Meeting Minutes

We had a very insightful meeting at Chili’s! We had a total of 4 attendees: (from left to right) VJ Arjan, Elena Swindull, Kevin Day, and Jeff Harrington.

Coming Out of the Woods

(Unemployment Rate)

Kevin started off by remarking how, it seems, that we are finally coming out of the woods.

We are finally seeing a somewhat meaningful dip in unemployment. This dip could be related to seasonal holiday hiring, but he sees the trend going in a better direction in the near future.

Also, retail sales from Black Friday and, for the first time, Cyber Monday, are up sharply year-over-year.

VJ Arjan and Jeff Harrington added that the President’s new Home Affordability Refinance Program (HARP) will enable hundreds of thousands of homeowners to refinance to bottom-barrel rates fueling the need for increased consumption and getting the American economy on the road back to a restoration of confidence.

In addition, the Federal Reserves pledge to keep interest rates at current levels until July 2013 enables the lending markets open up the taps again.

That being said, these all point to a generally tepid rise in the U.S. markets in the short-term. Jeff and Kevin re-iterated that over the long-term, there will be a reckoning for the sins of the Federal Reserve’s printing presses and there is no way that the United States can avoid severe austerity measures, at some point.

Emerging Markets

Kevin pointed out that the emerging markets look shaky in the near-term.

Nearly every emerging market is down at least 15% over the past year.

The talk of a bubble in China is being reflected in the way the Chinese ETFs have performed in the last year. He is, therefore, cautious in the near term.

Obviously, for a long-term investor, these prices represent tremendous opportunities to build positions at relatively favorable prices. For such investment opportunities, it is favorable to have the press and media beat down such sectors as long as possible.

Basic Materials and Precious Metals

This sector was among one of the worst-performing. After a tremendous rise in commodities prices for 2 years, this year was certainly one for a correction, particularly for nonferrous metals.

That being said, Kevin noted that, especially for precious metals, he can only see them going higher.

Where else would one park one’s assets? That is the question. Outside of cash, precious metals seems like a relatively safe bet.

Euroland Crisis

We all discussed the crisis that continues to dominate financial markets around the world. Europe has had a history of “ladylike and gentlemanly politicians” who make speeches for each other and refuse to take a cold view of the reality, if you like, realpolitik. The recent change of leadership in Italy and Spain should hopefully lead to decisive action, but we will have to wait for their actions as confirmation.

The problem is not only the staggering amounts of debt, but also their high-risk nature. It is very conceivable that one or more of these nations could default on their sovereign debt load.

We also collectively re-iterated that should the Eurozone crumble, it will be a lesson to posterity in the folly of seeking to achieve an economic union before a political one.

The truth of the matter is that especially the Western European countries have a deep-seated animosity that seeps back several centuries in time. Not to mention the grudge that many Eurozone countries hold toward Germany and the Nazi occupation in World War II. To suggest that this would be a road without any bumps is idealistic.

Elena Swindull, who grew up in Slovakia explained that, at least in the Eastern European countries, there is no real animosity and not surprisingly, these countries have relatively conservative debt levels in place.

There seems only to be three viable options:

1. To have the distressed nations to default on their debts and leave the Eurozone in an orderly fashion.

2. The stronger countries bail out the weaker one.

3. The stronger countries cut their losses and leave the weaker Union.

The Fall of Herman Cain (and the Rise of Newt Gingrich)

We all remarked on the speed of the decline of GOP candidate for President, Herman Cain. Just when his poll numbers were on point to directly challenge Mitt Romney, in a matter of a couple weeks, his campaign is over.

However, his rise is remarkable in itself and his rise, as a respectable African-American businessman as a viable candidate for the Republican nominee for President, shows the tremendous openness and great character of the people of the United States.

Herman Cain is an inspiration, especially to minorities who would look at the color of their skin as an excuse to spread the message of oppression. This may be especially applicable in the African-American community, where the median family’s net worth is roughly 6% of other families. Somewhere, there is a new generation of leaders in this community that has become inspired by his example as well as that of the current President.

That being said, he must have known about the skeletons in his closet before entering the race and it must have been sheer gusto on his part to keep on and run for becoming President. It was highly unlikely that anyone could have simply skipped over an affair that had allegedly lasted 13-years.

