TIME Video Games

Microsoft Silent On Xbox One Sales as PlayStation 4 Wins July

Sony says the PlayStation 4 is the fastest selling PlayStation in history, as July retail game sales turn up another net-positive month.

Sony’s PlayStation 4 continues to defy what were once, you may recall, rather tepid expectations for this round of console sales.

Who needs consoles when they have tablets and computerized phones? Who wants to pay $60 or more for games when they can have dozens for a fraction of the price on a mobile device? Who wants to sit in their living room tethered to a TV, or play games that can take 15 or 30 hours or even longer to complete?

Ten million buyers to date worldwide, that’s who, a record in the time that’s passed–nine months, counting November when the console launched–for any PlayStation platform in Sony history, says Sony.

And with July’s NPD retail numbers out, Sony’s saying the PS4 was the number one console for the seventh straight month in a row, and that it led in retail software sales as well. The Last of Us: Remastered held the number one retail sales spot in July (confirmed by NPD), which is that much more impressive when you consider it’s not a new game and that it launched on July 29, so it had just three days to chart.

NPD says video game hardware sales were up dramatically year-on-year, from $99.8 million to $198.8 million, or a full 100%, offsetting declines in older console and current handheld sales. Add up Xbox One and PS4 sales to date and NPD says that compared to Xbox 360 and PS3 sales for the same period, the new consoles are trumping their predecessors by “close to 80 percent.”

Retail software sales were unchanged from July 2013, though as usual, the comparison ignores digital content sales, which could put the actual figure anywhere (and almost surely higher). NPD notes that EA’s annual NCAA Football installment usually launches in July, but that since the series is on indefinite hiatus due to legal squabbles about the use of player likenesses in the games, July 2014 was extra-sleepy on the retail software side.

Overall, NPD says new physical video game sales (hardware, software, accessories) grew 16% compared to July 2013.

Turning back to Sony’s PlayStation 4, we’re now looking at 10 million units sold through worldwide (revealed by Sony August 12) versus 5 million Xbox One units shipped to stores worldwide (revealed by Microsoft back in April). Of course, that doesn’t mean Sony’s outselling Microsoft 2:1, given the four month lag in official Microsoft figures, but then that’s all we know publicly, so on some level, that’s going to be the perception. You could argue Microsoft’s reluctance to get specific is just another way of being very specific, and not knowing where the Xbox One stands on a simple units-sold-through basis is probably as bad or worse than knowing when the apparent gulf starts to look this sizable.

Is Microsoft waiting to say more until it’s launched the Xbox One in more markets? Perhaps. At last count, Sony was selling the PS4 in 72 markets versus Microsoft’s 13 (not as big a deal as the numbers make it sound given population distributions, but far from dismissible).

Microsoft’s supposed to make up some of that shortfall this fall, and it has the Halo Master Chief Collection to help it along, but 2014 is first and foremost third-party-ville: Destiny, Assassin’s Creed Unity, Far Cry 4, Call of Duty: Advanced Warfare, Grand Theft Auto V remastered and so forth. This is not the year of grand and daring first party exclusives, so short of overwhelming fealty to a series like Halo or LittleBigPlanet, or interest in racing games like Forza Horizon 2 or Driveclub, fence-sitters looking to dive in by year’s end are probably going to buy the system that plays those games based on their perception of where the momentum is.

TIME Security

Apple to Store User Data in China

China said to exclude Apple from procurement list
Young Chinese customers try out iPad 4 tablet computers at a branch of China Mobile in Chongqing, China, 31 December 2012. Chen jianhua— Imaginechina

For Chinese users

Apple confirmed Friday that is has begun storing user data in servers located in China, a first for the company and a shift from the recent trend of tech firms moving servers out of China due to censorship and other concerns.

The data belongs to Chinese users and is being stored in encrypted form on servers provided by China Telecom Corp, which will not have access to password keys needed to decrypt the information, the Wall Street Journal reports. User data will include pictures, email and other information stored in Apple’s iCloud service—the company says servers located closer to users will make service faster.

