Minutes
AAII Orange County Chapter
Monthly Meeting, January 9, 2010
Balearic Community Center
1975 Balearic Dr.
Costa Mesa, CA 92626
President Bob Welge brought the meeting to order and gave some preliminary announcements. Bob acknowledged the Orange County Chapter’s leaders: Bill Phillips – Hospitality Chair, Craig Stoddard – Facilities Chair, Ed Castleman – Vice President and Dave McMillin – Treasurer. Bob discussed some additional orders of business such as upcoming meetings, past meeting minutes and Chapter information. Attention was brought to the next two scheduled meetings, which occur at unusual meeting times. Upcoming meeting schedules and past meeting minutes as well as contact information are available online at www.robertsgeneral.com. Also discussed was the disappointing news that the MSN stock screener tool is no longer available; Yahoo may be a possible alternative.
Bob introduced today’s speaker, Jonathan Lansner. Jon is a columnist and blogger at The Orange County Register. He has frequently spoken at both professional and community events has been a member of American Business Editors since 1983.
· Jon has spoken in front of this group since 2003. He stared his presentation off with a discussion of the historical trends of the S&P 500 index on a logarithmic scale. From 1950 to 1986 the S&P went from 15 to 150; from 86 to 2000, 160 to 1500. Similar gains, one gain took 35 years, one took 13 years.
Jon transitioned into discussion that served as a follow up to the topics he presented in January 2009.
· S&P up 27% even though current administration hasn’t been doing as well as hoped.
· Jon discussed basis risk – right bet often with a hedge, event happens and asset doesn’t perform as promised. Logic was stocks would only do well if Obama did well. Proved to be wrong over the past year.
· Starbucks – not doing well a year ago. McDonalds entered the cold and hot coffee business. Now up 38%, this proved the company can manage around economic problems by changing management practices.
· Stores are a good indicator of the economy. If stores are giving out discounts then the economy is shaky.
· Inflation – people think right now must be inflationary period due to fed pumping money in over the last two years however we’re not seeing any inflation right now. Need inflation, we are in deflationary time although sort of stabilizing now. Inflation plays – Vanguard Energy (VGENX), or farm (MOO) or Weyerhaeuser (WY). Might be the bottom of this leg.
· Rethink everything – last year Jon recommended a re-thinking of all activities.
· Avoid banks – this past year was in fact the time to avoid banks.
· Acquire twitter account and try to make some money off it, last year not too many knew about it
· Nerve to sit – if you sat, then you likely were able to see the March bottom
· Treasury direct – buy and sell you treasuries directly
· Cash - not every company has come out of this, if you have cash remaining there are still opportunities.
· CD's – 2 years at 3.3%
· Broader bond funds: Harbor Bond
· Diversification – 2 years ago would have been good. Lets you ride out these tough cycles.
· If you must buy in 2009, then go with consumer friendly companies like McDonalds, Wal-Mart, 99 cents stores-great price point for people who are hurting
· That was last year, those where the lessons were. Now we are talking about 2010.
2010 – no double dip depression, no one is going to get overly rich. 2010 is going to be a mediocre year. Subtle gains in GDP, same in portfolio. Jon is going to watch:
· Sports stadiums
o Attendance is based on discretionary income. Signals whether the economy recovery is real or just an inventory correction.
o Keep an eye out while attending your favorite places, i.e. operas, restaurants, golf club, etc… Do research here, watch them and it will give you an idea how the economy is doing. For example, Superbowl ads -- will they sell all of them this year?
o Watch consumer spending trends because the economy is ultimately driving it
· Democratic Congress
o GDP, portfolios, unemployment
§ If you are rooting for your portfolio then hope democrats loose less seats than expected.
· Housing – government is pumping money into Real Estate, keep an eye on real estate service companies such as First American (FAF).
· Apple (AAPL) has great products that change the industry. Cell phone phase, soon everyone will be walking around with handheld computer. Tech stocks are up huge. Recovery will support tech stocks. Apple is genius, soon to be releasing a tablet computer with a touch screen. Should have buzz. Might create whole new business.
o Speedy upswing (first picture)– computer era (80’s and 90’s) then the Internet era (2000’s), now the cell phone phase. The next era will be tablet computers.
· Retail – Target or Urban Outfitters. People moving out of Wal-Mart as economy improves. Higher quality spending. Urban outfitters used to be dumpy, now overpriced but have found their niche.