His fall has led to the rapid rise of Newt Gingrich, who is the leading candidate in the Iowa straw poll. He is no knight either. The troubles in his personal life have frequently been hit upon, and so has his inconsistencies regarding several key political issues. He does, however, have 30 years of experience in the White House and that could go a long way for him.

Stock Updates

Aeterna Zentaris (AEZS) – According to Nick Souders, a cancer researcher at the Harvard Medical School for the Dana Farber Cancer Institute, we are still awaiting the results of the successful trials for a cancer drug. The key, he said, is to wait until next February for the trials results. If the results come out early next year, then the trials were a success and there could be tremendous upside potential for the share price. However, if we hear anything before that time, then the trials were not successful.

Santa Fe Gold Corporation (SFEG) – There was an analyst report issued recently that valued the company’s share price at $5.22. Kevin was kind enough to send over a link to the report: http://www.grassrootsrd.com/grassrootsrd/Reports/Santa_Fe_Gold_11_13_2011.pdf

2011: A Year In Review

With the year coming to an end, it may be prudent to go back and recount some of the most significant events of the past year relating to the core interests of the Scarlet Kings.

The Death of Osama Bin Laden

On May 2^nd, thanks to security administration of Presidents Obama and Bush and the Navy SEALs, the world’s most wanted terrorist was no more. This blow, from what can be gathered in subsequent military successes, has led the Al-Queda organization on the path to a long-term decline. It is certainly a lesson in persistence given that it took nearly 10 years to finally get him.

Shortly after Bin Laden’s death, the number two in command, Anwar al-Awlaki was killed in a target drone attack in Yemen.

Japanese Tsunami and Nuclear Disaster Aversion

On March 12^th, Japan was struck by an earthquake and subsequent tsunami that caused a total economic loss of approximately $300 billion and the deaths of more than 18,000.

It also gave grave fears to the nuclear power industry as one of the power plants had been badly damaged and was on the threat of exploding. Fortunately, this has, by recent reports, for the moment been contained.

Occupy Wall Street

It can be argued that the people at these rallies are just a bunch of frustrated individuals who are looking for a venue to express their anger. However, if this movement continues, it could very well take on the vigor of a new kind of Populism that has not been seen in quite some time.

Of course, it will need to stand the test of time and we need to see if the momentum continues or subsides.

Egyptian Revolution

Perhaps the most important event of this year, the total impact of this event may not be fully comprehended currently, but we believe that we are certainly witnessing history here. Finally, a younger, more educated populace decided to rebel against authoritarian leaders who ruled with a staff of iron for several decades. Moreover, it was a relatively peaceful revolution that was organized by, for perhaps the first time in history, social media networks like Facebook and YouTube. Imagine, a country where not even all citizens own a TV or let alone a computer with internet, can rise into full revolt in a span of 7 to 10 days. This is what happened in Egypt.

The people’s victory here went on to similar movements in Syria, Yemen, and Libya and went on to even inspire the Occupy Wall Street movement that has sprung up recently.

Best performing sectors:

Pipelines – Natural Gas	+45%
Tobacco Manufacturers and Distribution	+23%
Retail – Clothing and Accessories	+17%
Consumer Finance	+17%

(From BigCharts.com)

Worst performing sectors:

Precious Metals – Gold, Silver, Platinum	-39%
Airlines	-35%
Nonferrous Metals – Basic Materials	-29%
Mortgage Finance	-27%

(From BigCharts.com)

With the close of 2011, we wish you all a very happy holiday season and wealth, health, and prosperity in the coming year.

Ladies and gentlemen, to the future.

The next meeting will be on Sunday, January 8^th, 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.

Next Meeting of the Scarlet Kings

Greetings to All,

The next meeting of the Scarlet Kings will be held on

Sunday, December 4th, 2011 at 12:30PM.

Location: Chili's (4500 Belt Line Road, Addison, TX 75001)

Please join us for a fruitful and lucrative discussion!

Very Sincerely,

VJ

Meeting Minutes

We had a wonderful meeting at Romano’s Macaroni Grill! We had a total of 4 attendees: (from left to right) Ryan Zamora, VJ Arjan, Jeff Harrington, and Kevin Day. I want to particularly thank Ryan and his photographic memory for putting together a summary of notes for our meeting, which was very helpful in creating the minutes below.

