Market Wrap: Best Day of the Year for the S&P 500

October 21, 2014, 10:00 am

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Filed under: Earnings, Market News, Global Economy, World Markets

By KEN SWEET

NEW YORK -- The U.S. stock market marched higher Tuesday, giving the Standard & Poor's 500 index its best day of the year.

Investors rallied behind an encouraging report on the Chinese economy as well as strong quarterly results from Apple (AAPL) and other big companies.

The market continues on its recovery from last week's swoon and has now erased much of its losses over the last two weeks.

"I think it's too early to call to call this a new rally, but I think there are definite signs that investors are gaining confidence again after last week's volatility," said Kristina Hooper, head of U.S. investment strategies at Allianz Global Investors.

The Standard & Poor's 500 index (^GPSC) added 37.27 points, or 2 percent, to 1,941.28. The Dow Jones industrial average (^DJI) rose 215.14 points, or 1.3 percent, to 16,614.81. The Nasdaq composite (^IXIC) rose 103.40 points, or 2.4 percent, to 4,419.48.

This week so far has been a contrast to last week's turbulence in many ways. Volatility is down, the S&P 500 index is on pace to have its best week of the year and the price of crude oil has stopped sliding. The bond market has also stabilized, with the 10-year Treasury note remaining around 2.20 percent for the last several days.

"Last week the main thing driving the market was the decline in oil, the Ebola scare and the rally in the 10-year Treasury note. All of those items have stabilized," said Ian Winer, director of equity trading at Wedbush Securities. "The Ebola risk, which was likely never a real issue, is being confirmed as such. Oil is holding at $80 a barrel and the 10-year note has stabilized."

That said, there's still a chance for bumps ahead given that a meeting of the Federal Reserve is coming up next week where the central bank is expected to end its bond-buying economic stimulus program for good. Growth worries in Europe and China are still top of mind, and with U.S. corporate earnings season underway, the market's direction could change quickly, traders and strategists said.

"Investors are likely to see more volatility, not less. We expected this to happen now that the Fed's quantitative easing program is ending," Hooper said. "We are in unusual times, so expect to see more of an outsized reaction in the market."

Since falling to a six-month low last week, the stock market has now basically recovered nearly all of its losses. After closing at 1,862.49 on Oct. 15, the S&P 500 index has rallied more than 4 percent in four days.

One notable part of the market investors have been moving back into is smaller, riskier companies. While the S&P 500 and Dow are still down 1.6 percent to 2.5 percent this month, respectively, the Russell 2000 is up 1 percent for October.

"That's an important sign that investors are regaining their confidence," Hooper said.

Apple gave a boost to the overall market. The maker of iPhones and iPads rose $2.71, or 2.7 percent, to $102.47 after its quarterly results easily beat analysts' expectations. Apple said it earned $1.42 a share last quarter, helped by strong sales of the latest version of the iPhone.

Investors also had an encouraging report out of Asia. China's economy expanded by 7.3 percent in the third quarter from a year earlier. Although growth slowed slightly from the previous quarter's 7.5 percent, analysts had expected a more marked slowdown, to 6.9 percent.

China has been a worry spot for investors for many weeks, and has been a key reason why financial markets have been volatile lately. Signs of a slowdown in Europe have also been worrying investors.

"After last week's volatility in the financial markets, the last thing investors needed was bad news out of China," said Neil MacKinnon, global macro strategist at VTB Capital.

In other company news, Coca-Cola (KO) fell $2.61, or 6 percent, to $40.68 after the company warned it might not meet its previous financial targets. While its earnings came in roughly where analysts had expected them to be, Coke said it doesn't expect to meet its long-term target of high-single-digit growth. The company also announced it would undergo a $3 billion a year cost-cutting program by 2019.

McDonald's (MCD) also came out with figures that disappointed investors. The company said sales declined 3.3 percent globally, while in Asia, a key area for the company, sales fell 9.9 percent. McDonald's shares fell 58 cents, or 0.6 percent, to $91.01.

In commodities, oil prices were rising after weeks of declines. Crude gained as the better-than-expected economic data from China suggested higher global demand for oil. Benchmark U.S. crude rose 10 cents to close at $82.81 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, rose 82 cents to close at $86.22 on the ICE Futures exchange in London.

In other energy futures trading on the NYMEX, wholesale gasoline rose 1.3 cents to close at $2.213 a gallon, heating oil rose 2.7 cents to close at $2.513 a gallon and natural gas rose 4.1 cents to close at $3.711 per 1,000 cubic feet.

The recovery in oil prices helped send energy stocks higher. The energy sector in the S&P 500 jumped 2.9 percent Tuesday, by far the biggest gain of the 10 sectors in the index.

In metals trading, gold rose $7 to $1,251.70 an ounce, silver rose 20 cents to $17.55 an ounce and copper rose four cents to $3.03 a pound.

What to Watch Wednesday:

• The Mortgage Bankers Association reports weekly mortgage applications at 7 a.m. Eastern time.
• The Labor Department releases the Consumer Price Index for September at 8:30 a.m.
• The Energy Information Administration releases its weekly petroleum status report at 10:30 a.m.

These major companies are scheduled to release quarterly financial statements:

• AT&T (T)
• Boeing (BA)
• Cheesecake Factory (CAKE)
• Dow Chemical (DOW)
• General Dynamics (GD)
• GlaxoSmithKline (GSK)
• Northern Trust (NTRS)
• Northrop Grumman (NOC)
• Raymond James Financial (RJF)
• Tupperware Brands (TUP)
• U.S. Bancorp (USB)
• Xerox (XRX)
• Yelp (YELP)

 

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How to Handle Finances With Your Boomerang Kid

October 21, 2014, 11:00 pm

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Filed under: Family Money, Personal Finance, Budgeting, Planning, Financial Education

The surge in adults returning to live with their parents after college and beyond is taking a significant bite out of those parents' finances. According to the Pew Research Center, the number of adults ages 25 to 34 living with their parents or grandparents rose from 11 percent in 1980 to 23.6 percent in 2012.

Many recent college grads and young adults are living at home for the most obvious reason: because they are unemployed. Financial experts warn parents against derailing their retirement plans by helping their adult kids too much, but they say their clients run the gamut from being too lenient on their kids to too strict. Here are their suggestions for how to balance the desire to help your kids get started in life with concern for your own financial well-being.

On the Job Hunt

The overarching rule parents should follow for college kids returning home is that they are not running a retirement home for people in their 20s, says Ric Runestad, owner of Runestad Financial in Fort Wayne, Indiana. If the kids graduated from college, they should be either working full time or looking for full-time work, he says.

"I see a lot of my clients letting their children who are just graduating college return to the household living absolutely free," says Joe Dadich, owner of Dadich & Associates in Troy, Michigan. "I understand the parents' compassion and wanting to be there to help them get on their feet; however, it is imperative that a plan is put in place."

At the opposite end of the spectrum, Dadich had a client with a son who lost his job. The father wouldn't let him move back in until he got his finances straightened out. "The son ended up having to move to another state to find a job, and since then a rift has formed between the father and son," says Dadich. "This could have been easily avoided if an arrangement would have been made for the son to contribute to the household."

Spell It All Out

How should parents handle the financial expectations for the living arrangement? Bill Demaree, owner of Demaree Retirement Services in Indianapolis, says parents need to establish an agreement with their kids that leaves nothing to interpretation. "You need to specify a lease with an amount for rent, a percentage of the utilities and how long the child can stay in the house," says Demaree.

