DOW JONES NEWSWIRES
General Motors has completed the sale of its good assets to a new entity - Vehicle Acquisition Co. - completing the automaker's exit from bankruptcy protection, Fox Business Network and The New York Times reported Friday. The company will eventually be renamed General Motors Co. The U.S. government and GM officials signed documents at around 6:30 a.m. EDT at the offices of the company's legal counsel in New York City. GM is to hold a news conference at its Detroit headquarters at 9 a.m.
Full story at: http://www.nytimes.com/2009/07/11/business/11auto.html?_r=1&ref=business
-Dow Jones Newswires; 212 416-2900
(END) Dow Jones Newswires
07-10-09 0723ET
Copyright (c) 2009 Dow Jones & Company, Inc.
Sunday, July 12, 2009
Sentiment, Oil Dampen Stock Prospects
News at a Glance
Stocks Sag: Shares drop on range-bound trading.
Oil Slide: Worst one-week drop since January.
Chevron Warns: Earnings hit by weak dollar.
Sentiment Ebbs: Consumers less confident.
The Lowdown
Stocks dropped again Friday as oil declined and consumer sentiment worsened.
Traders looked ahead to tepid earnings prospects next week as many investors questioned the pace of recovery. The Dow Jones Industrial Average closed down 37 points at 8147. The Nasdaq closed up 3 points at 1756 after a seesaw session. The S&P 500 dropped 4 to close at 879.
Oil prices had their worst one-week slip since January, dropping 10%. Crude traded on the Nymex closed at $59.89 and remained below $60 in afternoon trading. The International Energy Agency slightly raised its 2010 world demand forecast Friday, saying it expects global crude consumption to rise 1.7%, up from its earlier forecast of 1.4%. A year ago, crude prices neared $147 a barrel.
But Chevron (CVX: 61.40, -1.68, -2.66%) warned that its fourth-quarter earnings would be "significantly lower" than the preceding quarter, pulling the energy sector down. The company said its anticipated decline was accelerated by the softening value of the dollar.
Tech shares showed relative strength, propping up the Nasdaq on Friday. Yahoo (YHOO: 14.93, +0.38, +2.61%) was upgraded to Market Weight from Underweight by Thomas Weisel Partners in a vote of confidence for new CEO Carol Bartz. Google (GOOG: 414.40, +4.01, +0.97%) continued to get buzz from its increased share of U.S. searches and its launch of the new Google Chrome OS operating system, a direct rival to Microsoft's (MSFT: 22.39, -0.05, -0.22%) Windows system.
Chinese fell for an eighth month because of weak global demand. Exports stood down 21.4% in June, compared to a year earlier, the Chinese customs bureau said. Exports had been expected to decline by 21% after a 26.4% decline in May.
Corporate News
General Motors exited bankruptcy in a streamlined state, shedding its Pontiac, Hummer and Saturn brands. Fritz Henderson, GM's chief executive and Edward E. Whitacre Jr., its new chairman, appeared at a 9 a.m. news conference to announce the start of the "New GM." The company spent a shorter-than-expected 40 days in bankrupcty protection, and its emergence could represent a major achievement for the Obama Administration, which has committed $50 billion to bail out GM.
AIG (AIG: 11.74, +2.26, +23.83%) is preparing to pay millions of additional dollars worth of executive bonuses on July 15, The Washington Post reported Friday, citing anonymous sources. The company is reportedly consulting with Kenneth Feinberg, the newly appointed compensation czar, in order to avoid the negative attention that accompanied its last bonus announcement. AIG will have to convince Feinberg of the fairness of the bonus package, an anonymous AIG official told the Post. His approval is critical to winning the government's blessing for the bonuses. AIG has received more than $80 billion in federal loans since September.
The Economy
The U.S. trade deficit fell 9.8% to $26.0 billion in May, the Commerce Department reported Friday. The news surprised economists who had forecast a deficit of $30 billion. The trade deficit is now at its lowest level since November 1999. Exports, excluding agriculture, rose 1.6% in May, while imports, excluding oil, fell 0.6%. REPORT
The Reuters/University of Michigan preliminary reading of the July index of consumer sentiment was worse than expected, falling to 64.6 from its earlier level of 70.8. Analysts projected that the index, which is designed to measure the national attitude toward buying, would come in at 70.0. STORY
Stocks Sag: Shares drop on range-bound trading.
Oil Slide: Worst one-week drop since January.
Chevron Warns: Earnings hit by weak dollar.
Sentiment Ebbs: Consumers less confident.
The Lowdown
Stocks dropped again Friday as oil declined and consumer sentiment worsened.
Traders looked ahead to tepid earnings prospects next week as many investors questioned the pace of recovery. The Dow Jones Industrial Average closed down 37 points at 8147. The Nasdaq closed up 3 points at 1756 after a seesaw session. The S&P 500 dropped 4 to close at 879.
Oil prices had their worst one-week slip since January, dropping 10%. Crude traded on the Nymex closed at $59.89 and remained below $60 in afternoon trading. The International Energy Agency slightly raised its 2010 world demand forecast Friday, saying it expects global crude consumption to rise 1.7%, up from its earlier forecast of 1.4%. A year ago, crude prices neared $147 a barrel.
But Chevron (CVX: 61.40, -1.68, -2.66%) warned that its fourth-quarter earnings would be "significantly lower" than the preceding quarter, pulling the energy sector down. The company said its anticipated decline was accelerated by the softening value of the dollar.
Tech shares showed relative strength, propping up the Nasdaq on Friday. Yahoo (YHOO: 14.93, +0.38, +2.61%) was upgraded to Market Weight from Underweight by Thomas Weisel Partners in a vote of confidence for new CEO Carol Bartz. Google (GOOG: 414.40, +4.01, +0.97%) continued to get buzz from its increased share of U.S. searches and its launch of the new Google Chrome OS operating system, a direct rival to Microsoft's (MSFT: 22.39, -0.05, -0.22%) Windows system.
Chinese fell for an eighth month because of weak global demand. Exports stood down 21.4% in June, compared to a year earlier, the Chinese customs bureau said. Exports had been expected to decline by 21% after a 26.4% decline in May.
Corporate News
General Motors exited bankruptcy in a streamlined state, shedding its Pontiac, Hummer and Saturn brands. Fritz Henderson, GM's chief executive and Edward E. Whitacre Jr., its new chairman, appeared at a 9 a.m. news conference to announce the start of the "New GM." The company spent a shorter-than-expected 40 days in bankrupcty protection, and its emergence could represent a major achievement for the Obama Administration, which has committed $50 billion to bail out GM.
AIG (AIG: 11.74, +2.26, +23.83%) is preparing to pay millions of additional dollars worth of executive bonuses on July 15, The Washington Post reported Friday, citing anonymous sources. The company is reportedly consulting with Kenneth Feinberg, the newly appointed compensation czar, in order to avoid the negative attention that accompanied its last bonus announcement. AIG will have to convince Feinberg of the fairness of the bonus package, an anonymous AIG official told the Post. His approval is critical to winning the government's blessing for the bonuses. AIG has received more than $80 billion in federal loans since September.
The Economy
The U.S. trade deficit fell 9.8% to $26.0 billion in May, the Commerce Department reported Friday. The news surprised economists who had forecast a deficit of $30 billion. The trade deficit is now at its lowest level since November 1999. Exports, excluding agriculture, rose 1.6% in May, while imports, excluding oil, fell 0.6%. REPORT
The Reuters/University of Michigan preliminary reading of the July index of consumer sentiment was worse than expected, falling to 64.6 from its earlier level of 70.8. Analysts projected that the index, which is designed to measure the national attitude toward buying, would come in at 70.0. STORY
Wednesday, July 8, 2009
Breaking Down the Obama IRA
Tucked into President Obama’s financial regulatory reform legislation still being debated in Congress is a proposal to get more workers saving for retirement. The plan calls for employers to set up mandatory automatic-enrollment IRAs, retirement accounts that allow for tax-deductible contributions.
If the measure passes, companies that don't currently offer a tax-deferred retirement-savings plan would funnel employee contributions into IRA accounts through direct payroll deposits. It would also represent the biggest increase in new retirement savers since the creation of the 401(k) in 1980.
Still, for as long as it’s been, the concept is hardly new. Some form of automatic retirement savings has been kicking around the legislature for a couple of years. The model’s roots are in the science of behavioral finance, a field whose findings routinely suggest that people tend to put off doing what they know they should do. For example, rather than choosing a retirement fund from the myriad options available – a daunting task – many people do nothing. They become victims of their own inertia and ultimately come up short when they retire. The Obama initiative is meant to make decisions on workers’ behalf.
Early estimates predict that the plan could direct roughly $100 billion into IRAs over five years and give some of the 75 million workers who don’t have access to an employer plan an opportunity to save, says David John, one of the plan’s designers, the principal of The Retirement Security Project and a senior research fellow at the Heritage Foundation, a conservative think tank. John says he hopes to have a draft of the legislation introduced to Congress within a month.
Many of the details about the automatic IRA have yet to be fleshed out, but here’s a look at how it would work and some of the early benefits and drawbacks.
How it would work
Companies that don’t currently offer a retirement plan, employ 10 or more workers, and have been in business for at least two years would be required to enroll their employees in an IRA. The accounts would automatically deduct money from employees’ paychecks starting with a default deduction of 3%. Employees can choose a higher or lower withdrawal rate or opt out of the plan altogether.
The default IRA portfolio would likely include a basket of conservative holdings. Those assets include I bonds (inflation-indexed savings bonds), money-market mutual funds or stable value funds, John says. “The goal here is to build up a certain amount, say $3,000 to $5,000,” he says, at which point the account would automatically roll over and new contributions would go into a target-date fund, a popular 401(k) investment option. Workers would retain control over their accounts, but the plan would make adjustments over time -- even if the workers did nothing.
Pros
More companies will cover workers. If passed, the legislation would cover roughly 40 million of the 75 million workers who do not have access to an employer-sponsored retirement plan, John says. The National Federation of Independent Business (NFIB), a Washington, D.C.-based lobbying group for small businesses, estimates that 27% of small businesses with fewer than 250 employees do not offer a retirement plan. For businesses with 10 to 19 employees, that number jumps to 50%.
Improved retirement prospects. Any measure to nudge workers into saving for retirement is a positive one, says Brigitte Madrian, a professor of public policy and corporate management at Harvard University’s Kennedy School of Government. Data from automatic enrollment in 401(k) plans suggest this plan would broadly lift employee savings rates. Nearly 5% of workers with 401(k) plans dropped out in 2008, but the participation rate remained flat that year at 74% as many new hires were automatically enrolled in comparable plans, according to a May report by Hewitt Associates, a human resources and outsourcing consultancy that studied more than 2.7 employees who were eligible for 401(k) plans during the last few months of 2008.
Cons
Pushback from small businesses. Small businesses stand to be impacted the most by this reform. Their biggest concern: the administrative burden associated with these plans. Many small businesses don't have in-house human resource departments, and a proposal like this would require some owners to hire an accountant or third-party payroll service to handle the new IRAs. “It’s a new expense,” says Bill Rys, a spokesman for NFIB.
John says the costs imposed on businesses would be minimal and would depend on how they process their payrolls. If a business uses an automatic payroll service provider like ADP, the cost could be as low as $6 to $8 per payroll period, he says. Initially, the IRA mandate would affect only firms with more than 10 employees, he says. Later, once the details are ironed out and businesses and officials watch the plan underway, the threshold could be lowered.
Not aggressive enough. Given the market turbulence that has washed out millions of Americans’ 401(k)s over the past year, the conservative investment approach pegged for the automatic IRAs is understandable. However, caution might not be the best investing tactic, especially for younger workers who have a longer-term horizon. “I’d be more in favor of getting more aggressive investments in there sooner rather than later,” particularly for younger employees, says Ron Rough, the director of portfolio management at Financial Services Advisory, an investment advisory firm in Rockville, Md. “I think if you’re dollar-cost averaging into your portfolio, you want to take advantage of market volatility.”
A more stock-heavy investment option might eventually become available, John says.
If the measure passes, companies that don't currently offer a tax-deferred retirement-savings plan would funnel employee contributions into IRA accounts through direct payroll deposits. It would also represent the biggest increase in new retirement savers since the creation of the 401(k) in 1980.
Still, for as long as it’s been, the concept is hardly new. Some form of automatic retirement savings has been kicking around the legislature for a couple of years. The model’s roots are in the science of behavioral finance, a field whose findings routinely suggest that people tend to put off doing what they know they should do. For example, rather than choosing a retirement fund from the myriad options available – a daunting task – many people do nothing. They become victims of their own inertia and ultimately come up short when they retire. The Obama initiative is meant to make decisions on workers’ behalf.
Early estimates predict that the plan could direct roughly $100 billion into IRAs over five years and give some of the 75 million workers who don’t have access to an employer plan an opportunity to save, says David John, one of the plan’s designers, the principal of The Retirement Security Project and a senior research fellow at the Heritage Foundation, a conservative think tank. John says he hopes to have a draft of the legislation introduced to Congress within a month.
Many of the details about the automatic IRA have yet to be fleshed out, but here’s a look at how it would work and some of the early benefits and drawbacks.
How it would work
Companies that don’t currently offer a retirement plan, employ 10 or more workers, and have been in business for at least two years would be required to enroll their employees in an IRA. The accounts would automatically deduct money from employees’ paychecks starting with a default deduction of 3%. Employees can choose a higher or lower withdrawal rate or opt out of the plan altogether.
The default IRA portfolio would likely include a basket of conservative holdings. Those assets include I bonds (inflation-indexed savings bonds), money-market mutual funds or stable value funds, John says. “The goal here is to build up a certain amount, say $3,000 to $5,000,” he says, at which point the account would automatically roll over and new contributions would go into a target-date fund, a popular 401(k) investment option. Workers would retain control over their accounts, but the plan would make adjustments over time -- even if the workers did nothing.
Pros
More companies will cover workers. If passed, the legislation would cover roughly 40 million of the 75 million workers who do not have access to an employer-sponsored retirement plan, John says. The National Federation of Independent Business (NFIB), a Washington, D.C.-based lobbying group for small businesses, estimates that 27% of small businesses with fewer than 250 employees do not offer a retirement plan. For businesses with 10 to 19 employees, that number jumps to 50%.
Improved retirement prospects. Any measure to nudge workers into saving for retirement is a positive one, says Brigitte Madrian, a professor of public policy and corporate management at Harvard University’s Kennedy School of Government. Data from automatic enrollment in 401(k) plans suggest this plan would broadly lift employee savings rates. Nearly 5% of workers with 401(k) plans dropped out in 2008, but the participation rate remained flat that year at 74% as many new hires were automatically enrolled in comparable plans, according to a May report by Hewitt Associates, a human resources and outsourcing consultancy that studied more than 2.7 employees who were eligible for 401(k) plans during the last few months of 2008.
Cons
Pushback from small businesses. Small businesses stand to be impacted the most by this reform. Their biggest concern: the administrative burden associated with these plans. Many small businesses don't have in-house human resource departments, and a proposal like this would require some owners to hire an accountant or third-party payroll service to handle the new IRAs. “It’s a new expense,” says Bill Rys, a spokesman for NFIB.
John says the costs imposed on businesses would be minimal and would depend on how they process their payrolls. If a business uses an automatic payroll service provider like ADP, the cost could be as low as $6 to $8 per payroll period, he says. Initially, the IRA mandate would affect only firms with more than 10 employees, he says. Later, once the details are ironed out and businesses and officials watch the plan underway, the threshold could be lowered.
Not aggressive enough. Given the market turbulence that has washed out millions of Americans’ 401(k)s over the past year, the conservative investment approach pegged for the automatic IRAs is understandable. However, caution might not be the best investing tactic, especially for younger workers who have a longer-term horizon. “I’d be more in favor of getting more aggressive investments in there sooner rather than later,” particularly for younger employees, says Ron Rough, the director of portfolio management at Financial Services Advisory, an investment advisory firm in Rockville, Md. “I think if you’re dollar-cost averaging into your portfolio, you want to take advantage of market volatility.”
