We had an insightful and debate-worthy meeting today at BJ’s Restaurant and Brewery! We had a total of 5 attendees: (from left to right) Tommy Schultz, Jeff Harrington, VJ Arjan, Andrew Whatley, and Kevin Day. (All the pictures can be clicked on for a larger image)
The Eurozone
We started the meeting discussing the situation in Europe. This past Sunday the Eurozone agreed on putting together a €110B package to support Greece’s balance sheets. There are a slew of problems and more potential bailouts to come. Here are some suggestions:
Forecasted 2014 Debt-to-GDP ratio
Italy 126%
Greece 116%
Belgium 109%
Portugal 102%
France 100%
Ireland 89%
Spain 81%
*Source: Ernst and Young
Not surprisingly, traders are not buying the bailout. The Euro has subsequently tanked to new lows and is hovering around a major support level as shown in the above chart.
British Petroleum and The Oil Spill
Unfortunately, when committing long-term to the business of producing a commodity like oil, accidents, from time to time, should and will occur. This is just such a case with the enormous oil spill in the Gulf of Mexico for which BP will front the cost. The consensus is that BP is still a solid company to hold. For comparison, we’ve attached a chart for Exxon Mobil (XOM) during the Exxon-Valdez spill in March of 1989. As you can see, generally speaking the price of the stock was not affected significantly. In reference to the price of BP, Kevin Day explained how it is said that it is best to kick a dog when it is down, and that is precisely what the shorts are doing with relish.
Goldman Sachs gets put on trial by the SEC
Goldman Sachs is yet another Wall Street institution to face the fire by federal prosecutors, this time over fraud allegations that Goldman sold mortgage-backed products to investors while taking a short position at the same time. Sort of like taking out a credit default swap on their own product. Although this may seem to be taking a position directly opposed to the well-being of the investor, Goldman is not the only one who engages in these practices. And to those who bore the brunt of the losses the message ought to be “tough luck”. One, a highly sophisticated investor, takes a risk with the ability to know the risk completely, decides of its own free will to buy a “risky” security that Goldman happens to supply the demand for. This is the market mechanism and nothing more. The consensus is that although Goldman Sach’s reputation may have been tarnished permanently, the bank will ride out this storm. Whether to buy or sell this stock is still a toss up.
Weakness in the Market
We all noted how the front-runners of the market have not made new highs. The basic materials sector, the emerging markets, and the financial sector have not made new highs (and have subsequently sold off hard). Jeff Harrington bought up how the VIX, the market indicator for fear or greed, has reached 20, which historically has been a good indication of a bull market reversal. Some of the stocks concerned on our list include: Freeport-McMoran (FCX), Xinhua China 25 ETF (FXI), iShares Latin America ETF (ILF), iShares MSCI Brazil ETF (EWZ), Vanguard Emerging Markets ETF (VWO). In conclusion, we are ready for a healthy pullback.
Rent-A-Center (RCII)
Jeff Harrington had in April’s meeting recommended buying Rent-A-Center after doing an extensive fundamental analysis of the company. The chart speaks for itself. His target is for the stock to hit $36.
Arizona
Arizona recently passed a controversial bill on illegal immigration. The controversy lies in the part of the bill in which police can arrest, interrogate, or pull over “suspicious” persons who may be here illegally. This has resounded very badly with those who see legalized racial profiling being propounded as a result.
One cannot help but empathize with illegal immigrants. They may have children born in the U.S. What happens to these children when the parents are deported back to their home country? Do the children go with them? Although there are gray areas in how this should be handled, one area which is not as gray is that the moment an immigrant crossed the border illegally they were breaking the law. They are technically felons from the very beginning. It is also understandable that those who are pandering about the jobs being taken by these immigrants would probably not take on those jobs themselves anyway. But as the saying goes, the squeaky wheel gets the oil.
It also shows another one of President Obama’s “broken promises”. He had promised that within the first 100 days of office he would resolve the immigration problem. Clearly that was about 300 days ago and the Arizona state legislature did not wait for him to act.
The next meeting will be on Sunday, June 6th, 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
Not surprisingly, traders are not buying the bailout. The Euro has subsequently tanked to new lows and is hovering around a major support level as shown in the above chart.
