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The Consumer Financial Protection Bureau fined Bank of America $150 million for charging customers so-called junk fees, among other violations.
President Joe Biden has said his administration would crack down on junk fees — including those from banks as well as hotels, airlines and other service providers.
And yet, when one fee goes down another pops up, says Bankrate’s Ted Rossman, in “a game of whack-a-mole.”

What are junk fees?

Junk fees are additional, often hidden, charges that can come from a range of lenders. They are not typically included in the initial price of a transaction but are tacked on at the time of payment.
“Consumers are encountering these ‘surprise’ charges more often than they might expect, in everything from concert ticket surcharges to airline seat selection fees, credit card late fees, bank overdraft fees, hotel resort fees and more,” according to Ted Rossman, senior industry analyst at Bankrate.

Yet even if these fees were capped or even banned entirely, it’s unlikely that consumers would save money as a result, he said.

Overdraft fees are a good example of a ‘game of whack-a-mole’ when it comes to fees.

Ted Rossman
senior industry analyst at Bankrate

“Overdraft fees are a good example of a ‘game of whack-a-mole’ when it comes to fees,” Rossman said.
When many financial institutions lowered their overdraft and non-sufficient funds fees or eliminated them altogether, the average overdraft fee fell while ATM surcharges jumped to a record high, Bankrate found.
In most cases, even with more transparency, the all-in cost to consumers would likely remain the same, according to Rossman.

Cracking down on junk fees

President Joe Biden has said his administration would crack down on junk fees — including those from banks, as well as hotels, airlines and other service providers.
“Junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in, like many of you did,” Biden said in his State of the Union address earlier this year. “They add up to hundreds of dollars a month.”
Biden also called on Congress to pass the Junk Fee Prevention Act, which will reduce unexpected charges, such as airline booking fees; service fees for concert tickets; early termination fees for TV, phone and internet services; “resort fees” at hotels; and “excessive” credit card late fees.
Last year, the CFPB said it was scrutinizing certain fees that catch customers by surprise — and are “likely unfair and unlawful,” according to the agency.

The consumer watchdog proposed a new rule prohibiting banks from charging surprise overdraft fees on debit transactions and reducing typical late fees from roughly $30 to $8, saving consumers as much as $9 billion a year, according to the White House.
“Despite recent progress in addressing overdraft fees, the job is far from complete,” Nadine Chabrier, the Center for Responsible Lending’s senior policy counsel, said in a statement.
“The Consumer Financial Protection Bureau took a big step by banning surprise overdraft fees,” she said. “We are encouraged that the consumer bureau announced it will take additional steps, and we urge the bureau to place strong limits on the size and frequency of these fees.”
More than a quarter of checking account holders, or 27%, are regularly hit with fees, which can add up to an average of $24 per month, or $288 per year, according to a another survey from Bankrate. 
The average overdraft fee costs $29.80, Bankrate’s research found, while the average nonsufficient funds fee is $26.58.

Some banking interest groups countered that offerings such as overdraft protection provide a much-needed safety net.
“The president’s use of the term ‘junk fee’ is overly broad and ignores the needs of low-income and middle-income consumers who depend on these services to resolve short-term financial difficulties,” Jim Nussle, president and CEO of the Credit Union National Association, said in a statement.
“It does not consider the costs involved in providing needed financial services that consumers depend on.”
Without the option of overdraft protection, “people are more likely to turn to predatory lenders, hurting the same people the administration seeks to help,” Nussle said.
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While summer jobs let young workers get a feel for earning money, it is also an opportunity to give them their first lessons on investing.
Here’s why some experts say Roth IRA accounts can be particularly beneficial for younger workers.

Kmatta | Moment | Getty Images

For high school and college students, summer jobs are an opportunity to get used to earning a paycheck.
With that earned income, those young workers are also eligible to start investing in a Roth IRA.

Roth individual retirement accounts let workers set aside post-tax earnings towards retirement. In 2023, eligible workers may put up to $6,500 in a Roth IRA.
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For young workers, opening a Roth IRA offers distinct advantages, experts say.
“The greatest money-making asset any person can possess is time, and young people have more of it than anyone,” said Ed Slott, an IRA expert and certified public accountant.
“They should capitalize on that time,” he said.

