We had a wonderful meeting at BJ’s Restaurant and Brewery! We had a total of 7 attendees: (from left to right) Elena Swindull, Greg Bartell, Kevin Day, Jeff Harrington, Nick Souders, VJ Arjan and there was 1 more attendee who chooses to remain anonymous.
The Stem Cell Industry
Nick works for the Dana-Farber Cancer Institute with member access to the facilities of the Harvard Medical School. He received his Ph.D. in oncology and has done extensive research and experimenting in the cutting edge of the bio-medical field.
He had an unconventional conviction on the stem cells industry, very simply that embryonic stem cells do not work. The science behind embryonic stem cell technology is fanciful. According to him, these stem cells are either, one, rejected by the body, or, two, destroyed by the body’s immune system as a foreign agent.
What he believes is occurring in this industry today is that Wall Street is selling hope and playing on people’s fears in order to secure funding.
Greg Bartell also chimed in noting how he feel the doctors on in on the stem cell payroll. He recently experienced his doctor trying to insistently sell him on pursuing stem cells.
The proof of this attitude, Nick continued, is in several stem cell start-ups, notably, Geron Corporation, which has from day-one promised the world to investors to only end up not delivering at all. As a consequence, it has dropped from above $8 two years ago to the mid $2 range and currently has a return on equity of -40%.
Nick also commented on his specialty, cancer vaccines, which he said shows more promise. He explained how there are currently many options in treating cancer, the only downside is that each vaccine lacks consistency in its effects on different patients it treats. It is difficult to find a way to kill cancer cells occurs universally. Often times a specific treatment will work on one patient eradicating a tumor, while another leads to no effect and even some harmful side-effects.
At the cutting-edge of this field is a vaccine he is currently working one, for which he has a patent under his name, which involves entering a cancer cell by stealth like a bacterial Trojan Horse, which marks itself for destruction by the immune system. This strategy is still in the stage for extensive testing.
He also commented on a stock that Kevin Day has mentioned in the past, Aeterna Zentaris (AEZS) and that he believes there is great credibility and brilliant scientists working towards oncology therapy.
The Market
A subject that comes up every meeting, we discussed where we should be looking to invest our money. Kevin believes that if one is still holding positions right now that one ought to be a buyer, not a seller. One could have been a seller before the recent sell-off in August, but not now.
If there were anywhere to start “nibbling”, it would be in the financials and the emerging markets. Some have noted how Warren Buffett’s purchase of $5 billion preferred in Bank of America may be signaling a bottoming of the financial sector. Kevin believes that it is time to start cautiously nibbling on some of the larger, less risky banks like Wells Fargo.
In terms of emerging markets, it could be a bumpy ride, but the long-term gains should pay off handsomely.
Elena’s Trip to Slovakia – The Rise of Capitalism in Eastern Europe
Elena Swindull talked about her recent trip to Slovakia, where she was born and raised. She was back home visiting her family and relatives, and could not help noticing the incredible rapidity of change there.
She noted that ever since Slovakia joined the Eurozone in 2004, the changes have been remarkable. While she was there, she saw for the first time, modern shopping malls, no different from the ones we have in the US. Infrastructure was also changing and being upgraded at a break-neck pace.
She recalled living through the end of the Soviet Union, but admits, she was not old enough to really understand what was occurring at the time.
There is little doubt that the formerly communist nations are starting to embrace capitalism and this is a trend that she foresees continuing into the next few decades.
Romney-Perry Showdown
Kevin Day and Jeff Harrington discussed how Rick Perry is no fool; his statements have been purposefully provocative in order to attract attention to him. As this campaign continues, they believed that he would tone down his rhetoric to pander to more moderate Republican voters.
He certainly has a few politically difficult stances on, for example, Social Security, which he has called in a recent debate a “Ponzi scheme” and is in favor of abolishing it for a privatized structure. This certainly rings true for many in the Perry base, but it will be hard to convince 10 million voters who receive Social Security that it needs to be drastically reformed.
Regardless of his beliefs, it will certainly make for a very interesting campaign as the debates continue here in the near future.
The More Things Change, The More They Remain The Same
Kevin Day talked about the ushering in and the fading away of the technical analysis crowd. The recent market environment has been so volatile and uncertain that literally the rules for technical analysis have been thrown out the window.
He believes, that over time, ultimately fundamentals will determine the movement of the market, now more so than before the crisis after 2008.
At this point in time, he still believes that the fundamentals indicate that things can get worse before they get better. He does not believe we are headed for a double-dip recession, but also does not believe we can rule it out completely.
The recent decision by the Federal Reserve to keep interest rates are current levels until mid-2013, shows that even the Fed believes the economy will be very weak for the coming two years.
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.
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.
Dismal Employment Numbers
During the past week, the Department of Labor released the official employment numbers, which were very disappointing and give cause for worry to investors about the economic slump we are still crawling out of. The report stated 18,000 jobs created; the expectation was in the vicinity of 175,000.
As the days tick by to Election 2012, these employment numbers will become increasingly more and more important for the current President, who is the front-runner Democrat seeking re-election.
During the past two weeks, the Dow Jones Index rose 800 points. The question is ‘What are investors really that excited about to cause such a rally?’ Kevin Day reminded us that the market is also a human animal that experiences frenzies and psychological euphoria. The long-term recovery will take a long time; today’s large institutional investors, for the most part, are still scared and not euphoric about the market. The rally has also coincided with the famous Independence Day rally, which is a psychological metric as well.
The GOP Contenders
Mitt Romney seems like he is the front-runner candidate for the GOP. A former governor and successful businessman, he is someone who can seem Presidential. His Mormonism may or may not be a deciding factor for him, we will have to wait and see how it plays out.