In addition, Runestad says he believes it's fine for parents to allow their kids to stay at home for a period even after the kids are employed to allow them time to build their savings. However, it's important for parents to collect rent. "This focuses your child's attention on the constant need to make their rent payments. A landlord doesn't care," says Runestad, about any extenuating circumstances that might arise. "They just want their rent money."

Runestad says that when he and his brothers graduated from college and returned home, his father raised their rent by a set amount per month until they moved out. "By creating leverage, our father helped instill a sense of urgency to [our moving out]," he says. "[Living at home] was a temporary privilege and not a permanent right."

Chores and Other Bills

Dan White, a certified financial planner with Dan White and Associates in Glen Mills, Pennsylvania, says kids should at least cover their own expenses, such as their car, auto insurance, and cell phone.

Dadich tells parents to make a two-year plan that includes financial responsibilities and a chore list. He recommends a payment plan based on a percentage of their income that they can contribute for rent, their cell phone bill, student loans, and other personal expenses. Since it's a percentage based on income, the amount can rise when their income does or fall if their income declines. "I think you need to make the adult child put some skin in the game to make sure they're truly invested in their future success," he says.

Runestad agrees that allowing boomerang kids to live at home can give them breathing room to get better established in life. "However, the parents need to protect against the safety net they provide becoming a hammock for their adult children," he says.

Michele Lerner is a Motley Fool contributing writer. Try any of our Foolish newsletter services free for 30 days.

 

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How One Mom and Pop Business Is Beating Amazon

October 21, 2014, 11:00 pm

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Filed under: Amazon.com, Retail, Internet, Small Business Advice, This Built America

In shopping centers, strip malls and converted garages all across America, a real-life David vs. Goliath battle is being waged. Small businesses -- the employers of half of the U.S. workforce and responsible for two-thirds of all new jobs created since the mid-1990s -- are being put out of business by multibillion dollar companies like Walmart (WMT) and Amazon (AMZN).

"Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America," famed New York Times economist Paul Krugman began his Oct. 19 column. Arguing that Amazon is a "monopsonist" -- a business entity so large and powerful that its purchasing power allows it to dictate terms to suppliers -- he compares its tactics to that of Standard Oil before it was broken up by Teddy Roosevelt.

"Don't tell me that Amazon is giving consumers what they want, or that it has earned its position," he continued. "What matters is whether it has too much power, and is abusing that power. Well, it does, and it is."

Most mom and pop businesses would tell you that Krugman is right, that companies like Amazon are making it harder and harder for them to survive. But some are fighting back -- and winning.

The Story of One Bookstore

Steve Peters runs Catholic Books & Gifts, a small, family-owned business that has been in Southern California for 20 years, and he knows what it is like to go head-to-head with Amazon and other online retailers.

He can't compete on brand awareness. "The toughest challenge for us with an Amazon or even a Barnes & Noble (BKS) is that they are well known across the country." Nor price. "Many times they beat us on price," he continued, bolstering Krugman's assertion that purchasing power enables major retailers to artificially drive prices down.

But he can win on service. Being smaller enables him to have a more intimate relationship with his clientele. "We have a big advantage in a couple key areas. Knowledge and selection," Peters said. "Even though Amazon is a million times larger than us, they can't go in and familiarize themselves with each item they carry. That's our No. 1 advantage. Almost daily, people come in and ask for a gift, describing in detail the person the gift is for. Being able to point customers in the right direction in these situations is a major advantage."

Peters has also taken the same tack that many small-business owners battling Amazon have by picking a niche market and becoming a specialist. This enables him to stock a deeper selection than the online giant can. "Barnes & Nobles doesn't carry 10 percent of what we have in stock, and Amazon doesn't even carry half of the books we have," Peters said. "So we have customers who come in and find books here that they can't get anywhere else."

Beyond Books

Taking good care of customers and providing them a wide selection of products has earned the store a loyal following, and smart merchandising choices that reflect its customers' purchasing habits helps to distance it even further from Amazon.

Peters' store carries many items that are outside his core books but relate to customer needs. "When it comes to gifts, most people want to see them it in person, and we have a wide selection," he said. "Also, most people wait till the day before to buy gifts for baptisms, confirmations, first communions, etc, and so it's really a timing thing for them. They can run in and get something nice in five, 10 minutes."

But just because he runs a brick and mortar business, that doesn't keep Peters from mixing it up with Amazon on its own turf. "You can create an account on our website and shop online with us as well," he said. "We deal direct with many small publishers who don't want to sell to Amazon because they know they will squeeze all the mom and pop shops.

Peters' business model echoes the famous words of Hall of Fame slugger Willie Keeler, whose advice to rookies was, "Hit 'em where they ain't."

Subscribe to my newsletter The Lund Loop a free once-weekly curated slice of what I'm writing, reading, and hearing about in the stock market.

 

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We Had the Cutest Reason Ever to Buy Life Insurance

October 21, 2014, 11:00 pm

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Filed under: Life Stage Lessons

Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.

Nothing puts things into perspective quite like bringing a new life into this world. My husband and I spent our first five years of marriage getting out of debt, building a small savings nest egg, and preparing every way we knew how for the day we became parents. And then that day came. Despite all our prepping, we quickly realized we had no idea what we were doing. We also realized it was high time to look into life insurance.

Buying life insurance before our daughter was born didn't occur to either of us. If the unthinkable had happened and either of us were left without a spouse, the survivor wold have been fine financially. We each had a career, and we were debt-free. But once we were affectionately titled "Mama" and "Dadda," all that changed. Our family now included a third human who had to be cared for and paid for -- and who couldn't earn her own keep. And that's when we got serious.

If you're in a similar place in your life, remember these three key factors:

• Many employers provide life insurance as part of your benefits. You can add coverage through your employer's insurer (talk with your human resources department to see how those costs and policies stack up) or supplement your coverage with an outside firm. Since neither of our employers offered enough life insurance for our needs, my husband and I added supplemental insurance.
• Figure out what it will really take to cover your needs. If you're married, ask yourself what would be on the line financially if you or your spouse passed away. And then calculate how much you'd need to make up that income, long term. A good starting point is 10 to 12 times each income. If you have unusual financial obligations, you may want an amount even higher than that.
• There are two kinds of life insurance: term and whole. Most financial gurus recommend term life, and warn that the "benefits" of whole life aren't worth its higher costs in the long run. We ended up choosing a term life insurance plan.

Once you have the life insurance angle covered, you may want to look into other ways to prepare for the worst -- or bad situations that aren't quite the worst. If your spouse is the only one working, you could look into going back to school or honing a vocational skill to be workforce-ready. You'll never regret making sure both spouses are prepared educationally, physically, and -- of course -- financially in the event that something unforeseen happens. Most importantly, you'll be able to rest easy knowing your children will be provided for in any scenario.

 

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My Credit Card Just Saved Me $1,098 - and a Big Headache

October 21, 2014, 11:00 pm

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Filed under: Credit, Credit Cards, Consumer Issues

Love them or loathe them, every once in a while, credit cards really come in handy.

Take last month, for example. In a fit of pre-winter remodeling, I decided to replace our home's el-cheapo, contractor-grade front door with a spiffy model with geometric windows, beveled glass -- the works. But being a cheapskate, I didn't want to pay retail prices. So, I did a quick search for "door depot."

