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We had an interesting and debate-worthy meeting today at BJ’s Restaurant and Brewery! We had a total of 7 attendees: (from left to right) Jeff Harrington, Kevin Day, Tommy Schultz, Andrew Whatley, Jack Gammon, Robert, and VJ Arjan.
Recently,
Kevin Day believes that this affair was an exaggerated affair in which
Silver, Gold and the Media
VJ Arjan was explaining how he always gets leery when he sees current or potential market opportunities being advertised on financial news networks. Today, it is hard to watch Bloomberg, CNBC Money, or Fox Business without hearing the words, “Buy gold and silver.” Historically, whenever the public gets in, the prudent thing to do is to sell. It was the same when famous investor Bernard Baruch started to hear stock tips from his shoe-shiner that he predicted a crash was imminent. He asked whether or not this was the same for gold and silver and whether there was a bubble forming.
Jeff Harrington and Kevin Day explained that as long as the fundamentals of fiat money does not change, there is no other option but for gold and silver to go up. Kevin Day predicts that to see gold at $2500 is quite possible, but that after that the metal may exhibit bubble-like qualities.
Recently, in the last week matter of fact, Santa Fe Gold Corporation announced on its website that it was in the middle to completing an acquisition that will literally double the net worth of the company overnight.
Jeff Harrington explained that, reportedly, they will be buying 7 companies rich in gold deposits for the equivalent of 8.9 million shares. The kicker is that according to their estimates, these properties are so rich that the price per ounce of gold would come out to around $20 per ounce! (The spot price for gold closed at $1318 on Friday, October 1st.)
This only bolsters the support for this company even further. However, we will have to wait until the companies have been acquired to see if this will truly pan out.
The Next Six Months
As usual, we asked what Kevin Day’s famous market nose was telling him about the next six months. Here’s what he had to say:
· Economic signs point that the market will be in a healthy uptrend until at least the 1st quarter of 2011.
· Commercial real estate is still the next shoe to drop and residential real estate still has not bottomed out
· Unemployment will be the main issue that the country will have to face for an extended period of time. This will lead to a slow but gradual recovery.
· The Bush tax cuts for the wealthy will be extended eventually
VJ Arjan also added something he read on Louis Navellier’s market commentary:
· Historically, the greatest appreciation in the market comes from the 3rd year of a Presidential term. The S&P has averaged 17.13% over the last hundred years, while the 1st, 2nd, and 4th years have averaged between 4-5.5%.
· A weak U.S. dollar is leading to cheaper exports and a lowering trade deficit. The change from June to July went from $49.8B to $42.8B, versus an economic consensus of $48B.
· Earnings pre-announcement season anticipated to show another stunning round of earnings
Trading in the Futures, Currency and Options Market
Jack Gammon was explaining his approach to trading. He has been trading futures, currencies, and options since 2002 and here’s what he had to say.
His 3 tenets of trading are:
1. Chart reading, especially technical analysis
2. Volume analysis for options and futures
3. Surrounding oneself with successful traders so that good habits can be implemented and bad habits can be eliminated
Also, he informed us that trading options is much, much easier if one can learn to trade stocks first. And, also, for arbitrage techniques, only a computer will suffice as the windows of opportunity are so brief.
The Future of Terrorism
The department of Defense issued a statement conjointly with the major European governments about an enormous safety hazard from the uncovering of a potential mass-coordinated plot from Al-Queda.
Kevin Day was expressing the magnitude of the results that would ensue if these terrorists were able to pull off some major acts of terrorism in a few main cities in
Tommy Schultz felt that there would be two ways to handle the situation if it escalated to this extent:
1. Use covert intelligence operations to take out the main leaders of the organization
2. Declare an all-out war against the terrorists and start pulling weeds until they are completely gone. This would mean some enormous civilian causalities as a unwanted by-product of this engagement.
VJ Arjan felt that there would be one more alternative and that would be to promote open society and a capitalist economy in the Muslim countries that house this terrorism. People will rarely decide to join a terrorist movement if they’re making enough money to support themselves and their families well.
Home Loan Modifications
Andrew Whatley discussed some statistics and procedures about the loan modification programs offered by many of the larger banks, especially in places like
Suppose a homeowner has been unable to pay its payments for the last 2 years. The bank takes the payments on those 2 years and simply adds it to the end of the note as a balloon payment and then dramatically lowers the interest rate on the balance so that the borrower can make more manageable payments. The rate on this note steadily increases but at the end of this loan, there still remains this balloon payment, which the borrower will generally be unable to pay. Despite the short-term advantages of this program for Fannie Mae and Freddie Mac modifications, the default rate is hovering around 11%, while for portfolio, or bank-owned, loans the default rate is around 22%.
This leads Andrew to believe that home values will continue to decline and the clearly we are not out of the woods yet.
Newt Gingrich
Kevin Day who is himself a conservative, was expressing his disappointment in observing that the only viable candidate for the Republican party seems to be Newt Gingrich. Newt Gingrich happens also to cater to the more radical elements of the Republican party and tends to alienate the majority of moderate Republics.
Were there to be a showdown in the Presidential elections between Hilary and Newt, Hilary would be the winner by a landslide. He finds this totally disturbing as there seems to be very little cohesion or leadership in the Republican party.
Simulated Portfolio
| Date | Security | Entry (Oct 08) | Current Price | Profit/Loss |
| | FXI (iShares FTSE/Xinhua | $25.16 | $43.10 | $1,794 |
| | ILF(iShares S&P Latin America 40 Index) | $26.60 | $51.05 | $2,445 |
| | EWZ(iShares MSCIBrazilIndex) | $37.69 | $78.12 | $4,034 |
| | PBJ(PowerShares Dynamic Food & Beverage) | $13.27 | $16.47 | $320 |
| | GUR (SPDR S&P Emerging | $29.74 | $46.17 | $1,643 |
| | FCX (Freeport-McMoRan Copper & Gold Inc.) | $29.06 | $89.13 | $6,007 |
| | WLT (Walter Industries – metallurgical coal) | $38.75 | $82.10 | $4,335 |
| | VALE (Companhia Vale do | $13.12 | $31.70 | $1,858 |
| | GVA (Granite Construction Inc.) | $35.67 | $22.97 | -$1,270 |
| | MT (Arcelor-Mittal ADR) | $26.25 | $33.49 | $724 |
The next meeting will be on
