Greetings to all,
We had a wonderful meeting Romano’s Macaroni Grill! We had a total of 6 attendees: (from left to right) VJ Arjan, Ryan Zamora, Andrew Whatley, Kevin Day, Jeff Harrington, and Greg Bartell.
Osama Bin Gotten
The very day we had our meeting, we had the wonderful news of the death of Osama Bin Laden. I would like to throw this issue into an open discussion and would appreciate any comments on how his death would affect the future of the Al-Qaida organization and also the future of terrorism now that the “Gambino” of the terrorists is no more. I would also like to get some opinion on how this news would affect President Barack Obama’s presidency and re-election chances. So please make some comments.
Berkshire-Hathaway investors had some questions regarding David Sokol’s $10 million purchase of Lubrizol shares before pitching its buyout to Buffett. Some sources have said that Mr. Buffett knew of the existence of this purchase beforehand and did nothing about it. Right now, he is playing the “I wasn’t informed enough about the situation” scenario.
Mr. Sokol, one of the prospective successors to Mr. Buffett, would have been asked to go and seeing the writing on the wall, he resigned before this was done.
Kevin Day believes that although there will be short-term backlash for Buffett’s lack of vigilance regarding this issue, in the long-term this issue will be swept aside.Every corporation will have problems crop up, and, for the most part, life goes on for each one of them.
The Banking Sector
VJ Arjan noted how the earnings for the major banks have been very disappointing.Most notably, Bank of America’s earnings stood a full 10 cents per share short of analyst estimates.
Jeff Harrington noted that the banks that have been able to post profits have done so by “trimming the fat” and reverting loan loss provisions from an accounting standpoint (Every bank keeps aside a portion of cash in an account for loan loss provisions that is considered an expense. When they reduce this amount, it is accounted as an addition to cash flow.)
He further noted that the growth prospects for the large banks seems limited as well at least for the short-term. He still affirms that the long-term future for banks has tremendous upside potential.
The Silver Bubble?
Kevin Day noted how the price of silver has shot up 50% year-to-date. In his view, the continuation of this rate of appreciation creates a bubble like quality in terms of price action.
He believes that if there is a correction coming, it would be a drop in silver that would be the catalyst for this chain of events. (Literally the day after our meeting, the price of silver fell by 13%).
There would, naturally, also be a correction in gold and other precious metals as well.
Buffett’s Next Buyout Target
Jeff Harrington explained how Buffett has a boatload of cash on his books and, by U.S. tax law, he has to either do one of two things with that cash: pay out a dividend or pay taxes. Jeff further explained that he doesn’t want to pay taxes and will seek to reinvest this cash buy looking for another company to buy.
He feels that this could possibly be in the energy field, particularly natural gas as this commodity becomes a more and more viable alternative to coal.
Deficit Reduction Program
Congress has come up a few plans on reducing the federal deficit. Jeff Harrington noted that there only one problem: reducing the deficit will not actually lower the national debts. The deficit reduction plans only address the decreasing the shortage between income and expenses every year, but this still means that our national debt will continue to increase year after year.
Kevin Day still believes that the time will eventually come when the American people will say “enough is enough” and take on some severe austerity measure to balance our national debts. He believes that the resolve of the people is tremendous and that they will come through at the end.
Dividend Plays
Greg Bartell discussed some great dividend plays and we’ve listed them along with some other similar ones below:
· Cellcom Israel Ltd. (CEL) – 12% yield. Provider of cellular communications services in Israel since 1994.
· Partner Communications Company Ltd. (PTNR) – 11.4% yield. Provider of cellular communications services in Israel since 2001.
· Blackrock Enhanced Capital and Income Fund (CII) - 12.6%.
Other Investment Plays
Carbo Ceramics (CRR)
Encore Wire Corporation (WIRE)
The next meeting will be on Sunday, June 5th, 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.
Greetings to all,
We had a wonderful meeting out in the open spring air at La Madeleine’s! We had a total of 5 attendees: (from left to right) VJ Arjan, Greg Bartell, Tommy Schultz, Elena Swindull, and Kevin Day.
Congratulations To Elena Swindull!
We want to extend our heartiest and merriest congratulations to Elena. By the time the next meeting occurs, Elena will have had her second child, a baby boy, and we, at the Scarlet Kings, are thrilled for her!
