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  • 4 Money Beliefs That Are Holding Your Business

    4 Money Beliefs That Are Holding Your Business

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    Opinions expressed by Entrepreneur contributors are their own.

    As business owners, many of us like to create a clear boundary between our personal and professional affairs. And with good reason! It’s not healthy to intertwine the two in a lot of ways. However, it’s also unhealthy to consider them to be oil and water.

    Whether you like it or not, your business is an extension of you. Your personal beliefs about money could hold your business back without you even knowing it.

    “Waste not, want not”

    “Look after the pennies and the pounds will look after themselves”

    We’re drip-fed these lines over our formative years, usually with good intent. It’s hard to see at the moment how these words of ‘wisdom’ could do any harm…but their cumulative effect can have a tremendous stunting effect on your growth as an entrepreneur.

    Remember that these beliefs take root in your subconscious long before you set foot on the professional stage. When you start with nothing to lose and everything to gain, these messages of prudence and conservation don’t have much of a foothold.

    After all: what is there to conserve?

    But as you grow and succeed, you’ll find yourself placing more and more restrictions on what you do with your capital — setting the thresholds for investing ever further ahead, convinced that you’ll finally be ready to take that leap by the next one.

    But you never do.

    So here are four beliefs about money that you might hold and could be holding your business back.

    Related: 3 Money Mindset Blocks That Are Holding You Back From Expanding Your Business

    1. It could all end tomorrow

    It’s very easy to be convinced of the need to conserve your capital reserves because it could all be gone tomorrow, and you’ll need the liquidity.

    That’s fair and by no means unreasonable, especially given the current geopolitical situation. As a responsible business owner, you want to ensure you’ve covered your bases should the worst come to the worst. You have employees with mouths to feed, after all.

    However, you can convince yourself of this being the case at any time, and it’s a false economy. Think about it for a moment. You’re a smart person; you know how money works. If you leave your cash in an account, it will be eroded by inflation and taxes. It needs to be put to work to grow.

    The responsible thing to do is to find diverse avenues of investment to grow that money.

    All it takes is a shift in your mindset.

    Related: Want to Make More Money? Start Rewriting Your Story.

    2. I can’t increase my prices, or I’ll lose my clients

    This is one that an awful lot of business advisors speak on, but yet somehow, it just doesn’t get through. All of the logic and intellectualizing in the world can’t convince us that it’s the right course of action. But it is!

    I’m not saying to hike your prices every week. But you change your mindset about regular price rises, even just to keep pace with inflation!

    You also need to do it to optimize your client base. You’ve doubtlessly heard of the Pareto or “80/20” principle. This applies to your clients in a big way. I guarantee you that, within a small margin of error, 80% of your turnover comes from 20% of your clients, which means that you are spending 80% of your resources on 20% of them!

    Here’s the thing, though: it’s not a clear dividing line.

    When you put your prices up, it’s not like you’ll lose 80% of your client base, just like that! Many of them will be brought into the top 20%. Those that will, will be more than you think and certainly will negate any revenue lost, or resources expended on, those that represent the bottom half. Double the number of clients in that 20% bracket; you’ll have 160% of the revenue for less than half the work!

    Related: How to Let Customers Know About Increased Prices Without Making Them Mad

    3. Risk mitigation

    Risk is a four-letter word. The thing is… without risk; you will not achieve your business goals. You have to embrace it as a factor in what you’re doing. But risk in and of itself isn’t necessarily a good thing.

    We’re not talking about throwing yourself to the wolves needlessly. But you need to find that mindset where you’re comfortable “taking a punt” (as we Brits say).

    Calculated risk is good, but don’t get too wound up in the minutia. With any new venture or endeavor; there comes a jumping-off point. It’s a time to let go of the theorizing, stop trying to convince yourself of the certainty of the outcome and take the leap of faith.

    If you’re getting yourself bound up with risk assessments and market fluctuations, just remember that not taking action is a risk in itself.

    4. Debt is the last resort

    This is probably the best example of a personal belief that, when carried from your personal life to your professional one, can really impede growth.

    Consumer debt (i.e., buying consumables using debt) is to be avoided because this is servicing debt on an asset that is losing value — a car, for example, or a washing machine.

    But, when leveraged strategically, debt is one of the greatest tools in your arsenal and can increase your value. That’s how rich people get richer! What…did you think that they invested their own money?

    Of course not!

    They use their wealth and capital to leverage debt and invest that. As long as the return is greater than the interest on the debt: you’re winning and experiencing abundance!

    Don’t be afraid of debt in your business. Don’t let it suffocate the happiness and pride in your business. It is most definitely your friend. Awareness is the first step in any problem-solving.

    I hope that by bringing these four beliefs about money that could hold your business back to your awareness, you can start to see your role in all this. That alone could be all the change you need to start opening doors to new opportunities for growth.

    I hope so!

    Related: How Debt and Taxes Can Make Smart Entrepreneurs Rich

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  • Everything you need to know about Biden’s student loan forgiveness program | CNN Politics

    Everything you need to know about Biden’s student loan forgiveness program | CNN Politics

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    CNN
     — 

    President Joe Biden’s federal student loan forgiveness program, which promises to deliver up to $20,000 of debt relief for millions of borrowers, is on hold indefinitely as legal challenges work their way through the courts.

    About 26 million people had already applied by the time a federal district court judge struck down the program on November 10 – prompting the government to stop taking applications. No debt has been canceled thus far.

    The administration officially launched the application on October 17, following a brief “beta period” during which its team assessed whether tweaks were needed.

    If the courts ultimately allow the program to move forward, not every student loan borrower is eligible for the debt relief. First, only federally held student loans qualify. Private student loans are excluded.

    Second, high-income borrowers are generally excluded from receiving debt forgiveness. Individual borrowers who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually will see up to $10,000 of their federal student loan debt forgiven.

    If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are awarded to millions of low-income students each year, based on factors including their family’s size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.

    Here’s what else borrowers need to know about the new student loan forgiveness plan:

    It’s unclear when, or if, borrowers will see debt relief under Biden’s program.

    Administration officials expected to be able to grant relief before federal student loan payments are set to resume in January, when the pandemic-related pause expires. But now that timeline is in jeopardy.

    The White House has said that it has already approved 16 million applications for debt relief. The Department of Education will hold on to that information so it can quickly process those borrowers’ relief if the government prevails in court.

    If and when the program moves forward, an estimated 8 million borrowers may receive debt relief automatically because the Department of Education already has their income on file.

    If the government restarts taking applications, borrowers can apply online here: https://studentaid.gov/debt-relief/application.

    Applicants can expect to receive an email confirmation once their application is successfully submitted. Then, borrowers will be notified by their loan servicer when the debt cancellation has been applied to their account.

    Borrowers were expected to have until December 31, 2023, to submit an application.

    There are a variety of federal student loans and not all are eligible for relief. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans, are eligible.

    But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan by September 29.

    The Department of Education initially said these privately held loans, many of which were made under the former Federal Family Education Loan program and Federal Perkins Loan program, would be eligible for the one-time forgiveness action – but reversed course in September when six Republican-led states sued the Biden administration, arguing that forgiving the privately held loans would financially hurt states and student loan servicers.

    Defaulted Federal Family Education Loans and defaulted Perkins Loans are still eligible for the debt relief even if they are privately held.

    If Biden’s program is allowed to move forward, eligibility is based on a borrower’s adjusted gross income for either tax year 2020 or 2021. Adjusted gross income can be lower than your total wages because it considers tax deductions and adjustments, like contributions made to a 401(k) retirement plan.

    A taxpayer’s adjusted gross income can be found on line 11 of IRS Form 1040.

    The Department of Education says it already had income information for nearly 8 million borrowers, likely because of financial aid forms or previously submitted income-driven repayment plan applications. If the program is allowed to move forward, those borrowers will automatically receive the debt relief if they meet the income requirement, unless they choose to opt out. The department has said it will email borrowers who will be considered for debt relief but don’t need to apply.

    Millions of other borrowers will need to apply for student loan forgiveness if the Department of Education doesn’t have their income information on file. When they submit the application, borrowers are required to self-attest that their income is under the eligibility threshold. They are required to certify that the information provided is accurate upon penalty of perjury.

    The Biden administration has said that applicants who are “more likely to exceed the income cutoff” will be required to submit additional information, like a tax transcript. Officials expect that just 5% of borrowers with eligible federal student loans would not qualify due to the income threshold.

    Borrowers will not have to pay federal income tax on the student loan debt forgiven, thanks to a provision in the American Rescue Plan Act that Congress passed last year.

    But it’s possible that some borrowers may have to pay state income tax on the amount of debt forgiven. There are a handful of states that may tax discharged debt if state legislative or administrative changes are not made beforehand, according to the Tax Policy Center. The tax liability could be hundreds of dollars, depending on the state.

    Yes, some current students are eligible. Eligibility for borrowers who filed the Free Application for Federal Student Aid, known as the FAFSA, as an independent will be based on the individual’s own household income.

    Eligibility for borrowers who are enrolled as dependent students, generally those under the age of 24, will be based on parental income for either 2020 or 2021.

    Yes, if your income meets the eligibility threshold.

    Yes, if your income meets the eligibility threshold. A parent borrower with federal Parent PLUS loans for multiple children is still only eligible for up to $20,000 of loan forgiveness.

    But a parent is only eligible for up to $20,000 in debt relief if he or she received a Pell grant for his or her own education. If only the child received a Pell grant, the parent is eligible for up to $10,000 in forgiveness.

    Most borrowers can log in to Studentaid.gov to see if they received a Pell grant while enrolled in college. Information about Pell grants received is displayed on the account dashboard and on the My Aid page. This is also where borrowers can find out how much they owe and what kind of loans they have.

    Borrowers who received a Pell grant before 1994 won’t see their Pell grant information online, but they are still eligible for the $20,000 in student loan forgiveness.

    As long as borrowers received at least one Pell grant, they are eligible.

    The Biden administration has said that eligible borrowers who have received Pell grants will automatically receive the additional debt relief.

    Yes, defaulted federal student loans are eligible for debt relief.

    For borrowers who have a remaining balance on their defaulted student loans after the cancellation is applied, there will be an opportunity to get out of default once payments resume in January 2023 as part of what the Department of Education is calling its “Fresh Start” initiative.

    The Biden administration is facing several lawsuits over the student loan forgiveness program. Many of the plaintiffs argue that the Department of Education is overstepping its authority.

    In one case, a federal judge in Texas struck down the program on November 10, declaring it illegal. The Department of Justice has appealed the ruling to the 5th US Circuit Court of Appeals, but debt relief is on hold while that case plays out.

    Previously, the 8th US Circuit Court of Appeals put a temporary, administrative hold on the program on October 21, barring the administration from canceling loans covered under the policy while the court considers a challenge brought by six Republican-led states. The appeals court then granted an injunction on the program on November 14, which will remain in place until the appeals court, or the Supreme Court, issues a further order in the case.

