(Click for larger images)
We had a wonderful meeting in the great outdoors at
Houlihan's. We had 4 attendees: (from
left to right) Kevin Day, VJ Arjan, Jeff Harrington and Ry Zamora joined us
later on.
The role of Congress
"Caelum, non
animum, mutant, qui trans mare currunt." - Horance, Epistles
(Those who run off
across the sea change their climate but not their mind)
We started the meeting with Jeff sharing a letter he sent to
all his clients discussing the possibly greater veil being sent over our eyes
with this Fiscal Cliff fiasco. In his
letter he makes the insightful point that the United States is the only industrialized
country that does not allow its debt ceiling to rise automatically. In a nutshell, the arguments of both sides
were these: the Republicans wanted concessions in reduced spending, while the
Democrats wanted to raise taxes on the wealthy.
It seems that both sides may have won in the sense the there will be
reduction in spending and the Bush Tax cuts will be allowed to expire.
Jeff believes that this deal that has been made, which was
really only an extension on the deadline, only affirms his conviction that
Congress is continually going to "kick the can down the road" because
they do not have a foundation in leadership, but rather, in the interest of
securing their tenure, each member is only concerned about getting
re-elected. This is an act of cowardice,
and not an act of leadership.
He went on to state that perhaps Congress, in the interest
of securing its own survival, is involved in perpetuating these problems so
that there is always a need to "solve" these issues. He likens it to a game of football, in which
there are winners and losers, which keeps things interesting for the spectators
watching the sport.
The Second Amendment
We then discussed the debate over what may happen regarding
the Second Amendment,
which is the right for every citizen to bear arms. VJ noted how he is sick and tired of all the
shootings happening, not only in schools but in public places like malls and theaters.
Kevin noted that although these incidents are truly tragic,
there may indeed be little that can be done with these issues as the
perpetrators of these crimes are such outliers that it is nearly impossible to
detect them in the first place, before the acts occur.
Jeff noted that certainly there is must be an enourmous
mental health problem, if nothing else, these incidents have reveal at least this
much. How exactly we can tackle this
issue is a very complex matter and perhaps one that may be created after many
years of legislative deliberation.
Kevin feels that it is unlikely there be a ban on guns
altogether. But there may be bans on,
for instance, automatic and semi-automatic
assault weapons, or perhaps a limitation on the amount of ammunition
that can be carried, etc.
Jeff noted that the Second Amendment was initially put
together by founders so that if the government was not "for the
people" then the citizens could have their right to rebel against its government.
The Economy to Come
Now that it appears that we are digging ourselves out of
this slump that we have been in since October 2007, the question is what are
the industries that will bring back the economy to speed? We all had a consensus, and have had, on
natural gas being a much larger energy player in the future, but Jeff singled
out this industry, in particular, as perhaps leading the movement in bringing
the U.S. to greater economic prosperity.
He noted how in places like North Dakota, because there is an incredible
dearth of labor available, companies are resorting to hiring high-school
dropouts, even those with drug-related offenses, and paying them extremly good
money ($80,000-$150,000, in some cases).
Kevin believes that the world economy, particularly the
emerging markets, will outpace the growth rates in the U.S. and Europe, which
at the moment resemble somewhat sleeping giants. In
fact, the IMF has put its projections for global growth at 3.4% for 2013, and
4.1% in 2014, with most of that growth fueled by China, the rest of Asia, and
Latin America.
However, Ry mentioned that the real estate bubble in China
could put a damper on this global growth.
He noted that the sheer land appreciation has masked the incredible
management inefficiencies of Chinese companies.
As George Soros would say, this could well fit the description of
reflexivity, where the valuation of any market produces an effect upon the
perception of other markets. These two,
real estate prices, and effienct business practices are in disequilibrium. When this bubble will pop remains to be seen.
Kevin went on to note that he also believes that the
large-cap tech companies could represent areas of growth in the U.S. - he
mentioned Oracle and Apple.
The latter he related would be an incredible buying
opportunity, should its stock price drop to 400 or lower (Apple has dropped
from the 700s to its current levels in a matter of 4 months). Apple has an incredible $100 cash per share,
and he particularly favors this company for that reason given that it is not
levered, like many other firms.
VJ noted that a study done by Merrill Lynch regarding bond
inflows vs. equity outflows since 2007 paint an interesting picture. Since 2007, $780 billion has been added to
bonds while $600 billion has fled from equities. There is still little doubt that there is a
ton of money on the sidelines and as the economy recovers, this money may start
to trickle back to equities.
Cirque de European Union
Ry
bought up an excellent point regarding the Cirque de Europe and that is:
Nothing has changed.
Do
not be fooled for a minute that just because it is not garnering headlines in
the media that things are hunky-dory in the cradle of great civilizations. In fact, Kevin likens the situation to a
great big tinderbox, ready to explode and may unravel institutions and
countries with great speed.
Each
one of the PIIGS, despite putting through austerity measures to calm the
exigent
sovereign debt crisis, are all still in extremely precarious
positions.
Ry
mentioned that Spain, for instance, has 80%-90% of its U.S. equivalent of
Social Security invested in Spanish government bonds. Now were the Spanish government to default on
its debt, this fund would be completely wiped out.
To
put things into perspective, imagine that those who were used to receiving
$1000 per month in Social Security checks, are now only receiving $100 - now
multiply this over millions of retirees across the country, and we are not
looking at a pretty situation.
On
another note, the United Kingdom indicated that its economy actually shrunk
more than expected, at -0.3% in the fourth quarter of 2012. If the economy shrinks again in the first
quarter of 2013, the U.K. will be in a recession - leading some economic experts
to call for the U.K.'s first "triple-dip-recession".
Kevin
suspects that as the problems fester in Europe, there will be more and more
demands made upon fixing the insolvency of the sovereign balance sheets and
that things could very well get much worse before they get better.
Potential Investments
The
following companies and tickers came up during the course of our discussion as
potential investments:
iShares
MSCI Emerging Markets (EEM) - an emerging markets ETF weighted specifically in
large-cap equities in these markets
Oracle
(ORCL) - Kevin recently bought into this tech giant
Apple
(AAPL) - As mentioned in a previous section, Kevin believes that $400 would be
a great target to acquire this company at.
He also believes that it could very well go lower before higher.
Comstock Mining (LODE) - Kevin mentioned this speculative junior
minor has showing
some potential.
Statoil
(STO) - a Norweigian oil and gas conglomerate that engages in international
exploration and production
Textainer
Group Holdings (TGH) - Ry mentioned this company as a possible value play that
engages in the purchase of marine cargo containers. It also sports a 4% dividend yield.
Financial
Select Sector (XLF) - Kevin believes that this year the financials may make
large gains and this ETF would be a great way to play this.
Central
Fund of Canada Limited (CEF) - Kevin mentioned this stock that is similar to
GLD, another gold ETF, except this fund is run in Canada and has a lower
management expense ratio than GLD.
iShares MSCI EAFE Index Fund (EFA) - An international EFT that holds large-cap equities from Europe, Australasia, and the Far East
The
next meeting will be on Sunday, March 3rd, 2013.
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
