A candid meeting of minds about subjects varying from making money in the markets to the vagaries of the human psyche to the philosophical aspects of man and much more...
Sunday, March 30, 2014
Tuesday, February 25, 2014
Sunday, January 26, 2014
Monday, January 20, 2014
Meeting Minutes
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.
CES 2014

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.
4K

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.
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/
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.
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.
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.
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
Saturday, January 4, 2014
Monday, December 2, 2013
Thursday, November 14, 2013
Meeting Minutes
We had an insightful and wonderful meeting at On The Border. We had 3 attendees: (from left to right) Ry Zamora, Tommy Schultze, and VJ Arjan.
We
started off the meeting discussing an article that Tommy had sent to various
people, including our attendees, titled "The Future of Employment: How
Susceptible Are Jobs To Computerization?".
Written by two Oxford University professors, the article proceeds to
explain that more than a half of the current jobs as characterized by the Bureau of
Labor Statistics, will have be automatized in the near future.
https://docs.google.com/uc?export=download&id=0B0-ape4ST5Atb0pTSDhib1YzQ3c
They
go on, "while technological progress throughout economic history has
largely been confined to the mechanization of manual tasks that require
physical labor, technological progress in the twenty-first century can be
expected to contribute to a wide range of cognitive tasks", involving
everything from legal writing, truck driving, medical diagnoses, and even
persuading and selling.https://docs.google.com/uc?export=download&id=0B0-ape4ST5Atb0pTSDhib1YzQ3c
Tommy
went on to describe the SOC (Standard Occupational Classification) codes that
the Bureau of Labor Statistics uses to catagorize each job and even created a
spreadsheet that listed probabilities of that category being automated. The excel sheet is attached here.
https://docs.google.com/uc?export=download&id=0B0-ape4ST5AtNTI4YjFYSHdOTnc
https://docs.google.com/uc?export=download&id=0B0-ape4ST5AtNTI4YjFYSHdOTnc
Some
noteworthy categories include, Security Guards, which have a 84% probability of
being automated, Pharmacy Aides which have a 72% chance of automation,
Accountants and Auditors, which have a 94% probability of being done by a computer.
Those
that had a lower chance of automation were either a specialized skill or a
profession that required dealing with cultivating a relationship with people.
An
example of this automation, could include what roofing contractors do today,
which is the use of aerial drones to scope out a building or roofing project. There is a drone called the Parrot AR Drone
2.0, which costs $300, that is currently being used in this manner.
Tommy
went on to discuss that Qualcomm has already designed what he terms,
"brain-inspired robots", which have artificial intelligence; in other
words, they are building semiconductor chips that simulate a positive feedback
mechanism.
http://www.youtube.com/watch?v=8c1Noq2K96c
Some gaming designers are using AI (Artificial Intelligence) in their games where enemies have the ability to surrender and to even negotiate and this is not even scripted.
Some gaming designers are using AI (Artificial Intelligence) in their games where enemies have the ability to surrender and to even negotiate and this is not even scripted.
In games like 'Stalker", the characters in the game have AI and therefore have the ability to decide whether a situation warrants a choice
or not. The characters in the game can
even explore the virtual game environment to look for supplies or find good
hiding spots.
It
is only a logical conclusion that this technology will be extended to real life
military operations as well. At the
moment, robots in the military and even space exploration are being directed by
humans. The time that robots will be
able to fight, identify targets, etc. may be a scary day indeed.
VJ
asked what theorhetically would happen should half the labor force be unemployed
and Tommy suggested to watch the movies Elysium and Metropolis, which
illustrate a permanent unemployed and unfulfilled underclass that literally
lives below the upperclass. If nothing
else, Tommy went on, the government may be forced to give out more welfare
checks to give these people a living - it would be an implicit tax of sorts as
a consequence of these advances in technology.
As
everyone remembers, between October 1st through the 16th, the U.S. Government
entered a shutdown after Congress failed to put through legislation
appropriating funds for the fiscal year 2014.
During the shutdown, 800,000 federal employees were fuloughed. We all discussed the situation and who the
winners and losers were.
This
situation was created in part by the Tea Party wing of the Republican party, in
particular Senator Ted Cruz's efforts, to threated to stop negotiations should
Congress approve funding towards the Affordable Care Act.
The
net-net was that funding was approved and certain issues were tabled until
February 2014, where it may be likely these effects will be dealt with again.
VJ
mentioned that the shutdown hurt the public's attitude towards Congress, but was
especially harsh towards the Republican party.
After the shutdown, a Fox News poll reported that 42% of voters pinned the
blame for the shutdown on the Republicans, while 32% on the Democrats.
Another Gallup poll during the shutdown reported that only 28% of the public had a favorable view of the Republicans in Congress, while the Democrats had a 43% approval rating.
