Wednesday, June 9, 2010

Meeting Minutes

We had an insightful meeting today at Cantina Laredo! We had a total of 5 attendees: (from left to right) Lucy Chen, Andrew Whatley, VJ Arjan, Kevin Day, and Jeff Harrington.

The Market Consensus

There is continued weakness in the market. Kevin Day sees the next two to three months to be more like May and perhaps a bounce in early Q4, around September. We all agreed that now was a time to park some of our profits and accumulate cash.

One sign that we were all looking for was how long the FED could go without raising interest rates. If one recalls, the Aussies were the first and they did so in grand fashion.

Above is a chart for the Dow Jones Industrial Average (.DJI). A chartist would see that the market may be headed much lower. We simply need one more downward bar break below the $10,000 level, and the next level of support would be at $8,200. As can be seen, the break has not occurred as of yet – we’ll know by this week.

On another note, the market may be headed upwards in the long-term. Corporate earnings are outpacing analyst expectations and the average PE for blue chip stocks are hovering around 13, which is not bargain material, but it certainly not unreasonable.

BP: To Buy or Not to Buy

Jeff Harrington bought up several reasons why an investor should not own BP:

· The total payout may reach upwards of $40B – most of this would be in the form of civil claims from fishers to tourism

· This fiasco alone could lead the company to bankruptcy

· The Exxon-Valdez spill was the result of a broken hull, a much more controlled environment than stopping an oil geyser 5,000 feet under sea level

· Hurricane season is coming making the oil spread even quicker and in a less contained manner

· Dividend will be slashed or taken out completely

· The rig was named Macondo, which is a fictional cursed city from Gabriel Garcia Marquez’s novel One Hundred Years of Solitude (A slightly more daring reason)



There are definitely arguments to own BP as well:

· Certainly, now would not be a good time to buy BP – this would be like catching a falling knife

· It is confirmed that by early August the well will be shut off

· If one currently owns BP, a covered short may not be a bad idea

· It could be a potential buyout, and the buyer would probably be Royal Dutch Shell

The Continued Loss of Support for President Obama

One more diehard, partisan member of the Democratic party resorted to calling the President’s response to the BP event as “lackadaisical” and plain “stupid.” Although the response to this attack by other Democrats has been mixed, it is certainly ironic to see such attacks coming from someone who has worked along side Democrats Bill and Hilary Clinton and who defended Obama from Republican ire.

As a side note, Kevin Day expressed his dismay in the President wanting to raise the long-term capital gains tax from the current 15% to 26-28%, which clearly shows his the lack of understanding of how the economy functions, more so for his advisors than himself.

Europe

Kevin Day recently had a long vacation in Europe going from England to Spain. He explained how he felt about the situation there, which suffice it to say, is much, much worse than he had anticipated it to be. While he visited Spain there were countrywide worker strikes.

In England, he found the residents quite optimistic about the new government headed by David Cameron and the Conservative Party. Even being a coalition between their polar opposites, the Liberals Democrats, the residents are at least willing to give this hung parliament a go. Kevin definitely sees some huge challenges, but can see the government making the right and hard decisions required to get its government back on track.

Jeff Harrington added that world governments have taken on additional debt in an all out bet that globalization will save the world economy.

Santa Fe Gold Corporation

Jeff Harrington very generously did some incredible research on behalf of all investors who own SFEG and follow this blog. He called up the investor relations directly who supplied a plethora of pictures and fact sheets about the plant itself. The plant, surprisingly enough, actually exists and is currently producing - just in case, there were some investors on the fence about the whole thing. Below are provided some pictures of the site below – to request all the information that was received, please contact VJ Arjan at scarletkings@gmail.com.






On another note, we did spot an anomaly in SFEG’s normal trading pattern. Above is the trading session for Thursday June 3rd, 2010. Notice the single order of 1,000 shares that was traded at $1.02 and then subsequently the stock traded around $0.90 a share for the remainder of the day. This is a key reminder of the risk of trading in an illiquid stock. We hardly suspected illiquidity in this scenario, but it is more likely to be a greedy market maker. For the prudent investor, it would be wise to remember this lesson.

The Recent Selloff in Commodities

With the appreciation of the US Dollar against the basket of major world currencies, commodities have taken a nose dive. Kevin Day attributed this to investor’s overall lack of confidence in the world economy. However, this does not change our long-term consensus on commodities. As the FED continues to print money, the US Dollar must continue to depreciate against hard assets.

Market Plays

We had only one market play this meeting and it was brought up by Kevin Day. He believes that there may be some favourable price action with 3M (MMM). Suffice it to say that Kevin and his market nose have had an incredible track record.


The next meeting will be on Sunday, July 11th, 2010 – July 4th is Independence Day. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com