A more stock-heavy investment option might eventually become available, John says.
Shares Up Despite Falling Oil Prices
News at a Glance
Futures Flat: Investors await news from G-8, Alcoa.
Oil slides below $62 as stocks scamble back after open.
Europe Down: Pessimism pushes oil, banks lower.
Asia Lower: Weak oil, metal prices, Japanese economic data drive decline..
The Lowdown
Stocks opened with a mild pop, but it remains a traders' market attuned to negative news and uncertainty.
U.S. markets opened slightly higher ahead of news from the Group of Eight summit in Italy and second-quarter results from Dow component Alcoa (AA: 9.28*, -0.13, -1.38%), which reports after the close, signaling the unofficial start of second-qaurter earnigns season. The Dow Jone Industrial Average rose 38 points to 8183 as of 10:10 a.m. The Nasdaq gained 6 points to 1752 and the S&P 500 opened with a gain of 4 points to 885.
Family Dollar Stores (FDO: 30.54*, +2.79, +10.05%) beat Wall Street earnings estimates for a sharp early rise, news that indicates households remain budget conscious and that a recovery may remain tepid thanks to low consumer spending.
The fate of the dollar as the world's reserve currency is among the subjects world leaders are expected to discuss at the G-8 summit, which will continue despite the departure of Chinese President Hu Jintao. Hu abandoned plans to attend the summit Wednesday after ethnic violence erupted in western China, where ethnic Han Chinese and Uiguhur groups continued their clashes in the Muslim-majority region.
European shares fell as traders showed concern over the prospects for a global economic recovery. Shares of oil producers such as Repsol (REP: 21.09*, -0.36, -1.67%) declined as crude prices slid. Financial firms like Credit Suisse (CS: 42.70*, -0.33, -0.76%) also gave up ground.
Asian stock markets slipped as traders responded to weak oil and metal prices, as well as Tuesday's declines on Wall Street. Negative economic news from Japan also contributed to the downturn. The country's current account surplus fell 34.2% in May from the same month a year ago, and the trade surplus fell 22.1%, according to data released by the Japanese Ministry of Finance Wednesday. Separate data from the Cabinet Office showed core machinery orders fell 3.0% in May from April. Both sets of data suggest the global recession has not waned.
Oil prices continued to decline as pessimism about the economic recovery deepened. By 10:14 a.m., crude had fallen 95 cents to $61.99 on the Nymex.
Corporate News
Google (GOOG: 398.71*, +2.08, +0.52%) is designing a new open-source computer operating system that will be available on netbooks in the second half of 2010, the company announced on its blog Tuesday evening. The Chrome operating system, which will be separate from Google's Android system for cell phones and other smaller devices, is intended to compete with Microsoft's (MSFT: 22.13*, -0.40, -1.77%) Windows.
Alcoa (AA: 9.28*, -0.13, -1.38%) is scheduled to release its second-quarter earnings after the market closes Wednesday. The aluminum producer is expected to post a loss of 38 cents a share, compared to a gain of of 66 cents a share in the same period a year ago. Alcoa is the first Dow component to report, and traders and economists often use the firm's results as an indicator of broader economic health and a harbinger for the rest of earnings season.
Teva Pharmaceuticals (TEVA: 48.86*, -0.40, -0.81%), France's Les Laboratoires Servier and other generic drugmakers face antitrust investigations by the European Union into whether an agreement between the companies hindered the entrance of a generic cardiovascular drug on to the market. The probes come after raids at the companies in November, the European Commission said Wednesday.
The Economy
Crude oil inventories for the week ending July 3 are scheduled to be released by the Energy Department Wednesday at 10:30 a.m. Inventories fell by 3.66 million barrels in the week ending June 26 but remained above the upper limit of the average range for this point in the year.
The consumer credit report for May is scheduled to be released by the Federal Reserve Wednesday at 3 p.m. Consumer debt is expected to have decreased by $8.8 billion after falling $15.7 billion in April.
Futures Flat: Investors await news from G-8, Alcoa.
Oil slides below $62 as stocks scamble back after open.
Europe Down: Pessimism pushes oil, banks lower.
Asia Lower: Weak oil, metal prices, Japanese economic data drive decline..
The Lowdown
Stocks opened with a mild pop, but it remains a traders' market attuned to negative news and uncertainty.
U.S. markets opened slightly higher ahead of news from the Group of Eight summit in Italy and second-quarter results from Dow component Alcoa (AA: 9.28*, -0.13, -1.38%), which reports after the close, signaling the unofficial start of second-qaurter earnigns season. The Dow Jone Industrial Average rose 38 points to 8183 as of 10:10 a.m. The Nasdaq gained 6 points to 1752 and the S&P 500 opened with a gain of 4 points to 885.
Family Dollar Stores (FDO: 30.54*, +2.79, +10.05%) beat Wall Street earnings estimates for a sharp early rise, news that indicates households remain budget conscious and that a recovery may remain tepid thanks to low consumer spending.
The fate of the dollar as the world's reserve currency is among the subjects world leaders are expected to discuss at the G-8 summit, which will continue despite the departure of Chinese President Hu Jintao. Hu abandoned plans to attend the summit Wednesday after ethnic violence erupted in western China, where ethnic Han Chinese and Uiguhur groups continued their clashes in the Muslim-majority region.
European shares fell as traders showed concern over the prospects for a global economic recovery. Shares of oil producers such as Repsol (REP: 21.09*, -0.36, -1.67%) declined as crude prices slid. Financial firms like Credit Suisse (CS: 42.70*, -0.33, -0.76%) also gave up ground.
Asian stock markets slipped as traders responded to weak oil and metal prices, as well as Tuesday's declines on Wall Street. Negative economic news from Japan also contributed to the downturn. The country's current account surplus fell 34.2% in May from the same month a year ago, and the trade surplus fell 22.1%, according to data released by the Japanese Ministry of Finance Wednesday. Separate data from the Cabinet Office showed core machinery orders fell 3.0% in May from April. Both sets of data suggest the global recession has not waned.
Oil prices continued to decline as pessimism about the economic recovery deepened. By 10:14 a.m., crude had fallen 95 cents to $61.99 on the Nymex.
Corporate News
Google (GOOG: 398.71*, +2.08, +0.52%) is designing a new open-source computer operating system that will be available on netbooks in the second half of 2010, the company announced on its blog Tuesday evening. The Chrome operating system, which will be separate from Google's Android system for cell phones and other smaller devices, is intended to compete with Microsoft's (MSFT: 22.13*, -0.40, -1.77%) Windows.
Alcoa (AA: 9.28*, -0.13, -1.38%) is scheduled to release its second-quarter earnings after the market closes Wednesday. The aluminum producer is expected to post a loss of 38 cents a share, compared to a gain of of 66 cents a share in the same period a year ago. Alcoa is the first Dow component to report, and traders and economists often use the firm's results as an indicator of broader economic health and a harbinger for the rest of earnings season.
Teva Pharmaceuticals (TEVA: 48.86*, -0.40, -0.81%), France's Les Laboratoires Servier and other generic drugmakers face antitrust investigations by the European Union into whether an agreement between the companies hindered the entrance of a generic cardiovascular drug on to the market. The probes come after raids at the companies in November, the European Commission said Wednesday.
The Economy
Crude oil inventories for the week ending July 3 are scheduled to be released by the Energy Department Wednesday at 10:30 a.m. Inventories fell by 3.66 million barrels in the week ending June 26 but remained above the upper limit of the average range for this point in the year.
The consumer credit report for May is scheduled to be released by the Federal Reserve Wednesday at 3 p.m. Consumer debt is expected to have decreased by $8.8 billion after falling $15.7 billion in April.
Tuesday, July 7, 2009
The Fed's Delicate Balancing Act
The Federal Reserve kept its near-zero short-term interest rates unchanged last week, and that lack of action has our pundits wondering how long the Fed can pretend it’s not worried about inflation before that, too, becomes a factor in the complex and slow road to recovery.
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
5 Bargain Growth Stocks
Growth is scarce at the moment. The average of America’s 500 largest companies saw its sales shrink 8% in its last reported quarter. Yet investors seem willing to pay high prices for shares. The S&P 500 trades at 16 times forecast 2009 earnings (a projection which assumes earnings will rise 12% this year). How that compares with the long history of stocks, we can’t say, since consensus estimates and forward price/earnings ratios weren’t always available, but the index has for more than a century traded at an average of less than 15 times trailing earnings. Forward price/earnings ratios should be lower than trailing ones.
I recently searched this full-price market with mostly sliding sales for companies that are cheap and growing. Few turned up. I started with 1,500 stocks: those in the large-company S&P 500 index along with smaller companies in the MidCap 400 and SmallCap 600 indexes. After looking for 10% increases in both sales and earnings in companies’ most recent quarters — by no means torrid growth — I was left with barely 130 stocks. Just over 50 of these had forward P/Es below 15. From these, I selecting five with strong balance sheets, listed below.
Advance Auto Parts (AAP) is benefiting from the misery of car makers, who in June sold 28% fewer cars than a year ago. Poor sales of new cars means more repairs on older ones, and Advance Auto is seeing brisk customer traffic and strong demand from garages in its more than 3,000 retail shops. Sales at longstanding stores surged 8.2% in the company’s most recent quarter, with commercial sales at those stores up 17.5%. Free cash flow swelled 34%. The stock’s dividend is a pitiful 0.6%, with less than 10% of profits paid out to stockholders, but management has spent aggressively to pay down debt. If the pace holds, the company might owe nothing by year’s end. Shares sell for 14 times earnings.
Home-health-care agencies have scrawny stock valuations at the moment. Investors fear a government health-care overhaul might lead to slashed Medicare and Medicaid reimbursement for visiting nurses. Almost Family (AFAM), a small but prosperous agency, is growing its sales and profits by greater than 20% apiece and has more cash than debt, yet its shares fetch just eight times forecast 2009 earnings. According to analysis by Jefferies & Company, an investment bank, a worst-case scenario would trim the company’s profit to $1.81 per share by 2011, while a more likely path would lead to a profit of $2.51 a share. That works out to either 13 or nine times earnings — a fair deal or an excellent one.
For thoughts on the remaining companies in the table below, have a look at some other SmartMoney stories. James B. Stewart recently made a case for investing in Buckle (BKE), a Nebraska-based seller of hip (which is to say, $80) jeans. Sales are expected to grow 15% this year and the company is debt-free with $4 a share in cash. I mentionedITT Educational Services (ESI) last month in a screen for companies producing “organic” sales growth — that is, higher sales from operations, not acquisitions. Schools are finding plenty of new customers among the jobless, and government loan programs are providing the financing. Finally, The J.M. Smucker Company (SJM) is growing at a pace that’s almost indecent for a peanut butter and jam specialist. Sales are forecast to rise more than 20% this year. I’ll focus on Smuckers and some of its pantry kin later this week with a look at why stock investors might want to cash in recent gains in banks and tech in favor of consumer staples.
Screen Survivors Company Ticker Industry Share
Price Price
Change
YTD
(%) Forward
P/E Sales
Growth
Last
Quarter
(%)
Advance Auto Parts AAP Car Parts Stores $42.24 25.53 14.18 10.32
Almost Family AFAM Home Health care 23.46 -47.84 8.57 77.30
ITT Educational Services ESI Schools 95.00 0.02 13.24 22.65
Buckle BKE Clothing Stores 30.35 39.09 11.37 24.58
The J.M. Smucker Company SJM Packaged Food 48.21 11.19 12.92 81.11
I recently searched this full-price market with mostly sliding sales for companies that are cheap and growing. Few turned up. I started with 1,500 stocks: those in the large-company S&P 500 index along with smaller companies in the MidCap 400 and SmallCap 600 indexes. After looking for 10% increases in both sales and earnings in companies’ most recent quarters — by no means torrid growth — I was left with barely 130 stocks. Just over 50 of these had forward P/Es below 15. From these, I selecting five with strong balance sheets, listed below.
Advance Auto Parts (AAP) is benefiting from the misery of car makers, who in June sold 28% fewer cars than a year ago. Poor sales of new cars means more repairs on older ones, and Advance Auto is seeing brisk customer traffic and strong demand from garages in its more than 3,000 retail shops. Sales at longstanding stores surged 8.2% in the company’s most recent quarter, with commercial sales at those stores up 17.5%. Free cash flow swelled 34%. The stock’s dividend is a pitiful 0.6%, with less than 10% of profits paid out to stockholders, but management has spent aggressively to pay down debt. If the pace holds, the company might owe nothing by year’s end. Shares sell for 14 times earnings.
Home-health-care agencies have scrawny stock valuations at the moment. Investors fear a government health-care overhaul might lead to slashed Medicare and Medicaid reimbursement for visiting nurses. Almost Family (AFAM), a small but prosperous agency, is growing its sales and profits by greater than 20% apiece and has more cash than debt, yet its shares fetch just eight times forecast 2009 earnings. According to analysis by Jefferies & Company, an investment bank, a worst-case scenario would trim the company’s profit to $1.81 per share by 2011, while a more likely path would lead to a profit of $2.51 a share. That works out to either 13 or nine times earnings — a fair deal or an excellent one.
For thoughts on the remaining companies in the table below, have a look at some other SmartMoney stories. James B. Stewart recently made a case for investing in Buckle (BKE), a Nebraska-based seller of hip (which is to say, $80) jeans. Sales are expected to grow 15% this year and the company is debt-free with $4 a share in cash. I mentionedITT Educational Services (ESI) last month in a screen for companies producing “organic” sales growth — that is, higher sales from operations, not acquisitions. Schools are finding plenty of new customers among the jobless, and government loan programs are providing the financing. Finally, The J.M. Smucker Company (SJM) is growing at a pace that’s almost indecent for a peanut butter and jam specialist. Sales are forecast to rise more than 20% this year. I’ll focus on Smuckers and some of its pantry kin later this week with a look at why stock investors might want to cash in recent gains in banks and tech in favor of consumer staples.
Screen Survivors Company Ticker Industry Share
Price Price
Change
YTD
(%) Forward
P/E Sales
Growth
Last
Quarter
(%)
Advance Auto Parts AAP Car Parts Stores $42.24 25.53 14.18 10.32
Almost Family AFAM Home Health care 23.46 -47.84 8.57 77.30
ITT Educational Services ESI Schools 95.00 0.02 13.24 22.65
Buckle BKE Clothing Stores 30.35 39.09 11.37 24.58
The J.M. Smucker Company SJM Packaged Food 48.21 11.19 12.92 81.11
Stocks See Mild Dip Early
News at a Glance
Futures Mixed: Investors eye G-8 meeting Wednesday.
Europe Up: Banks and metals lead the way.
Asia Lower: Commodity stocks fall, offset utility, tech gains.
Crude Gains: Oil prices rise on possibility of regulation.
The Lowdown
Another drop in oil prices hit Wall Street with a Tuesday drop.
The Dow Jones Industrial Average slid 40 points to 8275 by 9:50 a.m., ahead of the Group of Eight summit Wednesday in Italy and the start of earnings season at home. After the open, the Nasdaq dipped 5 points to 1783 and the S&P 500 was down 3 to 896.
Ahead of the Wednesday start of earnings season, both Intel (INTC) and Marvell Technology Group (MRVL) saw mild boosts following upgrades from Merrill Lynch, which boosted its view on the semiconductor sector as it anticipates new demand after depleting inventories.
World markets were mixed ahead of the G-8 talks. The world leaders will meet at a time when their government debt is at its highest point since World War II, a burden that may threaten the nations' influence. European shares pushed higher, led by metal and banking stocks, as investors snapped up bargains after Monday's losses. Asian markets were broadly lower, with commodity stocks declining in response to falling oil and metal prices. Gains in utility and technology stocks, such as Tokyo Electric Power and Samsung Electronics, offset some of the losses.
Oil prices again declined on fears of reduced demand, although traders reacted to news that U.S. regulators may curb speculation on oil and gas by limiting the holdings of energy futures traders. The Commodity Futures Trading Commission will hold hearings to weigh tighter restrictions on energy markets, Chairman Gary Gensler said Tuesday in a statement. Crude slipped 16 cents to $63.89 a barrel by 9:50 a.m.
