Can Amazon and Netflix Bounce Back in 2015?

December 19, 2014, 3:34 am

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Filed under: Company News, Netflix, Amazon.com, Investing

Two of the market's biggest dot-com rock stars have had a rough 2014. Amazon.com (AMZN) -- the world's leading online retailer -- has seen its stock shed a quarter of its value this year. Netflix (NFLX) was the biggest gainer among the S&P 500 companies in 2013, but this year it's been a different story. The leading premium provider of streaming video has seen its shares slump nearly 10 percent so far this year.

Netflix's slide may not seem so ominous, but keep in mind that the stock has shed nearly a third of its value since peaking just three months ago. That's a big drop in a short time, rivaling the disappointment Amazon investors have faced this year.

Thankfully, history is on their side. Amazon hasn't posted back-to-back years of stock declines since 2001. Netflix has yet to post two consecutive years of negative returns since going public in 2002. This certainly doesn't guarantee that either company's stock will bounce back in 2015, but it does show that Amazon and Netflix have been able to bounce back from adversity.

Bang a Gong, Amazon

At least one Wall Street pro thinks the leading online retailer will bounce back in the year ahead.

Piper Jaffray analyst Gene Munster put out a bullish note on Thursday, calling Amazon his favorite large-cap stock for 2015. He concedes that top-line growth may be decelerating, but argues that the market is being too hard on Amazon's recent margin crunch. The former dot-com darling is investing in everything from building out fulfillment centers offering speedier deliveries to establishing the server farms necessary to support its thriving Web services platform.

The market also has ignored Amazon rolling out expensive Kiva robots at its warehouses that are reportedly at least three times as productive as humans without the downside of fatigue or rising labor costs. Munster has an ambitious $400 price target on the stock, suggesting nearly 35 percent of upside from here.

Nothing but Netflix

There wasn't a popular Wall Street analyst pounding the table for Netflix on Thursday, but a day earlier we did see DISH Network (DISH) announce a deal to integrate Netflix's streaming application into some of its set-top boxes. This is the first deal of this kind signed with a pay-TV provider, paving the way for more deals. At the very least, the integration validates the Netflix model.

Unlike Amazon, which has been sliding through most of 2014, Netflix was holding up pretty well until its third-quarter results were announced in October. Netflix closed out the summer quarter with 3 million more subscribers than it had at the end of June. The market was hoping for more -- and perhaps more important, Netflix was forecasting for more -- but we still don't know if this was a fluke or if the historically conservative Netflix is starting to overestimate its appeal. Either way, you won't find too many premium subscription services tacking on a million net new users a month.

Globe-Trotters

One thing that ties Amazon and Netflix together is that they have become the two leaders of premium streaming video. Netflix is the undisputed top dog in this space, even if it has meant disrupting its own mail-based DVD rental business. Amazon has emerged as a legitimate competitor as it beefs up the digital smorgasbord that it makes available to Amazon Prime subscribers.

The industry is paying attention. Earlier this month we saw Amazon ring up a pair of Golden Globe nominations for its original content. Netflix continues to build on the success of its proprietary content, landing seven nods this time around.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investment year? Check out our free report on one great stock to buy for 2015 and beyond.

 

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Should You Tip Your Garbage Man? 9 Rules for Holiday Tipping

December 19, 2014, 4:22 am

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Filed under: Holiday Shopping, Consumer Issues, Gift Guides

By Marilyn Lewis

Ring ring-a-ling, ring ring-a-ling. It's that time again. Time to wonder how much to spend on a holiday gift for your kindergartener's teacher and how much to tip the garbage man ... and the mail carrier, your hairdresser and a half dozen others or more who make your life sweeter and easier through the year.

In the video above, Money Talks News founder Stacy Johnson tells how to give some holiday love to those who care for us all year long, and how to do it without nuking your budget.

After you've watched, keep reading for nine rules about holiday tipping.

Holiday tipping seems to be on the rise. About 69 percent of 1,300 people surveyed by Care.com (an online marketplace for family care services) say they give holiday tips. The issue is, to whom, how much, and with what, should you tip or gift?

1. Spread the wealth. "If money is tight, figure out how much you can afford to spend and allocate it accordingly among the providers on your list," Lizzie Post, co-host of the Awesome Etiquette podcast, tells CNBC.

Here's how to tip affordably:

• Decide what you can afford to spend on tips and gifts.
• List everyone you want to tip or gift.
• Prioritize the people on your list.
• Allocate how much to spend on each tip or gift.
• Stop when you've hit your budgeted limit.
• Plan how to thank those remaining without using money.

2. Stay within your budget. Seriously. Don't throw fiscal self-discipline to the wind for the holidays. There's pressure to keep up with everyone else, especially at this time of year. It's easier to resist, though, by imagining the misery of a holiday debt hangover. FiveThirtyEight writes:

Households earning between $50,000 and $75,000 annually will take an average of 2.6 months to pay off holiday debt, according to [a new] study, conducted by Harris Interactive Inc., a market research company. Lower-income households that make [less than] $50,000 will take an average of two months to pay off their holiday debt. (Households that make [more than] $100,000 will need only one credit card statement to shed the debt.)

3. Exercise flexibility. There's no code of ethics for this. You have carte blanche to use your own good sense.

If you have little disposable income, disregard advice from articles that suggest tipping the doorman ($25 to $150, depending on the relationship, says CBS New York), the dog walker (a week's pay, says Oprah Magazine), the nanny (a week's pay and a gift from your child, according to Oprah), the personal trainer (the price of one session, Oprah advises) or live-in help like a cook or butler (from a week's pay to a month's pay plus a personal gift, Emily Post advises).

Those articles assume a level of disposable income you don't possess, and the advice in them may be inappropriate for someone with less money.

If you do employ a nanny, a personal trainer and other personal service professionals, think about how those people affect your quality of life and tip generously.

Consider this reader's heartfelt post on Care.com:

The stress that nannies are under is great and when we care more about the children we watch than the parents it is even more frustrating. So take a step back when you come home and think of all your nanny does for you and tip them accordingly or they will be running like I am about to do.

4. If you're unsure, ask around. Wondering what to give teachers at your child's school? Call the office and ask what's recommended and what other parents do. Your hairdresser? Ask at the front desk. Call your garbage company to find out what's recommended.

Don't stop there. Ask your friends what they do. Quiz other parents and acquaintances at the dog park, coffee shop or your kids' soccer games.

5. Don't tip if: A tip is a gift of money (more on gifts below). You've already paid, so this is a recognition of extraordinary service. There's no need for a holiday tip if:

• The service you receive is nothing special. "There's a certain level of customer service you should expect when you're the customer," Diane Gottsman, owner of The Protocol School of Texas, tells CNBC.
• You don't know the person's name. Whether you tip and the amount you give depends on the frequency of service and your relationship. If you don't know the name of your trash collector or your paper carrier, it may be better to give a small gift or something from your kitchen. On the other hand, if a landscaper's employee goes the extra mile every week yet you don't know his name, rethink this rule and give a nice tip.
• It might be inappropriate. Postal employees aren't allowed to accept cash tips or gift cards. A holiday gift valued at $20 or less is OK, as are gifts worth up to $50 in a year. Teachers typically may not accept cash, so give a gift worth $25 or less. Or, better yet, get together with other parents on a group gift.
• You tip regularly throughout the year. If you've been tipping steadily every time you receive a service, there's no need to pull out your wallet again at the holidays.

6. Do tip if: It is customary to tip the:

• Garbage collector.
• Baby sitter.
• Newspaper deliverer.
• Handyman or woman.
• Housecleaner.
• Hairdresser or barber.
• Personal trainer.
• Massage practitioner.
• Caregiver.
• Manicurist.
• People who groom or walk/feed your pets.

How much you give depends on your finances. If you're not strapped, tip the cost of one session for those you employ regularly on a per-session basis. Give a week's compensation to people who work regularly in your home or for your family.

But remember, if you tip regularly, say you give your hairdresser an extra 15 to 20 percent each time you use her service, you're excused from also giving a holiday tip. Tip extra if you wish, by all means, but a card of thanks will do just fine in this case.

7. When you give cash. Put a cash tip in a card with a handwritten note of thanks. A couple sentences will do. There's no need to write a long letter.

8. When you give gifts. When a tip is not appropriate, give a small wrapped gift and card of thanks. Or give a gift card or gift certificate worth about $20 at a coffee shop, bookstore or online marketplace. Avoid giving gift certificates for necessities like groceries. If you suspect your recipient is hard up, give cash instead.

9. When you don't have cash. Here are alternative ways of saying thanks:

• Send a letter of praise to a worker's supervisor, Peggy Post, director of the Emily Post Institute, tells Kiplinger.
• Write a thoughtful thank-you note expressing your gratitude.
• Give a card or gift made by your children.
• Give cookies, jam, chocolate truffles, pickles or another goodie you've made.

What are your rules for holiday tipping? How do you say thank you if you can't give cash? Share your thoughts below or on Money Talks News' Facebook page.

 

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T-Mobile Paying at Least $90 Million for Unwanted Services

December 19, 2014, 5:02 am

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Filed under: Company News, Telecommunications, Consumer Protection, Mobile Technology, Cell Phones

By MARCY GORDON

WASHINGTON -- T-Mobile US (TMUS) will pay at least $90 million, mostly in refunds, for billing customers for cellphone text services they didn't order, under a settlement with federal regulators.

