We had an awesome meeting at Houlihan's. We had 4 attendees: (from left to right) VJ
Arjan, Tommy Schultz, another who chooses to remain anonymous, and Ry Zamora
also joined us later on.
Although
we discussed the coming market environment, the highlight of our discussion was
the 2014 Consumer Electronics Show in Las Vegas that occurred during the first
week of January. The convention lasted
3 days and there were about 150,000 attendees who were able to experience over 3,000 new
products, which included everything from silicone toothbrushes and air drones,
to curved TVs and butt-shapers.
Frankly,
there were some products making their debut that have the potential to
transform our lives over the next couple decades should these technologies
become mainstream. Here were some of the
products that we discussed:
Oculus Rift
The
coolest product at the show had the be the Oculus Rift. If you haven't heard of this device and
technology yet, you will very shortly.
It is a virtual reality gaming/experience.
Please
check out a video describing the experience below, it will blow you away:
http://www.youtube.com/watch?v=y-0tHVUjCbg
The
graphics are so detailed and realistic that many users of the demo version
after some time in the virtual world had trouble distinguishing reality from
the virtual world. The potential for
this technology does not apply just to gaming, an industry that is going to be
completely transformed by this technology, but it could be used, for example,
for surgeons who want to perform surgeries from half-way around the world, or
even an online virtual marketplace.
Toyota Hydrogen Fuel Cell Cars
Toyota
made the astonishing announcement that it will sell hydrogen fuel cell models
in 2015. It is an enormous bet regarding
the fuel for the future. We all
discussed how energy sources based on fossil-fuels and coal are, one, eventually
going to run out, and, two, as they are considered highly pollutive agents, the prevailing trend has been to find an alternative, some of which have included electric, solar, and hydrogen.
Toyota's
decision to choose hydrogen fuel cells is critical as they have deemed the energy source safe for consumers around the world, a product they say of testing
this technology for the past two decades.
Also, as the world's largest car manufacturer, if they are successful in making this a mainstream energy source for automobiles,
it is likely that other major car manufacturers like GM, Honda, Ford, and
Nissan will follow suit.
We
discussed the potential roadblocks to hydrogen fuel cells as well as well. Tommy remarked how hydrogen molecules, in order to be
used as fuel, need to be in a highly compressed, cold, liquid state. It takes a good deal of energy to keep hydrogen in this compressed usable state. Should it become uncompressed, there is the risk, albeit small, that it can become flammable (note the Hindenburg accident of 1937 below).
The
greatest roadblock may be that consumers can only refuel at
hydrogen fueling stations, which would mean that there would be an enormous
expense involved in building these all over the country and hence may not be
economically viable. There are already
EvGo electric filling stations across the country that Toyota's hydrogen fuel
stations would be competing against. At
the moment, Toyota has plans to
build hydrogen fueling stations only in California.
 |
| (EvGo electric filling station) |
If,
however, hydrogen fuel becomes mainstream, it may be extended so far as to even be used to
power homes.
It may be good to note that there certainly were a share of naysayers who said the same for railroads in the 1800s, and the
automobile in the early 1900s. The
prevailing modes of transportation of the times slowly became obsolete.
YouTube
made the announcement that it will be investing heavily in Ultra-HD or
"4K". It is 4 times the number
of pixels on a Blu-Ray movie. There are
so many pixels, in other words, each dot per image is so small, that critics have
argued that the human eye is simply incapable of seeing all of them. An example this stunning video resolution is
attached for your viewing below (make sure to turn on the highest resolution available by clicking on the settings button):
Netflix
also announced that it will stream movies online in 4K on new TVs coming onto
the market in 2014.
Samsung S5
Samsung
is possibly deliberately leaking information about its new phone, the S5. Rumorville has it that that its new S5 phone,
which is probably going to debut or even be released in March, will have an
iris scanner. So instead of using your
finger to unlock your phone or entering a certain password, the phone unlocks
by scanning your iris - pretty nifty.
This
technology, if it is indeed implemented, presents a quandary from a legal standpoint. Tommy mentioned that according to
a recent ruling by the Supreme Court, agents of law enforcement can legally
coerce a person to release what they have (fingerprint, iris scan, etc.) but
cannot coerce what someone may know.
All
these technological innovations and progress makes one wonder if the cinematic world of Star Wars and
Star Trek is really that far away from happening in real life. Does the story of mankind end up
being an Orwellian world after all?
Tommy
explained to us how the world of the future is likely to be dominated by women
rather than men. (By the way, in defense of women, VJ agreed wholeheartedly as he felt that it was
high-time that men got their proper due after millenniums of gender subjugation and impothe patriarchal society.)
He
argued that the world economies are shifting from a manufacturing to a
service-based economy, which fits nicely with the skill sets that women
currently provide. There is further
proof in the widening gender gap of college admissions - currently the ratio is
at 60% for women and 40% for men. He
continued that with more and more women entering the workforce, the gender pay
discrepancy will eventually disappear, and women will hold equal if not greater
sway than men.
According
to the book, The End of Men by Hanna
Rosin, this paradigm shift will lead to a complete transformation of the
institution of marriage. Several millenniums ago, from the hunter-gatherer era up till the 20th century, women
were not able to support themselves, whether it required hunting for animals or
working machinery in factories.
Therefore, the institution of marriage for women was one in which they
"traded" sex and companionship for security.
However,
with the advent of the service-based economy and the invention of the soft-skills of the Technology and Information Age, women do not need to
rely upon men anymore and can support themselves financially. Therefore, single motherhood and a continued
rise in divorce rates can be expected in the future.
Tommy
explained that he wouldn't be surprised if women start having children in-vitro
(so-called "test-tube babies") and that there may be a chance of birth defects over the course of several generations.