The yen and the dollar rose against the euro on investor concerns that the economic recovery is on shaky ground. Government bonds fell in advance of planned debt sales by numerous countries, including the U.S.
Corporate News
Goldman Sachs (GS) stands to lose millions from increased competition if the software allegedly stolen by ex-computer programmer Sergey Aleynikov is used by outsiders, a prosecutor said. Aleynikov was arrested July 3 at Liberty International Airport in Newark, N.J. He has allegedly transferred Goldman's proprietary trading code to a computer server in Germany, according to Assistant U.S. Attorney Joseph Facciponti who spoke in federal court July 4.
General Motors will be allowed to pursue its sale of assets to a Treasury-funded buyer, despite an appeal by some of the company's creditors. The single appeal to the bankruptcy judge's approval of the sale was filed by people with accident-related claims involving GM vehicles. They want the new company to take responsibility for current claims, but they will not prevent the sale from going forward, their lawyer Steven Jakubowski told Bloomberg.
Lear (LEAR) filed for bankruptcy protection Tuesday after creditors approved a reorganization plan. The auto-parts supplier listed debt of $4.5 billion and assets of $1.3 billion as of May 30 on documents filed in U.S. Bankruptcy Court in the Southern District of New York. The company was faced with a dramatic sales drop as global auto sales tanked this year.
The Economy
Chain store sales for the week of July 4 slipped 4.2% from the previous year, according to the latest reading of the Johnson Redbook Index. STORY
Futures Mixed: Investors eye G-8 meeting Wednesday.
Europe Up: Banks and metals lead the way.
Asia Lower: Commodity stocks fall, offset utility, tech gains.
Crude Gains: Oil prices rise on possibility of regulation.
The Lowdown
Another drop in oil prices hit Wall Street with a Tuesday drop.
The Dow Jones Industrial Average slid 40 points to 8275 by 9:50 a.m., ahead of the Group of Eight summit Wednesday in Italy and the start of earnings season at home. After the open, the Nasdaq dipped 5 points to 1783 and the S&P 500 was down 3 to 896.
Ahead of the Wednesday start of earnings season, both Intel (INTC) and Marvell Technology Group (MRVL) saw mild boosts following upgrades from Merrill Lynch, which boosted its view on the semiconductor sector as it anticipates new demand after depleting inventories.
World markets were mixed ahead of the G-8 talks. The world leaders will meet at a time when their government debt is at its highest point since World War II, a burden that may threaten the nations' influence. European shares pushed higher, led by metal and banking stocks, as investors snapped up bargains after Monday's losses. Asian markets were broadly lower, with commodity stocks declining in response to falling oil and metal prices. Gains in utility and technology stocks, such as Tokyo Electric Power and Samsung Electronics, offset some of the losses.
Oil prices again declined on fears of reduced demand, although traders reacted to news that U.S. regulators may curb speculation on oil and gas by limiting the holdings of energy futures traders. The Commodity Futures Trading Commission will hold hearings to weigh tighter restrictions on energy markets, Chairman Gary Gensler said Tuesday in a statement. Crude slipped 16 cents to $63.89 a barrel by 9:50 a.m.
The yen and the dollar rose against the euro on investor concerns that the economic recovery is on shaky ground. Government bonds fell in advance of planned debt sales by numerous countries, including the U.S.
Corporate News
Goldman Sachs (GS) stands to lose millions from increased competition if the software allegedly stolen by ex-computer programmer Sergey Aleynikov is used by outsiders, a prosecutor said. Aleynikov was arrested July 3 at Liberty International Airport in Newark, N.J. He has allegedly transferred Goldman's proprietary trading code to a computer server in Germany, according to Assistant U.S. Attorney Joseph Facciponti who spoke in federal court July 4.
General Motors will be allowed to pursue its sale of assets to a Treasury-funded buyer, despite an appeal by some of the company's creditors. The single appeal to the bankruptcy judge's approval of the sale was filed by people with accident-related claims involving GM vehicles. They want the new company to take responsibility for current claims, but they will not prevent the sale from going forward, their lawyer Steven Jakubowski told Bloomberg.
Lear (LEAR) filed for bankruptcy protection Tuesday after creditors approved a reorganization plan. The auto-parts supplier listed debt of $4.5 billion and assets of $1.3 billion as of May 30 on documents filed in U.S. Bankruptcy Court in the Southern District of New York. The company was faced with a dramatic sales drop as global auto sales tanked this year.
The Economy
Chain store sales for the week of July 4 slipped 4.2% from the previous year, according to the latest reading of the Johnson Redbook Index. STORY
Monday, July 6, 2009
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Whether you're looking for a great price on a new car or a haircut, there is strength in numbers.
Many retailers will lower their rates or prices for larger groups of customers, especially during a recession. Men's Wearhouse (MW: 17.84, -0.46, -2.51%), for example, will knock $20 off per person in a group rental, and American Airlines (AMR: 4.15, -0.07, -1.65%) will lower fares by as much as 15% for a group of 10 traveling from the same city. The logic: These businesses would rather sell one thing to 10 people than 10 things to one person because more unique customers increase the probability of repeat business.
Businesses worried about slumping sales and continued cutbacks in consumer spending are more amenable to offering group discounts, says Shweta Oza, an assistant professor of marketing at the University of Miami. “You're enticing them by bringing them in more business, which they're hurting for in today's economy,” she says.
You don't have to shop with nine other people at all times to take advantage of these rates. You can form your own buying group to get deals on the items and services you want, and in some cases, you never have to meet your fellow shoppers. “Group discounts have been around for ages, but people are realizing that they don't need to leave organizing them to big affinity groups, like their employer or AARP,” says Steven Cohen, a for-hire consultant who helps clients negotiate for better deals. In most cases, all you need are a few friends — the magic number is 10, but even a few will do for pricier purchases.
Thanks to the web, even shoppers going it alone can take advantage of group discounts. Try these four sites to exercise your collective shopping power:
Freelancers Union: A free national membership organization for independent contractors, Freelancers Union has the collective buying power to offer its members deals on a wide variety of services and products, including health insurance and office supplies, through partner companies. Members can save 15% on 1-800-Flowers orders and 10% off new T-Mobile (DT: 11.68, -0.09, -0.76%) activations, among other deals.
Groupon.com: An offshoot of collective-action site ThePoint.com (see below), Groupon offers a shot at a daily promotion from a local business in each of 10 major cities, including Dallas, Detroit and San Francisco. A recent deal in New York offered a $25 gift certificate to wine-and-cheese bar Casellula for $10 — a 60% discount. The catch: Customers only got the reduced price if at least 29 other people opted in within a 24-hour window (with eight hours remaining, 543 people had signed on). Groupon won't charge your credit card unless that collective buying power is achieved, and you can adjust or cancel your order while the deal is on the table.
ThePoint.com: Browse the site's “Group Discounts” channel for deal opportunities, or post your own to attract like-minded consumers. A sampling of what's currently available: a Chicago contractor promises a 43% discount on light installation if 20 consumers sign up by the end of July, and a Boston sailboat captain is offering half-price ticket pairs for a two-hour cruise if three people join.
Twangu: Users of social networking site Facebook can download this free application which allows you to set up new group buys, or join an existing group. You stipulate how much you're willing to pay for a given item, including shipping, and after five days the service sends out the bid to vendors who may compete for your group's business. A new listing is collecting consumers who want to buy a Nintendo Wii for $200.
Consumers in large groups with a common goal don't have to go online to find group deals. They can use their collective purchasing power in person at local retailers, many of which may be willing to bargain even if they don't advertise those kinds of deals. Once you have your group, here's how to negotiate:
Ask for a manager. Generally, they have the most leeway to offer discounts and can tell you if there's a group discount policy already in place, Oza says.
Plan ahead. Don't expect to walk into a hair salon with nine others and negotiate a group discount on the spot. Allow a few days to come to the deal, and give the business time to prepare. (For example, that salon might need to find time to handle a party of 10, and a retailer arranging a bulk purchase may need to special-order the products.)
Bring in new customers. Businesses may be more likely to work with you if most members of your group aren't already customers, says Robin Walker, a Chicago-based image consultant who routinely arranges group discounts for her clients. “A business doesn't want to give their existing customers a discount,” she says. “It cannibalizes their client base.”
Maintain some perspective. How many people you need will depend on the business you approach and what you're buying, Cohen says. A big-box electronics retailer might not be moved to give five people discounts on iPods, but the store may be more agreeable if the desired item is a washer-dryer combo. On the other hand, a local mom-and-pop electronics shop could be thrilled with five new customers who only want to play their MP3s, he says.
Think beyond cash. Not every group deal amounts to a discount. A restaurant manager might not give you 10% off for bringing in a party, but they may throw in two free trays of appetizers, Oza says.
Detail your group. “Retailers know the value of a given client,” Walker says. So if your group is likely to make more purchases in the future, letting the seller know can only help you. For example, Walker recently talked a cigar shop into offering her clients an informational seminar and store discount by identifying them as professional men who wanted to make informed buying choices that would impress business associates. The shop knew it had a good reason to keep these people coming back to the store.
Many retailers will lower their rates or prices for larger groups of customers, especially during a recession. Men's Wearhouse (MW: 17.84, -0.46, -2.51%), for example, will knock $20 off per person in a group rental, and American Airlines (AMR: 4.15, -0.07, -1.65%) will lower fares by as much as 15% for a group of 10 traveling from the same city. The logic: These businesses would rather sell one thing to 10 people than 10 things to one person because more unique customers increase the probability of repeat business.
Businesses worried about slumping sales and continued cutbacks in consumer spending are more amenable to offering group discounts, says Shweta Oza, an assistant professor of marketing at the University of Miami. “You're enticing them by bringing them in more business, which they're hurting for in today's economy,” she says.
You don't have to shop with nine other people at all times to take advantage of these rates. You can form your own buying group to get deals on the items and services you want, and in some cases, you never have to meet your fellow shoppers. “Group discounts have been around for ages, but people are realizing that they don't need to leave organizing them to big affinity groups, like their employer or AARP,” says Steven Cohen, a for-hire consultant who helps clients negotiate for better deals. In most cases, all you need are a few friends — the magic number is 10, but even a few will do for pricier purchases.
Thanks to the web, even shoppers going it alone can take advantage of group discounts. Try these four sites to exercise your collective shopping power:
Freelancers Union: A free national membership organization for independent contractors, Freelancers Union has the collective buying power to offer its members deals on a wide variety of services and products, including health insurance and office supplies, through partner companies. Members can save 15% on 1-800-Flowers orders and 10% off new T-Mobile (DT: 11.68, -0.09, -0.76%) activations, among other deals.
Groupon.com: An offshoot of collective-action site ThePoint.com (see below), Groupon offers a shot at a daily promotion from a local business in each of 10 major cities, including Dallas, Detroit and San Francisco. A recent deal in New York offered a $25 gift certificate to wine-and-cheese bar Casellula for $10 — a 60% discount. The catch: Customers only got the reduced price if at least 29 other people opted in within a 24-hour window (with eight hours remaining, 543 people had signed on). Groupon won't charge your credit card unless that collective buying power is achieved, and you can adjust or cancel your order while the deal is on the table.
ThePoint.com: Browse the site's “Group Discounts” channel for deal opportunities, or post your own to attract like-minded consumers. A sampling of what's currently available: a Chicago contractor promises a 43% discount on light installation if 20 consumers sign up by the end of July, and a Boston sailboat captain is offering half-price ticket pairs for a two-hour cruise if three people join.
Twangu: Users of social networking site Facebook can download this free application which allows you to set up new group buys, or join an existing group. You stipulate how much you're willing to pay for a given item, including shipping, and after five days the service sends out the bid to vendors who may compete for your group's business. A new listing is collecting consumers who want to buy a Nintendo Wii for $200.
Consumers in large groups with a common goal don't have to go online to find group deals. They can use their collective purchasing power in person at local retailers, many of which may be willing to bargain even if they don't advertise those kinds of deals. Once you have your group, here's how to negotiate:
Ask for a manager. Generally, they have the most leeway to offer discounts and can tell you if there's a group discount policy already in place, Oza says.
Plan ahead. Don't expect to walk into a hair salon with nine others and negotiate a group discount on the spot. Allow a few days to come to the deal, and give the business time to prepare. (For example, that salon might need to find time to handle a party of 10, and a retailer arranging a bulk purchase may need to special-order the products.)
Bring in new customers. Businesses may be more likely to work with you if most members of your group aren't already customers, says Robin Walker, a Chicago-based image consultant who routinely arranges group discounts for her clients. “A business doesn't want to give their existing customers a discount,” she says. “It cannibalizes their client base.”
Maintain some perspective. How many people you need will depend on the business you approach and what you're buying, Cohen says. A big-box electronics retailer might not be moved to give five people discounts on iPods, but the store may be more agreeable if the desired item is a washer-dryer combo. On the other hand, a local mom-and-pop electronics shop could be thrilled with five new customers who only want to play their MP3s, he says.
Think beyond cash. Not every group deal amounts to a discount. A restaurant manager might not give you 10% off for bringing in a party, but they may throw in two free trays of appetizers, Oza says.
Detail your group. “Retailers know the value of a given client,” Walker says. So if your group is likely to make more purchases in the future, letting the seller know can only help you. For example, Walker recently talked a cigar shop into offering her clients an informational seminar and store discount by identifying them as professional men who wanted to make informed buying choices that would impress business associates. The shop knew it had a good reason to keep these people coming back to the store.
Cash for Gadgets
In good times, you just threw stuff out. But in a recession, consumer interest in both buying and selling used electronics and other goods is thriving, with a whopping 63% of thrift and consignment stores reporting an increase in revenue this year. For those of us who don't have time to create an eBay (EBAY: 16.45, +0.11, +0.67%) listing, respond to all the auction queries and ship the item, there are easier ways.
Online Buyback Services. With these services, sellers complete a short questionnaire about their gizmo's condition and receive a value estimate and a prepaid postage label for mailing the item. Once the company inspects the device, it responds with a firm offer and a check. Of course, these services pay a fraction of what you'd get for selling the same device on eBay: A used second-generation 32GB iPod Touch fetches about $300 on the auction site, while the buyback services offer $70 to $210. Trade-in values vary widely from one site to another, so compare offers beforehand.
Of the major buyback sites, Gazelle.com may have the most convenient service. It sends a free, postage-paid box and will arrange to return your item if you're unhappy with the post-inspection offer. CExchange.com and EZtradein.com sometimes offer more cash but won’t send a box or return the item for free. And BuyMyTronics.com buys damaged goods the others may not accept; for example, it'll buy your cracked-screen iPod Touch for $44.
EBay Middlemen. There are thousands of eBay “trading assistants” who will auction items for a cut of the sale. Some will even retrieve it from a seller's home or mail a check.
Again, it’ll cost you. National franchise iSold It charges commissions ranging from 33% to 40% of the sale price, for example. Locate an eBay-screened middleman in your town at ebaytradingassistant.com/directory.
Trade-in Guarantees. For an upfront fee, you can lock in your trade-in value. Several retailers and web sites offer this, but TechForward.com is the only major seller that deals with most electronics (not iPhones) no matter where they were purchased. The site sells buyback contracts that offer a guaranteed 20% to 50% of what you paid. Its fee: $20 on a digital camera, $150 for a large flat-screen TV includes a prepaid mailing label and shipping materials. A Garmin Nuvi GPS, purchased in fall 2007 for $800 would yield $160 today if you had paid $20 for the guarantee. Note that if you lose or break the item, TechForward won't buy it or refund the fee.
Online Buyback Services. With these services, sellers complete a short questionnaire about their gizmo's condition and receive a value estimate and a prepaid postage label for mailing the item. Once the company inspects the device, it responds with a firm offer and a check. Of course, these services pay a fraction of what you'd get for selling the same device on eBay: A used second-generation 32GB iPod Touch fetches about $300 on the auction site, while the buyback services offer $70 to $210. Trade-in values vary widely from one site to another, so compare offers beforehand.