He has been receiving competition from Michele Bachmann, who seems like a more moderate Sarah Palin, but who nonetheless panders to the extreme wings of the Republican party, the Tea Party Movement. Her radical views may ostracize her appeal, while Romney seems to maintain a good balance.
Kevin Day explained his view that it could certainly get more interesting if Rick Perry threw his hat in the ring. He is also a successful governor, generally liked by his state, and has served this role for more than a decade. The key stumbling block for him is if he can in a limited amount of time get his name out there quickly and win the votes from other states. He probably has another 60 days before it’s too late.
The Economic New World Order
We had a spirited conversation about the new world economy, which is, instead of being single nation-states who are mass producer of goods and services, is becoming individual economic hubs of specialty.
For instance, previously state-centrist countries like China, who isolated itself from the world economy until 1973, had produced everything from automobiles to infrastructure for the state. Now, the automobiles are being imported from Daimler and the GM and infrastructure from General Electric are being imported while China focuses on non-durable manufactured goods like clothes, textiles, etc.
The Germans also provide for the world cloud computing and enterprise management software solution through SAP. The Japanese provide consumer electronics for the entire world. The United States underwrites global military security and healthcare research. Each country is no longer trying to be jack of all trades, but a master of just a few.
Man vs. Country
VJ Arjan discussed a terrible paradigm the world is shifting to based on the book ‘Latitudes and Attitudes’ by Thomas Friedman. It talks about the first war in history that a country has gone to war over, not another country or even a nation-state, but an angry individual empowered with the capacity for great destruction. In the late 1990s, the late Osama Bin Laden’s al-Qaeda destroyed two American embassies in Africa. One week later, the President and the CIA authorized 75 cruise missile weapon strikes toward the alleged hideout of Bin Laden in Afghanistan. Each missile cost $1 million dollars apiece. How much did the U.S. spend in that strike alone in one week against one individual: you can do the math.
These Pancho Villa-like renegades may be our future. It is not the country who declares war upon us, but the madman who decides to strap a bomb to his chest and enters a restaurant that we will have to protect ourselves against.
Undoubtedly, the greatest and most effective remedy to combat terrorism is to encourage prosperity and participation in the global economy. It is not a coincidence that many of these jihadis are unemployed and disaffected economically. More times than not, people will put down their guns and grenades if they’re making money and living comfortably.
What The West Does Not Hear
Too often, in the West, in the conflict in Jerusalem, Israel is portrayed as the good guy and the Palestinians as the bad guy. This is not the case. One of our members explained how Israel, although on the surface, can be compromising, they have abused their military superiority to the detriment of the Palestinians multiple times as well. Take a look at changing borders of Israel:
Does this mean the Israeli’s are the only ones to blame. No, the Palestinians too often have taken on the victim role and served up impossible negotiations to the Israelis. Frankly, they do not have much to bargain with, as their military is, fortunately or unfortunately, nowhere near as powerful as Israel’s.
EQ vs. IQ
We had a discussion about the determining factors of the person who attains success: is it EQ (Emotional Quotient) or IQ (Intelligence Quotient). Well, it certainly can be both, but the conclusion we came to is that EQ is more important than IQ. There are plenty of people with high IQs that because they do not know how to manage their emotions or the relationships they have with others end up not seizing the success they could have.
On the other hand, there are plenty of examples of people with high EQ who end up creating empires, who also had little IQ. The founders of Pilgrims Pride Chicken and the Weir Brothers Construction Company are two examples. These people are centi-millionaires and billionaires and yet they have a difficult time speaking or spelling correctly.
It turns out that people with high IQ end up working for people with high EQ. The ability to deal with yourself emotionally and to deal with people effectively is by far the greatest asset a person can have.
As legendary titan of industry John D. Rockefeller Sr. said,
“The ability to deal with people is as purchasable a commodity as sugar or coffee and I will pay more for that ability than for any other under the sun.”
The world is increasingly becoming less adept at social skills. Earl Landry was relaying an experience of a recent wedding he went to where no one on his table took the basic courtesy of introducing himself or herself to the others. He thinks that many people have holed themselves up into a bubble of technology and that limits and numbs their social skills.
New Simulated Portfolio
If you recall, we have a simulated portfolio that was created in November 2008 and was tracked for the Scarlet Kings every quarter. It may be time to re-examine if there are any changes to be made, additions or otherwise. We can discuss them at the next meeting.
July 2011
| Security | Entry (Oct 08) | Current Price | Profit/Loss |
| FXI (iShares FTSE/Xinhua China25 Index | $25.16 | $41.20 | $1,604 |
| ILF(iShares S&P Latin America 40 Index) | $26.60 | $49.62 | $2,302 |
| EWZ(iShares MSCIBrazilIndex) | $37.69 | $69.54 | $3,185 |
| PBJ(PowerShares Dynamic Food & Beverage) | $13.27 | $20.13 | $686 |
| GUR (SPDR S&P Emerging Europe) | $29.74 | $50.67 | $2,093 |
| FCX (Freeport-McMoRan Copper & Gold Inc.) | $14.53 | $54.25 | $5,038 |
| WLT (Walter Industries – metallurgical coal) | $38.75 | $109.63 | $7,088 |
| VALE (Companhia Vale do Rio Doce – gold mining) | $13.12 | $32.23 | $1,909 |
| GVA (Granite Construction Inc.) | $35.67 | $24.72 | -$1,095 |
| MT (Arcelor-Mittal ADR) | $26.25 | $32.11 | $586 |
The next meeting will be on Sunday, August 7th, 2011. For those who have not attended a meeting, but would like to attend, please email your wish scarletkings@gmail.com