(Pro tip: Lawyers notwithstanding, the "depot" concept of bargain-shopping has gone as generic as Kleenex. Nowadays, there's a website out there offering discount prices on just about any item you've ever considered buying. Home Depot (HD), of course. Used car depot. Battery depot. And yes, a door depot, too).

That last search led me to a discount door wholesaler halfway across the country. I ordered a pretty door for the family castle and put the door -- $999 plus $99 for delivery from Texas -- on my card.

Crossed Wires

A week after placing my order, the door still hadn't arrived. Calling customer service, I discovered that the record of my order had been misplaced -- so would I like to place the order again?

I did. A week later, the door arrived by truck -- 300 pounds of glass and steel, caged within a wood frame -- and we got it installed without a hitch. Then came the hitch.

Thank You, Sir. May I Have Another?

Several days later, Roadrunner Transportation (RRTS) called and asked when I would like my door delivered. As I would later discover, my first door order hadn't been lost -- my name had been misspelled. And this misspelled order was now en route to me (despite it having been placed prior to the reorder).

I rushed to check my credit card statement. Sure enough, I found two bills -- for two doors at $1,098 each.

When One Door Closes...

After querulous emails sent to the door vendor went unanswered, I recalled that scattered among the fine print on the pound of paper that JPMorgan Chase (JPM) sent me when I received my credit card was mention of a billing dispute procedure. Turned out, this was easy as pie.

One call to Chase got me a customer service representative who listened to my description of what happened and explained what would happen next:

• Chase would immediately reverse the second $1,098 charge. "You don't have to pay that," said the rep.
• Within a week, a letter would arrive by mail requesting me to provide a written description of what happened, including the status of the item purchased (Was it already returned or canceled? Did the vendor accept the return or issue a refund yet?) and the reason for the return or cancellation.
• I'd also need to submit "a copy of a sales slip, credit slip, return receipt or any other documents supporting your dispute."

With that data in hand, Chase would take over the dispute and negotiate with the vendor on my behalf -- not charging me for the door unless I was proven to be in the wrong.

All's Well That Ends Well

Needless to say, this was all very reassuring, as I was pretty sure it was the vendor that was in the wrong. But what happened was even better. No sooner had I notified Chase of my dispute and seen my charge reversed, then the vendor called and agreed to refund the $1,098 of its own accord and cancel the duplicate order.

Amazingly, vendors seem to pay more attention to billing disputes when you've got a $211 billion market-cap company fighting on your side.

No Good Deed Goes Unpunished

While using a credit card helped me to save $1,098 (and having to figure out what to do with one more front door than I have houses), not all billing dispute stories have such happy endings.

In a recent column, Bloomberg Businessweek noted unscrupulous consumers are using the billing dispute or chargeback procedure for fraud. In this scenario, a consumer may order an item online, receive it on time, but then lie and say the item never arrived -- or that she never ordered the item in the first place. The fraudster will then insist the vendor refund the purchase price, or failing that, hijack the billing dispute procedure to get money refunded if the vendor refuses.

Industry analysts warn that fraud of this sort is costing retailers billions already. And Businessweek laments that recent data breaches at retailers like Home Depot, by putting more credit card numbers in the hands of criminals, are turning fraudulent chargebacks into a growing problem. If this keeps up, it could be that the credit card perk that saved me $1,098 last month won't be around forever.

Happy (almost) Halloween! Got a similar online shopping horror story to share? Tell us about it below.

Motley Fool contributor Rich Smith today has one house, (thankfully only) one front door and no position in any stocks mentioned. The Motley Fool recommends Home Depot and owns shares of JPMorgan Chase. To read about our favorite high-yielding dividend stocks for any investor, free of charge, check out our analysts' report.

 

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Apple Warns Users Over iCloud Security

October 21, 2014, 11:17 pm

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Filed under: Identity Theft, Apple, Credit, Security, Internet Fraud

By BRANDON BAILEY

SAN FRANCISCO -- Apple (AAPL) has posted a new security warning for users of its iCloud online storage service amid reports of a concerted effort to steal passwords and other data from people who use the popular service in China.

"We're aware of intermittent organized network attacks using insecure certificates to obtain user information, and we take this very seriously," the computer-maker said in a post Tuesday on its support website. The post said Apple's own servers haven't been compromised.

Apple's post didn't mention China or provide any details on the attacks. But several news outlets reported Tuesday that some Chinese Internet users have begun seeing warnings that indicate they had been diverted to an unauthorized website when they attempted to sign into their iCloud accounts.

That kind of diversion, known to computer security experts as a "man in the middle" attack, could allow a third party to copy and steal the passwords that users enter when they think they are signing into Apple's service. Hackers could then use the passwords to collect other data from the users' accounts.

Chinese activists blamed the attacks on that country's government, according to news reports and the Chinese activist website GreatFire.org, which suggested the campaign was spurred by the fact that Apple recently began selling its newest iPhone models, the iPhone 6 and 6 Plus, in China. The new smartphones have software with enhanced encryption features to protect Apple users' data.

Apple, which is based in Cupertino, California, said in its post that the attacks haven't affected users who sign into iCloud from their iPhones or iPads, or on Mac computers while using the latest Mac operating system and Apple's Safari browser. But the company suggested users should verify they are connecting to a legitimate iCloud server by using the security features built into Safari and other browsers such as Firefox and Google's Chrome. The browsers will show a message that warns users when they are connecting to a site that doesn't have a digital certificate verifying that it is authentic.

"If users get an invalid certificate warning in their browser while visiting www.icloud.com, they should pay attention to the warning and not proceed," Apple said in the post.

The attacks appear unrelated to an episode last month in which hackers stole nude photos from the iCloud accounts of several U.S. celebrities. In that case, Apple said its investigation concluded the hackers had obtained the users' passwords through so-called "phishing attacks" or by guessing at the answers to security questions that allowed access. The company said its servers were not breached in that case.

 

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Domestic Airlines Raise Base Fares Despite Lower Fuel Costs

October 21, 2014, 11:36 pm

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Filed under: Credit, Travel, Transportation, Airfare

By DAVID KOENIG

DALLAS -- U.S. airlines are raising base fares on many domestic flights even though they are getting a windfall from lower fuel prices.

JetBlue Airways raised fares by $4 a round trip on a small number of routes Thursday, and Delta Air Lines picked up and greatly expanded the breadth of the increase, according to FareCompare.com CEO Rick Seaney and J.P. Morgan analyst Jamie Baker.

The hike got an important boost when Southwest matched it a day later. Other airlines often drop price hikes if they are resisted by Southwest, which carries the most domestic passengers.

A JetBlue spokeswoman confirmed that the airline initiated the increase on its domestic flights. Delta said it had matched and expanded "an industry increase." United Airlines and American Airlines, which also owns US Airways, confirmed matching the $4 increase.

Higher base fares don't always result in passengers paying more. Airlines run frequent sales, and they adjust fares on individual flights depending on demand. The last successful broad increase occurred in April.

The increase showed that fear of Ebola hasn't hurt travel demand, and that airlines haven't passed savings from lower fuel prices to consumers, Seaney said.

Oil prices, which show up in the cost of jet fuel, have fallen by about one-fifth since late April. Fuel is the largest expense for most airlines.

The price bumps could ease investors' concerns that lower fuel prices would be passed along in lower fares, Baker said.

Airline stocks rallied for a third straight day Tuesday.

