Fed tapers again...Economy bounces back...Getting smarter about student loans...Savers are healthier...And more
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Fed follows plan, cuts bond purchases for August and September
The Federal Reserve continues unwinding its bond-buying binge. The nation's bank-for-banks began buying $85 billion worth of debt a month in September 2012, a fairly even split between Treasury bills and bonds backed by thousands of home loans. By flooding the mortgage market with money, it pushed mortgage rates to record lows in an attempt to boost real estate sales and property values. In a process the Fed refers to as tapering, it began reducing those purchases this January and bought only $35 billion worth in June and July. At the Fed's policy committee meeting on Wednesday, that amount was cut again, to just $25 billion for August and September. If all goes according to the plan laid out in Fed minutes, the bank will buy a final $15 billion in October and that will be that.
SECOND THOUGHTS: When the Fed began cutting back its bond purchases, economists expected mortgage rates would go up. But that hasn't happened, they've gone down, because the demand for home loans has crashed to a 17-year low. Whether the Fed is buying mortgages, or not, has become kind of irrelevant. Click here to read more about the state of summer mortgage rates.
Economy bounces back from cold, bad winter
Everyone needs to take a good deep breath. The economy expanded at a stronger than expected annual rate of 4% during the spring. It was exactly the kind of rebound everyone expected after severe winter weather caused the nation's GDP (Gross Domestic Product) to contract at a rate of just over 2% in the first three months of the year. Consumer spending was up 2.5%, driven by the biggest gain in durable goods -- cars, appliances, that sort of thing -- in almost five years. “The economy is looking pretty darned good,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, told Bloomberg News. So we can all stop worrying. The recovery is still on track.
Troubled by an increase in student loan defaults, Indiana University decided to take a simple step that every college should follow. It began to tell prospective borrowers what their monthly payment would be after graduation and how much they would owe. BloombergBusinessweek says that information had a dramatic effect on students’ willingness to borrow. Federal undergraduate Stafford loan disbursements dropped 11%, or $31 million, in the nine months that ended March 31 from a year earlier.
After nine years of unprofitable competition, Zillow has struck an all-stock deal to buy Trulia, combining the nation's largest real estate websites. Acquisitions that combine the top providers of any service rarely help consumers. Indeed, the impact on consumers is rarely even considered. (See Comcast wants to buy Time Warner Cable.) In this case, Zillow sees the big advantage of the merger as the ability to offer real estate agents and advertisers a larger platform to market homes and reach potential buyers.
SECOND THOUGHTS: How dominant would Zillow be if the Trulia deal closes sometime in 2015? According to ComScore, the two sites accounted for 89% of all traffic to the 15-most-visited real estate sites on the Web. (And yet neither site is profitable. The tech bubble lives.)
When the stock market rose 30% last year, many mutual fund managers were crowing. But can they provide a top return year after year? A new study by S&P Dow Jones Indices analyzed the performance of 2,862 broad, actively managed stock funds and asked how many were able to remain in the top quarter of all funds for five successive years. The answer: 2. Several other measures of fund performance led to the same conclusion — very few funds consistently outperform the market.
SECOND THOUGHTS: So there you have it, yet another reason to invest your retirement savings in passively managed index funds that are designed to match, not beat, the performance of the overall stock market. (Or even better, put your money into target date funds that invest in index funds.) Index funds charge much lower fees than managed funds, too.
Do you contribute to the 401(k) retirement plan where you work? Then you're more likely to take care of your health as well. That provocative correlation comes from a couple of researchers at Washington University in St. Louis. Their two-year study following employees at industrial laundries in eight states also provides evidence that the failure to save and chronic health problems are at least partially driven by the same common bias. It's what psychologists call "time discounting" — the often irrational preference of smaller immediate rewards over larger future rewards.
SECOND THOUGHTS: Becoming a saver, and taking the first step toward financial security, isn't as hard as you might think. Our 7 rules for a successful 401(k) retirement account can walk you through the process and help you make all the right decisions.
Consumer watchdogs want to hear about prepaid debit, gift cards
The Consumer Financial Protection Bureau has just begun accepting, and investigating, consumer complaints about all types of prepaid or reloadable cards. The bureau requests that companies respond to complaints within 15 days and describe the steps they have taken, or plan to take, to resolve the problem. So if you're having trouble with anything from undisclosed fees to long delays in dealing with fraudulent charges, you can:
- Go to the complaint page on the CFPB's website and click on "Credit card or prepaid card."
- Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372).
