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The Oxen Group is a financial analysis and investment opportunities newsletter-based website run by financial analyst David Ristau and features several other traders. Ristau and team have been working in stocks for several years and has developed a knack for identifying winning short-term and... More
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  • The Daily Discourse: Five Signs the Unofficial Economy is Recovering

    The official recession is over as many of us know from the fact that the economy is now growing rather than contracting. Yet, the economy that you and I live within, the unofficial economy, is still slow to recover. The five main signs for me that the unofficial economy will actually be recovering is when we see bank lending increase, home values rise, employment back to normal, incomes/consumer credits rise, and overall confidence rebounding. On some fronts, we are actually finally seeing the recovery we want to see, but it is slow to rebound. 

    Here are some of the latest signs:

    Consumer Credit - In May, the S&P reported that credit defaults had fallen. It was the first decline the S&P had seen since December of 2009. Defaults of balances were at 8.9%, lower than April’s 9.1% rate. The number was also 8% lower than one year earlier. As consumer credit strengthens and less debt is on the hands of citizens, it shows a very good sign for the economy. If people are able to start eliminating credit, it shows recovery in jobs, confidence, and soon will lead to more consumer spending. 

    Income - The US Bureau of Labor reported that the average hourly earnings for the US worker rose 0.5% from April to May. Real earnings per hour have risen 2.1% since October 2009 when they were at the lowest. This is a great sign that rate cuts are no longer continuing, and companies are upping wages and giving new employees higher wages. The May 2009 and May 2010 average hourly earnings are now in line with each other, and we are on our way up. In addition to increased wages, the average hourly workers hours are increasing. In the month of May, private employees got 34.2 hours per week up 0.1 from April. The increase shows that companies need more work and are giving existing employees more work. This is good for income, and it is a sign that jobs are soon to come. As companies cannot supply existing workers with more hours, they will have to hire on new employees. In one year, average weekly hours have risen 0.9 hours.

    Employment - Unemployment is the big ticket item, and it has been slow to recover. Seen before my very own eyes, I only know a handful of kids with full-time jobs that graduated with me in the latest graduating class. Yet, there are some signs that a recovery is on the way. In May, 37 states reported that they saw a decline in their unemployment rate as the national average dropped to 9.2%, according to The Bureau of Labor. 41 states and D.C. saw an increase in their ADP nonfarm payroll as 55,000 new jobs were added to the private sector from May 2009 to May 2010. This was also an increase from April to May. As companies continue to recover in revenue and earnings, they will continue to add more employees. 

    Home Prices - The CoreLogic Home Price Index showed that housing prices increased 2.1% in April 2010 from April 2009. It increased just under 1% from March to April. The influx in home prices shows a rise in demand, which is great for homebuilders and for the economy. As home values rise, consumer spending will increase. California, for example, saw a 21% price rise in their homes from 2009 in May. These types of increases are bubble-like, but as a whole, the nation is on the right track. If home prices can continue to bounce back, it will be yet another sign the economy is on the right track. Tomorrow, the Housing Price Index is expecting a 0.20% increase, which will continue the trend. It was helped obviously by the homebuyer tax credit, but as the economy recovers, a credit will no longer be needed.

    Consumer Confidence - Consumer confidence continues to bounce back, as well. The Michigan Consumer Sentiment Index rose to 75.5 in its June reading, which is the highest rating the MCSI has gotten in two years. Estimates were from below to 70 to 74 at the highest level. This is extremely high rating is a great sign that consumers are starting to finally feel good about what is going on in the economy. 

    Bank Lending - This is probably the one area that needs to really turn itself around. There is still low demand for high loans as people straighten out their finances, and banks do too. Yet, bank lending is a good sign that small businesses, consumers, and large corporations all believe in the economy. This last reading showed more decline in February, so it is not up to date. A new reading should be out soon. 

    I would say we are starting to see the rises in the right departments, and the market is getting the bounce it should finally be getting due to the economics of things. 