Of the major buyback sites, Gazelle.com may have the most convenient service. It sends a free, postage-paid box and will arrange to return your item if you're unhappy with the post-inspection offer. CExchange.com and EZtradein.com sometimes offer more cash but won’t send a box or return the item for free. And BuyMyTronics.com buys damaged goods the others may not accept; for example, it'll buy your cracked-screen iPod Touch for $44.
EBay Middlemen. There are thousands of eBay “trading assistants” who will auction items for a cut of the sale. Some will even retrieve it from a seller's home or mail a check.
Again, it’ll cost you. National franchise iSold It charges commissions ranging from 33% to 40% of the sale price, for example. Locate an eBay-screened middleman in your town at ebaytradingassistant.com/directory.
Trade-in Guarantees. For an upfront fee, you can lock in your trade-in value. Several retailers and web sites offer this, but TechForward.com is the only major seller that deals with most electronics (not iPhones) no matter where they were purchased. The site sells buyback contracts that offer a guaranteed 20% to 50% of what you paid. Its fee: $20 on a digital camera, $150 for a large flat-screen TV includes a prepaid mailing label and shipping materials. A Garmin Nuvi GPS, purchased in fall 2007 for $800 would yield $160 today if you had paid $20 for the guarantee. Note that if you lose or break the item, TechForward won't buy it or refund the fee.
After Rocky Start, Dow Finishes Higher
News at a Glance
Numbers Game: Earnings season gets underway.
Stocks Inch Back: Makes for flat Monday.
Weak Outlook: Recovery may be delayed: World Bank.
Power Outage: Oil falls more than $2 a barrel.
The Lowdown
The holiday is over, the grind is back on Wall Street.
The grind returned to Wall Street on Monday, after stocks opened lower and traders braced for what's predicted to be another weak earnings season.
An afternoon rebound faded then revived near the end of the session for a low-volume, see-saw day. The Dow Jones Industrial Average opened low, swung back to positive territory and closed up 44 points at 8325. The Nasdaq dropped 9 points to close at 1787, and the S&P 500 gained 2 to close at 899.
Energy prices accelerated the post-holiday slide, as crude dipped more than $2 a barrel to close below $64. Energy prices across the board declined, with natural gas ebbing 14 cents to $3.48 per cubic foot. Smaller exploration and production companies such as Anadarko Petroleum (APC: 41.79, -0.98, -2.29%) and Devon Energy (DVN: 51.29, -0.93, -1.78%) took hits.
Earnings season kicks off more or less officially this week, when the first Dow component releases its second-quarter results. Aluminum producer Alcoa (AA: 9.26, -0.60, -6.08%) is expected to post its third consecutive quarterly loss on Wednesday in a report that threatens to leave the market deeper in the red. Of course, the price of aluminum has plummeted with a broader selloff in commodities, but starting the season with a big loss could weigh on traders.
World markets were broadly lower Monday after the World Bank said the global economic recovery could be more than six months away. 2009 "remains a dangerous year," World Bank President Robert Zoeillick said in a letter to Italian Prime Minister Silvio Berlusconi, whose country is hosting the July meeting of Group of Eight. "Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," he said, Reuters reported.
In autos, General Motors inched closer toward a reboot. A U.S. judge approved the firm's bankruptcy sale, which will allow GM's most profitable divisions to emerge from Chapter 11 protection more than a bit slimmer.
Corporate News
Rio Tinto (RTP: 148.23, -10.26, -6.47%) agreed to sell its food packaging unit to Bemis (BMS: 25.50, +1.22, +5.02%) for $1.2 billion, the firm said. The sale of Alcan Packaging Food Americas brings Rio Tinto's divestment total to $3.7 billion for the year.
A U.S. judge approved General Motors's bankruptcy sale Sunday, allowing the company's most valuable divisions to exit Chapter 11 protection as a new company, without the burdens of its less profitable brands, production facilities and debts, Reuters reported. GM had argued that it would be forced to liquidate its assets if the sale were not approved.
Pepsi (PEP: 57.13, +0.78, +1.38%) and Pepsi Bottling Group (PBG: 34.08, +0.28, +0.82%) plan to invest $1 billion in Russia before 2013, Bloomberg reported. The world's second-largest soft-drink maker is banking on the projection that the country will emerge from the global slowdown still thirsty for its products.
The Economy
The Institute for Supply Management's June report on non-manufacturing business activity came in at a better than expected 47.0, ahead of the consensus estimate of 46.0. The services sector index came in at 44.0% in May. Economists predict a rise to a reading of 46.0% for last month. A reading below 50.0% suggests the services sector is contracting. REPORT
Numbers Game: Earnings season gets underway.
Stocks Inch Back: Makes for flat Monday.
Weak Outlook: Recovery may be delayed: World Bank.
Power Outage: Oil falls more than $2 a barrel.
The Lowdown
The holiday is over, the grind is back on Wall Street.
The grind returned to Wall Street on Monday, after stocks opened lower and traders braced for what's predicted to be another weak earnings season.
An afternoon rebound faded then revived near the end of the session for a low-volume, see-saw day. The Dow Jones Industrial Average opened low, swung back to positive territory and closed up 44 points at 8325. The Nasdaq dropped 9 points to close at 1787, and the S&P 500 gained 2 to close at 899.
Energy prices accelerated the post-holiday slide, as crude dipped more than $2 a barrel to close below $64. Energy prices across the board declined, with natural gas ebbing 14 cents to $3.48 per cubic foot. Smaller exploration and production companies such as Anadarko Petroleum (APC: 41.79, -0.98, -2.29%) and Devon Energy (DVN: 51.29, -0.93, -1.78%) took hits.
Earnings season kicks off more or less officially this week, when the first Dow component releases its second-quarter results. Aluminum producer Alcoa (AA: 9.26, -0.60, -6.08%) is expected to post its third consecutive quarterly loss on Wednesday in a report that threatens to leave the market deeper in the red. Of course, the price of aluminum has plummeted with a broader selloff in commodities, but starting the season with a big loss could weigh on traders.
World markets were broadly lower Monday after the World Bank said the global economic recovery could be more than six months away. 2009 "remains a dangerous year," World Bank President Robert Zoeillick said in a letter to Italian Prime Minister Silvio Berlusconi, whose country is hosting the July meeting of Group of Eight. "Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," he said, Reuters reported.
In autos, General Motors inched closer toward a reboot. A U.S. judge approved the firm's bankruptcy sale, which will allow GM's most profitable divisions to emerge from Chapter 11 protection more than a bit slimmer.
Corporate News
Rio Tinto (RTP: 148.23, -10.26, -6.47%) agreed to sell its food packaging unit to Bemis (BMS: 25.50, +1.22, +5.02%) for $1.2 billion, the firm said. The sale of Alcan Packaging Food Americas brings Rio Tinto's divestment total to $3.7 billion for the year.
A U.S. judge approved General Motors's bankruptcy sale Sunday, allowing the company's most valuable divisions to exit Chapter 11 protection as a new company, without the burdens of its less profitable brands, production facilities and debts, Reuters reported. GM had argued that it would be forced to liquidate its assets if the sale were not approved.
Pepsi (PEP: 57.13, +0.78, +1.38%) and Pepsi Bottling Group (PBG: 34.08, +0.28, +0.82%) plan to invest $1 billion in Russia before 2013, Bloomberg reported. The world's second-largest soft-drink maker is banking on the projection that the country will emerge from the global slowdown still thirsty for its products.
The Economy
The Institute for Supply Management's June report on non-manufacturing business activity came in at a better than expected 47.0, ahead of the consensus estimate of 46.0. The services sector index came in at 44.0% in May. Economists predict a rise to a reading of 46.0% for last month. A reading below 50.0% suggests the services sector is contracting. REPORT
Nothing Always Works, but Here Are 3 Market Truths
Three Market Truths
Even after trading for more than a decade, I still haven’t figured out any market maneuver that always results in a guaranteed profit. From “Don’t Fight the Fed” to the January Effect, markets are littered with a long list of “surefire” tips that don’t always turn out.
It’s a reality lost on many new investors looking for a quick score. Simply put, nothing “always works.” When inefficiency develops in a competitive and open marketplace, opportunistic investors are quick to capitalize. This is what makes markets function.
So I don’t know of an asset class, a time period, an investment style or an approach that always mints money. And if I did, I certainly wouldn’t write about it online.
Turns out the truisms that always work have less to do with the markets than with the technique we use to approach them. This is congruent with our overall philosophy at Tradecraft -- that it’s how you trade that has a much bigger impact on your results than what you trade. What follows are three market truths that speak to the importance of solid technique.
1. The shorter the time horizon, the more difficult it is to make money.
There’s a fantasy, especially among new traders, that markets function as some sort of ATM machine to which you can roll up and make a withdrawal whenever the feeling strikes you. In reality, the shorter the time horizon, the more difficult it is to make money. That’s why so many day traders fail miserably after even a few weeks time.
Traders in such an immense hurry forget the biggest wins come from buying and holding over a sustained move, not trading an investment away the minute it shows a gain.
2. Winning trades usually start out as winning trades.
Another truism holds that, more often than not, winning trades are profitable right from the start. Of course, it doesn’t mean XYZ never goes a point against us, but that winning investments have a tendency to show a profit — even a modest one — within the first few days after having taken the position.
Where traders often fall off the track is that they take a position and hold on, even as it falls sharply below their initial purchase price. Of course, because of the mathematics involved, they end up digging themselves a hole out of which it’s nearly impossible to climb. For Citigroup (C: 2.79, -0.09, -3.12%) to get back to the levels it was at two years ago, the stock needs to climb some 1,600%.
3. Avoid buying stocks solely because they are cheap or boast good dividends.
Finally, experienced investors know to avoid buying a stock or fund solely for cosmetic reasons — namely, because it's either low-priced or has an attractive dividend. Low-priced stocks, as we’ve covered in this space before, are the lottery ticket of the market world, albeit probably with worse odds. With a small handful of exceptions, low-priced stocks are low priced for a reason — and it’s not because they’re poised to make a miraculous comeback. Penny stocks, the pink-sheet-listed companies that trade for a few cents a share, should be avoided altogether.
Similarly, don’t be fooled into buying a stock simply because of an attractive dividend, a common error, especially among older investors looking for income. The problem with picking a stock solely for the dividend is that not only can it be cut at the company’s whim, but that the payout always ends up paling in comparison to the price action of the security itself. Just witness the performance of San Juan Basin Royalty Trust (SJT: 13.74, -0.31, -2.20%) or Provident Energy Trust (PVX: 4.53, -0.20, -4.22%): Even double-digit dividends couldn’t help overcome the losses from holding shares as they fell with energy prices. Same goes for high-yielding REITs. Even a 10% dividend yields means nothing when the stock falls 25%.
Let the Music Play
Michael Jackson’s songs are piling up the profits for Dutch pension fund Stichting Pensioenfonds ABP, whose Imagem Music Group subsidiary, as reported by Bloomberg, owns the rights to Jackson hits including “You Are Not Alone,” “Dangerous” and “Remember the Time.”
Music royalties aren’t an easy asset to buy. But the individual investor with a risk appetite and taste for illiquid assets might check out shares of Mills Music Trust (MMTRS.OB), a music royalty trust on the OTCBB based on a collection of songs with copyrights established prior to 1964. Highly speculative and thinly traded, the trust now yields approximately 13%. But unlike Jacko’s catalog, Mills Music is rather undiversified: Seven of the top 50 songs account for approximately 65% of the earnings attributable to the 50 songs. The good news? The earliest copyright expiration is 2024.
Even after trading for more than a decade, I still haven’t figured out any market maneuver that always results in a guaranteed profit. From “Don’t Fight the Fed” to the January Effect, markets are littered with a long list of “surefire” tips that don’t always turn out.
It’s a reality lost on many new investors looking for a quick score. Simply put, nothing “always works.” When inefficiency develops in a competitive and open marketplace, opportunistic investors are quick to capitalize. This is what makes markets function.
So I don’t know of an asset class, a time period, an investment style or an approach that always mints money. And if I did, I certainly wouldn’t write about it online.
Turns out the truisms that always work have less to do with the markets than with the technique we use to approach them. This is congruent with our overall philosophy at Tradecraft -- that it’s how you trade that has a much bigger impact on your results than what you trade. What follows are three market truths that speak to the importance of solid technique.
1. The shorter the time horizon, the more difficult it is to make money.
There’s a fantasy, especially among new traders, that markets function as some sort of ATM machine to which you can roll up and make a withdrawal whenever the feeling strikes you. In reality, the shorter the time horizon, the more difficult it is to make money. That’s why so many day traders fail miserably after even a few weeks time.
Traders in such an immense hurry forget the biggest wins come from buying and holding over a sustained move, not trading an investment away the minute it shows a gain.
2. Winning trades usually start out as winning trades.
Another truism holds that, more often than not, winning trades are profitable right from the start. Of course, it doesn’t mean XYZ never goes a point against us, but that winning investments have a tendency to show a profit — even a modest one — within the first few days after having taken the position.
Where traders often fall off the track is that they take a position and hold on, even as it falls sharply below their initial purchase price. Of course, because of the mathematics involved, they end up digging themselves a hole out of which it’s nearly impossible to climb. For Citigroup (C: 2.79, -0.09, -3.12%) to get back to the levels it was at two years ago, the stock needs to climb some 1,600%.
3. Avoid buying stocks solely because they are cheap or boast good dividends.
Finally, experienced investors know to avoid buying a stock or fund solely for cosmetic reasons — namely, because it's either low-priced or has an attractive dividend. Low-priced stocks, as we’ve covered in this space before, are the lottery ticket of the market world, albeit probably with worse odds. With a small handful of exceptions, low-priced stocks are low priced for a reason — and it’s not because they’re poised to make a miraculous comeback. Penny stocks, the pink-sheet-listed companies that trade for a few cents a share, should be avoided altogether.
Similarly, don’t be fooled into buying a stock simply because of an attractive dividend, a common error, especially among older investors looking for income. The problem with picking a stock solely for the dividend is that not only can it be cut at the company’s whim, but that the payout always ends up paling in comparison to the price action of the security itself. Just witness the performance of San Juan Basin Royalty Trust (SJT: 13.74, -0.31, -2.20%) or Provident Energy Trust (PVX: 4.53, -0.20, -4.22%): Even double-digit dividends couldn’t help overcome the losses from holding shares as they fell with energy prices. Same goes for high-yielding REITs. Even a 10% dividend yields means nothing when the stock falls 25%.
Let the Music Play
Michael Jackson’s songs are piling up the profits for Dutch pension fund Stichting Pensioenfonds ABP, whose Imagem Music Group subsidiary, as reported by Bloomberg, owns the rights to Jackson hits including “You Are Not Alone,” “Dangerous” and “Remember the Time.”
Music royalties aren’t an easy asset to buy. But the individual investor with a risk appetite and taste for illiquid assets might check out shares of Mills Music Trust (MMTRS.OB), a music royalty trust on the OTCBB based on a collection of songs with copyrights established prior to 1964. Highly speculative and thinly traded, the trust now yields approximately 13%. But unlike Jacko’s catalog, Mills Music is rather undiversified: Seven of the top 50 songs account for approximately 65% of the earnings attributable to the 50 songs. The good news? The earliest copyright expiration is 2024.
'Second Derivative'? Why Market Jargon Is Evil
Wall Street has always sounded strange to outsiders. Swing trades, naked calls, silent partners and straddles seem like they belong in Hugh Hefner’s memoirs, not an investment guide.
Don’t fault a practitioner for saying "straddle," though. It’s a short, old word (the kind Churchill said are best) used to describe a complicated thing that few people need to know about (but if you must, it's an option strategy used to bet on a big stock move without specifying the direction). Save your scorn for those who do the opposite — use complicated words to muck up simple, important financial ideas. They puff themselves up but confuse beginners who, be assured, can ill afford more confusion.
