth quarter in a row that the average Olive Garden location has generated lower sales than it did a year earlier.

Net adjusted earnings clocked in at 32 cents a share after backing out a lot of one-time hits related mostly to Darden's sale of Red Lobster earlier this year. This was in line with expectations and flat with what it earned from continuing operations a year earlier.

Olive Garden remains the biggest drag on Darden's performance now that Red Lobster is gone, and that's problematic because the salad- and pasta-tossing chain now accounts for 57 percent of Darden's revenue.

LongHorn Steakhouse -- Darden's second-largest concept-- clocked in with a 2.8 percent uptick in comps. Darden's five smaller concepts combined to post a 2.1 percent increase in same-restaurant sales, with none of them faring as poorly as Olive Garden.

Starboard Thinks It's the Right Side

Starboard Value LP -- the activist investor with an 8.8 percent stake in Darden -- offered up an appetizer ahead of the report. It put out a 294-slide presentation on Thursday night, detailing how it would transform the meandering restaurant operator through cost cuts, real estate monetization moves, international franchising initiatives and an infusion of seasoned leadership.

Starboard feels that its moves could boost the stock past $100, more than doubling Darden's present market cap.

An activist investor can be a positive catalyst for change at a company, but more often than not it's a thorn in the side of the boardroom. Starboard has been vocal about its displeasure with the sale of Red Lobster in a $2.1 billion transaction. It felt that the seafood chain was worth more, even if Darden dangled Red Lobster on a hook for months before anyone stepped up with an offer.

Starboard didn't have a problem with longtime CEO Clarence Otis announcing this summer that he would retire later this year. It has been pushing for a change at the top for some time. However, that apparently isn't enough. Even Darden's decision to nominate just nine candidates to its board of directors -- freeing up Starboard nominees to gain three seats in the dozen-member board -- wasn't enough. It has a bigger plan to make sure that Darden doesn't nominate the majority of the members in its boardroom by proposing a full slate of independent nominees.

Darden has already had to delay its annual shareholder meeting as a result of Starboard's activism. Its annual corporate powwow has been bumped from the end of September to Oct. 10, giving it more time to tackle the proxy battle and gain regulatory clearance. Given Darden's uninspiring financial performance lately, it may have a real fight on its hands at next month's shareholder meeting.

There's No Dough in Breadsticks

Darden argues that Olive Garden is doing just fine. "The Olive Garden brand renaissance is well underway, and the improvements we are seeing in guest satisfaction and traffic trends reinforce our confidence in Olive Garden's potential," the company noted in Friday morning's earnings release.

Renaissance? That's a word that implies rebirth or revival, but it's certainly not happening at Olive Garden. Improving traffic trends? Olive Garden's restaurant traffic fell 0.9 percent in June, 4.3 percent in July, and 2.3 percent in August. How is any of that improvement, especially when it's pitted against last summer's declines? As long as the traffic trend is negative, it's not an improvement.

The rest of Darden is holding up just fine. LongHorn, Yard House, Eddie V's, Bahama Breeze and The Capital Grille are growing. Seasons 52 is the only concept outside of Olive Garden to take a step back, but its same-restaurant sales slipped by a mere 0.3 percent.

Garden Overgrown with Weeds

In a bold move, Darden offered the Never Ending Pasta Pass four days before its earnings report. The pass offers seven weeks of unlimited visits to Olive Garden for its Never Ending Pasta entree for $100.

It was desperate. It worked. Limiting the offer to 1,000 passes resulted in a sellout within minutes, and Olive Garden is generating plenty of publicity as some of the passes are resold on eBay. It was an interesting marketing stunt, but it's not going to help the perception that Olive Garden's food quality isn't as good as it used to be. Despite the repeat visits from these 1,000 buyers, it's also unlikely to turn the negative comps around.

