Meeting Minutes

We had a wonderful meeting Romano’s Macaroni Grill! We had a total of 6 attendees: (from left to right) VJ Arjan, Ryan Zamora, Andrew Whatley, Kevin Day, Jeff Harrington, and Greg Bartell.

Osama Bin Gotten

The very day we had our meeting, we had the wonderful news of the death of Osama Bin Laden. I would like to throw this issue into an open discussion and would appreciate any comments on how his death would affect the future of the Al-Qaida organization and also the future of terrorism now that the “Gambino” of the terrorists is no more. I would also like to get some opinion on how this news would affect President Barack Obama’s presidency and re-election chances. So please make some comments.

Buffett-Sokol Issue

Berkshire-Hathaway investors had some questions regarding David Sokol’s $10 million purchase of Lubrizol shares before pitching its buyout to Buffett. Some sources have said that Mr. Buffett knew of the existence of this purchase beforehand and did nothing about it. Right now, he is playing the “I wasn’t informed enough about the situation” scenario.

Mr. Sokol, one of the prospective successors to Mr. Buffett, would have been asked to go and seeing the writing on the wall, he resigned before this was done.

Kevin Day believes that although there will be short-term backlash for Buffett’s lack of vigilance regarding this issue, in the long-term this issue will be swept aside.Every corporation will have problems crop up, and, for the most part, life goes on for each one of them.

The Banking Sector

VJ Arjan noted how the earnings for the major banks have been very disappointing.Most notably, Bank of America’s earnings stood a full 10 cents per share short of analyst estimates.

Jeff Harrington noted that the banks that have been able to post profits have done so by “trimming the fat” and reverting loan loss provisions from an accounting standpoint (Every bank keeps aside a portion of cash in an account for loan loss provisions that is considered an expense. When they reduce this amount, it is accounted as an addition to cash flow.)

He further noted that the growth prospects for the large banks seems limited as well at least for the short-term. He still affirms that the long-term future for banks has tremendous upside potential.

The Silver Bubble?

Kevin Day noted how the price of silver has shot up 50% year-to-date. In his view, the continuation of this rate of appreciation creates a bubble like quality in terms of price action.

He believes that if there is a correction coming, it would be a drop in silver that would be the catalyst for this chain of events. (Literally the day after our meeting, the price of silver fell by 13%).

There would, naturally, also be a correction in gold and other precious metals as well.

Buffett’s Next Buyout Target

Jeff Harrington explained how Buffett has a boatload of cash on his books and, by U.S. tax law, he has to either do one of two things with that cash: pay out a dividend or pay taxes. Jeff further explained that he doesn’t want to pay taxes and will seek to reinvest this cash buy looking for another company to buy.

He feels that this could possibly be in the energy field, particularly natural gas as this commodity becomes a more and more viable alternative to coal.

Deficit Reduction Program

Congress has come up a few plans on reducing the federal deficit. Jeff Harrington noted that there only one problem: reducing the deficit will not actually lower the national debts. The deficit reduction plans only address the decreasing the shortage between income and expenses every year, but this still means that our national debt will continue to increase year after year.

Kevin Day still believes that the time will eventually come when the American people will say “enough is enough” and take on some severe austerity measure to balance our national debts. He believes that the resolve of the people is tremendous and that they will come through at the end.

Dividend Plays

Greg Bartell discussed some great dividend plays and we’ve listed them along with some other similar ones below:

· Cellcom Israel Ltd. (CEL) – 12% yield. Provider of cellular communications services in Israel since 1994.

· Partner Communications Company Ltd. (PTNR) – 11.4% yield. Provider of cellular communications services in Israel since 2001.

· Blackrock Enhanced Capital and Income Fund (CII) - 12.6%.

Other Investment Plays

Carbo Ceramics (CRR)

Jeff Harrington brought up this play a couple of years ago when this stock was trading at $30 a share. We were all surprised to see this stock reach $160. Jeff still believes there is more potential for upside as a long-term play as this goes hand in hand with his belief in natural gas becoming an emerging energy form.

Encore Wire Corporation (WIRE)

Another recommendation by Jeff. Encore is a manufacturer of copper electrical building wire and cable.

The next meeting will be on Sunday, June 5^th, 2011. 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.

Next Meeting Of The Scarlet Kings

Greetings to all,

The next meeting of the Scarlet Kings will be held on

Sunday, May 1st, 2011 at 12:3OPM.

Location: Romano's Macaroni Grill

(4535 Belt Line Road, Addison, TX 75001)

Please join us for a thoughtful and lucrative discussion!

