Drowning in debt, depleting one's savings...

Numbers were released earlier this week on the U.S.'s national saving's rate for 2005. On average, individuals saved a negative 0.5% in 2005. This pretty much means that not only are Americans not saving, they're also dipping into their previous savings too. There are only two other times in American history when there have been negative savings rates - twice, during the Great Depression. Are we in a mass depression now? No. So what is everyone's excuse?

Analysts have been saying that there's a "wealth effect" going on right now. Because of rising housing prices, people assume their personal wealth is increasing at the same rate as their properties are increasing - a "my house is worth more, therefore I can spend more" mentality. I'm sorry, but this is dumb. Haven't people heard cries that the housing bubble will burst soon? Tying one's personal worth with one's property value is only a short-sighted way to view one's worth.

For a comparison, let's go to China. MSN Money's Jim Jubak wrote today that China could be soon fighting deflation. To combat deflation, the easiest solution is to increase consumer spending. While telling people to buy more is easy in America, in China where the average savings rate is roughly 40% of their income, it's hard to suddenly tell people to consume consume consume.

Why is there such a huge difference? In America, people seem to believe that outward appearances suggest wealth. People show off their material wealth in the form of luxury cars, designer clothes, or the newest tech gadget. However, on the inside, we are a society that is drowning in consumer debt. Coincidental? I think not.

Could the real reason Americans are overspending be because of low self esteem? I say most likely. Because when you get down to it, are you spending all this money to appear rich for yourself? Or to appear rich to everyone else?

Healthy = Wealthy ?

As the baby boomers begin to age, what things do they find important to them? I imagine it's health above all. Well, to be fair, with the growing number of obesity cases, I imagine a lot of Americans could be concerned about their health as well. Companies began to cater to these healthier needs. McDonalds (MCD) added a few healthier items and better choiced salads to their menu (which helped their sales and margins in this past blowout 4th quarter), as did many other food establishments. So what can you do to buy into this health trend?

Well, some people equate healthiness to organic food. The two most obvious suggestions are Whole Foods Market (WFMI) and United Natural Foods (UNFI). I've written about WFMI before, and I still think it's a great company.

United Natural Foods (UNFI) - is a wholesaler of organic and natural foods, which caters to such organic supermarkets as Wild Oats (OATS) and Whole Foods (WFMI). The most obvious question is, why buy the wholesaler but not the actual supermarkets? Well, supermarkets have historically really low margins, so their ability to produce profit could be strained by any number of outside factors. A wholesaler's survival, on the other hand, is based off of consumer demand. Since the demand for organic food is on the rise, the wholesaler should be reeping the benefits.

Groupe Danone (DA) - known to Americans as Dannon, the maker of yogurt and Evian. I'll just refer to it as Dannon, since the majority of my readers are Americans. Dannon is a major food conglomerate, which produces anything from dairy products to biscuits to bottled water to baby food. The reason I suggest Dannon is simply for their dairy unit, and more specifically, their yogurt unit. As Jim Cramer relayed, and I agreed with, yogurt consumption is on the rise. And as USA Today put it, we're in the middle of a yogurt-eating renaissance.

Here are a few statistics from Know It's Yogurt:

• Total yogurt sales in the U.S. in 2004 were $2.8 billion, a 7.7% increase from 2003.
• Sales of yogurt rose 87% from 1994 to 2004.
• Consumption of yogurt in the U.S. doubled in the 15 years between 1987 and 2002, and tripled in the 19 years between 1983 and 2002.

I should've seen the yogurt-eating renaissance coming from a mile away. I eat yogurt often (well, in the form of yogurt smoothies), and yet the thought to see who produced it completely evaded me. I always say to observe your surroundings to see if anything you're consuming is worthy of stock ownership. I think Dannon is one of those situations.
And! Dannon is a French company, allowing for international diversification, whilst playing the healthy trend. That's two birds with one stone. And if you enjoy dividends as much as I do, Dannon has a 1.3% dividend yield. It's not a huge yield, but it's good enough to earn a few extra bucks on the side. The third bird is down.