Darden still has a problem on its hands, and its name is Olive Garden.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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Week's Winners and Losers: Apple Shines, McDonald's Declines

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There were plenty of winners and losers this week, with a consumer electronics retailer threatening to file for bankruptcy and the only satellite radio player in town boosting its subscriber guidance. Here's a rundown of the week's smartest moves and biggest blunders.

RadioShack (RSH) -- Loser

Things are starting to get dicey at RadioShack. The small-box retailer of mobile phones and other consumer electronic products warned that it could file for Chapter 11 bankruptcy if it isn't able to round up some more cash.

RadioShack is weighing several options with third parties and stakeholders that include new investments, a restructuring or an outright sale of the chain. It's not a good place to be, especially since smoking out a buyer willing to pay a premium for the retailer at this point will be a colossal challenge. RadioShack needs more than just time and money to return to profitability.

Apple (AAPL) -- Winner

There were plenty of things that went wrong at Apple's iPhone unveiling. There were streaming issues for those viewing remotely. There wasn't availability information for the Apple Watch. U2's plan to release its new album to all iTunes owners for free backfired when many complained about not being able to easily get rid of the music.

However, Apple still deserves to be a winner this week because it did live up to expectations of introducing two iPhone models that will be available next week, debunking the chatter that the larger iPhone 6 Plus wouldn't be ready to hit the market until several months later.

DiGiorno Pizza -- Loser

There seems to be a corporate giant making a social media blunder every week, and this time it was Nestle's (NSRGY) DiGiorno Pizza. The #WhyIStayed hashtag started trending when Twitter users began posting stories of domestic violence in light of the Ray Rice and Janay Palmer elevator video that went viral.

The frozen pizza distributor tweeted "You had pizza" alongside the hashtag. It quickly realized its insensitive mistake, apologizing about not reading what the hashtag was about before posting. It was a quick recovery, but it's still a blunder.

Sirius XM Radio (SIRI) -- Winner

Premium radio is alive and well. Sirius XM boosted its subscriber target for all of 2014. The satellite radio provider now expects to close out the year with 1.45 million more subscribers than it had at the beginning, up from its earlier outlook calling for 1.25 million net additions.

Sirius XM had already grown its audience by 742,271 subscribers during the first six months of the year, so an upward adjustment isn't really a surprise. Sirius XM credits strong auto sales this summer for the improved outlook for the balance of the year.

McDonald's (MCD) -- Loser

Things aren't getting any better at McDonald's. The country's leading burger chain posted another month of fading store traffic. McDonald's saw comparable sales worldwide slide 3.7 percent in August, held back by a supplier scare in China and regulator-ordered closings in Russia.

Things weren't all that better closer to home, where comparable sales declined 2.8 percent. McDonald's has now posted negative year-over-year comparable sales in nine of the past 10 months. A turnaround doesn't seem to be anywhere in sight.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and McDonald's. The Motley Fool owns shares of Apple and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. For some winning dividend stock ideas, check out our free report.

 

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Market Wrap: Stocks Decline Amid Interest Rate Worries

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AP/J. Scott ApplewhiteU.S. Federal Reserve Bank Building
By STEVE ROTHWELL

NEW YORK -- The prospect of rising interest rates sent the stock market to its first weekly loss since early August.

The Standard & Poor's 500 index (^GPSC) fell 11.91 points, or 0.6 percent, to end at 1,985.54 on Friday. The index was down 1.1 percent for the week.

Declines were led by utility companies and other stocks that pay high dividends. Those stocks have been in favor this year as investors hunt for other sources of income because bond yields have been low.

Now that the yield on the ultra-safe 10-year Treasury note has shot to 2.61 percent -- its highest level in two months -- investors are less willing to hold riskier stocks, even those paying a rich dividend.

The recent rise in bond yields was bolstered Friday by a report showing that U.S. retail sales rose faster last month than economists forecast. That reinforced expectations that the Federal Reserve may start hiking interest rates sooner than expected. The central bank has nearly finished winding down its stimulus program and policy makers start a two-day meeting on Tuesday.

