New Owner Changing World's Most Famous Stock Exchange

September 16, 2014, 7:31 am

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Filed under: Company News, NYSE, Stock Exchanges, Stock Markets, Investing

Most of the general public has never heard of the blandly named Intercontinental Exchange (ICE). But almost everybody is well aware of the New York Stock Exchange and its oversize role in financial history.

However, to know one is to know the other: Following a recent acquisition, Intercontinental Exchange now owns the NYSE. And if its plans for the world's most-storied vestige of capitalism are realized, big and profound changes are afoot for the NYSE.

The Little Trader That Could

Compared to the 200-plus-year-old, steeped-in-tradition NYSE, Intercontinental Exchange is an infant with an iPad. It came to life in 2000 as an electronic-only platform birthed by a small group of banks and energy companies. In its first years of business, outside of commodities and energy traders -- the markets the company was created to serve -- it labored in relative obscurity.

This changed as the company began to swallow other bourses. This included London's International Petroleum Exchange and the New York Board of Trade. Along the way,Intercontinental Exchange went public.

It snagged its biggest fish yet in 2012, when it reached an $8.2 billion deal to buy the NYSE's then-owner, NYSE Euronext. In the process, it stayed the favored buyer in spite of expressions of interest from powerful rivals such as Warren Buffett's Berkshire Hathaway (BRK-A) (BRK-B) and fellow exchange conglomerate CME Group (CME).

Pink Slip Time

As is typical whenever an acquisition is announced, in the wake of the NYSE deal, concerns were raised that Intercontinental Exchange would gut the place, leading to its ruin.

As if to confirm these fears, less than a year after the acquisition closed, Intercontinental Exchange cut off the second half of its new asset entirely, floating Euronext in an IPO.

Although that issue brought in 1.4 billion euros ($1.8 billion) for the company, it meant the loss of a sturdy exchange connected to the NYSE. Euronext serves as the home for many European blue chips such as Alcatel-Lucent (ALU), Heineken (HEINY) and Anheuser-Busch InBev (BUD).

More worrying for the doomsayers, the NYSE's new master has taken the chop to its employment rolls. Through the Euronext IPO and aggressive job cutting, Intercontinental Exchange has reduced the NYSE's 4,000-strong headcount of employees and contractors by half.

NYSE Guys

But Intercontinental Exchange doesn't want to eliminate capitalism's most famous symbol, at least according to the company's public pronouncements. CEO Jeff Sprecher maintains that its goal is to cut out dead weight amassed at the NYSE over its many years, not put it out of its misery.

There's money where that mouth is. Intercontinental Exchange is spending $80 million to renovate the offices and trading floors of the NYSE, opening up the traditionally isolated spaces of the former into an open-plan arrangement. It also plans to consolidate and simplify, eliminating around a dozen NYSE order types and reducing its number of stock and options exchanges from the five to two.

And most interesting, in an uncharacteristic move, it says it aims to put more brokers on the floor rather than issue them their walking papers. The aim is to make it look as lively as it has been in the past, when face-to-face trading was the norm. This should help it continue to attract new stock listings.

Slice 'n' Sell?

Other observers of the deal speculate that Intercontinental Exchange wants to make an effort to modernize the NYSE into a lean, revenue-generating machine, but that it doesn't have the patience for this to be a long-term project. As such, it might put the revamped bourse operator up for sale sooner rather than later.

But then again, the NYSE is a far less crucial asset than many probably suspect, and hence not an immediate emergency rescue project. At the moment, its take is only around 6 percent of Intercontinental Exchange's overall revenues. That gives the company plenty of scope to overhaul the NYSE the way it wants to, experimenting and adjusting as necessary.

And experimenting, adjusting, gutting and firing is doubtless what it'll continue to do no matter whether it settles in as long-term owner or cashes out as a short-range fixer. Either way, the NYSE of the future is going to look rather unlike the stately old exchange we all know and admire.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and IntercontinentalExchange, and owns shares of Berkshire Hathaway. Try any of our Foolish 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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Amazon + RadioShack = You've Got to Be Kidding

September 16, 2014, 7:48 am

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Filed under: Company News, Amazon.com, Market News, Mergers & Acquisitions, Investing

Wall Street loves to play matchmaker, and this week kicked off with SunTrust analyst Bob Peck suggesting that Amazon.com (AMZN) should acquire RadioShack (RSH).

It's not going to happen, but since a seasoned stock analyst is making an impassioned plea for the two to hook up, we may as well address Peck's reasons for why it should happen before offering up the even bigger reasons why it won't.

Let's begin by going over the five reasons Peck thinks these two companies belong together.

• Amazon has been able to avoid charging and collecting sales tax in states where it doesn't have a physical presence, but that's starting to change as states draft new legislation and Amazon increases the number of its fulfillment centers. In other words, acquiring a retail chain that exposes Amazon to collecting state sales tax is no longer the deal breaker it used to be.
• The leading e-tailer is starting to gradually expand its AmazonFresh platform of delivered groceries, and Peck argues that this means that Amazon is now focusing on local stores.
• Stores could serve to showcase Amazon products and services. From displaying Kindles to offering trade-in services, having RadioShack's thousands of stores could help spread the word.
• Amazon has already started to test digital lockers for customers who can't count on being at home for their deliveries. Stores would be a logical place for customer pick-ups or to arrange local courier deliveries.
• A local presence would make it easier for Amazon to expand its offerings while also providing third-party sellers with a nearby outlet to make products available.

Peck concedes that he is merely thinking out loud here. His company does not have direct knowledge about Amazon's potential plans for having a local presence. He's just connecting the dots. Well, let's disconnect them.

You Don't Tether Yourself to a Sinking Ship

• It's true that Amazon is starting to collect sales tax in more and more states, but this would accelerate the process. An acquisition of RadioShack and incorporating it into its infrastructure would find Amazon having to immediately collect sales tax everywhere.
• As for AmazonFresh, it's hard to fathom what Amazon could achieve in the realm of grocery deliveries with RadioShack's tiny stores. Many are also located in strip malls anchored by supermarket operators, and it's a pretty safe bet that most of them have deals with the landlords to make sure that other tenants are competitors.
• Showcasing products through RadioShack's 4,400 company-operated stores may seem like a smart move on the surface, but having a local presence didn't help Barnes & Noble (BKS) with its Nook. Besides, Kindle products are already prominently featured at consumer electronics and department stores. If Amazon acquires or creates its own network of local stores, other retailers may start scaling back their support.

In short, even the arguments in favor of acquiring RadioShack sound more like reasons to avoid the transaction once they are fleshed out.

RadioShack Is No Love Shack

We haven't even gotten to the problems with RadioShack itself. This is a retailer that's on the brink of bankruptcy. It hasn't been profitable since 2011, and losses continue to mount.

With creditors fearing that they are going to get clobbered here and the stock trading for about a buck, it's easy to see why stakeholders would be open to a buyout scenario. It's just not going to happen from Amazon. CEO Jeff Bezos is a risk taker, but he doesn't make stupid wagers. He doesn't need RadioShack for anything that he may dream up at the local level, and that's something that Amazon shareholders should be happy about.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Barnes & Noble. Try any of our Foolish 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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Market Wrap: Dow Flirts with Record as Investors Wait on Fed

September 16, 2014, 10:19 am

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Filed under: Market News, Federal Reserve, Investing

By BERNARD CONDON

NEW YORK -- The stock market rose Tuesday as investors waited to find out when the Federal Reserve might raise interest rates.

Stocks flitted between gains and losses through most of morning, then turned broadly higher in the afternoon on gains in health care and utility stocks.