By starting to invest early, especially with the help of a parent or grandparent, they’re more likely to continue that habit into their professional earning years, Slott said.

A “strong” summer job market for teens is expected this season, according to a forecast from Rhode Island College. That includes a projected 33.6% teen employment rate over the summer months, up from 32.7% in 2022.
Teen wages have also increased in recent years to real median weekly pay of $300 in 2022, a 7% bump from $280 in 2019, the research notes.
To start investing all or some of those earnings in a Roth IRA, teens and the adults in their lives would be wise to consider several factors, experts say.

1. Study up on Roth IRA rules

Roth IRAs offer a distinct advantage in retirement — the opportunity to take tax-free withdrawals, since the money invested was already taxed.
But Roth IRAs also offer other advantages, particularly the ability to take contributions out at any time before retirement, tax and penalty free. (Earnings may be withdrawn tax free only after the account holder is age 59½, and it has been five years since the tax year of the first Roth IRA contribution.)
While teen workers are a long way from that age, getting started now is helpful because the five-year rule applies to the first contribution to any Roth IRA. It is a good idea to open a Roth IRA now to get the five-year rule going, Slott said.

Михаил Руденко | Istock | Getty Images

If you contribute even a nominal amount to a Roth IRA in 2023, that will count as your first year of the five years, Slott said.
Importantly, the limit that may be contributed to a Roth IRA is up to $6,500 for 2023, but young workers who earn less can contribute only up to the amount they earn.
Eligibility to contribute to a Roth IRA also generally depends on how much you earn. Because workers may no long qualify for Roth IRAs later in their careers when their incomes are higher, that also makes it advantageous to get started with these accounts early.

Of note, the earned income that qualifies for Roth contributions can be W-2 earnings or self-employment income. But money that comes from babysitting or mowing lawns, for example, must be reported to the IRS in order to qualify for Roth IRA contributions.
“It actually is paired very well for children earning income for the first time during the summer,” Kelly Lannan, senior vice president of of emerging customers at Fidelity Investments, said of Roth IRA accounts.
Fidelity typically sees a roughly 30% increase in openings of Fidelity Roth IRA for Kids accounts from June to August, compared to the late April, early May time frame, according to the firm.

2. Loop in parents or grandparents

Generally, minors will need an adult to open and manage a Roth IRA on their behalf. The account is typically transferred to the child’s name when they reach age of majority, usually 18 or 21 depending on the state.
Having a parent, grandparent or other guardian involved can also help in other ways.
Slott said he started his own daughter with a Roth IRA when she started working one summer. He let her spend the modest sum she earned, then contributed that same sum to a Roth IRA on her behalf.
The strategy had two benefits, Slott said. It established the Roth IRA for the future and helped show the value of earning and saving.

The greatest money-making asset any person can possess is time, and young people have more of it than anyone.

IRA expert and certified public accountant

“They’re more likely to continue it, especially if a parent or grandparent set it up for them, into their higher earning years,” Slott said.
Adults who contribute money on behalf of a minor must be mindful that they should not exceed the earnings. So if a teen earns $4,000, for example, a parent or grandparent can only put in up to that sum.
However, if a teen earns more than $6,500, the maximum annual limit for 2023, contributions to the Roth IRA are capped at $6,500.

3. Consider other kinds of accounts

While Roth IRAs offer distinct advantages, opening a traditional savings account is also a popular route for teens looking to set aside money from their first jobs, Lannan said.
Those who open those accounts today have a distinct advantage with higher interest rates.
Many financial institutions also offer accounts specifically targeted at young savers and investors.
Early exposure to such accounts offer teens a way to start dabbling in investing and to learn by doing, Lannan said. For example, by purchasing fractional shares, which include just a portion of a stock, teens may gain experience with trading by investing just a few dollars, Lannan said. More

Life Changes

The Supreme Court’s ruling on affirmative action has raised more questions about legacy admissions.
Today, more Americans disagree with legacy admissions.
“If you can’t use race for Black and Latino students, then you can’t use race for wealthy white students either,” says Alvin Tillery, director of Northwestern’s Center for the Study of Diversity and Democracy.