    Good Investing,

    David Ristau



    Disclosure: none
    Jun 21 3:26 PM | Link | Comment!
  • Sports and the Amazing Increases in Money and Investments
    In the past twenty years, the average household income has increased just under 80% from just under $29,000 in 1989 to $52,000 in 2009. The large increases in income has come from an amazing run for and American economy that has strengthened from globalization, the invention of the internet, and the modernization of industry and our economy. At the same time, one industry has had one of the most amazing runs of all: the sports world.

    Marked by its physical prowess, large contracts, glamor, fame, the sports industry has become one of the most profitable industries in the American economy. In the past twenty years, the average salary of an MLB player has increased 650%, while an NFL player's salary has increased 500% - a significant increase over the average salary of an American. The average salary of an MLB player in 2009 is $3.25 million while an NFL player is $1.8 million. Top top salaries in the MLB topped $35 million for a single year. 

    The stories of the sports world is one full of success and competition, but in reality, the sports world is the top dog for investing. The Houston Texans of the NFL, for example, were bought in 1999 for $700 million. The team, today, is now worth nearly $1.5 billion. The company makes revenues over $250 million a year. In ten years, the investment for Robert McNair has turned 100%. The Tampa Bay Devil Rays were bought in 2005 for $200 million by Stuart Sternberg. The baseball team at the end of the 2009 season was worth $315 million. In four years, the team has returned 60% for Sternberg. Even the NBA has had tremendous results, as well. One of the newer teams is the Toronto Raptors were bought in 1998 for $125 million, and they were worth $386 million at the end of 2009 - an increase of 200% (all numbers from Forbes).

    Obviously the average investor cannot get involved in this high capital, high return industry that requires millions to finance, but sports money is amazing. It extends to every single sport, as well. Soccer has seen amazing results overseas. The NHL has become less of the gritty sport all about play to a money making giant. Golf payments have become outstanding. 

    The success of all these sports is something we all watch at with gawking eyes. The salaries are ridiculous at times itappears, but these players are paid because of human demand. That demand is something that has waned some in the latest economic crisis but will soon return. In 2009, the MLB saw its attendance decline 6% from 2008. The MLB sees 2010 declining around 2% from 2009. Even with this decline, it is slowing, and 2011 should see increases. 

    So, we can't buy teams, and sports teams are privately owned. Is there any way we can make $34 million contract...unfortunately no. Unless you can command a 100 mph fastball against 250 pound swatting experts on a consistent basis. I don't think any of us can. Therefore, we have to stick to investments. The sports market is making great strides, and it is growing at alarming rates. Therefore, we have to think outside of the box to take advantage of its success.

    One company that is seeing its value growing with the NFL and MLB and its success is Under Armour (UA). Since its IPO in 2005, the stock has grown from $25 to $37, a nice increase of 50%...a pretty similar return to Sternberg's Tampa Bay Devil Rays investment. Then there are companies like Electronic Arts (ERTS) and Take Two Interactive (TTWO) that has been able to make the sports world come alive in our own homes, so we actually can live like Alex Rodriguez or Jerry Jones ... if it is just for a few hours. ERTS in the past five years has not been a great investment after it lost 2/3 of its value during the recession and failed talks to buy out TTWO. Yet, it has increased some 1600% in the past twenty years. TTWO has increased 100% since its inception in 1997. 

    The final comment is a question. Do you think we overpay players? They wouldn't be paid without demand. Is it all just business? Does high pay negatively impact the games?

    Let me know what you think.

     

    Good Investing,

    David Ristau

     


    Disclosure: none
    Jun 17 2:17 PM | Link | Comment!
  • The Daily Discourse: The Amazing Success of Pixar Films - Creating Dreams

    Pixar Game - Name the following movie where this line appears (answers at the end of the article):

    A."You’ve got a friend in me"

    B. "It’s a bug-eat-bug world out there."

    C. "Hey there, Mr. Grumpy Gills. When life gets you down do you wanna know what you’ve gotta do?"

    D. "Hey, let’s play a game. It’s called "see who can be quiet the longest."

    E. "EVE!!!"

     

    Perhaps some of you were not as successful as that as some of the younger readers. Amazingly, Toy Story was released I was seven years old. It was a big hit in my household. I recently saw an amazing statistic on Business Insider about that every Pixar movie that has been released has been a Top Ten box-office hit on the year of its release. That is an amazing statistic that I do no think any other studio can claim. When I heard that statistic, I wanted to dig a bit more deeply into the company’s history and recipe for success.