- Fax the CFPB at 1-855-237-2392.
- Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.
SECOND THOUGHTS: Since the CFPB opened in July 2011, it has been tackling consumers' problems with mortgages, bank accounts, private student loans, auto and other consumer loans, credit reporting, debt collection, payday loans and money transfers. So if you've got an issue with any of these financial services, you can contact the bureau in the same way.
ConocoPhillips and Abbott Laboratories provide their employees with the most lucrative retirement benefits, according to a first-of-its-kind ranking of 401(k) plans by Bloomberg News. ConocoPhillips, a Houston oil and natural gas producer, contributes 9% of annual salaries for employees who save as little as 1% of their pay. Among the least generous of the 250 big companies Bloomberg ranked are Facebook, Amazon and Whole Foods Market. The grocer offers a maximum contribution of $152 annually.
SECOND THOUGHTS: It's very hard to compare the benefits companies provide their employees, and Bloomberg reporters spent six months tracking down and studying company filings to come up with these rankings. Here's where you can find the complete list of companies to see how your benefits stack up.
Debt repayment scams have a new target: Student loans
We probably should have seen this coming. Disreputable companies that charge big up-front fees with big promises to help borrowers reduce their debt and monthly payments have a new target — student loans. Illinois Attorney General Lisa Madigan sued two debt-settlement companies this month, alleging that Broadsword Student Advantage and First American Tax Defense, tricked customers into paying as much as $1,200 for services they did not, and could not, possibly provide. One of the defendants went so far as to tell customers they'd be enrolled in a nonexistent “Obama forgiveness program.” All these debt settlement companies did — if they did anything at all — was enroll customers in government repayment plans they could sign up for themselves. For free.
SECOND THOUGHTS: Too many troubled borrowers are not taking advantage of repayment plans that would tie monthly payments to their income and forgive part of the debt after they make 120 on-time payments. Here's how those student loan repayment plans work.
Amazon launched its highly anticipated e-book subscription service today. Kindle Unlimited allows users to read as much as they want from a catalog of over 600,000 books for a flat fee of $9.99 a month. The Hunger Games, the Lord of the Rings trilogy, Diary of a Wimpy Kid and the new Michael Lewis book Flash Boys: A Wall Street Revolt are among the popular titles available through the service. Some audiobooks are also included.
SECOND THOUGHTS: Interest.com Assistant Managing Editor Mike Cetera, who uses the Kindle app for iPad, says he’s excited about this service. “Look, I spend $10 or more to purchase an e-book book now, so this $9.99 monthly subscription seems like a good deal — if Amazon offers books I want to read.” That’s a big if. The New York Times reported today that “few of the biggest publishers will be making their titles available through the service.” HarperCollins, Simon & Schuster and Penguin Random House are among the publishers that are not allowing their books into the Kindle Unlimited catalog — at least not yet.
Why is a tech company that earns $5 billion a quarter and has $88 billion in cash doing that? Because smartphones and tablets are killing the sales of personal computers that run Microsoft's most profitable products (Windows and Office). Microsoft has developed a mobile operating system called Windows Phone, but almost no one uses it. As a result, Microsoft's stock price hasn't kept up with Apple's and Google's. In an effort to turn that around and get its software into more phones, Microsoft bought Nokia, the Finnish handset maker. Now Microsoft is eliminating 12,500 jobs at Nokia, or about half of its employees.
The divorce rate among Americans 50 and older has doubled since 1990, according to a study by the National Center for Family and Marriage Research at Bowling Green State University in Ohio. Roughly 1 in 4 divorces now involve older couples. Besides causing depression and dashing dreams, the New York Times recently looked at how those splits can sabotage retirement plans as assets are cut in half and expenses as a divorced single rise.
Fed plans to end bond purchases this fall
If the economy stays on track, the Federal Reserve will end its monumental bond-buying campaign in October. At least that's what the minutes of the Fed's last rate-setting meeting suggest. It began buying $85 billion worth of debt a month in September 2012, a fairly even split between Treasury bills and bonds backed by thousands of home loans. By flooding the mortgage market with money, it pushed mortgage rates to record lows in an attempt to boost real estate sales and property values. In a process the Fed refers to as tapering, it began reducing those purchases this year.