The yield on the 10-year Treasury note has now climbed for seven straight days.

"As the economic data continues to move along this positive trajectory, interest rates are going to rise," said Quincy Krosby, a market strategist at Prudential Financial. "The market is going to have to accept that."

Other stock indexes fell Friday. The Dow Jones industrial average (^DJI) lost 61.49 points, or 0.4 percent, to 16,987.51 The Nasdaq composite (^IXIC) dropped 24.21 points, or 0.5 percent, to 4,567.60.

The yield on the 10-year Treasury note has risen from 2.34 percent at the start of the month and is trading at its highest level since early July.

Higher interest rates mean that companies and consumers have to pay more to borrow, leaving them with lower profits and less money to spend.

Yet investors shouldn't jump the gun on concerns that rising rates will end the stock market's five-year bull run, said Randy Frederick, a trading strategist at Charles Schwab. As long as the economy is improving, stocks can continue to move higher.

"Generally, the market goes through a correction and then the bull market continues," said Frederick.

On Friday, high dividend payers, like utilities and telecoms stocks, sold off. Real estate investment trusts also slumped.

Utility stocks fell 1.8 percent, the biggest drop of the 10 sectors that make up the S&P 500. Energy stocks dropped 1.5 percent and phone company stocks slumped 1.2 percent.

The price of oil fell on concerns that global demand is falling while supplies remain ample. Benchmark U.S. crude fell 52 cents to close at $92.27 a barrel on the New York. Brent crude, a benchmark for international oils used by many U.S. refineries, fell 12 cents to close at $97.96 in London. It was Brent's first close below $98 since April of 2013.

Wholesale gasoline fell 0.5 cent to close at $2.519 a gallon, heating oil fell 1.5 cents to close at $2.741 a gallon and natural gas rose 3.4 cents to close at $3.857 per 1,000 cubic feet.

In metals trading, gold fell $7.50 to $1,231 an ounce. Silver rose 1 cent to $18.61 an ounce and copper climbed 1.4 cents to $3.10 a pound.

In currency trading, the dollar remained firm. The euro was 0.2 percent higher at $1.2950 while the dollar rose 0.3 percent to 107.36 against the Japanese yen.

Among Stocks Making Big Moves:

o. Conversant (CNVR), a provider of online advertising services, climbed $8.09, or 30 percent, to $34.80. The rise came after Alliance Data said late Thursday it was buying Conversant for about $2.3 billion.

o. Health Care REIT (HCN), an investment trust that invests in senior housing and health care real estate, was the biggest decliner in the S&P 500. The company said it was selling an additional $1.1 billion of stock to repay debt and fund investments. Its stock dropped $3.24, or 5 percent, to $63.25.

AP Business Writer Kelvin Chan contributed from Hong Kong.

What to Watch Monday:
  • The Federal Reserve Bank of New York releases its survey of manufacturing conditions in New York state at 8:30 a.m. Eastern time.
  • The Federal Reserve releases industrial production for August at 9:15 a.m.

 

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Why Your Parents Had an Easier Retirement Than You Will

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Regardless how old you are now, it's likely you'll have a harder time pulling off a financially secure retirement than your parents did.

Many of us haven't planned and saved well, it's true. But, also, fundamental changes in American life make it harder for today's generations to achieve a comfortable life after work.

In the video above, Money Talks News founder Stacy Johnson explains why retirement was easier in the past and what makes it so tough now. After you've watched it, keep reading to learn eight ways retirement is harder now and eight things you can do to rescue your retirement.

1. We're living longer. The number of Americans 90 and older is expected to quadruple in the next four decades, says the U.S. Census Bureau.

In 1935, a 65-year-old would live on average another 12 years. Today, the Social Security Administration says, the average man at 65 can expect to live another 17½ years. The average woman will get 20 more years.

Living for 20 years without working takes much more money than getting by for 12 years. If members of your family lived long lives, plan for the chance your retirement savings will need to stretch 30 years or more.