"The economy continues to improve in the U.S., and there's still an accommodative Fed," said Brad Sorensen, director of market and sector research at the Schwab Center for Financial Research. "We think the bull market has further to run."

The Fed has held a key short-term interest rates close to zero for more than five years, making it cheaper for companies and consumers to borrow and boosting corporate profits. The stock market has surged as a result. But investors widely expect the Fed to start raising rates in the middle of next year.

Investors may get a better sense of how soon after the central bank concludes a two-day meeting Wednesday. Fed Chair Janet Yellen could discuss the bank's rate plans, as well as the outlook for employment and inflation, in a press conference in the afternoon.

Jonathan D. Corpina, senior managing partner at Meridian Equity Partners, said there was lot of talk among traders during the day about what the Fed might do, but little new insight.

"There' a lot of chatter, but nothing that's real," he said from the floor of the New York Stock Exchange.

Until the closing minutes, the Dow Jones industrial average (^DJI) looked like it would rise to a record, but prices faltered at the end. Still the blue-chip index ended up gaining 100.83, its first triple-digit close since August 18. The Dow closed at 17,131.97, a gain of 0.6 percent.

The Nasdaq composite (^IXIC) rose 33.86 points, or 0.8 percent, to 4,552.76. The Standard & Poor's 500 index (^GPSC) climbed 14.85 points, or 0.8 percent, to 1,998.98.

Among the 10 sectors of the S&P 500, health care stocks gained the most, up 1.3 percent. Utilities and energy stocks followed, with a 1.2 percent gain each. Energy stocks were pushed higher by rising oil prices. Exxon Mobil (XOM) increased 1.2 percent.

In economic news, a measure of prices that U.S. producers receive for their goods and services was unchanged in August, the latest sign that inflation is in check. A drop in wholesale gas and food prices was offset by higher prices for transportation and shipping services, the Labor Department said.

Besides the Fed press conference tomorrow, investors are awaiting a referendum on Scottish independence on Thursday. The British pound has turned volatile in recent weeks as opinion polls narrowed ahead of the vote. A "yes" decision could trigger turmoil in the market as investors ponder the economic and financial fallout.

Among stocks making big moves:

• Humana (HUM) rose $4.71 to $132.37, a gain 4 percent. The health insurer said it plans to repurchase as much as $2 billion of its own shares, double what it had previously planned. The stock has climbed 28 percent this year.
• Sears Holdings (SHLD) fell $3.15, or 9 percent, to $30.37. The company is taking out a $400 million short-term loan from a hedge fund run by CEO Edward Lampert, the retail company's biggest owner. Sears has struggled against rivals like Wal-Mart Stores Inc. in recent years.

In metals trading, gold rose $1.60, or 0.1 percent, to $1,236.70 an ounce. Silver gained 10.1 cents, or 0.5 percent, or $18.72 an ounce. Copper rose 8 cents, or 2.6 percent, to $3.17 a pound.

The price of benchmark U.S. crude rose $1.96 to close at $94.88 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, rose $1.17 to close at $99.05 in London.

In government bond trading, the yield on the 10-year Treasury note was unchanged from Monday at 2.59 percent.

What to Watch Tuesday:

• At 8:30 a.m., the Labor Department releases Consumer Price Index for August, and the Commerce Department releases current account trade deficit for the second quarter.
• The National Association of Home Builders releases its housing market index for September at 10 a.m.
• Federal Reserve policymakers meet to set interest rates and issue a statement at 2 p.m.
• Fed Chair Janet Yellen holds a press conference at 2:30 p.m. to discuss interest rates.

These major companies are due to release quarterly financial statements:

• Cracker Barrel Old Country Store (CBRL)
• FedEx (FDX)
• General Mills (GIS)
• Herman Miller (MLHR)
• Lennar (LEN)
• Pier 1 Imports (PIR)

 

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Healthy or Wealthy: Best Way to the Second Is Via the First

September 16, 2014, 11:00 pm

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Filed under: Retirement, Health Care, Health Insurance, Retirement Living, Retirement Plans

Two non-consecutive days a week, I limit my food intake to about 600 calories. The other five days, I eat normally. I changed my diet based upon a PBS series and a related book titled "The Fast Diet: Lose Weight, Stay Healthy and Live Longer with the Simple Secret of Intermittent Fasting" by Dr. Michael Mosley.

I am not suggesting you consider following this food regimen. It can be dangerous if you are pregnant, underweight or have certain medical conditions. Nor should you consider making any major change to your diet without medical advice. But while I'm not competent to endorse this specific diet, or any other diet plan, it has become part of my focus on maintaining good health, along with regular exercise and daily meditation.

In my experience, many investors have their eye on the wrong ball. They are concerned about beating the market through stock picking, market timing or finding outperforming fund managers. Often these efforts fail. I don't want to downplay the importance of financial security. However, you would be well advised to spend at least as much (if not more) time focusing on your health as you do on the returns of your portfolio.

Retired and Healthy

Retirees, for instance, are deeply concerned about their health. A recent Merrill Lynch study found that 81 percent of retirees indicated the most important ingredient for a happy retirement was having good health. Only 58 percent listed being financially secure at the top of their list.

Given the importance of health to a good retirement, it's surprising that only 29 percent of those polled described themselves as "healthy and proactive," actively engaging in pursuits such as exercising and eating well. For those retirees, staying healthy was a source of pride.

Unfortunately 32 percent of those polled had chronic conditions that kept them from doing things they enjoyed. Only about 20 percent engaged in "key health behaviors."

The study noted the double whammy that health challenges can have on a financial plan. First, health-related expenses can drain retirement savings. Second, if you are compelled to retire early because of health issues, you will have fewer years to work and save, and thus less to live on, during your retirement.

High Cost of Health Care

The cost of health care in your post-career years can be staggering, depending on the length of your retirement. Estimated out-of-pocket health care costs for a retirement lasting 10 years are $50,900. However, if your retirement lasts 30 years, you can expect to pay $318,800 in health care costs.

Just taking care of yourself doesn't immunize you from the adverse consequences of unexpected health care costs. Women are likely to outlive their spouses. If one spouse develops serious health issues, the couple may spend down retirement savings and risk running out of money during the life of the surviving spouse.

Maintaining good health is your responsibility. It can't be outsourced.

Your financial adviser should be working with you to prepare for health care costs. It's a critical part of holistic financial planning. The study noted that less than 15 percent of pre-retirees have made any effort to estimate how much money they might need for health care, including long-term care.

Your financial adviser also should be educating you on your choices regarding Medicare, supplemental insurance plans and long-term care.

Maintaining good health is your responsibility. It can't be outsourced. There is ample evidence (some of it referenced in the study) that exercising, eating right, maintaining a healthy weight, staying socially connected and maintaining other healthy lifestyle habits can materially increase your chances of avoiding significant health issues.

Wealth without health is not a worthy goal. Maybe it's time to shift your attention from squeezing another percentage point out of your portfolio to squeezing some fresh fruit or vegetables in your juicer.

Daniel Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is "The Smartest Sales Book You'll Ever Read."

 

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8 Ways to Game a Life Insurance Exam and Get a Better Rate

September 16, 2014, 11:00 pm

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Filed under: Health Care, Family Money, Personal Finance, Life Insurance

Putting the doughnuts away and hiding the cigars won't likely help much if you're already an obese smoker trying to save some money when applying for a life insurance policy. Insurers can require applicants to take a health exam that includes blood work and a urine sample, giving an accurate picture of a potential customer's cholesterol level and if they have nicotine in their body.

For healthy life insurance policyholders, the differences in annual premiums can be hundreds, and possibly thousands, of dollars when compared to what people who smoke, drink to excess, are obese or otherwise unhealthy pay for the same coverage.