Very sincerely,

VJ

Meeting Minutes

We had a wonderful meeting out in the open spring air at La Madeleine’s! We had a total of 5 attendees: (from left to right) VJ Arjan, Greg Bartell, Tommy Schultz, Elena Swindull, and Kevin Day.

Congratulations To Elena Swindull!

We want to extend our heartiest and merriest congratulations to Elena. By the time the next meeting occurs, Elena will have had her second child, a baby boy, and we, at the Scarlet Kings, are thrilled for her!

Mitt Romney

Kevin Day noted that within the Republican ranks, Mitt Romney seems like the most possibly electable candidate. This he asserted keeping in mind that the bar that is set rather low across the board for the other contenders, none of whom would seem presidential enough for the voters.

On the other end, Obama’s re-run seems assured; he has announced it recently and will start creating the foundation for his billion dollar campaign. It seems unlikely, at least at this moment, that any other serious Democratic contenders may rise. Kevin’s guess that Hillary might seize her opportunity to head up against Obama seems like it might not occur. But that may still be too early to say.

Tesla Motors (TSLA)

Greg Bartell was explaining his conviction behind what Tesla motors intends to do: they intend to be the Ford Motor Company of the 21^st century. They have been making acquisitions of large auto manufacturing warehouses, some of which were owned by the Big Three setting the stage for massive production schedules. He also noted how the management team’s credentials are impeccable. No doubt the founder, Elon Musk, has a vision that far supersedes his Tesla Roadster.

Japanese Earthquake

Kevin Day noted how there is not much control from the authorities in the handling of the Japanese earthquake; the Japanese people, it seems, are handling the problem themselves for the most part. He also noted how the Japanese may be downplaying the issue regarding nuclear radiation. This could be perhaps in the quintessential Japanese mannerism to save face or avoid shame.

VJ Arjan recalled how this may end up much like Toyota’s recent brake problem; the management team waited until the problem had snowballed so largely until it was too big to be covered up, after which the problem would be addressed.

That being said, it is remarkable and inspiring how the Japanese people have maintained a sense of calm and equipoise amidst this terrible tragedy. People are suffering, but each person is doing his or her share to rebuild and keep the environment peaceful. There are hardly any murder or theft reports, so much so that when the grocery stores have run out of food, they simply leave and wait until more supplies arrive. They are not rioting, where most people around the globe most certainly would. Kevin believes that Japan has a large elderly population, upwards of 20%, and that may be helping them keep this equipoise.

Libya and Gaddafi

Although it seems that civil war could occur in Libya, Kevin Day believes that Gaddafi is looking for his way out by means of exile, much like Napoleon agreed to when the British offered him to be exiled on the island of Saint Helena. However, he would not be formally imprisoned. We have also received such hints from Gaddafi’s son who spoke to journalists about these options.

That being said, VJ Arjan reminded everyone how Gaddafi has successfully remained in power for 4 decades. He took power when President Obama was only 9 years old. He certainly has experience on his side, but is this revolt from the people powerful enough to overthrow him; is different from the last ones?

The Emotions Of The Market

We all remarked how incredible the swings in the market are and how emotionally they trade when a news event occurs. Take, for example, the Japanese earthquake. The moment it occurred, nuclear stocks across the board took a nose dive, some falling by 20% or more. At the same time, solar stocks all jumped up 10%.

Kevin Day noted that these are absurd reasons for stock values to remain in the long-term. It may certainly be valuable for trader, but investors would find these movements irritating.

Tommy Schultz explained how today’s information age and in the public’s participation in the stock market may be causing the swings to be so vehement as the media nor the public were in the market in the past.

Elena Swindull believes that these movements can be blessings to investors who are looking to snap up equities at cheaper prices.

Kevin Day’s Market Nose: Tread With Caution

Kevin Day was consulted for his forecast for the near future of the market. He explained that it wasn’t time to head for the exits, but it may be prudent to start taking profitable positions off the table. It was also time to convert riskier plays and move toward more conservative ones. He feels that the market is struggling to make newer highs and the steam will eventually run out with a prospective downtrend in the works. Also there is still the specter of commercial real estate which looms ominously still but has not been realized as yet.

Many of the staple plays like Ford and General Electric are struggling to maintain their current levels and he feels that this is telling of the general market environment and a harbinger for the near-term future.

Some more conservative plays Kevin personally has been moving his riskier positions to include:

• Europe, Australasia, and the Far East Fund (EFA)
• Nasdaq 100 Fund (QQQ)
• S&P 500 Index Fund (SPY)
• U.S. Preferred Stock Index (PFF: 7.7% Yield)

Freeport-McMoran (FCX)

VJ Arjan asked Kevin Day what the future of Freeport-McMoran looked like as he was contemplating taking some of his profits off the table. Kevin expressed how he was surprised that stock hasn’t run higher after the split, perhaps past 60 to 70 at least. His recommendation was that it was time to book half our position and let the other half ride.