2. Seniors can't shake the recession. The Great Recession robbed more earning power from men and women in their 60s and late 50s than from any other group, The New York Times reports.

Home values and investment savings also plummeted, affecting people of all ages. Seniors have less time to make up those losses.

Many older workers lost jobs in the recession, or their jobs have shrunk. Workers near retirement have low unemployment rates, the Times says, "but once out of a job, older workers have a much harder time finding another one."

3. Private pensions are nearly extinct. In 1981, large employers covered between 80 and 90 percent of their full-time workers with pensions, guaranteeing retirees and their spouses a fixed monthly payment for life.

Those plans, so common 30 years ago, are a pipe dream now. The Bureau of Labor Statistics says that in 2011 just 1 in 10 large employers offered fixed benefit plans and only 18 percent of private industry employees were covered.

Now, if we're lucky, we have 401(k) plans that workers, not investment experts, have to manage. Some employers match a portion of workers' contributions, others don't. For example, Facebook (FB), worth an estimated $200 billion, made no matching contributions for employees in 2012 or 2013, but is this year. Bloomberg wrote:

Employers are squeezing their workers' retirement savings, holding back on both the amount and the timing of 401(k) matching funds and dragging out vesting schedules. Taken together, these measures are making it more difficult to save for old age.

4. Social Security is still under pressure. The Social Security Trust Fund reserves are expected to run out in 2034, according to a new report from the Social Security Administration. After that, payments for beneficiaries, which are funded primarily by a payroll tax, would have to be cut overall by 23 percent unless Congress acts. But it wouldn't take a lot of tinkering to keep benefits intact, Motley Fool contributor Dan Caplinger observed on DailyFinance.

5. Interest rates are low. Retirees in previous generations earned higher interest on savings and low-risk investments. Today's retirees must take risks in search of income or endure historically low fixed-income returns.

Income from interest, dividends and rent fell from 24 percent of total income in 1990 to 11 percent in 2012 for people older than 65, mostly because of falling interest rates, says AARP.

6. Seniors have more debt. Our parents' generations tried to enter retirement with a paid-off home and no debts. That's harder to do today. USA Today reports that older Americans are taking on increasing amounts of credit card debt and mortgage debt. 7. We're working longer. Americans' average age at retirement is creeping up, to 62 this year, according to Gallup. It's the highest since Gallup began asking the question in 1991, when the average retirement age was 57.

Workers on average tell Gallup that they expect to retire at 66. But poor health, job loss and the need to care for older parents, grandchildren and ill spouses can cut that short.

8. More seniors are single. Divorce is rising among older Americans, and women tend to outlive their husbands. As a result, reports The Fiscal Times, a third of the record 32.7 million Americans who live alone are older than 65. Many find freedom in being single, but it costs more for a single person to support a household than to share overhead.

For nearly three-quarters of single Social Security recipients 65 and older, their benefit checks are most or all of their income, according to the National Council on Aging.


8 Tips For a Better Retirement


How can you counter these headwinds? Here are some ways to take care of yourself:

1. Get out of debt. One of the hardest things about debt is that it feels so overwhelming. The ugly reality can feel too scary to face. The thing about reality, though: It doesn't go away.

You probably already know that delaying the inevitable only piles on more trouble. Better just to take on your debt and get through it. See: "7 Steps to Get Ruthless About Paying Off Your Debt."

2. Be strategic about claiming Social Security. Most people claim their Social Security benefits 62, as soon as they can. But with that approach, you're likely to lose money you'll need when you're older.

You get a reduced benefit when you claim early. For example, if your full retirement age is 66, the Social Security Administration says, your reduction in benefits is:
  • 25 percent at age 62.
  • About 20 percent at 63.
  • About 13.3 percent at 64.
  • About 6.7 percent at age 65.
Want to get a larger, rather than a smaller, monthly check? See: "13 Ways to Get More Social Security."