Unless you think far enough ahead -- at least a few months, if not a year -- before applying for life insurance coverage and lose weight in a healthy method over time and stop smoking for at least a few months, it can be difficult to have the healthy exam results you want. But there are some things to do in the hours and days before the exam that could improve your results.

Here are eight -- sometimes with an estimate of the potential savings -- from Thaddeus Dziuba, a chartered life underwriter at PRW Wealth Management in Quincy, Massachusetts.

1. Don't Smoke

This may be the best way to get the biggest discount, up to three times what a smoker would pay. "Somebody who has smoked their entire life for 50 years and then stops smoking for three months -- they're considered a non-smoker," Dziuba says.

But don't think you can get away with smoking just one a cigar at a celebration. "God forbid they smoke a big cigar one night before the big exam," he says. Smoking the night before or the day of the exam can also elevate your blood pressure.

A 50-year-old man seeking a 10-year term life insurance policy for $1 million in coverage will pay $1,200 a year for the policy if he doesn't smoke, and $3,600 as a tobacco user.

If possible, give the urine specimen before the blood pressure check because the elimination of fluids tends to lower blood pressure moderately. Also don't use chewing tobacco, snuff, a nicotine patch or nicotine gum.

A 50-year-old man seeking a 10-year term life insurance policy for $1 million in coverage will pay $1,200 a year for the policy if he doesn't smoke, and $3,600 as a tobacco user, Dziuba says.

Insurers will also ask you if you smoke. You can lie, which they may not check on unless the policy is for more than $1 million. But remember it's a contract, so if fraud is found within the two-year contestability clause of the contract, it can be declared void, and your heirs wouldn't collect.

But if nicotine wasn't found in your system during the exam and you were given a policy as a non-smoker, the policy could still be paid out if you died three months later of cancer, Dziuba says. "That's priced into the product," he says of policyholders dying from cancer after being declared non-smokers. "There are going to be these types of claims."

If you're honest in the application, chances are you won't have any issues with a claim, says Tony Steuer, a life insurance literacy advocate and author of books on life insurance. Claim inquiries aren't always about fraud, but determining the legitimacy of a claim, Steuer says, sort of like an IRS audit. With larger death benefits, companies are more apt to investigate, or if they receive outside information or something looks suspicious, he says.

2. Fast

Don't eat overnight or at least two hours before the exam. Your underwriter will have specifics. Your final meal the previous night should be healthy and well-balanced. You may also be told not to drink anything up to four hours before the exam, though a small amount of water may be allowed in the hours before the test.

Dziuba advises clients to schedule exams for a weekday and not a Monday. A weekend of indulging in fatty foods and alcohol can boost cholesterol levels on a Monday.

3. Lose Weight

Don't try to lose weight fast. That will mostly get rid of water weight. But losing one to two pounds per week over a few months, or hopefully over a year, can help you drop from being a standard risk to getting a preferred rate -- a 15 percent to 20 percent difference in premiums.

The average American is overweight, putting them at a "standard rate" for insurance that basically means they're a little unhealthy, Dziuba says. Getting a "preferred rate" for being healthy and thus a good insurance risk can lower premiums by up to 20 percent, he says. "There's real benefits in being healthy and scoring good on a life insurance exam," he says.

4. Don't Drink Alcohol

Avoid alcohol for at least 12 and preferably 48 hours before the exam, because it can elevate blood pressure and adversely affect elements of the blood work.

High blood pressure can be the difference between a standard and preferred rate, a savings of up to 20 percent. But like all of these factors, if you have only one high-risk factor, it can help to have an underwriter arguing on your behalf that you're otherwise healthy and take care of yourself, Dziuba says. There are lots of gray areas, he says.

5. Cut Back on Caffeine

Limit caffeine consumption 48 hours before the exam, and definitely no caffeine that morning. It increases blood pressure and pulse rate and can provoke an irregular heart rate. This means staying away from coffee and tea and some soft drinks, cold remedies and pain medications.

6. Limit Your Salt

Salt can raise blood pressure by allowing the body to retain fluids, so limit its use in the three to four days before an exam.

7. Don't Exercise

At least don't go to the gym the morning of the exam, and preferably 24 hours before. Cardiovascular workouts can cause inaccurate levels of cholesterol levels, which can be another risk factor that can push you into a higher rating classification.

8. Relax

You've probably had this happen at the doctor's office: You're nervous about having your blood pressure taken, so your blood pressure reads high the first time you take it. Wait a few minutes and take it again, and it goes down.

Get a good night's sleep, arrive early for the exam and take a few minutes to relax before your blood pressure is recorded. If that doesn't work, ask for it to be rechecked at the end of the exam.

Remember, life insurance underwriting also includes your medical history. Insurers are expecting average people to apply for coverage, not super-healthy people. Still, following these steps could help lower your rates a bit if you're on the border of having high blood pressure or other factors.

"If everybody who took their insurance exams followed some of these steps, there'd be a lot less problems" getting insurance, Dziuba says.

 

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How to Retire Early and Love It

September 16, 2014, 11:00 pm

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Filed under: Retirement, Personal Finance, Career Change, Early Retirement, Retirement Living

By Tom Sightings

Early retirement isn't only about saving up enough money to quit your job. Many people are pushed or pulled into early retirement by their employer, family or both. The money just makes it easier to navigate the transition.

The Push. The reason most people want to retire early is they have a job they don't like. It's boring, stressful and gives them little or no satisfaction. They just cannot see doing this job for the rest of their working lives. That's the push.

Exhibit A: By the time I was in my early 50s, the company where I'd spent most of my career was faltering. The situation created a poisonous atmosphere. The office was not a pleasant place to spend the day, and hadn't been for several years.

I was sick of my job, and all I could think about was how great it would be if I could afford to take early retirement. But I couldn't see how I could pull it off. Then I got fired, and was forced to figure out how to pull it off.

If you hate your job, your company is in trouble or if there's any other reason you're not focusing on the job but dreaming about what else you could be doing, it might be smarter to take matters into your own hands. Figure out how you can manage to retire early and then map out a plan to do it.

The Pull. One friend from my former company held a secret desire to become a teacher. He saved up his money, did his research and then when he was 50 he jumped ship and entered a fast-track program to train mid-career individuals to become math and science teachers. He left work in November, started the program in January and was teaching middle school science by August.

This is the pull: The dream you've always had, but never went after. Technically, it's not retirement. But it solves the problem of hating your job and wondering how to extricate yourself from a bad work environment.

Besides, it's never a good idea to quit your job without knowing what you're going to do next. You need the pull. One woman retired early and went to work for her husband by joining the family business. A marketing executive gave up his job, and his long commute, to become a real estate agent in his community. Another woman took a part-time job at the library, went to school at night for her degree and then moved into a full-time job when a position opened up. In my own case, I started a consulting business relying on contacts I knew through my old job. I make less money than I used to, as does my friend the science teacher, but we both smile a lot more.

Even if you don't need the money, you should know what your future holds. My brother-in-law got a buyout package from a computer company when he was 55 and his wife was still working. He fulfilled a lifelong dream by becoming a volunteer at the zoo. My other brother-in-law retired at 62. He set up a woodworking shop in his basement and now builds things for his grandchildren and occasionally sells a piece to a neighbor.

The Plan. You do have to be realistic and figure out how you're going to finance your early retirement. Some people still have a pension and can retire with a reasonable income after 20 or 25 years of service. But regardless, if you know you're in a dead-end job and you want out, you should get serious about saving money to finance your next stage in life.