Half of Americans don’t know what a subprime mortgage is. Two-thirds don’t know how much of 8 is left over after taking away 25%. Half can’t say what the Dow Jones Industrial Average is — even when given a handful of choices. (This is according to surveys conducted over the past year by the Center for Economic and Entrepreneurial Literacy, a nonprofit.) Chuckle at these people, but weep for yourself, since financial ignorance has a ripple effect. Credit card defaults and house foreclosures hit record highs this year. Both cause bank losses which in the extreme become government losses. Those are paid by us through higher taxes if we’re lucky and devalued money if we’re not.
Needlessly nerdy financial words cost all of us, you might say, to the extent they keep our neighbors too intimidated to learn. Those of us who use them (neither I nor my favorite writers are blameless) must break the habit. In the schoolyard, pomposity used to have a quick remedy — a sharp, upward tug of the back elastic of the offender’s underpants, called a wedgie. Legally, I can’t recommend that you use it to punish those who use the four self-important terms below. That said, if you hear someone use one of the terms, and if you happen to be standing behind them, and if you love America and you’re not holding a dangerously hot coffee at the time (or if it at least has a lid), I think we both know what needs to be done.
1. Second derivative
This one’s newly fashionable. Factiva, a subscription news database, shows that financial publications mentioned it 100 times in the past three months, vs. no mentions during the same period two years ago.
Someone who says the second derivative of a financial measure is improving means things are getting worse, but at a slower pace than before. The term comes from calculus, the study of change. In the tidy exercises presented in business school course books, second derivatives show when graphs are nearing maximum and minimum points. In the messy real world, where changes in things like the unemployment rate and level of consumer confidence can’t be calculated into the future, second derivatives don’t explain much of anything, beyond what’s obvious to anyone looking at a chart.
Note that "second derivative" seems to be part of a binary jargon system, often accompanied in use by "green shoots." I haven’t studied agriculture formally, but green shoots seem like an even brighter sign than an improving second derivative, since they suggest something is moving in the right direction (albeit almost imperceptibly) as opposed to moving in the wrong direction (albeit more slowly).
2. Alpha, Beta
Mutual fund managers love to promise to find "alpha" for their customers. Studies have long shown that four out of five of them don’t. Financial mathematicians long ago decided that each stock’s return is directly related to its risk, which is an innocent enough assumption until we try to define risk. In one common but flawed approach, a stock’s risk is defined by its past trading volatility. The measure is called beta, and knowing a stock’s beta alone is supposed to help us predict its returns. (It doesn’t.) Alpha is any return achieved beyond that predicted by beta. Someone who boasts about producing alpha is saying they secured good returns given the level of risk their math model says they took. Congratulate them heartily on this theoretical accomplishment.
3. Equities
I’m not going to search my story archives for this one for fear I’d have to hoist my own elastic. Factiva shows the word used more than 8,000 times over the past three months in stock market stories. There’s no harm in using "home equity" to describe the portion of a house that is owned free and clear. "Private equity" is fine for referring to ownership stakes in companies that aren’t traded on exchanges. For stocks, though, there’s a better word. It’s stocks. Also, shares.
Note that the ugliness of "equities" is compounded when it’s used with bad words for other asset classes. A young saver hearing that equities tend to outperform debt over long time periods must wonder how all of it relates to the stock and bond funds available in his retirement account.
4. Bips
Not all short words are good. A basis point is one-hundredth of a percentage point, or 0.01%. The term "basis points" is abbreviated bps. People speaking the abbreviation over the years have somehow inferred the extra letter to yield "bips."
Bond traders are busy, informed people. It’s OK for them to say "thirty bips" to each other. High-fiving, goatee-wearing pundits with their shirt sleeves rolled up at the financial channel news desk are, despite appearances, not too busy to say "thirty basis points." Then again, fewer than one-third of respondents in a survey conducted by AARP Financial knew what a basis point is. Maybe our excitable pundits should slow things down even further and say "three-tenths of a percentage point." That way, Joe Public won’t have to learn a second language to figure out what might become of his adjustable rate mortgage.
This list is only a start. Kindly add the ugliest financial jargon you can think of to the comments section below.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
Don’t fault a practitioner for saying "straddle," though. It’s a short, old word (the kind Churchill said are best) used to describe a complicated thing that few people need to know about (but if you must, it's an option strategy used to bet on a big stock move without specifying the direction). Save your scorn for those who do the opposite — use complicated words to muck up simple, important financial ideas. They puff themselves up but confuse beginners who, be assured, can ill afford more confusion.
Half of Americans don’t know what a subprime mortgage is. Two-thirds don’t know how much of 8 is left over after taking away 25%. Half can’t say what the Dow Jones Industrial Average is — even when given a handful of choices. (This is according to surveys conducted over the past year by the Center for Economic and Entrepreneurial Literacy, a nonprofit.) Chuckle at these people, but weep for yourself, since financial ignorance has a ripple effect. Credit card defaults and house foreclosures hit record highs this year. Both cause bank losses which in the extreme become government losses. Those are paid by us through higher taxes if we’re lucky and devalued money if we’re not.
Needlessly nerdy financial words cost all of us, you might say, to the extent they keep our neighbors too intimidated to learn. Those of us who use them (neither I nor my favorite writers are blameless) must break the habit. In the schoolyard, pomposity used to have a quick remedy — a sharp, upward tug of the back elastic of the offender’s underpants, called a wedgie. Legally, I can’t recommend that you use it to punish those who use the four self-important terms below. That said, if you hear someone use one of the terms, and if you happen to be standing behind them, and if you love America and you’re not holding a dangerously hot coffee at the time (or if it at least has a lid), I think we both know what needs to be done.
1. Second derivative
This one’s newly fashionable. Factiva, a subscription news database, shows that financial publications mentioned it 100 times in the past three months, vs. no mentions during the same period two years ago.
Someone who says the second derivative of a financial measure is improving means things are getting worse, but at a slower pace than before. The term comes from calculus, the study of change. In the tidy exercises presented in business school course books, second derivatives show when graphs are nearing maximum and minimum points. In the messy real world, where changes in things like the unemployment rate and level of consumer confidence can’t be calculated into the future, second derivatives don’t explain much of anything, beyond what’s obvious to anyone looking at a chart.
Note that "second derivative" seems to be part of a binary jargon system, often accompanied in use by "green shoots." I haven’t studied agriculture formally, but green shoots seem like an even brighter sign than an improving second derivative, since they suggest something is moving in the right direction (albeit almost imperceptibly) as opposed to moving in the wrong direction (albeit more slowly).
2. Alpha, Beta
Mutual fund managers love to promise to find "alpha" for their customers. Studies have long shown that four out of five of them don’t. Financial mathematicians long ago decided that each stock’s return is directly related to its risk, which is an innocent enough assumption until we try to define risk. In one common but flawed approach, a stock’s risk is defined by its past trading volatility. The measure is called beta, and knowing a stock’s beta alone is supposed to help us predict its returns. (It doesn’t.) Alpha is any return achieved beyond that predicted by beta. Someone who boasts about producing alpha is saying they secured good returns given the level of risk their math model says they took. Congratulate them heartily on this theoretical accomplishment.
3. Equities
I’m not going to search my story archives for this one for fear I’d have to hoist my own elastic. Factiva shows the word used more than 8,000 times over the past three months in stock market stories. There’s no harm in using "home equity" to describe the portion of a house that is owned free and clear. "Private equity" is fine for referring to ownership stakes in companies that aren’t traded on exchanges. For stocks, though, there’s a better word. It’s stocks. Also, shares.
Note that the ugliness of "equities" is compounded when it’s used with bad words for other asset classes. A young saver hearing that equities tend to outperform debt over long time periods must wonder how all of it relates to the stock and bond funds available in his retirement account.
4. Bips
Not all short words are good. A basis point is one-hundredth of a percentage point, or 0.01%. The term "basis points" is abbreviated bps. People speaking the abbreviation over the years have somehow inferred the extra letter to yield "bips."
Bond traders are busy, informed people. It’s OK for them to say "thirty bips" to each other. High-fiving, goatee-wearing pundits with their shirt sleeves rolled up at the financial channel news desk are, despite appearances, not too busy to say "thirty basis points." Then again, fewer than one-third of respondents in a survey conducted by AARP Financial knew what a basis point is. Maybe our excitable pundits should slow things down even further and say "three-tenths of a percentage point." That way, Joe Public won’t have to learn a second language to figure out what might become of his adjustable rate mortgage.
This list is only a start. Kindly add the ugliest financial jargon you can think of to the comments section below.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
Sunday, July 5, 2009
Pitching In-Person: Is it Necessary?
People always ask me, “Steve, do you fly out and pitch to potential licensees in person?” And the honest answer is, sometimes yes and sometimes no. It’s very important to establish a relationship with a future licensee, especially at the beginning. This means talking on the phone and then maybe moving to e-mail. If you are able to (and can afford) to spend time with the people you’re going to be working with, that’s priceless. It’s not the most fiscally responsible choice, but looking someone in the eye? Understanding who they really are and putting faces to names? That’s of great value. And it’s also an investment. Because when you sign a contract, you don’t just walk away – you’re going to be working with these people for a long time. Their success is your success.
But timing is everything. Will I visit a company at the beginning of our relationship? No. My idea needs to stand on its own. It needs to have all the benefits they need. I like to work out all the issues before I arrange a visit. Can my product be manufactured? Do they really want it? Have they agreed to my term sheets? If all these kinks are worked out, I’ll go out and meet with them in person. I want to see their facilities and what they’re really all about. I need to determine if that company is really the best and right fit for me. If the situation is ideal and feels right, I sign a contract. It’s kind of like kicking the tires – you want to confirm exactly what you’re getting into. Once you’ve signed a contract, you’re partners. You may sometimes find yourself in a situation where you wish that wasn’t the case… Get to know who they are before that moment.
--------------------------------------------------------------------------------
Stephen Key is a successful award-winning inventor who has licensed over 20 products in the past 25 years. Along with business partner Andrew Krauss, Stephen runs inventRight, a company dedicated to educating inventors about selling their ideas and the skills needed to succeed. You can ask questions and get advice on the inventRight forum, check out the resource center, and listen to the weekly radio show on inventing. Get In The News, list your invention to have media outlets find you for news stories.
But timing is everything. Will I visit a company at the beginning of our relationship? No. My idea needs to stand on its own. It needs to have all the benefits they need. I like to work out all the issues before I arrange a visit. Can my product be manufactured? Do they really want it? Have they agreed to my term sheets? If all these kinks are worked out, I’ll go out and meet with them in person. I want to see their facilities and what they’re really all about. I need to determine if that company is really the best and right fit for me. If the situation is ideal and feels right, I sign a contract. It’s kind of like kicking the tires – you want to confirm exactly what you’re getting into. Once you’ve signed a contract, you’re partners. You may sometimes find yourself in a situation where you wish that wasn’t the case… Get to know who they are before that moment.
--------------------------------------------------------------------------------
Stephen Key is a successful award-winning inventor who has licensed over 20 products in the past 25 years. Along with business partner Andrew Krauss, Stephen runs inventRight, a company dedicated to educating inventors about selling their ideas and the skills needed to succeed. You can ask questions and get advice on the inventRight forum, check out the resource center, and listen to the weekly radio show on inventing. Get In The News, list your invention to have media outlets find you for news stories.
Can domestic partner coverage continue under COBRA?
Become a Blogger
If you offer employees the option of healthcare coverage for domestic partners you are not alone. More than 35% percent of US private employers including 52% percent of Fortune 500 companies allow their workers to choose healthcare benefits that cover domestic partners.
While plans have increasingly included domestic partner eligibility there is no federal requirement to offer continuation of benefits when coverage ends. COBRA legislation mandates that employers offer plan options to covered employees, their spouses and covered dependent children when a qualifying event occurs. Qualifying events include termination of employment, loss coverage due to a change in status, death of the employee and divorce.
Employers may choose to offer the option of continuing domestic partner benefits. Check with the benefits provider before you do, they don’t have to extend coverage that is not required by COBRA. As with any other benefit decision it’s important to be consistent. Don’t decide to extend the option to one laid off manager and not another.
Domestic partners are not eligible for the 65% federal subsidy included as part of this year’s economic stimulus package. The ARRA subsidy is only available to federally eligible COBRA participants, former employees their spouse and dependent children. So if you offer continuation of domestic partner benefits you will have to figure out an entirely different premium rate, or multiple rates based upon the choices made by the terminated or laid off employee.
Add this complication to the list of reasons to outsource COBRA administration!
If you offer employees the option of healthcare coverage for domestic partners you are not alone. More than 35% percent of US private employers including 52% percent of Fortune 500 companies allow their workers to choose healthcare benefits that cover domestic partners.
While plans have increasingly included domestic partner eligibility there is no federal requirement to offer continuation of benefits when coverage ends. COBRA legislation mandates that employers offer plan options to covered employees, their spouses and covered dependent children when a qualifying event occurs. Qualifying events include termination of employment, loss coverage due to a change in status, death of the employee and divorce.
Employers may choose to offer the option of continuing domestic partner benefits. Check with the benefits provider before you do, they don’t have to extend coverage that is not required by COBRA. As with any other benefit decision it’s important to be consistent. Don’t decide to extend the option to one laid off manager and not another.
Domestic partners are not eligible for the 65% federal subsidy included as part of this year’s economic stimulus package. The ARRA subsidy is only available to federally eligible COBRA participants, former employees their spouse and dependent children. So if you offer continuation of domestic partner benefits you will have to figure out an entirely different premium rate, or multiple rates based upon the choices made by the terminated or laid off employee.
Add this complication to the list of reasons to outsource COBRA administration!
Customer Reviews Can Boost Business
WRITTEN TESTIMONIALS INFLUENCE our actions and choices in myriad ways, sometimes without our even thinking about them. For example: You and a friend decide to catch a movie, but your tastes don't always coincide. So you open the local paper and check out the film reviews. You decide you want to go to dinner first, but there are so many restaurants in your area that you don't know which one to pick. So you open up a local magazine and scan the recommendations of the magazine's food critic.
Even more powerful than these "professional" testimonials, however, are those that come from trusted personal contacts. If you have enough time, you might call or e-mail a couple of other friends to get their movie and restaurant suggestions. You're likely to follow their advice, too, because you know that they know your likes and dislikes pretty well.
So it is in business. Before people come to your firm for a particular product or service, they often want the comfort of knowing what others have said about you.
Let's say you refinish hardwood floors. Many consumers, before they let you haul your refinishing equipment into their house, will ask you for either written testimonials or phone numbers of people who can attest to your work.
You may even have experience with another form of testimonial: providing references when applying for a new job. Those references are expected to respond by written or spoken word about you and your work performance; quite frequently, a testimonial can clinch the job for you. That's a lot of weight riding on someone else's words.
Why Testimonials Increase Business
Testimonials carry a level of credibility because they come from someone who has direct experience with your product or service. Consumers generally place more trust in testimonials than they do in a business's marketing message. They believe that the average person is unbiased and has nothing to gain from providing a testimonial. The business stands to gain--or lose--everything, so its own words are seen as less trustworthy.
Recognizing consumers' skepticism, some businesses make a practice of asking for customer testimonials. Ditto for businesses that serve other businesses. If anything, a business can be an even more demanding customer than an individual consumer because it has its own reputation and ability to function at stake. Thus, a written testimonial on professional letterhead from one business to another is a powerful word in your favor, especially if the business represented on that letterhead is highly credible.
Displaying Testimonials
Written testimonials can be used in many ways to enhance your credibility and set you above your competition--on your business's website, for example. Some websites have them strategically sprinkled throughout so there's at least one testimonial on each page. Others have a dedicated page where a browser can view several testimonials at once. Either way, scan each testimonial to keep it with its letterhead. This will enhance its credibility--and yours.
If your business attracts a lot of walk-in clients, it's helpful to display your written testimonials, each encased in a plastic sheet protector, in a three-ring binder labeled "What our customers say about us" or "Client Testimonials." Keep this binder on a table in your reception area, where your customers can browse through it while they're waiting for services. It's a good way to connect with your prospects and enhance your relationship with clients.
Another way to stand out from the competition is to include testimonials with your business proposals. This strategy works best if you have a wide variety to choose from; you can include a section of testimonials that are most relevant to a specific proposal.