SECOND THOUGHTS: The first reduction was to $75 billion in January, then $65 billion in February and March, $55 billion in April, $45 billion in May and $35 billion in June and July. It is now expected to buy $25 billion in August and September and a final $15 billion in October. Whew. The bond-buying binge has left the Fed holding more than $4 trillion worth of debt. The minutes did not indicate whether the Fed plans to sell any of its bonds. (It can just allow its holdings to diminish as the debt is paid off and retired.) Nor did it reveal when the Fed might take the critical step of raising short-term interest rates for the first time since 2006 by pushing up the federal funds rate — the rate banks must pay to borrow money on deposit at the Fed. This is what savers, who are sick and tired of being paid virtually nothing on their CDs and money market accounts, have been waiting for. Based on the minutes and what Fed governors have said in the past, the earliest we'd expect to see higher rates would be next spring, like March or April.
More consumers are canceling their cable television service or at least threatening to do so, a gratifying phone call that will result in your cable company offering all sorts of discounts. But cheaper rates weren't enough to keep writer Nat Worden from cutting the cord, and she suspects "we’ll reach a tipping point in the not-too-distant future at which most consumers will decide the Internet is an adequate medium for serving all their entertainment and information needs and traditional pay-TV subscriptions are no longer necessary or relevant."
SECOND THOUGHTS: Although I still have cable TV, I've considered ditching it for years now. Only sports and beer have stopped me. But just this week I had to call my cable company and demand that my $25-a-month discount be renewed for another year. That lowers my bill for TV and Internet (including equipment but not taxes and fees) from $110 to $85 a month. I can live with that. At least for now. Yet I think Worden and Interest.com Contributing Editor Jen Miller, who dropped cable TV last fall, made smart choices. It's a conversation every family looking for ways to cut costs and save more ought to have.
New York City condos have become the investment of choice for wealthy foreigners looking for a place to park lots of rubles, yuan and reals. Not only have they created unwinnable price wars for city dwellers who can't pay cash for the typical million-dollar Manhattan unit, the new owners seldom use their upscale new digs. The Census Bureau estimates that 30% of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least 10 months a year.
SECOND THOUGHTS: Although we have lots of ideas about how to crush all-cash buyers, they may not be enough to trump off-shore competitors such as these. Since 2008, roughly 30% of sales in pricey Manhattan developments have been to buyers who listed an international address — typically from China, Russia and Latin America — or were bought in the name of a corporate entity, a maneuver often employed by foreign purchasers. What's even worse is that The Nation says New York real estate has "become a magnet for the world's dirty money … US authorities don’t put up many roadblocks for foreigners who want to launder money through American real estate."
A better than expected jobs report pushed the Dow Jones Industrial Average above 17,000 for the first time ever on July 3. The record close came after the Labor Department said the economy added 288,000 jobs in June, causing the unemployment rate to fall to 6.1% — the lowest it's been since September 2008. That's the month the Wall Street investment bank Lehman Brothers failed, setting off the worst financial crisis since the Great Depression.
SECOND THOUGHTS: There's now growing evidence that the robust recovery we've been waiting five long years for has finally arrived. Over the past 12 months, the economy has added nearly 2.5 million jobs, or an average of 208,000 a month. That's the fastest year-over-year pace since 2006. "Since February, this has now become a textbook jobs expansion," Patrick O'Keefe, director of economic research at the consultancy CohnReznick, told the Associated Press. "It is both broad and accelerating." And the most exciting trend of all is that more than half the jobs the economy has added so far this year pay better than the average hourly wage of $24.45. That was not the case when the recovery was just limping along.
Putnam Investments, one of the largest administrators of 401(k) plans, is offering customers a new way to measure the progress of their retirement savings. It's introduced a tool on its online statements that allows users to see exactly how their savings rank against other Putnam account holders who are similar in age, income and gender. Then, using projections, it models how their numbers would change if they set more money aside from their paycheck — and allows them to make the change in a few clicks. Putnam refers to it as its “Joneses Tool,” as in “Keeping up with.”
Time to take a closer look at your T-Mobile bill. The government has accused the wireless carrier of tacking unauthorized charges from other companies onto customer bills. The Federal Trade Commission says T-Mobile profited from the scheme by charging for text message subscriptions to celebrity gossip and horoscope services users didn't sign up for. The typical cost: $9.99 per month.
According to data that deal site DealScience.com ran for MarketWatch, the average major retailer releases just over one new coupon each week. But some stores crank out coupons far more often than that. Like once a day. Or, in the most extreme cases, three times a day. Those retailers provide so many discounts, so often, that it makes no sense to pay full price when you shop there. So always look for discounts before buying at Sears, Macy's, Sally Beauty Supply, Jewelry.com and Gap.
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