Another career may be part of the plan. When I asked my brother-in-law how he could retire at age 55 with two kids in college, he smiled and replied, "My own secret to early retirement? A working wife." His wife had worked when she was younger, took off a dozen years to raise their children and was ready to rejoin the labor force at what turned out to be a very convenient time. And he's not the only guy I know who is enjoying early retirement while watching his wife go off to work every day.

Whether you have a working spouse or not, if you retire early you will probably have to watch your expenses and live a more modest lifestyle. But early retirement is less about the money and more about how you want to spend your time. Because if you can't think of anything better to do, why would you quit your job?

Tom Sightings blogs at Sightings at 60.

 

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Reviewers of Apple's iPhone 6 Find Bigger Really Is Better

September 16, 2014, 11:25 pm

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Filed under: Apple, Mobile Technology, Cell Phones, Consumer Electronics, Investing

Bigger is better and Apple (AAPL) has finally realized that and given iPhone users a product that may be low on novelty but high on improvements, reviewers wrote.

Most reviewers say that the iPhone 6 is the best smartphone available or "ever made," while the 5.5-inch iPhone 6 Plus has been described as a "phablet" that will give competition to Samsung Electronics' Galaxy S line of "big" Android phones.

"I think it's a terrific phone. In my view, it's the best smartphone on the market, when you combine its hardware, all-new operating system, and the Apple ecosystem whose doors it opens," Walt Mossberg wrote of the 4.7-inch iPhone 6 in the tech blog Re/code.

Geoffrey Fowler, who reviewed the phones for the Wall Street Journal, said Apple has "successfully addressed its size deficiency."

Mossberg said the increase in the screen size is a "catch-up" feature. But it is seen as a welcome change by Fowler, who said the iPhone "felt stuck in a bygone era called 2012" before the launch of the bigger phones.

New York Times reviewer Molly Wood appreciated the new "thinner, flatter and more rounded shapes" of both the phones. But she pointed out that the sleek look comes at the cost of the phones feeling "slippery."

The improvements made to the operating system -- the iOS 8 software, and that to the camera were given a thumbs up by reviewers across the board. However, most believed that Apple could have done more to enhance the battery life of the phones.

Joshua Topolski, who reviewed the phones for Bloomberg, said they were faster than their predecessors.

"Apple will tell you that these are the fastest mobile devices it's ever made, and it wouldn't be lying. These phones scream," Topolski wrote.

The new iPhone 6 goes on sale on Sept. 19 in the United States.

 

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Wall Street Awaits Any Signal From Fed on Interest Rates

September 16, 2014, 11:42 pm

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Filed under: Inflation, Unemployment Rate, Federal Reserve, Interest Rates, This Built America

By MARTIN CRUTSINGER

WASHINGTON -- Financial markets are awaiting the end of a Federal Reserve meeting Wednesday to see whether the Fed sends any clearer signal about the timing of an interest rate increase.

The phrase that investors will be alert for is "considerable time." The presence or absence of those two words is viewed as key to the Fed's timetable for a change in its key short-term rate. The Fed has kept that rate at a record low since December 2008.

Since March, the Fed has said it expects to keep this rate near zero for a "considerable time" after it stops buying Treasurys and mortgage bonds. The bond purchases have been intended to keep long-term rates down to support the economy.

But the purchases are set to end in November. So the Fed may soon want to use some phrasing other than "considerable time" to signify when it might start raising rates. It could sub out that phrase in this week's statement. Or it could wait until its next meeting in October.

Whatever the statement says when the Fed's two-day meeting ends, Chair Janet Yellen will be pressed when she meets with reporters later to clarify the Fed's intentions.

Investors will also parse updated economic forecasts that the Fed will release Wednesday for any further clues to a rate increase.

Most economists think the Fed will raise rates starting around mid-2015. But as the U.S. economy has strengthened, speculation has intensified about whether it might do so sooner, perhaps by March.

With job growth solid, manufacturing and construction growing and unemployment at a near-normal 6.1 percent, many analysts think the Fed is edging closer to a rate increase to prevent a rising economy from igniting inflation. If so, it might send such a signal by dropping "considerable time" and substituting other language to suggest a likely rate hike by early 2015.

On the other hand, the Fed could drop "considerable time" but substitute vaguer language suggesting it might wait longer to raise rates than many expect. Yellen has cautioned that the drop in unemployment may overstate the job market's improvement. She has said the Fed also takes into account the number of people unemployed for more than six months; the number of part-timers who want full-time work; and average wages. Those measures remain less than healthy.

Staying the Course?

Some economists think the Fed isn't inclined to make major changes in its policy statement at the moment.

"All the trend lines for the economy look pretty good right now," said Mark Zandi, chief economist of Moody's Analytics. "I don't think the Fed wants to upset the apple cart."

Over the past several years, the Fed's ultra-low rates have helped the economy, cheered the stock market and shrunk mortgage rates. A rate increase could threaten to reverse those trends.

In August, U.S. employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months. The slowdown was seen as likely temporary. But some analysts say it underscored that the economic outlook may remain too hazy for the Fed to signal an earlier-than-expected rate hike.

The Fed was reminded last year that markets are highly sensitive to signals about the end of a prolonged period of low rates. In June 2013, when Chairman Ben Bernanke suggested that the Fed might start slowing its bond purchases before year's end, the stock market plunged over two days. And bond rates headed up, slowing the housing recovery and jolting developing countries that had benefited from ultra-low U.S. rates.

"The adverse market reaction last year really did scare the Fed," said Diane Swonk, chief economist at Mesirow Financial. "For that reason, they are treading cautiously now."

 

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FedEx to Add 50,000 Seasonal Jobs to Aid Holiday Deliveries

September 17, 2014, 12:57 am

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Filed under: Company News, Earnings, Transportation & Logistics

By David Koenig

DALLAS -- Growth in online shopping is boosting profit at FedEx (FDX), and the company plans to hire more than 50,000 extra workers to handle what is shaping up as another record year for holiday-season package deliveries.

That's up from about 40,000 temporary holiday workers hired last year.

The hiring plan from FedEx came a day after rival UPS (UPS) said it would hire up to 95,000 seasonal workers. Both companies are trying to avoid the problems that plagued them last year, when they were inundated by more holiday shipments than they expected and some packages didn't arrive until after Christmas.

FedEx announced Wednesday that it earned $606 million in the June-through-August quarter, up 24 percent from the same period in 2013. The results beat expectations, and the stock rose more than 3 percent in midday trading.

CEO and Chairman Fred Smith said the company was helped by strength in the ground-shipping segment, solid volume and revenue increases at the freight division and growth in U.S. volumes for the core FedEx Express business.

"We expect continued revenue and earnings growth in fiscal year '15," which ends next May, "assuming moderate global economic growth and stable fuel prices," Smith said on a conference call with investors.

The holidays are a crucial part of the year for FedEx, and the company will again be challenged by a compressed peak season. Thanksgiving, the traditional kickoff to the season, falls late again this year -- Nov. 27. That will push so-called Cyber Monday, one of the biggest days for online shopping, back to Dec. 1.

Caught Off Guard

Executive vice president Michael Glenn said FedEx expects another record season for delivery volumes, and that explains the plan to hire more temporary drivers, package handlers and other workers.

Both FedEx and UPS were caught short last holiday season. FedEx had announced it would hire 20,000 temporary workers, but wound up adding twice that number, a spokesman said Wednesday. United Parcel Service planned to add 55,000 seasonal workers but ended up hiring 85,000.

FedEx officials said they are talking with retailers about other steps to avoid a repeat of last year's delivery problems, but they declined to detail those discussions.