Asking for Testimonials
Make it standard practice to ask clients (or other contacts) for testimonials. At what point in the sales cycle should you ask? This is a tricky question, but in general, don't ask for any testimonial before it's time--which may be before, during, or after the completion of a sale or project, depending on your client, your product or service, and your own needs.
Let's say that one month before finishing a project, you call your client to ask how things are going. The client tells you she's very happy with the results and that her life or business has changed for the better because of your product or service. At this point, your testimonial detector should be pinging loudly. It's the right time to make your pitch: "That would be a great thing for other people to know about my company. Would you be willing to write me a testimonial on your company letterhead by the end of the week?" If the answer is yes, the next step is to coach your client in writing a testimonial that fits your needs.
Guiding the Content
Ask your client to tell why she chose to work with you, how she benefited from your products or services, how you solved a problem for her, and what other people should know about your business. What things are most people concerned about when using a business like yours? Ask her to address those issues. Don't be afraid to offer suggestions; you'll make it easier for her to write an appropriate testimonial, and the result will be more valuable for you.
Updating Your Testimonials
Finally, review your testimonial file or binder at least every two to three years to identify testimonials that are no longer valid or credible. Specifically, you may want to discard or re-file a testimonial that:
Is from a company that's no longer in business
Is/was written by someone who has left the company
Represents a product or service that you no longer offer
Has begun to turn yellow with age
Needs to be updated with new statistics from the customer
Now that you understand what testimonials can do for your business, try asking for three written testimonials on company letterhead this week. Make it easy for your advocates--specify what you would like their testimonials to cover, based on what you know of their satisfaction or successes from using your product or service. Ask for them to be typed on company letterhead, signed and submitted by a certain date.
One more thing: Remember the law of reciprocity. If you want to truly motivate someone to write you a testimonial, write one for him or her first.
Even more powerful than these "professional" testimonials, however, are those that come from trusted personal contacts. If you have enough time, you might call or e-mail a couple of other friends to get their movie and restaurant suggestions. You're likely to follow their advice, too, because you know that they know your likes and dislikes pretty well.
So it is in business. Before people come to your firm for a particular product or service, they often want the comfort of knowing what others have said about you.
Let's say you refinish hardwood floors. Many consumers, before they let you haul your refinishing equipment into their house, will ask you for either written testimonials or phone numbers of people who can attest to your work.
You may even have experience with another form of testimonial: providing references when applying for a new job. Those references are expected to respond by written or spoken word about you and your work performance; quite frequently, a testimonial can clinch the job for you. That's a lot of weight riding on someone else's words.
Why Testimonials Increase Business
Testimonials carry a level of credibility because they come from someone who has direct experience with your product or service. Consumers generally place more trust in testimonials than they do in a business's marketing message. They believe that the average person is unbiased and has nothing to gain from providing a testimonial. The business stands to gain--or lose--everything, so its own words are seen as less trustworthy.
Recognizing consumers' skepticism, some businesses make a practice of asking for customer testimonials. Ditto for businesses that serve other businesses. If anything, a business can be an even more demanding customer than an individual consumer because it has its own reputation and ability to function at stake. Thus, a written testimonial on professional letterhead from one business to another is a powerful word in your favor, especially if the business represented on that letterhead is highly credible.
Displaying Testimonials
Written testimonials can be used in many ways to enhance your credibility and set you above your competition--on your business's website, for example. Some websites have them strategically sprinkled throughout so there's at least one testimonial on each page. Others have a dedicated page where a browser can view several testimonials at once. Either way, scan each testimonial to keep it with its letterhead. This will enhance its credibility--and yours.
If your business attracts a lot of walk-in clients, it's helpful to display your written testimonials, each encased in a plastic sheet protector, in a three-ring binder labeled "What our customers say about us" or "Client Testimonials." Keep this binder on a table in your reception area, where your customers can browse through it while they're waiting for services. It's a good way to connect with your prospects and enhance your relationship with clients.
Another way to stand out from the competition is to include testimonials with your business proposals. This strategy works best if you have a wide variety to choose from; you can include a section of testimonials that are most relevant to a specific proposal.
Asking for Testimonials
Make it standard practice to ask clients (or other contacts) for testimonials. At what point in the sales cycle should you ask? This is a tricky question, but in general, don't ask for any testimonial before it's time--which may be before, during, or after the completion of a sale or project, depending on your client, your product or service, and your own needs.
Let's say that one month before finishing a project, you call your client to ask how things are going. The client tells you she's very happy with the results and that her life or business has changed for the better because of your product or service. At this point, your testimonial detector should be pinging loudly. It's the right time to make your pitch: "That would be a great thing for other people to know about my company. Would you be willing to write me a testimonial on your company letterhead by the end of the week?" If the answer is yes, the next step is to coach your client in writing a testimonial that fits your needs.
Guiding the Content
Ask your client to tell why she chose to work with you, how she benefited from your products or services, how you solved a problem for her, and what other people should know about your business. What things are most people concerned about when using a business like yours? Ask her to address those issues. Don't be afraid to offer suggestions; you'll make it easier for her to write an appropriate testimonial, and the result will be more valuable for you.
Updating Your Testimonials
Finally, review your testimonial file or binder at least every two to three years to identify testimonials that are no longer valid or credible. Specifically, you may want to discard or re-file a testimonial that:
Is from a company that's no longer in business
Is/was written by someone who has left the company
Represents a product or service that you no longer offer
Has begun to turn yellow with age
Needs to be updated with new statistics from the customer
Now that you understand what testimonials can do for your business, try asking for three written testimonials on company letterhead this week. Make it easy for your advocates--specify what you would like their testimonials to cover, based on what you know of their satisfaction or successes from using your product or service. Ask for them to be typed on company letterhead, signed and submitted by a certain date.
One more thing: Remember the law of reciprocity. If you want to truly motivate someone to write you a testimonial, write one for him or her first.
Friday, July 3, 2009
Treasurys Head To Weekly Gain After Jobs Data
Key Interest Rates Bond Current Previous Change Change %
*Prices as of 7/2/2009 5:01 PM. Source: S&P Comstock
3 Month Bill 0.16 0.17 -0.01 -5.88
6 Month Bill 0.29 0.32 -0.03 -9.38
2 Year Note 0.98 1.04 -0.06 -5.77
5 Year Note 2.42 2.51 -0.09 -3.59
10 Year Note 3.49 3.53 -0.04 -1.13
30 Year Bond 4.32 4.33 -0.01 -0.23
By Deborah Levine, MarketWatch
Last Update: 2:32 PM ET Jul 2, 2009
NEW YORK (MarketWatch) -- Treasury prices rose Thursday, pushing 2-year note yields to the lowest in about a month, after the Labor Department said the U.S. economy shed many more jobs than expected, raising concerns that continued weakness in consumer spending will slow the economy's recovery.
"This tells us that employment is still under huge stresses," said William Bellamy, who manages about $1 billion as director of fixed income at Thompson Siegel & Walmsley. "Given the lack of improvement in the employment picture, yields should move lower."
Yields on 2-year notes (UST2YR) fell 7 basis points to 0.97%, falling below 1% for the first time since June 4. A basis point is 0.01%.
Ten-year note yields (UST10Y) also declined, down 6 basis points to 3.48%, the lowest since May 29.
Bond prices move inversely to their yields.
Two-year yields have fallen from 1.11% a week ago, heading to a fourth week of declines as investors readjust hopes for a robust recovery from the recession.
Ten-year yields are down slightly from 3.50% from last Friday, helding onto gains from last week's big drop in yields.
Traders expect volume to thin ahead of the Independence Day holiday, with markets closed on Friday.
The economy lost 467,000 jobs in June, and the nation's unemployment rate rose to 9.5%, with both figures looking worse than in May. Analysts surveyed by MarketWatch had forecast a loss of 325,000 for nonfarm payrolls and a jobless rate of 9.6%. See more on June jobs data.
The payrolls decline is "shockingly big relative to consensus expectations," said James Caron, head of U.S. interest-rate strategy at Morgan Stanley. "May numbers were a ray of hope that has been dimmed and markets are reacting in kind."
Separately, a weekly report on jobless claims for the week ended June 27 showed 614,000 Americans filed for first-time unemployment benefits.
Fed futures
The payrolls report may overshadow lingering concerns about inflation, which erodes the value of fixed-income holdings, as continued slack in the labor market doesn't coincide with rising prices, said William O'Donnell, head of Treasury strategy at RBS Securities.
"The two don't happen together which is a core theme here that underscores our view that real rates are very attractive at current levels," he said.
Interest-rate futures traders pared expectations that the Federal Reserve will raise benchmark rates from the current range of zero to a quarter of a percent. Fed funds futures for December indicate a 25% chance of interest rates rising a half of a percentage point by then, down from a 33% chance before the jobs data.
Auction amounts
U.S. debt remained strong after the Treasury Department said it will sell $73 billion in debt next week, less than some analysts anticipated.
The government said it will sell $8 billion in 10-year inflation-indexed debt on Monday, followed a day later by $35 billion in 3-year notes (UST3YR) .
Both amounts are unchanged from the previous sale of new securities, in January and June, respectively. Wrightson ICAP, a research firm specializing in government finance expected each to be increased by $2 billion.
Wednesday will bring $19 billion in 10-year notes, with another $11 billion in 30-year notes (UST30Y) on Thursday. Those amounts match last month's sales and Wrightson's forecasts.
The latter two auctions will be reopenings of securities sold during the government's quarterly refunding in May, meaning they carry the same coupon and maturity date as the original debt.
The Treasury is using reopenings as a way to spread out the sales of increasing amounts of debt needed to finance the government's and the Fed's programs to revive the economy and ease credit-market strains. This will be the first time the government reopens the so-called long bond for both months between refundings.
Expectations of more debt supply tend to weigh on bond prices because greater issuance reduces the value of current holdings. However, that may not happen this time, Morgan Stanley's Caron said.
"If anything, people will look at this in a welcoming sense," he said. "We're in an environment where rates will stay low based on the Fed and the economy is not going anywhere at an accelerated pace, so fixed income is a safe place to hang out."
*Prices as of 7/2/2009 5:01 PM. Source: S&P Comstock
3 Month Bill 0.16 0.17 -0.01 -5.88
6 Month Bill 0.29 0.32 -0.03 -9.38
2 Year Note 0.98 1.04 -0.06 -5.77
5 Year Note 2.42 2.51 -0.09 -3.59
10 Year Note 3.49 3.53 -0.04 -1.13
30 Year Bond 4.32 4.33 -0.01 -0.23
By Deborah Levine, MarketWatch
Last Update: 2:32 PM ET Jul 2, 2009
NEW YORK (MarketWatch) -- Treasury prices rose Thursday, pushing 2-year note yields to the lowest in about a month, after the Labor Department said the U.S. economy shed many more jobs than expected, raising concerns that continued weakness in consumer spending will slow the economy's recovery.
"This tells us that employment is still under huge stresses," said William Bellamy, who manages about $1 billion as director of fixed income at Thompson Siegel & Walmsley. "Given the lack of improvement in the employment picture, yields should move lower."
Yields on 2-year notes (UST2YR) fell 7 basis points to 0.97%, falling below 1% for the first time since June 4. A basis point is 0.01%.
Ten-year note yields (UST10Y) also declined, down 6 basis points to 3.48%, the lowest since May 29.
Bond prices move inversely to their yields.
Two-year yields have fallen from 1.11% a week ago, heading to a fourth week of declines as investors readjust hopes for a robust recovery from the recession.
Ten-year yields are down slightly from 3.50% from last Friday, helding onto gains from last week's big drop in yields.
Traders expect volume to thin ahead of the Independence Day holiday, with markets closed on Friday.
The economy lost 467,000 jobs in June, and the nation's unemployment rate rose to 9.5%, with both figures looking worse than in May. Analysts surveyed by MarketWatch had forecast a loss of 325,000 for nonfarm payrolls and a jobless rate of 9.6%. See more on June jobs data.
The payrolls decline is "shockingly big relative to consensus expectations," said James Caron, head of U.S. interest-rate strategy at Morgan Stanley. "May numbers were a ray of hope that has been dimmed and markets are reacting in kind."
Separately, a weekly report on jobless claims for the week ended June 27 showed 614,000 Americans filed for first-time unemployment benefits.
Fed futures
The payrolls report may overshadow lingering concerns about inflation, which erodes the value of fixed-income holdings, as continued slack in the labor market doesn't coincide with rising prices, said William O'Donnell, head of Treasury strategy at RBS Securities.
"The two don't happen together which is a core theme here that underscores our view that real rates are very attractive at current levels," he said.
Interest-rate futures traders pared expectations that the Federal Reserve will raise benchmark rates from the current range of zero to a quarter of a percent. Fed funds futures for December indicate a 25% chance of interest rates rising a half of a percentage point by then, down from a 33% chance before the jobs data.
Auction amounts
U.S. debt remained strong after the Treasury Department said it will sell $73 billion in debt next week, less than some analysts anticipated.
The government said it will sell $8 billion in 10-year inflation-indexed debt on Monday, followed a day later by $35 billion in 3-year notes (UST3YR) .
Both amounts are unchanged from the previous sale of new securities, in January and June, respectively. Wrightson ICAP, a research firm specializing in government finance expected each to be increased by $2 billion.
Wednesday will bring $19 billion in 10-year notes, with another $11 billion in 30-year notes (UST30Y) on Thursday. Those amounts match last month's sales and Wrightson's forecasts.
The latter two auctions will be reopenings of securities sold during the government's quarterly refunding in May, meaning they carry the same coupon and maturity date as the original debt.
The Treasury is using reopenings as a way to spread out the sales of increasing amounts of debt needed to finance the government's and the Fed's programs to revive the economy and ease credit-market strains. This will be the first time the government reopens the so-called long bond for both months between refundings.
Expectations of more debt supply tend to weigh on bond prices because greater issuance reduces the value of current holdings. However, that may not happen this time, Morgan Stanley's Caron said.
"If anything, people will look at this in a welcoming sense," he said. "We're in an environment where rates will stay low based on the Fed and the economy is not going anywhere at an accelerated pace, so fixed income is a safe place to hang out."
Tempting Targets: 5 Stocks Priced for a Takeover
Companies don't seem interested in buying rivals at the moment, despite the comparatively low prices they could pay for them. That bodes poorly for stocks in general, but investors can still use the math of takeover pros to find bargains.
U.S. shares are 27% cheaper than a year ago, even after climbing 15% in the second quarter. During the first half, though, the value of announced acquisitions in the U.S. fell 45% from a year earlier, according to data provider Dealogic. TrimTabs, an investment research group, calls the second quarter the most bearish it has seen since it started tracking data in 1995, in terms of companies' zeal for selling new shares to the public and their reluctance to spend cash to buy either their shares or entire companies.
Investors should read that as a sign of stock-market pessimism among company managers, which signals poor market returns to come, according to TrimTabs. Perhaps that makes now a good time to raise cash, or at least trade pricey stocks for cheap ones. To the latter end, I've listed five companies below that corporate suitors might think are good deals right now, if they weren't so reluctant to spend. Some of the traits that can make a company a potential takeover target can also make it a promising stock. Chief among them is a modest price.
The companies have, in the parlance of merger and acquisition pros, low EV/Ebitda ratios. EV is enterprise value, which is what an investor would pay to buy a company in its entirety and repay all of its debt. Ebitda stands for earnings before interest, taxes, depreciation and amortization. It's a measure of underlying profit potential that allows for tidy comparisons of companies. A low EV/Ebitda ratio, then, means a company had a modest takeover price relative to its earnings potential. The companies on my list also generate free cash, something acquiring firms like to see.
BJ's Wholesale Club (BJ: 31.48, -0.74, -2.29%) shares have climbed 31% over the past five years, vs. an 18% decline for the S&P 500. They now sell for 13 times forward earnings, vs. more than 16 times earnings for the index. Sales and profits for BJ's are rising at the moment, as consumers forsake full-price shops for discount clubs. The company has low profit margins relative to peers like Costco (COST: 44.64, -1.15, -2.51%), but also increasing margins, which together suggest both improvement and room for more of it.
