Meeting Minutes

We had a very instructive meeting! We really let the magic of Socratic dialogue take hold of us and ran with it. I want to take this opportunity to thank all those who attended; I believe that the more people and perspectives there are, the more comprehensive our discussions will be and the richer the knowledge that we are able to gain from one another!  In total, we had 9 members attend:

(From left to right) Vance Hall (Sorry for the picture, Vance!), Kevin Day, Jeff Harrington, Vincent Tran, Jeremy Mangon, Nick Vehslage, Patrick Su, Minesh Patel, and myself (VJ Arjan).
(Click on the picture to get a larger image)

Our meeting lasted nearly 2 hours and 45 minutes and was intermittently disturbed by the Cowboys losing badly to the Rams in the background (My apologies to diehard Cowboy fans). The topics discussed ranged from the global and American financial markets, to the future of the American “empire", and to the social issues like drug legislation and public education reform in this country. We also discussed detailed global market strategies and profit opportunities, which I wager will be on many minds given the recent market panic.

However, one thing in particular undergirded our discussion today, and that was that as we are the leaders and decision-makers of the next generation, what kind of world would we like to build for the next generation, our children and those thereafter? Admittedly, the attacks on September 11th were the result of perhaps the two decades of foreign policy that preceded it. So, given that premise, if we do not change anything with the way things are now, then it could be conceivable that our children, tomorrow, may become the target of a terrorist attack of a plane flying into a building, etc. That is one effect of the attack: that we must think about, and become conscientious of what we are doing and how that will affect the rest of the world. The Millennium generation, unlike its predecessors (the Silent, Baby-boomer, and Gen X), are most inclined to free-thinking, and may, by due effort, change the future outcomes given its starting point today.

America
Obama and the Race Card:
We had some tentativeness in deciding how important the race card is going to be in the election that is 15 days from now. If you would do us all a favour and answer the two polls at the right-hand side of the home page: one of them asks you for who you would vote for, and second asks you for who you think is going to win. Perhaps we can get a better idea from you all as well. The consensus is that although the race card is important, it will not be enough to knock Obama off his win for Presidency. Certainly, the economy is slaying McCain, even among the Republicans. Jeff Harrington suggests that perhaps Obama will do what Clinton did in his Presidency: fix the economy, get out of its way, make people happy, and make sure to keep government out of the people’s lives. Time will tell, I suppose.

Drugs:
We started our discussion with the current policy on narcotics. More than 2 million Americans die every year from auto accidents related to alcohol intoxication; smoking has been proven by various studies to directly induce cancer causing carcinogens. However, we determined, that the government views its people as good tax-payers and depends upon the revenue generated from sales tax off of cigarettes and alcohol. In fact, the tobacco and alcohol companies have lobbyists that specifically want to keep other narcotics illegal while keeping their products legal as the reversal will provide competition and a further slicing up of the profit pie. This, however, raises a decisive ethical issue: As citizens, is it ethical to allow large corporations and the government to profit off of another’s voluntary decision to ruin its health?

Jeff Harrington noted that Portugal has legalized all narcotic substances and they have a lower crime rate than the US. The Seventh United Nations Survey of Crime Trends and Operations of Criminal Justice Systems report shows that, Portugal ranks 33rd out of 62 countries, while the United States ranks 24th.
(http://www.nationmaster.com/red/graph/cri_mur_percap-crime-murders-per-capita∫=-1)

Perhaps we should legalize a narcotic like marijuana and put an end to the gang wars that plague cities around the country. In fact, that is exactly what we forecast would occur. Marijuana and other narcotics would be sold by companies legally and would want to get rid of the mobs that are trafficking them. Al Capone and his illegal booze during the Prohibition of the 1920s was broken up by large corporations. Same with the freemasonic organizations that became unofficial gangs that levied railroad taxes on freight companies; large corporations hired Pinkerton detectives to wipe them out.