The move stands in contrast to Google’s decision in 2010 to move all its services out of mainland China and into Hong Kong after the company declined to comply with a Chinese government censorship order.

“Apple takes user security and privacy very seriously,” the company said in a statement to the Journal. “We have added China Telecom to our list of data center providers to increase bandwidth and improve performance for our customers in mainland China.”

The move has raised concerns about Apple’s ability, or commitment, to keep user data secure. The country has a history of playing rough with tech firms, including firms based in the United States. In 2005, Yahoo drew fire for complying with a Chinese data request that landed a Chinese journalist in prison. In July, Chinese authorities raided the offices of Microsoft in four cities across China in an anti-monopoly investigation.

[WSJ]

TIME Autos

A Ferrari Just Sold for a Record Price at Auction

Nets $38.1 million

+ READ ARTICLE

A rare 1962 Ferrari model was sold for $38.1 million in California on Thursday, setting a new record for the most expensive car auction ever.

The 1962 Ferrari 250 GTO Berlinetta, one of just 36 of the cars built in the early 1960s, fell short of some rosy predictions that it would garner in excess of $50 million at auction. But the final price tag from the auction at Bonhams’ Quail Lodge Auction in Carmel, Calif., still easily surpassed the previous record of $30 million for a 1954 Mercedes model sold last year.

“It’s been a genuine privilege to represent this outstanding car and we are absolutely delighted with today’s results,” Bonhams chairman Robert Brooks said in a statement. “We’ve always maintained that we would exceed the current world record and that the car would bring between $30-$40-million and today the GTO did just that.”

TIME Fast Food

Fast-Food Franchise Holders in California Score a Major Legal Win

A McDonald's restaurant sign is seen at a McDonald's restaurant in Del Mar, California
A McDonald's restaurant sign in Del Mar, Calif., on April 16, 2013 Mike Blake/Reuters

Supporters of the SB 610 bill say employees as well as franchisees will benefit

Major fast-food companies — ranging from McDonald’s to 7-Eleven — will find it harder to terminate agreements with their franchise holders after the California state legislature passed the SB 610 bill granting franchisees additional rights.

The proposed law pits industry bodies like the International Franchise Association (IFA) and the California Chamber of Commerce against small businesses as well as labor unions like the Service Employees International Union (SEIU).

The SEIU argues that the bill’s passage will pave the way for increased wages and benefits for employees, as franchisees no longer have to worry about the threat of contract termination for introducing such benefits.

“Corporate headquarters control nearly every aspect of our business — we can be punished for speaking out or joining with other franchise owners to improve business conditions, and the franchises can even be shut down for arbitrary reasons — as mine was,” said McDonald’s franchisee Kathryn Carter to SEIU California.

Opponents, however, say the bill will negatively affect quality control and consistency — and reiterated their concerns following the assembly’s 41 to 27 yes vote.

In a statement obtained by MSNBC, IFA president and CEO Steve Caldeira criticized language used in the bill: “SB 610, particularly the termination language, is more vague and obscure in its definition than any other state franchise law.”

He added: “This bill without question will undermine franchise growth in California, lead to frivolous, unnecessary and costly litigation, reduced product quality, harm brand integrity.”

The bill’s next stop is California’s senate, where it is expected to pass.

MONEY online shopping

8 Amazing Things People Said When Online Shopping Was Born 20 Years Ago

Vintage 1960s advertisement from the Electric Light and Power Companies of America of what future online shopping could be like
Advertising Archive—Courtesy Everett Collection

My, how things have changed, and yet remained the same. Two decades ago, when the era of e-commerce was born, people fretted about online fraud and security—and that the Internet had too much porn.