Housing and Unemployment

Kevin began by talking about the orderly decline in housing, in some cases housing prices that have dropped by 50% are finally bottoming out. People are finally coming to terms with the new normal, which includes not only a sluggish recovery in housing, but also in unemployment.

VJ chimed in that in this market, as housing is so depressed, the only direction that we can likely go is up. He also mentioned that the data is cautiously promising as well. The rate of foreclosures is decreasing. While it will undoubtedly take many years and perhaps a decade before there is a normalcy in the appreciation of homes, at least the bleeding is being quelched, slowly but surely.

Kevin talked about some of his friends, executives in their respective fields, who had been used to making $300,000 - $500,000 a year, are now being forced to accept jobs that pay near $100,000. Those who were leveraged to the hilt in credit cards and other debts are now in very difficult times. And the chances of them seeing the glory days of a significantly higher salary may be shot for a very long time.

This has also been extended to the average consumer, who has to think twice about buying a new car or new clothes. People, in general, are holding back.

The government is doing even more the increase consumption. Recently President Obama put out a new refinance program to help especially those who are upside-down on their mortgage. His goal is to increase cash flow and build equity in their homes. Jeff concurred with the President in that it will help people on the income statement side, which will lead to an increase in consumption and greater profits for corporations.

And although, corporations are recording record earnings, ultimately, Kevin believes, no amount of stimulus or increase in consumption will bring back the economy over the long-term.

The key will be to begin creating jobs and lowering the unemployment rate. Because of the unemployment rate is where it is, consumption is frail and this breeds a lack of confidence. Creating jobs is the only long-term solution.

Fix unemployment, restore confidence, and you fix the economy.

Occupy Wall Street

As may be imagined, we could not ignore the ‘Occupy Wall Street’ movement that is currently occupying hundreds of cities and has resulted in several casualties. We discussed whether or not this was a just cause.

VJ posed to the group whether this movement resembled the Vietnam War protests. Kevin declared that the seriousness of the war could not be compared to, what was politely put as, a bunch of people without jobs.

Kevin and Jeff then discussed the remarkable fact that President Obama was noticeably absent from really any discussion on this movement, which shows his lack of leadership. He has come out neither for it or against it. Truthfully, if nothing else, he ought to be rallying the movement and capitalizing on it, rather than just ignoring it, to garner support for his re-election.

It is true that a large portion of this group is composed of college graduates without a job, but there are also many people who have joined to voice their general frustration. Kevin pointed out that this country, historically, is a capitalist country and that the concept of a hand-out for those who do not have a physical or mental need for it runs counter to its principles.

The near-term will be important as the cold of the coming winter may kill the movement. However, the strength and momentum of the movement is something to notice. It has been 3 months now and it has shown no inkling of letting down. In fact, it may be strengthening as a few celebrities have now joined in. Unfortunately, this is also a place where things could get very ugly is it takes on the form of mob rule. It can be very frightening and, in the past, many countries have instituted martial law to put them down.

The Probabilities of Success

We all had a general discussion on what it takes to be a success and why enduring success is so rare. Kevin pointed out that all those who have been coming to these meetings can have no choice but to become successful. The multitude of people have no interest in high-level concepts and are concerned, more or less, about the present, with little foresight into the past or future.

While many are watching the football games on TV, we are discussing the future of the country, financially and politically, as frankly we all intend on making a mark upon it at some point in our lives. As Charles de Gaulle said, “the higher up I go, the less crowded it gets.”

Kevin also advised that one of the quickest ways to move up in life or in a company is to identify mentors and to be a likable and trustworthy individual. If people like you, especially those higher up, and they feel comfortable with you, then they will help you come up higher as well.

The other trait to have is to be confident in who you are. You have to like and believe in the individual staring back at you in the mirror, because if you don’t, nobody else is going to. Nobody is going to give you anything.

Ryan discussed how he saw this first hand in how a businessman from the Philippines successfully branched out to America. By his ability to make people feel comfortable with him and his confidence, he has come by great success.

Jeff then brought up the fact that, at least for the short-term, as the path to success is unclear with the volatile economic environment, it is important to play very good defense, especially when we’re starting out, a tenet that, by his own admission, he has come to live by.

Italy and the Euro Crisis

Above: Italian Government Bond Yields

What is so fascinating is that the day after our meeting, there were alarm bells going off about the possibility of Italy’s default. We discussed this in length before the news caught on to the seriousness of the threat.

