Previous Q2 Meeting Notes

Patrick -least confident in last year
For next 3,6,9 months
Ass handed to him in April -
Bearish last year -getting clients out of equities and into treasuries
Now -Jan/Feb/March -not as bullish on Treasuries -but kept cash there
April -S&P 500 is up over 7%
10 Year Treasury -3.92% -
Sue Q's -"would you rather be a little late to a big party" or "would you rather be early to no party"
Leading Market indicators to becoming more bullish -
Blackrock and other Hedge Funds -buying subordinated debt -set up a control to buy the debt off of some of the bigger banks books at $0.60 on the $1.00.
1.
Treasury selling off -but might not be going into the equities -Sue -bounce in April might be linked to the huge statement for coming in on Bear Stearns -securities firm -"if the FED is going to hold up Bear Stearns, says to world not going to be 1930s depression", Papa -shows once again -"US Gov is the lender of last resort"
2.
REITs -US Equity YTD doing well also Homebuilders, 12M negative; financials took a big hit in Jan, but great returns since then
3.
Bearish Case
Export to 1st world countries
1)
Start spending in their own country
2)
Jan -this market negativity caught by the rest of the world -yes
3)
Commodity driven countries -
4)
Decoupling idea -China is dependent on selling to us -but their currency is pegged to the dollar -which allows them to be price competitive
5)
Patrick's response -emerging markets need to catch up
i.
Oil Producing Countries -overshoot fundamentals -$ got really strong in '87 -
a)
Does the Dollar stay weak -against which currencies -and why?
1)
Sue's Q's -
ii.
Sue -China -GDP -10% -does the Olympics and etc -make it a better place to invest in, industrial production 17.8%, US is 1.6%
a.
Long-term thoughts on weakness of the consumer, broadly -the weak US economy will hurt the world Equities
1.
Investment Meeting 5/6/08
Tuesday, May 06, 2008
3:07 PM
Unfiled Notes Page 1
Oil Producing Countries -overshoot fundamentals -$ got really strong in '87 -OECD came together and brought it down, 2005 -$ rallied b/c Fed raised rates; thoughts on raising rates Jan '09 -eventually macro works it's course = bullish on the $, bearish on oil -S/D ratio on oil -hasn't changed from $100-120. Changing is the premium
a)
Strong IP Growth
b)
Does the raising of rates hurt or help the market?
a)
Can Interest Rates go much lower?
2)
Oil market -less confident about the Oil market -$120 a share -when will the consumer stop spending?
3)
Pull us out of Iraq -stabilize the country -Oil goes to $200 a barrel
a)
Real negatives of dems -focus on america not globalization
i)
Positive -strengthen dollar -all the money to the war now is able to pay down debt and do whatever we want
ii)
McCain -wants to kick Russia out of the G8 -we need Russia if Oil goes that high
b)
Anti-Nafta
c)
Democratic president -what happens then?
4)
not printing money like Greenspan
One.
Bailing banks out
Two.
Making the consumer take it on the chin
Three.
Lenders are pulling more lines of credit than you know -really starting affect more and more people
Four.
Fed now
i)
Financial institutions big percentage
One.
Tech spending is lower than ever
ii)
Double-digit interest rates, Fed fights inflation -9%, raising rates aggressively to fight inflation -2008 inflation rate 3.3%
a)
1987-1988 get back from a cash position and into equities
One.
Sell on fundamentals and I buy on Technicals
i)
Papa -thinks there might be another whole leg of the market to go down -dollar can get significantly weaker
b)
Why the banks stepped in -everything was connected -and if it wasn't saved -it would unravel the entire industry
One.
More serious things are -more likely they get solved
i)
Short the dollar vs. the BRICs currencies
One.
Only invested in things she felt stronger about -
ii)
US is no longer largest user of commodities (other than oil) -China now is
iii)
Sue -
c)
Papa won't go into the market full time until the price of oil breaks -biggest go button is when Oil falls
First.
Market is overvalued or oil is -very interesting correlation
One.
Real oil prices stand at historic highs, S&Ps at historic medians
i)
Lloyd Kurtz Thoughts
d)
Q1 earnings largely better than expected
e)
XLF at historical lows -good quality names
One.
RSX -retailers -Sue doesn't like them
Two.
XTB -homebuilders
Three.
Rebound strategy
i)
Kid's account
f)
Fannie Mae reported big loss -shares jumped up a couple %
i)
If Economy gets in trouble -I will rain money from the sky
ii)
50% of people who bought a home in 2006 have walked away
iii)
Most significant investment event -is Fed bailing out Bear Stearns
g)
Papa and Mom's account since Jan 25 -up 12.5% and 9.5% respectively
h)
Prolonged recession -early 80s -double barrel, 80 & 82
5)
Unfiled Notes Page 2
50% of people who bought a home in 2006 have walked away
iii)
If markets go down -US will give you
i)
Papa and Mom's account since Jan 25 -up 12.5% and 9.5% respectively
h)
More likely to see oil at $180 a barrel than $60 a barrel
One.
If a trigger for bull market -there is a ton of money on the sidelines looking to be invested -especially in the ancillary markets
Two.
Papa -demand for oil is continuing to outstrip the supply
i)
If oil breaks -will Russia and other countries go down?
i)
*Side thought -EU Financials have not announced yet -can EU support them like the Fed supported our banks?
Unfiled Notes Page 3