3. Find a trusted financial adviser. A fee-only certified financial planner who is recommended to you by someone you know can help you plan for retirement and make the most of your resources in ways you might not have anticipated. Take time to find someone really superb.

4. Keep retirement savings off-limits. Shun the temptation to borrow from your retirement savings. Don't do it for any reason, not even to pay off debt.

5. Let the kids fend for themselves. Unemployment and low wages have made it hard for many young adults to launch their independent lives, and many families are getting through tough times by living together. But a 2011 survey by the National Foundation for Financial Education and Forbes found that almost 60 percent of American parents were giving adult children financial support for housing, transportation, medical care, insurance, spending money and other expenses.

This help, in some situations, may be undermining adult children's ability to become independent. It also may be dooming parents' retirement. The kids have more time than you do to make up financial losses. Put retirement savings ahead of paying for college.

Decide what children truly need, set limits and make a loving, firm plan for weaning them from the bank of Mom and Dad while giving wholehearted support in nonfinancial ways.

6. Save more. Follow the basic rules for retirement savings, including minimizing taxes, working longer, investing regularly and keeping on top of your investments. Boost savings by every penny you can. Keep increasing 401(k) contributions to meet your retirement goal. Don't have a goal? Use several retirement calculators to decide how much you'll need and what to save to get there. Here are several retirement calculators.

7. Don't touch home equity. If your retirement is looking shaky, don't even consider using home equity for nonessentials like remodeling. Treat it like an emergency fund, MSN Money says:

Delay tapping it as long as possible. You'll need it in your 80s or 90s for surprises like home repairs, escalating heating fuel costs, medical bills or hiring in-home help.

8. Look ahead. Don't wait until you're in trouble to take action. If you're struggling now, even if you want badly to stay in your home, for example, start right away to figure out a fallback plan if you cannot.

Pride can prevent you from taking needed action when you're in trouble. Don't spend retirement savings or home equity trying to repay unmanageable debt.

Get help if your debts equal half of your income, personal finance expert Liz Weston told MSN Money. She suggests finding a credit counselor through the nonprofit National Foundation for Credit Counseling and a bankruptcy attorney from the National Association of Consumer Bankruptcy Attorneys.

What are you doing to rescue your retirement? Tell us below or on Money Talks News' Facebook page.

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Good News, Thanksgiving Travelers: Booking Later Will Be Fine

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Thanksgiving dinner
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Conventional wisdom and a lot of statistics have shown that booking your travel well in advance is usually the best way to get a good deal. But for travel this Thanksgiving, an analysis by one travel site suggests that procrastinating won't cost you -- unless you wait to the very last-minute.

With less than three months to go before Thanksgiving, for those who have to jet to their destination, it's usually about the time to start worrying about getting a plane ticket. But the travel site Hopper studied what happened in Thanksgiving 2013 and found that the prices you'll pay now won't really change until 10 days before your departure.

So, you could join the planning types and buy a ticket now, well in advance, or you could wait. And those who wait will have plenty of company -- whether it's to decide if heading off to the in-laws is something you really want to do, to find out if you can get time off, or if you just can't make a decision. Fewer than 40 percent of those seeking Thanksgiving travel information even bothered to look before October, Hopper found.

Ticket Prices Are Down, Sort Of

So far, prices are headed in the right direction for consumers. This year, tickets are averaging 14 percent less than they were last year, Hopper found.

But that doesn't mean they'll be cheap. Flights during the Thanksgiving holiday last year average about 35 percent more than tickets were selling for during the non-holiday period in November.

There is one caution to those who decide to wait a bit too long: Not being able to get on the flight you want when you want.

 

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L.A.'s Sunset Strip Goes Corporate: Whisky a Gone Gone

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Investors Announce More Plans to Develop the Sunset Strip, Demolish House of Blues Sunset and Hustler Hollywood
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Los Angeles County's fabled Sunset Strip -- home to numerous legendary nightclubs -- is going corporate. Goodbye, Rat Pack and Guns N' Roses; hello, Marriott International (MAR).