    A lower court judge dismissed the lawsuit on October 20, ruling that the plaintiffs did not have the legal standing to bring the challenge.

    On the same day as the lower court dismissal, Supreme Court Justice Amy Coney Barrett rejected a separate challenge to Biden’s student loan forgiveness program, declining to take up an appeal brought by a Wisconsin taxpayers group.

    The Biden administration is also facing lawsuits from Arizona Attorney General Mark Brnovich and the Cato Institute, a libertarian think tank.

    Lawyers for the government say that Congress gave the secretary of education “expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies,” like the Covid-19 pandemic, according to a memo from the Department of Justice.

    Borrowers who have debt remaining after either $10,000 or $20,000 is wiped away could see their monthly payment amounts recalculated if they are enrolled in a standard repayment plan. Under a standard repayment plan, borrowers pay a fixed amount that ensures loans are paid off within 10 years.

    Borrowers who are already enrolled in an income-driven repayment plan are not likely to see their monthly payment amounts change due to the forgiveness, because their payments are based on household income and family size.

    Borrowers have not been required to make payments on their federal student loans since March 2020 because of the government’s pandemic-related pause. Biden has extended the pause through the end of this year, and payments will resume in January 2023.

    Along with Biden’s August announcement about canceling some federal student loan debt, he also said he would create a new plan that would make repayment more manageable for borrowers.

    There are currently several repayment plans available for federal student loan borrowers that lower monthly payments by capping them at a portion of their income.

    The new income-driven repayment plan that Biden is expected to propose would cap payments at 5% of a borrower’s discretionary income, down from 10% that is offered in most current plans, as well as reduce the amount of income that is considered discretionary. It would also forgive remaining balances after 10 years of repayment, instead of 20 years.

    Biden is also proposing that the new plan cover the borrower’s unpaid monthly interest. This could be very helpful for people whose monthly payments are so low that they don’t cover their monthly interest charge and end up seeing their balances explode, growing larger than what was originally borrowed.

    But we don’t know when these changes will take effect. The Department of Education has not provided any sense of timing, but has said it will propose a new rule to create the repayment plan. The department’s formal rule-making process usually includes soliciting public comments and can take months, if not more than a year.

    Yes. Borrowers have not been required to make payments on their federal student loans since March 13, 2020, because of the pandemic-related pause. But if borrowers did make payments, they are allowed to contact their loan servicer to request a refund.

    This story has been updated with additional information.

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  • Here’s why it may take a while for housing inflation to cool off

    Here’s why it may take a while for housing inflation to cool off

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    An ‘open house’ flag is displayed outside a single family home on September 22, 2022 in Los Angeles, California.

    Allison Dinner | Getty Images

    There are signs inflation may fall further in coming months, but housing threatens to mute any improvement.

    The consumer price index, a key barometer of inflation, rose 7.7% in October from a year ago. While still quite high by historical standards, that annual reading was the smallest since January.

    related investing news

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    Goldman Sachs expects inflation to ‘fall significantly’ in 2023

    The monthly increase was also smaller than expected — giving hope that stubbornly high inflation, and the negative impact it’s had on consumers’ wallets, may be easing.     

    Yet the cost of shelter jumped by 0.8% in October — the largest monthly gain in 32 years. That may seem counterintuitive at a time when many observers have said the U.S. is in a “housing recession.”

    But shelter inflation — as reflected in the CPI, at least — is likely to stay elevated for several months to a year given its importance in household budgets and the intrinsic dynamics of rental and housing markets, economists said.

    “As the housing market cools, this category will also ease but we may have to wait until next year before it meaningfully dampens headline inflation,” said Jeffrey Roach, chief economist for LPL Financial.

    Housing is the biggest piece of household spending

    The U.S. Bureau of Labor Statistics, which issues the CPI report, breaks the “shelter” category into four components: rent, lodging away from home (e.g., hotels), tenants’ and household insurance, and owners’ equivalent rent of residences.

    Rent and “owners’ equivalent rent” are by far the most significant.   

    The Fed is looking at the wrong housing indicators, says Wharton's Jeremy Siegel

    The latter tries to put homeowners on parity with renters. It essentially reflects what homeowners would themselves pay to rent their house, said Cristian deRitis, deputy chief economist at Moody’s Analytics.

    Housing is the single biggest chunk of spending for the average consumer. The overall CPI weighting reflects that: Shelter accounts for 33% of it, the most of any category. Shelter therefore has an outsize impact on overall inflation from month to month.

    The shelter category is up 6.9% in the last year.

    The rental and housing markets are cooling

    Busà Photography | Moment | Getty Images

    Flagging demand has led home and rental prices to cool or moderate in many areas of the U.S.

    New U.S. home listings in the month, through Nov. 6, were down 17.5% compared to the same period a year earlier, according to Redfin, a real estate brokerage. The typical sales price, $359,000, was down over 8% from its $392,000 peak in June, according to Redfin.

    Mortgage demand has fallen as rates steadily climbed to a recent peak over 7%, though rates declined sharply last week.

    More from Personal Finance:
    Why egg prices are surging — but chicken prices are falling
    3 steps to take if you lose your job
    The top 10 most-regretted college majors

    Meanwhile, rental inflation has slowed in 2022 from its breakneck pace last year, Zillow data suggests.

    Americans paid an average $2,040 market rent as of Oct. 31, according to the Zillow Observed Rent Index, which is seasonally adjusted.

    That rent price was up 0.31% from a month earlier, on Sept. 30. But the pace of that growth has slowed for four consecutive months. By comparison, rents had jumped by about 1% in the month from end-May to late June. Rental inflation touched 2% a month in July and August 2021, according to Zillow data.

    Why shelter prices lag

    The CPI for “shelter” has historically lagged home price changes by four quarters, which suggests that shelter “will continue to put upward pressure on overall inflation through the first half of 2023,” according to deRitis.

    The lag effect is largely due to how long it takes for leases to roll over into a new contract. Landlords typically renew leases every 12 months, which means current price dynamics won’t be reflected in new contracts for a year.

    In this sense, housing is somewhat of an outlier among other CPI categories. Consumers don’t agree to pay the same price for chicken or eggs for a whole year, for example.

    “Housing has some unique aspects to it,” deRitis said.

    And rent tends to be “sticky,” according to economists — which means the total dollar amount of one’s monthly rent generally doesn’t decline; it tends to stay the same or increase with each new lease.

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  • Flying home for the holidays will cost you more this year

    Flying home for the holidays will cost you more this year

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    People still looking to book trips home to visit family or take a vacation during the holidays need to act fast and prepare for sticker shock.

    Airline executives say that based on bookings, they expect huge demand for flights over Thanksgiving, Christmas and New Year’s. Travel experts say the best deals for airfares and hotels are already gone.

    On social media, plenty of travelers think they are being gouged. It’s an understandable sentiment when government data shows that airfares in October were up 43% from a year earlier, and U.S. airlines reported a combined profit of more than $2.4 billion in the third quarter.

    Part of the reason for high fares is that airlines are still operating fewer flights than in 2019 even though passenger numbers are nearly back to pre-pandemic levels.

    “Fewer flights and more people looking to head home or take vacation for the holidays means two things: Prices will be higher, and we will see flights sell out for both holidays,” says Holly Berg, chief economist for travel-data provider Hopper.

    Yulia Parr knows exactly what Berg is talking about. The Annandale, Virginia, woman struggled to find a reasonably priced flight home for her young son, who is spending Thanksgiving with his grandmother in Texas while Parr visits her husband, who is on active military duty in California. She finally found a $250 one-way ticket on Southwest, but it’s not until the Tuesday after the holiday.

    Parr figures she waited too long to book a flight.

    “My husband’s kids are flying home for Christmas,” she said. “Those tickets were bought long ago, so they’re not too bad.”

    Prices for air travel and lodging usually rise heading into the holidays, and it happened earlier this year. That is leading some travelers in Europe to book shorter trips, according to Axel Hefer, CEO of Germany-based hotel-search company Trivago.

    “Hotel prices are up absolutely everywhere,” he said. “If you have the same budget or even a lower budget through inflation, and you still want to travel, you just cut out a day.”

    Hotels are struggling with labor shortages, another cause of higher prices. Glenn Fogel, CEO of Booking Holdings, which owns travel-search sites including Priceline and Kayak, says one hotelier told him he can’t fill all his rooms because he doesn’t have enough staff.

    Rates for car rentals aren’t as crazy as they were during much of 2021, when some popular locations ran out of vehicles. Still, the availability of vehicles is tight because the cost of new cars has prevented rental companies from fully rebuilding fleets that they culled early in the pandemic.

    U.S. consumers are facing the highest inflation in 40 years, and there is growing concern about a potential recession. That isn’t showing up in travel numbers, however.

    The number of travelers going through airport checkpoints has recovered to nearly 95% of 2019 traffic, according to Transportation Security Administration figures for October. Travel industry officials say holiday travel might top pre-pandemic levels.

    Airlines haven’t always done a good job handling the big crowds, even though they have been hiring workers to replace those who left after COVID-19 hit. The rates of canceled and delayed flights rose above pre-pandemic levels this summer, causing airlines to slow down plans to add more flights.

    U.S. airlines operated only 84% as many U.S. flights as they did in October 2019, and plan about the same percentage in December, according to travel-data firm Cirium. On average, airlines are using bigger planes with more seats this year, which partly offsets the reduction in flights.

    “We are definitely seeing a lot of strength for the holidays,” Andrew Nocella, United Airlines’ chief commercial officer, said on the company’s earnings call in October. “We’re approaching the Thanksgiving timeframe, and our bookings are incredibly strong.”

    Airline executives and Transportation Secretary Pete Buttigieg blamed each other for widespread flight problems over the summer. Airline CEOs say that after hiring more pilots and other workers, they are prepared for the holiday mob.

    Travel experts offer tips for saving money and avoiding getting stranded by a canceled flight, although the advice hasn’t changed much from previous years.

    Be flexible about dates and even destinations, although that’s not possible when visiting grandma’s house. In a recent search, the cheapest flights from Los Angeles to New York around Christmas were on Christmas Eve and returning New Year’s Eve.

    Look into discount airlines and alternate airports, but know that smaller airlines have fewer options for rebooking passengers after a flight is canceled.

    Fly early in the day to lower your risk of a delay or cancellation. “If something goes wrong, it tends to progress throughout the day — it gets to be a domino effect,” says Chuck Thackston, general manager of Airlines Reporting Corp., an intermediary between airlines and travel agents.

    There are plenty of theories on the best day of the week to book travel. Thackston says it’s Sunday because airlines know that’s when many price-conscious consumers are shopping, and carriers tailor offerings for them.

    For the most part, airlines have dodged the accusations of price-gouging that have swirled around oil companies — which drew another rebuke this week from President Joe Biden — and other industries.