The Federal Trade Commission announced the agreement Friday with T-Mobile over billing for unauthorized charges, a practice known as "cramming." T-Mobile, the fourth-largest U.S. cellphone company, is paying at least $67.5 million in refunds to affected customers plus $18 million in fines to the 50 states and the District of Columbia, and $4.5 million in fines to the Federal Communications Commission.

The FTC sued T-Mobile in July, accusing it of billing customers for subscriptions to text services like $9.99-a-month horoscopes, ringtones, "flirting tips" or celebrity gossip updates that they didn't want or authorize.

We learned during this case that T-Mobile was in bed with the crammers.

T-Mobile collected 35 percent to 40 percent of the charges, even after being alerted by customers that they were bogus, the FTC alleges. That earned the company hundreds of millions of dollars, the agency said.

"We learned during this case that T-Mobile was in bed with the crammers," said Travis LeBlanc, head of the FTC's enforcement bureau. He was referring to the third-party companies that put charges on phone bills for text services. Many consumers aren't aware that third-party companies can do that, the regulators say.

'Not a Maximum'

Officials told reporters on a conference call that the $90 million was a floor, not a maximum, for the amount that T-Mobile could end up paying. "It could be well north of $100 million," said Bill Sorrell, the attorney general of Vermont.

A T-Mobile spokeswoman said the company had no immediate comment on the settlement. T-Mobile began a refund program in July and has said it has notified current and former customers. The company didn't provide an estimate of how much it has paid in refunds to date.

T-Mobile US, based in Bellevue, Washington, is controlled by Germany's Deutsche Telekom. It's the No. 4 U.S. cellphone carrier after Verizon Wireless (VZ), AT&T Mobility (T) and Sprint (S).

The settlement must be approved by a federal court in Seattle, where the FTC filed its lawsuit.

Under the settlement, T-Mobile must provide full refunds to all its customers affected by the "cramming," and the amount it pays in refunds and fines must reach at least $90 million. If the payout doesn't reach that amount, the difference between what T-Mobile pays and $90 million will go to the FTC for additional relief to consumers, consumer education or other uses.

Explicit Consent Required

T-Mobile also must contact all of its affected customers, both current and former, to tell them about the refund program and how they can make a claim. That must be done in a "clear and conspicuous way," the FTC said. Going forward, T-Mobile must get customers' explicit consent before putting third-party charges on their bills. The company must clearly indicate any third-party charges on the bills.

The settlement with T-Mobile came two days after another federal regulator, the Consumer Financial Protection Bureau, sued rival Sprint for alleged cellphone "cramming." The CFPB is seeking an unspecified money penalty against Sprint.

The T-Mobile agreement is the second-largest settlement for the government over mobile cramming. In October, AT&T Mobility agreed to a $105 million settlement with the FTC. Officials said that with the two settlements, about half of all U.S. cellphone users now will be protected from abusive third-party charges.

"Mobile cramming is an issue that has affected millions of American consumers, and I'm pleased that this settlement will put money back in the hands of affected T-Mobile customers," FTC Chair Edith Ramirez said in a statement Friday. "Consumers should be able to trust that their mobile phone bills reflect the charges they authorized and nothing more."

 

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Holiday Shopping Season Sales Come Down to the Wire

December 19, 2014, 8:45 am

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Filed under: Retail, Holiday Shopping, GDP, Deals, Stores

By ANNE D'INNOCENZIO

NEW YORK -- Despite an early start, sales data provided to The Associated Press show that stores may once again have to rely on procrastinators to save the holiday shopping season.

Sales were up 1.8 percent from Nov. 1 through Monday compared with the same period a year ago, according to data tracker First Data Corp., which declined to provide sales figures.

The numbers are modest considering the National Retail Federation, the nation's largest retail trade group, expects sales for the entire season -- November and December -- to rise 4.1 percent to $616.9 billion.

The slow growth also comes at a time when retailers tried to do a number of things to jumpstart the season and encourage shoppers to spend. Some offered "holiday" discounts as early as Halloween instead of waiting until the day after Thanksgiving known as Black Friday. And more stores opened on Thanksgiving Day itself to offer people early enticements to spend.

But the incentives seem to have backfired. Shoppers took advantage of the earlier sales and hours, but that had the effect of siphoning away sales from Black Friday, which is typically the biggest sales day of the year.

"The numbers are lower than what people expected them to be so it will be interesting to see what happens in the final days of the holiday shopping season," said Rishi Chhabra, First Data's vice president of information and analytics.

As a result of the modest sales, retailers are making a big final push to lure shoppers into stores. And they're employing tactics they've had to use since the recession.

I think the consumer is very savvy. They're not shopping with abandon. They're not throwing their budgets to the wind.

Dennis May, CEO and president of HHGregg (HGG), said the consumer electronics chain added a "buy more, save-more" sales event that is ending this week. And it's also extending the cutoff date for online shoppers who want to pick up their items in the store until noon Christmas Eve. Last year, the cutoff date was Dec. 23.

"I think the consumer is very savvy," he said. "They're not shopping with abandon. They're not throwing their budgets to the wind. "

Major retailers including Macy's (M) and Toys R Us are offering marathon shopping hours. Kohl's (KSS), for instance, is opening its stores for 132 hours straight until 6 p.m. Christmas Eve. That compares with 108-hour stretch last year.

"Customers can rely on us around the clock for their last-minute gift-giving solutions," said Michelle Gass, Kohl's chief customer officer.

Big Sales Days Ahead

Despite the frenzy, retailers don't necessarily have to panic. There still are big potential spending days ahead, including this Saturday, which some industry watchers are saying could be the biggest shopping day of the year. In fact, the average holiday shopper had completed only 52.9 percent of their holiday shopping as of Dec. 10, according to a survey of more than 6,165 shoppers conducted by the retail trade group.

But retailers also have to watch their bottom lines. Shoppers have become more accustomed to deals, and many aren't willing to pay regular price anymore.

Indeed, C. Britt Beemer, chairman of America's Research Group, said 60 percent of 1,000 shoppers polled last weekend said they were only buying deals this holiday season. That compares with 40 percent last year.

But all the discounts eat away profits. According to First Data, the number of transactions rose 1.8 percent, but the average transaction was flat at $73.85, showing how heavy discounting can hurt the bottom line.

"I don't think it's great out there," said Ron Friedman, head of the retail and consumer products group at accounting firm Marcum who estimates that holiday sales will be up 2 percent from last year. "People are out in the stores and shopping, but they're all looking for deals.

Indeed, some shoppers are hesitant to spend a lot, despite some recent good economic news. Average gas prices nationally have dropped and the unemployment rate is at a six-year low. But some shoppers still struggle with higher costs and stagnant wages.

"I have to still watch what I spend and make sure everything's on sale," said Teresa Conrad, 51, who was shopping recently at a suburban Indianapolis mall.

-AP Business Writer Tom Murphy in Indianapolis contributed to this report.

 

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Market Wrap: U.S. Stocks Inch Higher After Big 2-Day Rally

December 19, 2014, 8:58 am

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Filed under: Energy, NYSE, Market News, Oil & Gas Industry, NASDAQ

By MATTHEW CRAFT

NEW YORK -- Oil and gas companies led the stock market up Friday, helping the Standard & Poor's 500 index notch its second-best week this year.

With little news to give them direction, traders continued to push indexes higher. That extended a rally from Wednesday when the Federal Reserve said it was in no hurry to hike interest rates.

"What a very crazy week," said Sam Stovall, chief equity strategist at S&P Capital IQ.

Benchmark U.S. crude bounced up from recent lows, climbing $2.36 to settle at $56.52 a barrel in New York, as traders bet that a 6-month plunge in prices had gone too far. Chevron (CVX), Denbury Resources (DNR) and other energy companies led nine of the 10 sectors in the S&P 500 to gains.

Nike's (NKE) stock dropped $2.24, or 2 percent, to $94.84. The maker of athletic apparel posted results that beat Wall Street's forecasts late Thursday, but a drop in orders from Japan and developing markets in Asia overshadowed an otherwise strong quarter.

The S&P 500 (^GPSC) gained 9.42 points, or 0.5 percent, to 2,070.65, bringing its weekly gain to 3.4 percent.

The Nasdaq composite (^IXIC) picked up 16.98 points, or 0.4 percent, to 4,765.38, and the Dow Jones industrial average (^DJI) rose 26.65 points, or 0.1 percent, to 17,804.80.

At the start of the week, slumping oil prices and the state of the world economy were investors' main worries. A plunge in the Russian currency, the ruble, added to a sense of unease.

The turnaround came Wednesday, when Janet Yellen, the Federal Reserve chairwoman, said she saw no reason to hike interest rates in early 2015 and that the central bank would be "patient" in deciding when to raise rates from near zero. Her comments eased concerns that the Fed would start raising rates when growth in other major economies has looked weak. Traders celebrated, driving the S&P 500 up 4.5 percent over two days.

"It's just crazy volatility," said Jim Paulsen, chief investment strategist and economist at Wells Capital Management. Paulsen pointed to the magnitude of the market's turn. Before the Fed's statement came out on Wednesday, the S&P 500 was on course for a second week of losses. Two days later, it closed out one of its best weeks this year.