Toward the end of 1994, MONEY magazine published a story about the sharp rise in consumers shopping from home. That year, some 98 million consumers made $60 billion worth of purchases from home, nearly all of it through phone orders prompted by mail catalogues and TV shopping channels. Another home-shopping option had suddenly arrived on the scene that year, too–an “on-line shopping service [that] requires a PC or Macintosh that’s equipped with a modem.” The article explained how such curious services worked:

For ordering, many of the “computer stores” offer shoppers an 800 telephone number to call. Others are set up so a shopper can click on a box next to the desired gift, type in payment information and the shipping address and then hit a “Submit Order” button. Some companies even let shoppers pick out the wrapping paper via computer.

That’s pretty much how people talked about e-commerce in 1994, when it was brand-spanking-new, not to mention weird, sorta scary, and totally unfamiliar to most consumers. American Public Media’s Marketplace noted that this week marks the 20th anniversary of online shopping, as chronicled in an August 1994 New York Times story describing how one shopper made history by purchasing a “compact audio disk” (a.k.a. a CD, which is how we used to listen to music before iPods, kids) by Sting—a transaction “celebrated as the first retail transaction on the Internet using a readily available version of powerful data encryption software designed to guarantee privacy.”

In honor of the big anniversary, we thought it would be fun to look back at how the birth of online shopping was viewed in 1994, a year before Amazon.com arrived. There was some skepticism, lots of confusion, and plenty of futuristic gee-whiz bluster about all of this “on-line” business. For instance, a headline in The Financial Post (Canada) described e-commerce as a “tele-shopping magical experience,” and the story that followed was a bit dismissive of “the latest fad.” An October ’94 Computerworld story pointed to the group of skeptics who categorized online shopping as just another component of the “infohypeway” that was the Internet.

Mostly, though, what’s amazing is that, in retrospect, so much of what was said and written in 1994 about online shopping was pretty much right on the money. From the get-go, many people realized that e-commerce would revolutionize shopping, by making it cheaper, more convenient, and more customizable than traditional shopping in physical stores. There were also tons of concerns about security, fraud, hackers, and porn, as well as predictions that as online shopping grew, advertising would absolutely ruin the Internet.

Without further ado, here are some of the funny, odd, and/or eerily prophetic ways people viewed online shopping 20 years ago, back when it was just a baby.

Online shopping was as hip as the Marlboro Man. An end-of-the-year article from USA Today featured a side-by-side list of trends that were In and Out for 1994. The Out side included no-longer cool stuff like faxes, Bud Light, Joe Camel, theme parks, and TV shopping, while the corresponding IN side listed the Internet, microbrews, Marlboro Man, casinos, and “on-line shopping.”

Everything had to be explained in (now) excruciatingly painful detail. A modem, a New York Times magazine story explained, was “a small device that sends and receives computer language over the telephone and does with computer files what a fax machine does with paper.” You need one of these to use the Internet and possibly buy stuff, you see.

People had no clue where or how to buy stuff. “One dirty little secret on the Internet is that nobody’s selling anything yet,” an executive at QVC told a publication called Network World. At the time, home-shopping networks like QVC were viewed as potentially huge players in online shopping. Few retailers had their own websites or Internet “pages,” as they were more often described, so they used services like the Internet Shopping Network—something of an “electronic home shopping mall,” as Reuters put it—to post items for sale. At the time, the Internet Shopping Network merely listed product descriptions, but the plan was to eventually feature product photos and “eventually, moving pictures of the items.”

Roland Bust, a marketing professor at Vanderbilt University, explained to the Atlanta Journal and Constitution that most consumers “don’t know where to go” when they attempted to shop online in 1994. “Like a real mall, a cyberspace mall has lots of stores, and finding a particular product can be hard unless a user knows which stores carry what,” the story summed up. Interestingly, the article also pointed to CD-ROMs as another online shopping option at the time. They sold for $8 and up, and when inserted into a computer, the consumer could access the contents of a couple dozen catalogues, from merchants like Spiegel and L.L. Bean.

