We had an insightful meeting at La Madeleine’s! We had a total of 6 attendees: (from left to right) Andy Nyaga, Owen Turnbull, Erika Turnbull, Jeff Harrington and Greg Bartell.
The Sell-Off
There was no way we could not confront this issue head on. What is going on in the marketplace? Enormous days of sell-offs are confronted by days of rallies and both instances are backed by heavy volume.
At previous meetings of the Scarlet Kings, we have anticipated that a sell-off was overdue, but we could not have foreseen the vehemence of it. The question we had was:
What does this mean for the market in the future along with our investments in it?
We discussed the rally that led to this point first. Jeff Harrington pointed out that it was clear that from the beginning, this rally was carried by relatively low volume. It was also clear that even though good economic news would come out, large pools of institutional money remained on the sidelines in cash or invested in U.S. Treasuries. We believe this figure to be in the vicinity of $3 trillion.
During the sell-off, which was triggered by the S&P downgrade of the U.S. government debt from AAA to AA+, it seemed that traders and investors alike moved out of the market and into Treasuries. Jeff continued to point out how this is ironic because this tells us that by-and-large investors still believe in the creditworthiness of the U.S. government despite the ratings downgrade. The 10-year Treasury yield has moved sharply lower as well.
What is the upside for the investor? Now there are many opportunities.
Here are a few that were discussed:
Carbo Ceramics Inc. (CRR) – supplier of ceramic proppant, used in oil and natural gas wells
Walter Industries (WLT) – producer and exporter of metallurgical coal
Natural gas plays – Apache Corporation (APA), Devon Energy (DVN), Chesapeake Energy (CHK), EOG Resources (EOG), Linn Energy (LINE)
Marathon Oil (MRO) – explorer and producer of oil sands mining and refining
Emerging markets – Vanguard Emerging Markets (VWO)
Metro PCS (PCS) – leading telecom provider
Even though the sell-off has given investors cause to doubt the financial markets, one things that as a group we achieved consensus on was on the continuing devepment of emerging economies.
Greg Bartell and VJ Arjan both visited Dubai, one such emerging market, within the past year and noted the incredible sophistication and rapidity of growth there. Below is the staggering transformation of Dubai in a span of a decade:
These stories are happening across the world, more so in Asia and South America and will continue to occur.
South Africa – Living The Apartheid
Erica and Owen Turnbull who were raised in South Africa were kind enough to share their story of what it was like to actually live through the Apartheid in South Africa.
They both come from very small towns, so it the inequality between blacks and whites was hardly given any mind to. It simply was a way of life. Schools, drinking fountains, wash rooms were all separate.
By their own admission, the question of any race discrimination did not even enter their minds until they went to college, when they had access to what was occurring in the major cities. The government did a very effective job in delivering propaganda that would help citizens accept the prevailing social order.
According to their experience, the progress between race relations made in South Africa is far better than the years prior to the 1990s. Mandela has done much to bridge this gap, however, he has become more of a figurehead today with much less power than was afforded to him.
Their main concern was in the corruption of the political system there. The current president, Jacob Zuma, has been charged and acquitted of racketeering and corruption as well rape allegations. Erika and Owen’s impression of his effectiveness is lukewarm. For every positive thing he has done, there are equal negative things.
Corruption In Developing African Countries
Andy Nyaga also commented on the immense political corruption in the rest of the African nations. This by itself stifles possible economic growth as there is hardly a system for immutable property rights; in many such countries, the government can oust you when and how they please. From dictators like Robert Mugabe to Gaddafi, the list of corrupt politicians in Africa goes on and on.
VJ Arjan pointed out that this foundation on deviousness and a general lack of character and mutual respect of each individual seems to be lacking in what are today termed as civilized countries. The political and economic systems must, in some fashion, be rooted in as much transparency and fairness as possible so that each individual’s rights to ownership and personal rights are protected and enforced.
The Crumbling U.S. Dollar
Over the past week, the Federal Reserve made an unprecedented announcement, that it would seek to keep interest rates low until mid-2013.
They have not announced the anticipated QE3 yet, although the traders and investors have clearly been bearish on its effects. Take a look at the accelerated appreciation of the Swiss Franc, the traditional haven for investors, over the U.S. Dollar over the past decade:
The next meeting will be on Sunday, September 4th, 2011. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com.
Also I find that there are many domestic and international readers who are following our blog posts not only in the United States but all over the world including Europe, Latin America, and Asia. If you wish to be added to our email list, please email at scarletkings@gmail.com.