    Pixar Studios began as a division of Lucasfilm in 1979 as the Graphics Group. The original company worked less on films and more on various animation techniques and parts of larger films. The Group’s big success was the Genesis Effect in the movie Star Trek II: The Wrath of Khan as well as the Stained Glass Knight in the Young Sherlock Holmesfilm. Steve Jobs came on the scene in 1986 and bought the Group for $5 million. The company soon changed the name to Pixar and worked mostly as a high-end hardware company that sold computers to the government and medical community. 

    In the late 80s, facing possible bankruptcy, Pixar began to do commercials for various companies’ commercials and was developing a relationship with Disney in a program for computer animation. Check out Pixar’s 1990 commercial for Listerine. Finally, in 1992, Pixar made a deal with Disney to produce three computer-animated films for only $26 million.Toy Story was the first grossing $350 million from 1995. The company made its first IPO in late 1995 for $22 per share on the Nasdaq with a listing of PIXR.

    From 1995 on, the company went on to make A Bug’s Life, which grossed $350 million as well in 1998. The companies went on to make Toy Story 2, Finding Nemo, The Incredibles, and Cars. In 2006, Disney bought out PIxar for $7.4 billion. The company had grossed nearly $3.5 billion by the time it was bought out. Since being bought out, the company has produced Ratatouille, Wall-E, and Up. Thus far, Pixar has racked up 24 Oscars, six Golden Globes, and three Grammies. 

    So, how has Pixar made such successful films? For one, they have had the Disney name behind their creations. The Pixar films are nearly as much Disney films as much their own, but in the same timeframe from 1995 to 2009, Disney has released only four movies that grossed more than $200 million: the three Pirates of the Caribbean series and the Chronicles of Narnia. This is despite releasing some 200 movies during that period.

    There is a Pixar success for sure. So, what makes Pixar’s success?

    Pixar’s John Lasseter says its quality. They only make one movie every year or every other year, while another company makes five or six and grosses nearly as much. It is, therefore, a matter of producing one great film a year or a handful of so-so to good films. Pixar has chosen the prior, and for that reason, have become such a success.

    This quote from Lasseter is great:

    One of the key things we do is we get comments, but from other filmmakers. Our creative brain trust is our own minds. So we know that we’re getting a reaction that comes out of total support, not ego. We have a rule: No note is mandatory, which allows you to be more open to criticism. We only use the notes that help us step back and look at the film through fresh eyes.

    Pixar is a dream machine. Period.

    They make fantastical movies about heroic characters come to the life with vibrant animation. They take the story linesthat cannot be done in reality and make them come to life: from toys to fish to bugs to rats to robots. The art of personification is on what Pixar thrives. They give normal human stories to fantastical characters and make you love them. There is not a touch of there films that is not nearly perfect - from the animation, to the voices, to the jokes, to the music.

    Pixar’s next film is Toy Story 3 - releasing this Friday should shine again. While it will not be as successful as the prior Toy Story films in creating an original idea, the creation of another success story is still on the way. On the plate for Pixar into the future. In the future, next year, the company will release Cars II. In 2012, the company will release a new story about bears - Brave.

    Since buying Pixar in 2006, Disney’s share price has increased from $25 to its current $35 per share. You can invest in Pixar by picking up shares of DIS!

    Good Investing,

    David Ristau

     

    (A - Toy Story, B - Bug’s Life, C - Finding Nemo, D - Up, E - Wall-E)



    Disclosure: none
    Jun 15 1:14 PM | Link | Comment!
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