Meeting Minutes

Our meeting was a great success! In total, we had 10 members attend:

(From left to right) Vance Hall, Alex Morrow, Vincent Tran, Minesh Patel, TJ Nwadei, Andrew Whatley, Jeffrey Cornell, Derrick Miller, myself (VJ Arjan; I was taking the picture), and Jeff Harrington. (Click on the picture to get a larger image)

Our meeting lasted almost 3 hours and we concentrated on the recent turbulence in US financial markets and extensively discussed not only where this puts America but also who the other potential emerging giants may be. We discussed the political and social/cultural situations in these other countries that may catalyze or their potential economic prosperity.

America

The Financial Bailout:
Jeff Harrington, who has clearly researched this issue extensively, contended that the recent government Wall Street bailout will actually appreciate the US dollar in the short-run. What has catalyzed the illiquidity situation is the marking-to-market of bad securitized mortgages. As banks are starving for cash, the bailout will not immediately be felt as the banks are not lending at all. The cash will remain in the upper echelons of the financial system. There may certainly be more bad debt/write-offs to come.

In Europe, Jean-Claude Trichet, president of the European Central Bank, has not cut interest rates. Europe, as in the last few centuries, continues to believe that it is the center of the financial world, and that they can keep their interest rates inflated (3-month LIBOR 4.05% vs. 3-month T-bills .6%) , taking the ‘this-time-it’s-different’ approach (consider Soros and the ERM). Rates will be cut depreciating the EUR/USD rates in the short-run. Long-term, however, the continution of the printing of fiat currency will continue to deflate the dollar.

As a result of this bailout, taxes will increase, but there is disagreement on whether they will increase enough to spur a taxpayers’ revolt. Jeff Harrington believes that America will undergo a social revolution that will correct this increasing trend toward a possible welfare state.

TJ Nwadei, who has participated in a group study of the banking system in Nigeria, says that the currency depreciating is a buying opportunity for Nigerian banks, who are converting Naira en masse into US dollars.

Jeffrey Cornell bought up a very interesting question/idea that we had not considered before. Instead of having the government buying up bad loans and just holding on to the property, why don’t they rent them out? It certainly would make sense to do so. But we couldn’t come up with an answer, so if you can, please reply and let me know.

Oil in Iraq:
There are 115 billion barrels of proven oil reserves; a recent agreement referring to oil revenue sharing leaves 82% to foreign oil companies. However, this is only for proven reserves. There may be up to 200-300 billion barrels of unproven reserves as Iraq is 90% unexplored. There are only 2000 oil wells in Iraq, while Texas alone has well over a million. If this is true, Iraq can become a very wealthy country, much like it was before Saddam Hussein came to power.

9/11:
We concluded that 9/11 was a failure on the imagination of the intelligence; they simply could not conceive of such an attack actually occurring. Derrick Miller pointed out that this may be because of our cultural values. Because we value human life so dearly in the States, we could not see or rationalize another person who would destroy theirs to destroy many more in such a manner. We also discussed some of the conspiracy theories revolving around 9/11 but did not delve into them very deeply.

Added October 8th:

Derek Connell, who was not present at the meeting emailed me some deeper insight on 9/11 that I thought I'd share. In summary, the scenario of hijackers using planes as weapons had been thought of by intelligences offices, NORAD, a Justice department trail attorney, and others.  However, at the time, no one in authority considered this to be a real threat. During the months leading up to 9/11, there were FBI reports of extremists' interest in aircraft training. We also arrested an Islamic extremist named Zacarias Maussaoui who had been enrolled in flight school in Minnesota.  In late August, 2001, CIA officials were briefed about this.

So it was not necessarily a lack of imagination on our part.  There were signs leading up to the event that were brushed aside.  Was it ignorance, apathy, or was it something more sinister?  That question is open to interpretation. 

Bulgaria

Hangover from Communist Soviet Union:
There is still a large hangover from Communist Soviet Union in Eastern European countries since the USSR’s dissolution. Vince Radulov predicts that it will take another 2 generations to change the communistic mentality there and even plans to hopefully be of some assistance to his country in making this transition. Bulgaria, however, plays a significant strategic role as a controller of trade through the Black Sea. Since 2007, real estate prices in Bulgaria have shot up an astounding (even ridiculous and unsustainable)1000%. This certainly suggests the growing problem of hyperinflation for Bulgaria in the future. His description of living in a Communist country was very helpful in our understanding of the kind of problem those countries face. In a communistic society, people cannot be citizens and own any property – the government owns everything; in fact, while he lived there, Vince and his family were put on a list and given their apartment by the government as they became available. As the government owned everything just 20 years ago, people are finding it difficult to start owning property. Food used to be provided free from the government; now people have to work to have food. Certainly a different point of view from someone living in a capitalist society.

