Meeting Minutes

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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

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