The next meeting will be on Sunday, May 1^st, 2011. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com

Next Meeting of the Scarlet Kings

Greetings to All,

The next meeting of the Scarlet Kings will be held on

Sunday, April 3rd, 2011 at 12:30PM.

Location: La Madeleine

(5290 Belt Line Rd, Suite 112, Addison, TX 75240, 972-239-9051)

Please join us for a fruitful and lucrative discussion!

Very Sincerely,

VJ

Meeting Minutes

We had a wonderful meeting today at BJ’s Restaurant and Brewery! We had a total of 7 attendees: (from left to right) Andrew Whatley, Jeff Harrington, Greg Bartell, VJ Arjan, Elena Swindull, Ryan Zamora, and Kevin Day.

Vertex Pharmaceuticals (VRTX)

Congratulations to Jeff Harrington on his homerun pick of Vertex Pharmaceuticals!

There really is no reason to go into the news, the chart spells it all out, but for those who are curious:
The huge move that occurred recently was due to the news released of the schedule approval of its drug that has a high percentage of curing Hepatitis C by the FDA. Jeff’s strategy was to play this stock by buying the March and April call options at a $45 strike price. The least that would occur is that he would lose his premium. By his own admission, Jeff’s return on investment was at least 1000%; not a bad return in about 60 days. To his credit, he had been following this drug for over 4 years. He even sent an email to the Scarlet Kings before the price shot up. It finally paid off for him and we at the Scarlet Kings could not be more thrilled for him. It simply serves as a lesson to many of us about the power of patience and perseverance.

Dubai

VJ Arjan took a 10-day long trip to Dubai and explained his observations of the situation from the perspectives of those living there.

There is no doubt that it is a very beautiful city. Even when you are descending into the Dubai International Airport, one can see the evident money that the Sheikh put into to create an aesthetically pleasing city. When landing, from the outside, the city looks just like a New York or London.

There is also no doubt that the oil money flows very richly. There are Ferraris, Bugattis, Lamborghinis, all over the place.

However, on the floor, amidst the people, there is something much deeper going on. There is a system similar to the caste system in India. The “Locals”, who are the Arabs that are native to that region are at the top of the totem pole, while everyone else, Indians, Pakistanis, Chinese immigrants who make up 80% of the population there, really have no rights whatsoever. The Locals have been known to openly discriminate against the non-Locals.

• Citizenship for non-Locals is not permitted.

• Property also, except in limited cases, cannot be owned by a non-Local. One has to take out at 99-year lease on the property. Kevin Day noted how in Mexico as recent as 25 years ago, it was also not permitted to own property, but things have changed since then. Perhaps, this is what will occur in Dubai also.

• Businesses cannot be wholly owned by a non-Local either. Instead, one has to have an Arab that is a silent partner that owns 51% of the proceeds whether he is an active participating partner or not.

The economy can be described to be on cruise control. The youth spend a good deal of their time at shee-shah joints, which are hang-out spots where people smoke and socialize. It is not uncommon for many of the youth to simply take over their parents existing businesses.

For the moment, the high oil prices have led to a relatively sustainable lifestyle for the inhabitants there. VJ also felt that the Sheikh Al-Maktoum certainly deserves credit for catapulting Dubai, which was just a desert 20 years ago, onto the world stage. He has certainly made many mistakes, but he’s done a good job given his lack of experience in capitalism.

Libya and the Middle East

Kevin believes that Mouammar Qaddafi has to go. He has clearly lost the support of his people and even among the international community, he has been pressured to leave. Kevin believes that it is not a question of if, but when. Just as in Egypt, he is still concerned about the person who steps in after Qaddafi is gone and he hopes that it not be anyone from the small but vocal radicalized group.

Also asked about whether there would be protests in Saudi Arabia, Kevin believes it to be very unlikely. It is understandable if one is living on two dollars a day to protest, but if one is relatively comfortably provided for, as are most Saudis, then it is like protesting the fact that everyone is driving a Toyota and are not driving a Lexus.

That being said, there is still the possibility in Iran and Yemen for an uprising to turn ugly.

The 2012 GOP Candidate – Who?
The lack of a viable GOP candidate has Kevin Day, like many Republicans, very frustrated. The ones that are scheduled to run are simply too polarized, although they may have a very loyal following.

In a rare display of sympathy toward the Democratic party, Kevin expressed how President Obama deserves some due credit for moving more to the center after November elections forced him to re-evaluate what the American people wanted. But, he still fears it a little too late for him and that Hillary will run in his stead for 2012.

