A candid meeting of minds about subjects varying from making money in the markets to the vagaries of the human psyche to the philosophical aspects of man and much more...
We had a total of 7
attendees: (from left to right) Ry Zamora, VJ Arjan, Jeff
Harrington, Kevin Day and we had Elena Swindull, Erica and Owen Turnbull join us later on.
Going into the U.S. Elections and after-thoughts
Most
of the conversation was dominated by the elections (keep in mind, the meeting
occurred on the 4th, 2 days before the actual elections, of which we already
know the result).
As
you all know, after a much spirited campaign, President Obama won his bid for
re-election. At the time of our meeting,
the consensus was that Romney would win the popular vote, while Obama would win
the electoral college. There were many
indications prior to the election that led us to believe that this would be the
case.
On
the website InTrade, where ordinary folks can gamble on anything from stock
prices to outcomes of current events, VJ mentioned the following odds:
For
the general election: 65/34 Obama
For
the swing states, Colorado: 53/47 Obama, Iowa: 69/31 Obama, Ohio: 65/35 Obama, New
Hampshire: 68/34 Obama, Virginia: 53/46 Obama, Florida: 36/64 Romney.
Interestingly
enough, the odds were totally on the money.
The election and the swing states all went to the forecasted candidates.
Also,
worldwide the only country where the majority thought the election would not go
to Obama, was Israel, perhaps because of Romney's vehement pro-Israel stance.
We
debated the various tax policies of the candidates, which is a moot point now,
but it was clear that Mr. Romney's plan was head-and-shoulders much more
favourable to investors. Now that his
plan will not see the light of day, here's what the President tax plan is
proposing:
-
Unless the Bush tax cuts are extended at the end of the year (and Kevin Day
believes that they should be extended for one more year), the long-term capital
gains tax will go up from 15% to 20% for all those with household incomes
greater than $250,000.
-
The estate tax and give taxes will also go to 45%, with an exemption on the
first $3.5 million.
-
Corporate taxes will go down from 35% to 28%.
(Source: Bloomberg.com)
The
looming fiscal cliff is going to be a real problem for President Obama given
the tax policies that he is urging, while still supporting various entitlement
programs that were spelled out in the debates.
The goal for this budget is to cut in half the deficit, as a percentage
of GDP. Jeff mentioned if the proposed
budget goes into effect, the consensus is that taxes and even interest rates
can be expected to rise.
What happened Mitt?
The
previous section was in relaying the thoughts we had about the upcoming
election. Now that Obama has won, we
have to ask, how did Romney lose an election that was, according to many, his
to win? No President in the past has won
a bid for re-election with the unemployment rate where it is today.
First
of all, in hindsight, it may not have been the greatest idea to send someone
from Washington from Wall Street, while the memories of the Crash of 2008 are
still so recent in the public's mind.
Also,
Mitt touted a good game, but may have been less able to sell it to the public. He was a better businessman than a
politician. Meanwhile, President Obama
didn't really have any substance to his policies but was able to communicate
his message with perhaps more clarity.
This
election was a clear indication of the future direction the country is
taking. We had 20 senators added to
Congress who were women, multiple states legalized gay marriage and Colorado
and Washington legalized smoking marijuana for recreational purposes.
Could
it be that the Baby Boomer generation (1960s-1970s) has taken over and the
Silent generation (1940s-1950s) was laid to rest?
Add
to this that the demographics of the voter population are changing. African-Americans comprised 13% of voters, as
opposed to 11% in 2008. Hispanics and
Latinos comprised 11%, not 9% as in 2008.
It is clear also that the youth overwhelmingly voted for Obama, by a
margin of 65% to 35% for Romney; and these voters turned up an all time high.
Based
on the figures, one thing is clear, and we have discussed it in prior meetings,
the Republican party must broaden its base, otherwise it could be a tactical
disadvantage.
Wisdom from a Great Trader
(Jesse Livermore)
Jesse
Livermore, one of the very first great traders on Wall Street, put down this
maxim in his book, Reminiscences of a
Stock Operator, tolook towards
the price movement of the large companies and the rest of the market should
follow suit.
If
this advice follows today, then the market is in for some troubled times ahead. Here are some interesting statistics:
-
In the last month, Apple is down 15%, IBM is down 8%, the Nasdaq is down 5%.
-
63% of the companies on the S&P 500 have failed to meet analyst
expectations.
-
90% of these companies have lowered their outlook for 4th quarter projections. Jeff Harrington pointed out
that Barrons ran
an article recently pointing out that 2013 earnings could be revised downwards
as well.
Under
these market circumstances, the market can scarcely be expected to reach new
highs in the near term.
Jeff Harrington,
however, believes that housing is making a legitimate comeback and that once
this sector recovers the pall of a recession will cease to hang around, as it
does today.
We
also had a consensus on the role the Fed would play, or rather continue to
play, which is to print money and throw them out of helicopters. The money
printing may keep stock prices inflated, but only for so long; there must be an
effect once the easing effect wears off.
However,
Kevin reminded us that there will always be special situations that the market
will present us with and these trading opportunities will be plentiful with the
volatility ahead.
Potential Market Plays
The
following stocks came up during our meeting as potential market plays and
investment opportunities:
Cooper
Tires - tire manufacturer; 4% dividend yield
Safeway
- food and drug retailer; 4% dividend yield
Silver
Wheaton - silver producer that is also getting involved in the streaming
business (providing capital to junior minors, in return for rights to the
proceeds of the mine)
Banco
Santandar - Spanish banking institution with a majority of its revenue coming
from Central and Latin America; 12% dividend yield
SAIA
- transporter of capital goods - Ry Zamora believes this may be a value play but also notes that he is still undergoing an analysis before he can confirm this
Intel
- microchip manufacturer; Kevin believes this stock has been beat down and is
looking attractive at these levels
Holcim
- cement manufacturer; Ry pointed out that every year since 2008, global cement
sales have actually increased year after year; he believes a good target price
would be $11 per share rather than the intrinsic value of the stock itself
Metanor
Resources - a speculative junior gold miner
Slovakia's Easter Tradition
On a totally different topic, in
celebration of Easter, Elena was explaining how the Slovaks engage in a curious tradition. Basically...well before your read any more, go ahead and see for
yourself.
http://www.youtube.com/watch?v=jdJUydpbBOw
Elena
explained how not only do men pour buckets of cold water on women of all ages, but
they also get hit with a small stick throughout the day. If this wasn't enough, some cities create a
woman made out of hay, light it on fire, and then throw this into a nearby
lake.
I
don't think we have had as good a laugh about any issue for quite a while.
The
next meeting will be on Sunday, December 2nd, 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
