We had a
very interesting and varied meeting today at On The Border! We had a total of 5 attendees: (from left to right) Ry Zamora, VJ
Arjan, Elena Swindull, Kevin Day and Jeff Harrington.
Presidential Debates Matter
The
very first topic we began chattering about was on how Romney's spectacular
performance has possibly turned the probabilities in this election upside-down
for the incumbent.
Kevin
Day mentioned how he felt that Romney was clearly on the offensive the entire
time and for perhaps the first time, without the use of a handy teleprompter,
the public was able to see the current President in a fatigued light.
Elena
Swindull felt that the President felt nervous based on the body-language he was
communicating, like a person who is unsure of himself. She did not feel the radiance of confidence
that usually shines forth from his personality.
We're
not sure whether it had been a day full of difficult decisions, as often a day
is being "leader of the free world" or perhaps it was as simple as he
didn't eat a proper breakfast that morning, whatever the reason, it seemed that President Obama didn't want to be there.
The
importance of a televised debate has really been in effect since the famous
Kennedy-Nixon debate. The non-verbal
communication of the participants spoke volumes to the millions watching. The small unconscious gestures, the grimaces,
even the posture with which the participants carry themselves speaks volumes to
the American people.
Above
is a picture snapped at the most recent presidential debate.
Compare
the defeated look of the current President to the Senator Obama who ran, 4
years ago. What a remarkable difference
in non-verbal communication is being portrayed in both instances!
Although,
VJ Arjan was wary to point out whether or not Romney's debate performance was
enough to clinch the election. He feels
that there are still a couple hurdles to go, but it is by no means in the bag
for him.
This
election battle has been by no means a very cordial one. Jeff Harrington pointed out that when an analysis was conducted by FactCheck as to the accuracy of their assertions
about their opponent, both were lying or exaggerating about the truth on several topics.
Cooking The Books
"Figures lie and liars figure." - Kevin Day
The
Bureau of Labor Statistics (BLS) announced last week that the unemployment
report surprisingly dropped from 8.2% to 7.8%.
A drop so drastic is certainly strange given the increasingly tepid
economic environment we are currently seeing.
Kevin
pointed out that the jobs numbers can very easily be "miscounted for"
and that he suspects this is not the first time that such tactics have been
used in increasingly politically-heightened scenarios. VJ pointed out that apparently the difference
of approximately 400,000 jobs came from a revision of jobs numbers stretching
several months back.
No
doubt, this gives President Obama some ammunition against Governor Romney who
has painted the President as the primary blame for the economy's current
situation.
The Case Against Government in the Private Sector
VJ,
who is reading the marvelous, common-sense book entitled Economics in One Lesson by economist Henry Hazlitt read a chapter
on the case that the author makes via the Austrian School of Economics (more
colloquially known as the economics of common sense) on the reason why the
government is an inefficient allocator of capital.
The
reason why governments, historically, have generally trailed the private sector
in how effectively they spend their money is that governments have a hard time saying no.
As a public organization, the U.S. government
in particular has taken on the father-figure role for millions of its citizens
and its image as care-taker has only grown over time.
Proof of this is that since the Great
Depression and the subsequent New Deal enacted by President Roosevelt, several
presidents had the chance to repeal the New Deal and label the New Deal as
temporary relief programs that would end once the Depression came to an end, but
none of them did.
After
Roosevelt, it can be argued that Truman was still busy cleaning up World War II
and in jump-starting the Marshall Plan to help German and Japan to rebuilt
their economies. However, both
Presidents Eisenhower and President Kennedy had the chance to cut back the
entitlements programs, but they didn't.
Politically, it was not the feasible thing to do.
It was a hard choice, but history has shown
that politicians would just as much rather buy votes instead.
President
Johnson solidified the entitlement culture along with his slogan of The Great
Society by enacting the reforms known as Medicare and Medicaid.
VJ
continued that the author argues that as private entities have accountability
to its shareholders/equity-holders, more care is given to the allocation of
capital whereas if there is a failed government policy, it can always print
more money.
The Miracle
of China
At
a time when it has become fashionable in the investment community to bash the
emerging markets, VJ thought he would share a story about the incredible effect
that China is having on the global economy.
