Meeting Minutes

(Click for larger image)

 We had a wonderful and intriguing meeting in the great outdoors at La Madeleine.  We had 4 attendees: (from left to right) Tommy Schultze, Jeff Harrington, VJ Arjan, and Ry Zamora, who joined us later on. 

Cyprus

We started the meeting invariably discussing the incredible events occurring in really the small island of Cyprus, off the coast of Turkey.  

After studying Stratfor's take on the issue, VJ mentioned several events which could be setting the precedent for the dissolution of the Euro.

One of the principal reasons for joining the Euro was mobility of capital, not only in the form of money, but including people and goods as well.  The unweildy tariff system that was before was a significant encumbrance to the facility of trade in the Eurozone.

In Cyprus, this mobility of capital as come to a halt.  As many readers are aware, the Cypriotic government has seized 40% of liquid assets for citizens with a balance above €100,000.  What is even more mysterious is that it is not particularly well-known what these siezure of assets is being applied to.

Reports of money coming from the Russian underworld have been pouring into the media and Jeff Harrington, for one, is not surprised, as Cyprus has been known to harbor such funds for different organizations over the years - a Cayman Islands of sorts.

According to Stratfor, certainly, this seizure of funds hasn't saved all of Cyprus' banks, and certainly it hasn't made the money of its depositors any safer. The net benefit is that the Cypriotic economy has not stabilized and may have become even more uncertain. 

This could merely be a show for the European Union to claim that it has solved a problem, without actually identifying which problem they solved.

Let's take this one step further as if we were going through the chain involved in the classic economic analogy of the Broken Window. Just imagine the natural consequences of this money being seized. 

Most of these large holders were businessmen and businesswomen who used these accounts to pay their suppliers, their employees, and their taxes.  Now the suppliers are not certain when they will receive payment, neither are the employees.  The timeframe for when these deposits will become available is unclear.  In the meantime, people cannot meet their basic expenditures, mortgages cannot be paid, groceries cannot be bought, and so on and so forth.

Jeff added what could really drive the Euro down is if multi-national corporations, who hold Euros for business transacted in Europe start pulling out of Euros and hold capital in another currency.

VJ believes that if these circumstances persist for much longer, civil unrest is a virtual certainty in this environment.  Not only is the EU sitting by and watching all this happen, they may, in fact, by letting this happen be setting a precedent for other member-nations of the EU to do the same. 

(Christine Lagarde, current managing director of the IMF)

Now Cyprus is, relatively speaking, not the big fish in the pond and there could very well be basis behind the argument that is being told that Cyprus is a different and much smaller situation that can be contained.  But oftentimes, a disease, if untreated, can start small and fester into a larger and more powerful force.

Jeff argues that should these policies continue, the death of the Euro or at least a massive exit of member-nations from the Euro would be inevitable.   Even Germany, as powerful and wealthy a country as it is, would not be able to save the entire Eurozone from caving in.

Several times at our meetings we have argued that it seems that the European leaders are still unwilling to handle the big elephant in the room and several of the member-nations have wildly differing visions and expectations on what the European Union is meant to do for one another.  This so-called "gentleman diplomacy" can only lead to more disunity and increasing fragmentation of the Euro over time.

Below is a clip from the movie Remains of the Day that may capture the spirit of this "gentleman diplomacy".  Note that this is just prior to World War II, when it was the Third Reich's adamant hope to portray Germany's "peace with its neighbors".  Hope you will enjoy it.

QE 4 (ever)


(Janet Yellen, current Vice-Chair of the Fed, and likely successor to Bernanke)

"Quantitative easing is competitive devaluation." - George Soros

Although there is publicly some dissension amongst the Fed governors about whether or not quantative easing will continue, privately, given the enormous debt on their balance sheets, it may just be a policy that will become and stay the norm as rising interest rates on an ever-burgeoning debt may be devastating for an environment conducive to economic growth.

VJ mentioned that the current chairman Ben Bernanke, has mentioned that he does not intend to stay for a third term.  His rumored successor, Janet Yellen, is even more dovish than the current chairman on continuation of easy monetary policy.

It seems that this policy is also catching fever in other countries, as Japan for the first time in decades 

decided to effectively devalue the Yen to make its exports more competitive.

