June 2, 2011
Recently, tremors were sent through the wire as news of another wave of housing declines were posted in the monthly real estate reports. The double dip in home prices is here. The recession is here. The financial crisis is just starting…or is it. The sales of homes were down this month, however, the conditions for home sales last year were very different. In November 2009, legislation was created that allowed eligible home purchasers a tax credit of up to $6,500 in addition to the new home purchase tax credit increase to $8,000. The expiration date for a contract for purchase was May 1, 2010. The incentives that this provided for homeowners was very meaningful. If the average home price in April 2010 was $172,300, as shown at realtor.org, then this gives people who purchased in this period a discount of 3.773% to 4.619% To put this into perspective, for the average home, this is more than a year of principal and interest payments. Furthermore, if you adjust the average price against these tax credits, then the average home price is between $164,300 and $165,800, a truly small difference from $163,700 — the average home price in April 2011. Again, this credit is equivalent to a year of mortgage payments or conversely, a year of mortgage payments to go on vacations, buy more stuff, or pay down credit cards. Since this tax credit requires a paper return, most people will not begin to see the fruits of this incentivization until June and July of 2011, which I predict will cause a widespread bull market rally.
June 5, 2009
My friend was getting a new Mac laptop. As we looked at all of the new models, something struck me as odd. None of the new Macs have Blu-Ray capability. I asked the ‘Hi, I’m a Mac’ representative about this oddity. He confirmed that Blu-Ray was absolutely not available. It is still not available. Of course computer makers can use whatever hardware they prefer, but there was something much more puzzling about this scenario.
Disney was the main proponent and advocate of the Blu-Ray standard. There was much hoopla regarding the Blu-Ray versus the HD-DVD format wars. Toshiba versus Sony. Winner takes all. Disney had vehemently supported Blu-Ray from the beginning. Disney has a large investment and interest in the high definition format of the future. So what? While most people know Apple and its products, everyone knows Disney and its products, yet very few people on Main Street know that the largest shareholder of Disney stock is none other than Steve Jobs. That’s right, Steve owned over 50% of Pixar, who was bought by Disney, making Steve the largest owner in the world of Disney stock. Steve owns around 7% of Disney stock which is definitely worth more than $3 billion dollars.
Here is the question that made my brain itch for two months or so: If Steve Jobs is Apple Computers (AAPL) and is by far and large the main owner of Disney (DIS), then why are there no Blu-Ray drives in his computers? And why does no one care?
The answer came to me in class months later in Dr. Shivakumar’s econ class. I believe the answer lies in incremental revenue. While Steve could shoehorn svelte Blu-ray drives in an iPhone if he so desired, he did not want people to use Blu-Ray. He needs us to use iTunes. Last June Apple stated that they sold or rent 50,000 movies a day. While it’s hard to put a dollar sign on profits from iTunes from movies, I guarantee that this figure is greater than the shareholder value of Disney Blu-Ray movies sold and used on a Mac computer. I have heard that in the newer models of Mac computers will feature Blu-Ray, I wonder how many iPod/iPhone/iTV consumers have already learned the ease and convince of using iTunes from nearly any couch in America. My hats off to Mr. Jobs, you are truly brilliant.