    Accountable US, an advocacy group critical of corporations, linked airline delays and cancellations this summer to job cuts during the pandemic and poor treatment of workers. “But generally, we would say the airline industry is not currently at the same level as big food, oil or retail in terms of gross profiteering,” says Jeremy Funk, a spokesman for the group.

    Brett Snyder, who runs a travel agency and writes the “Cranky Flier” blog about air travel, says prices are high simply because flights are down from 2019 while demand is booming.

    “How is it gouging?” Snyder asks. “They don’t want to go (take off) with empty seats, but they also don’t want to sell everything for a dollar. It’s basic economics.”

    Travelers are sacrificing to hold down the cost of their trips.

    Sheena Hale and her daughter, Krysta Pyle, woke up at 3 a.m. and left their northwestern Indiana home an hour later to make a 6:25 a.m. flight in Chicago last week.

    “We are exhausted,” Hale said after the plane landed in Dallas, where Krysta was taking part in a cheer competition. “We started early because the early flights were much cheaper. Flights are way too expensive.”

    They’re not going anywhere for Christmas.

    “We don’t have to travel. We’re staying home with family,” Hale said.

    ———

    David Koenig can be reached at www.twitter.com/airlinewriter

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  • Opinion: The judge blocking student loan relief for millions is wrong about the law | CNN

    Opinion: The judge blocking student loan relief for millions is wrong about the law | CNN

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    Editor’s Note: Steve Vladeck is a CNN legal analyst and a professor at the University of Texas School of Law. He is the author of the upcoming book “The Shadow Docket: How the Supreme Court Uses Stealth Rulings to Amass Power and Undermine the Republic.” The opinions expressed in this commentary are his own. View more opinion at CNN.



    CNN
     — 

    The legal battles over President Joe Biden’s student loan debt relief program heated up on Thursday, when the Fort Worth, Texas-based Judge Mark Pittman, a Trump appointee, struck down the program and issued a nationwide injunction purporting to block it across the country.

    Biden’s program aims to provide eligible low- and middle-income borrowers $10,000 in federal student loan forgiveness – or up to $20,000 if they also received a Pell grant while in college. Before the program was put on hold, it had already received 26 million applications.

    But for Pittman, the central problem with the program is that its sheer economic size required clearer authorization from Congress than that provided by the 2003 statute on which the executive branch is relying. Invoking the Supreme Court’s new and deeply contested “major questions doctrine,” Pittman’s ruling would, if left intact, make it impossible for the program to be rescued without Congress stepping in.

    But the biggest problem with Pittman’s ruling isn’t its substance; it’s why he allowed the case to be brought in the first place. Every other challenge to the Biden program that’s been brought thus far (and there have been a bunch) have been thrown out by trial courts – the term courts use as a shorthand for whether the dispute before them is the kind of controversy over which the Constitution allows them to exercise judicial power.

    In a nutshell, a case’s standing has three elements: That the plaintiff shows an “injury in fact”; that the injury is “fairly traceable” to the defendant’s allegedly wrongful conduct; and that the courts are able to provide at least some redress for their injuries.

    Although standing is a technical doctrine, it’s also an important one. As Justice Samuel Alito wrote in a 2007 opinion, “No principle is more fundamental to the judiciary’s proper role in our system of government.”

    Basically, the idea is that it’s not the federal courts’ job to answer hypothetical questions or resolve policy disputes. Only if a party can show how they’ve been harmed by the challenged policy in a manner that is concrete and particularized – real and discrete – will they (usually) be allowed to challenge it.

    If the complaint is just that the government is acting unlawfully in a way that doesn’t affect plaintiffs personally, that’s a matter to be resolved through the political process – not a judicial one. As Justice Antonin Scalia put it 30 years ago, “vindicating the public interest (including the public interest in Government observance of the Constitution and laws) is the function of Congress and the Chief Executive.”

    That’s why, until Thursday, each court to rule on a lawsuit challenging the Biden student loan debt relief program had dismissed the suit for lack of standing, like the St. Louis-based federal district court in a suit brought by six red states. Whether the plaintiffs were taxpayers or states, the problem was the same: Like it or hate it, when the government hands out a benefit to a class of individuals, that doesn’t usually injure other individuals discretely.

    Instead, objections to the Biden program present the classic kind of “generalized grievance” that the Supreme Court has long held federal courts lack the constitutional authority to resolve – like when a taxpayer tried to sue the CIA in an attempt to force the agency to provide a public accounting of its (allegedly unlawful) expenditures.

    Against that backdrop, Judge Pittman’s holding that the two plaintiffs in his case had standing just doesn’t hold up. For both of them – Myra Brown and Alexander Taylor – Pittman tied their standing to the fact that they are partly or fully ineligible for the program. The injury they suffered, in Pittman’s view, is that they were unable to argue for more expansive eligibility criteria that would’ve included them – not that the program itself is unlawful. That reasoning, such as it is, is especially ironic for two reasons.

    First, Pittman recognized later in the same opinion that the Biden administration didn’t need to provide Brown and Taylor with an opportunity to argue for expanded eligibility criteria – because the law the program is based on is exempt from the administrative law requirement known as “notice-and-comment rulemaking.” So they had standing based on an injury Pittman held … didn’t exist.

    Second, the rest of Pittman’s analysis – that there was no means by which the Biden administration could have expanded the eligibility criteria, since the program itself is, in his view, unlawful – makes it impossible for Brown or Taylor to show how their injuries could have been redressed by the courts. Indeed, Pittman’s ruling blocking the program on a nationwide basis provides Brown and Taylor with precisely … nothing.

    The Biden administration has already announced its intent to appeal Pittman’s ruling to the ultra-conservative US Court of Appeals for the Fifth Circuit, and it’s likely that whoever loses there will take the matter to the Supreme Court. So Pittman is unlikely to have the last word. But it’s still worth taking a step back and reflecting on the lengths to which Pittman went to find standing in a context in which every other court to date has held it doesn’t exist.

    Part of what Pittman might be chafing against is the idea that the federal government could take any action that might be immune to judicial review (during one hearing in the case, he compared Congress’ delegation of authority to the executive branch under the relevant statute to the infamous 1933 Enabling Act in Germany). But the federal government takes actions courts can’t review. Indeed, it’s the conservatives on the Supreme Court who have spent much of the past 40 years tightening the requirements for standing – and making it harder for plaintiffs to challenge allegedly wrongful government action. Reasonable minds can dispute – and have disputed – those precedents, but they’ve become the foundation of contemporary federal courts doctrine.

    In that respect, Pittman’s ruling, and the public discourse surrounding the student loan debt relief program more generally, is also a helpful reminder that not every policy dispute should lead to litigation – and that it’s not the job of the courts to resolve every contentious issue in American politics.

    For if Justice Alito was right that “no principle is more fundamental to the judiciary’s proper role in our system of government” than the idea that courts can only decide cases that present actual, justiciable controversies between adverse parties, then that principle ought to prevail even against the most strenuous (if not well-taken) objections to the government policy being challenged. Otherwise, the courts aren’t acting as courts; they’re just taking sides in policy debates that no one elected them to resolve.

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  • Investors may be whistling past the graveyard of a recession with latest rally in stocks

    Investors may be whistling past the graveyard of a recession with latest rally in stocks

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    Investors feeling giddy about last week’s sharp rally for stocks might want to give a listen to Tom Waits’ song, “Whistlin’ Past the Graveyard” from 1978, to sober up for the dangers that still lurk ahead.

    The surge in stocks catapulted the S&P 500 index
    SPX,
    +0.92%
    almost back to the 4,000 mark on Friday, also lifting it to the biggest weekly gain in roughly five months, according to Dow Jones Market Data.

    Investors showed courage on signs of a slight slowing of inflation, but the fortitude also comes as a drearier backdrop for investors has been unfolding in plain sight. Massive layoffs at big technology companies, the dramatic implosion of crypto-exchange FTX, and the day-to-day pain of high inflation and skyrocketing borrowing on businesses and households are all taking a toll.

    “We are not convinced this is the beginning of a new bull market,” said Sam Stovall, chief investment strategist at CRFA Research. “We believe that we are headed for recession. That has not been factored into earnings estimates and, therefore, share prices.”

    Stovall also said the stock market has yet to see the “traditional shakeout of confidence capitulation that we typically see that marks the end of the bear markets.”

    From Meta Platforms Inc.
    META,
    +1.03%
    to Lyft Inc.
    LYFT,
    +12.59%
    to Netflix Inc.
    NFLX,
    +5.51%
    there is a wave of major technology companies resorting to layoffs this fall, a threat that could sweep other sectors of the economy if a recession materializes.

    Yet, information technology stocks in the S&P 500 jumped 10% for the week, while financials, which stand to benefit from higher interest rates, rose 5.7%, according to FactSet.

    That could reflect optimism about the odds of a slower pace of Federal Reserve rate hikes in the months ahead, after sharp rate rises helped to undermine valuations and pull tech stocks dramatically lower in the past year. However, Loretta Mester, president of the Cleveland Fed, and other Fed officials since the October inflation reading on Thursday have reiterated the need to keep rates high, until 7.7% annual rate finds a clearer path to the central bank’s 2% target.

    The stock-market rally also might suggest that investors view continued mayhem in the crypto sector as contained, despite bitcoin
    BTCUSD,
    +0.42%
    trading near its lowest level in two years and the shocking collapse in recent days of FTX, once the world’s third-largest cryptocurrency exchange.

    Read: FTX’s fall: ‘This is the worst’ moment for crypto this year. Here’s what you should know.

    What happens to stocks in recessions

    Blows to the American economy rarely have been good for stocks. A look at seven past recessions, starting in 1969, shows declines for the S&P 500 as more typical than gains, with its most violent drop occurring in the 2007-2009 recession.

    The more than 37% drop of the S&P 500 from 2007 to 2009 was the worst of its kind in a recession since the late 1960s.


    Refinitiv data, London Stock Exchange Group

    While a looming U.S. recession isn’t a foregone conclusion, CEOs of America’s biggest banks have been warning about the risks for months. JP Morgan Chase’s Jamie Dimon said in October that a “tough recession” could drag the S&P 500 down another 20%, even though he also said consumers were doing fine, for now.

    Still, the steady stream of warnings about the recession odds have left many Americans confused and wondering if one can even happen without an increase in job losses.

    Big moves lately in stocks also have been hard to decode, given the economy was shocked back to life in the pandemic by trillions of dollars in fiscal stimulus and easy-money policies from the Fed that are now being reversed.

    “What I think goes unnoticed, certainly by the average person, is that these moves are not normal,” said Thomas Martin, senior portfolio manager at Globalt Investments, about stock swings this week.

    “It’s all about who is positioned how — and for what — and how much leverage they’re employing,” Martin told MarketWatch. “You get these outsized moves when people are offside.”