He
had to buy a pair of eye glasses recently and remembered the lesson learned in
spending $300 for a pair of Versace glasses that did not end up lasting very
long at all. So he did some shopping and
found the following fashionable pair.
How
much do you think they cost? Well, the
shocking and amazing truth is that he paid a mere $25 from Zenni Optical to get
prescription eye glasses complete with shatter-proof lenses and anti-reflective
coating. Curious about how in the world
this company is able to do this, he called up their consumer help desk and he
found that the glasses are manufactured in a factory in Shanghai and that the
majority of the $25 actually goes to import fees imposed by the U.S. customs department.
Now
consider how the range and diversity of the products that China makes and we
have an integral piece of the manufacturing function of the global economy.
Add to this fact that Chinese stocks today
seem to be the cheapest since 1997 with an average price-earnings multiple of
11.4 for the Shanghai Composite.
No
doubt, like all countries who have remarkable growth rates, there will be
crisis. But between the years 1800-1915, the
United States had 15 financial crisis/panics and a Civil War and still averaged
3-4% annualized GDP growth rates.
Kevin
has mentioned before that the major slowdown in China could only be momentary
if it could be called a slowdown at all as the engine of growth is simply too robust
and will continue to produce superior returns for decades to come.
Jeff,
however, mentioned that the Chinese government may also be having its share of
fiscal problems, the principal one being that their pension fund program for
retirees of the State is financially in trouble and may in time snowball into a
vicious political problem for the Communist Party, which the people are looking
as the preserver of 6-8% GDP growth per annum.
Natural Gas and Other Potential Investments
We
spent some time discussing the importance of the most viable fuel source next
to crude oil, natural gas. Strictly from
a jobs perspective, Jeff argued, the growth in natural gas and its related
industries is slated to create 3.5 million jobs in the next 10 years.
It
is also becoming cheaper to drill and easier to transport, so it is a natural
alternative to crude oil, as the world stops depending less and less on the
Middle East.
Kevin
and Jeff mentioned a few ways to play natural gas, some of which have been
brought up before at previous meetings:
-
First
Trust ISE Revere Natural Gas (FCG)
-
Targa Resources Partners L.P. (NGLS)
Some
other investments that were brought up during the meeting are mentioned below:
-
Rio Tinto Plc (RIO)
-
Barrick Gold (ABX)
- Sandstorm Gold (SSL) - Kevin has been mentioning this stock for more than a year and it has nearly tripled in value since his first mention
-
HOLCIM (HCMLY) - Ry believes a buy target price below $55 would be advisable
Conversation Amongst Two Gentlemen of Verona
"O
heaven! were man But constant, he were perfect." - William Shakespeare
"Economics
is envious of physics" - George Soros
After
many of the attendees left, Ry and VJ sat discussing the reality of economics
and the economy.
Alas, quoteth Ry, economics is not a science as Man is not constant. (Enough of Shakespeare.)
All
jokes aside, Ry discussed how the very nature of economics cannot be as
constant as the law of gravity precisely because the participants in an economy
are not ruled by a set of constants. The
participants are always in motion and so economics, according to Ry, cannot be
categorized according to "growth" or "value"
characteristics.
Each
situation is a function of three forces: price, expectations, margin of safety.
The fluctuations of economies is a
result of the disparities between expectations and reality. The further divorced from reality the
expectations are the greater one's margin of safety should be.
Ry
believes that the next "shoe to drop" may be student loans, a sector
which is hardly getting any notice as the "shoe hasn't dropped
yet". Students are largely unable
to find employment leading to delinquencies on student loan payments, not to
mention that the return on investment of a college education and the cost of
the tuition is in stark contrast to the economic benefit derived from having a
degree.
Ry
went on to say that the real economics solutions are, at the moment,
politically impossible. Hence, we have
the caprices of Man enter into the equation.
He
also believes that should hyper-inflation invade the U.S., it could most
certainly begin once the world decides to give up the U.S. dollar as its
reserve currency. He believes that since
at least 75% of the world's transactions are made in the U.S. dollar, the
inflation is being shared throughout the world.
Once the dollar is not longer a the currency of choice, that inflation
will come back home multiplied.
The
next meeting will be on Sunday, November 4th, 2012.
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