One last thought to remember, all the wealth in the world is worthless if you're not healthy enough to enjoy it later on. I hope Americans can continue on their health conscious trend, and I hope everyone (from investors to consumers) can enjoy the benefits in the long run.

I own and/or control shares of McDonalds, Whole Foods Market, United Natural Foods, and Dannon.

Look at my returns!

There's a new link on my blog, if you'll look toward your right immediately under my profile, which tracks my personal portfolio returns and my investment group returns. Feel free to take a gander.

Or for those who are reading this through syndication, the address is http://allinvestmentsreturn.blogspot.com

Still mad @ Steve Jobs

I'm still a little fuming about Disney's potential buyout of Pixar. As news agencies are reporting, they could close their deal as early as Tuesday. Disney is allegedly buying Pixar for a premium, if it could even be considered that - Pixar's shares are trading around $58 a share. The buyout will pay $59 a share. As a shareholder, I'm a little annoyed that this so-called premium is only $1. Think about it. Disney has had a string of losers in the past few years. Pixar has nothing but solid movies performing solidly at the box office. This deal should command such a larger premium per share than $1.

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Pixar and Disney just announced the resolution of their deal. Disney will buy Pixar for $7.4 billion in stock. For each share of Pixar owned, you'll receive 2.3 shares of Disney. Steve Jobs is now the largest individual shareholder of Disney.

I've made my disdain for this deal known. And in an effort to not be so negative, I won't write about this specific deal anymore. But it should be noted that I don't anticipate to keep all (or even any) of Disney's shares, once awarded.

Dear Steve Jobs, CEO Pixar

I have been a Pixar shareholder for almost three years - and it's treated me well, by giving me a 60% return. I don't pretend that I'm a large shareholder, but each owner has a say in their company, no matter how small their percentage. Which is why today's news speculation about Disney possibly buying out Pixar is particularly annoying, and thus, I'm penning an open letter to you.

Pixar is such a solid company with a huge presence in the entertainment industry. And yet, has never released subpar films - why? Because you ensure quality, not quantity. That is an attribute that Disney does not share. I can't even remember what the last Disney movie that was synonymous with quality was.

Can anyone even name the last Disney computer animation released? Robots? No, that was Fox. Valiant? No, that was a UK company. Give up? Chicken Little. I know a lot of people that can name all the Pixar movies, off the top of their head. That's consumer loyalty that Disney hasn't been able to buy lately. And yet you'll allow them to buy you out? Please don't.

I realize that out of this alleged $6.7 billion deal, you yourself will receive approximately $3.4 billion. $3.4 billion is a hefty payout. The lure must be tantalizing. But don't think about your personal gain. Please PLEASE reconsider what your company has to gain from this deal.

With great respect,

A Tiny Shareholder

The story of my IRA contribution

I made my 2006 IRA contribution yesterday. Yes - I realize that most people make their '05 contribution right about now, but I'm proactive when it comes to my retirement account. It is now 2006, and thus I make my 2006 contribution.

I had a lot of difficulties in deciding what to buy. Lately, I've been buying up positions for my investment club and the various accounts that I manage, and I think I'm getting the distinct impression that I'm over-diversifying - holding far too many positions. I think my favorite Oracle of Omaha once said that you should probably never own more than 20 stocks in your lifetime - operating under the mentality that only 20 companies are managed (and valued) well enough to justify putting your money there. 20 companies seems a little thin to me, but it's inspired me to increase my positions in companies that I already own.

A lot of times, my conversation with friends involve stocks (surprise, surprise). And since I was in a rut over a decision, I turned to my friend who either works at the Chicago Board of Trade or the Chicago Merc Exchange. I forget. He first recommended that I buy mutual funds with it. Hah. I don't do mutual funds. His reason was "for diversification." Well, I'm already diversified and I rejected his recommendation. I love what he said next:

Friend: Are you diversified internationally?
Friend: International equities are sexy.