Stock markets in Asia climbed in the wake of the big gains in Europe and the U.S. on Thursday. Japan's Nikkei 225 jumped 2.4 percent, while South Korea's Kospi added 1.7 percent. Hong Kong's Hang Seng advanced 1.3 percent.

The major equity markets are finishing the trading year on a positive note thanks to Janet Yellen's Christmas message.

"The major equity markets are finishing the trading year on a positive note thanks to Janet Yellen's Christmas message," said Neil MacKinnon, global macros strategist at VTB Capital. He said that with no major economic reports coming out, the markets will soon "switch into holiday mode," as traders head off for vacations.

Back in the U.S., strong quarterly results from Red Hat, an open-source software company, drove its stock up 11 percent, the biggest gain in the S&P 500. Red Hat (RHT) reported better earnings and sales than analysts had expected late Thursday. Its stock soared $6.54 to $68.04.

CarMax (KMX) jumped 11 percent after the used-car dealership posted a 22 percent surge in its quarterly profits thanks to higher sales. The company's results beat analyst estimates, sending its stock up $6.79 to $67.32.

U.S. government bond prices rose, nudging yields down. The yield on the benchmark 10-year Treasury note slipped to 2.16 percent.

In the commodity markets, gold edged up $1.20 to $1,196 an ounce, while silver added 10 cents to $16.03 an ounce. Copper rose 3 cents to $2.88 a pound.

Brent crude, a benchmark for international oils used by many U.S. refineries, rose $2.11 to close at $61.38 in London.

In other futures trading on the New York Mercantile Exchange:

• Wholesale gasoline rose 3.3 cents to close at $1.560 a gallon.
• Heating oil rose 2.3 cents to close at $1.962 a gallon.
• Natural gas fell 17.8 cents to close at $3.464 per 1,000 cubic feet. Forecasts for a mild winter, have pushed natural gas to its lowest price since November 2013.

What to Watch Monday:

• The National Association of Realtors reports existing home sales for November at 10 a.m. Eastern time.

 

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Staples: Customer Data Exposed in Security Breach

December 19, 2014, 10:02 am

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Filed under: Identity Theft, Company News, Retail, Credit Cards, Consumer Protection

By SARAH SKIDMORE SELL

PORTLAND, Ore. -- Staples (SPLS) says nearly 1.2 million customer payment cards may have been exposed during a security breach earlier this year.

The office supply retailer announced in October that it was looking into a potential credit card breach, adding to a long list of retailers recently hit by cyberattacks.

Staples said Friday that an investigation shows that the criminals used malware that may have allowed access to information for transactions at 115 of its U.S. stores, which total more than 1,400. That includes cardholder names, payment card numbers, expiration dates and card verification codes.

The Framingham, Massachusetts-based company is offering free identity protection services -- including credit monitoring, identity theft insurance a free credit report -- to customers who might be at risk.

The security breach affected different stores at different times between July and September.

Staples said that it has also received reports of fraudulent card use tied to four of its New York stores between April and September. While it found no evidence of malware at those stores, it is also offering the protection services to customers there as well.

A number of retailers have suffered security breaches in recent memory.

During last year's holiday shopping season, Target (TGT) disclosed that it was hit with an attack that exposed details of as many as 40 million credit and debit card accounts. Home Depot (HD) announced in September that a data breach affected 56 million debit and credit cards, and later said hackers also stole 53 million email addresses. And the cyberattack on Sony Pictures Entertainment (SNE) that came into the spotlight this week has put a number of companies on high alert to attend to the security of their own networks.

For more information about the incident, including dates of potential access and how to sign up for free credit monitoring, visit the company's website.

 

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The 4 Easiest Ways to Budget: Which Helps You Most?

December 19, 2014, 10:00 pm

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Filed under: Budgeting

Budgeting strikes fear (or annoyance, or disgust) into the hearts of many people, because we tend to see budgeting as something that is tedious, is complicated and keeps us from having any form. But budgeting doesn't have to be a dirty word. Here are four ways to make budgeting as easy and painless as possible.

1. Automate It

To make room for savings in your budget, pay yourself first. Set up automatic deductions from your checking to your savings account each pay period so you're not tempted to spend money you've earmarked for your emergency fund or retirement goals.

To avoid late fees and having to keep track of numerous due dates, set up automatic payments for as many bills as you can. The amount due will be deducted straight from your bank account when it's due, and you won't need to worry about mailing anything out by a certain date.

Remove the potential for human error as much as possible, and you'll find budgeting is already a lot easier.

2. Use Budgeting Tools

You don't have to go it alone, especially if you're not mathematically or organizationally gifted.

There are tons of great programs and software out there that can help you create a budget, track your spending and identify areas for improvement. Some are free, and some require a purchase -- but they're all waiting to make budgeting a breeze.

Check out free websites like Personal Capital or Mint that let you view all your accounts at a glance, or use an old-school worksheet to help you track your spending. Whichever tool you choose, make sure it feels intuitive and easy-to-use to you.

3. Adopt an 80/20 Budget

If the idea of tracking every purchase and reviewing your budget line-by-line makes you crazy, you may want to adopt an "anti-budget" or 80/20 budget.

Simply put, an 80/20 budget is where you put 20 percent of your income into savings automatically. This money becomes untouchable, and you have the other 80 percent available for the rest of your monthly expenses, such as groceries, utilities and rent.

If you find your monthly expenses go over 80 percent? Then it's time to trim some fat and find spending areas you can reduce.

You can also adjust the "anti-budget" to fit your own personal financial goals. If you'd like more savings to fall back on, try a 70/30 budget. If you want to aggressive pay down debt, you may want to consider a 60/40 (or even a 50/50) budget until you're out of the hole.

4. Try the Envelope System

Another alternative is the envelope system, made famous by financial guru Dave Ramsey. If you're a visual or tactile person, this could be the system that helps you finally see what budgeting looks like in action.

The envelope method involves taking all of the discretionary cash you have for the month and placing it in -- you guessed it -- envelopes that represent each of your budget categories.

If you can only afford to spend $300 a month on groceries, you place $300 in the "groceries" envelope. Being able to see how much cash you have left for the month helps you stretch out your spending-and if you use up what's in the envelope before the month is over, you're forced to make do with what you've already spent. (Maybe it's time to get creative with leftovers, "shop your pantry" or eat rice and beans for the rest of the month.)

If you're the sort who tends to swipe a card and not really think about what you're spending, the envelope system could be a great, old-fashioned way to get back to basics.

Paula Pant quit her office job in 2008, traveled to 32 countries and became a successful real estate investor. Her blog Afford Anything is the groundswell of a rebellion against standard, tired old financial advice that says you should skip lattes and chain yourself to a desk for 40 years. Afford Anything is dedicated to crushing limits, creating riches and maximizing life.

 

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FICO vs. FAKO: What's Your Real Credit Score?

December 19, 2014, 10:00 pm

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Filed under: Credit, Credit Score

By Mike Schreiber

There are a lot of different credit scores out there, and this has naturally led some consumers to ask: Which scores should I pay attention to, and what's my real credit score? People gravitate to the well-known FICO score, (FICO) by all accounts the market leader in credit scores (meaning more banks use FICO scores than other scores). In fact, many refer to non-FICO scores as "FAKO" scores, but is that moniker accurate? Let's take a step back and look at the credit score landscape.

The fact that consumers know anything at all about credit scores is impressive given that they were not intended for popular consumption when originally developed. They were really just meant to be a risk shorthand for lenders -- a quick and clear way for a lender to determine whether to issue a loan to a consumer, and at what interest rate. Beyond that, credit scores are an important part of the securitization process. Banks bundle loans and sell them off to investors. Credit scores help determine the value of those investments. But there's no one credit score used to make these determinations.

More Than 50 Scores From FICO

Each of us has dozens of credit scores used by financial institutions to judge our creditworthiness. FICO alone offers more than 50 different FICO scores to financial institutions and in some cases, directly to consumers. In addition to FICO, the company VantageScore offers credit scores, each of the three major credit bureaus -- Experian (EXPN), Equifax (EFX) and TransUnion -- offer their own credit scores, and a number of other companies have credit scores, too.

There are also a number of "educational" credit scores that banks do not use, but instead are intended for regular people to use to get a better sense of their creditworthiness. Because these scores are not intended for use in lender decisions, they are often thought of as "FAKO" scores. But what exactly is in a credit score, and what makes one score different from another? The vast majority of credit scores are configured using the information in your credit report.

Specifically, the scores are based on payment history, debt usage, the age of your credit accounts, the different types of credit accounts on your credit report and credit inquiries. These scoring models are essentially formulas that weight this information in different proportions. One model, for example, may weigh credit age a little bit more than another model. Beyond that, different scoring models can use data from different credit bureaus. For example, one lender may use a credit scoring model with data from your Experian credit report, while another lender may use the same scoring model with data provided by TransUnion, and another from Equifax.

So even if the models are exactly the same, the scores will be different if the credit reports don't exactly match (which is not unusual). Furthermore, different financial institutions use different scoring models for different reasons. One bank may use one credit score for their mortgage business and another for their auto loan business. A different bank could use entirely different scores.