    Here’s a view of the sharp trajectory upward of the S&P 500 since 2010, but also its dramatic drop this year.

    Sharp rise of S&P 500 since 2010, but recent fall


    Refinitiv Datastream

    While Martin isn’t ruling out the potential for a seasonal “Santa Claus” rally heading into year-end, he worries about a potential leg lower for stocks next year, particularly with the Fed likely to keep interest rates high.

    “Certainly what’s being priced in now is either no recession or a very, very mild recession,” he said .

    However, Kristina Hooper, Invesco’s chief global market strategist, said the overarching story might be one of stocks sniffing out the first steps in a path to economic recovery, and the Fed potentially stopping its rate hikes at a lower “terminal” rate than expected.

    The Fed increased its benchmark interest rate to a 3.75% to 4% range in November, the highest in 15 years, but also has signaled it could top out near 4.5% to 4.75%.

    “If often happens that you can see stocks do well, in a less-than-good economic environment,” she said.

    The S&P 500 rose 4.2% for the week, while the Dow Jones Industrial Average
    DJIA,
    +0.10%
    gained 5.9%, posting its best weekly gain since late June, according to Dow Jones Market Data. The Nasdaq Composite Index shot up 8.1% for the week, its best weekly stretch in seven months.

    In U.S. economic data, investors will get an update on household debt on Tuesday, retail sales and homebuilder data on Wednesday, followed by jobless claims and housing starts data Thursday. Friday brings existing home sales.

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  • Average long-term US mortgage rate back above 7% this week

    Average long-term US mortgage rate back above 7% this week

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    WASHINGTON — The average long-term U.S. mortgage rate returned to the 20-year highs of two weeks ago when rates breached 7% for the first time since 2002.

    Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate rose to 7.08% from 6.95% last week. A year ago the average rate was 2.98%.

    The rate for a 15-year mortgage, popular with those refinancing their homes, climbed to 6.38% from 6.29% last week. It was 2.27% one year ago.

    Last week, the Federal Reserve raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its key rate now stands in a range of 3.75% to 4%.

    More increases are likely coming, though there is some hope that the Fed will dial them down as more evidence comes in that prices have peaked.

    The Labor Department reported Thursday that consumer inflation reached 7.7% in October from a year earlier, the smallest year-over-year rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3% in the past 12 months. The numbers were all lower than economists had expected.

    Thursday’s report raised the possibility that the Fed could decide to slow its rate hike, a prospect that sent stock prices jumping as soon as the data was released.

    Two weeks ago, the average long-term U.S. mortgage rate topped 7% for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.

    Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. Additionally, many homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.

    The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin on Wednesday said it was cutting 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.

    Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.

    Another online real estate broker, Compass, has laid off hundreds of workers this year.

    While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

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  • Binance Intends On Buying FTX – Here’s What’s In The Tentative Deal

    Binance Intends On Buying FTX – Here’s What’s In The Tentative Deal

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    Cryptocurrency exchange Binance may soon acquire rival FTX, according to a tweet by Binance CEO Changpeng Zhao.

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  • Consumers are cutting back on holiday gift buying amid higher inflation

    Consumers are cutting back on holiday gift buying amid higher inflation

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    Inflation is weighing heavily on the holidays this year.

    Roughly half of shoppers will buy fewer things due to higher prices, and more than one-third said they will rely on coupons to cut down on the cost, according to a recent survey of more than 1,000 adults by RetailMeNot.

    Though the study found many consumers are also eager to get an early start on seasonal shopping, that surge is largely driven by concerns about affordability and money-saving strategies, other reports show.

    “Inflation is, by far, the biggest issue for households this year,” said Tim Quinlan, senior economist at Wells Fargo and author of its 2022 holiday sales report.

    More from Personal Finance:
    Free returns may soon be a thing of the past
    Affluent shoppers embrace secondhand shopping
    These steps can help you tackle stressful credit card debt

    Household finances have taken a hit with a lower savings rate and declining real wages, which could slow holiday sales, Quinlan said.

    “The bottom line is, with inflation remaining a headache, dollars aren’t stretching as far, and most consumers will still be looking for bargains,” Quinlan said.

    A separate report by BlackFriday.com also found that 70% of shoppers will be taking inflation into consideration when shopping this holiday season, and even more will be on the lookout for deals.

    People are trying to economize and make the most of what they have.

    Cecilia Seiden

    vice president of TransUnion’s retail business

    Roughly 25% of consumers said they would opt for cheaper versions or more practical gifts, such as gas cards, according to TransUnion’s holiday shopping survey.

    “People are trying to economize and make the most of what they have,” said Cecilia Seiden, vice president of TransUnion’s retail business.

    Still, households will shell out $1,455, on average, on holiday gifts, in line with last year, a separate retail report by Deloitte found. 

    How to avoid going into debt this holiday

    Shoppers at the Willow Grove Park Mall in Willow Grove, Pennsylvania, on Nov. 14, 2020.

    Mark Makela | Reuters

    “Remember to not put yourself in debt over holiday shopping,” cautioned Natalia Brown, chief client operations officer at National Debt Relief. “Debt prevents people from reaching their financial goals — like building an emergency fund, buying a home and saving for retirement.”

    Holiday spending could come at a higher cost if it means tacking on additional credit card debt just as the Federal Reserve raises interest rates to slow inflation, Quinlan added. 

    Annual percentage rates are currently near 19%, on average, an all-time high, according to Ted Rossman, a senior industry analyst at CreditCards.com.

    That will leave consumers worse off heading into 2023, Quinlan explained.

    “In many ways we view this year’s holiday shopping season as the last hurrah,” he said.

    Subscribe to CNBC on YouTube.

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  • Q&A: A look at $1.9B Powerball jackpot, how it grew so large

    Q&A: A look at $1.9B Powerball jackpot, how it grew so large

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    DES MOINES, Iowa — Monday night’s estimated $1.9 billion Powerball jackpot is nearly $400 million larger than the previous record jackpot and will keep growing until someone finally wins the prize.

    The jackpot started at $20 million back on Aug. 6 and over three winless months has grown to be 95 times as large. Put another way, it’s a crazy amount of money.

    WHY SO LONG WITHOUT A WINNER?

    Those who spend $2 on a Powerball ticket might wonder if something is wrong when 40 drawings pass without a jackpot winner, but this is how the game is designed. With odds of 1 in 292 million, that means it’s unlikely anyone will win the prize until a growing jackpot attracts more players. And more ticket sales mean the lottery can raise more money for public programs, which is the point of the state lotteries. Still, it has been an awful long time without a jackpot, and if there isn’t a winner Monday night, a new record will have been reached: 41 draws without anyone matching all six numbers.

    PLENTY OF PEOPLE MUST BE PLAYING NOW, RIGHT?

    Yes and no. Many, many more people are buying tickets now that the jackpot has reached nearly $2 billion. That’s clear from the fact that when the jackpot started at $20 million in the summer, players bought only enough tickets to cover less than 10% of the 292.2 million possible number combinations. For Saturday night’s drawing, that had climbed to 62%, so millions and millions of people are playing. But that percentage is still less than the 88.6% coverage reached for the previous record jackpot in 2016. And if 38% of the possible number combinations aren’t covered, there is a good chance there won’t be a winner.

    WILL THE EVENTUAL WINNER REALLY GET $1.9 BILLION?

    Pity the poor Powerball winner, as the lucky ticketholder will see nothing close to $1.9 billion. It’s only a question of how much less.

    First, that $1.9 billion prize is for winners who choose payment through an annuity, which sends out a check annually for 29 years, with a 5% increase each year. But almost no winners take the annuity, instead opting for cash. For Monday night’s drawing, the cash prize would be $929.1 million, or less than half the annuity prize.

    Federal taxes would take an additional bite, lessening the payout by more than one-third, and many states tax lottery winnings would as well.

    The difference between the annuity and cash prizes has grown larger recently because inflation has resulted in higher interest rates, which means money invested in the annuity can grow.

    DO I HAVE A BETTER CHANCE OF WINNING IF I BUY MORE TICKETS?

    Yes, but your odds of winning aren’t significantly improved. Think of it this way: If you buy one ticket, you have a 1 in 292.2 million chance of winning the jackpot. If you spend $10 for five number combinations, your chances are better, but at 5 in 292.2 million you still almost undoubtedly are not going to hit the jackpot. The same is true if you spend $100. Lottery officials say the average player buys two or three tickets, meaning they’re putting money down on a dream with very little chance it will pay off in a rich reality.

    WHERE IS POWERBALL PLAYED?

    Powerball is played in 45 states, as well as Washington, D.C., Puerto Rico and the U.S. Virgin Islands.

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  • Supreme Court again declines to block Biden’s student loan relief plan

    Supreme Court again declines to block Biden’s student loan relief plan

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    Supreme Court nominee and U.S. Court of Appeals Judge Amy Coney Barrett on Capitol Hill in Washington, October 21, 2020.

    Ken Cedeno | Reuters

    The Supreme Court on Friday rejected a second request to block the Biden administration’s student loan debt relief program.

    Justice Amy Coney Barrett denied an emergency application to block the program brought Tuesday by the Pacific Legal Foundation, a conservative legal group, on behalf of two borrowers in Indiana.

    On Oct. 20, Barrett rejected a similar request from the Brown County Taxpayers Association in Wisconsin.

    Barrett is responsible for such applications issued from cases in the 7th U.S. Circuit Court of Appeals, which includes Indiana and Wisconsin.

    Friday’s decision has little practical effect. For now, student loan forgiveness remains on hold from a challenge brought by six Republican-led states. An appeals court judge in the 8th Circuit in October granted the states’ emergency petition to stay the plan pending consideration of the states’ appeal.

    More from Personal Finance:
    Treasury announces new Series I bond rate of 6.89%
    Education Department to reduce ‘red tape’ on public service loan forgiveness
    26 million borrowers have applied for student loan forgiveness

    Since the White House in August unveiled its plan — to cancel $10,000 in student loans for most borrowers and up to $20,000 for those who received Pell Grants for low-income families — it has faced at least six lawsuits.

    Close to 26 million Americans have already applied for student loan forgiveness, and the Biden administration has approved 16 million of the requests, the White House said Thursday. The administration has continued to encourage borrowers to apply for relief despite the recent challenges.

    Caleb Kruckenberg, an attorney at Pacific Legal Foundation, in an emailed statement said, “We’re disappointed by today’s denial but will continue to fight this program in court.”

    “Practically since this program was announced, the administration has sought to avoid judicial scrutiny,” Kruckenberg said. “Thus far they have succeeded. But that does not change the fact that this program is illegal from stem to stern.”

    ‘Standing’ remains an issue for forgiveness challenges

    The main obstacle for those hoping to foil the president’s action has been finding a plaintiff who can prove they’ve been harmed by the policy, experts say.

