Meeting Minutes

We had an interesting and thought-provoking today at Romano’s Macaroni Grill! We had a total of 4 attendees: (from left to right) Jeff Harrington, Kevin Day, VJ Arjan, and Elena Swindull.

The War on Terrorism

It has now been upwards to 2 weeks since lone gunman Mohammad Merah who claimed ties to Islamic extremists to not only the Pakistan-Afghanistan region, but more importantly, touted ties to such groups within Europe, particularly within Britain went on a shooting spree that left 7 innocent victims dead.

As the saying goes, he went out “guns blazing”, firing about 20 rounds at authorities before being gunned down by the Sûreté. It seems that his personal effects suggest that he would have been only happier to commit more such atrocities. What is bewildering is how shocked and surprised those closest to him responded when they found out that he was the terrorist; he acted like a sleeper cell until he was detonated, so to speak.

We all discussed the psychology behind terrorism and why seemingly normal people could go to the extreme of making life incredibly difficult for everyone else.

VJ Arjan mentioned that the philosophy of terrorism works on the premise that people who participate have nothing to lose. This is especially true when they are amidst great poverty and generally disenfranchised. As these people have little to look forward to, it is not much of a stretch to give it all up. In fact, it may be that some of these terrorists look forward to dying as a release from a dead existence on Earth; hence, the allegory of meeting Allah in heaven for such individuals and being rewarded, etc.

It seems that one of the ways out would be to “convert” the people to a new way of life, particularly by helping them on the economic front.

Take the Catholic and Protestant war in Ireland during the early 1990s, which was eventually stopped not by drastic action, but by an vastly improving economy which led to prosperity for many of the people. People are much less willing to die if they have to give up the economic well-being of themselves and their families.

Jeff Harrington noted that the problem with helping the economy in these regions is that terrorism is being funded by the drugs and poppy fields as well as by money laundering, which is basically the black market that is unregulated by the legitimate economic machine.

Obviously, if an economy does well enough, such a force could be eradicated by brute force, much as was the case with the Italian Mafia being systematically reduced by the FBI in the latter part of the last century.

Another element of the problem is that the powerful religious and political organizations in these regions support the terrorists. There is evidence to suggest that the high mullahs and religious clerics in Iran have a public policy to support these terrorists.

VJ Arjan mentioned how this is, historically, much in the way the Catholic Church during the Dark Ages supported the Crusades and the Spanish Inquisition, and backed which were inherently malicious intents with the promise of absolution from God.

In other words, it seems that such organizations have existed and will continue to exist in the future. The goal is in being able to contain them so that they do not grow more powerful.

Be that as it may, the rest of the world is clearly becoming more and more annoyed by this problem and it will not be very long it seems that the roots of the problem begin to be hacked at and removed.

In the week following the killing of Merah, French President Sarkozy authorized the arrest of upwards of 20 people implicated in encouraging terrorism and criminalized the visitation of terrorist websites.

The frustrating part of the situation is also that it seems that the moderate Muslims have hardly issued a strong cry of condemnation against this extremism that the terrorists claim is representing Islam. VJ remarked how their generally weak response to these and other situations implicitly suggests complicity and acceptance of this representation.

Elena Swindull explained how it is possible that this may be just a cultural characteristic. In regions where religions take on the form of dogma, it may be difficult to speak out at the threat of expulsion or isolation from the community.

Whether it is cultural or sheer cowardice on the part of moderate Muslims, it seems that France taking such measures can only spill over into other European countries.

It is well known the Islamic extremism openly touted in London’s Hyde Park, and it seems that the situation is rapidly coming to a head. VJ stated how mass deportation for such people may not be a distant reality.

Housing

Famous economist Robert Schiller, co-founder of the Schiller-Case housing index, made some remarks recently that were bought up during the discussion:

• The housing bubble has reached a bottom, but it could certainly get worse before it gets better. The economic indications are showing signs of a recovery.
• Bubbles are inevitable. They are not all bad and are even a necessary part of the economic process. Bubbles reflect an underlying human psychology. Despite the governments best intentions, they cannot quantify or control this tendency as it has eluded economists for centuries.
  
• The main cause of the housing bubble was caused by corporate and governmental cronyism, which spurned looser and looser credit guidelines.
• Interest rates are at the lowest level in U.S. history; it is only a matter of time before they come back up.