So Which Credit Score Matters Right Now?

When people ask which credit score they should really be paying attention to, it's important to consider the reason for the question. If you want to know your credit score so you can see the same score a lender will see when you apply for credit, that's a very tall order. While FICO does control (by some estimates) 90% of the credit scoring market, it's far from certain that the FICO score you get from one institution will be used by another.

Even if you buy a FICO score directly from MyFico.com, it's far from certain that the score you've purchased will be exactly the same as the one a prospective lender is pulling. In that case, for all practical purposes, a "real" FICO score may be no better than an educational "FAKO" score. On the other hand, if you want access to a particular score that you know has at some point been used by a lender (even if it's not your lender) specifically because it has been market-tested, then the FICO vs. FAKO dichotomy makes more sense.

It's important to remember, however, that in this case the distinction is more about peace of mind than any practical advantage. In this scenario, "real" credit scores cannot simply be limited to FICO scores. While VantageScore controls 5-10% of the credit scoring market, these scores are used by some lenders, and therefore, by this formulation, are just as useful as a FICO score.

So Many Variations

These questions are naturally bubbling up these days because so many people are getting credit scores from so many sources.

• People see credit scores when they are buying a house.
• At the urging of the Consumer Financial Protection Bureau, more banks are providing people with access to credit scores as a part of their credit card account.
• Some student lenders are now providing access to credit scores. And, of course, there are plenty of free and paid websites that provide people with credit scores.
• Credit.com, for example, provides consumers access to two free scores -- a VantageScore 3.0 and an Experian National Equivalency Score -- along with an explanation of how your credit history is impacting the scores.

The problem is that often when people get their credit scores -- particularly when they are getting them from banks -- they don't know which scoring model and bureau data are being used to generate the score. Further, some people don't realize they have more than one score, and just assume that the score they are seeing is the score. That can be particularly confusing if you're getting multiple scores each month from different providers. People often assume that one or more of the scores is wrong.

The reality is that for the foreseeable future, for many Americans, confusion is effectively built into the system. However, the good news is that people in general are becoming more aware that credit scores exist and why they are important, and over time many more people will begin to understand the nuances of the credit scoring landscape and how to use it as a tool for their financial future.

Mike Schreiber is editor in chief of Credit.com. This op/ed contribution to Credit.com does not necessarily represent the views of the company or its partners.

 

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How to Maximize Your Social Security Benefits

December 19, 2014, 10:00 pm

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Filed under: Retirement, Personal Finance, Social Security

Deciding when to claim Social Security is one of the most important financial decisions any senior will make. The problem is there are so many variables involved, such as your current financial situation, if you plan to continue working, your health and the big unknown -- how long you'll live.

About 3.6-million Americans will turn 62 next year. That's the age that you are first eligible for Social Security, and more than 40 percent of them are likely to claim benefits right away. But in doing so, they will collect the smallest payment they're entitled to for the rest of their lives. It is (with only a few exceptions) an irreversible decision. The amount of your first check, plus annual cost-of-living-adjustments to account for inflation, will be the same for the rest of your life.

The good news is that there is no "wrong" answer here. Whatever you decide, you will get guaranteed payments from Uncle Sam for as long as you live. However, you may want to maximize that amount without making undo sacrifices along the way.

Eligibility and Delay

First, let's look at eligibility: "full retirement age" is 66 for people born between 1943 and 1954, but you can claim Social Security benefits beginning at age 62, even though financial advisers warn that taking your benefits then comes with a substantial penalty. Let's say you're due to collect $1,000 a month at age 66. That amount would be reduced to $750 -- a 25 percent penalty -- if you elect to collect as soon as you're eligible. Each year you wait up until 70, the amount goes up. (By the way, full retirement age goes up by two month per year for anyone born after 1954, until it tops out at age 70 for people born in 1960 or after.) The figures in this case:

Age	Monthly Social Security payment
62	$750
63	$800
64	$866
65	$933
66	$1,000
67	$1,080
68	$1,160
69	$1,240
70	$1,320

Of course, the amount you collect is based upon how much you earned over your lifetime. The Social Security Administration does a calculation based on your 35 best years. If you did not have reported income for 35 years, you get zeroes for those years you did not have income. The average Social Security recipient receives $1,294 a month this year, and the average couple gets $2,111. You can go on the Social Security website and sign in, no matter what your age, to check on how much you are entitled to receive.

Financial advisers generally say that if you are in reasonably good health and can afford to wait, you should delay starting to collect for as long as possible -- at least until you reach full retirement age, and up the 70-year age limit, if possible. If you delay past full retirement age, you get an additional 8 percent a year. That's a guaranteed investment return that's awfully hard to match. By comparison, a 10-year Treasury note pays just 2.3 percent.

The Break-Even Point

The big question for many people is trying to figure out the"break-even point: When do the bigger checks make up for the years you did not collect checks at all? The Social Security Administration says you'll get the same total payment no matter when you start to collect, if you live to your average life expectancy. For someone who is 62 right now, that average is 86.3 years for a woman and 83.8 years for a man. If you don't make it to average, starting benefits earlier would have been more lucrative, but for each month you live beyond average, delaying benefits to get a bigger check means more money over your lifetime. And for the growing number of people who live well into their 90s, it could mean thousands of dollars more.

However, Tom Margenau, a syndicated columnist who spent 32 years at the Social Security Administration, takes a contrarian view. "My wife and I took our benefits early, at 62," said Margenau. "I may be financially ahead in the long run if I waited, but we've been having a great time spending our Social Security benefits and not worrying a whit about it."

He maintains that you're gambling a bit too much with the your benefits by waiting until 70 to begin collecting. "Do you want that money in your mid-80s or do you want it in your 60s?" he asks -- and then answers: "I've never heard from an 85-year-old person who said 'I made it. I beat the system.' " He notes a lot of people can't wait until age 66 -- either because of their health concerns or because they need the money to survive.

Even More Choices

Meanwhile, married couples have more options to consider than singles. Not only are you making a decision for yourself, but you have the option to think about your spouse who may survive you. Many married couples stagger when they begin to collect. The person with the larger payment waits longer, which entitles the surviving spouse to collect the larger benefit for the rest of his or her life.

There is no one-size-fits-all solution. You have to do the math and consult a financial adviser if you can. Also, go online and search for "Social Security calculator" so that you can play with the various scenarios.

 

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When Should You Choose Active Over Passive Mutual Funds?

December 19, 2014, 10:00 pm

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Filed under: Mutual Funds, Investing

By Kate Stalter

These days, investors hear fewer financial advisers promise they have the stock-picking chops to "beat the market." With memories of 2008 still fresh in people's minds, many advisers, as well as individual investors, approach markets with a more prudent perspective. Increasingly, eking out the last penny of potential return is secondary to managing risk.

However, individual investors, particularly those who enjoy actively trading their own accounts, are all too familiar with various newsletters and stock-picking software programs that promise (or at least suggest) the potential for eye-popping and market-beating returns.

It's certainly true that some actively managed mutual funds (those in which managers select securities, rather than simply track an index) outperform their benchmarks for some period of time. However, using active funds' past performance is an unreliable way to predict future returns. That's a warning investors will find in the small print of every mutual fund prospectus, but many choose to ignore, despite numerous studies confirming that fact.

How Now, Dow?

For example, July research by S&P Dow Jones Indices found, among other things, that of funds in the top performance quartile in March 2012, only 3.8 percent were still outperforming their benchmark by the end of March 2014.

Perhaps surprisingly, even active fund managers acknowledge that indexing can coexist with active management.

Of course, retail investors aren't spending their leisure time poring over these studies, and they're often left guessing which investment vehicles are the best fit for their unique goals and risk tolerance. Perhaps surprisingly, even active fund managers acknowledge that indexing can coexist with active management.

David James, senior vice president and director of research at the James Advantage Funds in Xenia, Ohio, sees a role for exchange-traded funds, most of which simply track indexes, alongside funds such as his. The James funds include the categories of mid-cap, small-cap and micro-cap stock funds, as well as long-short and balanced funds. "I like the fact that investors have the ETFs. They do add a component for investors, and they are low cost, but they are not quite the end-all, be-all," he says.

Multiple Approaches

James points out that most index funds are weighted toward the largest stocks in their given benchmark. "As long as the largest stocks of any style are doing well, the ETFs should do well," Hames says. "However, most of the time, it's other kinds of factors that will be adding value to investors, so whether you are taking a value approach, or a profitability approach, or a momentum approach, that's where that active management, at least for right now, continues to have a lot more of the leadership."

Jack Firestone, president and principal of Firestone Capital Management in Coral Gables, Florida, shares the belief that investors don't have to choose between an all-active or all-indexed portfolio.
He considers markets to be mostly efficient, meaning existing information is incorporated into securities' prices. However, he says, "Our experience teaches us that markets are not totally efficient. From time to time, managers with a defined process, with a focused portfolio, can and do outperform the overall markets. So we use a combination of both active and passive."

Firestone cites an example of pairing an actively managed approach with an index fund. His firm uses the Vanguard Total Stock Market ETF (VTI), which tracks performance of the University of Chicago's Center for Research in Security Prices U.S. Total Market Index. Firestone particularly appreciates the ETF's low expense ratio of just 0.05 percent.