After the Supreme Court’s ruling on the affirmative action admission policies of Harvard and the University of North Carolina, decades-old legacy preferences are facing new challenges.
The court’s ruling was considered a massive blow to efforts to boost enrollment of minorities at American universities through policies that considered applicants’ race.

Now, a civil rights group is contesting the practice of giving priority to the children of alumni at Harvard University, saying it discriminates against students of color by giving an unfair boost to the mostly white children of alumni.
“Your family’s last name and the size of your bank account are not a measure of merit, and should have no bearing on the college admissions process,” Ivan Espinoza-Madrigal, executive director of Lawyers for Civil Rights, said in a statement announcing the civil rights complaint.

Fewer people think legacy should factor into admissions

Today, more Americans disagree with legacy admissions.
To that point, 75% said whether a relative attended the school should not factor into admissions decisions, up from 68% in 2019, according to a report by the Pew Research Center.
In its suit against Harvard, Lawyers for Civil Rights said it was challenging the “discriminatory practice of giving preferential treatment in the admissions process to applicants with familial ties to wealthy donors and alumni.”

Legacies are nearly six times more likely to be admitted, the complaint said.
“This preferential treatment overwhelmingly goes to white applicants and harms efforts to diversify color,” added Michael Kippins, litigation fellow at Lawyers for Civil Rights.
Officials at Harvard declined to comment on the complaint.

Challenges to legacy admissions mount

Several bills at the state and federal level have also taken aim at the practice, including a recent proposal in Massachusetts that would charge colleges a fee for considering legacy status or an applicant’s relationship to a past, current or prospective donor.
The NAACP last week called on more than 1,600 U.S. public and private colleges and universities to commit to increasing the representation of historically underrepresented students and end the practice of legacy admissions.
“That signifies a huge stride toward future insurance that every student, regardless of their race, ethnicity, gender identity, sexual orientation, disability, religion, or socioeconomic status, has an equal opportunity to learn, grow, and thrive at a higher education institution,” Ivory Toldson, director of education innovation and research at the NAACP, said in a statement.

The legacy advantage is mostly a white entitlement.

Alvin Tillery
director of Northwestern’s Center for the Study of Diversity and Democracy

“There’s no doubt that the legacy advantage is mostly a white entitlement,” said Alvin Tillery, a political science professor and director of Northwestern’s Center for the Study of Diversity and Democracy.
However, these preferences are not based explicitly on race, which distinguishes the practice from the overt race-conscious admissions programs that were recently rejected by the Supreme Court, noted Don Harris, associate dean and equity, diversity and inclusion liaison at Temple University School of Law.
Yet, “it’s clear that they have a disproportionate impact on race,” added Harris, referring to what Chief Justice John Roberts wrote in his opinion about preventing ways around affirmative action: “What cannot be done directly cannot be done indirectly.”

Legacy admissions ‘could be deemed unconstitutional’

Since the practice of legacy admissions has indirect racial implications, these challenges may have legal merit, according to Jeanine Conley Daves, an attorney at New York-based firm Littler.
If there is no compelling interest for such programs and they are having a negative effect on the college application process, “then similar to race-conscious admissions programs, it could be deemed unconstitutional,” she said.
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“The reality is we’ve reached a pretty good consensus on the use of identity in college admissions,” said Tillery, who is also a Harvard graduate.
“If you can’t use race for Black and Latino students, then you can’t use race for wealthy white students either,” Tillery added.
The advantages that stem from legacy admissions can be hard to quantify but at some of the most selective colleges, legacies comprise as much as 10% to 20% of the incoming class, according to data from the Associated Press. A few institutions, including Amherst College, Massachusetts Institute of Technology and Johns Hopkins University, have phased it out entirely.
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With no winner for the most recent Powerball drawing, the top prize has jumped to an estimated $650 million.
Those winnings will drop significantly after the IRS takes its cut.
Before winners see a penny of the multimillion-dollar jackpot, there’s a mandatory 24% federal withholding that goes to the IRS.