Gangsters and Guitarists

Through a quirk of urban planning, the Strip -- a 1.6-mile stretch of Sunset Boulevard -- was part of unincorporated land within Los Angeles city limits (these days, it belongs to the micro-city of West Hollywood).

As such, it was overseen not by the L.A. Police Department, but by the more lax County Sheriff's department. Entrepreneurs took advantage of this, and in the early 20th century the Strip soon became the hottest entertainment destination in the L.A. area, home to clubs, bars and the occasional house of ill repute.

In the 1940s and 1950s its nightclubs frequently hosted the top stars of the era. Many a band across the subsequent decades rose to prominence playing joints like The Roxy, Whisky A Go Go (still going strong at 50), and the Viper Room.

Throughout the world, the Strip was nearly synonymous with nightlife. So much so that, according to some, its name was cribbed by the burgeoning city of Las Vegas to title the strategic section of its main thoroughfare. For many years now, the heart of Las Vegas Boulevard has been known simply as "The Strip."

The City That Sometimes Sleeps

The Strip is not the only game in town for visitors. Close by is the gay mecca of West Hollywood's "Boy's Town" neighborhood, while the tiny city's location in the kernel of L.A. makes it the perfect springboard for visiting Hollywood, L.A.'s beaches, and the neighboring Beverly Hills.

Tourism is big business for West Hollywood. Twenty percent of the municipality's fiscal 2013 take came from the transient occupancy (i.e., lodging) taxes levied on those visitors. This brought in a cool $18 million that year -- 18 percent higher year over year, by the way -- making it WeHo's No. 2 revenue source.

And there's more where that came from. Last year, West Hollywood hotels collectively had an occupancy rate of 82 percent, according to industry watcher STR. This is much higher than the 2013 national figure of 62 percent, as calculated by the American Hotel & Lodging Association -- indicating that there's plenty of room for growth.

Here Come the Hoteliers

So it's no surprise to learn that some big names in the sector are very interested in West Hollywood, and where better to build than its famous street?

A host of hotel projects on the Strip are in various stages of development. Developer CIM Group has cleared a pair of parcels on either side of the intersection of busy La Cienega Boulevard and the Strip. One is to be home to the 286-room four-star James Los Angeles hotel, comprised of a pair of 10-story towers. The other parcel will be the site of residential buildings.

Meanwhile, across the street from The Roxy, the sun will rise on an Edition Hotel, Marriott International's boutique brand. The company plans to construct an Edition boasting nearly 200 rooms, which should open in 2017.

Marriott has partnered with industry veteran Ian Schrager on the Edition line. Schrager is a co-founder of Morgans Hotel Group (MHGC), and that company's flagship Southern California property is the Strip's Mondrian Hotel.

The Last Encore?

The wave of hotels threatens to obliterate the Strip's smaller businesses, which include some places that give the stretch its character and reputation.

According to Bloomberg, a division of engineering company AECOM Technology (ACM) is aiming to build a complex on the eastern end of the Strip anchored by a 149-room hotel. At the moment, that land is occupied by the local iteration of Live Nation's (LYV) House of Blues concert hall chain. According to a spokesman for the club, it is finding a new location.

The building itself will probably suffer the fate of the Strip's first theater, the nearly 50-year old Tiffany. That venue was razed by CIM Group last year to make way for its La Cienega project.

That seems to be the trajectory of the neighborhood -- fun stuff out, lodgings in. Across the street from Whisky A Go Go lies the Hustler Store, the main retail outlet of the notorious porn empire. Like House of Blues, it's packing up and moving elsewhere.

In the Bloomberg article, a West Hollywood Community Development Department official speculated on what the future of the building could be. It might, he mused, be torn down to be replaced by -- yep -- a new hotel project.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks.

 

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