Memphis, Tennessee-based FedEx said its fiscal first-quarter earnings equaled $2.10 a share, up from $1.53 a share a year ago. Analysts surveyed by FactSet expected $1.96 a share.

Revenue rose 6 percent to $11.68 billion, topping Wall Street's forecast of $11.48 billion.

The ground-delivery segment accounted for about one-fourth of FedEx revenue but was more profitable than the much larger express-delivery business. Revenue rose in both businesses and at the smaller freight-shipping segment.

Benefits of Cost Cutting

"It was another solid quarter for FedEx," said Logan Purk, an analyst with Edward Jones who rates the stock a "hold." The company is aided by growth in the economy and online shopping, "but what is really helping FedEx is their cost-reduction initiative for the express segment," he said.

The company's goal is to cut annual costs by $1.7 billion, mostly at the express unit and largely through voluntary buyouts to shed jobs. The plan is designed to offset a shift by customers from pricey air deliveries to slower but cheaper services.

Despite beating expectations in the quarter, FedEx didn't change its forecast for the full fiscal year. It still expects to earn between $8.50 and $9 a share through May 2015. Analysts predict full-year earnings of $8.84 a share.

The earnings report came one day after FedEx announced that it will raise U.S. rates for express, ground and home-delivery shipments by an average of 4.9 percent on Jan. 5. It will also charge more for SmartPost, a service that uses the U.S. Postal Service for final delivery, and U.S. freight deliveries.

On the same day in January, FedEx will also begin charging more for bulky but light parcels that are shipped by ground by changing the pricing formula to increase the emphasis on package dimensions, not just weight. UPS is making a similar change. Big, lightweight packages take up more space in delivery trucks.

Shares of FedEx rose $4.88, or 3.2 percent, to $159.54 in midday trading. They began the day up 8 percent in 2014.

 

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Consumer Prices Post First Drop in Nearly 1½ Years

September 17, 2014, 1:36 am

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Filed under: Economic Indicators, Inflation, Consumer Goods, This Built America

By Lucia Mutikani

WASHINGTON -- Consumer prices fell for the first time in nearly 1-1/2 years in August and underlying inflation pressures were muted, which could lessen the urgency for the Federal Reserve to raise interest rates.

The Labor Department said Wednesday its Consumer Price Index dropped 0.2 percent last month as a broad decline in energy prices offset increases in food and shelter costs.

It was the first decrease since April last year and followed a modest 0.1 percent gain in July. Economists had expected consumer prices would be flat in August.

"There is still enough slack in the economy to keep a tight lid on price increases, which should support the view of those within the Fed arguing in favor of patience before the first rate hike," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

The U.S. central bank wraps up a two-day meeting on Wednesday and some investors and economists think it could use its policy statement at 2 p.m. Eastern time to begin to lay the groundwork for an eventual rate hike.

Concerns at the Fed that inflation was running too low had abated in recent months, but the CPI data suggested a quickening of inflation during the spring may have run its course.

The CPI increased 1.7 percent in the 12 months through August, the smallest advance in five months, while a core index that strips out food and energy prices was up by the same amount, marking a slowdown from July's 1.9 percent gain.

Month-on-month, the core index was unchanged for the first time since October 2010.

The Fed targets 2 percent inflation and tracks an index that is running even lower than the CPI.

Many economists think the central bank could raise interest rates as soon as next June, while interest rate futures point to July for the first rate hike. It has kept benchmark overnight lending rates near zero since December 2008.

Wage Growth Sluggish

The dollar was steady against a basket of currencies, while prices for U.S. government debt rose marginally on the data. U.S. stocks were trading slightly higher.

While the economy appears to be on sustainable growth path, anemic wage growth is dampening price pressures. Average hourly earnings adjusted for inflation rose 0.4 percent in August. Even so, they have risen only by that same amount over the past year.

A second report showed homebuilder sentiment hit a near nine-year high in September, with builders reporting a sharp pickup in buyer traffic since early summer. The surge in confidence underscores the economy's firming fundamentals.

The upbeat housing report, and better-than-expected earnings from homebuilder Lennar Corp, pushed up housing stocks, which were solidly outperforming the broader market. The S&P homebuilding index was up 4.7 percent.

"While an inflationary surge is not in the offing, with the economy continuing to recover in the second half, there is a better than even chance for a modest acceleration in inflation," said Steve Blitz, chief economist at ITG in New York.

In August, energy prices fell for a second straight month, recording their biggest decline since March 2013. There were broad declines in energy prices, with the cost of gasoline falling by the most since April last year.

Food prices rose 0.2 percent after advancing 0.4 percent in July as the effects of a drought in California lingered.

A second straight month of sharp declines in airline fares dampened the core CPI. Falling apparel and used car prices also weighed. Recreation prices recorded their largest drop since December 2009, while household furnishings declined and college tuition and fees saw their biggest fall in almost 27 years.

While rents increased, the pace moderated a bit from July. Prices for alcoholic beverages posted their largest increase since January 2007.

 

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Mortgage Applications Rise After Holiday, but So Do Rates

September 17, 2014, 1:50 am

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Filed under: Mortgages, Real Estate, Housing Market, Home Buying, Interest Rates

By Diana Olick | @diana_olick

Despite adjustments for the Labor Day holiday the previous week, mortgage applications surged last week, even amid rising rates.

Total application volume rose 7.9 percent week-to-week, according to the Mortgage Bankers Association, driven mostly by refinances, which doesn't jibe with the rise in rates.

Applications to refinance rose 10 percent from the previous week, but are still down 22.5 percent on year. Mortgage applications to purchase a home rose 5 percent from the previous week but are down 10 percent on year.

"Given the volatility in activity around the long weekend, it can be helpful to look at the change over a two week span: refinance applications are down 1.4 percent while purchase applications are up 2.1 percent," said Mike Fratantoni, MBA's chief economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.36 percent, the highest level since June, from 4.27 percent.

"Regardless of the seasonal volatility in the applications numbers, the bigger issues remain. Rates had been stagnant at their lowest levels of the year until moving higher fairly quickly in September, in part based on speculation that today's Federal Reserve announcement would accelerate the rate hike timeline," said Matthew Graham of Mortgage News Daily. "While the Fed's policy rate doesn't directly affect mortgage rates, the indirect effect of such a shift could mean that rates continue moving higher, and that would only be bad for refinance demand."

The refinance share of mortgage activity increased to 57 percent of total applications, the highest level since February, while the adjustable-rate mortgage, or ARM, share of activity increased to 7.6 percent.

A snapshot of mortgage volume by Guaranteed Rate, a retail mortgage lender, found that ARMs took off dramatically in the second quarter compared with a year ago, rising from 9 to 16 percent of total loan volume.

"ARMs' rapid rise in the share of the total volume indicates that home buyers are feeling more comfortable with this type of loan product after shying away from it in the wake of the financial crisis," according to the report.

 

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CPI Moves From Inflation to Deflation

September 17, 2014, 2:05 am

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Filed under: Economy

The Bureau of Labor Statistics released the Consumer Price Index (CPI) for the month of August on Wednesday morning. Consumer prices fell in August, which creates a conundrum for a Federal Reserve, which is acting antsy over its ambition to raise interest rates and end the quantitative easing measures.

The reading for CPI came in at a seasonally adjusted level of -0.2%, against a flat Bloomberg estimate of 0.0%. The previous month's reading was 0.1%. CPI excluding food and energy, or the core rate, had a reading of 0.0% in August, against an estimate of 0.2%, down from the previous reading of 0.1%.

Economists surveyed by The Wall Street Journal had forecast overall prices would remain unchanged; however, the costs excluding food and energy were expected to rise 0.2%.