There was plenty to be scared about—privacy, fraud, porn, and more. If you think your private information is easy for scammers and marketers to gather now, just think about the Internet circa 1994. The NYT magazine story regarded email as a “reasonably private written message.” The Mail on Sunday (London) warned consumers that purchase orders must be placed on the phone because “credit card numbers given down a computer are not yet safe from fraud.” Five of the 10 most popular “newsgroups” then on the Internet were “sexually oriented,” the Atlanta Journal and Constitution cautioned, and because free porn was easy to come by and the “Internet has more dirty jokes than the walls of a public bathroom,” there was cause for concern that unsuspecting web surfers and shoppers would be horrified with what they (or their children) found. ‘Just the title of some of the discussion groups is something you don’t want your kids to see,” the head of IBM’s Internet services said to the (London) Times.

It was assumed advertising would ruin everything. This now seems pretty laughable, but in the early ’90s, Internet culture was “decidedly uncommercial,” in the words of Computerworld. What was then a niche group of users wanted the Internet to be a place where ideas and information could be shared quickly and openly. But as such it was open to the possibility of “being hijacked by companies, which will flood the system with advertising,” according to the Times.

“Advertisers are looking for ways to exploit cyberspace,” the Atlanta Journal and Constitution stated. And many Internet users weren’t happy about it. So-called “commercial zones” were “created on the Internet for exclusive use by advertisers, but companies haven’t figured out how to get netsurfers to look at them. Efforts to plant ads in the network’s 2,500 newsgroups have caused an uproar.”

Another prophetic assumption: Online shopping would make stuff cheaper. “Selling goods electronically can be 40% to 50% cheaper than by conventional means,” Computerworld explained. Without the need for salespeople or even a physical sales space, it seemed inevitable that online shopping offered sellers a means to lower overhead costs—and therefore lower the prices charged to customers. “Nobody’s going to want to do electronic shopping if there’s no advantage to the customer—and that advantage is cost. You’ve got to save money,” Randy Adams, a serial entrepreneur who went on to co-found Funny or Die, told the San Jose Mercury News in 1994, when he was involved in an e-commerce startup. “I think conventional retailers are not going to like what we’re doing because we’re forcing margins down.”

Sure enough, they didn’t—and they still don’t like how e-retail giants like Amazon are pushing around the competition and product makers alike, usually with the idea of getting prices lower for the customer.

People saw the upsides of customization and convenience, too. Not only would online shopping make it possible to buy stuff 24/7, regardless of “store hours,” and without dealing with traffic or even leaving the house, but e-commerce also brought with it the opportunity to order far more than what one found on a store’s shelves. A 1994 USA Today story focused on the new concept of “made-to-order merchandising,” in which customers could order shoes, jeans, greeting cards, and more in the personalized style and size of their choosing. “The trend is the first step toward on-line shopping—when customers will use computers to order exactly what they want rather than going to a mall,” the article stated.

Overall, they knew online shopping would be a huge deal. “At some point it will be a really big business,” a UBS analyst said to Reuters in 1994. How big? Analysts told Computerworld that “on-line shopping could explode into a $5 billion sales channel in a few years.” In fact, when the Census bureau began tracking e-commerce sales in 2000, it reported that sales had hit $5.3 billion—in the fourth quarter of 1999 alone. Forecasts call for e-commerce sales to hit $304 billion in the U.S. for all of 2014.

TIME Internet

Barry Diller Wants to Save the Web’s Most Controversial Social Network

Diane von Furstenberg and Barry Diller, chairman and chief executive officer of IAC/InterActiveCorp, arrive for a morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho on July 11, 2014.
Diane von Furstenberg and Barry Diller, chairman and chief executive officer of IAC/InterActiveCorp, arrive for a morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho on July 11, 2014. Bloomberg/Getty Images

In purchasing Ask.fm, which is used by 120 million people worldwide, the Internet mogul is betting he can clean up a star-crossed site

How high is Barry Diller’s tolerance for the tawdry? The 72-year-old billionaire, who is the chairman and senior executive of Internet holding company IAC, has in recent years added Tinder—presently dogged by a high-profile sexual harassment case—and a host of other dating-related businesses to his portfolio. And Thursday the company announced that it had acquired a popular Latvia-based social network, Ask.fm, presently best known for its connection in media reports of more than a dozen teenager suicides over the past two years.