Reading Between The Lines

Greg Bartell was explaining his take on President Obama's recent speech on how the economic recovery is fueling growing exports. What was not detailed in the speech were what exactly accounted for these exports. Greg explained in an excellent fashion that the U.S.'s chief exports are weapons and during the past couple of years, major weapons deals have been arranged with the Middle East, China and India.

As a side note, technology, health care, and tobacco are also chief components of what the United States exports to the world.

Cutting The Deficit

This topic has received much attention since the government dolled out hundreds of billions and trillions of dollars to prop up the investment banks which came to threaten the global economy. The question is do we, the American people, want our children and grand-children to deal with the mistakes of their parents and grand-parents?

Cuts have been proposed to bureaucratic measures, education, and defense spending among other areas.

But little has been discussed about the two largest components of the U.S. budget next to defense, Social Security and Medicare/Medicaid. Kevin believes that these systems must be reformed to close out some loopholes.

For instance, Kevin believes that there must be a means test for recipients of Social Security. Kevin is, by his own admission, very well provided for and he and his wife still receive Social Security benefits. There are many more who also are in the same financial situation who receive these benefits, who do not necessarily have to. This money could certainly go to reducing the deficit and is a loophole that needs to be closed out.

Kevin has even suggested getting rid of these entitlement programs altogether so as to not drive our country deeper and deeper into debt.

Elena Swindull expressed, however, that it is also about the votes, so it is hard to imagine getting rid of Medicare, Medicaid and Social Security as it is not politically feasible to do so.

Lack Of Accounting Transparency For U.S. Firms
Ryan Zamora, who recently moved from the Phillipines, remarked on how difficult is investing in U.S. companies compared to the Phillipines as the balance sheets and income statements give so much room to interpretation. In the Phillipines, these statements are much more black-and-white. Cash flow statements can even detail relatively minor expenditures for its shareholders for clarity and transparency.

Japanese Earthquake

On the morning of March 10th, 2011, Japan was hit by an 8.9 magnitude earthquake; some have called it the most powerful earthquake in Japan's history.

The preliminary death toll estimates measure as low as 400, as high as 900. And this number is really quite astonishing. For comparison, the 2010 earthquake in Haiti was less powerful, a 7.0 magnitude quake, and between 100,000 and 300,000 people died.

One of the prime reasons why the toll was so much lower in Japan while being directly in the middle of a techtonic plate fault line, is in how the Japanese build their buildings; they have a swivel at their foundation to limit the effect of the tremors of an earthquake.

Without taking away from the tragedy of the loss of human life, the fact that amidst so powerful a quake the casualties may be less than a thousand is an incredible testament to the technological capability of the Japanese to build a city that can withstand a natural catastrophe of this magnitude with truly little human damage.

It seems that Man may finally be moving in the direction of becoming master of nature and that in the very near future, men and women will fear little the catastrophic possibilities of nature, so far our technology will have progressed.

The next meeting will be on Sunday, April 3rd, 2011. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com

Next Meeting of the Scarlet Kings

Greetings to All,

The next meeting of the Scarlet Kings will be held on

Sunday, March 6th, 2011 at 12:30PM.

Location: BJ's Restaurant and Brewery (4901 Belt Line Road, Addison, TX)

Please join us for a fruitful and lucrative discussion!

Very Sincerely,

VJ

Meeting Minutes

We had a wonderful meeting today in the outdoors at The Blue Mesa! We had a total of 7 attendees: (from left to right) Lamonte, Kevin Day, Elena Swindull, Tommy Schultz, Andrew Whatley (who came just after we took this picture) and VJ Arjan.

I’m am writing and publishing this material from Dubai as I have time, so it took a while to get this out to everyone. I have been taking some copious notes on the situation here, which to say the least, is very interesting, especially when getting a ground-level perspective from the people themselves, and I look forward to sharing this all with everyone at the next meeting.

Crisis in the Middle East

Undoubtedly, we spent the fair share of our time in discussing the situation in the Middle East. Just to recap, Tunisia led the way with a total coup of the current regime, which then led to similar protests in Yemen, Jordan, and, most importantly, Egypt.

We focused particularly on Egypt as it plays a key role in foreign policy. As it stands now, the leader of Egypt for the last 30 years, Hosni Mubarak, has been looked at by the West as the keeper of peace for the Israeli-Palestinian situation. In return, Egypt receives close to $2 billion in foreign aid from the United States.

But from the perspective of those who are on the ground, the majority of Egyptians have been living on around $2 per day. The country economically is in shambles. The coup in Tunisia represented the spark that lit an already tense situation amongst the people there. Now those people who have risen up want Mubarak out.