This was the first monthly decline for the inflation measure since April 2013. The index remained unchanged after excluding the more volatile food and energy categories. It is the first time that this measure didn't record an increase since October 2010.

Inflation had picked up somewhat during the spring, but the latest data shows that pressure seems to be continuously easing as oil prices and other commodity prices have fallen handily. From a year earlier, the index was up 1.7% in August, a slowdown from the 2.0% annual rise recorded in July.

ALSO READ: America's 50 Best Cities to Live

Filed under: Economy

 

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Family Dollar Opposes Dollar General's Hostile Buyout Bid

September 17, 2014, 2:45 am

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Filed under: Company News, Retail, Mergers & Acquisitions, Stores, This Built America

MATTHEWS, N.C. -- Family Dollar has told shareholders to reject an unsolicited, $9.1 billion takeover bid from its rival, Dollar General.

Family Dollar (FDO) is currently trying to arrange a sale to another bargain chain, Dollar Tree (DLTR).

After repeated rejections by Family Dollar, Dollar General (DG) went hostile with its bid last week and took the same offer, $80 a share, directly to investors in Family Dollar.

Family Dollar accepted an $8.5 billion buyout offer from Dollar Tree in July. The bid includes $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for a total of $74.50 for each share held. Family Dollar has backed the bid, saying regulators are less likely to interfere over antitrust concerns.

In response, Dollar General has said that it is willing to divest up to 1,500 stores if the Federal Trade Commission requires it. The company also volunteered a $500 million reverse breakup fee if the deal hits any antitrust snags.

Family Dollar began looking for buyers as sales began sagging. The company has cut prices and closed stores to drive sales and lower its costs. In June, activist investor Carl Icahn urged the company to put itself up for sale.

Dollar General didn't immediately respond to an email seeking comment.

Shares of Family Dollar Stores, based in Matthews, North Carolina, are trading close to all-time highs, as are shares of Dollar General, based in Goodlettsville, Tennessee.

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Homebuilder Confidence Jumps in September

September 17, 2014, 3:08 am

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Filed under: Mortgages, Real Estate, Housing Market, Materials & Construction, Home Buying

By ALEX VEIGA

U.S. homebuilders' confidence in the market for new, single-family homes surged this month to the highest level in nearly nine years.

The brighter outlook reflects growing optimism that sales will increase over the next six months. That could potentially spur growth in home construction, a key driver of the economy.

The National Association of Home Builders/Wells Fargo builder sentiment index released Wednesday rose this month to 59, up four points from August. The index has risen four months in a row.

The latest reading is the highest since reaching 61 in November 2005, before the housing bubble burst.

Readings above 50 indicate more builders view sales conditions as good, rather than poor.

Builders' view of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers each increased in the latest survey.

The optimism comes despite a steady slowdown in U.S. sales of new homes this summer. Sales fell from a seasonally adjusted annual rate of 454,000 in May to a rate of 412,000 in July.

Still, sales of new homes are running ahead of last year's pace.

Economists project that sales accelerated in August to a rate of 429,000, according to FactSet. August sales figures are due out next week.

The U.S. economy added jobs at a solid clip through much of this year, though the gains slowed in August. Last month, employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months.

The job gains this year and a pickup in home values have spurred homeowners to trade up to a nicer home. But fewer homes are being purchased by first-time homebuyers.

A mix of rising home prices, higher mortgage rates and meager wage growth has made it more difficult for would-be homebuyers to purchase a newly built home, particularly first-time buyers.

Even so, many of the largest U.S. homebuilders have posted sales gains this year.

Big Gains

On Wednesday, Miami-based Lennar (LEN) reported that its completed home sales climbed 9 percent in the three months ended Aug. 31, while new home orders vaulted 23 percent. Its shares added $2.66, or 6.8 percent, to $41.79 in morning trading. The stock has risen 19 percent in the last 12 months.

In the latest NAHB index, which was based on responses from 317 builders, builder confidence improved nationally and on a regional basis, with readings for the Midwest, West, Northeast and South all posting gains from last month.

The index gauging current sales conditions for single-family homes climbed five points to 63, the highest level since December. The builders' outlook for sales over the next six months rose two points to 67. The last time it was higher was a year ago.

Meanwhile, a measure of traffic by prospective buyers increased five points to 47, the highest level since October 2005.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB data.

 

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3 Things Every Spouse Must Know About Social Security

September 17, 2014, 3:30 am

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Filed under: Retirement, Divorce, Marriage, Retirement Living, Social Security

Social Security plays a vital role not just for American workers but also for their families. More than 59 million Americans will receive Social Security benefits in 2014, and of those, more than 11 million are spouses, survivors and dependents eligible to claim benefits. Because spousal and survivors benefits are so important, every spouse needs to understand how those benefits work and how much Social Security will pay when the time comes. Here are three of the key things you should know about what you're entitled to receive under Social Security as a spouse.

1. How Much Will You Get From Social Security as a Spouse?

The simple rule for spousal benefits is that if you retire at full retirement age, which is currently 66, you'll receive half of your spouse's full benefit amount. Unfortunately, though, you typically can't just take what your spouse receives from Social Security and divide it by two to figure out what you'll get. That's because your spousal benefit is calculated on what your spouse would receive based on retiring at full retirement age, not what your spouse actually receives. Unless your spouse started taking benefits exactly at your spouse's full retirement age, then your amount will differ.

Moreover, if you retire earlier than 66, you'll get less than you would if you waited. If you retire at the earliest opportunity, at age 62, then you'll only get 35 percent of your spouse's full benefit amount as a spousal benefit rather than 50 percent. At 63, you'd get 37.5 percent, 41.7 percent at 64, and 45.8 percent at 65.

Things get even more complicated if you have your own work history. In that case, you're entitled to Social Security benefits of your own and spousal benefits. If you take Social Security before full retirement age, then you'll receive either your calculated spousal benefit or your own benefit, whichever is greater. But if you wait until full retirement age, you have more choices, including filing a restricted application to take spousal benefits only. That can let your own benefits grow, potentially giving you more in lifetime payouts from Social Security. At the same time, though, if you had a government job and receive a pension outside Social Security, what you receive in spousal benefits can end up reduced by as much as two-thirds of the pension amount because of what's known as the government pension offset.

2. What Happens When Your Spouse Dies?

What Social Security calls spousal benefits refers specifically to benefits you receive while your spouse is still alive. After your spouse's death, you're entitled to survivors benefits, and they're calculated differently.

Generally, survivors at full retirement age receive 100 percent of what their spouses got in benefits. But here, that amount is adjusted for when your spouse started taking benefits, giving you extra money if your spouse waited beyond full retirement age or less money if your spouse took Social Security early. Moreover, if you take survivors benefits early, you'll get a reduced amount -- as little as 71.5 percent if you claim at 60, the earliest available age for most widows and widowers.

Rules governing remarriage also make things tricky. If your spouse dies and you remarry before age 60, then you lose the right to survivors benefits as long as you're married. But after age 60, you can remarry and still qualify for survivors benefits.

Again, having your own work history requires you to consider strategies to maximize both your benefit and your survivors benefit. With survivors benefits, there are more opportunities to claim them while preserving your own benefit until later, and as with spousal benefits, that can potentially increase the total amount you receive from Social Security over the course of your lifetime.

3. Can Divorced Spouses Get Social Security Benefits?

Couples who divorce often worry that they're putting their Social Security benefits at risk. But Social Security treats many divorced spouses the same way as current spouses.

Specifically, if you were married for 10 years or more and don't remarry, then you're entitled to claim spousal benefits the same as if you were still married. Your ex-spouse can remarry without affecting your benefits at all, and your claim has no impact on the benefits your ex-spouse and his or her dependents are entitled to receive. Divorced spouses are also entitled to receive survivors benefits, so once your ex passes away, your benefit might rise.