• Shares of American Airlines Group (AAL) closed up $1.84, or 5.5 percent, to $35.22.
• Delta Air Lines (DAL) rose $1.65, or 4.8 percent, to $36.04.
• JetBlue Airways (JBLU) climbed 37 cents, or 3.4 percent, to $11.23.
• Southwest Airlines (LUV) gained $1.79, or 5.8 percent, to $32.84.
• United Continental Holdings (UAL) gained $2.61, or 5.8 percent, to $47.29.

 

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Feds Probe Medical Devices for Possible Cyberflaws

October 22, 2014, 12:06 am

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Filed under: Identity Theft, Technology, Health Care, Internet, Security

By Jim Finkle

BOSTON -- The U.S. Department of Homeland Security is investigating about two dozen cases of suspected cybersecurity flaws in medical devices and hospital equipment that officials fear could be exploited by hackers, a senior official at the agency told Reuters.

The products under review by the agency's Industrial Control Systems Cyber Emergency Response Team, or ICS-CERT, include an infusion pump from Hospira (HSP) and implantable heart devices from Medtronic (MDT) and St Jude Medical (STJ), according to other people familiar with the cases, who asked not to be identified because the probes are confidential.

These people said they don't know of any instances of hackers attacking patients through these devices, so the cyberthreat shouldn't be overstated. Still, the agency is concerned that malicious actors may try to gain control of the devices remotely and create problems, such as instructing an infusion pump to overdose a patient with drugs, or forcing a heart implant to deliver a deadly jolt of electricity, the sources said.

The senior DHS official said the agency is working with manufacturers to identify and repair software coding bugs and other vulnerabilities that hackers can potentially use to expose confidential data or attack hospital equipment. He declined to name the companies.

"These are the things that shows like 'Homeland' are built from," said the official, referring to the U.S. television spy drama in which the fictional vice president of the United States is killed by a cyberattack on his pacemaker.

"It isn't out of the realm of the possible to cause severe injury or death," said the official, who didn't want to be identified due to the sensitive nature of his work.

Hospira, Medtronic and St Jude Medical declined to comment on the DHS investigations. All three companies said they take cybersecurity seriously and have made changes to improve product safety, but declined to give details.

Connected Devices

ICS-CERT's mandate is to help protect critical U.S. infrastructure from cyberthreats, whether they are introduced through human error, virus infections, or through attacks by criminals or extremists.

According to the senior DHS official, the agency started examining healthcare equipment about two years ago, when cybersecurity researchers were becoming more interested in medical devices that increasingly contained computer chips, software, wireless technology and Internet connectivity, making them more susceptible to hacking.

The conventional wisdom in the past was that products only had to be protected from unintentional threats. Now they also have to be protected from intentional threats, too.

The U.S. Food and Drug Administration, which regulates the sale of medical devices, recently released guidelines for manufacturers and healthcare providers to better secure medical devices and is holding its first public conference on the topic this week.

"The conventional wisdom in the past was that products only had to be protected from unintentional threats. Now they also have to be protected from intentional threats, too," said William Maisel, chief scientist at the FDA's Center for Devices and Radiological Health. He declined to comment on the DHS reviews.

The senior DHS official said the two dozen cases currently under investigation cover a wide range of equipment, including medical imaging equipment and hospital networking systems. A DHS review does not imply the government thinks a company has done anything wrong -- it means the agency is looking into a suspected vulnerability to try to help rectify it.

One of the cases involves an alleged vulnerability in a type of infusion pump, a piece of hospital equipment that delivers medication directly into a patient's bloodstream. Private cybersecurity researcher Billy Rios said he discovered the alleged bug but declined to identify the manufacturer of the pump. Two people familiar with his research said the manufacturer was Hospira.

Rios said he wrote a program that could remotely force multiple pumps to dose patients with potentially lethal amounts of drugs. He submitted his analysis to the DHS.

"This is a issue that is going to be extremely difficult to patch," said Rios, a former Marine platoon commander who has worked for several Silicon Valley technology firms and recently founded security startup Laconicly.

Reuters wasn't able to independently review his research or identify the type of pump Rios studied from Hospira's line, which includes multiple models.

Hospira spokeswoman Tareta Adams, while declining to comment on specifics, said the company is working to improve the security of its products.

"Hospira has implemented software adjustments, distributed customer communications and made a commitment to evaluate other changes going forward, while ensuring we are not adversely impacting the ability of our devices to meet hospital and patient needs, and maintain compliance with FDA product requirements," Adams said in the statement.

More Awareness

Hospital security officers say there is increasing awareness about cyberthreats, and medical centers around the country have been shoring up networks to better defend against hackers.

At the University of Texas MD Anderson Cancer Center, all medical devices will soon need to be tested to make sure they meet security standards before they can be put on the hospital's network, according to Lessley Stoltenberg, the center's chief information security officer.

"I'm pretty concerned," said Stoltenberg. "Coming out of the block, medical devices don't really have security built into them."

The DHS is also reviewing suspected vulnerabilities in implantable heart devices from Medtronic and St Jude Medical, according to two people familiar with the matter.

They said the probe was based in part on research by Barnaby Jack, a well-known hacker who died in July 2013. Jack had said he could hack into wireless communications systems that link implanted pacemakers and defibrillators with bedside monitors.

Medtronic spokeswoman Marie Yarroll said in an email that the company has "made changes to enhance the security" of its implantable cardiac devices, but declined to give specifics "in the interest of patient safety."

St. Jude Medical spokeswoman Candace Steele Flippin also declined to discuss specific products but said the company has "an ongoing program to perform extensive security testing on our medical devices and networked equipment. If a risk is identified, we will issue patches for any known issues."

Cheney's Defibrillator

Experts said it is important that security vulnerabilities in medical devices are exposed so manufacturers can fix them, but many said there was no need for patients to panic.

"It's very easy to sort of sensationalize these problems," said Kevin Fu, who runs the Archimedes Research Center for Medical Device Security at the University of Michigan.

Still, worries about cybersecurity have made some individuals wary of medical devices with wireless and Internet connections.

In 2007, then-U.S. Vice President Dick Cheney ordered some of the wireless features to be disabled on his defibrillator due to security concerns. When asked if he would recommend other patients do the same, Cheney said not necessarily.

"You've got to look at all eventualities and do whatever you have to safeguard the capabilities of the individual," Cheney told Reuters Tuesday. "In terms of how it would affect others, I think the president and vice president are in relatively unique circumstances."

Cyber-researcher Jay Radcliffe used to be among the hundreds of thousands of diabetics relying on computerized insulin pumps. He said he stopped using his Medtronic pump after he found that he could hack into its wireless communications system and potentially dump fatal doses of insulin into his body.

"I don't feel safe wearing these devices," said Radcliffe, who works for Rapid7, a security software maker. "It's better for me to stick myself with a needle."

Medtronic said it has made security improvements to its insulin pumps, though the company declined to give specifics.

George Grunberger, who has led the insulin pump management task force of the American Association of Clinical Endocrynologists, said he believes the benefits of pumps far outweigh any cyber risks, so he would not advise patients to follow Radcliffe's example.

 

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Target Offers Free Shipping on All Holiday Items

October 22, 2014, 12:50 am

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Filed under: Retail, Holiday Shopping, Internet, Target, How to Save Money

By ANNE D'INNOCENZIO

NEW YORK -- Target (TGT) is offering for the first time free holiday shipping on all items, including even $6 lipsticks, as the discounter throws itself in the ring to compete better with the likes of Amazon.