Although
we at the Scarlet Kings have touched on this topic several times in the past,
we are seeing the reality of cyber-attacks and cyber-terrorism unfold. In the first week of January, Target announced that over 110 million credit card numbers were stolen by hackers; Neiman Marcus
made a subsequent announcement their systems were breached as well at the cost of over 40 million card numbers.
These
numbers are staggering - the thefts from just these two companies alone equals
half the population of the United States.
The last such large-scale cyber attack occurred in 2007, when an
underground hackers team called ShadowCrew led by now imprisoned hacker Albert Gonzalez,
stole 45 million credit card numbers from TJ Maxx.
What
is even more astonishing is that Target and Neiman Marcus both admitted that
these hackers have had access to their databases for several months, perhaps
even years, before the breach was caught.
VJ
asked the group, who picks up the tab for the fraudulent credit charges and
even slew of lawsuits that will very likely ensue. Tommy mentioned that if companies have
security standards in place according to the Payment Card Industry Security Standards
(an open global corporate security council funded by American Express,
Discover, JCB International, Mastercard, and Visa), then the card carriers
would carry that load; if companies' security standards are not up to snuff,
then they take on the liability.
Jamie
Dimon, CEO of JPMorgan Chase, recently issued a clarion call to attention
regarding this matter:
"It is absolutely essential for the legitimate businesses
across the world to finally wake up to the cyber security reality that is confronting
them right now. The Target and Neiman
Marcus breaches are just the tip of the iceberg. They are going to continue to pick off the
weakest elements."
The
financial repercussions resulting from possibly decade-long lawsuits even have
the potential to ruin not only the company from which the theft occurred but
the card carriers as well.
Economic outlook for 2014
We
discussed the market environment for the coming year. One thing we all agreed upon was that it
would be a rare occurrence indeed to top off market returns from 2013. The consensus is that although the economy
will grow, it certainly won't like it did last year, and in regards to share
prices, there could even be a potential decline or correction.
Although,
there may be reason to believe that the economy continues on to new highs and
that the recovery in housing may continue to spur growth in the overall market,
there are warnings signs on the horizon as well.
-
A recent Barron's article (source listed below) suggested that the aggregate analyst expectations
are perhaps too optimistic, and that it is more likely that the market will
slow down its growth compared to last year.
Ultimately, share prices are dependent upon investor expectations and if
investor expectations are set higher than what reality may warrant, the reality
will eventually sink in, and will lead to eventual lower share prices.
http://blogs.barrons.com/stockstowatchtoday/2014/01/10/stocks-here-comes-the-fear-again/
-
The big news last week was payroll numbers, which showed that the U.S. added
just 74,000 jobs in December, well below the 200,000 economists had predicted. The unemployment rate fell to 6.7%, but that
may have been due to the amount of people leaving the workforce (if they are
considered "discouraged workers" and have stopped looking for a job
altogether).
Deutche
Bank's global head of foreign exchange, Alan Ruskin, mentioned that if anything he
sees "faster unemployment rate downward trend much more than weak payroll
growth" due to a slide in the participation rate, which may overstate the
strength of the economy.
-
There is also concern of the time this bull market has lasted. As Jim Stack, President of InvesTech Research,
recently stated, "over 82 years there have been 15 bull markets; the
average duration or life span of these previous bull markets has been 3.8
years, and the vast majority of bull markets have ended between 2-5 years. So not only is the current bull market a full
year longer than the norm, it is about to become the fourth longest bull market
since 1932. If that doesn't make you
nervous, it should."
Certainly,
there may be sectors that could be poised for a rebound. VJ mentioned that he may see a continual correction
coming in emerging markets and precious metals, which have under-performed U.S. assets over the last
year, as a good buying opportunity.
Several
of the emerging market countries (Brazil, India, Indonesia, Turkey, and South
Africa) will have major elections. It
may provide the catalyst that could send emerging market shares lower.
There is also the looming question regarding
China's bubble-like property prices, which is not indirectly being acknowledged
by the Communist Party of China.
At
the moment, he sees that Turkish (ticker symbol: TUR) and Chilean (ticker
symbol: ECH) shares have been beaten down due to changes in government policies
and volatility in the currency markets spurred by policy decision by the
Federal Reserve.
 |
| (STRATFOR's Post-China 16 new emerging economies) |
He
also sees that Africa may start to make headlines over the next year. African markets have historically been
shunned by Western investors due to the enormous political uncertainty and
rampant corruption that has plagued its people for decades. However, according to global intelligence
agency STRATFOR, there may be pockets of stability developing that could lead
to prosperity for its markets, particularly Kenya, Tanzania, and Uganda.
Potential Investments
Here
were some potential investments that were discussed:
Subsea
Ry mentioned this oil and gas drill constructor as a value play. According to his valuation, a fair price for
the company would be at $21 per share.
It is currently trading underneath that target, at $19.35.
Medicinal and Recreational Marijuana companies
Speaking strictly on its merits as an investment and without condoning the substance, VJ mentioned that
the legalization of recreational marijuana in the state of Colorado and
Washington over the last couple weeks (with California to follow suit shortly)
has some huge potential for profits.
Although there are legal issues laden with the use of marijuana that may
come to loggerheads soon as some states accept the use of the drug more than
others, and some do not tolerate it at all, once the drug becomes mainstream,
it is a matter of looking out for the company or companies who figure out how
to make tons of money from it.
The next meeting will be on Sunday, February 2nd, 2014. (Yes, it is the same day as the Superbowl,
but may I remind you that gametime will be at 5:30PM...so you can still make
the meeting : ) )
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 it seems 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