Social Security is more complex than many believe, and the benefits that spouses can receive are particularly intricate. By knowing the basics, though, you'll put yourself in a better position to get every penny of Social Security you deserve.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+. Motley Fool retirement experts offer a free report on a simple strategy to take advantage of a little-known IRS rule to boost your retirement income.

 

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Wall Street Warms Up to Twitter Again

September 17, 2014, 4:22 am

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Filed under: Company News, Technology, Earnings, Upgrades and Downgrades, Investing

Twitter (TWTR) is starting to give its investors something to tweet about. Things started heating up last week after Canaccord Genuity and UBS (UBS) issued bullish notes. Canaccord Genuity analyst Michael Graham initiated coverage of the microblogger with a buy rating and a $62 price target. UBS analyst Eric Sheridan boosted his rating from neutral to buy, raising his price goal from $50 to $65.

The bullishness has been contagious. MKM Partners issued an encouraging note this week, sticking to its earlier buy rating and a price target of $64.

A World of Opportunity

Graham feels that improvements in engagement and monetization will push the stock higher. He's particularly pumped about Twitter's potential overseas, where it's barely cashing in on its growing traffic. Twitter generated $3.05 in ad revenue per monthly active user in the U.S. during its latest quarter, but the average international monthly active user only took in 45 cents of marketing missives during the same quarter.

Sheridan is encouraged by the e-commerce potential of the "buy" buttons that Twitter is testing; companies can pay to have the graphical buttons to encourage clicks and purchases. Both Graham and Sheridan like Twitter's global push to make it easier for individual users and small companies to set up ads, something that Twitter likely picked up from Facebook (FB).

MKM Partners is upbeat on Twitter after conducting another round of surveys to weigh Twitter usage. It found that Twitter users aren't just teens and celebrities. Its survey of 1,800 Twitter users found that 70 percent of its users are between the ages of 25 and 44, a juicy age group for marketers. Just a little more than a quarter make more than $75,000 a year, but 64 percent of the audience is making at least $35,000 in income.

In short, Twitter may have more to offer marketers than we're seeing at the moment.

The Agony of the Tweet

Twitter has only been trading for 10 months, but they have been eventful. The November initial public offering was only priced at $26, but by the end of December the stock was fetching more than $63.

Things then cooled off dramatically in 2014. Investors began to fret about slowing usage growth and the challenges of monetization. Facebook's stickiness and mutual engagement lends itself to targeted spots, but that's a harder sell on Twitter, with its largely one-way broadcasts and 140-character limit.

By the time that the shares bottomed out in May below $30, the stock had gone on to shed more than half of its value in 2014. It has proceeded to make back most of that ground, but it's still trading lower for the year.

Twitter seems to be doing all of the right things. It's now profitable, and that wasn't the case last year. Analysts see revenue more than doubling to $1.36 billion this year, and most of that is coming from its improving monetization efforts. Wall Street then sees revenue growing 67 percent to $2.27 billion next year.

Things could get even better if it's able to make some smart acquisitions along the way. Twitter is raising $1.8 billion in a debt offering this month, adding to the $1.8 billion it received in IPO proceeds late last year. Twitter hasn't been as prolific as the larger Facebook on the buyout front, but it wouldn't be a surprise if it begins to dig deep into its growing greenbacks to make a deal or two in the coming months.

Twitter's starting to move, and with three analysts setting their sights on price targets of $62 to $65, Wall Street seems to think that this is only the beginning.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Twitter. Try any of our Foolish 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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Your Lesson From CalPERS' Dumping of Hedge Funds

September 17, 2014, 4:40 am

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Filed under: Wall Street Watch, Stocks, Investing

The California Public Employees' Retirement System recently announced that it was divesting all of the $4 billion in hedge fund investments in its portfolio. It is eliminating 24 hedge funds and six fund-of-funds.

This decision marked a sharp change in the organization's investment philosophy. CalPERS started investing in hedge funds in 2002. For the fiscal year ended June 30, it paid a whopping $135 million in fees for hedge fund investments that earned a return of 7.1 percent. CalPERS has a "return goal" of 7.5 percent. The annualized rate of return of the hedge funds in its portfolio over the past decade was only 4.8 percent.

CalPERS manages almost $300 billion in assets. To give you an idea of its size, it's larger than all but two companies in the Dow Jones Industrial Average (^DJI). When CalPERS talks, investors listen. You can learn a lot from CalPERS' decision to dump hedge funds.

Rapid Growth and High Compensation

Hedge funds have long been the darling of institutional investors. They currently manage $2.6 trillion in assets. Consulting firm McKinsey & Co. projects that assets in alternative investments -- hedge funds, real estate and private equity -- will reach $14.7 trillion by 2020.

According to a recent survey, the chief investment officer of hedge funds with assets of more than $1 billion had total compensation of $2.43 million in 2013. That's chump change compared to the ten overall highest-paid hedge fund managers in the same year. Their compensation ranged from a low of $600 million to an almost unbelievable high of $3.5 billion for David Tepper, who runs Appaloosa management.

Hedge fund managers are paid from the unique fee structure that hedge funds impose upon investors. They typically charge 2 percent of assets under management, plus 20 percent of profits.

Poor Performance

The hedge fund industry justifies these compensation levels by claiming it must offer high pay to attract the most talented managers. The reality is quite different. Historically, the performance of hedge funds has been shockingly poor. The annualized returns of the HFRX Global Hedge Fund Index (which attempts to reflect the opportunities in the hedge fund industry) underperformed every major stock asset class, and even three Treasury indexes, for the 10 calendar years from 2004 through 2013.

One large investor in hedge funds estimated 90 percent of hedge fund managers are overpaid. This disconnect between high compensation and high fees and poor performance is puzzling. One commentator noted: "The result is one of the more puzzling anomalies in finance -- the continued growth of an industry that for a long time has delivered miserable results for investors."

How You Can Benefit

If hedge fund managers who are paid tens of millions of dollars to beat the market have such a dismal record, what chances do you and your broker have of achieving that goal? Hedge fund managers supposedly are the "best of the best," and they are often referred to as "masters of the universe." In reality, they appear to be emperors with no clothes. They tout an expertise that doesn't exist and reap obscene fees generated from gullible investors.

While there are some "winners," it's exceedingly difficult to identify them in advance. The inability of an organization like CalPERS, with its massive resources, to do so confirms this difficulty.

CalPERS' wise decision to dump hedge funds should be a wake-up call for you. Your chance of beating the market by stock picking, market timing and mutual fund manager selection is certainly no greater -- and probably much less -- than that of CalPERS. Instead of engaging in these activities, which are more likely to benefit your broker and active fund manager than you, consider fundamentally changing the way you invest.

Your focus should be on your asset allocation, which is the division of your portfolio between stocks, bonds and cash. You should invest only in a globally diversified portfolio of low-management fee index funds, exchange traded funds and other evidence-based funds. For many investors, capturing the returns of the global market would be a significant improvement over the historical performance of their investments.

If it's good enough for CalPERS, it's probably good enough for you.

Daniel Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is "The Smartest Sales Book You'll Ever Read."

 

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Lincoln Log Manufacturing Moving to Maine

September 17, 2014, 6:00 am

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Filed under: Consumer Goods, Manufacturing, Toys, This Built America

BURNHAM, Maine -- Lincoln Logs will soon be manufactured in Maine.

Republican Gov. Paul LePage announced Wednesday that the iconic toy logs used to construct miniature buildings will be made at Pride Manufacturing in Burnham. The toys were previously manufactured in China.