The Powerball jackpot for July 10, 2023, has hit $650 million. Here, a cashier at a 7-11 store in Milpitas, California, issues Powerball tickets in 2022.
Anadolu Agency | Anadolu Agency | Getty Images

With no winner for the Powerball jackpot, the prize has jumped to an estimated $650 million ahead of Monday’s drawing. Of course, those winnings will be smaller once the IRS takes its share.
The jackpot jumped to $650 million from $615 million without a winning ticket Saturday. If you beat the odds, you can now pick between a lump sum of an estimated $328.3 million or an annuitized prize that pays out yearly and is worth $650 million.

Your chances of winning the grand prize are 1 in about 292 million.
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“One thing that’s unique about the lottery is that you can accept it over a 30-year period with annuity payments,” said certified financial planner John Chichester Jr., founder and CEO of Chichester Financial Group in Phoenix. “That offers a lot more flexibility in how you pay the taxes.”
Rather than a larger, upfront tax bill, you can take the annuity payment and invest the money in a tax-efficient manner, said Chichester, who is also a certified public accountant.

Roughly $78.8 million goes to the IRS

Before winners see a penny of the multimillion-dollar jackpot, there’s a mandatory 24% federal withholding that goes to the IRS. The withholding applies to winnings of more than $5,000.

If you choose the $328.3 million cash option, the 24% withholding automatically reduces your cut by about $78.8 million. However, many taxpayers wrongly assume they’re off the hook after that 24%, Chichester said.
“That 24% comes off the top, but you’re still responsible for the other 13% at some point,” he said.

Here’s why: Millions in lottery winnings will push you into the top federal income tax bracket. For 2023, the 37% rate applies to taxable income of $578,126 or more for single filers and $693,751 or higher for married couples filing together. You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Of course, the 37% doesn’t apply to all of your taxable income. For 2023, single filers will pay $174,238.25 plus 37% of the amount over $578,125. As for married couples filing together, the total owed is $186,601.50 plus 37% of the amount above $693,750.
The remaining tax bill depends on several factors but could easily represent millions more.

You may also owe state taxes, depending on where you live and where you bought the ticket. While some states have no income tax or don’t tax lottery winnings, others have top-income state tax brackets exceeding 10%. 
The Powerball isn’t the only chance to win big. The jackpot for Tuesday night’s Mega Millions drawing now stands at $480 million. The chance of hitting the jackpot in that game is roughly 1 in 302 million. More

Photo: Envato Elements

The U.S. economy added 209,000 jobs in June. However, some workers took slightly longer to land new jobs, one economist said.
While the labor market cools, job seekers can use AI tools to better their chances of landing a new full-time job.
“There are definitely ways that you should use it in your job search, but there are ways that it can backfire,” said career expert Suzy Welch.

Photo: Envato Elements

What’s going on in the job market

The U.S. economy added 209,000 jobs in June, while the unemployment rate trickled down to 3.6%. Even though the number of jobs came in lower than expected, it demonstrated “a strong but moderate demand,” showing signs that the labor market is “moderating in a sustainable fashion,” said Indeed economist Nick Bunker.
“Nothing is guaranteed, but the U.S. labor market continues to point toward a slower, but more sustainable pace of economic growth,” Bunker said.

The median duration for unemployment was roughly flat, meaning it took slightly longer for some workers to find a job, compared with last year, when people were landing jobs very rapidly, he said.

“In many ways, the labor market of 2021 and 2022 was an anomaly and isn’t really a good baseline for understanding what a sustainable and healthy labor market looks like,” said Bunker.

Practice with A.I. to excel in candidate interviews

The pandemic drove the adoption of digital interviewing via Zoom and other platforms, said Will Rose, chief technology officer at Talent Select AI. As part of that, the use of AI tools that provide different types of analysis for those interviews are becoming more embedded.
AI-led or fully automated interviewing processes are being adopted, but the companies using this technology remain a minority for now, said Rose.
More often, a company might use AI systems that look at different things designed to identify top applicants, he said. For asynchronous interviews — video interviews where you either talk to a machine or upload recorded answers — the artificial intelligence software focuses specifically on words used by the candidate.
With that in mind, research certain keywords relevant for that job and incorporate them in your interview answers, speaking to the areas that are in the job posting, Rose said.
“Highlight why you as a candidate shine,” he said. Underscore your qualifications, and ensure you give robust answers and anecdotes in the process.