The Direction of the American Empire:

We were not fully resolute on calling America an empire, but we did come to the conclusion that, if history is any guide, the same complacency or apathy among the citizens that has destroyed other great empires, will destroy ours as well. With record low numbers at the polling booths, Americans don’t seem to care who is in office as there is a general attitude of mistrust towards them. We frankly don’t have the time or patience to care about what we are doing to the world and how that is going to affect us. The average American is quite content not knowing about these issues at all; give them a house, clothes, some bread, a family, and ignorance and they are quite content.

However, this is a red flag of alarm for those of us who do care about the rest of the world. It may be true that most Americans may not be able to comprehend America’s decisions at home and how they affect countries abroad, but if this apathy and willful ignorance goes unchallenged then violence and bloodshed will continue to be spilt.

For instance, although we look favourably upon people like Henry Kissinger in his foreign policy, there are things he has done, or rather crimes, perhaps, he has committed, on behalf of the American people that were very ignoble and atrocious. During the Vietnam war, the purpose of which was to contain the spread of Communism, the Northern Vietnamese Communists began to seek safe haven in Cambodia, which was a neutral country at the time. Kissinger authorized to hard-wire planes that would fly over Cambodia and bomb its major cities while telling the air force pilots that they were flying over Northern Vietnam. This led to 80,000 Cambodian casualties and led the Cambodians to believe that the Northern Vietnamese now eyed Cambodia for spoils. All this to win the war against the spread of Communism. Although the end of containing the spread of Communism may have been noble, the means certainly did not justify it.

If we constantly elect leadership in America that continues to be a moral hazard and we, as citizens, do not take full responsibility and complete awareness of the consequences involved, then I fear that another September 11th is just waiting to happen; and this time it will be our children who may suffer the consequences.

Statistically, the average IQ is about 100, meaning that 50% of the citizens in American will be at below-average IQ levels and may not be able to understand the problem and become learned on our foreign policy. Does this mean that we give the problem up? Frankly, we were all at a loss for words as to what we can do. Kevin Day and Vance Hall, however, noted that it may, in fact, be a good idea to restrict oneself to the things that one, realistically, can change. But this is not for everything; in fact, hardly so. We can actively change what America is, but we cannot change what we are perceived as abroad. Therefore, we must work with what is in our control; what those things are is still a mystery, but I think we have to get started somewhere and tackle the issues one by one. It is indeed human nature and the human condition itself that allows mankind to repeat its past mistakes over and over again. Kevin pointed out that the financial panic we are in was hardly different from the panics that scourged the 60s and 70s, albeit, there is always a different way arrived at. This time it was subprime mortgages, next time it may be commodities, the time after, real estate, etc.

The Next Economy

Alternative Energy:

Emerging industries will be in the alternative energy front. We had some idea of the effectiveness of wind-powered energy, but we have some doubts as to the efficiency of it over long distances.
Tesla SpaceX, run by Elon Musk (multi-millionaire co-founder of PayPal), may become a victim of industrial espionage. Jeff Harrington noted something very interesting that I don’t think any of us had ever taken very seriously. Most of the rockets that have been mysteriously blown apart during takeoff have been rockets carrying government spy satellites. What an interesting insight! This means that countries have been purposely doing this to each other; the same may bode for companies. It is possible that SpaceX may become a victim of this as well as it competes with Boeing and Lockheed-Martin.  Companies have been spilling tens to hundreds of millions of dollars to Boeing and Lockheed-Martin to build rockets for their satellites, and here is SpaceX that can build one for $10 million. We’ll see, of course, what happens.