Italy has the second largest debt load, next to the United States. Its debt-to-GDP is at 130 percent. It has a sovereign debt load of $2.6 trillion and an GDP of $2 trillion. This is a “Greece on steroids” as one economist put it. Italy’s economy is the 8^th largest economy in the world, six times larger than Greece’s. And to top it all off, it has a declining birth rate.

So where is the money to pay back its creditors going to come from? Maybe it won’t.

Assuming that the situation gets handled somehow, we reiterated how the Euro will continue to face challenges on the economic and political front as the EU began, unfortunately, seeking an economic integration before a political one.

Political Candidates

We expressed his frustration with the Republican candidates in their lack of concrete plan to resolve the economy. VJ noted the only one who has been courageous enough to pose a plan is Herman Cain, with his 9-9-9 plan. None of the other serious contenders have even come close, which he regards as a shame.

It is true that the President’s economic policies may be shaping up to be failed ones, but on the other end of the aisle there doesn’t seem to be any real alternatives. It seems that the Republicans are working off of spite and just bashing Obama’s policies by blaming him for not resolving the problem.

But to give credit to the guy, at least he is trying. He may be misguided in his approach, but at least he has an approach. Kevin and Jeff noted that the President’s squeaky-clean image doesn’t help the other side either, as there have hardly been any scandals to speak of.

Great Leadership

Above: Anson Dorrance, coach of the UNC Women's Soccer Team

We had a discussion on what makes a great leader direct an organization to a series of winning successes. VJ pointed out the story of the UNC Women’s Soccer team, which has the winningest record of any sport in college history with only 34 losses in its 32 year history. It has won 28 championships over this period. The reason can largely be attributed to the leader, Anson Dorrance, and of his embodiment of the core principles in the team's culture.

There are a few corporations who have lived by the same principles that have endured and evolved time and again. Some of them include: Gillette, IBM, Nordstrom, and Starbucks.

Analyzing management is key in our investing decisions. Here are some things that we as investors ought to be looking at:

- Longevity of executives and board of directors

- Low CEO turnovers

- Key performance indicators – how often the company meets its earnings targets. Does it overpromise and undeliver, or the opposite?

- Ease of communication between executives, the employees, and the consumer. For example, if you have a complaint against Nordstroms, you can actually call up their complaint line and get one of the Nordstrom family members on the phone to address your issue personally.

Jeff mentioned a saying from technical analysis: losers continue to be losers and winners continue to be winners.

The next meeting will be on Sunday, December 4^th, 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.

Next Meeting of the Scarlet Kings

Greetings to All,

The next meeting of the Scarlet Kings will be held on

Sunday, November 6th, 2011 at 12:30PM.

Location: Romano's Macaroni Grill (4535 Belt Line Road, Addison, TX 75001)

Please join us for a fruitful and lucrative discussion!

Very Sincerely,

VJ

Meeting Minutes

We had an insightful meeting at Houlihan’s! We had a total of 6 attendees: (from left to right) Jeff Harrington, VJ Arjan, Elena Swindull, Ryan Zamora, Tommy Schultze, and KevinDay.

Q4 - Santa Claus Rally 2011

Kevin Day believes that the next six weeks will be particularly weak, however, he believes that the stock market will end the year in a classic Santa Claus rally, fueled by great corporate earnings figures. Fundamentals, ultimately, will drive the stock prices up and that is currently not being reflected in the market, which is preoccupied with bearish sentiment from the precarious situation in Europe.

It is also time, as stated before in this blog, to start nibbling on the financials and emerging markets. In the financial sector, it is prudent to pay particular attention to Wells Fargo and JP Morgan Chase.

National Beef Prices in 2012

Tommy Schultze, who works for Sysco Systems, the foodservice company, (not to be confused with Cisco Systems, the router company), mentioned how this coming year will bring forth much higher national beef prices due to a drought in Texas this year. A good chuck of the nation’s beef comes from Texas and as the supply will be lower, the prices will go up.

However, he believes that it will take upwards to 6 months before the effect of the drought will hit the market. He also believes that the rise in beef prices will drive up the prices of animal feed, corn, and wheat as well.