His response gave me a huge smile. International equities are sexy. Frequent readers will acknowledge my penchant for diversification, and in this case international diversification. My friend had a huge point - why not diversify more internationally?

This morning, I put in an order for a small position in PetroBras (PBR). (My $4000 contribution only allowed for 45 shares - but hey, every little bit counts). I wrote about PBR a few posts ago, and now trading at $82, it still sports a low P/E of 10.

Petrobras honestly has a lot of potential. Feel free to read the following news reports to support my liking of PBR:

Brazil's Oil Giant Eyes Expansion January 13, 2006
Brazilian Oil Production Surges in 2005 January 17, 2006

More SBUX-LGF insights

I've read over Mr. Munarriz's article a few times, and I still am not seeing a huge advantage for Starbucks in this partnership. I see a fairly large risk.

• "Just as family entertainment projects flock to McDonald's and Burger King for kids'-meal promotions..."

Yes, but Starbucks does not cater to kids. I don't want it to sound like Starbucks is on a different tier than other fast-food establishments, but it sort of is. I go to a Starbucks store for a nice cup of coffee. I take my coffee very seriously, and immensely enjoy drinking that first sip in quiet comfort. I wouldn't expect the same aura of relaxation within a McDonald's. Kids have much too much excitement and energy in them, especially at the prospect of a McDonald's toy or Burger King watch. This is something Starbucks is currently void of. And I'm not complaining.

Plus, why make the comparison to Burger King and McDonald's at all? These two examples started out as fast-food establishments, and have only recently expanded to include gourmet coffees. Starbucks, first and foremost, is a coffee shop. Sure, they too have expanded into food items, which usually consist of baked goods - muffins, scones, and the like. But can you honestly say that because these 3 establishments currently serve similar items (food and gourmet coffee) that they're automatically in the same category? It's an awfully broad category.

• "From its Hear coffeehouse concept, to its listening kiosks in some Seattle stores, to its own channel on XM Satellite Radio, the company has used its hip vibe to cultivate an air of musical authority."

Musical authority? True, Starbucks does indeed have it's own satellite radio channel. But nowadays, who doesn't? On Sirius Satellite Radio, Elvis, Howard Stern, and Martha Stewart all have channels. Are they musical authorities? Perhaps Elvis is...

Also, am I getting this right? Does Mr. Munarriz suggest musical authority is achieved by having listening kiosks and a radio channel? Some McDonald's locations actually have DVD kiosks where customers can rent newly released DVDs for $1 per night (plus tax). McDonald's is halfway there to becoming a movie authority. It just needs a TV-movie channel and then MCD and SBUX are practically comparable.

• "If sales are good, who knows how quickly the company's film rack will grow? Since a disc purchase is unlikely to sway a java junkie out of ordering a cup of coffee as well, the sale will be purely incremental. As impressive as the company's same-store sales have been over the years, Akeelah provides a little more ammo to make next year even stronger."

Exactly what ammo does Akeelah provide? It makes the assumption that people would want to purchase their DVDs at a Starbucks. Unless Starbucks discounts the DVD heavily, how does it fare against low-cost carriers, such as Wal-Mart or Amazon.com? You know Starbucks isn't going to sell the DVD at a discount. Does it sell much of anything at a discount?

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In search of additional answers, I downloaded the official press release for the announcement. Here are some highlights:

• Starbucks' CEO stated, "Over the past year, we viewed countless films and spoke with numerous studios in pursuit of finding the perfect film...[Our customers] can look forward to us introducing them to the movie in a fun, experiential way - not the way movies have traditionally been marketed by other retailers or quick service restaurants."
• The president of Starbucks Entertainment continues, "Given the success we've experienced with music, this is a logical extension to our entertainment strategy...Our goal is always to bring a sense of discovery to our customers while maintaining and enhancing the trust they have in us."