“We would not have done this deal,” says Doug Leeds, who will be supervising the site, “if we didn’t think we could make the company known for something else.” Leeds is the CEO of Ask.com, one of IAC’s sites, which began its life nearly two decades ago as Ask Jeeves. Leeds first became interested in Ask.fm, strangely enough, after the social network’s bad press made him fret for his own company’s reputation. He reached out to Ask.fm’s management team last year to insist that the site distinguish itself more from Ask.com. But in subsequent conversations, he began to learn a little bit about just how big the site had become. He began to see the kind of business challenge he says he wanted.

If you don’t know about the social network, find a teenager and, well, ask. The site has 120 million worldwide users, nearly half of whom are high school age, with more than 10 percent residing in the United States. Users sign up and open themselves to questions from anyone—classmates, peers, mysterious Internet trawlers—posed both anonymously and with names attached. Rarely do they urge suicide in a plain, literal fashion. Often they instead tackle the trivial business of high school (homework, crushes, the social pecking order). But the effect even then is of a virtual locker room, one filled with gossip and catcalls, one that follows you home, on the always-on smartphone stuffed in your pocket.

Earlier this summer, I wrote about the site and its effect on the brawny yet brittle teenage brain, which according to mental-health experts chases immediate rewards without much regard for the long-term consequences. Teenagers get hooked on something before they figure out how, why and what it means.

That sense of excitement and uncertainty appears in Ask.fm’s origin story too. Two brothers, Ilja and Mark Terebin, ages 35 and 29, founded the site in 2010 only in search of a social network to make them a buck. It grew so big, and so quickly, that only later did they develop a philosophy to justify its existence. The site, they said in an interview in April, would aid in teenagers’ self-discovery through expanding freedom and opportunities for self-expression. And they said the media outlets that had criticized them over lax safety standards, not Ask.fm’s users, were the real bullies.

But it’s a common story in entrepreneurship—every young, scrappy company is one day forced to grow up. And sometimes a grown-up company has no need for the young people who built it: The Terebins will leave Ask.fm and have no further affiliation with it, although headquarters, and the site’s employees, will remain for the time being in their home city of Riga. Leeds says, “They’re smart and passionate people, but they had a philosophy for the company that was incorrect.”

When asked his plans for the future, Ilja replied in an e-mail, “Fruits and vegetables, books and a billion dollar idea. : ).” IAC declined to disclose how much the company paid for the site.

Ask.fm’s new owners insist they will be zealous about users’ safety. Before completing the deal, they partnered with two state attorneys general—New York’s Eric Schneiderman and Maryland’s Douglas Gansler—and produced a detailed agreement outlining new safety standards. The site has agreed to expand its content-monitoring team, work with suicide-prevention groups and will hire an outside safety consultant who will monitor the site’s compliance with the agreement and other safety standards. The site has also brought aboard Catherine Teitelbaum, Yahoo’s former director of global safety and product policy, as its chief trust and safety officer. She says she has an aggressive timetable for cleaning the site up.

Leeds, the new CEO, says the site has a great deal of untapped potential for genuine online self-expression and interaction, less inorganic and forced than Twitter, Instagram or Facebook (social networks alongside which he sees Ask.fm one day sitting). He says, “There’s no blank-box problem, where you have to think about what to say. People are already asking you questions.”

Set aside momentarily safety and user experience, the major areas Ask’s new bosses plan to address. The broader question—what effect endless access to the opinions of one’s peers has on vulnerable teenagers—persists. But maybe it, like over a billion others each month, will someday be answered by way of Ask.fm.

TIME Food & Drink

Coca-Cola Gets Its Claws Into Monster

Monster Surges After WSJ Reports Coca-Cola in Takeover Talks
Bloomberg—Bloomberg via Getty Images

Coke hopes teaming with the energy drink will buoy its business

The Coca-Cola Co. jumped into the quickly growing international market for energy drinks with its announcement today of a long-term partnership with a major energy-drink player Monster Beverage Corp.