Global Market Plays:
It is no secret that American equities are being bought up en masse by the Oracle of Omaha, Warren Buffet and Kevin Day contends that there are opportunities here. However, that being said, there are even more spectacular opportunities overseas. Here is a list of equities and ETFs that we compiled as a watchlist:

International Markets -
FXI (iShares FTSE/Xinhua China 25 Index)
ILF(iShares S&P Latin America 40 Index)
EWZ(iShares MSCI Brazil Index)
PBJ(PowerShares Dynamic Food & Beverage)
GUR (SPDR S&P Emerging Europe)

Mining Stocks -
RIO (Companhia Vale do Rio Doce – gold mining)
FCX (Freeport-McMoRan Copper & Gold Inc.)
WLT (Walter Industries – metallurgical coal)

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My hope is that you may benefit by some of this, and that it may help you develop or further enhance your perspective of the way the world is! Let me know if you’d like to receive an invitation to the next meeting, which will be the Sunday after next, November 2nd. I will send out the invitations and details close to a week in advance.

Thank you all and I hope you all have a great week ahead of you!

Summary of Amritt Webinar: Doing Business in India

I just got off a conference call with Amritt Ventures, an business consultant company for Western companies trying to tap and better understand the Indian market. I found the insights very interesting and took some notes that I thought I’d share:

The speaker was Gunjan Bagla, author of Doing Business in 21st Century India, a consultant for American companies for 25 years, and graduate of the famous IIT in India, and he provided some valuable insights on the Indian mentality and India’s prospective future.

He mentioned a Morgan Stanley study done in 2006 of the last 100 years on the liberalization of various countries (Japan’s liberalization in the 1940-50s, Phillipines in the 1980s, etc.). In each instance after liberalization, the country’s GDP assumed an S-curve formation (rapid exponential growth followed by a gradual tapering, much like an industrialized country). India, in terms of GDP, is still at the bottom of its S-curve formation.

He did mention some grave problems that India has that is currently stunting its growth like rampant disease, poverty (60% of citizens live on less than $2 a day), and immense government bureaucracy and corruption. Indians have a legitimate issue with the distribution of products as well. Although it is very cheap to transport on horse-drawn wheelbarrows or hand-pushed trollies, it is certainly not efficient and is prone to many more inefficiencies (however, I recognize that I may be underestimating the system’s abilities; did they not conduct distribution in America like this about a century ago and in China 20 years ago?).

However, he said that the rapid change in the attitude among Indians will force these issues to be resolved. Indians want to see its own progress; in fact, most Indian start-ups are funded by Indians, very few come to Wall Street for funds. He also addressed the impact of the middle-class. I clearly remember when I went to boarding school in India from 1994-5 how it was rare for a family to own a car; now it is a norm for families to have 2 cars! You would have to be in India to know how incredible that is!

He mentioned the Indian perspective and dispelled a few myths about it. Indians are not cheap; in fact, with the amount of money flowing to them from the West, there is clearly a vast and growing demand for luxury products (which, I argue, can be good or bad in the long-run). Also there are a few cultural perspective differences. It is also important to understand that just because Indians can speak English, does not mean they will think like Westerners. India takes its AIDs problem seriously and it is not uncommon to see condoms being advertised at metro stations, on billboards and daytime TV commercials. Topics like religion, politics, etc. which are considered taboo subjects here in the West are simply not considered so in India.

Anyways, that’s a summary for you all! Hope it was helpful.

Meeting Minutes

Our meeting was a great success! In total, we had 10 members attend:

(From left to right) Vance Hall, Alex Morrow, Vincent Tran, Minesh Patel, TJ Nwadei, Andrew Whatley, Jeffrey Cornell, Derrick Miller, myself (VJ Arjan; I was taking the picture), and Jeff Harrington. (Click on the picture to get a larger image)

Our meeting lasted almost 3 hours and we concentrated on the recent turbulence in US financial markets and extensively discussed not only where this puts America but also who the other potential emerging giants may be. We discussed the political and social/cultural situations in these other countries that may catalyze or their potential economic prosperity.

America

The Financial Bailout:
Jeff Harrington, who has clearly researched this issue extensively, contended that the recent government Wall Street bailout will actually appreciate the US dollar in the short-run. What has catalyzed the illiquidity situation is the marking-to-market of bad securitized mortgages. As banks are starving for cash, the bailout will not immediately be felt as the banks are not lending at all. The cash will remain in the upper echelons of the financial system. There may certainly be more bad debt/write-offs to come.

