Some Investors Pulling Out of U.S. Equity Mutual Funds

New data shows that investors withdrew $8.3 billion from U.S. equity mutual funds in June, making it the second consecutive month in which outflows outpaced inflows to these funds.

The funds — which allow investors to buy into a “basket” of stocks picked and traded by a fund manager – are traditionally a popular option for people to invest retirement savings.

However, investment research Morningstar found that the withdrawals during June represented U.S. equity funds’ largest outflow in 18 months.

Morningstar said that inflows to international-equity funds and taxable-bond funds more than offset the outflows for U.S. equity funds. Overall, inflows to long-term mutual funds reached $24.0 billion during the month.

Mutual fund assets reached $11.7 trillion in June, which Morningstar said represents an increase of more than 40% since their peak before the financial crisis.

Clearly, this form of investing is still quite popular.


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Small Business Owners Perk Up

The majority of America’s small business owners say they expect their businesses to grow in the next year, according to the results of a new survey.

CAN Capital said that 61% of the small business owners surveyed for its Small Business Health Index professed clear optimism that business will improve over the next 12 months.

Almost a third (31%) of the business owners surveyed said that plan to expand and/or try new forms of advertising/marketing activities, while 26% plan to purchase equipment and/or make inventory investments over the next year. 

Could this optimism fuel an increase in hiring as well? If the strong June jobs report from BLS is any indication, it already is.

We’ll have to see the upcoming reports for July and August to establish a true acceleration of growth in hiring, but so far there is reason for everyone to be a bit more cheery these days.


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Credit Defaults are at 10-Year Low

Americans are paying their bills, and consumer credit defaults are way down, according to some new data.

S&P Dow Jones Indices and credit bureau Experian said that the national composite rate of consumer credit defaults for June was just 1.02%. This is the lowest rate recorded in ten years.

This tells us that Americans are paying on their various forms of consumer debt at the best rate since the recession.

The companies did point out that auto and bank card defaults were up slightly, while mortgage defaults were down. This tracks with recent data showing that Americans are taking on more credit card and auto loan debt, but are feeling better about mortgages given the recent recovery in home prices.

Bank card debt saw a ten-year low in March 2014, but has risen slightly since then, to 3.02% in June. First mortgage defaults, however, fell to a rate of just 0.89% in June.

Dallas was the only major city to experience an increase in default rates during June, while Chicago, Los Angeles, Miami and New York fell to their lowest overall default rates since the last recession began.

Overall, this is good news for the economy as it signals an increase in Americans’ ability to pay on debt — even as they take on more of it. Given the strong jobs report posted in June, it’s likely that we’ll continue to see only modest increases in consumer debt defaults in the months ahead.


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Social Media Still Lags as a Customer Service Tool

A new survey finds that people still like pick up the phone and talk to a live human when they have a customer service issue, despite the growing use of social media technology.

Customer service software firm NICE Systems said it surveyed 1,206 consumers between the ages of 18 and 65 to gauge their satisfaction with various customer service channels.

What they found was that people across age groups overwhelmingly prefer the more traditional ways of resolving problems with companies and organizations.

For instance, 88% of NICE’s respondents said they preferred to speak with a live customer service rep over the phone. While 83% used website self-service, they still liked having the option of turning to a live human as a next choice.

The company found that social media, live chat, and Smartphone app use has doubled since 2011.  In fact, 73% of survey respondents said they have used multiple contact methods in the past six months to resolve a customer service issue.

However, social media still has a lot of catching up to do in terms of effectiveness: while social media channels were used to successfully solve a problem 29% or the time, traditional phone contact has a 69% success rate.

But what about today’s tech-savvy Millennials? Surprisingly, the 18-35 age group still prefers speak with a live rep via phone or use website self-service when resolving customer service issues.

These results aren’t that surprising, given the current state of social media use by companies. While FAQs and other “self service” online methods can lead to a speedy resolution to a problem, many other social media tools used by companies are a bit gimmicky. (For instance, “live chat” that turns out to be nothing more than you talking to a computer.)

Until companies fully integrate their social media channels within their customer service function – and offer immediate response by empowered humans – people will still “cut to the chase” by calling toll-free customer service numbers when self-service fails.


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Is There a New Real Estate Bubble?

A recent survey of mortgage lenders found fears that a new real estate bubble may be inflating in various U.S. real estate markets. Given the untold economic destruction the last bubble caused, is it possible that we could be so careless again?

Predictive analytics firm FICO (producer of the famous FICO Score), said it had North American bank risk managers interviewed by the Professional Risk Managers’ International Association, and got some disturbing feedback.

In the survey, 56% of respondents expressed concern that “an unsustainable real estate bubble is inflating,” FICO said. These professionals were directly involved in mortgage lending.