Coca-Cola has purchased a 16.7% equity stake in the company for a $2.15 billion cash payment. After the announcement, Monster’s stock jumped 36% in after-hours trading Thursday.

The companies will swap ownership of some products. Coke will transfer its energy-drink business, which includes NOS and Full Throttle, to Monster. And Monster will hand over its nonenergy-drink business, which includes Hansen’s Natural Sodas, to Coke.

Fewer people are consuming diet soda because of health concerns, but the market for drinks like the ones Monster sells is growing. In turn, Monster will get access to Coca-Cola’s bottling and distribution networks across the world.

MONEY Fast Food

The Demise of ‘Satisfries’ and the Sad History of Healthy Fast Food

Burger King's much-hyped low-calorie French fries have failed to resonate with customers, which shouldn't come as a surprise given why diners go to places like BK in the first place.

American fast food customers have spoken, and what they essentially have said is that when they’re hungry for French fries, they’re focused on the fries, not calories. The message comes by way of Burger King’s announcement that after months of lackluster sales, its “Satisfries” — introduced last fall as a regular fry alternative with 30% fewer calories and 40% less fat — would disappear from two-thirds of BK’s North American locations. It didn’t help the Satisfries cause that they cost more than regular fries, $1.89 versus $1.59 for a small order.

What’s particularly interesting is that in the same week that Satisfries have more or less been declared a failure, Burger King reintroduced a style of “fries” back to the menu that no one is pretending is health food: Chicken Fries. In both cases, BK is saying that the decision was ultimately made by customers. Diners didn’t order enough Satisfries to keep them on most menus, so they’re gone. And as a press release explained, the return of the “cult favorite menu item” of breaded chicken strip “fries” was “sparked by an overwhelming number of enthusiastic tweets, Change.org petitions, dedicated Tumblr and Facebook pages, and phone calls from devoted fans.”

In other words, Burger King maintains that it’s simply giving diners what they want. Wendy’s spread the same message this week, announcing that the reason its Pretzel Bacon Cheeseburger—the biggest success in fast food last year—would now be on the menu permanently is because that’s what customers have demanded. “You said ‘bring it back.’ So we did,” Wendy’s Tweeted earlier this week of the 680-calorie burger. “Then you said “keep it on the menu.” And so it is.

Over the years, consumer groups and nutrition and anti-obesity advocates have pressed fast food giants to add items and tweak menus with a different purpose in mind—to help people to eat better, rather than just satisfy their cravings for grease and salt. The history of healthy (or “better for you”) fast food extends back decades, but probably hit its stride in 2004, when McDonald’s, under pressure after the documentary “Super Size Me,” dumped the super-size upsell option for fries and drinks. The odd celebrification (not a word, but you get the idea) of Jared Fogle, whose 200-pound weight loss supposedly due to dining exclusively on Subway sandwiches was chronicled in years of TV commercials, has permeated the era of fast food chains at least pretending to make genuine efforts to add healthier fare to menus.

The effort to woo more health-conscious diners—or perhaps just to get the health nuts off their backs—continues today. Earlier this year, Dunkin’ Donuts, for instance, significantly expanded its DDSmart menu, adding whole wheat bagels and sliced turkey breakfast sandwiches as alternatives to mainstays like the glazed or Boston Crème. McDonald’s has tried several healthier sides as non-French fry options in its kids’ Happy Meals: Low-fat Go-Gurt was added recently, and Clementines, bananas, and other fruits are being tested starting this fall.

Overall, however, the biggest players in fast food’s attempts at selling healthier options are riddled with more failures than big sales success stories. For example, before trying fruit, McDonald’s had offered baby carrots with Happy Meals, but very few customers went with that option—not even when the carrots were chopped to resemble cartoon characters.

In addition to Satisfries, here are a few other notable failures in the “healthy” fast food movement:

Dairy Queen Breeze: A healthier version of the Blizzard made with frozen yogurt instead of ice cream, the Breeze was introduced in 1990 and discontinued in 2000. Too bad it didn’t stick around for the yogurt craze that started a decade later.