The Minneapolis-based chain said its free shipping offer starts Wednesday and will last through Dec. 20. The move is unusually early for a retailer -- coming weeks before the official holiday season kickoff over the Thanksgiving weekend -- and could squeeze Target's profit margins. But the strategy underscores how retailers are willing to do whatever it takes to grab shoppers in the holiday shopping season, which accounts for about 20 percent of the retail industry's total sales

We know shipping costs play a big role in online purchasing decisions.

"We know shipping costs play a big role in online purchasing decisions. We believe our free shipping offer will create excitement and incremental sales for Target," said Kathee Tesija, Target's executive vice president and chief merchandising officer.

The incentive comes four months after Target unveiled a permanent free shipping offer for those spending at least $50 online, a strategy the company said has had strong reception.

The free shipping holiday incentive is one of a number of enticements that Target is pushing, from more trendy merchandise to spiffed up apps, to win back consumers as it deals with its own problems as well as industrywide challenges.

Target, along with other big-box stores, is trying to woo back customers increasingly researching and buying on their smartphones and tablets. It's also grappling with a still slowly recovering economy.

But Target is also wrestling with its own specific problems that cost its former CEO his job and led to the hiring of PepsiCo (PEP) executive Brian Cornell in early August. It's trying to move beyond a massive data breach that hurt holiday sales last year. And it's also trying to restore the discounter's reputation as a cheap chic fashion purveyor.

Playing Catch Up

Target also aims to play catch up with rivals who have been offering services that cater to shoppers who want to jump back and forth from stores to their smartphone. Target is now shipping products directly from a network of 135 stores in 38 markets so online customers can get items within one day of standard delivery. It's also spending 50 percent more on digital advertising this holiday season compared with last year.

Target's online sales increased 30 percent in the latest quarter ended Aug. 2, though analysts estimate it only represents less than 2 percent of total sales.

"We see mobile as a front door to the brand," said Cornell.

As for free shipping, only a handful of retailers including Neiman Marcus and L.L. Bean offer that all year round without any thresholds. But Forrester analyst Sucharita Mulpuru says more and more retailers are offering special free shipping promotions that have become a cost of doing business. Such expectations come as online king Amazon.com (AMZN) has been beefing up services for its $99 Prime Loyalty program that includes free two-day shipping on many of its items.

Mulpuru estimates that free shipping costs stores $3 to $6 an order.

"It's a slippery slope," Mulpuru said. But she noted, "[Target] doesn't want to lose any more market share to the online channel."

 

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Feds Expand Number of Vehicles Affected by Air Bag Recalls

October 22, 2014, 1:30 am

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Filed under: Automotive Industry, Manufacturing, Consumer Protection, Auto Recalls

By Ben Klayman

DETROIT -- U.S. safety regulators Wednesday expanded the number of vehicles in the United States that may be affected by recalls for potentially defective Takata air bags that could spray shrapnel at occupants.

The U.S. National Highway Traffic Safety Administration said in a statement the number of vehicles from 10 automakers covered by recalls this year and in 2013 is now 7.8 million, up 28 percent from the 6.1 million announced on Tuesday. The NHTSA said the new number corrected the vehicle list provided in prior safety bulletins this week, adding some vehicles and excluding others from previous bulletins.

NHTSA has urged owners of certain Toyota, Honda (HMC), Mazda, BMW, Nissan, Mitsubishi, Subaru, Chrysler (FCAU), Ford (F) and General Motors (GM) vehicles to replace installed air bags as soon as possible.

In the expanded bulletin, Honda accounts for almost 5.1 million of the vehicles, Toyota 877,000 vehicles, Nissan almost 695,000 vehicles, BMW nearly 628,000 vehicles and Chrysler more than 371,000 vehicles.

Also on Wednesday, a top Toyota Motor (TM) executive said in Tokyo that the Japanese automaker had no plans to abandon Takata despite the supplier's struggles.

"Toyota's not one to just dump a supplier," Steve St. Angelo, Toyota's head of Latin American operations and the former chief quality officer in North America, told reporters. "Have we ever eliminated a supplier? Yes. But it's really, really tough. We will exhaust every opportunity to help that supplier first."

NHTSA is investigating whether Takata air bag inflators made between 2000 and 2007 were improperly sealed. Bags inflating with too much force could potentially spray metal shrapnel at occupants. They have been linked to four deaths and resulted in several lawsuits.

The probe has focused on inflators recovered from cars being recalled for repairs in hot, humid places like Florida. Takata is cooperating with that investigation along with 10 automakers.

More than 16 million vehicles globally have been recalled because of defective Takata air bags since 2008.

Meanwhile, anyone visiting NHTSA's website at www.safercar.gov Wednesday to determine whether their vehicle was part of the Takata-related recalls instead received a network error message. NHTSA officials they were trying to determine the issue and consumers can also contact dealers or go online with automakers and use their vehicle identification number to determine recall status.

-With additional reporting by Maki Shiraki in Tokyo.

 

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Consumer Prices Barely Rise as Energy Costs Fall

October 22, 2014, 1:37 am

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Filed under: Economic Indicators, Gas Prices, Inflation, Consumer Issues, This Built America

By Lucia Mutikani

WASHINGTON -- U.S. consumer prices rose marginally in September, painting a weak inflation picture that should give the Federal Reserve ample room to keep interest rates low for a while.

The Labor Department said Wednesday its Consumer Price Index edged up 0.1 percent last month as a rise in food and shelter costs offset a broad decline in energy prices.

The CPI had dropped 0.2 percent in August and economists had expected a flat reading in September.

U.S. Treasury debt prices fell on the slightly firmer reading, while the dollar rose modestly.

"This persistently weak inflation backdrop should continue to provide the key justification for the Fed to keep its policy stance accommodative," said Millan Mulraine, deputy chief economist at TD Securities in New York.

In the 12 months through September, the CPI increased 1.7 percent after a similar rise in August. A separate index that tracks price changes for urban wage earners and clerical workers and is used to make cost-of-living adjustments for Social Security payments rose 1.7 percent in the third quarter from the year earlier.

Inflation has waned in recent months after quickening in the second quarter, in part as a strengthening dollar and slower economic growth in China and the eurozone dampen imported price pressures.

The weak inflation reading could revive concerns at the Fed that price pressures are running too low. That and a recent global equities market sell-off has led investors to push back their expectations for when the U.S. central bank will raise interest rates to late next year. The Fed has kept benchmark overnight rates near zero since December 2008.

Underlying inflation pressures were also muted in September despite increases in shelter and medical care costs.

The so-called core CPI, which strips out food and energy prices, ticked up 0.1 percent last month after being unchanged in August. In the 12 months through September, the core CPI rose 1.7 percent after advancing by the same margin in August.

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

In September, energy prices fell for a third straight month, with gasoline prices slipping 1 percent after dropping 4.1 percent in August. Food prices gained 0.3 percent after rising 0.2 percent in August.

Within the core CPI, shelter costs increased 0.3 percent in September after rising 0.2 percent in August. The shelter index was up 3 percent in the 12 months through September, the largest gain since January 2008.

The medical care index increased 0.2 percent, with prices for nonprescription drugs increasing 1.5 percent and hospital services gaining 0.3 percent.

Airline fares declined for a third straight month, while prices for new motor vehicles and apparel were unchanged. Prices for used cars and trucks fell for the fifth straight month.