Randy Dicker, senior director of manufacturing for Pride, said manufacturing could begin as soon as November and that the wood pieces, or 80 percent of the Lincoln Logs, will be made at the Burnham facility. Some of the toy's plastic pieces will still be made in China.

The company anticipates that the contract with Lincoln Logs will create five to 10 new jobs.

Lincoln Logs were invented nearly a century ago by John Lloyd Wright, the son of architect Frank Lloyd Wright.

 

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Fed Signals Plan to Keep Key Interest Rate at Record Low

September 17, 2014, 7:05 am

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Filed under: Inflation, Unemployment Rate, Federal Reserve, Interest Rates, This Built America

By MARTIN CRUTSINGER

WASHINGTON -- The Federal Reserve signaled Wednesday that it plans to keep a key interest rate at a record low for a considerable period because a broad range of U.S. economic measures remain subpar.

The Fed said it intends to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market.

The central bank retained language signaling its plans to keep short-term rates low "for a considerable time" after it ends its monthly bond purchases after its next meeting in October.

"In the Fed's mind, the economy still has work to do, but it's improving," said Mike Arone, an investment strategist with State Street Global Advisors.

Stock prices rose after the Fed issued a statement at 2 p.m. Eastern time after a two-day policy meeting. Traders appeared pleased that the Fed seems in no hurry to raise rates. The yield on the 10-year Treasury note ticked up to 2.59 percent from 2.56 percent before the Fed's statement.

In its statement, the Fed said it will make another $10 billion cut in the pace of its purchases, which have been intended to keep long-term borrowing rates low.

The Fed also issued updated forecasts for growth, inflation and interest rates. The median short-term rate supported by Fed policymakers at the end of 2015 is now 1.38 percent, up from 1.13 percent at its June meeting.

The Fed expects slower growth this year and next than in its last projections issued in June. It predicts that the economy will grow about 2.1 percent this year, down from their June forecast of roughly 2.2 percent.

That reduction likely reflects the sharp contraction in the first quarter of this year. The economy has rebounded solidly since then.

On the eve of the Fed's meeting this week, the financial world had been on high alert for whether the Fed would drop or retain the words "considerable time." Since March, the Fed's statements have said it expects to keep its key short-term rate near zero for a "considerable time" after the bond buying ends.

With job growth solid, manufacturing and construction growing and unemployment at a near-normal 6.1 percent, many analysts had suggested that the Fed was edging closer to a rate increase to prevent a rising economy from igniting inflation.

Other economic gauges have strengthened, too. The number of U.S. job openings is near its highest level in 13 years. Layoffs have dwindled. And consumer confidence has reached its highest point in nearly seven years.

Despite the signs of a stronger economy, most economists think the first increase in the Fed's short-term rate won't occur until mid-2015.

The Fed's new statement retained language stating that a range of labor market indicators "suggests there remains significant underutilization of labor resources."

Chair Janet Yellen, who is holding a news conference, has expressed concerns about stagnant wage growth, the large number of part-time workers who can't find full-time jobs and the proportion of the unemployed who have been out of work for more than six months.

The statement made only minor changes from a previous statement in the assessment of the economy. It was approved on an 8-2 vote. The dissents came from Charles Plosser, president of the Fed's Philadelphia regional bank, who had dissented at the last meeting, and Richard Fisher, president of the Dallas regional Fed bank.

Both men are viewed as "hawks" -- Fed officials who are concerned about the threat of future inflation and believe the Fed should be moving more quickly to raise rates.

Before the policy announcement Wednesday afternoon, the Fed had received good news on inflation with a report that consumer prices fell by a seasonally adjusted 0.2 percent in August, the first monthly drop in prices in 16 months.

Over the past several years, the Fed's ultra-low rates have helped the economy, cheered the stock market, and reduced mortgage rates. A rate increase could threaten to reverse those trends.

In August, U.S. employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months. The slowdown was seen as likely temporary. But some analysts said it underscored that the economic outlook might remain too hazy for the Fed to signal an earlier-than-expected rate hike.


AP Economics Writer Paul Wiseman contributed to this report.

 

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How the Death of Cash Could Hammer Small Businesses

September 17, 2014, 7:18 am

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Filed under: Technology, eBay, Small Business, Industry News, Security, Investing

Small businesses constantly face big challenges to their survival. With higher relative overhead than their larger competitors, local retailers struggle to control costs. A demographic shift threatens many small businesses in a new way: the rising costs of handling credit card and debit card transactions as a result of the spending behavior of millennials.

A recent survey from CreditCards.com showed how habits have changed across generations in making purchases of less than $5. According to the national phone survey of 983 adult U.S. credit card holders, more than 80 percent of baby boomers age 65 and older prefer to use cash for small purchases, with the remainder split almost evenly across debit cards and credit cards. But among millennials age 18 to 29, the popularity of cash for small purchases falls below 50 percent, with the majority using plastic and with younger shoppers preferring debit cards to credit cards by a 2-to-1 margin.

For shoppers, the convenience of credit and debit cards largely explains the trend. Carrying and spending cash requires additional trips to the bank and poses a theft risk, while cards carry at least some level of fraud and theft protection in the event of their loss or misuse. Moreover, with point-of-sale transaction technology having improved substantially, paying with plastic no longer takes markedly longer than a cash transaction. Add to that the airline miles, cash-back rewards and other benefits that many cards offer, and it's easy to understand the popularity of cards over cash.

The Price Small Businesses Pay

Unfortunately, for the merchants that accept these transactions, the rise in popularity of card use for small purchases isn't necessarily good. The main problem is that many providers of merchant services -- the companies that help small businesses handle credit card transactions through popular networks like Visa (V) and MasterCard (MA) -- charge per-transaction fees on top of percentage fees. The per-transaction fees tend to be relatively small and therefore fade in importance for large purchases. But on small transactions, those fees have a much larger impact on profitability.

For instance, eBay's (EBAY) PayPal lets businesses accept transactions from credit cards or directly from PayPal balances. According to PayPal's website, standard pricing starts at 2.9 percent plus 30 cents per transaction, with higher-volume businesses having the potential for lower percentage charges. On a $5 purchase, that 30-cent transaction fee amounts to 6 percent, and that can take a huge bite out of razor-thin profit margins at businesses like gas-station convenience stores or local specialty stores. Similarly, Intuit (INTU) charges transaction fees of 25 cents on top of various percentages based on different types of transactions.

Alternatives and Competitors

Some merchant-services providers have offered solutions to the problem with micropayments. PayPal has an alternate pricing structure that can reduce total costs somewhat, with a 5 percent plus five-cent per transaction fee representing a total cost of 30 cents on a $5 purchase, compared to the 44.5-cent charge under the standard pricing structure. Nevertheless, any per-charge fee can add dramatically to truly small purchases, and the higher percentage that PayPal charges makes it harder for small businesses to stay profitable.

On the other hand, some competing services adjust their fee schedules. Square, for instance, offers a flat-rate 2.75 percent fee without a per-transaction surcharge as long as the seller didn't manually enter the transaction. For manual transactions, though, Square charges a higher percentage as well as a 15-cent transactional fee.

As the popularity of electronic payments increases, small businesses will have to find new ways to address the problem of high card fees. Given how many people now rely almost entirely on cards, businesses can't afford to refuse card transactions -- even if they can't afford to accept them, either. In the long run, small businesses will need to find service providers willing to recognize the crippling impact of small card purchases on their bottom lines.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+. He has no position in any stocks mentioned. The Motley Fool recommends and owns shares of eBay, Intuit, MasterCard and Visa. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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