· China -- recovering U.S. economy could save China, we could bail out China indirectly. Treasuries are overvalued. China owns our stocks. How do you play it --(GXC)
· Darden restaurants (DRI) – Olive garden and Red Lobster. These two restaurants offer causal dining. Right now consumers either stay home, go to McDonalds, or go someplace really expensive. These two restaurants are in the middle, a sweet spot as people begin to invest and recovery comes.
· Rethink-
o Debt
§ Great time to refinance debt if you have a job.
§ If you have a job then it’s good time for debt
§ If you don’t have a job then it’s a bad time for debt
§ Refinance now.
§ Great time to benefit from multiple federal policies.
o Fixed income –
§ Bonds have risk, get out of bonds and get a CD. Take the 1% and move on. Don’t risk it in bond portfolio.
o California Muni’s –
§ Chamber of Commerce is supposed to promote the city and state and region. Right now the chamber isn’t saying good things as an attempt to effect change. View munis as equity play, not as fixed income. Munis are trading with a higher yield than treasuries, think of them as a low risk equity play. Nice way to put California risk in a box that you can deal with. Avoid bonds this year.
· Avoid –
o Gold – trendy and popular. If we have inflation you can make a lot money in company that haven’t yet raised their prices versus using gold as an inflation hedge.
o Tourism – on the consumer end, there are lots of great bargains, meaning from an investment standpoint things aren’t good. Luxury stuff wont bounce back for 10 yrs. Hotels are going back to the bank. Whole asset class was overpriced in 05-06.
· Acquire—
o Nerve to act – opportunities to act are now. Think of the bigger picture than next trade.
o Health care reform
§ Biotech – helps lower cost of health care. (IBB)
ú same as they were 5 to 10 yrs ago.
o Cell phones – some have been beat up pretty bad by Apple. Google has entered cell phone market with the android. Companies are making android phones: NOK, MOT, RIMM. Really going to explode. Most people will be carrying computer on them.
o Schools (COCO, DV)– Do better in downtime in the economy. When people are out of a job, then they go to school. Tend to do well late into recovery—people decide to go back when they know the economy is back on track and they
o shippers – Norfolk southern or fedex or UPS. People shop online when economy is bad so shipping exists. Business does better when economy is good so companies are shipping.
o If you dare: newspapers – Gannett (GCI) or LEE. So far they have tripled off the bottom. Remember, the economy will recover and advertising will not go away.
BREAK:
After break session:
Questions and answers
· International Market
o Interest rates cyclically low right now. U.S. dollar should strengthen over the next few years. Overseas investments suffer as the U.S. dollar strengthens. International bonds are good for the long run. International stocks are a year or two behind US stocks. International stocks serve as a security measure in case something goes wrong here.
· Oil, Gas Copper, etc.:
o Bottom line is with more economic activity, more people will use oil, gas and copper. Jon thinks they will benefit from economic recovery. Natural gas is ridiculously low now and is becoming more and more efficient. Bullish on economy then bullish on commodities (certain ones).
· Shippers – ocean shipping such as tanker ships. They were overbuilt, too many now. Need to understand the shipping business to understand if a tanker company is profitable.
· Emerging markets—there are several emerging market mutual funds.
· Unemployment:
o For each part of the cycle, everyone has something to complain about. Median statistics are always showing something bad. Right now the employment picture is poor. Government doesn’t have a clue. Lots of side jobs – off the books. Until it improves stock market won’t.
· Jon is a big fan of index funds. Willing to accept average?? Beat 50% of professionals. Change portfolio 1x every 2 yrs. Don’t believe Kramer. Likes the Vanguard balanced index fund.
· Jon’s thoughts on the State of California economics – dysfunctional system. What will fix it, a crisis. We are not broke enough.
· Jon’s thoughts on individual securities vs. mutual funds – if you do your homework, you can do ok. Don’t need a fancy degree and suit to do this stuff.
· Comments on REITs: Self-storage will do better than apartments and hotels. Commercial – nada. Apartments will do ok. No one wants REITs now, could be an okay time to pick them up with a 5 to 10 year outlook.
· Jon’s thoughts on ETFs, ultra shorts and currencies: they are not worth the pennies and he wouldn’t touch currencies with a 10’ pole.
· Where will China and Europe send their stuff if our economy doesn’t recover?
o Burgeoning middle and lower class in China and India.
o we are not the economic power anymore because we just don’t have the people
· What is the future of the print news media?
o In print –
§ 5 to 10 yrs then gone
o Advertising isn’t going way
· Real estate – lower end is selling instantly. Upper end is tough. Middle has to be great. Median will be up. Lower end – no supply right now.
Meeting ended at 11:11 am.
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Minutes taken by Ty Soukup