 

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Social Security Benefits to Rise Less Than 2% for Third Year

October 22, 2014, 1:49 am

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Filed under: Cost of Living, Inflation, Retirement Living, Social Security, Financial Education

By STEPHEN OHLEMACHER

WASHINGTON -- Millions of older Americans who rely on federal benefits will get a 1.7 percent increase in their monthly payments next year, the government announced Wednesday.

It's the third year in a row the increase will be less than 2 percent.

The annual cost-of-living adjustment, or COLA, affects payments to more than 70 million Social Security recipients, disabled veterans and federal retirees. That's more than a fifth of the country.

The increase amounts to about $20 a month for the typical Social Security recipient.

"The COLA helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty by providing partial protection against inflation," said Jo Ann Jenkins, who heads AARP.

The government announced the benefit increase Wednesday, when it released the latest measure of consumer prices. By law, the increase is based on inflation, which is well below historical averages so far this year.

For example, gasoline prices have dropped over the past year while the cost of clothing is up by less than 1 percent, according to the September inflation report released Wednesday.

The cost of meat, fish and eggs is up by nearly 10 percent, but the overall cost of food is up just 3.1 percent.

Medical costs, which disproportionately affect older Americans, are up 1.9 percent over the past year.

The Beginning of COLA

Congress enacted automatic increases for Social Security beneficiaries in 1975, when inflation was high and there was a lot of pressure to regularly raise benefits.

For the first 35 years, the COLA was less than 2 percent only three times. Next year, the COLA will be less than 2 percent for the fifth time in six years. This year's increase was 1.5 percent, the year before it was 1.7 percent.

Social Security is financed by a 12.4 percent payroll tax on the first $117,000 of a worker's wages -- half is paid by the worker and half is paid by the employer. Next year, the wage cap will increase to $118,500, the Social Security Administration said.

About 59 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,192.

The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor.

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

Blame Low Inflation

The COLA is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.

"In the last several years we have had extremely low inflation," said economist Polina Vlasenko, a research fellow at the American Institute for Economic Research. "Basically because inflation is low, the cost-of-living adjustment is going to be low, too. It's supposed to just compensate you for inflation."

Advocates for seniors say the government's measure of inflation doesn't accurately reflect price increases faced by older Americans because they tend to spend more of their income on health care. The rise in medical costs has slowed in recent years, but people hit with serious illnesses can still see their individual costs soar.

People on Medicare, the government health insurance program for older Americans, usually have their Part B premiums deducted from Social Security payments. The premiums, which cover outpatient care, are scheduled to stay the same next year -- $104.90 a month.

However, federal retirees face a 3.8 percent increase in their health insurance premiums next year, said Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association.

"News of the cost-of-living adjustment for the coming year always is eagerly awaited by the countless Americans who rely on the increase to keep up with the rising price of food, housing, transportation and medical care," Beaudoin said in a statement. "However, despite the partial relief this COLA will provide, the announcement is a reminder that our method for calculating the increasing cost of goods and services is out of sync with the reality faced by millions of federal [retirees], Social Security recipients and military retirees."

-Associated Press Writer Martin Crutsinger contributed to this story.

 

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September CPI Avoids Deflation Fears

October 22, 2014, 2:15 am

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Filed under: Economy

The U.S. Bureau of Labor Statistics released the Consumer Price Index (CPI) Wednesday morning before the market opened. The CPI increased 0.1% in September, above the 0.0% expected by Bloomberg. Over the past 12 months, CPI increased 1.7%. CPI less food and energy also increased 0.1% in September. This is the core-CPI, and Bloomberg was also calling for a 0.0% change here as well. The good news is that this still manages to avoid deflation.

Increases in shelter and food indexes beat out the declines in energy indexes, resulting in the increase in CPI for September. In the previous months, consumer prices fell 0.2% in August after rising 0.1% in July.

The food index rose 0.3% as five of the six major grocery store food group indexes increased. Food price inflation decelerated to a 0.2% gain in August after jumping 0.4% in July.

The energy index dropped 0.7% as the indexes for gasoline, electricity and fuel oil all fell. Energy fell 2.6% in August, following a dip of 0.3% in July.

Along with the shelter index, the index for medical care increased, and the indexes for alcoholic beverages and for personal care advanced slightly.

As previously stated, CPI increased 1.7% over the past 12 months, and the same increase was seen for the 12 months ending August. The 12-month change in CPI less food and energy also remained at 1.7%. The food index has also risen 3.0% over this span, while the energy index has declined 0.6%.

ALSO READ: The 15 Biggest Employers in the World

 

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'Captain America' Chopper Sells for $1.35 Million

October 22, 2014, 2:27 am

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Filed under: Alternative Investment, Art, Antiques & Collectibles, Transportation & Logistics, Auctions, Investing

By Robert Frank | @robtfrank

A star-spangled chopper reportedly ridden by Peter Fonda in the classic film "Easy Rider" sold for $1.35 million, making it one of the most expensive motorcycles ever sold.

Auction house Profiles in History sold the bike over the weekend for far above the reserve price of $1 million. The chopper, known as the "Captain America" chopper for the name of Fonda's character in the 1969 film, was owned by Los Angeles collector Michael Eisenberg.

The price came despite media reports that cast doubt on the authenticity of the bike. The Los Angeles Times reported that an earlier "Captain America" chopper had been sold that also claimed to be the last remaining of its kind from the film.

Fonda told the Times before the sale: "There's a big rat stinking someplace in this."

Perhaps we haven't heard the end of this story. But for now, some reports say the bike -- the real deal or not -- is the most expensive ever sold at auction.

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Food Supplier Scandal Rocks U.S. Fast Food Chains in China

October 22, 2014, 3:00 am

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Filed under: Earnings, China, Restaurants, Scandals and Lawsuits

Like many other business sectors, big fast food is -- or at least was -- thriving in China. China is a tough market, with stiff competition from Western rivals and local chains and several recent food supply scandals.

The latest controversy erupted this past July, but its effects are lingering. A TV report showed workers at Shanghai Husi, a supplier owned by privately held American concern OSI Group, using meat past its expiration date as well as scraps that had fallen to the factory floor.

Shanghai Husi clients Yum! Brands' (YUM) KFC, McDonald's (MCD), Burger King International (BKW) and Papa John's International (PZZA) were quick to distance themselves.

The scandal even touched Starbucks (SBUX). The coffee giant said that although it's not directly a Shanghai Husi client, some chicken used in one of its sandwiches was purchased from a different supplier but originated from the offending company.

Yum? Yuck!

Yum! Brands says it sourced only a small percentage of its meat from the company; nevertheless, it halted all of its orders from Shanghai Husi and issued a formal apology to its customers.

But that doesn't seem to have been enough. At the end of July the company warned that the ugly news was having a "significant, negative impact to its China operations." Indeed, its China division same-store sales cratered by 14 percent on a year-over-year basis in its most recent quarter, a fall the company attributed directly to the controversy. This was in sharp contrast to the 15 percent increase in the previous quarter.

Investors aren't encouraged. At the moment, Yum! Brands' stock trades at just over $69 per share, or roughly $10 below the year-to-date peak it hit before the scandal broke.

Let's Stick to the Local Cuisine

The impact to McDonald's reverberated since Shanghai Husi supplied around 20 percent of the Chicken McNuggets in Japan.

As with Yum! Brands, controversy is very bad for business for McDonald's. The company just reported its third-quarter results, in which global same-store sales dropped by 3.3 percent on a year-over-year basis. The Asia-Pacific, Middle East, and Africa region saw a queasy 9.9 percent fall during the month. The company attributed this to what it termed the "supplier issue."