Another Gallup poll during the shutdown reported that only 28% of the public had a favorable view of the Republicans in Congress, while the Democrats had a 43% approval rating.
Just
thereafter, in the battleground state of Virginia, the Democratic candidate,
Terry McAuliffe, edged out Republican Ken Cuccinelli to win the Governors electoral
race. Both sides admit that the government
shutdown was a major key to the Democratic victory.
Mr.
Cuccinelli's chief political strategist, Chris LaCivita, said in a recent
interview with USA Today that the shutdown was "more than anything...what
cost us the race." He even
mentioned how the shutdown and the beating of the GOP brand nationally caused
Republican donors to "sit on their checkbooks" and hold on to their
political contibutions.
VJ
went on that these are low points indeed for the GOP and he believes that any
chance for the Republicans to take office in 2016 may have been lost during this
shutdown. It will take a while to lick
their wounds before they will be able to bounce back.
He
also mentioned that although the Tea Party had originally helped the Republican
party and enthused its base, it may actually be hurting them as the more vocal
and extreme wings asserted their dominance alienating those majority moderate
Republicans.
Part
of the reason the meeting minutes were delayed in being released was in
anticipation of the 3rd Plenary of the 18th CPC (Communist Party of China). Ry Zamora, who has visited China many times,
explained how these Plenums, which took place between November 9th and 12th,
are important because it is where the new leader, Xi Jinping, can introduce
broader economic reforms and a political blueprint.
The
Plenary did not offer much in the form of drastic economic reforms and there
will not be any vital changes to its current political policies either. There was, in fact, lots of re-hashing of
previous reforms. For instance,
increasing the role of household consumption, improving energy efficiency,
decreasing inequality, etc, were all stated in that last such meeting because
all of those issues basically moved in the wrong direction.
However,
Mr. Xi did create a new governing body with himself as the head that will cut
out the middlemen in the Politburo for approving economic reforms. This may be his way of fighting a system
corroded by rampant corruption.
It
looks like Deng Xiaoping's philosophy of "crossing the river by feeling
the stones" will remain in place and that more steady and gradual improvements
on current policies seems to be the route that the China under Xi Pinjing is
going to take.
Ry
mentioned that many economic indicators he's been following illustrate that
economic growth is slowing down and that even though consumer confidence has
been increasing, producers confidence has been on the slide.
He
believes that the markets at some point may turn between now and the end of the
1st quarter of next year and that investors may want to issue puts on their
position or just puts on market indices, while keeping cash available to buy on
the selloff.
Ry
also sees an old snake rearing its head again.
There is evidence that the ECB has not been treating all the banks of
the member states the same. For
instance, they are being more strict on those banks in say, Greece or Italy,
and not so strict on the banks in Germany and France. According to the statistics that Ry is
reading, there may be some major problems in German and French banks in the
near future, as illustrated by the results of a round of recent bank stress tests that the ECB conducted. The
same capital requirements issue that the PIIGS faced earlier over the past few
years may be confronted again very soon by the banks in other member-states.
Ry
also recommends to buy into companies that have a strong international presence
and are not completely dependent upon and operating on any one country; a
strong country diversification can soften the blows that any one country can
deliver.
VJ
mentioned that the current market environment and increasing consumer
confidence suggests to him that there may be a classic "Santa Claus
rally" in store, but thereafter the future is less certain.
Tommy
suggested that the economic surge during the holidays is so strong that there
are several retailers who will operate in the red over the course of the year
and make up the entire deficit and more during the holiday season. He mentioned J.C. Penney, Sears, and
Radioshack as examples that fit this mould.
Tommy
went on to mention that even for these behemoth brick-and-mortar stores, the
day of reckoning is coming. He estimates
that by 2017, 60-70% of all major purchases will be done online. Today anything from sticky notes, to
furniture, to cars can be ordered online and he believes that this trend for
online purchases will only become stronger in the future.
The Power of Suggestion
Tommy
mentioned to us how comedians and actors are able to lead their audience
through conversations and those who can do control conversations without the
audience noticing and can set them up to feel a certain thought or emotion are
the best in the industry.
It
is similar to a conductor of an orchestra directing an ensemble.
He
gave us a demonstration here with the use of his LiveScribe; it is an incredible
device and illustrates the point (will need the updated Adobe Reader to view
this, it an incredible device. You may even find when you hear the conversation that we are some straight-up nerds :-). )
You can either click the link below to download the file, or watch it below.
https://docs.google.com/uc?export=download&id=0B0-ape4ST5AtM2t3VmV5a2ZKTW8
You can either click the link below to download the file, or watch it below.
https://docs.google.com/uc?export=download&id=0B0-ape4ST5AtM2t3VmV5a2ZKTW8
The
next meeting will be on Sunday, December 8th, 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 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
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