You can also use AI tools as a personal assistant researcher to help you prepare for an interview, said Welch, who is also a CNBC contributor.
“Some AI tools will coach you before the interview. You should use every tool to practice,” she said.
Even if you’re not speaking with a human being in real time, still dress and speak as if you’re in a formal, in-person interview and be mindful of elements such as background and lighting. These videos are often still reviewed by recruiters and hiring managers, Rose said.

Don’t trust A.I. to write your resume, cover letter

In the same way a candidate might seek out a resume coach or consultant who will help prepare them for the job interview, a candidate should not shy away from seeking help in AI technology for these purposes — however, don’t trust the AI to completely write the documents.
“I think you really can hurt yourself [in areas] by using AI — and one is in your cover letter,” Welch said.
Hiring managers and recruiters who receive correspondence that is clearly completely written by software can be turned off by that, said Welch, especially if the AI plagiarizes portions or includes errors or falsehoods.
Companies are looking for authenticity in candidates, and submitting material completely engineered by bots will not “push you to the top of the pile,” she said.
Instead of letting AI take the reins, use it as a starting point to ensure you have all the right keywords and both your resume and cover letter have proper structures. Afterward, review and add your own words.
“AI doesn’t know your experience and … the certain specific anecdotes that highlight why you’re a great candidate,” Rose said.

Ask hiring managers how A.I. is used in the process

New York City recently enacted a law that requires companies to conduct a bias audit in the AI system, make the results public, clarify the involvement of AI in the hiring process for job seekers, and specify the type of data they collect and its use.
“Because New York City is the largest city in the country, this new law is having national implications,” Rose said.
In the meantime, he said, candidates should not be afraid to ask hiring managers if AI played a role in the hiring process and how those systems are being used in the decision process until more transparency laws take effect.
“It’s fair game,” he said.

In fact, both parties — the employer and candidate — should avoid leaning too hard on the use of AI in the hiring process.
“There should be some caution in terms of fully automating that [process] and taking that human element out,” Rose said. “It’s more about the experience that you’re giving to the candidate.”
“Whether AI exists [in the hiring process] or not, the jobs always go to the most prepared candidates who come in with the best sense of the job,” he said. More

Sanjay Mehrotra, CEO, Micron
Scott Mlyn | CNBC

The S&P 500 and Nasdaq notched a solid performance in the first half of 2023, thanks to an impressive rally in major tech stocks. However, macro pressures have not abated, with minutes from the latest Federal Open Market Committee meeting hinting at more interest rate hikes to tame high inflation.
Given the ongoing uncertainty, investors could benefit by looking at stocks with strong fundamentals and long-term growth potential.

Here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.

Micron

First up is chipmaker Micron (MU), which reported better-than-feared fiscal third-quarter results in late June. The company cautioned that the recently imposed ban on its products by China remains a major headwind. However, investors chose to focus on management’s commentary on improving business conditions, with artificial intelligence driving strong demand for Micron’s memory chips.
Goldman Sachs analyst Toshiya Hari expects Micron’s near-term financial performance to continue to be noisy due to several factors, including the revenue uncertainty associated with the Cyberspace Administration of China’s ban and inventory-related issues.
Nevertheless, the analyst maintained a buy rating on Micron with a price target of $80, saying, “We have confidence in the company’s ability to mitigate potential share loss in China and drive share gains in the HBM3 market over time, while executing on its DRAM and NAND technology roadmaps.”
Hari believes that the company’s solid position in the DDR5 market, which is the latest generation of high-performance memory chips, and the prospects for its high bandwidth memory HBM3 chips (mass production to begin in early 2024) position it well to take advantage of the rapid growth in the AI space.

Hari’s recommendations are worth considering, as he is ranked No. 155 among more than 8,400 analysts tracked on TipRanks. His ratings have been profitable 64% of the time, with each rating delivering an average return of 19.7%. (See Micron Stock Chart on TipRanks)