McDonald's stock stumbled in the wake of the Shanghai Husi scandal, and it's yet to recover. At the beginning of July, it traded comfortably above $100 per share; these days it's floating barely above $90.

Food Fatalities

Shanghai Husi is far from the first food supply scandal that has rocked China. In 2008, a horrifying series of incidents saw tainted baby formula supplied by a company called Sanlu cause the deaths of six infants. Around 300,000 others were made ill by the products.

Giant American retailer Walmart (WMT) has besmirched its name in China more than once over the past half-decade due to its food misadventures. In 2011, it made headlines for the wrong reasons for keeping duck meat on its shelves past the date of expiration. This past January, it recalled donkey meat -- eaten as a snack by Chinese consumers -- sold at several stores following revelations that some of it was made from other animals like fox.

Great Wall

China, with its massive population and seemingly ever-growing economy, is a valuable market for any business. But it presents obstacles and challenges not present in more mature, developed markets. In spite of government efforts to police the nation's food producers more thoroughly, bad stuff continues to make its way into the market, and companies act dishonestly about their wares. If the situation doesn't change, both China's mass of consumers and the American restaurant chains helping to feed them will keep suffering the ill effects of that misconduct.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of Papa John's International and Starbucks. 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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Flu Poses Far Greater Risk Than Ebola to U.S. Economy

October 22, 2014, 3:40 am

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Filed under: Health Care, Economy

Ebola may be grabbing all the headlines and stirring up lots of fear, but the virus that presents the biggest threat to America's workers and businesses is far less exotic: It's the flu.

"The impact on business can be anything but mild" from a widespread flu outbreak, according to John Challenger, chief executive of the global outplacement firm Challenger, Gray & Christmas. The Centers for Disease Control says seasonal flu outbreaks cost the nation $10.4 billion on average in direct costs such as hospitalizations and outpatient visits. Challenger, citing government statistics, says the indirect costs, such as the lost worker productivity, can cost the economy about $7 billion a year. Employees are likely to lose 111 million work days, and for those without paid sick leave, that means lost wages.

According to the CDC, 5 percent to 20 percent of the American population contracts the flu each year, with more than 200,000 people hospitalized and 36,000 killed. (Some doubt the magnitude of the death stats, but the economic impact is undeniable.)

The height of the flu season usually runs from December through February, but outbreaks can begin as early as October. Workers and employers can help limit the spread of the virus, but Challenger warns that most employers react too late, after an outbreak is underway. The CDC recommends a flu vaccine each year for everyone 6 months of age or older, and the Affordable Care Act makes it free under most health plans.

What Companies Should Do

Experts recommend some simple prevention measures, such as frequently washing hands, disinfecting of work surfaces and replacing meetings with conference calls. Challenger also recommends the employers encourage sick workers stay home to avoid spreading the disease and tell them that they can do so without risk. "Employers have to create an environment that says when you're sick, you should stay home. You're not putting your job at risk."

"It's only good business to plan for the issues your workforce is likely to face and take steps to deal with those issues," he said. "There are lots of issues that go into what makes people happy in their job in terms of environment, and this is becoming a big issue in people's mind. Does the company have a germ-free environment?" He says a company the promotes wellness, including steps to prevent the spread of the flu, sends a message to employees that it cares about their health and well-being.

 

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Chili's Good Earnings News: More Business Happens Here

October 22, 2014, 3:46 am

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Filed under: Company News, Earnings, Market News, Restaurants, Investing

There are some signs of life in casual dining. Chili's Grill & Bar parent Brinker International (EAT) posted encouraging fiscal first-quarter results on Tuesday morning. Revenue increased 4 percent to $711 million, just ahead of the $709.2 million that analysts were expecting. Net income excluding special items rose to 50 cents a share from 43 cents a share a year earlier, in line with Wall Street's profit target.

Brinker was able to post modest sales growth and widening margins in a climate that's challenged many casual-dining rivals. The most exciting aspect of Brinker's report is that the growth didn't really come from expansion efforts, though there are more Chili's and Maggiano's Little Italy locations out there than there were a year ago. Growth at individual eateries is driving results. Comparable-restaurant sales at company-owned Chili's locations increased 2.6 percent as a slight uptick in traffic and customers spending more helped push store-level performance higher.

Sizzling Like Fajitas

This isn't a fluke. Chili's posted a 0.6 percent increase in comps at company-owned locations in its fiscal year that ended in June. That followed a 0.5 percent uptick in fiscal 2013. That may not seem like heady growth -- not even keeping pace with inflation -- but it came at a time when many rivals were getting pounded.

However, fiscal 2015's first quarter is even more impressive because customer counts inched higher. The eatery-level sales gains in the two previous years were the result of price increases and product mix, but store traffic declined 1.8 percent in each year.

Customers are coming back this time, and technology could be playing a starring role. Earlier this year, Chili's began installing tabletop tablets that customers can use to request drink refills, place appetizer and dessert orders, or settle up their tabs at the end of the meal. A waitstaff is there to take the initial order and available for those who prefer to cash out or request refills the old-fashioned way, but the tablets appear to be living up to the hype.

High-Tech on the Menu

Chili's, DineEquity's (DIN) Applebee's and Pizzeria Uno turned heads late last year by being among the first major casual-dining chains to announce plans to implement tableside tablets in 2014.

There were many selling points in the move. Patrons could play games on the tablets while they wait for the food, making the time spent more enjoyable. More important, the companies behind the tablets offered up case studies in which customers spent more when given visual displays of menu items. They also spent less time at the restaurant since they didn't have to flag down a waiter or waitress to place orders or pay at the end of the meal. That last point is a win-win, since customers save time, and the establishments can turn the table over faster.

It's still too soon to tell if technology is giving Chili's an advantage, but we'll have a clearer indication when DineEquity reports next week.

For now, Brinker is doing more than a few things right. You're not necessarily seeing that at most of the other mass-market table-service establishments. Darden Restaurants (DRI) has been a disaster, recently unloading its Red Lobster chain to focus on Olive Garden. Things haven't gone well at Olive Garden, with five consecutive quarters of negative comps.

If comparing Olive Garden to Chili's doesn't seem fair given the different concepts, consider that Brinker's casual Italian chain -- Maggiano's Little Italy -- has come through 19 straight quarters of year-over-year upticks in comparable-restaurant sales.

Motley Fool analyst Rick Munarriz has no position in any stocks mentioned. He still sings the old "baby back ribs" Chili's jingle, even if no one is around to hear it. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

 

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Half of Baby Boomers Don't Know They Pay IRA, 401(k) Fees

October 22, 2014, 5:12 am

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Filed under: Retirement Plans, 401K, IRA, Roth IRA

Management fees can put the squeeze on any investment, but particularly one of the retirement variety. An apparently slight difference in fees can add up a brutal difference in your bottom line after decades of saving -- to the tune of tens or even hundreds of thousands of dollars.

Given that, you'd think that people would pay close attention to the fees on their 401(k)s or individual retirement accounts. But you'd be wrong.

A recent national online survey of baby boomers commissioned by RebalanceIRA showed that 46 percent thought that they paid no fees at all. Another 19 percent thought the fees were likely less than 0.5 percent. Only 4 percent of the respondents thought that the fees could top 2 percent.