Xi Jinping - The Helmsman of the Next Decade


(Xi Jinping, current General Secretary of the Communist Party of China)

What is remarkable about the new leader of China is how little anyone knows about him.  In fact, within China, his wife, Peng Liyuan, a renowned contemporary folk singer was much more well-known the Mr. Xi.

Unfortunately, given the foginess of his character and views, at least to the West, only time will tell how he will guide the Middle Kingdom over the next decade.

What is a certainty is that China faces and will face tremendous problems that will need to be addressed. 

(China's Water Crisis - Click for larger image)

VJ recently saw an interview with famous hedge-fund Hall of Famer, George Soros, who mentioned that China's greatest problem is going to be its water issue as its pollutants continually erode the ozone layer and melt the Himalayan glaciers, China's chief source of fresh water.  This would lead to food-inflation, which would be even worse if the current wage-inflation continues to persist.

Jeff noted how the Chinese government provides loans to companies that will probably never be paid back because the Chinese government only cares about providing jobs to its millions of unemployed as a means of staying in power and preventing a possible revolution/civil war. 

He went further and drew a parallel of what is happening to China to what has happened in Japan where Japanese banks have had a long tradition (not law as he understands it) of owning shares in companies that they lend to. The problem with this policy is that the bank is usually stuck in providing perpetual loans and very generous terms to the borrower so that the bank will not take losses on both the loan and the stock investment. It is important to note that U.S. banks do not follow this practice.

Big Data - The Susceptibility of the Human Mind

(Big Data Implications and Effectiveness - Click for larger image)

Tommy Schultze, who has become a long-time student of psychology, brought up the concept of Big Data and how it has the potential to transform the world.  It is, in a nutshell, a information revolution regarding how we intend to live, work, and think.

For the first time in history, our thoughts can be tracked in the form of information.  This can include not only what one searches for on the internet, but books being read, videos being watched, items being purchased, even down to the emails being written.  All of this is being collected and is constantly being analyzed as corporations come up with ways to build better and better consumer mouse traps.

What is not largely known is that one of the reasons for President Obama's success with minority constituents during the last election was primarily due to his team's analysis of Big Data.  The words in his speech, the "shouts-out" to certain groups of people, were carefully embedded into this speeches to evoke a particular response. 

Corporations have taken this to another level.  Please take the time to read the following article from Forbes.  It is how Target was able to use big data to predict when a consumer is pregnant before they are pregnant by studying their buying habits. 

http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/

It is an incredible implication - that others can predict what someone wants, before someone wants it.  By the way, these analyses have about a 90% accuracy - this is so good it's scary!

North Korea

As we all know, the leader of North Korea, Kim Jong-un, has been sabre-rattling about sending ballistic missiles and starting a confrontation with South Korea.  We all discussed how this would pan out and the consensus was that this is more a psychological affront of strength rather than any real threat. 

Even China, who is another fellow Communist country (at least in name), has asked the North Koreans for moderation.

Considering the lack of allies in the region and not to mentioned the huge economic disparity between the nations of North and South Korea, the chances do not look good for its victory on the war front.

Here is a picture of North and South Korea at night - this might explain this point visually and may drive the point home. 

(FYI: The small speck of light in North Korea is the capital, Pyongyang)

Potential Investments

These are potential investment opportunities that came up during the meeting:

National Oilwell Varco (NOV) - Ry mentioned this company as a value play in the oil and gas drilling sector.

FLIR Systems (FLIR) - This is another value play mentioned by Ry that is involved in thermal imaging systems, which is in the aerospace and defense sector.  The stock is up 15% YTD.

Enterprise Products Partners (EPD) - Jeff mentioned this as a solid natural gas play.  It is up 20% YTD alone.

Icahn Enterprises LP (IEP) - Jeff read a Barrons article that mentioned this company which is holds a congomerate of business interests.  In just a week after our meeting, the stock is up 20%.

Nuance Communiations (NUAN) - Tommy remarked that this firm's voice-recognition and voice-to-text technology has been perfected over the last decade and its uses are perhaps infinite.  Recently activist investor, Carl Icahn, declared a stake in this company.

The next meeting will be on Sunday, May 5th, 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