Dell (DELL: 12.97, -0.42, -3.13%) has suffered sharp sales declines of late, but it has reduced corporate expenses and still produces impressive returns on equity, the mark of an efficient company. In the absence of a global economic recovery, the chief appeal of the stock for investors is a low price. Subtracting the company's sizable cash balance from its stock price, shares go for about 10 times forward earnings.
Listed below are details on these two companies and three others.
Screen Survivors Company Ticker Industry Curr. Price EV/Ebitda Return on Equity (%) Dividend Yield (%)
Data as of July 1, 2009
Dell DELL Personal Computers 13.73 5.60 46.9 n/a
Sherwin-Williams SHW Chemicals 53.75 6.86 32.0 2.64
Eastman Chemical EMN Chemicals 37.90 5.63 14.1 4.64
BJ's Wholesale Club BJ Discount Stores 32.23 5.99 14.8 n/a
Weis Markets WMK Grocery Stores 33.52 5.93 8.2 3.46
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
U.S. shares are 27% cheaper than a year ago, even after climbing 15% in the second quarter. During the first half, though, the value of announced acquisitions in the U.S. fell 45% from a year earlier, according to data provider Dealogic. TrimTabs, an investment research group, calls the second quarter the most bearish it has seen since it started tracking data in 1995, in terms of companies' zeal for selling new shares to the public and their reluctance to spend cash to buy either their shares or entire companies.
Investors should read that as a sign of stock-market pessimism among company managers, which signals poor market returns to come, according to TrimTabs. Perhaps that makes now a good time to raise cash, or at least trade pricey stocks for cheap ones. To the latter end, I've listed five companies below that corporate suitors might think are good deals right now, if they weren't so reluctant to spend. Some of the traits that can make a company a potential takeover target can also make it a promising stock. Chief among them is a modest price.
The companies have, in the parlance of merger and acquisition pros, low EV/Ebitda ratios. EV is enterprise value, which is what an investor would pay to buy a company in its entirety and repay all of its debt. Ebitda stands for earnings before interest, taxes, depreciation and amortization. It's a measure of underlying profit potential that allows for tidy comparisons of companies. A low EV/Ebitda ratio, then, means a company had a modest takeover price relative to its earnings potential. The companies on my list also generate free cash, something acquiring firms like to see.
BJ's Wholesale Club (BJ: 31.48, -0.74, -2.29%) shares have climbed 31% over the past five years, vs. an 18% decline for the S&P 500. They now sell for 13 times forward earnings, vs. more than 16 times earnings for the index. Sales and profits for BJ's are rising at the moment, as consumers forsake full-price shops for discount clubs. The company has low profit margins relative to peers like Costco (COST: 44.64, -1.15, -2.51%), but also increasing margins, which together suggest both improvement and room for more of it.
Dell (DELL: 12.97, -0.42, -3.13%) has suffered sharp sales declines of late, but it has reduced corporate expenses and still produces impressive returns on equity, the mark of an efficient company. In the absence of a global economic recovery, the chief appeal of the stock for investors is a low price. Subtracting the company's sizable cash balance from its stock price, shares go for about 10 times forward earnings.
Listed below are details on these two companies and three others.
Screen Survivors Company Ticker Industry Curr. Price EV/Ebitda Return on Equity (%) Dividend Yield (%)
Data as of July 1, 2009
Dell DELL Personal Computers 13.73 5.60 46.9 n/a
Sherwin-Williams SHW Chemicals 53.75 6.86 32.0 2.64
Eastman Chemical EMN Chemicals 37.90 5.63 14.1 4.64
BJ's Wholesale Club BJ Discount Stores 32.23 5.99 14.8 n/a
Weis Markets WMK Grocery Stores 33.52 5.93 8.2 3.46
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
Big Squeeze on Ivy League Endowments
FOR YEARS, TOP UNIVERSITY ENDOWMENTS at Harvard, Yale and Princeton were the envy of the investment world, thanks to the outsized returns they generated from significant investments in nontraditional assets such as private equity, real estate, hedge funds and commodities, and low exposure to U.S. stocks and bonds.
Now that widely imitated asset- allocation strategy, dubbed the Yale model because of the enormous success of the Yale endowment under the 24-year leadership of David Swensen, is facing its sternest test amid the bear market of the past 12 months. Harvard and Princeton are assuming their endowments fell about 30% for the fiscal year ending June 30, while Yale is projecting a decline of 25%.
The outlook is challenging for the big Ivy League endowments because many of their investments are in illiquid private- equity and real-estate funds or commodity-related assets such as timberland, whose estimated value might not reflect today's steeply discounted market prices. Yale and Princeton, for instance, have invested roughly half their endowment assets in private-equity deals, real estate and commodities, a far cry from the 65%-to-35% blend of stocks and bonds favored by many individuals. If the three Ivies valued such assets at market-clearing prices, their endowment losses for fiscal 2008-09 could approach 35%.
It is tough for outsiders to assess the big university endowments, given limited public disclosure, and endowment directors at Harvard, Yale and Princeton declined to speak with Barron's. The endowments reveal their asset allocations, but not individual investments or outside managers. Most of their assets are farmed out, with endowment pros like Swensen overseeing the selection process while monitoring risk and results.
We have assumed that private-equity, real-estate and commodity investments lost about 50% in the past year, based on market benchmarks. Major commodity indexes are off 50%, as are independent oil and gas stocks. The MSCI index of real-estate investment trusts has lost 45%, and private-equity investments are trading for 50 cents on the dollar, or less. The Standard & Poor's 500 index has fallen 27%.
Timberland, for instance, looks significantly overvalued and could drop sharply as investors "race to the exits," Barron's Roundtable member Oscar Schafer said in our midyear update two weeks ago ("Too Far, Too Fast," June 15).
OTHER MAJOR ENDOWMENTS, including those of Stanford, the University of Michigan and the University of Virginia, also have allocated a significant portion of assets to so-called alternative investments. Stanford has less exposure than the biggest Ivies, however. It is projecting a 30% loss for the current year.
Barron's was among the first to identify university-endowment problems, in a cover story last fall ("Crash Course," Nov. 10, 2008), and the financial pressures on both the endowments and schools have worsened significantly since. We correctly predicted the major endowments could be down 25% or more in the current fiscal year, even as some endowment chiefs were insisting any losses would be much lower.
The endowments may end up trailing the stock market in the coming year because of the lag in marking down illiquid asset classes. As we argued last fall, it is probably time -- and now, past time -- for the big endowments to exit some of their illiquid investments and buy stocks and bonds, both to take advantage of market opportunities and gain greater financial flexibility.
In the near term, however, endowment holdings may become more skewed toward illiquid assets, as they are tapped to ease strained university budgets and fund new investment commitments to private-equity and real-estate managers that were made when the markets were stronger. Endowments normally recycle distributions from existing private-equity and real-estate funds into new investments, but the bear market has slowed such distributions to a trickle. Institutional investors who walk away from private-equity commitments usually pay a steep price, which could include forfeiting existing holdings.
Liquidity problems are affecting Harvard, which ended its 2008 fiscal year with the country's largest university endowment: $36.9 billion. Harvard lost two key internal bond managers last week amid reports the managers were unhappy that the endowment had grown more conservative in its investments, limiting their ability to buy riskier bonds. Such caution isn't surprising, however, because liquidity problems last fall, prompted by market declines and the need to post collateral to offset losses on an interest-rate swap tied to a university bond offering, nearly forced the endowment to sell private-equity interests at distressed prices.
To give themselves financial breathing room and forestall asset sales, major universities sold sizable amounts of debt last year. Harvard issued $1.5 billion; Princeton, $1 billion, and Yale, $800 million. Harvard's debt now exceeds $5 billion. Even while borrowing heavily, many big universities have been sellers of stocks, bonds and other liquid assets in the past year.
Despite their investment losses in the past year, major university endowments still have a stellar long-term record. For the 10 years ended June 30, 2008, the Yale endowment gained 16.3% annually, while Harvard rose 13.8% a year and Princeton, 14.9%. The Standard & Poor's 500 logged an average annual increase of just 2.9% in that span.
Yale's endowment grew to $22.9 billion from $6.6 billion in the decade, while Harvard's expanded to $36.9 billion from $13 billion. The Princeton endowment rose to $16.3 billion from $5.6 billion. Harvard's strong performance in the past 10 years relative to that of the average nonprofit investment pool translated into a staggering $23 billion of added value.
Now that widely imitated asset- allocation strategy, dubbed the Yale model because of the enormous success of the Yale endowment under the 24-year leadership of David Swensen, is facing its sternest test amid the bear market of the past 12 months. Harvard and Princeton are assuming their endowments fell about 30% for the fiscal year ending June 30, while Yale is projecting a decline of 25%.
The outlook is challenging for the big Ivy League endowments because many of their investments are in illiquid private- equity and real-estate funds or commodity-related assets such as timberland, whose estimated value might not reflect today's steeply discounted market prices. Yale and Princeton, for instance, have invested roughly half their endowment assets in private-equity deals, real estate and commodities, a far cry from the 65%-to-35% blend of stocks and bonds favored by many individuals. If the three Ivies valued such assets at market-clearing prices, their endowment losses for fiscal 2008-09 could approach 35%.
It is tough for outsiders to assess the big university endowments, given limited public disclosure, and endowment directors at Harvard, Yale and Princeton declined to speak with Barron's. The endowments reveal their asset allocations, but not individual investments or outside managers. Most of their assets are farmed out, with endowment pros like Swensen overseeing the selection process while monitoring risk and results.
We have assumed that private-equity, real-estate and commodity investments lost about 50% in the past year, based on market benchmarks. Major commodity indexes are off 50%, as are independent oil and gas stocks. The MSCI index of real-estate investment trusts has lost 45%, and private-equity investments are trading for 50 cents on the dollar, or less. The Standard & Poor's 500 index has fallen 27%.
Timberland, for instance, looks significantly overvalued and could drop sharply as investors "race to the exits," Barron's Roundtable member Oscar Schafer said in our midyear update two weeks ago ("Too Far, Too Fast," June 15).
OTHER MAJOR ENDOWMENTS, including those of Stanford, the University of Michigan and the University of Virginia, also have allocated a significant portion of assets to so-called alternative investments. Stanford has less exposure than the biggest Ivies, however. It is projecting a 30% loss for the current year.
Barron's was among the first to identify university-endowment problems, in a cover story last fall ("Crash Course," Nov. 10, 2008), and the financial pressures on both the endowments and schools have worsened significantly since. We correctly predicted the major endowments could be down 25% or more in the current fiscal year, even as some endowment chiefs were insisting any losses would be much lower.
The endowments may end up trailing the stock market in the coming year because of the lag in marking down illiquid asset classes. As we argued last fall, it is probably time -- and now, past time -- for the big endowments to exit some of their illiquid investments and buy stocks and bonds, both to take advantage of market opportunities and gain greater financial flexibility.
In the near term, however, endowment holdings may become more skewed toward illiquid assets, as they are tapped to ease strained university budgets and fund new investment commitments to private-equity and real-estate managers that were made when the markets were stronger. Endowments normally recycle distributions from existing private-equity and real-estate funds into new investments, but the bear market has slowed such distributions to a trickle. Institutional investors who walk away from private-equity commitments usually pay a steep price, which could include forfeiting existing holdings.
Liquidity problems are affecting Harvard, which ended its 2008 fiscal year with the country's largest university endowment: $36.9 billion. Harvard lost two key internal bond managers last week amid reports the managers were unhappy that the endowment had grown more conservative in its investments, limiting their ability to buy riskier bonds. Such caution isn't surprising, however, because liquidity problems last fall, prompted by market declines and the need to post collateral to offset losses on an interest-rate swap tied to a university bond offering, nearly forced the endowment to sell private-equity interests at distressed prices.
To give themselves financial breathing room and forestall asset sales, major universities sold sizable amounts of debt last year. Harvard issued $1.5 billion; Princeton, $1 billion, and Yale, $800 million. Harvard's debt now exceeds $5 billion. Even while borrowing heavily, many big universities have been sellers of stocks, bonds and other liquid assets in the past year.
Despite their investment losses in the past year, major university endowments still have a stellar long-term record. For the 10 years ended June 30, 2008, the Yale endowment gained 16.3% annually, while Harvard rose 13.8% a year and Princeton, 14.9%. The Standard & Poor's 500 logged an average annual increase of just 2.9% in that span.
Yale's endowment grew to $22.9 billion from $6.6 billion in the decade, while Harvard's expanded to $36.9 billion from $13 billion. The Princeton endowment rose to $16.3 billion from $5.6 billion. Harvard's strong performance in the past 10 years relative to that of the average nonprofit investment pool translated into a staggering $23 billion of added value.
The Fed's Delicate Balancing Act
The Federal Reserve kept its near-zero short-term interest rates unchanged last week, and that lack of action has our pundits wondering how long the Fed can pretend it’s not worried about inflation before that, too, becomes a factor in the complex and slow road to recovery.
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
10 Things Rental Car Companies Won't Say
1. “We’re a tax magnet.”
Rental-car customers are paying more, due to an unprecedented slew of taxes and fees. But that extra money doesn’t go to the rental car companies; it goes into city and state coffers, where it’s used to fund municipal projects. For example, in 2005 car rentals in Arlington, Tex., were hit with a 5 percent tax to help pay for the new Dallas Cowboys stadium. Car rentals get tapped as fund-raisers because local politicians won’t feel the repercussions at the voting booth. “They’re taxing people who are flying in from someplace else,” says a Hertz spokesperson. “These people can’t and don’t vote locally, so there’s no harm for them.”
But there’s a way for consumers to dodge some of these fees: Pick up your car in town, not at the airport. In 2005 Travelocity found that taxes and fees were 45 percent lower for off-airport rentals. An added bonus, according to Neil Abrams, president of Abrams Consulting, is that you’ll save on rates, too: On average, they’re $10 cheaper per day in town.
2. “We track your every move.”
Over the past few years, rental agencies have begun to install GPS devices in their vehicles. These units allow companies to track cars that are lost or stolen. But global-positioning technology also lets them know when a renter has been speeding or has taken a car into another state, which may be construed as increasing wear and tear. “Opportunity for a rental car operator to impose geographic limitations was never pitched by GPS sellers, but was discovered coincidentally,” says Michael LaPlaca, an attorney who specializes in rental car law.
To date, most companies don’t use the technology to impose fines, but it can and does happen. American Car Rental, for example, was charging customers in Connecticut $150 each time they topped the speed limit for two minutes at a stretch, claiming it damaged their vehicles. Connecticut’s Consumer Protection Commission deemed the fines excessive, ordering the company to refund penalized customers, and in 2005 the state’s Supreme Court affirmed the decision. (American Car Rental has since gone out of business.)
Since then other states, including New York and California, have passed laws preventing rental car companies from imposing such penalties. But some still try to get away with it: In 2006 California’s attorney general announced a settlement of over $700,000 in a consumer protection lawsuit against Fox Rent A Car for using GPS to illegally charge customers who traveled outside a three-state area and for forcing customers to purchase liability insurance. (Fox Rent A Car has not returned calls for comment.)
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
4. “You probably don’t need our insurance.”
Most companies make reserving and renting a car pretty simple—until it comes to the issue of insurance. That’s where they offer a bewildering array of supplemental coverage, which can easily add $10 to $30 to your daily bill. What the overeager reps won’t tell you is that you may already be covered, either partially or completely.
There are two major types of insurance you’ll want: a collision/damage waiver and liability. The former covers repair and replacement costs to the car should anything happen to it; the latter protects you from lawsuits if you’ve injured anyone or damaged property when driving. If you have auto insurance, it usually extends to rental cars, providing both collision/damage and liability, as long as you’re on a leisure trip. And many credit cards cover damages to the vehicle but don’t offer liability.
As with any type of insurance, it’s always more complicated than it seems. “You shouldn’t assume you’re covered by your credit card,” says a spokesperson for the Insurance Information Institute. Check ahead of time with both your credit card and auto insurance providers to see if, when, and how you’re covered.