To take advantage of market inefficiencies, Firestone may pair a broad index fund with, for example, a fund focusing on large-cap stocks, such as the FMI Large Cap Fund (FMHX). At the end of the third quarter, this fund held just 25 stocks. That concentration, Firestone says, allows the fund manager to zero in on the best ideas without being distracted. "A lot of active managers have 150 or 200 stocks in their portfolio. We believe that a manager really can't have 100 best ideas," he says.

Going All One Way

But a large number of investment advisers adhere solely to indexing, viewing markets as completely efficient. Vern Sumnicht, CEO at Sumnicht & Associates, an Appleton, Wisconsin, wealth management firm, switched to an all-passive approach a decade ago after a thorough review of returns from actively managed portfolios. He was disappointed in the results, and his research convinced him that indexing was the way to go.

"Advisers think they can be better than the average, but I think 2008 shook up a lot of those guys out there," he says. "There have been hundreds of empirical studies looking at this question, and they all have come up with the answer, that the indexes outperform, at any given time, 70 percent of individual money managers," he says.

Sumnicht acknowledges that low expense ratios of index funds contribute to that higher return ratio. "The costs are minuscule, relative to professionally managed mutual funds," he says. That means an index fund doesn't have to generate as high of a return as an actively managed fund if it's to deliver a profit to an owner.

 

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Coffee Lovers Outsmart Keurig's K-Cup Technology

December 22, 2014, 4:00 am

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Filed under: Company News, Food & Beverage, This Built America

By Krystal Steinmetz

Imagine if a lid on a coffee pod was preventing you from getting your much-needed morning cup of joe. According to CNN Money, Keurig K-Cups are made with small radio frequency emitters that the Keurig 2.0 reads. If the coffee maker doesn't get the right signal from the coffee pod, you're out of luck.

Some hackers have figured out that simply taking a lid from a licensed K-Cup and putting it on top of an off-brand K-cup will trick the new Keurig into brewing your coffee. You can see a video of the hack in action on KeurigHack.com.

If you'd like a permanent solution, there's a hack for that, too. According to Wired: "Alternately, the [KeurigHack.com] video suggests attaching the strip to the machine itself to permanently fool it. Just tape it in there, up in the left: over the open rectangular space."

Keurig Is Steamed

Not surprisingly, Keurig is not happy. A spokeswoman told Business Insider: "Going through the process to hack the system inherently adds complexity to a process we've designed to be simple for consumers. With 400 varieties from 60 brands, including all of the top 10 best-selling coffee brands in America, we're confident we have a wide range of beverage choices that will suit every taste."

Keurig's coffee pod restrictions are the subject of many scathing reviews online, as well as several lawsuits, CNN Money said. In November, Keurig boosted its K-Cup prices by 9 percent.

I had issues with the Keurig 2.0 a few weeks back, when I was using my parents' new machine. I could not get a Keurig Green Mountain gingerbread coffee K-Cup to work in the machine. I tried three different cups, and none of them worked.

My mom called Keurig and was told the K-Cups were several months old, and even though they're made by Keurig, they didn't have the right kind of top, so I was out of luck. I settled for a breakfast blend K-Cup instead. Keurig agreed to ship a new box of the gingerbread coffee K-Cups to my folks -- and I've passed on this hack to my parents.

 

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How Investors Can Cash In on Cuba

December 22, 2014, 4:00 am

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Filed under: Investing

After President Barack Obama last week proposed to relax trading restrictions with Cuba, the subject has been stirring plenty of debate on both sides of the political decision -- but investors know that they simply have to follow the money for a shot at success. There will be plenty of opportunities to make money if the decades-long embargo is effectively lifted, easing trade and travel between the U.S. and the island nation.

The knee-jerk reaction was for investors to bid up shares of The Herzfeld Caribbean Basin Fund (CUBA), a closed-end fund that was created two decades ago to benefit from either a free Cuba or at least one where restrictions are relaxed. The problem there is that the lightly traded fund is now worth a lot more than the value of its underlying assets.

Herzfeld's fund closed last week at $11.67, even though the total value of its stocks clocked in with a net asset value of just $8.21 as of Thursday's close. That's an insane premium. Do the right thing, and avoid chasing that fund higher. It has these spikes whenever there's a whiff of change in Cuba, and ultimately it trades back down below its net asset value. Besides, as an investor you can buy into the same stocks the fund owns at market price and without the fund's management fees. Let's go over a few of the stocks that are well positioned to make the most of the loosening of restrictions between the U.S. and Cuba.

Bon Voyage

It probably isn't a surprise that the biggest industry concentration for The Herzfeld Caribbean Basin Fund is the cruise line sector. Carnival (CCL), Royal Caribbean (RCL), Norwegian Cruise Lines (NCLH), and cruise ship spa operator Steiner Leisure (STNR) combine to make up nearly 15 percent of the fund's portfolio.

It's easy to see the appeal of the leading cruise lines. Cuba will make a no-brainer port-of-call for Caribbean-based sailings, and all three lines rely heavily on sailings that originate in Florida. Cuba's hotels, restaurants and customer service aren't exactly up to snuff with American standards, making cruise ships a more logical way to experience the island until it builds out its infrastructure and retrains its workforce.

It's not the only way to cash in on sea travel to the country, however. After all, for an island, imports and exports typically travel by water. Seaboard (SEB) and Copa Holdings (CPA) are two of the fund's three biggest holdings, and it's easy to see why. Copa Holdings is a leading provider of passenger and cargo services through Latin America. Seaboard has a strong ocean transportation business, but it also stands to benefit from other operations, including commodity merchandising, grain processing, sugar production, pork processing and electric power generation.

If You Build It, They Will Come

Getting tourists and goods in and out of the island will be huge, but let's not forget about the investments in infrastructure. Cuba is, in many ways, an island lost in time. Buildings and amenities need to be modernized. Roads need to be repaved.

Mexican cement producer Cemex (CX), South Florida homebuilder Lennar (LEN), and underground utility contractor MasTec (MTZ) are among the fund's largest holdings. It should be pointed out that MasTec gets its name from the now deceased Jorge Mas Canosa, the founder of the Miami-based Cuban-American National Foundation and the person that many Cuban exiles figured would usher in the era of a democratic Cuba after Fidel Castro's passing. MasTec is run by his three sons.

There will also be plenty of leisure and banking plays as Cuba's impoverished state improves with the flow of trade and tourism, but that will take time to play out. Sticking to cruise lines and the nearby infrastructure providers as the initial beneficiaries is what investors wanting to cash in on the movement should do with their money for now.

Motley Fool contributor Rick Munarriz owns shares of Steiner Leisure Limited. The Motley Fool recommends and owns shares of MasTec. 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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Cheap Gas Prices Can Only Help Retailers So Much

December 22, 2014, 4:00 am

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Filed under: Energy, Gas Prices, Oil & Gas Industry, Economy, This Built America

Gas is cheap! And U.S. retailers are cheering.

Over the past six months, global oil prices have fallen 45 percent. Gas prices are plunging in tandem (sort of), with the price of petrol off more than 30 percent over the same time period. And to hear the pundits tell it, that must mean good things for retail store sales this year -- and perhaps retailer stocks next year.

After all, if all you had in your wallet in June was $50 and a hankering to go shopping, that might have been enough to fill up your gas tank and get you to the store -- but you'd have no money left to shop with. By Black Friday, though, that same tankful of gas cost only $40 -- and it's just $35 today. All of which suggests that this Christmas season, shoppers should have significantly more post-gas station cash in their wallets.

Big Savings = Big Spending?

For a while, that's how things seemed to be working out. While "Black Friday" numbers weren't all that had been hoped for, retail sales for all of November climbed 5 percent over November 2013 levels.

And the good times could keep on rolling. Citing data from the National Retail Federation, the Los Angeles Times recently reported that with spending on gas purchases down 0.8 percent year over year, Black Friday spending on electronics and appliances was up an almost-equal 0.9 percent. Department store sales rose a full 1 percent, building materials and garden supplies jumped 1.4 percent, and overall, spending increased in 11 out of 13 categories.

Quoting an analyst at the Economist Intelligence Unit, the Times predicted that if gas prices continue to fall, U.S. consumers could save as much as $100 billion on their automotive fuel bills next year. As much as "half of that windfall" could be pumped into the consumer economy.

Nearer-term, Experian (EXPN) Consumer Services (a unit of the credit ratings giant) just issued a report showing that 36 percent of shoppers expect to spend more this holiday season than last, versus only 25 percent who expect to cut back on spending. On average, Experian found that shoppers are planning to spend about $758 apiece on Christmas presents, up 5 percent from last year.

Big Numbers and Littler Numbers

But hold on just a sec -- gas is 30 percent cheaper, but retail sales were up only 5 percent in November? And Experian's saying the whole holiday shopping season will see only a similar 5 percent rise? Maybe we shouldn't look a gift horse in the mouth, but a 5 percent shift in shopping patterns doesn't seem like a lot to get excited about, relative to the big drop in gasoline.

So what's going on?

The answer could be that, according to the Bureau of Labor and Statistics' Consumer Expenditure Survey, the average U.S. household spent about $2,600 on gasoline in 2013. On one hand, that was near an all-time high for gasoline costs. On the other hand, it amounts to only about 5 percent of U.S. median household income ($51,900 in 2013, according to the Census Bureau).