    “Such injury is needed to establish what courts call ‘standing,’” Laurence Tribe, a Harvard law professor, recently told CNBC. “No individual or business or state is demonstrably injured the way private lenders would have been if, for instance, their loans to students had been canceled.”

    In that light, Barrett’s decision to reject the Pacific Legal Foundation’s request isn’t surprising, said higher education expert Mark Kantrowitz.

    “There were very few substantive differences between their original lawsuit and the new lawsuit, which spells a lack of legal standing,” he said.

    In the Pacific Legal Foundation case, Indiana-based plaintiffs Frank Garrison and Noel Johnson said that they would be financially harmed if some of their student debt was automatically forgiven because they would incur state taxes on that canceled debt.

    Indiana is one of several states that has said forgiveness would be taxable at the state level, and potentially the county level.

    Both Garrison and Johnson are lawyers; Garrison works for the Pacific Legal Foundation and Johnson for the Public Interest Legal Foundation. They are pursuing relief through the public service loan forgiveness program, which allows those who work for the government or specific nonprofits to get their debt canceled after 10 years, or 120 payments. PSLF forgiveness is not considered taxable income.

    After the initial lawsuit, the Education Department said that borrowers can opt out if they do not want to have their loans forgiven.

    Student loan borrowers ‘in limbo’

    As legal challenges mount, financial advisors say borrowers are left wondering where student loan forgiveness stands.

    “The interference of the courts is really troubling because people are looking for certainty with what’s happening with their student loans,” said Ethan Miller, a certified financial planner and founder of Planning for Progress in the Washington, D.C., area. Miller specializes in clients with student loans.

    “There was a plan that clearly outlined the steps,” he said. “And yet everyone’s been put in limbo.”

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  • Latest News – MarketWatch

    Latest News – MarketWatch

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    Monthly U.S. job growth slows to 261,000 from 315,000; unemployment rate 3.7%

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  • How to Make Money on Airbnb

    How to Make Money on Airbnb

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    Opinions expressed by Entrepreneur contributors are their own.

    Investing in real estate is good for people who want to make money work for them. And this is because, with real estate investments, you can buy a property and use it to earn more. Now there are many ways to use an acquired property for profit. But perhaps the ones that are gaining more traction are short-term rentals on Airbnb.

    But what is Airbnb?

    If you’re an avid vacationer, you’ve probably heard of the app that can connect you with people who will let you stay on their property for a period of time. This app, called “Air Bed and Breakfast” or Airbnb, was launched by two industrial designers who moved to San Francisco in 2008.

    They couldn’t afford to pay rent for their apartment during this time, so they decided to earn extra by letting people who couldn’t find hotels rent their space temporarily. And long story short, their strategy became a massive hit because it expanded into a vast network of 4 million hosts worldwide. And up until today, their platform continues to create more opportunities for hosts and real estate investors in general.

    Related: Airbnb CEO: It Took Us 12 Years to Build, and We Lost Almost Everything in 6 Weeks

    Long-term vs. short-term rentals

    Real estate investments include property rentals, and there are two main ways to earn from them: Long-Term Rentals and Short-Term Rentals. When I started as a real estate investor in 2012, all my properties were long-term rentals. But in 2017, I transitioned all of them to short-term ones, most of them through Airbnb.

    Why? There were a lot of factors that made me decide to go all-in with Airbnb:

    1. You make less money on long-term rentals.

    Did you know that when done correctly, you can make a $2,000 average monthly profit on Airbnb? Of course, many things must be considered to get to this number. Plus, you can make less or more than this amount every month.

    But the point is, with Airbnb short-term rentals, you can determine your price, and no other person has a say. You can’t do this with traditional long-term rentals. With long-term rentals, you can only set a fixed amount and increase your rent by 3% to 5% a year.

    2. You are under bigger obligations as the landlord.

    There are several things to consider when hosting a long-term rental, and one of those is that your tenants may never deep clean or take care of repairs on your property. The reason is simple: they won’t be staying there forever. Ultimately, the obligation still falls on your shoulders.

    Another fact worth mentioning is that you won’t be able to evict your tenants easily. Now, the stipulations change from city to city and state to state, but typically after 30 days of staying, your guests acquire certain rights.

    Case in point: In 2020, the government passed an Eviction Moratorium where landlords are not allowed to evict their tenants on the grounds of non-payment. This was, of course, helpful for a lot of tenants all over the country. But now, some landlords are still owed thousands of dollars in back rent, and they may never get the chance to go after them again.

    3. With Airbnb short-term rentals, you don’t have to work like an employee.

    Short-term rentals are passive in nature, which means that if you have a property, you can still earn even if you’re not around. Add this to Airbnb’s online platform, and your market potential gets wider.

    But here’s the thing: you may still be trapped by working around the clock to manage your listing. Thankfully, there is a way to build a system and create a team that operates the business on your behalf. We use this innovative business model with Airbnb, which has since accelerated our cash flow and offered tremendous growth.

    4. You don’t have to buy properties to get started.

    If you’re familiar with cash flow goals for long-term rentals, you’ve probably heard that the aim is to earn $200 per unit per month. This is all well and good, but if you’re trying to replace a job that gives you $5,000/month, this income won’t give you much. You still need to own at least 25 units to get there.

    So what you can do instead is to buy a couple of units, give them a nightly rate, and launch them on the platform to start getting bookings and recover your returns faster.

    But what if you don’t own properties and still want to do Airbnb? Well then, all you need to do is apply the Arbitrage Model.

    The Arbitrage Model, also called subleasing, is where you rent properties from other landlords, get their permission in writing, and then launch their property as your short-term rental on Airbnb. Yes, this strategy is perfectly legal and lets you start a business without buying properties.

    Related: How to Make Money Online: The Basics

    Are there other ways to start an Airbnb, even if you don’t own properties?

    Yes. Aside from subleasing, there are two more ways to launch an Airbnb business without much capital.

    1. Co-hosting

    With the co-hosting strategy, you don’t have to buy or own properties because all you have to do is to manage and help hosts manage their listings. This method allows you to learn more about the business and earn.

    2. Using O.P.M (Other People’s Money)

    A balance transfer is when you transfer the money available on your credit card into your checking account. You can then use this money to sublease a property and start your own Airbnb business without using any of your money.

    Airbnb is a great platform for real estate investors. Its innovative business model will allow you to create positive cash flow, get started even if you don’t own properties yet, and enjoy the time, location, and financial freedom that most people only dream about.

    Related: How to Start a Business with Only $1,000

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    Jorge Contreras

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  • Tim Cook has been an excellent leader for Apple — these numbers prove it

    Tim Cook has been an excellent leader for Apple — these numbers prove it

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    How good is a company’s chief executive officer at investing your money most efficiently? This is an important question for long-term investors. It may underline the difference between a steady long-term performer and a flash in the pan.

    And Apple Inc.
    AAPL,
    -4.24%
    now makes up 7% of the SPDR S&P 500 ETF Trust
    SPY,
    -1.03%    ,
    the first and largest exchange-traded fund (with $360 billion in assets), which tracks the benchmark S&P 500
    SPX,
    -1.06%    .
    That’s close to an all-time record, and the iPhone maker has a whopping 14.1% position in the Invesco QQQ Trust
    QQQ,
    -1.95%    ,
    which tracks the Nasdaq-100 Index
    NDX,
    -1.98%    .
    Looking at the full Nasdaq Index
    COMP,
    -1.73%    ,
    which has 3,747 stocks, Apple takes a 13.5% position.

    Apple now makes up 7.3% of the S&P 500 by market capitalization, close to the 8% record it set late in September.


    FactSet

    This is very much an Apple stock market, with the company topping the broad indexes that are weighted by market capitalization. You are likely to be invested in the company indirectly. You also might be feeling Apple’s impact in other ways. Apple’s App Store ecosystem drives more than $600 billion in annual revenue for developers.

    Tim Cook’s tenure as Apple’s CEO has been nothing short of breathtaking when measured by the company’s financial performance. Apple is not one of the fastest-growing companies when measured by sales or earnings — it is too big for that. But its excellent stock performance has reflected Cook’s ability to deploy invested capital with improving efficiency. Cook has also been a market trendsetter in other important ways. He has Apple repurchasing $90 billion of its shares annually, setting the pace for stock buybacks in the market. Cook’s steady hand has also helped Apple withstand the market’s tech wreck and remain a stable pillar for the teetering Nasdaq Composite index generally. For all these reasons, Cook has earned a spot on the MarketWatch 50 list of the most influential people in markets. 

    Apple keeps improving by this important measure

    Investors in the stock market are looking for growth over the long term. The best measure of that is whether or not a company’s share price goes up or down. But Cook isn’t just managing Apple’s stock. Digging a bit deeper into the company’s actual operating performance can provide some insight into what a good job Cook has done.

    What should a corporate manager focus on? The stock price? How about the most efficient and most profitable way to provide goods and services? There are different ways to do this, and Apple has focused on quality, reliability and excellent service to build customer loyalty.

    Apple’s commitment can be experienced by anyone who calls the company for customer service. It is easy to get through to a well-trained representative who will solve your problem. How many companies can say that at a time when it seems many companies cannot even handle answering the phone? 

    Getting back to actual performance, Cook took over as Apple’s CEO in August 2011 when Steve Jobs stepped down. The chart below shows the company’s quarterly returns on invested capital from the end of 2010 through September 2022.

    Apple’s returns on invested capital have increased markedly over the past six years.


    FactSet

    A company’s return on invested capital (ROIC) is its profit divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations. ROIC indicates how well a company has made use of the money it has raised to run its business. It is an annualized figure, but available quarterly, as used in the chart above.

    The carrying value of a company’s stock may be a lot lower than its current market capitalization. The company may have issued most of its shares long ago at a much lower share price than the current one. If a company has issued shares recently or at relatively high prices, its ROIC will be lower.

    A company with a high ROIC is likely either to have a relatively low level of long-term debt or to have made efficient use of the borrowed money.

    Among companies in the S&P 500 that have been around for at least 10 years, Apple placed within the top 20 for average ROIC for the previous 40 reported fiscal quarters as of  Sept. 1.

    As you can see on the chart, Apple’s ROIC has improved dramatically over the past five years, even as the wide adoption of the company’s products and services has led to an overall slowdown in sales growth.

    A quick comparison with other giants in the benchmark index

    It might be interesting to see how Apple stacks up among other large companies, in part because some businesses are more capital-intensive than others. For example, over the past four quarters, Apple’s ROIC has averaged 52.9%, while the average for the S&P 500 has been a weighted 12.1%, by FactSet’s estimate.

    Here are the 10 companies in the S&P 500 reporting the highest annual sales for their most recent full fiscal years, with a comparison of average ROIC over the past 40 reported quarters:

    Company

    		 Ticker

    		 Annual sales ($mil)

    		 Avg. ROIC – 40 quarters

    		 Total Return – 10 Years
    Walmart Inc.