So Starbucks is planning a large-scale invasion of the media world, while purposely distancing themselves from the 'quick service restaurants'. (I'm happy that the press release mitigates my concerns about Starbucks turning into a kids-meal playground). That distance from quick service restaurants can turn out to be a huge plus. But for Starbucks' sake, I hope someone has taken into consideration the effect of low-cost DVD carriers. The only thing that could stunt their DVD sales before it begins, is selling them at the suggested retail price.

Please Starbucks, be smarter than I think you are.

Differing views

The Motley Fool published an article entitled "Starbucks at the Movies" by Rick Aristotle Munarriz. Both of our articles were published independently of each other. I have no reason to believe he reads my blog, and I certainly published mine without knowledge of his. Regardless, here is a differing view of the Starbucks/Lions Gate partnership.

Starbucks... movies?

Starbucks (SBUX) and Lions Gate Films (LGF) announced a partnership today, in which "Starbucks will participate in all aspects of the marketing and distribution of Lionsgate and 2929 Entertainment's new film, 'Akeelah and the Bee,'" (MarketWatch) . As a Starbucks shareholder for a few years, and a Lions Gate follower for the past 6 months, I cannot say that I necessarily agree with this partnership. Maybe I'll grow to rue my own words, but for now, I don't see where Starbucks is going with this move.

For Lions Gate, on the other hand, this move is a significant one. Having a large scale corporation back the marketing and distribution cost is a huge way for Lions Gate to save big bucks. LGF already produces their films in a cost-effective manner - their recent hit, Hostel, cost only $4.8 million to make, and has already raked in $24 million internationally. Finding an outside partner to trim their margins can only benefit their company.

But what's in it for Starbucks? Are they looking to become a media conglomerate, as well as a coffee giant? In recent months, Starbucks has been pushing their "Starbucks Hear Music" line more and more. With Herbie Hancock tunes, Ray Charles favorites, (and during Christmas time, "A Charlie Brown Christmas") etc, CDs already stand out in what should be just a coffee shop. But I can kind of see the connection between coffee drinking and music. I myself like to relax with a morning cup of coffee, tunes on my laptop, while I watch the market open with streaming real time quotes. Everyone's different, but my relaxing, down time does usually involve music and coffee. Anyway, I digress. With the LGF marketing/distribution partnership, Starbucks will also carry the "Akeelah and the Bee" soundtrack and DVD (after it's released on DVD, of course). Can you imagine picking up your favorite DVD at a Starbucks? "Yeah, I'll have a tall, soy, caramel macchiato, with an Akeelah and Bee DVD and soundtrack combo." Doesn't have the same ring...

Maybe Starbucks feels it's venturing into the movie promotion market that other food locations dominate - McDonalds, Burger King, etc both have had large movie deals in the past. Currently, Burger King is STILL riding the Star Wars Episode 3 wave (even though the movie came out during the summer, and the DVD subsequently was released in November), with Star Wars watches, gift cards, toys - you name it, they got it. But does Starbucks really want that fast-food, summer-blockbuster-backing feel? I wouldn't want it to.

I have to continue to think about the ramifications of their partnership. At first glance, I'm not amused. But who knows? Maybe Starbucks has something extraordinary planned for their company that a small investor like myself can't even imagine.

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P.S. Earlier tonight, Boston Scientific (BSX) just increased it's bid against Johnson and Johnson, for Guidant, to $73 a share in cash and stock. Guidant already accepted JNJ's previous bid of $68.06 a share. Talk about an all out bidding war.

Portfolio Changes Part 2

- Chesapeake Energy Corporation (CHK) - Their "principal activities are to acquire, explore & develop properties for the production of crude oil & natural gas." (Marketwatch.com). Although natural gas prices are off of their highs, you should expect winter demand to drive the prices up a bit more. Very recently, analysts have recommended CHK as a potential buy for 2006. MSN Money's Jim Jubak has also included CHK in his recommendations.