In Europe, Jean-Claude Trichet, president of the European Central Bank, has not cut interest rates. Europe, as in the last few centuries, continues to believe that it is the center of the financial world, and that they can keep their interest rates inflated (3-month LIBOR 4.05% vs. 3-month T-bills .6%) , taking the ‘this-time-it’s-different’ approach (consider Soros and the ERM). Rates will be cut depreciating the EUR/USD rates in the short-run. Long-term, however, the continution of the printing of fiat currency will continue to deflate the dollar.

As a result of this bailout, taxes will increase, but there is disagreement on whether they will increase enough to spur a taxpayers’ revolt. Jeff Harrington believes that America will undergo a social revolution that will correct this increasing trend toward a possible welfare state.

TJ Nwadei, who has participated in a group study of the banking system in Nigeria, says that the currency depreciating is a buying opportunity for Nigerian banks, who are converting Naira en masse into US dollars.

Jeffrey Cornell bought up a very interesting question/idea that we had not considered before. Instead of having the government buying up bad loans and just holding on to the property, why don’t they rent them out? It certainly would make sense to do so. But we couldn’t come up with an answer, so if you can, please reply and let me know.

Oil in Iraq:
There are 115 billion barrels of proven oil reserves; a recent agreement referring to oil revenue sharing leaves 82% to foreign oil companies. However, this is only for proven reserves. There may be up to 200-300 billion barrels of unproven reserves as Iraq is 90% unexplored. There are only 2000 oil wells in Iraq, while Texas alone has well over a million. If this is true, Iraq can become a very wealthy country, much like it was before Saddam Hussein came to power.

9/11:
We concluded that 9/11 was a failure on the imagination of the intelligence; they simply could not conceive of such an attack actually occurring. Derrick Miller pointed out that this may be because of our cultural values. Because we value human life so dearly in the States, we could not see or rationalize another person who would destroy theirs to destroy many more in such a manner. We also discussed some of the conspiracy theories revolving around 9/11 but did not delve into them very deeply.

Added October 8th:

Derek Connell, who was not present at the meeting emailed me some deeper insight on 9/11 that I thought I'd share. In summary, the scenario of hijackers using planes as weapons had been thought of by intelligences offices, NORAD, a Justice department trail attorney, and others.  However, at the time, no one in authority considered this to be a real threat. During the months leading up to 9/11, there were FBI reports of extremists' interest in aircraft training. We also arrested an Islamic extremist named Zacarias Maussaoui who had been enrolled in flight school in Minnesota.  In late August, 2001, CIA officials were briefed about this.

So it was not necessarily a lack of imagination on our part.  There were signs leading up to the event that were brushed aside.  Was it ignorance, apathy, or was it something more sinister?  That question is open to interpretation. 

Bulgaria

Hangover from Communist Soviet Union:
There is still a large hangover from Communist Soviet Union in Eastern European countries since the USSR’s dissolution. Vince Radulov predicts that it will take another 2 generations to change the communistic mentality there and even plans to hopefully be of some assistance to his country in making this transition. Bulgaria, however, plays a significant strategic role as a controller of trade through the Black Sea. Since 2007, real estate prices in Bulgaria have shot up an astounding (even ridiculous and unsustainable)1000%. This certainly suggests the growing problem of hyperinflation for Bulgaria in the future. His description of living in a Communist country was very helpful in our understanding of the kind of problem those countries face. In a communistic society, people cannot be citizens and own any property – the government owns everything; in fact, while he lived there, Vince and his family were put on a list and given their apartment by the government as they became available. As the government owned everything just 20 years ago, people are finding it difficult to start owning property. Food used to be provided free from the government; now people have to work to have food. Certainly a different point of view from someone living in a capitalist society.