China

The Need for Higher Health Standards:
We discussed China extensively. Vincent Tran and Jeffrey Cornell gave us their personal insights on the direction China is headed and the challenges that will face them in the future. Although they have the lowest manufacturing cost in the world, there is a cost. China has had a history of siding with reducing costs even if it may cost a few human lives. For example, China, to hide the protein deficiencies in their milk products, has added enormous amounts of melanin to their milk. This has caused many deaths and companies had to recall those products. Recently, Cadbury chocolate bars made in China had dangerous levels of melanin and had to be recalled. This disregard for health hazards has caused China to fall out with the rest of the world and international corporations that have higher standards albeit at a greater monetary cost. This, however, we concluded is a necessary and ultimately temporary condition. Japan, in the 1950s, had similar problems with their automobiles, but they persisted and succeeded in eventually providing a much better product to the rest of the world.

Civil War:
China has nurtured the middle-class. Although China is still a Communist nation and cannot allow its citizens to own property, they have been rewarded with economic prosperity often to the chagrin of rural labourers in Northern China, who are still living a very Communistic lifestyle. Often what occurs is that the Chinese government, to keep the Southern Chinese middle-class happy exploits the workers in the North by essentially stealing their farmland. This makes for a conflict in the future against the capitalist and communistic parts of China, the former for being denied its prosperity and the latter for feeling betrayed by the government.

India

Emerging Middle-Class:
Minesh Patel talked about the prosperity of the new middle-class in India and how the government, however slowly, is spending money to improve the infrastructure there. He talked about how since he last visited in 1996, there are interstate highways where there used to be dirt roads, etc. However, it does seem that the trickle-down effect stops with the middle-class. The poor, who constitute 35% of the nation, has not improved anywhere close to a near extent.

Infanticide:
This is a large problem in both Indian and Chinese cultures. Statistically (from the CIA World Factbook https://www.cia.gov/), there are 950 women for every 1,000 men. This means that 38 million Indian men between the ages of 15 and 65 will either not marry or marry outside their race. I predict that this will just catalyze the current attitude toward Westernization by the young in India. In fact, Vance Hall brought up the fact that the next generation in India is akin to the baby-boomers in the 1960s. If I were to make a bet considering India’s future, I would predict that Westernization will take a serious hold on the next generation and one of the effects of this is that divorces start happening en masse. India has the lowest divorce rates in the world, but the fact is, marriages, even very unhappy ones, were held on to by a sense of duty. However, since this decade, in large cities, divorce rates are exponentially increasing; subconsciously this may be a rebellion from the traditional society which has held an iron grip on the past countless generations. The Westernization will occur principally in large cities; not for most of India, 60% of which still lives in small villages. The forced mixing with other races will also help break down the xenophobia and racial preference Indians have for their “own race.”
We jokingly tossed around that as a result of the infanticide in India and China, young girls may be “sold” on eBay in the future (I assure you that this was only a joke). However, and I mean this without offense, this already does occur in India; girls are “sold” to other families by their dowries; arranged marriages frequently occur based on financial motives and it may not be a stretch of the imagination to see this conducted online possibly through a forum like Match.com. Derrick Miller talked once again about how the cultural perspectives in India may allow such a practice to occur, while it may be seem incomprehensible from a Western perspective.

Ineffective bureaucracy:
India has the second worst bureaucracy in the world. Egypt is number 1. This is certainly a hangover from the British empire, but it is largely responsible for deterring its economic growth. While it claims to be a capitalist country, it is largely socialistic. To give an example, the train station in Mumbai took 25 years to build, while the subway in Shanghai took 6 months. It still takes 5 to 7 years to open a business, unless you can get your way through bribery and corruption.

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My hope is that you may benefit by some of this, and that it may help you develop or further enhance your perspective of the way the world is! Let me know if you’d like to receive an invitation to the next meeting, which will be the Sunday after next, October 19th. I will send out the invitations and details close to a week in advance.

Thank you all and I hope you all have a great week ahead of you!