But what is a real estate bubble, and how do we know when one is dangerously inflating? Historically, the prices of homes are directly related to the wages made by the people expected to buy them. One classic formula used by economists who track these things is “3-to-4-times-income” – meaning that the median price of a home in a given market should be around three to four times the median annual family income in that market area.

So, when the median family income is $50,000 in an area, and the median price for a home is between $150,000 and $200,000, no one is alarmed. However, when it gets much higher than 4X, economists start to get concerned.

Mortgage professionals usually get more specific, using a measure comparing disposable income to loan payments required. These pros look at the total amount of debt someone has taken on – including the mortgage being applied for – then look at the income that family has available to service this debt.

If someone has racked up a lot of auto and credit card debt, it would count against their total, and make it less likely they would be approved for a mortgage.

This more precise gauge of housing affordability would also take into account fluctuations in interest rates – which can seriously impact the monthly payment on a given mortgage.

In any case, there are “red lights” that signal when a market has become expensive by historical standards, or when consumers are spending more of their income paying off debt than is considered prudent.

Apparently, there are a lot of mortgage pros who feel we’ve now reached this danger zone.

According to FICO, 59% of bankers surveyed cited “high debt-to-income ratio” as their top concern when approving loans. Coming in second and third were “multiple recent applications for credit” (13%) and “low FICO Score” (10%).

Andrew Jennings, FICO’s chief analytics officer, called attention to the strange situation present in the U.S. in which home prices are soaring in major cities – and homeowner equity is at its highest level since late 2007 — while six million homeowners remain “underwater” on their mortgages (or owning more than their homes are worth). 

“That doesn’t feel like a healthy, sustainable growth situation. No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages,” Jennings said, describing the home loan environment as “bifurcated.”

While this survey sounds some alarms, we’ll still have to see some compelling new data on the current relationship between home prices and incomes before getting too freaked out.

There are certainly signs that some markets, (particularly in California), have become distinctly bubbly again, but it would be a surprise if the data revealed this to be a national phenomenon.

Still, the possibility that new real estate bubbles may be inflating should send shivers up the spine of every American. These mortgage professionals are on the front lines of real estate lending, so their concerns should be taken very seriously indeed.


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Coin Changers for Credit Unions

A company that makes self-service coin counters is touting their machines as a great perk for credit union members. Could they be on to something?

According to cash handling specialist Cummins Allison, self-service coin counters are in synch with traditional the credit union mission of providing personalized financial services to members.

Offering a self-service coin option in a branch lobby, the company explains, saves members from having to count and wrap their coins. Members just dump their loose change into the machine, and get a coin redemption receipt.

Cummins Allison is currently promoting their machines to Canadian CUs, but there’s no reason why U.S. CUs can’t take part.

But is this really the sort of thing that members would embrace? After all, the CU would have to pay for the installation and servicing of the machines. Nothing is free, and CU money is the money of all members.

Many Americans are familiar with the coin counters found in supermarkets in the U.S. These machines are indeed convenient, but users do pay a small fee for using them. Presumably, that would be an option for CUs as well – allowing CUs to offer the convenience of the machines without spending member resources excessively.

So, maybe Cummins Allison is onto something, and their promotion will result in CUs becoming a new source of easy change redemption for members and potential members alike. Change is sometimes a good thing.



America’s Growing Love of Soccer is Real, and Lucrative

The U.S. national soccer team entered this year’s World Cup as underdogs, and went on to exceed all expectations. While they fell to the Belgian’s in the “round of 16” this team made soccer fans of millions of Americans. Was all this hype genuine, or just fodder for a news cycle or two?

According to some new figures published by e-commerce specialist SLI Systems, a spike in soccer-related online retail activity among American consumers shows that the hype was very much a real phenomenon.

SLI said that its study of consumer search behavior between March 2 and July 9, 2014 showed a 280% increase in soccer-related online shopping in the U.S.

The firm said that June 16th — the day U.S. played Ghana — was the peak day for soccer-related shopping in the U.S. The most popular soccer-related search terms were “soccer,” “USA soccer,” “FIFA” and “Nike soccer.”

And while the U.S. often gets accused of only caring about U.S. teams in international competitions like the Olympics and World Cup, this year’s soccer searches showed that Americans had a healthy interest in international teams as well.

SLI’s data showed that the top non-U.S. teams searched by U.S. consumers were Brazil, Germany, Argentina, and the Netherlands. Considering that the only team on that list that the U.S. team played was Germany, it is evidence that perhaps Americans are embracing the international aspects of the sport.

This is a good thing, since the U.S. team’s gritty determination and team-centric work ethic created U.S.A. fans around the world during World Cup 2014. Hopefully, this growing interest among Americans will help the U.S. to become a true leader among soccer-playing nations. Just don’t ask us to start calling the sport “football.”