China

The Need for Higher Health Standards:
We discussed China extensively. Vincent Tran and Jeffrey Cornell gave us their personal insights on the direction China is headed and the challenges that will face them in the future. Although they have the lowest manufacturing cost in the world, there is a cost. China has had a history of siding with reducing costs even if it may cost a few human lives. For example, China, to hide the protein deficiencies in their milk products, has added enormous amounts of melanin to their milk. This has caused many deaths and companies had to recall those products. Recently, Cadbury chocolate bars made in China had dangerous levels of melanin and had to be recalled. This disregard for health hazards has caused China to fall out with the rest of the world and international corporations that have higher standards albeit at a greater monetary cost. This, however, we concluded is a necessary and ultimately temporary condition. Japan, in the 1950s, had similar problems with their automobiles, but they persisted and succeeded in eventually providing a much better product to the rest of the world.

Civil War:
China has nurtured the middle-class. Although China is still a Communist nation and cannot allow its citizens to own property, they have been rewarded with economic prosperity often to the chagrin of rural labourers in Northern China, who are still living a very Communistic lifestyle. Often what occurs is that the Chinese government, to keep the Southern Chinese middle-class happy exploits the workers in the North by essentially stealing their farmland. This makes for a conflict in the future against the capitalist and communistic parts of China, the former for being denied its prosperity and the latter for feeling betrayed by the government.

India

Emerging Middle-Class:
Minesh Patel talked about the prosperity of the new middle-class in India and how the government, however slowly, is spending money to improve the infrastructure there. He talked about how since he last visited in 1996, there are interstate highways where there used to be dirt roads, etc. However, it does seem that the trickle-down effect stops with the middle-class. The poor, who constitute 35% of the nation, has not improved anywhere close to a near extent.

Infanticide:
This is a large problem in both Indian and Chinese cultures. Statistically (from the CIA World Factbook https://www.cia.gov/), there are 950 women for every 1,000 men. This means that 38 million Indian men between the ages of 15 and 65 will either not marry or marry outside their race. I predict that this will just catalyze the current attitude toward Westernization by the young in India. In fact, Vance Hall brought up the fact that the next generation in India is akin to the baby-boomers in the 1960s. If I were to make a bet considering India’s future, I would predict that Westernization will take a serious hold on the next generation and one of the effects of this is that divorces start happening en masse. India has the lowest divorce rates in the world, but the fact is, marriages, even very unhappy ones, were held on to by a sense of duty. However, since this decade, in large cities, divorce rates are exponentially increasing; subconsciously this may be a rebellion from the traditional society which has held an iron grip on the past countless generations. The Westernization will occur principally in large cities; not for most of India, 60% of which still lives in small villages. The forced mixing with other races will also help break down the xenophobia and racial preference Indians have for their “own race.”
We jokingly tossed around that as a result of the infanticide in India and China, young girls may be “sold” on eBay in the future (I assure you that this was only a joke). However, and I mean this without offense, this already does occur in India; girls are “sold” to other families by their dowries; arranged marriages frequently occur based on financial motives and it may not be a stretch of the imagination to see this conducted online possibly through a forum like Match.com. Derrick Miller talked once again about how the cultural perspectives in India may allow such a practice to occur, while it may be seem incomprehensible from a Western perspective.

Ineffective bureaucracy:
India has the second worst bureaucracy in the world. Egypt is number 1. This is certainly a hangover from the British empire, but it is largely responsible for deterring its economic growth. While it claims to be a capitalist country, it is largely socialistic. To give an example, the train station in Mumbai took 25 years to build, while the subway in Shanghai took 6 months. It still takes 5 to 7 years to open a business, unless you can get your way through bribery and corruption.

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My hope is that you may benefit by some of this, and that it may help you develop or further enhance your perspective of the way the world is! Let me know if you’d like to receive an invitation to the next meeting, which will be the Sunday after next, October 19th. I will send out the invitations and details close to a week in advance.

Thank you all and I hope you all have a great week ahead of you!