"Fee obfuscation has been around as long as there have been fees, and this survey is proof that the industry is still winning the battle," said Burton Malkiel, author of the investing book "A Random Walk Down Wall Street" and member of RebalanceIRA's investment committee, in the site's release.

Nibbling Away at Your Money

According to a "Frontline" report last year on PBS, the average actively managed mutual fund charges 1.3 percent in fees on the total in the account, not on the year's gain. Over decades, that can run into the hundreds of thousands of dollars. "And that's the difference between running out of money before you die -- or having a little money left to pass on to your heirs," Ron Lieber, the Your Money columnist for the New York Times, told "Frontline."

According to ReblanceIRA, 401(k) fees now average 1.5 percent. IRAs are no better, even though FINRA, the investment regulatory agency, noted last year that it saw many cases of "overly broad language in sales material of broker-dealer firms that implies there are no fees charged to investors who have accounts with the firms."

It's not just fees that are a mystery to many. A fifth of survey respondents -- 1,165 U.S. adults, aged 50-68 and working full-time -- didn't even know what percentage of their portfolio was in stocks or stock funds.

Two-thirds said they were either somewhat or very anxious about their ability to retire with enough money. For good reasons, it would appear.

The best advice: Determine exactly what fees you are paying today, and see what comparable lower-cost options you can switch to. Then make those moves now rather than sometime in the future, when you'll have already wasted even more money.

 

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Divided SEC Adopts Mortgage Rule, Decries Lax Lending

October 22, 2014, 6:08 am

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Filed under: Mortgages, Financial Reform, SEC, Consumer Protection, Financial Education

By Sarah N. Lynch

WASHINGTON -- U.S. securities regulators adopted a rule Wednesday designed to avert another financial crisis, but two officials dissented, saying it didn't do enough to discourage banks from lending to borrowers with shaky credit and then passing the mortgage risk to investors.

The Securities and Exchange Commission approved the so-called "risk retention" rule by a 3-2 vote, while the U.S. Federal Reserve is expected to approve it later Wednesday.

The rule requires banks to keep at least 5 percent of the risk on their books when they securitize loans. This "skin in the game" is aimed at aligning the bank's interest with investors that buy the loans.

But two Republican commissioners said they couldn't support the rule in part because they believe its exemption for low-risk mortgages is too broad and doesn't sufficiently crack down on lax underwriting standards. They also said the rule perpetuates the dominant role of government-sponsored enterprises such as Fannie Mae in the housing market.

"Today could have been the day when the commission and its regulatory partners ... stood strong, resisted political and special interest group pressure, and courageously seized this golden opportunity to address the failed federal housing policy that was one of the central causes of the financial crisis," said Republican SEC Commissioner Daniel Gallagher.

Before the financial crisis, banks pumped up lending volumes, little concerned about the risks since they planned to unload the loans. The system imploded when subprime mortgage borrowers started defaulting.

The dissents by Gallagher and Michael Piwowar were widely expected, after they published a letter to the editor in The Wall Street Journal in June.

Other banking and housing regulators gave their nod Tuesday. The agencies are required by the 2010 Dodd-Frank Wall Street financial reform law to implement the rule.

Their concerns, however, reflect the broader public debate about the delicate balance between mortgage lending standards and the need to protect investors.

The most hotly contested issue centers on the scope of an exemption for ordinary "qualified" residential mortgages. In 2011, regulators originally proposed defining qualified mortgages as those requiring borrowers to make hefty down payments.

Regulators scrapped the plan after the industry pushed back, saying it would stifle the housing market for lower-income buyers.

In Wednesday's final rule, the definition of a qualified mortgage is much looser than first proposed in 2011, and aligns with a definition in a separate rule by the Consumer Financial Protection Bureau.

In a study, SEC economists said the exemption is now so broad that the "same economic incentives" for the banks that existed prior to the financial crisis "may persist."

SEC Commissioner Luis Aguilar, a Democrat who voted in favor of the rule, acknowledged some outstanding concerns with the scope of the exemption.

But, he said, the rule contains a safeguard that allows regulators to periodically review how it defines a qualified residential mortgage, and has asked SEC staff to provide annual updates.

 

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Lumber Liquidators' Numbers Dive Toward the Floor

October 22, 2014, 8:17 am

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Filed under: Company News, Earnings, Market News, Materials & Construction, Investing

Lumber Liquidators (LL) is walking the plank again. The leading retailer specializing in hardwood flooring put out another unflattering quarterly report on Wednesday morning, sending the shares sharply lower at the open.

Net sales may have moved nearly 5 percent higher to $266.1 million for the period ahead of the fall flooring season, but that was entirely the handiwork of stores that have opened over the past year. Things went the other way at the individual store level, with comparable-store sales slipping 4.9 percent during the period relative to last summer.

The market may sometimes look the other way if a retailer is holding back on sales growth to protect generous markups, but that wasn't the case at all here. Lumber Liquidators' gross margin of 39.2 percent -- down from 41.8 percent a year earlier -- is proof that it had to discount aggressively just to achieve its lower per-store net sales.

Shrinking sales per store and lower profit margins naturally aren't going to clean up nicely on the bottom line. Net income plunged 23 percent to $15.7 million, or 58 cents a share. Analysts were holding out for a profit of 68 cents a share on $273.7 million in net sales.

It's Not the Wood That Makes It Good

This is the third quarter in a row that the former Wall Street darling has come up short on the bottom line.

Lumber Liquidators was a hot stock last year and an even hotter stock the year before that. It nearly tripled in 2012, soaring another 95 percent in 2013. The recent housing boomlet paid off for the 350-store chain. A flurry of market activity led to home buyers springing for the stylish look of hardwood. Even those who were staying in their own digs made it out to Lumber Liquidators as rising home prices resulted in fewer people with underwater mortgages. Once you owe less on your property than it's worth in the open market, it's easier to invest in renovations.

Things began to turn at Lumber Liquidators this year. It started slowly. A 0.6 percent slide in comparable sales during the first quarter was followed by a brutal 7.1 percent drop in comps during the second quarter. Margins took a hit. Profitability started going the wrong way. However, even after the shocking second quarter, the home improvement chain's lowered guidance for the third quarter called for it to post a profit between 59 cents and 69 cents a share.

It wasn't conservative enough, judging by the eventual earnings of 58 cents a share. The market isn't sticking around. The stock that nearly doubled last year after nearly tripling the year before that has now shed more than half of its value.

Getting Floored Again

Wednesday's hit took the stock to levels last seen in late 2012, but the situation isn't entirely hopeless. Lumber Liquidators points out that the inventory constraints and promotional activity that crushed the third quarter have improved. It also pointed out that even during the third quarter it saw improving trends toward the end, and that's encouraging since we're heading into the historically potent fall flooring season.

Another silver lining is that Lumber Liquidators is still way better off than it was two years ago, even if its stock is back to where it was by the end of 2012. Yes, comparable-store sales are off 4.3 percent through the first nine months of this year, but they had soared 15.8 percent through the first nine months of 2013. Put another way, comps so far this year are 10.8 percent higher than they were two years ago.

Things clearly aren't perfect. Despite the favorable momentum heading into the holiday quarter, Lumber Liquidators' guidance for the period's profitability is still short of Wall Street expectations. However, it was unrealistic to think that the burst of buying activity in 2012 and 2013 would last forever in this very cyclical retailing niche. Lumber Liquidators will have a lot to prove this fall flooring season.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks to build your portfolio with, check out our free report.

 

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