Far West Capital December 2011 Newsletter

Black Friday set a record this year for the most firearms sold in the U.S. in a single day. Americans bought at least 129,166 on November 25th, 32% more than the previous one-day record.   Guns and gold are a popular investment strategy these days apparently.

Do not expect this Europe business to blow over anytime soon. We bring you some comments from GaveKal (link: www.gavekal.com) below on the two opposing views in Europe and why we think you should be prepared for a long drawn out “solution.”

“On the one hand, there are those who believe that the end justifies the means. If saving the Euro requires the destruction of the notion of money as a common good, so be it. The fact that the Euro is slowly destroying Europe (as was entirely predictable—and predicted in our pages), thus leads our “Keynesians” to recommend measures and actions which have been specifically forbidden in the treaties, the German constitution, or the bylaws of the ECB.

On the other hand, there are those who remember that Hitler said that treaties and constitutions were nothing but pieces of paper. For such Germans, it is simply inconceivable that the law could be made subservient to a political or economic goal. They believe that destroying the law is far more dangerous than destroying the Euro, and they say to the others that the solution is simple: they signed the Treaties, they now have to respect them.

I respect the German vision. The treaties creating the ECB and the Euro were built around the German notion of money and everybody knew it. So when Merkel says that the others have to become Germans, she is perfectly entitled to do so, since it was exactly what the treaties said (and why the British, Swedes and Swiss rightly refused to join). In my view, on this point, the Germans are right. Frankly, one does not sign a treaty with Germans in the hope that the Germans will be flexible. They never were, and given their own history, are now less so than ever.”

Not your average car accident! This Japanese pileup claims 8 Ferraris, a Lamborghini and 3 Mercedes. Driving a Ferrari and texting is never a good idea – that’s not what was reported, but we know better.

We recently went to lunch with the president of a Texas bank. We spent the majority of the lunch discussing the various challenges facing the banking industry for 2012.  Regulatory concerns topped the list. He has been in banking over 30 years and said this regime of regulators is by far the most aggressive and non-accountable group he has ever faced.  How do you keep your culture from focusing on this terrible negative and focus on serving clients and supporting the community?  Suffice to say, this banker was not exactly bullish about the business in the near term.  One of the biggest complaints is how long these exams now stay “open,” basically as we have heard, they are never over and you are in a constant state of uncertainty.  The CFPB has listed 18 different regulations they will be covering during an exam. We will spare you the details on which ones, and they have also indicated that they are looking beyond mere compliance but the lender’s processes and systems for maintaining compliance.

Speaking of culture, we can all point to Frost Bank as a great example of the right way to communicate corporate values to their employees.  We never meet a Frost employee who does not have a solid command of what they are all about.  Did you know that the CEO of the bank, Dick Evans, personally visits each location during the holidays? This is pretty impressive seeing as they have over 115 branches in Texas.

Debt To GDP Chart:

Japan = 200%

Greece = 160%

Ireland = 110%

USA = 100%

Portugal = 100%

We have almost $15,000,000,000,000 in debt. The world is now suddenly realizing, starting with the Euros, that you can’t go on deficit spending without the day of reckoning coming. This will take some time to come to grips with, probably several years to work out of, and hopefully we can do so on an orderly basis.  In the meantime, have you asked the question of what a Lehman-esqe type event would do to your business?  It is not a fun thought but one that could fall under the heading of “prepare for the worst and hope for the best.”  Those of you with a physical gold portfolio may think of melting it down and making golden guns.  No question, it is an interesting time to be living in.

In their new proposal to cut the payroll tax, the Democrats are trying to sneak another new tax on to the middle class. As Tom Brown explains, Senate Democrats want to pay for their proposed cut in the payroll tax with higher fees from mortgage lenders to Fannie and Freddie. Because the target of the fees won’t be able to pay them, the fees will trickle down to individuals, just like every other tax. The solution? Cut spending elsewhere.

We love winners at Far West Capital…Congratulations to the Lake Travis Cavalier football team in Lakeway, Texas and their 5th straight state title and a place in Texas football history books. No other Texas football team has won 5 in a row. We see a great movie or a cool documentary one day. Can they do 6 in row? We wouldn’t bet against them!

Speaking of “winners,” check out this year’s overachiever: Paige McElreath.  Paige is the daughter of one of our longtime colleagues, Dayna McElreath.  Paige is a second year cheerleader at the University of Houston and first year power dancer for the Houston Rockets. Not only will you see her on the court this year, she will appear as Miss January in the Rockets swimsuit calendar for 2012. She was the only rookie power dancer to make the calendar in 2012.