Jeff talked about the HARP 2.0 (Home Affordability Refinance Program) which is enabling millions of underwater home owners to refinance their homes to lower rates, freeing up more cash to spawn the income statement effect and get the economy going.

VJ noted that the total number of home owners who are underwater are estimated to be in the vicinity of 10 to 12 million and of these, about 4 million should be eligible for the program. That being said, that still leaves between 6 to 8 million home owners who could be the start for the next wave of foreclosures.

The Real Winners of WWII – Germany and Japan

Jeff Harrington talked about how as a result of the U.S. housing crisis, many American cities are starting to look like rundown ghost towns. Detroit is one such example, with the city’s population precipitously dropping 25% in the last decade, and the highest crime rate of any city in America.

(A slum in Detroit)

Contrast that with the city of Hiroshima which was reduced to rubble during the atomic bombings in WWII. Today Hiroshima is a bustling metropolis with about 2 million inhabitants and growing.

(Skyline of modern day Hiroshima)

Thanks to the Marshall Plan, which helped rebuild the Germany and Japan, these two countries are now in some industries able to out compete the U.S. and sustain competitive advantages over their competitors.

The Trayvon Martin Incident

“We gotta make a change...
It's time for us as a people to start makin' some changes.
Let's change the way we eat, let's change the way we live
and let's change the way we treat each other.
You see the old way wasn't working so it's on us to do
what we gotta do, to survive.” - Tupac Shakur (“Changes”)

It is no doubt a tragedy, but it seems that the reaction by the African American community has been overdone in some regard.

Kevin Day and VJ Arjan discussed how it seems that due to an edited and highly suggestive audio clip published by NBC of the 911 call made by George Zimmerman implicating him in the deliberate murder of Trayvon Martin, the whole matter has been totally blown out of proportion.

VJ explained further that there is little doubt that the African American people have been subjected to abusive racial profiling in the past, and that there is an ugly history there.

Tupac Shakur and may other rappers during the 80s and 90s talked about how the Rodney King incident was just the tip of the iceberg of such injustices occurring and raising awareness of this is a respectable and honorable act. And as a result of this abuse, there may be a victimization strain among the African American community. However, it is hardly appropriate for the community and the media to protest and automatically label an incident as racial profiling before all the facts have been discovered and analyzed. It would not be fair to Mr. Zimmerman say for instance had the gun, in reality, gone off accidentally or that Mr. Martin was indeed the aggressor.

Moreover, it was very inappropriate for the President to comment on the matter, when the facts have not been confirmed yet. It seemed like a very political move on his part, particularly being an election year.

Far more honorable would it have been for the community and the media to rally behind the cause for justice and to give Mr. Zimmerman a fair trial and hearing. If this was indeed a case of racial profiling, let the judges and courts decide and wait for the release of the evidence in the trial, which would be made public whether this was the case or not.

Economic Opportunities

Below are some sectors that look like good opportunities in the market currently.

REITs (Real Estate Investment Trust)

Kevin Day (and his market nose) believes that it may be time to start nibbling into the real estate sector, particularly REITs for commercial property, particularly for commercial housing developments (apartment complexes). REITs have been up between 10 to 15% YTD. A possible investment candidate is to pick up the ETF, which is sponsored by Vanguard (VNQ).

Natural Gas

Just when it looked like natural gas couldn’t get any cheaper, it did. The price of natural gas is currently as historic lows. As a current and future source for energy and an alternative to oil from the Middle East, it certainly has some great long term growth prospects.

Kevin suggested playing this via the ETF itself which is First Trust ISE Revere Natural Gas (FCG).

Jeff Harrington suggested playing natural gas through the MLPs, such as Targa Resources (NGLS) and Enterprise Products Partners (EPD).

VJ Arjan has owned Linn Energy (LINE) for the last couple years and it has done very well for him also.

Precious Metals

It is Kevin’s belief that the precious metals sector is currently in a correction phase, which is to be expected as no long run up will continue forever. He is still bullish on this sector and believes that gold and silver, especially silver, can only go higher than the current levels.

A quick comment on Santa Fe Gold (SFEG). The recent drop in price was caused by minimal volume and given that it is a volatile stock to begin with, one’s investor stomach needs to be tested some more for the greater potential payout to come.

Biotechnology

Jeff believes that the next great wave of innovation and great companies may come from the biotech industry. He suggested to play this by buying the ETF, which is sponsored by iShares (IBB).

The next meeting will be on Sunday, May 6^th, 2012.

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