Another case for CHK is their recent insider transactions. In the past month, CHK executives purchased 2,222,600 shares, valued at $70,605,526.00. If executives know enough to plunk down $70 million back into their company, I see no reason why investors shouldn't follow.

While the mean analyst recommendation for CHK is a moderate buy (9 strong buys, 3 moderate buys, and 2 holds), CHK was recently downgraded (on Dec. 21) by S&P's Equity Research from a strong buy down to just a buy - citing valuation concerns, and reiterated a price target of $37. True, trading at 18 times earnings, it is a hair overvalued. But I don't think the pricing is too unreasonable to make a purchase. CHK ended trading today at 32.10, down $0.95.

New Years Portfolio Changes

Immediately before 2006, I was probably amongst millions of Americans dumping losses from their portfolios. With funds in my account from my latest sells, I decided to reevaluate my portfolio for 2006. I added:

- Petroleo Brasileiro S.A. (PBR) - Petrobras (Petrobras) is a mixed-capital enterprise of which a majority of voting capital must be owned by the Brazilian Government. The Company is engaged in a range of oil and gas activities, which include segments such as exploration and production, refining, transportation and marketing, distribution, natural gas and power, international, and corporate. Besides the dominant market position in Brazil, Petrobras has oil and gas activities in international locations, with significant international operations in Latin America, the Gulf of Mexico and West of Africa. During the year ended December 31, 2004, the Company had estimated proved developed and undeveloped crude oil and natural gas reserves of approximately 11.82 billion barrels of oil equivalent in Brazil and other countries.

*Company report directly taken from MSN Money

PBR has been on a run lately - even hitting new 5 year highs. In 2005 alone, PBR gained roughly 82%. Is it's run over? Not likely. Despite it's runup in 2005, it's P/E still remains reasonable at 9.10.
(For comparison, oil giants and their P/E's)

XOM 10.6
CVX 9.0
COP 6.7
BP 10.9
PTR 10.0

- Blackboard, Inc. (BBBB) - provides software applications and related services to the education industry - (it accepts homework, shows grades, holds discussions in, etc). Their primary market is the post-secondary education market in the United States. Being a current masters student, I've had to use blackboard before for my online courses. It's not bad. I've definitely had worse online course experiences, and blackboard proves easier to maneuver within. For the professor end prospective, Motley Fool's Tom Taulli quotes, "I’ve taught online courses for the past five years or so, and in that time I’ve used a variety of educational software systems. By far, the best one I’ve used is from Blackboard (Nasdaq: BBBB), a Motley Fool Hidden Gems recommendation. In fact, I’m currently teaching a course at UCLA using the system. " (For the complete article see, Blackboard Chalks up a Deal)

If you decided not to read the full article, you should know that a few months ago, Blackboard announced that it was teaming with Microsoft to help better integrate Microsoft Office and Microsoft's SharePoint Portal server. When a giant of a company, such a Microsoft, takes notice of a company like Blackboard, maybe you should be paying attention too.

- Pentair (PNR) - (Taken directly from their website) - Pentair is a diversified operating company headquartered in Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair’s Enclosures Group is a leader in the global enclosures market, designing and manufacturing standard, modified, and custom enclosures that house and protect sensitive electronics and electrical components.

"[Pentair] derives 80% of it's revenue from water-related systems. These range from water pumps used to clear floodwater out of New Orleans, to filtration and purification systems used by everyone from municipal water providers to Starbucks Corp., which wants to ensure that its lattes and frappuccinos taste the same around the country." (BusinessWeek - "Where to Invest in 2006" December 26, 2005 / January 2, 2006 issue) America's infrastructure is also old and needs upgrading. Local and state government repair what is possible with their budget, and defer the rest. The article boldly states, "Upgrading just the water and sewer systems could cost $660 billion over the next 20 years." Obviously this is a long-term play. Pentair ended 2005 down 20% for the year. This could signal a nice buying opportunity for investors.

...to be continued...