The“S” Word

Kevin is worried that the recent economic statistics give him cause to believe that stagflation may be rearing its head for the U.S. economy, wherein inflation remains high, while economic growth remains low. In this environment, it is possible for corporations to do very well, while not creating much job growth and therefore unemployment remains high.

This is the very environment the U.S. faced in the 1970s. Some economists attributed this economy to Richard Nixon’s imposition of wage and price controls which caused an upward spiral of commodity prices. Whatever the cause may be, the result was that the market travelled nowhere for a decade.

Kevin feels that if the current environment remains, then we may be facing just that.

Operation Twist

Jeff Harrington was explaining “Operation Twist” to the rest of us, a program rolled out recently by the Federal Reserve. The objective is to make long-term interest rates even lower to make refinancing and purchasing homes even more attractive to consumers. Mr. Bernanke believes that this will stimulate the housing market, which, according to him, is the key to getting unemployment and the overall economy back on track.

Basically, those short-term and medium-term bonds that become due over the next few years, the Fed will decide to buy longer-term bonds, thus driving the long-term mortgage rates, usually tied to the 10-year Treasury rate, down.

The impact that this may have is debatable. A similar strategy was employed in the 1960s and the results were miniscule. Furthermore, rates are already very low, so it is questionable how much lower they can go.

The Overall Economic Picture

From what the economic data is telling us, we may be pulling ourselves out of this economic bog that we have been in since late 2007.

Finally, the U.S. government is talking about austerity measure to start paying down our enormous debtload. Even in those circles that believed that we could spend our way out are beginning to reconsider that strategy for the long-term.

If Congress is able to reverse this strategy in place currently, then the long-term security and full faith and credit of the U.S. government will have been on the path to restoration.

It also looks like, the commercial real estate bubble, which was slated to be the next shoe to drop, will be averted. However, this does not mean that the current residential real estate tangle will be resolved soon. That recovery may very well take many years, but the important thing is that the bleeding is stopping.

Once housing makes a turn, it is probable that unemployment will go down due to the rebound in construction and manufacturing and hopefully, it we will be back to business usual.

The Virtual Economy

VJ Arjan remarked how as the world becomes more remote and mobile that the need for physical office space is becoming outmoded. For instance, Blockbuster, a company that had been around for 30 years, just filed bankruptcy last year as the consumer’s needs and conveniences changed. Netflix, which has not one physical store, is now the leader in that field. It delivered DVD’s by mail and is now delivering digital content to computers directly from the internet.

Physical banking locations are also going out of business. Now there are online banks that will pay for ATM fees and have no maintenance charges. These seem to becoming more the norm and fewer and fewer people are visiting a physical branch location.

Pretty soon, we won’t even have a physical office to work from. All we will have is a phone and a laptop that we can plug in from our home.

Potential Market Plays

Sandstorm - this gold play has dropped more than 50% and could be followed by a sharp recovery.

Superior Uniforms - manufacturer and distributor of uniforms; solid company with a 4.5% dividend yield

Steve Jobs (1955 – 2011)

On October 5^th, 2011, we heard the terrible news of the death of Steve Jobs. He was one of three legends (the other two being Steve Wozniak and Bill Gates) that created the personal computing industry and revolutionized an era.

Steve was a genius on many fronts:

He was a brilliant visionary in the technological field, able to detect and forecast trends years and even decades before others caught on.

He had an incredible ability to market and create a brand loyalty unsurpassed by few brands in the world today.

And it was a pleasure to see him sell the world at his Mac World conferences on the greatness of his products; first the Mac, then the iPod, then the iPhone, and then the iPad.

Hopefully we will see his legacy pass on to the Apple management team in place today with Tim Cook in charge.

It was a pleasure to watch you, Steve. You will be missed.

The next meeting will be on Sunday, November 6^th, 2011. For those who have not attended ameeting, 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 internationalreaders who are following our blog posts not only in the United States but allover the world including Europe, Latin America, and Asia. If you wish to be added to our email list,please email at scarletkings@gmail.com.

Next Meeting

Greetings to All,

The next meeting of the Scarlet Kings will be held on

Sunday, October 2nd, 2011 at 12:30PM.

Location: Houlihan's (5225 Belt Line Road Suite 220, Dallas, TX 75254)

Please join us for a fruitful and lucrative discussion!

Very Sincerely,

VJ