    		 WMT,
    -0.02%         		$572,754

    		 11.0%

    		 142%
    Amazon.com Inc.

    		 AMZN,
    -3.06%         		$469,822

    		 6.8%

    		 693%
    Apple Inc.

    		 AAPL,
    -4.24%         		$394,328

    		 33.0%

    		 721%
    CVS Health Corp.

    		 CVS,
    +1.03%         		$291,935

    		 6.8%

    		 161%
    UnitedHealth Group Inc.

    		 UNH,
    +0.03%         		$287,597

    		 13.7%

    		 1,031%
    Exxon Mobil Corp.

    		 XOM,
    +1.36%         		$280,510

    		 9.9%

    		 85%
    Berkshire Hathaway Inc. Class B

    		 BRK.B,
    -1.94%         		$276,094

    		 8.2%

    		 233%
    McKesson Corp.

    		 MKC,
    -0.61%         		$263,966

    		 6.6%

    		 353%
    Alphabet Inc. Class A

    		 GOOGL,
    -4.07%         		$257,488

    		 16.6%

    		 405%
    Costco Wholesale Corp.

    		 COST,
    +0.57%         		$226,954

    		 16.2%

    		 558%
    Source: FactSet

    Among the largest 10 companies in the S&P 500 by annual sales, Apple takes the top ranking for average ROIC over the past 10 years, while ranking second for total return behind UnitedHealth Group Inc.
    UNH,
    +0.03%
    and ahead of Amazon.com Inc.
    AMZN,
    -3.06%    .
    UnitedHealth has been able to remain at the forefront of managed care during the period of transition for healthcare in the U.S., in the wake of President Barack Obama’s signing of the Affordable Care Act into law in 2010.

    Here’s a chart showing 10-year total returns for Apple, UnitedHealth Group, Amazon and the S&P 500:


    FactSet

    Apple is only slightly ahead of Amazon’s 10-year total return. But what is so striking about this chart is the volatility. Apple has had a smoother ride. During the bear market of 2022, Apple’s stock has declined 18%, while the S&P 500 has gone down 20%, the Nasdaq has fallen 32% (all with dividends reinvested) and Amazon has dropped 45%.

    The broad indexes would have fared even worse so far this year without Apple.

    TO SEE THE FULL MARKETWATCH 50 LIST CLICK HERE

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  • Inflation puts tighter squeeze on already pricey kids sports

    Inflation puts tighter squeeze on already pricey kids sports

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    It only took a few seconds for Rachel Kennedy to grab her phone after she left the checkout line at the sporting-goods store, where she had just finished buying a new glove, pants, belt, cleats and the rest of the equipment for her son, Liam’s, upcoming baseball season.

    “I texted his dad and asked him, ‘Did we really spend $350 on all this last year?’” Kennedy said.

    Sticker shock in youth sports is nothing new, but the onslaught of double-digit inflation across America this year has added a costly wrinkle on the path to the ballparks, swimming pools and dance studios across America. It has forced some families, like Kennedy’s, to scale back the number of seasons, or leagues, or sports that their kids can play in any given year, while motivating league organizers to become more creative in devising ways to keep prices down and participation up.

    Recent studies, conducted before inflation began impacting daily life across America, showed families spent around $700 a year on kids’ sports, with travel and equipment accounting for the biggest portion of the expense.

    Everyone from coaches to swim-meet coordinators are struggling to to find less-expensive ways of keeping families coming through the doors. Costs of uniforms and equipment, along with facility rental, are shooting up — all products of the onslaught of supply-chain issues, hard-to-find staff, lack of coaches and rising gas and travel costs that were exacerbated, or sometimes caused, by the COVID-19 pandemic that disrupted and sometimes canceled seasons altogether. The annual inflation rate for the 12 months ending in September was 8.2%.

    Kennedy, who lives in Monroe, Ohio, and describes her family as “on the lower end of middle class,” opted Liam out of summer and fall ball, not so much because of the fees to join the leagues but because “those don’t include all the equipment you need.”

    “And gas prices have gotten to the point where we don’t have the bandwidth to drive one or two hours away” for the full slate of weekend games and tournaments that dot the typical youth baseball schedule each season. The Kennedys rarely stayed the night in hotels for multi-day tournaments.

    A study published by The Aspen Institute that was conducted before COVID-19 said on average across all sports, parents already spent more each year on travel ($196 per child, per sport) than any other facet of the sport: equipment, lessons, registration, etc. A number of reports say hotel prices in some cities are around 30% higher than last year, and about the same amount higher than in 2019, before the start of the pandemic.

    At the venues, it costs more to hire umpires to call the games, groundskeepers to keep fields ready, janitors to clean indoor venues and coaches to run practices. Even sports that are traditionally on the less-expensive end of the spectrum are running into issues.

    “You talk to people and you say ‘What do you mean you get $28 an hour to be a lifeguard?’” said Steve Roush, a former leader in the Olympic world who now serves as executive director of Southern California Swimming, which sanctions meets across one of America’s most expensive regions. “The going rate has just gone through the roof, and that’s if you can find somebody at all. And that accounts for part of the big gap” in prices for swimming meets today versus three years ago.

    One Denver-area dance studio director, who did not want her name used because of the competitive nature of her business, said she started looking for new uniform suppliers as a way of keeping costs down for families. Some destinations for the two out-of-state competitions that are typical in a given season have been shifted to cities that have more — and, so, less expensive — flight options. Some of those teams only make a third trip, this one to a major competition, if it receives a “paid” invitation.

    “The cost is just so much to ask them to travel a third time,” the director said. “And oftentimes you don’t know that you’re getting that bid until February or March and you have to turn around and travel to it in April, and that turnaround just makes it very hard from an expense standpoint.”

    At stake is the future of a youth-sports industry that generated around $20 billion, according to one estimate, before COVID-19 sharply curtailed spending in 2020.

    Also, inflation is giving some families a chance to revisit an issue that first came up when COVID-19 more or less canceled all youth leagues for a year or more.

    “There was some optimism that maybe families would be like, ‘OK, let’s maybe have a more balanced approach to how we’re going to participate in sports,’” said Jennifer Agans, an assistant professor at Penn State who studies the impact of youth sports. “But until this economic wave, everyone was so excited to go back to normal that we forgot the lessons we learned from slowing our lives down. Maybe this gives another chance to reevaluate that.”

    It’s a choice not everyone wants to make, but still one that is being imposed more on people in the middle and lower class. Another Aspen Institute report from before the pandemic concluded children from low-income families were half as likely to play sports as kids from upper-income families.

    Kennedy said she has long been fortunate to have a supportive family — including grandparents who chip in to defray some costs of Liam’s baseball. But some things had to go. A spot on a travel team can reach up to $1,200, and that’s before equipment and travel, “and we just don’t have that kind of money,” Kennedy said.

    Still, Liam loves baseball and sitting it out altogether wasn’t a real choice.

    “It’s the whole parental, ‘I’ll go hungry to make sure my kids get what they need’ situation,’” Kennedy said. “So if I give up my Starbucks, or some little extras for me, then it’s worth it to make sure he gets to play. But it’s certainly not getting any less expensive.”

    ———

    AP sports: https://apnews.com/hub/sports and https://twitter.com/AP—Sports

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  • Biden spending $4.5 billion to help lower home heating costs

    Biden spending $4.5 billion to help lower home heating costs

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    WASHINGTON — The Biden administration said Wednesday it is making $4.5 billion available through a low-income home energy assistance program to help with heating costs heading into what is expected to be a brutal winter.

    Spending for the program is significantly higher than the typical annual funding of about $3.5 billion, but far below the $8 billion the administration and congressional Democrats delivered last winter as part of President Joe Biden’s coronavirus relief package.

    The money spent last year was by far the largest appropriation in a single year since the Low Income Home Energy Assistance Program was established in 1981.

    The money will be provided to state, local and tribal governments to help more than 5 million families pay heating and utility bill costs, and can also be used to make home energy repairs.

    “One of the best ways a family can reduce their energy bill is to make their home more energy efficient,” Vice President Kamala Harris told a crowd at a union hall in Boston.

    “But here’s the challenge for many homeowners — many folks who are here today — you know that energy efficiency upgrades are expensive,” she said. “And even though we know it can save you thousands of dollars in the long run, the upfront cost is often too high for so many families to be able to afford.”

    By helping families improve energy efficiency, “we are also lowering energy bills, bringing down household costs, creating jobs and fighting the climate crisis,” Harris said.

    In New England, one of the major utilities has already announced a 60% price hike for electricity this winter. Utilities are also seeking price hikes for natural gas and home heating oil, citing the war in Ukraine and inflation. The top executive of Eversource Energy, New England’s largest energy provider, warned Biden last week that the region may not have enough power if a severe cold spell hits this winter.

    “This represents a serious public health and safety threat,” Eversource CEO Joseph Nolan told Biden, urging the president to use emergency powers to ensure adequate fuel resources in the region.

    The announcement of heating assistance comes in the waning days before Tuesday’s elections that will determine which party controls Congress. Democrats are trying to contrast their efforts to help middle and low-income people through the $1 trillion infrastructure law and other legislative measures with Republican suggestions they would use the debt limit as leverage for cuts to Social Security and Medicare benefits and other federal programs.

    “As heating costs increase, it is more important than ever to help families struggling to make ends meet,″ said Health and Human Services Secretary Xavier Becerra.

    Across the country, families are looking to the winter with dread as energy costs soar and fuel supplies tighten. The LIHEAP program served more than 5.3 million households last year, and a similar number are expected to participate this year.

    The Energy Department is projecting sharp price increases for home heating compared with last winter. Some worry that heating assistance programs will not be able to make up the difference for struggling families. The situation is even bleaker in Europe, where supply constraints caused by Russia’s invasion of Ukraine are pushing natural gas prices upward and causing painful shortages.

    In a related announcement, the Energy Department said Wednesday it will begin allocating $9 billion approved under the new climate and health law for a program aimed at supporting energy upgrades to 1.6 million households over the next 10 years. Officials expect to make funding available starting next year to states and tribes to better protect homes against the weather and install some 500,000 new heat pumps.

    The White House also said it is spending $250 million from the Defense Production Act to boost domestic production of heat pumps, which are primarily made in Europe and Asia.

    ———

    Associated Press writers Chris Megerian in Boston and Colleen Long in Washington contributed to this report.

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  • Here’s what the Federal Reserve’s fourth 0.75 percentage point interest rate hike means for you

    Here’s what the Federal Reserve’s fourth 0.75 percentage point interest rate hike means for you

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    The Federal Reserve raised the target federal funds rate by 0.75 percentage point for the fourth time in a row on Wednesday, marking an unprecedented pace of rate hikes.

    The U.S. central bank has raised the benchmark short-term borrowing rate a total of six times this year, including 75 basis point increases in June, July and September, in an effort to cool down inflation, which is still near 40-year highs and causing most consumers to feel increasingly cash strapped. A basis point is equal to 0.01 of a percentage point.