Texas Roadhouse

Restaurant chain Texas Roadhouse (TXRH) is facing elevated input costs due to sky-high inflation. Despite near- and medium-term margin pressures, Wedbush analyst Nick Setyan continues to believe in the company’s ability to gain further market share in the casual dining restaurant space.
Checks by the analyst’s firm indicate that TXRH is set to deliver second-quarter same-store sales growth ahead of the consensus estimate of 8.2%. Accordingly, Setyan raised his Q2 same-store sales growth estimate from 8.5% to 9.5% to reflect robust dine-in traffic, the impact of increased local marketing efforts, and a higher off-premise mix.
Setyan expects continued strength in the company’s sales to more than offset the ongoing food cost inflation, including beef. He slightly increased his 2023 and 2024 EPS estimates, given his expectation of top-line upside.     
In line with his investment thesis, Setyan reaffirmed a buy rating on the stock with a price target of $123. He explained that his price target reflects a premium valuation, which is “appropriate given our expectation of accelerating market share gains within casual dining for the foreseeable future.”
Setyan holds the 798th position among more than 8,400 analysts on TipRanks. Additionally, 51% of his ratings have been profitable, with an average return of 7.2%. (See TXRH Blogger Opinions & Sentiment on TipRanks)

Carnival

Next on this week’s list is cruise operator Carnival (CCL). After being battered by pandemic-led lockdowns, Carnival and several other travel stocks have bounced back strongly this year due to robust travel demand.
Tigress Financial analyst Ivan Feinseth expects Carnival to benefit from solid bookings, higher pricing, and the reprioritization in consumer spending on travel. He projects revenue, economic operating cash flow, and net operating profit after tax to exceed pre-pandemic record levels by mid-2023.
“CCL’s accelerating Business Performance trends and significant recovery in cash flow continue to enable the ongoing funding of key growth initiatives, fleet expansion/transition, upgrades, and debt reduction,” said Feinseth, who ranks 174 out of more than 8,400 analysts tracked on TipRanks.  
The analyst noted that Carnival paid down $1.4 billion of its debt in the fiscal second quarter. CCL is expected to reduce its debt levels to less than $33 billion by the end of 2023, supported by improved cash flows. The company’s debt peaked at over $35 billion due to the disastrous impact of the pandemic on cruise lines.    
Feinseth reaffirmed a buy rating on CCL and boosted his price target to $23 from $13. He has a success rate of 62% and each of his ratings has returned 13.1%, on average. (See CCL Insider Trading Activity on TipRanks)

MongoDB

Feinseth is also bullish on database software maker MongoDB (MDB), which delivered market-beating results for the fiscal first quarter ended April 30 and raised its full-year guidance. The company had more than 43,100 customers at the end of the period, after witnessing the highest net new customer additions in more than two years.
Feinseth expects the growing integration of generative AI tools and capabilities will drive increased adoption of MongoDB’s highly customizable and scalable database as a service platform by enterprise customers.
The analyst said the company will continue to use its solid cash flows to invest in growth initiatives, including innovation, strategic acquisitions, marketing efforts to attract more customers, and international expansion.
“MDB will continue to benefit from increasing enterprise IT spending driven by enterprises’ ongoing needs to leverage AI capabilities as a growing competitive advantage,” said Feinseth.
Even after the solid year-to-date rally in MDB shares, Feinseth sees further upside in the stock. Accordingly, he reiterated a buy rating and increased the price target to $490 from $365. (See MongoDB Financial Statements on TipRanks)   

Amazon

E-commerce giant Amazon (AMZN) is holding its much-awaited 9th annual Prime Day on July 11 and 12. Prime Day is an annual sales event exclusively held for Amazon Prime members, which helps the company deepen its relationship with existing members and win new ones. 
JPMorgan analyst Doug Anmuth expects the 2023 Prime Day to see elevated demand despite a tough macro backdrop. The analyst projects Prime Day will generate about $7 billion in revenue, up more than 12% year-over-over, with gross merchandise value expected to increase more than 13% to $11 billion.
Anmuth highlighted the initiatives taken by Amazon over the past two years to strengthen its network. In particular, the company doubled the size of its retail network, established a massive last-mile transport network, and implemented a new sortation network to increase the speed of delivery for long-distance orders.
Amazon has also transitioned from a national U.S. fulfillment network to a regional model comprising eight interconnected regions to optimize inventory placement and other processes, reduce delivery costs, and boost speed.
“As such, Amazon should be well-equipped for the elevated demand of Prime Day, & the event should also help AMZN right-size inventory ahead of heavier demand deeper into 2H around the holidays,” explained Anmuth.
Amazon continues to be Anmuth’s “best idea,” with a buy rating and a price target of $145. Anmuth is ranked No. 110 among more than 8,400 analysts tracked by TipRanks. His ratings have been profitable 61% of the time, with each rating delivering an average return of 16.7%. (See Amazon Hedge Fund Trading Activity on TipRanks)           More

New social media videos are start to removing the stigma tied to spending decisions.
As lifestyle choices become more transparent, that may ultimately help people become wealthier, experts say.