As a result, even when gasoline prices fall 30 percent or more, this only adds, at most, 1.5 percent (30 percent of 5 percent) of household income to the average shopper's total disposable income. And if The Economist is right, and only half these gas savings will make it into the consumer economy -- then we're talking about just a fraction of 1 percent of household income becoming true disposable income.

Where Does the Money Go?

What's more, according to gas price information specialist GasBuddy.com, even The Economist's view might be too rosy: "A GasBuddy survey of more than 100,000 respondents finds that 83 percent of us say we will save or pay off debt with the extra savings, while only 14 percent say we'll spend it on holiday presents."

So is it possible that retail sales will jump like the analysts predict, generating a big boom in consumer spending and leading to massive profits for investors in retail stocks?

Sure, it's possible. But so far, it doesn't seem to be happening.

Judging from the pile of UPS and FedEx boxes accumulating on his front porch, Motley Fool contributor Rich Smith may be personally responsible for 1 of the 5 percentage points of sales growth this holiday season. He has no position in any companies mentioned above. The Motley Fool recommends FedEx and United Parcel Service. Is your portfolio ready for the new year? Check out our free report on one great stock to buy for 2015 and beyond.​

 

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Is the Recession Over for the Poorest Americans?

December 22, 2014, 4:00 am

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Filed under: Unemployment Rate, Job Market, Economy

Happy days are here again! (Or are they?)

For the third month in a row, America's unemployment rate remained below 6 percent, according to this month's Bureau of Labor Statistics report on November jobs data. Even better, the fact that payrolls grew by 321,000 jobs -- with no downtick in the unemployment rate -- tells us that more Americans must be returning to the labor market.

That's great news for the middle class. And now here's some good news for Americans still struggling to get into the middle class: The percentage of Americans who say they're struggling just to put food on the table has dropped to its lowest level since President Barack Obama took office.

The Magic Number

We won't keep you in suspense: 17.2. That's the percentage of Americans who say they "struggled to afford food in [the] past year," according to a recent poll conducted by Gallup.

Gallup suggested a few trends that could be helping to solve the problem of hunger in America, noting that (in line with November's unemployment data) "fewer Americans are unemployed or underemployed in 2014" than were in recent years. Also, gas prices have taken a tumble with the recent collapse in world oil prices. The fact that it now costs less money to fill up the tank may be freeing up more dollars that consumers can use to buy food.

Whatever's behind the news, Gallup observes that it's "a positive sign that the economic recovery now could be reaching those who previously struggled to afford the basics." Moreover, says the pollster, "while food prices increased more in the first six months of 2014 than they did for all of 2013, this does not appear to be resulting in more Americans struggling to afford food."

So... unalloyed good news all around. And yet, amidst our jubilation, we have to ask: When 17.2 percent of Americans still struggle to put food on the table, is that improvement really good enough?

Over Here, Over There

We all know that globally, hunger is a problem -- in the developing world. One person in nine -- 805 million people -- lacks "enough food to lead a healthy active life," according to World Food Programme statistics. Two-thirds of these people live in Asia, while sub-Saharan Africa is the region where hunger is most prevalent. But what about non-developing countries? What about the so-called "first world," the one in which we live?

Comparisons among first-world countries are not easy, because different governments and organizations use different standards for what constitutes "hunger." But we can still make an attempt.

For example, we know that even after our recent improvement, nearly one in five Americans still worries about going to bed hungry at night. In contrast, an estimated 10.6 percent of our first-world peers in Europe could not "afford a meal with meat, chicken, fish or a vegetarian equivalent every second day," according to 2013 data from European Union statistics agency Eurostat.

A Rough Comparison

Eurostat's definition for measuring hunger differs from that used by Gallup. But according to Eurostat, this is the criterion the agency considers indicative of "people whose living conditions are severely affected by a lack of resources." So the definition appears at least analogous to, if not 100 percent equal to, Gallup's "struggled to afford food" standard.

If we assume at least a rough equivalency between the two standards, then according to Eurostat's data, America's hunger rate of 17.2 percent suggests we're doing a better job of feeding our poorest citizens than are the governments of Lithuania, Latvia or Bulgaria, where hunger afflicts 19 percent, 23.3 percent and 51.1 percent of the populations, respectively. But we're still worse off than the folks in Poland or Estonia -- or any of the countries usually considered part of Western Europe (Germany, France, the U.K. or any of the Scandinavian nations).

Motley Fool contributor Rich Smith has no financial interest in any companies or organizations mentioned above. Nor does the Motley Fool. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.​

 

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Top Business Stories of the Year Affect Us All, Somehow

December 22, 2014, 6:36 am

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Filed under: Economy

By Tali Arbel

NEW YORK -- This year showed how sheltered the U.S. economy is from geopolitical and health crises around the world. The global economy sputtered, but the U.S. powered ahead. Employers are finally hiring enough to lower unemployment. A plunge in gas prices and a rising stock market has Americans feeling richer and spending a bit more. Those are the top business stories of 2014, as chosen by business editors at The Associated Press.

1. U.S. grows as world slows. After a freezing winter put a chill on buying and selling, the U.S. economy has posted its best six months since 2003. But the rest of the world hasn't been as lucky. Japan has fallen back into recession. The 18 countries that make up the eurozone are barely growing and fear a dangerous drop in prices. Major developing nations aren't faring much better. China's growth has dropped to a five-year low of 7.3 percent. Western sanctions and dropping oil prices have decimated Russia's currency. Brazil just edged out of recession. What's helped the U.S. is its relative insulation. American consumers, not exports, are the main drivers of the world's largest economy.
2. Jobs are back. Millions of Americans still struggle with low pay and fewer hours of work than they want, and millions have given up looking for a job entirely. But five years after the recession ended, the U.S. job market is looking healthy. The unemployment rate is below 6 percent. Employers added nearly 3 million jobs, the most since 1999, as shoppers and businesses spend more. As a result, the Federal Reserve ended its recession-era stimulus program in October and is edging closer to lifting interest rates. The Fed has kept rates near zero since 2008 to spur lending and investment.
3. Security breaches. The theft of 40 million credit and debit cards and 70 million personal records from Target (TGT) last fall turned out to be just the beginning. Home Depot (HD) hackers nabbed 56 million cards and 53 million email addresses. There were breaches at Kmart (SHLD) Dairy Queen (BRK-A) and Albertsons (SVU). JPMorgan Chase (JPM) said hackers stole information covering 76 million households and 7 million small businesses. Sony (SNE) employees' private information and emails were posted online. The consequences? Sony Pictures Entertainment canceled the release of "The Interview," a comedy about assassinating the North Korean leader, after hackers threatened to attack movie theaters. Target replaced top executives. Shops, card companies and banks sped up card security improvements.
4. Oil price plunges. Global crude prices have fallen to around $57 per barrel from this year's high of $115 because of more production, especially in the U.S., while slowing economies in Europe and Asia crimp demand. A rapid decline in the second half of the year pushed gasoline to below $2.50 a gallon in the U.S., the lowest price in nearly five years. Americans are pocketing $14.6 billion more a month than when gas was at its 2014 high of $3.70. Cheaper crude is also pumping up auto sales and saving airlines money on jet fuel. But drilling could slow in North Dakota's new boomtowns and other regions, hurting businesses that have cropped up. And governments in energy producers Russia, Venezuela and Iran are being squeezed, increasing the likelihood of political upheaval.
5. Auto recalls. In the U.S. alone, automakers recalled more than 60 million cars and trucks. That far surpasses the previous record of 30.8 million in 2004. The bulk of those come from two problems that have led to nearly 50 deaths and dozens of injuries. Japanese air bag supplier Takata, whose air bags can inflate too fast and spew shrapnel, has fought regulators' demands to expand recalls. And GM (GM) was fined the maximum $35 million by U.S. safety regulators for dragging its feet -- for a decade -- over replacing faulty switches that can shut down car engines. The U.S. Justice Department is investigating both companies.
6. Mobile momentum. PC sales are slumping, but mobile phone subscriptions are expected to reach 7 billion this year -- the same as the world's population. Phone makers are launching cheaper smartphones aimed at developing countries, which could get billions more people online. Already, more than a billion people check Facebook (FB) on their phones and tablets. The social media giant spent $22 billion on a phone messaging app, WhatsApp. Uber, a hail-a-cab app, is valued at $40 billion. Apple (AAPL), the iPhone and iPad maker, launched a payment system that sidesteps cash and plastic.
7. Stock markets soar. Another year, another record. The end of the Federal Reserve's bond-buying stimulus program stressed investors this fall, but U.S. stocks kept rising, extending the bull market run to nearly six years. More companies acquired each other and big companies bought up more than $400 billion of their own stock, helping to put the Standard & Poor's 500 index (^GPSC) on pace for a 12 percent gain in 2014. And despite the end of the Fed's bond purchases, which was expected to weigh on markets, bond prices rallied and rates dropped.
8. Minimum wage growth. Inequality has been rising, and median household incomes have fallen since the recession began in late 2007. But the federal minimum hourly wage has remained at $7.25 since 2009. Labor organizers, fast-food workers and Walmart (WMT) employees have campaigned for higher pay across the country. Congress hasn't acted, but cities and states -- and President Barack Obama -- have. Obama raised pay by executive order for government contractors, to $10.10 an hour. By Jan. 1, 29 states and Washington, D.C. will have a higher minimum wage than $7.25. Seattle approved an increase to $15 an hour, the highest rate in the country.
9. Janet Yellen. The Federal Reserve had been led exclusively by men for a century. Then Janet Yellen, a 68-year-old former economics professor and the No. 2 at the Fed, became the first woman to lead the central bank. Plainspoken, with a trace of her native Brooklyn in her speech, Yellen criticizes inequality, focuses on jobs growth and has tried to demystify the moves of the notoriously opaque Fed. She has also tied the failure of most economists to predict the damages wrought by the financial crisis to a lack of diversity in the field. She says that increasing diversity is a priority at the central bank.
10. Let's make a deal. Higher stocks and confidence lifted global mergers and acquisitions volume to highest level since 2007. With a few days to go, global deal volume has risen 20 percent to $3.41 trillion, including debt. Climbing markets make it easier to do stock deals, and borrowing is cheap. Meanwhile, initial public offerings had their biggest year since 2000. Health care companies made up 37 percent of all IPOs in the U.S., nearly double the level in 2013. And the biggest IPO ever, that of China's e-commerce behemoth Alibaba (BABA), raised $25 billion in September.