McDonald’s McLean Deluxe: Introduced as a “revolutionary” 91% fat free burger in 1991, the McLean was foiled almost immediately when it was revealed to include carrageenan (a.k.a. seaweed) as an ingredient. It was dropped from the menu a few years later, and is now considered one of the biggest McDonald’s flops of all time.

Pizza Hut’s The Natural: The all-natural organic pizza made with multigrain crust sweetened with honey debuted in 2008 and was declared “a big opportunity” by Pizza Hut innovators. But The Natural cost about $1 more than a regular pizza, and it quietly disappeared by 2010.

McDonald’s Fruit and Walnut Salad: Health magazine was a fan, naming this mix of apples, grapes, walnuts, and low-fat yogurt to its list of “America’s Healthiest Mall Food,” but McDonald’s pulled the plug in 2013 after “listening to our customers,” a company spokesperson told Reuters.

What’s particularly interesting about salads is that while virtually every fast food brand feels like they must offer them, greens don’t sell. In 2013, McDonald’s CEO Don Thompson told investors that salads only constituted 2% to 3% of U.S. sales, compared to around 14% for dollar menu items.

There are even some who make the argument that McDonald’s shouldn’t waste any energy preparing salads and other healthier options. “McDonald’s is never going to be perceived as healthy, so for them to spend too much time on healthy items doesn’t make a lot of sense to me,” one investment analyst explained to the Wall Street Journal last fall.

Sadly, then, the hardcore business advice would be for McDonald’s and the rest of the fast food field to stick with their core business approach by focusing on instantly gratifying greasy fare, calories and fat be damned. Consumers may say they want healthier options, but their actions (and dollars) speak louder than words. Even the addition of calorie counts on menus are shown to not have much impact on what customers order at restaurants. A concept like Satisfries sounds great on paper, but when customers are up at the counter or eyeing the drive-thru menu, the idea of low-calorie anything probably isn’t top of mind. It just doesn’t seem satisfying enough.

MONEY mortgage bonds

This Danger Is Lurking Among Your Plain Vanilla Investments

201409_INV_01
Claire Benoist

Five years after financial crisis bond managers are again embracing risky, esoteric mortgage bonds. Here's how to spot them -- and protect yourself.

Updated on Aug. 15, 2014.

The New York Times is reporting that mutual funds with ties to JPMorgan Chase, SEI Investments and others are snapping up high-risk, high-reward bonds backed by delinquent mortgages. While investors accustomed to thinking of bonds as the staid part of a portfolio may be surprised, these managers’ efforts to dabble in exotic securities are hardly unusual.

In fact the controversy follows hot on the heels of another in July when fund maven Morningstar said it would no longer rate the $34 billion star bond manager Jeffrey Gundlach’s DoubleLine Total Return Fund—which ranks among the 10 biggest bond portfolios — after DoubleLine declined to answer its questions regarding a different variety of esoteric securities such as “inverse interest-only” and “inverse floating-rate” bonds, among other things. (DoubleLine was quoted in the Times article as saying they had looked at the low-quality mortgage bonds but hadn’t bought any yet.)

What gives? Amid today’s ultra-low interest rates many bond managers feel they need to go beyond traditional bonds like Treasuries and corporates to earn investors a decent return.

The use of complex securities—such as credit default swaps (a form of private insurance) and fixed-income derivatives (bets made on or against bonds that the funds don’t actually own)—has become so widespread that Morningstar had to create a whole new category: “nontraditional” funds. Yet unconventional investments can be found in many traditional portfolios. Even basic intermediate-term bond funds, for instance, are dabbling. This isn’t necessarily bad.

Some of these investments, such as futures and options contracts, allow managers to achieve a certain level of returns without the cost of buying hundreds of individual issues. The problem is that such funds become harder and harder to analyze. And inevitably a few will pile on really big positions that go south. In 2008, Schwab YieldPlus, an ultrashort bond fund, lost a third of its value because of bad bets on mortgage-backed securities.