Mitt Romney
Kevin Day noted that within the Republican ranks, Mitt Romney seems like the most possibly electable candidate. This he asserted keeping in mind that the bar that is set rather low across the board for the other contenders, none of whom would seem presidential enough for the voters.
On the other end, Obama’s re-run seems assured; he has announced it recently and will start creating the foundation for his billion dollar campaign. It seems unlikely, at least at this moment, that any other serious Democratic contenders may rise. Kevin’s guess that Hillary might seize her opportunity to head up against Obama seems like it might not occur. But that may still be too early to say.
Tesla Motors (TSLA)
Greg Bartell was explaining his conviction behind what Tesla motors intends to do: they intend to be the Ford Motor Company of the 21st century. They have been making acquisitions of large auto manufacturing warehouses, some of which were owned by the Big Three setting the stage for massive production schedules. He also noted how the management team’s credentials are impeccable. No doubt the founder, Elon Musk, has a vision that far supersedes his Tesla Roadster.
Japanese Earthquake
Kevin Day noted how there is not much control from the authorities in the handling of the Japanese earthquake; the Japanese people, it seems, are handling the problem themselves for the most part. He also noted how the Japanese may be downplaying the issue regarding nuclear radiation. This could be perhaps in the quintessential Japanese mannerism to save face or avoid shame.
VJ Arjan recalled how this may end up much like Toyota’s recent brake problem; the management team waited until the problem had snowballed so largely until it was too big to be covered up, after which the problem would be addressed.
That being said, it is remarkable and inspiring how the Japanese people have maintained a sense of calm and equipoise amidst this terrible tragedy. People are suffering, but each person is doing his or her share to rebuild and keep the environment peaceful. There are hardly any murder or theft reports, so much so that when the grocery stores have run out of food, they simply leave and wait until more supplies arrive. They are not rioting, where most people around the globe most certainly would. Kevin believes that Japan has a large elderly population, upwards of 20%, and that may be helping them keep this equipoise.
Libya and Gaddafi
Although it seems that civil war could occur in Libya, Kevin Day believes that Gaddafi is looking for his way out by means of exile, much like Napoleon agreed to when the British offered him to be exiled on the island of Saint Helena. However, he would not be formally imprisoned. We have also received such hints from Gaddafi’s son who spoke to journalists about these options.
That being said, VJ Arjan reminded everyone how Gaddafi has successfully remained in power for 4 decades. He took power when President Obama was only 9 years old. He certainly has experience on his side, but is this revolt from the people powerful enough to overthrow him; is different from the last ones?
The Emotions Of The Market
We all remarked how incredible the swings in the market are and how emotionally they trade when a news event occurs. Take, for example, the Japanese earthquake. The moment it occurred, nuclear stocks across the board took a nose dive, some falling by 20% or more. At the same time, solar stocks all jumped up 10%.
Kevin Day noted that these are absurd reasons for stock values to remain in the long-term. It may certainly be valuable for trader, but investors would find these movements irritating.
Tommy Schultz explained how today’s information age and in the public’s participation in the stock market may be causing the swings to be so vehement as the media nor the public were in the market in the past.
Elena Swindull believes that these movements can be blessings to investors who are looking to snap up equities at cheaper prices.
Kevin Day’s Market Nose: Tread With Caution
Kevin Day was consulted for his forecast for the near future of the market. He explained that it wasn’t time to head for the exits, but it may be prudent to start taking profitable positions off the table. It was also time to convert riskier plays and move toward more conservative ones. He feels that the market is struggling to make newer highs and the steam will eventually run out with a prospective downtrend in the works. Also there is still the specter of commercial real estate which looms ominously still but has not been realized as yet.
Many of the staple plays like Ford and General Electric are struggling to maintain their current levels and he feels that this is telling of the general market environment and a harbinger for the near-term future.
Some more conservative plays Kevin personally has been moving his riskier positions to include:
Freeport-McMoran (FCX)
VJ Arjan asked Kevin Day what the future of Freeport-McMoran looked like as he was contemplating taking some of his profits off the table. Kevin expressed how he was surprised that stock hasn’t run higher after the split, perhaps past 60 to 70 at least. His recommendation was that it was time to book half our position and let the other half ride.
The next meeting will be on Sunday, May 1st, 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