5. “Your reservation doesn’t mean bupkes.”
Andy Parker was looking forward to spending his winter vacation exploring the back roads of Aruba. He even reserved a Jeep with Hertz to handle the rough driving conditions. But when he went to pick it up, he was told all they had on the lot was a sedan. “It was a sore spot,” says the Buffalo, N.Y., meteorologist, who got stuck with a small Nissan.
As Parker found out, a reservation isn’t a guarantee. The rental agreement is contingent on availability. In fact, you’re not reserving a specific car model, but simply a class of car. (One exception: Hertz allows you to reserve high-end models in its “Prestige Collection.”) What a reservation actually means is that the company is supposed to have some kind of vehicle on the premises for you to rent. So if you get a smaller car than what you reserved, be sure to ask for a rate adjustment. (Parker got Hertz to take 20 percent off his bill; Hertz did not return our calls for comment.)
If the lot is empty, the company is supposed to find you a car even if it means calling another agency and covering the difference. So if the clerk doesn’t offer, remind him that the company is liable if you wind up paying more for a rental car elsewhere.
6. “Special orders are our bread and butter.”
Just like supermarkets, rental car companies bank on getting their customers to do some impulse buying at the checkout counter—where you can now choose from a sizable menu of à la carte amenities and services. The strategy seems to be working: 2007 revenue reached $21.5 billion, a 21 percent increase since 2002, according to Auto Rental News.
A spokesperson for the American Auto Association says that a rental vehicle tricked out with extra features could run you $20 more a day. Here’s how it breaks down: GPS with turn-by-turn directions costs about $12 a day. Avis and Budget rolled out a service that for a minimal amount each day will let you pay highway tolls electronically—but that fee doesn’t include the tolls themselves. And if you want a baby seat for the minivan, add another bill to the pile.
Companies have also begun pushing specialty cars. In 2007 Avis introduced its “Cool Car” collection, which includes the Nissan Altima Hybrid, Cadillac CTS, and Hummer H3. And even low-priced Thrifty has a “Beyond Luxury” collection, offering cars like the BMW 5-series and Cadillac Escalade. “It can be a place to make money,” the AAA spokesperson says.
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
8. “We’re cutting corners anywhere we can.”
You may not have noticed, but over the past few years the fine print on rental contracts has been changing, restricting privileges and perks, even for the industry’s best customers. For example, in the winter of 2005, Hertz shortened the grace period for returning a car from one hour to half an hour for everyone including its #1 Club Gold members; customers also can no longer return a car after a location has closed for the night without incurring a late fee. (Hertz did not return our calls for comment.)
In another move to cut corners, rental companies across the board have begun making customers liable for damage caused by so-called acts of God, such as hurricanes and floods. Avis and Budget, the last major holdouts on this policy change, have recently added it, even to their frequent renters’ contracts. The new rule means it’s now up to renters either to return a car before the natural disaster hits, drive the vehicle out of harm’s way, or pay up for the newly developed insurance option to cover this type of damage.
9. “you won’t believe what we’re charging for fill-ups.”
Even when Brandon Harris is in a hurry, he tries to gas up before returning his rental car. When he was on vacation in Costa Rica a few years ago, he had to travel 15 minutes out of his way to find an open station. “I don’t think the rates that [rental agencies] are charging are fair,” the Chicago resident says. “It’s cheaper to do it yourself.” Although most car rental companies claim they charge the same for gas as local market conditions, it’s really the service charge that jacks up the price: You’re paying for fuel plus the luxury of not having to pump it yourself, says an AAA spokesperson, and not filling up the tank can tack on an additional $20 to your bill.
Car rental companies do offer another option: prepaying for a tank of gas at a more reasonable rate so you don’t have to worry about finding a station at the last minute. There’s only one problem: You’re not likely to return the car empty. “Whatever gas you leave in the tank is a donation to the rental car company,” the AAA spokesperson says. So unless you’re tight for time, it still pays to gas it up yourself upon return. But watch out for gas stations right next to the airport, since they tend to have higher prices. These pumps “make a killing on out-oftowners filling up rental cars,” the AAA spokesperson says.
10. “We offer some terrific deals—on Thursdays when the moon is full.”
Jay Winger thought he’d found a great deal. He was planning to use a Budget double-upgrade coupon when he rented a car for his Las Vegas vacation. The coupon had been accepted when he made the reservation online, but when he arrived at the rental desk, the agent refused to honor it. Why? At the bottom of the coupon in “really small print,” Winger says, it stated that the coupon wasn’t valid in all areas— including, as it turned out, Vegas. “There are always certain locations that don’t take part in national promotions,” says an Avis Budget Car Rental spokesperson. Winger wound up spending about $60 more than he had planned. “Renting a car is really tricky,” the Minneapolis native says.
On every rental car company website, there are ads flaunting the companies’ latest deals. Not to mention the paper coupons that appear regularly in newspapers. But there are so many rules and restrictions involved that it’s often impossible to get exactly the deal that’s being advertised. For starters, some require a Saturday-night stay or a minimum five-day rental. Companies also designate blackout days, exclude popular locations like New York and Las Vegas, and reserve the right to terminate any given offer at any time.
Rental-car customers are paying more, due to an unprecedented slew of taxes and fees. But that extra money doesn’t go to the rental car companies; it goes into city and state coffers, where it’s used to fund municipal projects. For example, in 2005 car rentals in Arlington, Tex., were hit with a 5 percent tax to help pay for the new Dallas Cowboys stadium. Car rentals get tapped as fund-raisers because local politicians won’t feel the repercussions at the voting booth. “They’re taxing people who are flying in from someplace else,” says a Hertz spokesperson. “These people can’t and don’t vote locally, so there’s no harm for them.”
But there’s a way for consumers to dodge some of these fees: Pick up your car in town, not at the airport. In 2005 Travelocity found that taxes and fees were 45 percent lower for off-airport rentals. An added bonus, according to Neil Abrams, president of Abrams Consulting, is that you’ll save on rates, too: On average, they’re $10 cheaper per day in town.
2. “We track your every move.”
Over the past few years, rental agencies have begun to install GPS devices in their vehicles. These units allow companies to track cars that are lost or stolen. But global-positioning technology also lets them know when a renter has been speeding or has taken a car into another state, which may be construed as increasing wear and tear. “Opportunity for a rental car operator to impose geographic limitations was never pitched by GPS sellers, but was discovered coincidentally,” says Michael LaPlaca, an attorney who specializes in rental car law.
To date, most companies don’t use the technology to impose fines, but it can and does happen. American Car Rental, for example, was charging customers in Connecticut $150 each time they topped the speed limit for two minutes at a stretch, claiming it damaged their vehicles. Connecticut’s Consumer Protection Commission deemed the fines excessive, ordering the company to refund penalized customers, and in 2005 the state’s Supreme Court affirmed the decision. (American Car Rental has since gone out of business.)
Since then other states, including New York and California, have passed laws preventing rental car companies from imposing such penalties. But some still try to get away with it: In 2006 California’s attorney general announced a settlement of over $700,000 in a consumer protection lawsuit against Fox Rent A Car for using GPS to illegally charge customers who traveled outside a three-state area and for forcing customers to purchase liability insurance. (Fox Rent A Car has not returned calls for comment.)
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
4. “You probably don’t need our insurance.”
Most companies make reserving and renting a car pretty simple—until it comes to the issue of insurance. That’s where they offer a bewildering array of supplemental coverage, which can easily add $10 to $30 to your daily bill. What the overeager reps won’t tell you is that you may already be covered, either partially or completely.
There are two major types of insurance you’ll want: a collision/damage waiver and liability. The former covers repair and replacement costs to the car should anything happen to it; the latter protects you from lawsuits if you’ve injured anyone or damaged property when driving. If you have auto insurance, it usually extends to rental cars, providing both collision/damage and liability, as long as you’re on a leisure trip. And many credit cards cover damages to the vehicle but don’t offer liability.
As with any type of insurance, it’s always more complicated than it seems. “You shouldn’t assume you’re covered by your credit card,” says a spokesperson for the Insurance Information Institute. Check ahead of time with both your credit card and auto insurance providers to see if, when, and how you’re covered.
5. “Your reservation doesn’t mean bupkes.”
Andy Parker was looking forward to spending his winter vacation exploring the back roads of Aruba. He even reserved a Jeep with Hertz to handle the rough driving conditions. But when he went to pick it up, he was told all they had on the lot was a sedan. “It was a sore spot,” says the Buffalo, N.Y., meteorologist, who got stuck with a small Nissan.
As Parker found out, a reservation isn’t a guarantee. The rental agreement is contingent on availability. In fact, you’re not reserving a specific car model, but simply a class of car. (One exception: Hertz allows you to reserve high-end models in its “Prestige Collection.”) What a reservation actually means is that the company is supposed to have some kind of vehicle on the premises for you to rent. So if you get a smaller car than what you reserved, be sure to ask for a rate adjustment. (Parker got Hertz to take 20 percent off his bill; Hertz did not return our calls for comment.)
If the lot is empty, the company is supposed to find you a car even if it means calling another agency and covering the difference. So if the clerk doesn’t offer, remind him that the company is liable if you wind up paying more for a rental car elsewhere.
6. “Special orders are our bread and butter.”
Just like supermarkets, rental car companies bank on getting their customers to do some impulse buying at the checkout counter—where you can now choose from a sizable menu of à la carte amenities and services. The strategy seems to be working: 2007 revenue reached $21.5 billion, a 21 percent increase since 2002, according to Auto Rental News.
A spokesperson for the American Auto Association says that a rental vehicle tricked out with extra features could run you $20 more a day. Here’s how it breaks down: GPS with turn-by-turn directions costs about $12 a day. Avis and Budget rolled out a service that for a minimal amount each day will let you pay highway tolls electronically—but that fee doesn’t include the tolls themselves. And if you want a baby seat for the minivan, add another bill to the pile.
Companies have also begun pushing specialty cars. In 2007 Avis introduced its “Cool Car” collection, which includes the Nissan Altima Hybrid, Cadillac CTS, and Hummer H3. And even low-priced Thrifty has a “Beyond Luxury” collection, offering cars like the BMW 5-series and Cadillac Escalade. “It can be a place to make money,” the AAA spokesperson says.
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
8. “We’re cutting corners anywhere we can.”
You may not have noticed, but over the past few years the fine print on rental contracts has been changing, restricting privileges and perks, even for the industry’s best customers. For example, in the winter of 2005, Hertz shortened the grace period for returning a car from one hour to half an hour for everyone including its #1 Club Gold members; customers also can no longer return a car after a location has closed for the night without incurring a late fee. (Hertz did not return our calls for comment.)
In another move to cut corners, rental companies across the board have begun making customers liable for damage caused by so-called acts of God, such as hurricanes and floods. Avis and Budget, the last major holdouts on this policy change, have recently added it, even to their frequent renters’ contracts. The new rule means it’s now up to renters either to return a car before the natural disaster hits, drive the vehicle out of harm’s way, or pay up for the newly developed insurance option to cover this type of damage.
9. “you won’t believe what we’re charging for fill-ups.”
Even when Brandon Harris is in a hurry, he tries to gas up before returning his rental car. When he was on vacation in Costa Rica a few years ago, he had to travel 15 minutes out of his way to find an open station. “I don’t think the rates that [rental agencies] are charging are fair,” the Chicago resident says. “It’s cheaper to do it yourself.” Although most car rental companies claim they charge the same for gas as local market conditions, it’s really the service charge that jacks up the price: You’re paying for fuel plus the luxury of not having to pump it yourself, says an AAA spokesperson, and not filling up the tank can tack on an additional $20 to your bill.
Car rental companies do offer another option: prepaying for a tank of gas at a more reasonable rate so you don’t have to worry about finding a station at the last minute. There’s only one problem: You’re not likely to return the car empty. “Whatever gas you leave in the tank is a donation to the rental car company,” the AAA spokesperson says. So unless you’re tight for time, it still pays to gas it up yourself upon return. But watch out for gas stations right next to the airport, since they tend to have higher prices. These pumps “make a killing on out-oftowners filling up rental cars,” the AAA spokesperson says.
10. “We offer some terrific deals—on Thursdays when the moon is full.”
Jay Winger thought he’d found a great deal. He was planning to use a Budget double-upgrade coupon when he rented a car for his Las Vegas vacation. The coupon had been accepted when he made the reservation online, but when he arrived at the rental desk, the agent refused to honor it. Why? At the bottom of the coupon in “really small print,” Winger says, it stated that the coupon wasn’t valid in all areas— including, as it turned out, Vegas. “There are always certain locations that don’t take part in national promotions,” says an Avis Budget Car Rental spokesperson. Winger wound up spending about $60 more than he had planned. “Renting a car is really tricky,” the Minneapolis native says.
On every rental car company website, there are ads flaunting the companies’ latest deals. Not to mention the paper coupons that appear regularly in newspapers. But there are so many rules and restrictions involved that it’s often impossible to get exactly the deal that’s being advertised. For starters, some require a Saturday-night stay or a minimum five-day rental. Companies also designate blackout days, exclude popular locations like New York and Las Vegas, and reserve the right to terminate any given offer at any time.
Thursday, July 2, 2009
Top things to know
1. When it comes to teaching kids about money, the sooner the better.
Up until they start earning a living, and sometimes well beyond that, kids are apt to spend money like it grows on trees. This lesson will help you put your children on the road to handling money responsibly.
Long before most children can add or subtract, they become aware of the concept of money. Any 4-year-old knows where their parents get money - the ATM, of course. Understanding that parents must work for their money requires a more mature mind, and even then, the learning process has its wrinkles. For example, once he came to understand that his father worked for a living, a 5-year-old asked, "How was work today?" "Fine," the father replied. The child then asked, "Did you get the money?"
2. Once they learn how money works, children often display an instinctive conservatism.
Instant gratification aside, once they learn they can buy things they want with money - e.g., candy, toys - many children will begin hoarding every nickel they can get their hands on. How this urge is channeled can determine what kind of financial manager your child will be as an adult.
3. Seeds planted early bear fruit later.
It's important to work on your child's financial awareness early on, for once they're teenagers, they are less likely to heed your sage advice. Besides, they're busy doing other things - like spending money.
4. An allowance can be an effective teaching tool.
When your kids are young, giving them small amounts of money helps them prepare for the day when the numbers will get bigger.
5. Teenagers and college-age kids have bigger responsibilities.
Checking accounts, credit cards and debt are as elemental to the college experience as books and keg parties. Teaching high-schoolers about banking and credit will make them more savvy when they leave the nest.
6. Even investing should be learned early.
High schoolers can and should be taught about the market - using real money.
Up until they start earning a living, and sometimes well beyond that, kids are apt to spend money like it grows on trees. This lesson will help you put your children on the road to handling money responsibly.
Long before most children can add or subtract, they become aware of the concept of money. Any 4-year-old knows where their parents get money - the ATM, of course. Understanding that parents must work for their money requires a more mature mind, and even then, the learning process has its wrinkles. For example, once he came to understand that his father worked for a living, a 5-year-old asked, "How was work today?" "Fine," the father replied. The child then asked, "Did you get the money?"
2. Once they learn how money works, children often display an instinctive conservatism.
Instant gratification aside, once they learn they can buy things they want with money - e.g., candy, toys - many children will begin hoarding every nickel they can get their hands on. How this urge is channeled can determine what kind of financial manager your child will be as an adult.
3. Seeds planted early bear fruit later.
It's important to work on your child's financial awareness early on, for once they're teenagers, they are less likely to heed your sage advice. Besides, they're busy doing other things - like spending money.
4. An allowance can be an effective teaching tool.
When your kids are young, giving them small amounts of money helps them prepare for the day when the numbers will get bigger.
5. Teenagers and college-age kids have bigger responsibilities.
Checking accounts, credit cards and debt are as elemental to the college experience as books and keg parties. Teaching high-schoolers about banking and credit will make them more savvy when they leave the nest.
6. Even investing should be learned early.
High schoolers can and should be taught about the market - using real money.
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