Photo taken in Amalfi, Italy
Sergio_pulp | Istock | Getty Images

“Have you ever been broke, but no one believes you because you don’t look like a broke person?”
New videos trending on social media platforms such as TikTok and Instagram are asking that very question.

“The thing is, like you broke, but like a bougie broke, like you ‘broque,'” one narrator said.
“Even on payday you broque,” also spelled “broké.”
The reels are often accompanied by lavish scenes, from restaurant meals with abundant food to travel scenes from locales such as Positano, Italy.
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Social media has upped the ante when it comes to showing off users’ lifestyle or experiences. The new videos show off the same coveted lifestyles with a wink: “You think I can afford this, but little do you know what’s in my bank account.”

Experts say that’s not necessarily a bad thing.
“Money is so taboo,” said Emily Irwin, managing director of advice and planning at Wells Fargo’s Wealth & Investment Management.
“To talk about that, to put it out there in a very vulnerable way, I think is also empowering of others to even start the conversation,” Irwin said.

‘Bougie broke’ is changing money conversations

“Bougie broke” describes the state of “always barely having adequate funds,” whether it be in cash, accounts or on credit cards, according to the Urban Dictionary.
The term is not new.
But the term is trending in a unique set of circumstances — inflation that recently pushed the rate of price increases to the highest in four decades, an already high cost of living that has made achieving major life goals such as buying a home feel out of reach, and a pandemic that tempted more people to prioritize live-for-today experiences.
Generally, “hedonic or conspicuous” spending with the aim of making other people see you in a certain way is not a good thing, according to Dan Egan, vice president of behavioral finance and investing at Betterment.
But the new bougie broke videos may have a positive influence in destigmatizing an uncomfortable topic — feeling conflicted about spending decisions.

It’s like asking, “What do other people think? Am I the only one here who feels this way?” Egan said.
“There’s definitely a trend towards every generation being a little bit more comfortable talking about things that were serious stigmas in previous generations,” Egan said.
The bougie broke videos highlight the fact that people prioritize different things, and you never know what’s totally behind what you’re seeing, Irwin said.
While you may assume someone’s flashy lifestyle comes with plenty of extra room for savings and the achievement of other big financial goals, that is not necessarily true, she said.
“To dispel that whole notion is really cool, I think,” Irwin said.

This could be a super-interesting way to put your goals out there and hold yourself accountable.

Emily Irwin
managing director of advice and planning at Wells Fargo’s Wealth & Investment Management

Not only do the videos take the stigma out of admitting you’re “bougie broke,” the platforms also offer a new way to share personal goals and hold yourself accountable, she said.
“One of the most impactful steps of setting goals is actually communicating them with someone,” Irwin said.
Whether it’s an audience of one or 1 million, knowing people are listening can help push you to keep going, she said.
“This could be a super-interesting way to put your goals out there and hold yourself accountable,” Irwin said.

Next up: ‘quiet luxury,’ ‘premium mediocre’

Another trend that’s catching on — “premium mediocre” — may have a powerful impact on how people live, Egan said. The term describes goods and services that are just slightly above average, say a six or seven out of 10.
For some things, say when it comes to the salad you eat, the difference in quality is probably not that different from what a billionaire consumes.
Part of the bougie broke trend is separating who you think of as being well off from those who visibly spend a lot of money, he said.
More truly wealthy people are pulling back from showing off their wealth in favor of quiet luxury, Egan said. Ultimately, that’s a good thing.
“We’re decoupling that sense of spending money as a signal for wealth versus spending money for spending money,” Egan said. More

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Company: Algonquin Power & Utilities (AQN)