Autos writers Tom Krisher and Dee-Ann Durbin, economics writer Chris Rugaber, energy writer Jon Fahey and technology writer Barbara Ortutay contributed to this report.

 

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BMW to Replace Air Bags Across U.S.

December 22, 2014, 6:57 am

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Filed under: Consumer Protection

NEW YORK -- BMW (BAMXF) has agreed to demands from the government to replace driver's-side air bags across the entire U.S.

The National Highway Traffic Safety Administration has been pushing companies to recall older cars with air bag inflators made by Takata Corp. They can explode with too much force and spew shrapnel at drivers and passengers. At least five deaths have been blamed on Takata inflators.

The decision affects 140,000 BMW 3 Series cars made between January 2004 and August 2006. It says no problems with BMW vehicles have been reported. Earlier this year the company took about 574,000 cars off the market in the U.S.

Several automakers have been slow to expand the recall. Ford (F) joined the list last week, and was quickly followed by Chrysler.

Going Beyond Humid Areas

BMW is the last automaker to agree to replace air bags in all affected cars nationwide. About 15 million cars have been recalled in the U.S. in total. Initial recalls were limited to states with high levels of humidity, as the NHTSA says the air bag inflator propellant, ammonium nitrate, can burn faster than designed if exposed to prolonged airborne moisture. When that happens, the propellant can blow apart a metal canister meant to contain the explosion.

Takata has refused the agency's request for a nationwide recall of driver's side inflators, about 8 million in total, and it says it has tested more than 1,000 air bag inflators from other regions without a single failure. But the company will still make replacement parts for the automakers that are expanding their recalls. It hasn't been decided whether Takata or the automakers will pay the extra costs involved.

In total, 10 automakers have models with Takata driver and passenger air bags. There could be as many as 30 million with the air bags nationwide.

 

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Shippers Absolutely, Positively Trying to Get Those Gifts Out

December 22, 2014, 7:18 am

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Filed under: Holiday Shopping

By Mae Anderson

ATLANTA -- FedEx (FDX), UPS (UPS and online retailers are using the last few days before Christmas to try to avoid the problems that occurred last year when severe winter weather and a surge in late orders from shoppers caused delivery delays.

UPS spent $500 million this year upgrading its systems and processes and increased the number of seasonal workers it hired 11 percent to 90,000 to 95,000. The company, which pegged Monday as its busiest day of the year, expects to deliver more than 34 million packages on its busiest day ever. By midday Monday, UPS spokesman Andy McGowan said he expected packages to be delivered as planned. "All UPS air and ground operations are operating smoothly, he said.

FedEx predicted its busiest day would be a week earlier, on Dec. 15, when it expected to move 22.6 million packages. It added 50,000 seasonal workers to help with demand this year and invested in a new software system called Radar for FedEx Express that helps supervisors anticipate fluctuations in package arrivals hours before an airplane carrying cargo lands.

"The fallout from last year was a lot of disappointed customers. They don't care about the weather if they don't get their package on time," said Jeff Wise, managing director of Southeast district operations in Atlanta. "But we've had 11-and-a-half months to figure it out and make sure service levels stay high this year."

FedEx Is Confident

FedEx hasn't released specific figures, but company spokeswoman Katie Wassmer said Monday that FedEx has already had several days with surges in demand that have been "among the busiest in company history," with no significant problems so far.

Package carriers also say they have been working with e-commerce retailers to help avoid problems. "We are working with the biggest e-commerce shippers in an ongoing collaboration to understand capacity limitations and their needs," said Sean Healy, vice present of global planning and engineering for FedEx Express. "We're much more effective in planning with our e-commerce customers than we've ever been."

That's key because retailers have been pushing shipping deadlines later and later and extending free shipping offers. This year, Amazon (AMZN) extended its free-shipping deadline by one day to Dec. 19. Walmart (WMT), Barnes & Noble (BKS) and other retailers also said Dec. 19 was the cutoff to getting orders delivered by Christmas.

Poor Weather, Overloaded Systems

Still, retailers don't want to overpromise on shipping offers. They can't afford a repeat of last year when UPS and FedEx failed to deliver some packages by Christmas due to a combination of poor weather and overloaded systems, causing angry customers. Neither of the top two deliverers said how many packages were delayed, but noted it was a small share of overall holiday shipments.

So far, improvements seem to be working according to tracking-software firm ShipMatrix, which said that during the week ended Dec. 13, FedEx deliveries were on time 96 percent of the time, up from 90 percent last year. UPS deliveries were on time 95 percent, compared to 92 percent last year.

Package carriers hope everyone has an experience like Lori Twiss, 51, an executive assistant at Deloitte who lives in Atlanta. She shops online a lot at Nordstom (JWN), Target (TGT) and Walmart and has had no problems so far. "Everything has been on time and speedy and free shipping," she said. "I love free shipping."

 

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Market Wrap: S&P 500 Sets a Record High

December 22, 2014, 8:57 am

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Filed under: Market News, Stocks, Stock Markets, World Markets

By Ryan Vlastelica

NEW YORK -- U.S. stocks rose for a fourth straight session on Monday as large-cap technology shares gained and gave an outsized boost to the Dow, though continued weakness in crude oil weighed on the energy sector.

The S&P 500 (^GPSC) ended at a record, though trading was quiet with many market participants out ahead of the upcoming Christmas holiday. About 6 billion shares traded on all U.S. platforms, according to BATS exchange data, compared with the month-to-date average of 7.86 billion.

Tech was the strongest sector of the day, with the S&P information technology sector up 1.1 percent. Intel (INTC) rose 2.3 percent to $37.21, providing the biggest boost to the Dow (^DJI), while IBM (IBM) rose 1.8 percent to $161.44 and Cisco Systems (CSCO) rose 1.6 percent to $28.22. Priceline (PCLN) rose 3.6 percent to $1,149.38.

"I wouldn't put a lot of weight on this week's trading, given year-end maneuvers and how slow it is," said Rex Macey, chief allocation officer at Wilmington Trust Investment Advisors in Atlanta, Georgia. "While I'm comfortable with the level of the broader market, I don't think there are obvious bargains. Some may say oil stocks are bargains now, but it's too soon to say."

Saudi Arabia Maintains Oil Production

Crude oil sank 3.2 percent after Saudi Arabia's powerful oil minister said OPEC would not cut production at any price. The S&P energy index fell 1 percent as one of the day's weakest sectors; Chesapeake Energy (CHK) fell 7.3 percent to $18.42 while Southwestern Energy (SWN) was off 5.5 percent at $29.31.

Crude oil is coming off four straight weeks of declines, and has fallen in 11 of the past 12 completed weeks.

The S&P rose 3.4 percent last week, boosted by a 5 percent jump over three sessions, after the U.S. Federal Reserve said it would take a "patient" approach toward raising interest rates and oil prices appeared to stabilize. The Dow Jones industrial average rose 154.57 points, or 0.87 percent, to 17,959.37, the S&P 500 gained 7.89 points, or 0.38 percent, to 2,078.54 and the Nasdaq Composite (^IXIC) added 16.04 points, or 0.34 percent, to 4,781.42.

Discouraging data on U.S. home sales failed to derail the "Santa" rally, what traders often call a pre-Christmas advance. The National Association of Realtors reported that sales of previously occupied homes fell 6.1 percent last month to a seasonally adjusted annual rate of 4.93 million. That's the slowest pace in six months.

A Slump and a Surge in Pharmaceuticals

Gilead (GILD) slumped 14 percent to $92.90 as the biggest drag on both the S&P and Nasdaq 100. Express Scripts (ESRX), the nation's largest pharmacy benefit manager, said it would no longer cover Gilead's treatments after it lined up a cheaper price from AbbVie for its newly approved hepatitis C treatment.

Achillion Pharmaceuticals (ACHN) said it would test a combination of two of its experimental hepatitis C drugs which showed promise in separate studies. Shares surged 10 percent to $15.61.