We tried to come up with a clever cheer in Paige’s honor,  but the best we could do was  – “Way to go Paige!”  No overachievement awards for us…


Here’s a different perspective on deficit spending and national debt from our friends Dave and Kathy in Houston to help us grasp the situation.

Why the U.S. was downgraded:

• U.S. Tax revenue: $2,170,000,000,000

• Fed budget: $3,820,000,000,000

• New debt: $ 1,650,000,000,000

• National debt: $14,271,000,000,000

• Recent budget cuts: $ 38,500,000,000


To make it a little clearer, let’s remove zeros and pretend it’s a household budget:

• Annual family income: $21,700

• Money the family spent: $38,200

• New debt on the credit card: $16,500

• Outstanding balance on the credit card: $142,710

• Total budget cuts: $385


Here’s another way to look at the Debt Ceiling:

Let’s say, you come home from work and find there has been a sewer backup in your neighborhood. Your home has sewage all the way up to your ceilings. What do you think you should do? Raise the ceilings, or pump out the crap?

2011 is coming to a close and that means everyone is releasing “year in review” lists and recaps. Time Magazine announced “The Protester” was their visionary “2011 Person of the Year,” which doesn’t exactly trump last year’s person, Facebook creator Mark Zuckerberg and seems to honor those who “made their voice heard” occupying this year. On the other hand, Barbara Walters honored Steve Jobs as the “Most Fascinating Person of the Year,” calling him a visionary with energy and vision that helped change the world. He was selected earlier in the year when he first retired. Others on the “10 Most Fascinating People of the Year” list included: Herman Cain, Simon Cowell, “Modern Family” stars Eric Stonestreet and Jesse Tyler Ferguson, Katy Perry, The Kardashian ladies, Donald Trump, Derek Jeter, Amanda Knox and Pippa Middleton.

You may have heard these common terms of the Euro Zone sovereign debt crisis thrown about but not know what they really mean.

  • Technocrats – bureaucrats that take over for other failed bureaucrats, hoping to confuse the bond market into believing they are different with the use of the word Techno.
  • Ring fence – an unbelievable amount of money needed, some say $6 Trillion, to be printed to save the Euro (i.e. what needs to happen to stave off depression and chaos).
  • Austerity – what you and I do every month when we go to the grocery store and make choices based on our budget and apparently what southern Europe thinks means riot.
  • Euro Bond – more debt to solve the debt crisis, something the Germans will not agree to until everyone starts acting more German.

We recently had a management dinner at Peter Lugar Steakhouse in NYC on a Friday night. It required reservations made two months in advance, pay in cash, and a drive to Brooklyn. The food and service were great, our table was ready when we arrived, the place was packed, and the waiter basically ordered for us.  There was a focus on what they did and they did it well. They’ve done it since 1887, so it’s safe to say they have a winning formula.  We told the manager “great service” on the way out, and his response was priceless: “we have a reputation to uphold as rude and surly, so please don’t tell anyone you had a great experience.” Do you know your brand promise?  Can you uphold it?

We had a chance to hear two very good speakers recently, Richard Fisher, Dallas Fed president and Dr. Robert Gates, ex – Secretary of Defense, and it is remarkable how we can hear the same message from many public officials and frankly, most of the business people we speak to.  A large number of us agree on the following:

*Entrepreneurial risk-taking is what drives the economy
*Entrepreneurs will not take further risk, no matter how low rates are unless there is clarity around
*Regulations that don’t punish
*Healthcare costs

Uncertainty is the biggest killer of confidence.  We did not even mention Europe or the US deficit, which we all know is something that is also holding people back from making decisions.

Fisher’s best quote was: “I don’t care if you are a republican or a democrat…they screwed us….”  We would call that plain talk, and it is very refreshing to hear a public official with substantial power speak that way.




This sign reminds us that we need to keep things simple and clear and not depend on “luck.”  Even a guy driving a Ferrari might have a hard time here.

The holiday season is a time of stopping to appreciate what you have and sharing what you can with others. Here’s a story that will warm your heart and remind you of the goodness in humanity. In honor of her husband who recently passed away, an Indianapolis woman in her mid-40s made the holidays a little brighter for families when she paid the Kmart layaway orders for as many as 50 people. On the way out of the store, she handed out $50 bills and paid for two carts of toys for a woman in line at the cash register. She didn’t identify herself and only asked for people to “remember Ben.” This isn’t the first time this has happened this year. Kmart is one of the few large discount stores that has offered layaway year-round, and Good Samaritans around the country have been giving back this year by anonymously paying off Kmart layaway accounts.

From our team at Far West Capital, we wish you a happy holiday and New Year. See you in 2012!

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