(Sorry for not posting this earlier. It has been just now that I’ve been able to pen this onto the blog.)
We had a wonderful meeting! I want to thank everyone for coming and contributing to a vibrant and knowledgeable conversation. It turns out that we had not much in the past month that was not already expected. I suppose our market foresight collectively is becoming stronger due to these meetings. We were also able to guage where the market may be headed in the new year.We had a total of 5 attendees: (from left to right) VJ Arjan, Kay Olds, Kevin Day, Tommy Schultz, and Jeff Harrington.
The Mortgage Insurance Companies
We started the meeting with the viewpoint that the housing crisis is still not out of the woods just yet. We remarked how there are a slew of foreclosures just waiting to happen and how this will lead to further losses on the once-pristine sheets of Fannie Mae and Freddie Mac. Kay Olds, who had her own mortgage business at one time, was explaining to us what exactly happens when a home forecloses. For the most part, a foreclosed home is not auctioned off but is listed with a realtor on the MLS. The desired price is subsequently lowered until a buyer is found. The principal loser in many of these circumstances has been the mortgage insurance companies how may have guaranteed 20-30% of these loans in case of default. These companies include AIG and GE.
Palladium Play
Kevin Day threw out a potential play that may be in the works currently. There are two new palladium ETFs to enter the market. In order to be a true commodity ETF, it will have to carry physical supplies of the metal, just like GLD carries physical gold reserves. As these ETFs have to buy up these reserves, there is expected an increase in the price of palladium. One such example is North American Palladium Ltd. (PAL) which is up nearly 40% since the end of December.
Santa Fe Gold Corporation (SFEG)
As many of our readers own this stock, it is probably wise to give an update on it. Kevin Day, who first introduced this stock and also owns a sizable position in it, stated that the dam is now finished and that production is expected the begin in February. He expects a rise in the share price to at least $2-3 a share. The amount of gold per ton in these reserves are in staggering amounts. And as there are many large holders of this company, the only way for this stock to go, it seems, would to be a buyout.
Interest rates
We also talked about the future of interest rates in 2010. Given that the unemployment rate is still hovering around 10% nationally and many states in the high teens, it would be sheer lunacy for the Fed to raise interest rates at this time. Once they do rise, however, they should rise back to their historical averages (5-8%). Kevin Day expressed that in the current environment, he sees that for the next 6 months the market should continue moving upwards, but after that he cannot be sure.
The U.S. National Debt
VJ Arjan bought out a chart of the U.S. national debt as a percentage of GDP that warranted some attention. As can be seen the current administration cannot solely be blamed for rising debt concerns. Administrations since Carter’s have been spending more and more, it seems. The last time this same scenario occurred was during World War II. Not even during the Great Depression did our debts skyrocket as they are expected to in the very near future for the U.S.
Canadian Banks
Jeff Harrington expressed that many Canadian banks like Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) were not invested in the risky subprime mortgage backed securities that brought down many throughout the world and that there are prime opportunities to invest in these companies at undervalued prices.
Diageo (DEO)
Kevin Day has invested in Diageo who holds many substantial positions in leading breweries like Johnnie Walker and Smirnoff. He holds that the liquor industries have flourished in good times and especially in bad ones, which I thought was an interesting and insightful observation.
Another Terrorist Plot
Recently, a young man from Nigeria tried to blow himself up on a plane. The attempt was successfully thwarted by officials on the plane and the young man, Umar Farouk Abdulmutallab, who is only 23, will be indicted shortly on charges of capital murder. VJ Arjan explained how repeated attacks by these fanatics should prompt a response by moderate Muslims, who by no accounts are extremists in their faith, but that this has not happened yet. It is no wonder that many countries throughout the world have become frustrated with this and are now deporting Muslims with extremist tendencies to their home countries. Tommy Schultz examined why it seems that planes have been chosen for these extremists to make their statements. He explained that blowing up a plane is so powerful it can stop whole economies in their tracks. This was evidenced in the flying passengers after 9/11 who would quit their jobs in order to avoid flying.
Simulated Portfolio
| Date | Security | Entry | Current Price | Profit/Loss |
| January 10, 2010 | FXI (iShares FTSE/Xinhua China 25 Index | $25.16 | $44.07 | $1,891 |
| January 10, 2010 | ILF(iShares S&P Latin America 40 Index) | $26.60 | $49.53 | $2,293 |
| January 10, 2010 | EWZ(iShares MSCI Brazil Index) | $37.69 | $77.28 | $3,959 |
| January 10, 2010 | PBJ(PowerShares Dynamic Food & Beverage) | $13.27 | $14.15 | $88 |
| January 10, 2010 | GUR (SPDR S&P Emerging Europe) | $29.74 | $46.84 | $1,710 |
| January 10, 2010 | FCX (Freeport-McMoRan Copper & Gold Inc.) | $29.06 | $88.09 | $5,903 |
| January 10, 2010 | WLT (Walter Industries – metallurgical coal) | $38.75 | $78.23 | $3,948 |
| January 10, 2010 | RIO (Companhia Vale do Rio Doce – gold mining) | $13.12 | $31.33 | $1,821 |
| January 10, 2010 | GVA (Granite Construction Inc.) | $35.67 | $34.94 | -$73 |
| January 10, 2010 | MT (Arcelor-Mittal ADR) | $26.25 | $47.98 | $2,173 |
The next meeting will be on Sunday, February 7th, 2010. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com