Advancing issues outnumbered declining ones on the NYSE by 1,806 to 1,291, for a 1.40-to-1 ratio on the upside; on the Nasdaq, 1,682 issues rose and 1,072 fell for a 1.57-to-1 ratio favoring advancers.

The benchmark S&P 500 index was posting 73 new 52-week highs and 5 new lows; the Nasdaq Composite was recording 144 new highs and 36 new lows.

What to Watch Tuesday:

• The government reports the latests on durable goods orders, the gross domestic product and personal income and outlays, all at 8:30 a.m.
• Sales of new homes are released at 10 a.m.

The Associated Press contributed to this post.

 

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4 New Year's Resolutions for American Manufacturing

December 22, 2014, 10:00 pm

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Filed under: This Built America

In 2014, some U.S. industries saw growth and resurgence, others languished. With that, here are a few resolutions for American manufacturing in 2015.

1. More Diversity in STEM and Manufacturing

Even as women make up nearly 50 percent of the American work force, their numbers in science, technology, engineering, mathematics and manufacturing are significantly less. In recent years, STEM has come under attack for what many see as a bias against females. While contesting this claim, it has been difficult for the fields to validate their stance when reports suggest heavy discrimination toward women in math fields -- as well as cringe-worthy moments like Microsoft (MSFT) CEO Satya Nadella's thoughts on women approaching pay raises in the tech field.

Findings from 2013 show that women make up less than 30 percent of almost every STEM workforce, with chemists and material scientists (44.2 percent) as the only noted outlier. Ellen McCarthy, the National Geospatial-Intelligence Agency's head of daily business operations, explained the importance of getting women involved. "This is not something that's just nice. Let's go study science ... or data curation because that's where you're going to get a job. It's a national security prerogative. For the NGA and for the broader intelligence community right now, it is imperative that we keep in front of this incredible technology revolution that we're living in right now."

Education and emphasis toward young women is in place in various ways, and there's another push to increase minorities in STEM as well -- a "rich pool of STEM talent."

2. U.S. Manufacturing to Continue to Expand

The 2014 expansion in factory output and manufacturing could continue in 2015. Mixed sentiments over reports from the New York Federal Reserve and a recent decline in motor vehicle production (which was just snapped in November) have some believing that the increase could be momentary. "While the solid outlook for the U.S. economy remains, there are, however, mounting downside risks to growth this quarter," Harm Bandholz, chief U.S. economist at UniCredit Research in New York, said last month.

Despite the up-and-down reports across individual industries, optimism appears to remain high heading into 2015. In November, factory output saw its largest increase in over nine months, with production rising 1.1 percent from the prior month-with attribution going to the strengthening domestic economy.

3. More Youth in Manufacturing

In the coming years, the world faces a labor shortage for major economies with aging workforce, like Germany, Japan and the U.S. That could compound the current skilled labor crisis that sees up to 5 percent of labor positions going unfilled. While the severity of America's skills gap has been debated, most understand that measures to confront the issue must be taken to get youth into manufacturing.

Across the country, states are preparing with business-backed initiatives, community college courses, vocational training and even thematic toys. That training is paying off for high school students like Brett Fledderman, who worked at a metal stamping plant for $9 per hour this summer. "I learn a lot faster with hands-on work, so stuff like this really makes me learn a lot faster than I would in the classroom," he explained.

4. A Continued Rise in Remanufacturing

Referred to by some as the ultimate form of recycling, remanufacturing has seen a resurgence in the past decade. With the growth obvious by 2012, the International Trade Commission identified a lack of a common definition and standards as hurdles for the process. Since then, domestic and international remanufacturing has begun to distinguish itself from similar processes. While still facing large issues, predictions believe that the business benefits outweigh the risks.

This can be seen in increased public attention, as well as American companies breaking sales and production barriers for the first time. Television is dedicating airtime to educate the public while the private sector is seeing new frontiers in fields such as air travel and construction. While the rise looks promising, the practice of 3-D printing is still just taking shape -- with some considering it remanufacturing's future.

 

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Is Big Data Already Tracking Your Kindergartner?

December 22, 2014, 10:00 pm

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Filed under: Technology, Education

By Bob Sullivan

You'd be hard-pressed to find someone who disagrees that America's schools are in need of serious reform. And it's an obvious leap to think technology is the fast lane to improvement.

"Ed-tech" is where some of America's thorniest issues collide, however. Big Brother. Marketing to kids. Privacy. Boondoggles. Attention deficit disorder. Teacher accountability.

As a result, ed-tech is where a lot of early tech ideas go to die. The Los Angeles Unified School District has suspended its $1 billion plan to get iPads to every child, and now the FBI is investigating. Bill Gates' $100-million idea to encourage more data sharing, which led to the company InBloom, was shuttered earlier this year after parent uprisings around the country. There have been plenty of little failures, too, like when Hoboken, New Jersey, threw away all the laptop computers it had purchased for kids. Stories suggesting tech luminaries like Steve Jobs didn't let their kids near gadgets don't help.

Still, ed-tech is an enormous industry on a massive growth curve. In 2014, the Center for Digital Education says schools are expected to spend almost $10 billion on it, a $240 million increase from last year.

And its benefits are impossible to ignore. Software like ClassDoJo, recently the subject of a negative New York Times story, hold out the promise of automating tasks like attendance so teachers can spend more time teaching. Better yet, they promise to keep track of subtleties teachers might miss, such as sudden declines in classroom participation, which could provide early warnings to larger issues with kids. "Teachers use ClassDojo to communicate success with parents, and to give students a chance to excel outside an increasingly narrow framework of academic assessment," DoJo wrote in a rebuttal.

Our Kids' Big Data

As a society that has barely scratched the surface of a complex privacy rights debate in the lives of adults, it's hard to imagine we are close to reaching consensus with kids and young adults. For now, that means we are stuck with a lot of familiar-sounding debates.

When the New York Times recently ran an opinion piece extolling the virtues of software that tracks college students, it argued that big data could help colleges spot students who were at risk of dropping out and wasting their investment in hefty student loans. It also described a product called "major matcher," that would help kids pick studies that match their aptitude, based on the success of other similar students from the past.

It did not address a more obvious question: Why aren't students getting better one-on-one advising, which could also spot problems and offer direction? And it offered only a token acknowledgment of the alarming possibilities raised by colleges that head far down the data mining trail.

"An ed-tech investor I know argues that colleges should be collecting even more data by mining Facebook (FB)," writer Goldie Blumenstyk said. "For reasons of privacy, practicality and data-reliability, that vision may be a longer way off."

Got a Problem? Technology Is Touted as the Answer

Technology is often held up as a silver bullet to solve big social problems. It's not just education. Remember all the money spent (and wasted) on facial recognition software for airports in the wake of 9/11? Tech is often set up to fail by expectations that are too high and an underlying agenda that has more to do with cost savings than investment. Last month, CNN aired a documentary named "Ivory Tower" that explored the issue of rising college costs and reduced government aid. It devoted an segment to an experiment at San Jose State University, which had contracted with a private firm to replace in-class courses with online offerings to save money. The school quickly suspended the experiment after dismal pass rates.

And a Clemson University study found, not surprisingly, that students learn more in person than they learn online. That certainly doesn't mean tech can't help, however.

Andre-Tascha Lamme is director of Digital Engagement at an educational reform nonprofit called StudentsFirst, started by former Washington, D.C., superintendent Michelle Rhee. He's concerned that every tech rollout failure is a step backward for reform. "[The] best of intentions ended up causing a situation with horrible optics and easy fodder for those who want to keep things status quo ante," he said.

"On one hand, the tools ... whether hardware like smartboards or infrastructure such as broadband connections ... can provide tremendous vehicles for improving and augmenting instruction, especially in Title I schools or rural schools or other such with heavy challenges. The caveat is that [tech solutions] should be approached with a mind towards best practices and proper return on investment. Simply increasing budgetary spends do not improve education."

Beware the Free Offering

And more technology really can do more harm than good. Parents, rightly, are often angered to find their kids end up in databases they don't even know exist. There's a saying that's trite in Silicon Valley but might be new to parents -- if you aren't paying for the product, you are the product. When software firms come around offering inexpensive or free products to school districts, they always come with a catch. They have to. That catch is usually some kind of data collection, which will be used for marketing.

For its part, ClassDoJo has a clear privacy policy and promises it will delete data about students after one year. Other firms make no such promises. And as we've seen countless times, privacy policies can change.

"The overuse of tracking technologies in schools may have widespread consequences that we can't fathom," warned Washington attorney and school privacy expert Brad Shear. "For example, the last three presidents have made some drug/alcohol usage admissions that if the entirety of their actions were publicly known before their presidential elections, it may have denied them the presidency. What if one of these presidents regularly got drunk or smoked pot while writing papers on a computer and then looked at porn on Youtube or emailed a naked selfie to a fellow student and all of this data was data-mined and became part of a student's digital profile?"

Lamme understands why tech firms as tech advocates have a long way to go to build the trust needed to make gadgets and networks welcome additions in classrooms.

"As a member of the education reform community, I heartily endorse the increase in technology utilization, he said. "If protections are put in place as to access and use of the data, I am good with this -- enthusiastically so. But .. we rarely do a good job at restricting data usage."

 

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