Business: Algonquin Power is a renewable energy and utility company that provides energy and water solutions and services in North America and internationally. The company operates through two segments – (i) the regulated services group, which provides a portfolio of rate-regulated water, electricity and gas utility services, and (ii) the renewable energy group, which generates and sells electrical energy produced by its portfolio of renewable power generation facilities.
Stock Market Value: ~$5.7B ($7.87 per share)

Activist: Starboard Value

Percentage Ownership:  7.5%
Average Cost: $8.38
Activist Commentary: Starboard is a very successful activist investor and has extensive experience helping companies focus on operational efficiency and margin improvement. Starboard has made 111 prior 13D filings and has an average return of 27.52% versus 12.10% for the S&P 500 over the same period. This is Starboard’s first 13D filing in the utilities sector.

What’s happening?

On June 30, Starboard reported a 7.5% interest in Algonquin Power. The firm sent a letter to the company on July 6, saying that a sale of Algonquin Power’s renewables business can help it reduce leverage and provide “a safer dividend.”

Behind the scenes

Algonquin Power is a utility company based in Canada with most of its assets in the United States. The regulated services segment accounts for 87% of the company’s revenue and its business is comprised of the following: 60% electricity, 20% gas, and 20% water. Sixty-five percent of the electricity the company provides is generated by gas and 35% by renewables. The core utilities business is operated efficiently with a rate base growth rate of 8% versus 6% to 7% for peers. Despite this, Algonquin currently trades at 13 times to 14 times price-earnings with a 5% dividend yield, versus 17.5 times P/E and a 3.5% dividend yield for peers. Moreover, the water business is better than electric and gas, and Algonquin Power has more water exposure than peers, so it should trade at an even higher P/E ratio.

Arun Banskota was named Algonquin Power’s CEO in 2020 and has prioritized strategic transactions over operations. Accordingly, the company announced an agreement in October 2021 to buy Kentucky Power for nearly $3 billion. In December 2022, the Federal Energy Regulatory Commission denied approval of the transaction. In April 2023, the company terminated the agreement to acquire Kentucky Power. Amid these developments, Algonquin Power’s stock fell from over $15 per share to roughly $6.52 per share as shareholders lost confidence in management. And for good reason: A large acquisition was the last thing the company needed. Investors were looking for a stable, predictable company with a strong balance sheet and a good dividend ratio – things you generally expect from utilities. Instead, the acquisition would have added to an already over-leveraged balance sheet, putting Algonquin Power in an even less stable financial position.
The activist campaign here is relatively simple: Sell the renewables business and focus on the core, stable regulated utility business. Selling the renewables business will not only provide the company with a large capital infusion to stabilize its balance sheet and secure its dividend, but it would also provide the type of investors who like utilities businesses with more certainty, predictability and stability. In other words, it would do the exact opposite of what the Kentucky Power acquisition would have done. While the renewables business only accounts for about $300 million in revenue and roughly $200 million in earnings before interest, taxes, depreciation and amortization, there is a lot more value in this business than may appear for several reasons. That includes the fact that Algonquin Power has several joint ventures in which income has not started coming in yet, plus there are significant tax benefits that are not included in EBITDA. Based on the per megawatt basis of comps, the renewables business could yield over $5 billion in a sale to one or more larger companies.
Moreover, this may be similar to pushing an open door. In May, the company announced that it retained JPMorgan to conduct a strategic review of the renewables business. So, unlike many activist campaigns, persuading management is no longer an obstacle: It now just depends on execution. We have no doubt that Starboard will be keeping a close eye on the company to see how it executes this strategic review. If the firm feels the company needs some guidance in the process, we expect Starboard to seek board representation, given its history. Finally, if this happens it will likely lead to a more operationally focused CEO as opposed to a strategic visionary.
There is also an Activist ESG (AESG) thesis here. Algonquin Power’s energy generation is currently divided into natural gas and renewables. However, as equipment and facilities depreciate, they can no longer be included in the rate base, and the company cannot get paid on them. So, companies like Algonquin Power will close facilities and retire equipment and build new facilities and buy new equipment that can be added back into the rate base. The trend in the industry is toward more environmentally friendly assets. So, while the company presently is approximately 65% natural gas and 35% renewables, there is an opportunity to increase the percentage of renewables in the future.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Algonquin Power is a holding in the fund. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies. More