    A policy statement after the announcement noted that the Fed is considering the “cumulative” impact of its hikes so far when determining future rate increases. Economists are hoping this signals plans to “step-down” the pace of increases going forward, which could mean a half point hike at the December meeting and then a few smaller raises in 2023. Still, stocks tumbled after Federal Reserve Chair Jerome Powell said there were more rate hikes ahead.

    “Americans are under greater financial strain, there’s no question,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist of the Securities and Exchange Commission.

    More from Personal Finance:
    How Fed’s interest rate hikes made borrowing costlier
    Tips to help stretch your paycheck amid high inflation
    ‘Ugly times’ are pushing record annuity sales

    However, “as the Fed tightens, this also has adverse effects on everyday Americans,” he added.

    What the federal funds rate means to you

    The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

    By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases. 

    Inflation hit a new high since 1981. What is inflation and what causes it?

    “Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain,” said Greg McBride, Bankrate.com’s chief financial analyst.

    Already, “mortgage rates have rocketed to 16-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs,” he said.

    How higher rates affect borrowers

    • Mortgage rates are already higher. Even though 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a home has lost considerable purchasing power, in part because of inflation and the Fed’s policy moves.

    Along with the central bank’s vow to stay tough on inflation, the average interest rate on the 30-year fixed-rate mortgage hit 7%, up from below 4% back in March.

    On a $300,000 loan, a 30-year, fixed-rate mortgage at December’s rate of 3.11% would have meant a monthly payment of about $1,283. Today’s rate of 7.08% brings the monthly payment to $2,012. That’s an extra $729 a month or $8,748 more a year, and $262,440 more over the lifetime of the loan, according to LendingTree.

    The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 35% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $200,000 today.”

    For home buyers, “adjustable-rate mortgages may continue to be more popular among consumers seeking lower monthly payments in the short term,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “And consumers looking to tap into available home equity may continue to look towards HELOCs,” she added, rather than refinancing.

    Yet adjustable-rate mortgages and home equity lines of credit are pegged to the prime rate, so those will also increase. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.3% from 4.24% earlier in the year.

    • Credit card rates are rising. Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does as well, and your credit card rate follows suit within one or two billing cycles.

    That means anyone who carries a balance on their credit card will soon have to shell out even more just to cover the interest charges. “This latest interest rate hike will most acutely impact those consumers who do not pay off their credit card balances in full through higher minimum monthly payments,” Raneri said.

    Because of this rate hike, consumers with credit card debt will spend an additional $5.1 billion on interest, according to an analysis by WalletHub. Factoring in the rate hikes from March, May, June, July, September and November, credit card users will wind up paying around $25.6 billion more in 2022 than they would have otherwise, WalletHub found.

    Already credit card rates are near 19%, up from 16.34% in March. “That’s the highest since the Fed began tracking in 1994 and is more than a full percentage point higher than the previous record set back in 2019,” according to Matt Schulz, chief credit analyst at LendingTree. And rates are only going to continue to rise, he said. “We’ve still got a ways to go before those rates hit their peak.”

    The best thing you can do now is pay down high-cost debt — “0% balance transfer credit cards are still widely available, especially for those with good credit, and can help you avoid accruing interest on the transferred balance for up to 21 months,” Schulz said.

    “That can be an absolute godsend for folks struggling with card debt,” he added.

    Otherwise, consolidate and pay off high-interest credit cards with a lower-interest home equity loan or personal loan, Schulz advised.

    • Auto loans are more expensive. Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll pay more in the months ahead.

    The average interest rate on a five-year new car loan is currently 5.63%, up from 3.86% at the beginning of the year and could surpass 6% with the central bank’s next moves, although consumers with higher credit scores may be able to secure better loan terms.

    Paying an annual percentage rate of 6% instead of 5% would cost consumers $1,348 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

    Still, it’s not the interest rate but the sticker price of the vehicle that’s causing an affordability problem, McBride said. “Rising rates doesn’t help, certainly.”

    • Student loans vary by type. Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-2023 academic year are up to 4.99%, from 3.73% last year and 2.75% in 2020-2021.

    If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

    Currently, average private student loan fixed rates can range from 3.22% to 14.96%, and from 2.52% to 12.99% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

    Of course, anyone with existing education debt should see where they stand with federal student loan forgiveness.

    How higher rates affect savers

    • Only some savings account rates are higher. The silver lining is that the interest rates on savings accounts are finally higher after several consecutive rate hikes.

    While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid-19 pandemic, are currently up to 0.21%, on average.

    Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 3.5%, according to Bankrate, much higher than the average rate from a traditional, brick-and-mortar bank.

    “Savers are seeing the best yields since 2009 — if they’re willing to shop around,” McBride said. Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

    Now is the time to boost that emergency savings, McBride advised. “Not only will you be rewarded with higher rates but also nothing helps you sleep better at night than knowing you have some money tucked away just in case.”

    “More broadly, it makes sense to be more cautious,” Spatt added. “Recognize that employment is maybe less secure. It’s reasonable to expect we’ll see unemployment going up, but how much remains to be seen.”

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  • How the Federal Reserve’s rate hike impacts your holiday spending plans: ‘It’s not the time to overspend’

    How the Federal Reserve’s rate hike impacts your holiday spending plans: ‘It’s not the time to overspend’

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    It is three weeks before Black Friday, but the Federal Reserve is about to make the post-holiday debt hangover a little more intense.

    By the time the latest rate hikes filter through the very rate-sensitive credit card industry and pump up customers’ annual percentage rates a little more, experts say it will be some point in December 2022 or January 2023. Right in time for many holiday gifts and expenses to post on credit cards bills — and there to make the costs of a carried balance a little extra expensive.

    Every year, many people accumulate credit card debt through the holiday season, pay it off in the early part of the following year and then repeat the process.

    What’s different now is the presence of four-decade high inflation, coupled with fast-rising interest rates that the Fed hopes will ultimately cool those rising prices, although without sending the economy to a recessionary thud.

    Wednesday’s rate move is the fourth straight 75-basis-point rate hike to the federal funds rate, taking it to the 3.75% -4% range, when it was near zero last year’s holiday season. By now, Americans are all too acquainted with 2022’s fast-rising interest rates. They just haven’t gone through a Christmas and Hanakkuh with it yet.

    “It’s not the time to overspend and have a problem with paying your bills later. We know the economy is sending mixed messages,” said Michele Raneri, vice president of financial services research and consulting at TransUnion
    TRU,
    -4.31%    ,
    one of the country’s three major credit reporting companies.

    It’s extra important to think through a holiday budget and how much relies on credit, she said. “People need to think about how much they can afford to repay and how long it will take to repay it.”

    Holiday spending could be the same as 2021 for many people — but not everyone

    Last month, third-quarter earnings from major banks like JPMorgan Chase & Co.
    JPM,
    -0.92%    ,
    Wells Fargo
    WFC,
    -0.15%    ,
    Citibank
    C,
    -1.45%
    and Bank of America
    BAC,
    -0.30%
    indicated consumer finances, on the whole, are not yet showing cracks under inflation’s strains. (Other numbers show the strain, like the personal savings rate that’s been dwindling.)

    Now, two forecasts suggest many people ready to spend the same amount for this year’s holiday cheer as they did last year.

    People are planning to spend an average $1,430 on gifts, travel and entertainment this year, which is around the $1,447 spent last year, according to PwC researchers. Three-quarters of people said they were planning to spend the same or more than last year and respondents said credit cards were one of their top ways to pay.

    “ Compared to last year, credit card balances are getting bigger, more people are sitting on balances and debt costs are getting pricier.”

    By another measure, Americans will pay an average $1,455 on holiday-related gifts and experiences, essentially flat from last year, say Deloitte researchers.

    More than one-third of surveyed consumers say their financial outlook is worse than the same point last year. Nearly one-quarter of people were concerned about credit card debt as of late September, Deloitte’s numbers show in an ongoing tracking of consumer mood.

    It’s understandable to see the concern with households amassing a collective $890 billion in credit card debt through the second quarter. Compared to last year, balances are getting bigger, more people are sitting on balances and debt costs are getting pricier because the interest rates applied to those balances are rising.

    When people were carrying a credit card balance month to month, the sum was $5,474 on average, according to Raneri. That’s through the end of September and it’s a nearly 13% rise year over year, she said. The 164 million people carrying a balance is a 5% increase from last year, she noted.

    Credit cards carrying a balance during the third quarter had an average 18.43% APR, Federal Reserve data shows. That’s up from 16.65% in the second quarter and up from 17.13% in 2021’s third quarter.

    How the Fed influences credit card rates

    Credit card issuers typically determine their rates by applying a “prime rate” — typically three percentage points on top of the federal funds rate — and the issuer’s profit margin, said Ted Rossman, senior industry analyst at Bankrate.com.

    By late October, the rate on new card offers was 18.73%, according to Bankrate data. At this point last year, it was 16.31%, Rossman said. In a few weeks, the rates on new offers should beat the all-time record of an average 19% APR, exclusive to new offers, he added.

    While it can take a billing cycle or two for a higher APR to make its way to an existing credit card account, Rossman noted the APRs on new offers could rise in a matter of days.

    Here’s a hypothetical to show how much more expensive credit card debt becomes with every extra hike. Suppose the $5,474 balance is on a credit card with the current 18.73% average. If a person has to resort to minimum payments, Rossman said, they’d be paying $7,118 just in interest to pay off the debt.

    “ In a few weeks, the rates on new credit card offers should beat the all-time record of an average 19% APR.”

    What if the 18.73% APR gets kicked up 75 basis points to 19.48%? If that same borrower has to pay minimums, they are now paying $7,417 in interest to snuff the principal debt of $5,474, Rossman said.

    The example has its limits because people may pay more than the minimum and they may incur more credit card debt as they pay off the old one. But it shows a bigger point: “Unfortunately, anybody dealing with credit card debt is a loser from the series of rate hikes. It was already expensive. It’s getting more so,” Rossman said.

    When do rate hikes stop?

    While decisions during the Fed’s November meeting can have a ripple effect on holiday-time borrowing costs, observers say the real question about Wednesday is the clues Federal Reserve Chairman Jerome Powell drops for what’s next. The central bank’s committee voting on interest rate increases reconvenes in mid-December.

    On Wednesday, the Fed said in a statement it expected further rate increases, but also said it would be watching to see if there were lag effects with its tightening policies, which could slow or limit the total amount of increases.

    “People, when they hear lags, they think about a pause. It’s very premature, in my view, to think about or be talking about pausing our rate hike. We have a ways to  go,” Powell told reporters at a Wednesday afternoon press conference.

    The economy is strong enough to handle higher rates, Powell said. For one thing, households have “strong balance sheets” and “strong spending power,” he noted.