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More Companies Make Public Debut


The number of companies launching initial public offerings (IPOs) of stock is at the highest level since 2007, according to some new data.

IPOs happen when companies decide to raise money by issuing stock, and selling it through a marketplace that is open to the public, such as the New York Stock Exchange or the NASDAQ. The shares represent part ownership in the company.

Professional services firm PwC said that the IPO market has surpassed $21 billion during the second quarter of this year – which is the best volume seen since 2007.

PwC said there were 89 public company debuts during the quarter. There was a distinct spike in IPO activity starting in mid-June, the firm said, which might portend an even bigger volume of activity as the year rolls on.

Why are so many IPOs happening now? Well, not only is the global economy improving, but interest rates are being held down due to the continuing policies of the Fed and the European Central Bank.

With rates low, investors are seeking a return on their capital, and IPOs can offer attractive investment opportunities. The price of stocks issued in an IPO can often increase – even during the first day of trading. This “first day bounce” can continue for months, giving investors a very healthy return on their initial investments.

Of course, stock values can move in both directions, so investors must also be prepared to lose money. But with the economy now moving in a healthy direction, many investors feel that IPOs represent a good bet. So, we should continue to see them happening at a good clip through the end of the year.


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Non-Manufacturing Business Continues to Grow


A key measure of business activity was down a bit in June, but still reflected continued economic growth moving into the summer months.

The Institute for Supply Management said that economic activity in the non-manufacturing sector grew in June for the 53rd consecutive month, but at a slightly slower rate than it did in May.

According to the Institute,  the June Non-Manufacturing ISM Report on Business Activity Index stood at 56% in June, which was 0.3 percentage point lower than the May reading of 56.3%.

The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent. This reflected growth for the 59th consecutive month, but again at a slower rate.

ISM’s New Orders Index registered 61.2 percent, which was a 0.7 percentage point higher than May’s reading of 60.5 percent.

The Employment Index increased two percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month – this time at a faster rate.

It should be noted that any reading over 50 indicates a positive direction of growth, so what we’re seeing here is a slight fluctuation in the rate of growth, rather than a pullback.

ISM said that the 14 non-manufacturing industries reporting growth in June include Construction; Real Estate, Rental & Leasing; Utilities; Management of Companies & Support Services; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Information; Public Administration; Retail Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; Wholesale Trade; Finance & Insurance; and Other Services.

The four industries reporting contraction in June are: Educational Services; Mining; Accommodation & Food Services; and Health Care & Social Assistance, it said.


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Vending Machines Have Gone Upscale

When we think of vending machines, rows of chips, candy bars and other junk food comes to mind. They are the last resort for the hungry, and things to be strictly avoided for the health-conscious. However, a new breed of vending machines is challenging the stereotype.
According to The Lempert Report, vending technology innovators have upped their game to capitalize on the opportunities presented by on-the-go consumers who want quality food.
The firm, in its weekly video series, highlighted Let’s Pizza, a vending machine that promises designed to make pizza from scratch in 2.5 minutes. Developed by Italian Claudio Torghel, the machine contains a specially-developed bag of flour and a bag of mineral water.
When you order a pizza, Let’s Pizza makes the dough from scratch, shapes it into a crust and tops it with organic tomato sauce, the maker said. Toppings are then placed, and the pizza is cooked in an infra-red oven. Let’s Pizza made its U.S. debut in 2012.
Another vending concept highlighted by Lempert brings lettuce farming into urban jungles around the world. Developed in Japan, The Chef’s Farm vending machine actually grows lettuce on-site, and then dispenses it to consumers.
This machine uses special fluorescent lighting to produce 60 fresh heads of lettuce per day in a hydroponic environment – all without needing sunlight. The machine’s maker, Dentsu, said it can produce 20,000 heads of lettuce per year, and can be stored in a restaurant. The Chef’s Farm machine can also grow other kinds of vegetables, its maker said.
Finally, Lempert brings word of the Beverly Hills Caviar vending machine which, as the name implies, dispenses those expensive fish eggs so prized by gourmands the world over.
These machines – which began cropping up in posh Los Angeles retail settings in 2012 – offer different grades and amounts of caviar at prices ranging from $5 to $500.
According to an NBC News report from that year, a $500 deposit into the machine would get you one ounce of Imperial River Beluga Caviar. While the price of the Beverly Hills Caviar vending machine is hefty – at around $85,000 per – the inventory it contains is worth a staggering $50,000. That’s more than the average vending supply truck is carrying on its rounds.
Heady stuff, these innovations — and maybe the sorts of things that will change your view of vending machines one day. For now, though, most of the ones we see are still filled with junk food and sodas. Their wares may be less-than-fresh — and decidedly unhealthy for the most part — but you can get them for less than $500.

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