Here’s how to strike the right balance between creativity and risk in your bonds:

Gauge your exposure to exotic investments

There’s no easy way to look up a fund’s derivative exposure online. Even prospectuses are written too broadly to be of much use, says securities expert Mercer Bullard. So you have to search for clues. Start with your fund’s cash stake. Many derivatives such as futures and swaps involve investing borrowed money. This can lead funds to report negative cash and outsize investments in other parts of the market. One high-profile example: Pimco Total Return. Go to Morningstar.com and you’ll see the fund, run by star manager Bill Gross, holds –36% of its assets in cash and more than 130% in bonds.

Index some of this risk away

While it’s hard to argue with the long-term success of Gross—or Gundlach—you don’t want all your managers to be so adventurous. Index funds can help. Passively managed funds aren’t necessarily derivative-free. The policy statement for Vanguard Short-Term Bond Index VANGUARD BD IDX FD SHORT TERM PORTFOLIO VBISX -0.095% , for example, says the fund may use derivatives “to a limited extent.” However, because index funds merely track broad market benchmarks, their managers have little incentive to use esoteric securities to juice their returns, analysts and industry experts say.

Manage your “manager risk”

Now, you might want to go with active management—perhaps you like the fact that some managers use unconventional securities to guard against market risks. DoubleLine officials, for example, say the investments that Morningstar took issue with make Gundlach’s bond fund less susceptible to the risks of rising interest rates.

Nevertheless, you should still diversify your bond pickers, since they’re using these instruments in different ways. Merritt Island, Fla., financial adviser Steve Podnos likes Pimco Income PIMCO FUNDS INCOME FD CL A PONAX -0.0785% , and Loomis Sayles Bond LOOMIS SAYLES FD I BOND FUND RETAIL CLS LSBRX -0.1265% . Both funds can invest in various types of debt globally. And both have beaten more than four out of five of their peers since 2009. Yet while the Pimco fund dabbles in some unconventional stuff like interest rate derivatives, the Loomis Sayles fund, which is on our MONEY 50 recommended list, tends to be a bit more strait-laced. If you’re 40, say, with 30% of your portfolio in bonds, dividing your fixed-income stake between two active portfolios and an index fund would limit exposure to any single manager to 10%. That’s insurance in case one of your bond pickers turns out to be a real gunslinger who misfires.

(Note: This story was updated with additional clarifying details regarding Morningstar’s dispute with DoubleLine. Morningstar says it stopped rating the DoubleLine fund after the company declined to answer its questions regarding holdings of esoteric securities such as ‘inverse interest-only’ and ‘inverse floating-rate’ bonds).

 

TIME Fast Food

Burger King to Phase Out Its Lower-Calorie Fries

US-LIFESTYLE-BURGER KING-FRIES
Satisfries, a lower calorie and lower fat french fry from the fast food restaurant chain Burger King SAUL LOEB—AFP/Getty Images

Satisfries will remain in nearly one-third of its North American restaurants

Burger King has learned a valuable lesson: When it comes to french fries, customers might be more interested in ones made of breaded chicken than they are with a healthier option.

The fast food chain announced in a statement that most of its franchises in North America will phase out the lower-calorie “Satisfries” that was rolled out last September as a limited-time offering. About 2,500 of its 7,400 restaurants have opted to keep the item.

“At launch, Burger King Corporation (BKC) announced that guests would ultimately determine how long SATISFRIES would remain on the menu,” the statement said. “Earlier this week, franchisees in North America were given the option to continue offering SATISFRIES in markets where this game-changing product continues to perform well.”

A small order of Satisfries, which Burger King began automatically adding to kids meals in March, costs 30 cents more than normal fries but has 70 fewer calories. However, the small serving of Satisfries still has more calories—270—than McDonald’s small serving of fries, which has 230 calories and even weighs less.

News of the lower-cal fries’ rollback comes shortly after Burger King’s announcement that it would bring back the cult-favorite Chicken Fries for a limited time due to high customer demand.

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