    Stock markets first jumped higher after the latest interest rate announcement. But they gave up the gains — and then some — by the end of the day. The Dow Jones Industrial Average
    DJIA,
    -1.55%
    was down more than 500 points, or 1.6% while the S&P 500
    SPX,
    -2.50%
    was down 2.5% and the Nasdaq Composite
    COMP,
    -3.36%
    closed 3.4% lower.

    Top economists in major North American-based banks forecasted the Fed will keep raising interest rates “until the first quarter of next year before potentially lowering rates through the end of 2023,” Sayee Srinivasan, chief economist at the American Bankers Association, the banking sector’s trade association, said ahead of Wednesday’s latest rate hike.

    “Top economists polled as part of a banking industry panel expect Fed rate increases through at least the first quarter of 2023.”

    The forecast, coming through an ABA advisory committee, is no sure thing. “Everything depends on the ability of the Fed to bring inflation down, so that will remain their clear priority,” said Srinivasan.

    Meanwhile, rising costs may cause more people to put the holiday cheer on plastic, even their decorations. The majority of Christmas tree growers in one poll are expecting wholesale prices to climb 5% to 15% for this season.

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  • Going to win $1.2B Powerball prize? Consider not taking cash

    Going to win $1.2B Powerball prize? Consider not taking cash

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    DES MOINES, Iowa — Think you’re a sure bet for Wednesday night’s estimated $1.2 billion Powerball jackpot?

    If so, you need to decide whether to take cash, which would actually pay out $596.7 million, or choose the $1.2 billion annuity option that is twice as large but is paid out over 29 years.

    Winners of giant jackpots nearly always take the cash, and financial advisers say that might be a mistake.

    Nicholas Bunio, a certified financial planner from Downingtown, Pennsylvania, said even with his expertise, he would take an annuity because it would so dramatically reduce his risk of making poor investment decisions.

    “It allows you to make a mistake here and there,” Bunio said. “People don’t understand there is a potential for loss. They only focus on the potential for gain.”

    The gulf between the cash and annuity options has become larger because inflation has prompted a rise in interest rates, which in turn results in potentially larger investment gains. With annuities, the jackpot cash is essentially invested and then paid out to winners over three decades.

    Under the annuity plan, winners will receive an immediate payment and then 29 annual payments that rise by 5% each year until finally reaching the $1.2 billion total.

    Lottery winners who take cash either don’t want to wait for their winnings or they figure they can invest the money and end up with more money than an annuity would offer.

    As Jeremy Keil, a financial adviser from New Berlin, Wisconsin, put it, “There is no bad choice.”

    Keil said Powerball’s annuity assumes a 4.3% investment gain of the jackpot’s cash prize.

    “If you think you can beat the 4.3%, you should take the cash,” Keil said. “If you don’t, take the annuity.”

    While purchasing five Powerball tickets at a Speedway gas station in Minneapolis, 58-year-old Teri Thomas said she’d rather take the cash prize because she doesn’t think she’ll live long enough to collect an annuity over 29 years.

    “And I’d rather get all my good deeds done right away and feel good about the giving,” Thomas said, adding she would donate to groups that do medical research for children as well as help veterans, homeless people and animals.

    Of course, it’s good to keep in mind that your chance of winning the jackpot is incredibly small, at 1 in 292.2 million. That’s why no one has won Powerball’s top prize since Aug. 3 — resulting in 38 consecutive draws without a jackpot winner.

    All that losing has let the Powerball jackpot grow to be the fourth-largest in U.S. history. If no one wins Wednesday night, the jackpot could become the largest ever, topping a $1.586 billion Powerball prize won by three ticket holders in 2016.

    Officials urge anyone lucky enough to win a Powerball jackpot to consult a financial adviser — while keeping that valuable ticket safe — before showing up at a lottery office for an oversized check.

    Matt Chancey, an investment adviser in Tampa, Florida, said that certainly makes sense. But Chancey also urged winners to understand that if advisers earn a percentage from the investment of all that money, they have a financial stake in how the money is paid out and should be clear about any potential conflict.

    “If you go to a financial person and say you want to invest $1 billion, the financial person will say take the $600 million and we’ll pay taxes on it, you’ll have $300 million left over and I’ll invest it for you,” Chancey said. “That investment adviser will get fees off managing that money.”

    Chancey said talented investors probably could make more money than paid through an annuity but there is risk and advisers need to be open about their potential gain depending on how the jackpot winner’s invest choices.

    Powerball is played in 45 states, as well as Washington, D.C., Puerto Rico and the U.S. Virgin Islands.

    ———

    Associated Press writers Trisha Ahmed in Minneapolis and Margery A. Beck in Omaha, Nebraska, contributed to this story.

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  • Political spat over climate risks in investments gets hotter

    Political spat over climate risks in investments gets hotter

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    ST. PAUL, Minn. — The political fight is only getting fiercer over whether it’s financially wise or “woke” folly to consider a company’s impact on climate change, workers’ rights and other issues when making investments.

    Republicans from North Dakota to Texas are ramping up their criticism of “ESG investing,” a fast-growing movement that says it can pay dividends to consider environmental, social and corporate-governance issues when deciding where to invest pension and other public funds. At the same time, Democrats in traditionally blue states like Minnesota are considering whether to make ESG principles an even bigger part of their investment strategies.

    The “E” for environment component of ESG often gets the most attention because of the debate over whether to invest in fossil-fuel companies. In the wide-ranging social, or S, bucket, investors look at how companies treat their workforces, reckoning a happier group with less turnover can be more productive. For the G, or governance aspect, investors make sure companies’ boards keep executives accountable and pay CEOs in a way that incentivizes the best performance for all stakeholders.

    The ESG industry has scorekeepers that give companies ratings on their environmental, social and governance performance. Poor scores can steer investors away from companies or governments seen as bigger risks, which can in turn raise their borrowing costs and hurt them financially.

    Florida has become one of the hottest battlegrounds for ESG. Gov. Ron DeSantis in August prohibited state fund managers from using ESG considerations as they decide how to invest state pension plan money. And even as his state cleans up from the environmental destruction caused by Hurricane Ian, DeSantis plans to ask the Florida Legislature in 2023 to go even further by prohibiting “discriminatory practices by large financial institutions based on ESG social credit score metrics.”

    Pension funds are often caught in the middle of the battles. Questions are flowing into the Florida Education Association from teachers about what DeSantis’ moves will mean for their retirements.

    “I usually tell them it’s still unclear what this exactly means,” said Andrew Spar, president of the union, which represents 150,000 teachers and educators across the state. Much is still to be determined, including exactly which funds the pension investments will steer toward.

    In contrast, the Minnesota State Board of Investment is considering a proposal to adopt a goal of making its $130 billion in pension and other funds carbon-neutral. The board already uses shareholder votes to advance climate issues. It seeks out climate-friendly investment opportunities and eschews investments in thermal coal. While the new proposal goes farther, it does not call for total divestment from fossil fuel companies, as many climate change activists advocate.

    The ESG debate has spilled into the race for Minnesota’s state auditor. Democratic incumbent Julie Blaha — who has singled out DeSantis as one of the leaders she believes are politicizing the discussion about ESG — has cited the investment board’s high returns in recent years as evidence the approach works.

    “To be a good fiduciary, you have to consider all the risks, and the evidence is clear that climate risk is investment risk,” Blaha said.

    But Blaha’s Republican challenger, Ryan Wilson, says investment returns must come first, and that all risks must be considered. He says the board shouldn’t “disproportionately dictate” that climate risk should matter more than other risks.

    Proponents say considering a company’s performance on ESG issues can boost returns and limit losses over the long term while being socially responsible at the same time. By using such a lens, they say investors can avoid companies that are riskier than they appear on the surface, with stock prices that are too high. An ESG approach could also unearth opportunities that may be underappreciated by Wall Street, the thinking goes.

    As for returns, there is no consensus on whether an ESG approach means lower or higher returns.

    Morningstar, a company that tracks mutual funds and ETFs, says slightly more than half of all sustainable funds ranked in the top half of their category for returns last year. Over five years, the showing is better with nearly three-quarters ranking in the top half of performers in the category.

    Rejecting ESG can be costly in ways besides investment performance.

    A Texas law that took effect in September 2021 banned municipalities from doing business with financial institutions that have ESG polices against investments in fossil fuel and firearms companies, industries that are important to the Texas economy. It turned out to be an expensive decision.

    Barred from underwriting local jurisdictions’ municipal bonds, five big underwriters — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Fidelity — exited those markets. A Wharton School study estimated that the loss of those big players would cost Texas communities an extra $303 million to $532 million in higher interest payments on their bonds. Fidelity says it has since restored its good standing with Texas by certifying to the state that it does not boycott energy companies or discriminate against the firearms industry.

    Several big Wall Street banks and investment management companies have become favorite targets of the anti-ESG politicians because they’ve been outspoken in their embrace of ESG. Republican state treasurers have pulled or plan to pull over $1.5 billion this year out of BlackRock, the world’s largest investment company, which has a goal of net zero greenhouse gas emissions by 2050 or sooner. Missouri last month became the latest. Treasurer Scott Fitzpatrick accused BlackRock of putting the advancement of “a woke political agenda above the financial interests of their customers.”

    Coal-producing West Virginia passed a law in June that allows for the disqualification of banks and other financial institutions from doing business with the state if they “boycott” energy companies. Treasurer Riley Moore soon banned BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, blaming them for contributing to high energy prices by driving capital away from the industry.

    “We’re not going to pay for our own destruction,” Moore said.

    State officials have also been critical of ESG scores from ratings agencies and other outfits. For instance, S&P Global offended North Dakota State Treasurer Thomas Beadle because it rated the state as “neutral” for social and governance metrics but “moderately negative” for environmental factors because its economy and budget rely heavily on the energy sector.

    His state’s lawmakers last year prohibited their investment board from considering “socially responsible criteria” for anything but maximizing returns. Beadle told senators considering potential next steps that ESG has created “significant headwinds” for energy companies trying to raise capital, and that it could affect his state’s tax revenues.

    Besides state capitols, other big battlegrounds are federal agencies, where leaders of the backlash include the State Financial Officers Foundation, a group of Republican state treasurers, auditors and other officials. They’re trying to block rules being drafted at the Securities and Exchange Commission and Department of Labor to require standardized climate disclosures by companies and to make it easier for pension plan fiduciaries to consider climate change and other ESG factors.

    The industry has heard the pushback and has even been surprised by how quickly it’s accelerated. But it’s pledging to plow ahead.

    US SIF is an industry group advocating sustainable investing whose members control $5 trillion in assets under management or advisement. Its CEO, Lisa Woll, believes that most of the national and state politicians railing against ESG investing probably don’t understand it.

    “If they did, it’s very difficult to make these kinds of allegations,” Woll said. “It feels more like a talking point than an informed critique.”

    ———

    Choe reported from New York.

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