Kevin Day went into great detail on how the West has relied upon Egypt not only for its role as an ally to the West amongst some not so congenial Arab nations, but also to facilitate the use for the Suez Canal for keeping the cost of transportation of oil to a minimum. Mubarak leaving definitely creates the possibility of problems in the global economy; for instance, an increase in the price of oil would contribute to the entire cost of transportation for all hard assets and goods to go up.

There is one more threat that he has averted for the years he has been in power. Kevin believes that if Mubarak leaves and a more radicalized Arab power takes office, then the peace with Israel that has been so delicate could be broken at a moment’s notice and then the West would get involved in a conflict with the Mid-East as an ally of Israel.

This may also hinder, not enhance, the common Egyptian’s rights. Now it is also true that in the effort to focus on their own interests, the West has overlooked the human rights issues in Egypt. But the people may very well be on their way to greater political and economic freedoms.

We also commented on the incredible speed and power of this uprising. Egypt is certainly not as well connected as many other countries may be. In many homes, internet, cellphones and television are a luxury. But somehow, the entire country rose together, from Cairo to Alexandria, in a matter of 6 days.

We also saw how there could be a domino effect with other nations. Iran, Syria, and Lebanon could certainly be on this list. Jeff Harrington postulated that the CIA could be behind inciting the uprisings, but he also said that it would be hard to prove a motive for the United States to urge coups in these countries.

Market Selloff

No doubt the situation in Egypt dominated our conversation, and we talked little about the market.

That being said, we felt that the market is due for a healthy selloff. Kevin Day noted that the market has run up for 10 consecutive weeks in a row, and seldom do we go this long without a correction.

Jeff Harrington added that consumer confidence and GDP numbers over the last week have given investors reason to believe that we are slowly but surely crawling our way out of the economic crisis of 2008.

We’ll be watching many of our favorites, including commodity plays and emerging markets, to look for additional buying opportunities.

How To Trade

Lamonte has been day trading and swing trading stocks for a couple of years now and he asked everyone at the Scarlet Kings what their method of trading was.

Kevin Day talked about the how he evaluates the company through fundamentals using metrics like volume to determine price movement. His time horizon for his trading style is more near-term – he holds stocks for at least a week to a few months before exiting and taking profits.

Jeff Harrington uses a combination of fundamental and technical analysis in his trading style. He recently purchased Walter Energy (WLT) which produces metallurgical coal, which he believes will be in demand for many years due to its vital use in the production of steel (fundamental analysis). He did, however, wait to buy this on a pullback when it reached its 20-day moving average (technical analysis).

However, both Kevin and Jeff stated that each person will have his or her own investing / trading style and it is essential to know which style one is most comfortable with. For instance, Kevin’s style of investing makes sense to Kevin and makes money for him as it suits his temperament, but no matter how successful it has been for him, it may still not make money for another.

Mandela’s Health

Nelson Mandela, who recently turned 92, was checked into the hospital last week for what was thought to be a routine physical examination. Kevin Day has relayed a few times in the past, how South Africa is a tinder box that would explode. Only Nelson Mandela has been able to hold the peace so far, but after he is gone, which may not be too far in the future, the country could be torn apart by those who wish to take his place.

VJ Arjan depicted how this may parallel what happened in India when they declared independence; how Gandhi tried to hold all of India together and could still not prevent Pakistan from seceding.

State of the Union

At the end of January, President Obama gave his yearly state of the union address. We felt that the President gave a balanced viewpoint and promoted a bipartisan agenda. Unlike the last State of the Union speech, with the requirement that each member of Congress was to sit next to a member of the opposing party, the cheers and jeers were more subdued this time.

Since the November elections he has been forced to realize that he must actively work across party lines. He focused on many issues that catered to the consensus like the reduction of federal debt and a push for clean energy. He also declared a drastic austerity measure that would freeze the federal spending on domestic issues for 5 years.

His emphasis on out-competing the world made a good deal of sense by touching on our lagging education system.

That being said, we felt that his speech was short on specifics. Inspiring hope is better when we can know exactly what to be hopeful about. Kevin Day pointed out that Representative Ryan’s counter speech from the GOP hit on this too, but Mr. Ryan’s speech also didn’t offer much in regards to specifics.

The next meeting will be on Sunday, March 6^th, 2011. I will be out of the country for most of February so I figure we could at least have our meeting on the last Sunday of this month. My apologies to anyone this may inconvenience. For those who have not attended a meeting, but would like to attend, please email your wish to VJ Arjan at scarletkings@gmail.com