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Friday Value Overview

This end of the week edition touches on a new Google (GOOG) investigation, a reversal of fortunes for all of the airlines mentioned yesterday (UAL), (DAL), (LCC), (AMR), except my favorite, Allegiant (ALGT); a link to an excellent post on John Templeton; surprising remarks from Sheila Bair; and a tale of corporate excess about Energy Transfer Equity — ETE, Southern Union (SUG) and Williams Co.'s (WMB) — over at footnoted.org.

Google (GOOG) announced that the FTC is beginning the process of investigating its business practices. This is reminiscent of the DOJ anti-trust investigation against Microsoft (MSFT). There will be no resolution soon, but the investigation will be sure to take up a lot of time and money from both the government's side and Google's side. While in the middle of a rapidly changing market with it being difficult to determine who potential competitors are, an investigation like this seems eminently premature. It appears to me to be another example of the government attempting to punish success. With Facebook on the horizon, let's hope it's not a jump the shark moment for Google.

Yesterday airline stocks soared, and today they stumbled. UAL, DAL, LCC and AMR all fell hard today on a negative outlook. Specifically, United gave a revenue forecast lower than analyst expectations. One bright spot in the sector? The small airline I mentioned yesterday that focuses on second-tier cities, Allegiant Airlines (ALGT). As of the time of this writing, Allegiant was up more than 3%.

Tim Du Toit has en excellent post at ValueWalk with John Templeton's 16 rules for investing. I encourage you to take a look at the entire post yourself. My favorite for our current investing environment is the last one: Do not be fearful or negative too often. This one is tough to do when there is so much uncertainty out there. There is much to be wary about in today's markets. While being careful, I also have to continually look for places where the worst case scenario is already built into the stock price. After all, Warren Buffett has said that "Uncertainty is the friend of the buyer of long-term values."

Here's a policy I can agree with. Sheila Bair suggested that now might be the time to gradually start raising rates so bank lending will be more profitable. This would provide more of an incentive to lend, as opposed to parking money in Treasuries. It's my contention that if they raise rates to a more normalized level, all of the liquidity created over the last few years will actually enter the US economy as opposed to going to places like Asia and things like commodities. But, hey, I'm not an economist, so what do I know. Unfortunately Bair's words are couched with might and perhaps. I say do it. We'd all be better off.

Finally, over at footnoted.com, a site I follow closely, there is a good example of why mergers are often so bad for the acquirer. Energy Transfer Equity (ETE) has made a $4.2 billion bid for Southern Union (SUG) which offers numerous perks to the chairman (and CEO) and COO. These perks include such things as a $2,200-per-hour five-year consulting contract. This is especially interesting because the chairman and his COO cohort own about 13% of SUG's oustanding shares, and today along came a $4.9 billion hostile offer from Williams Co. So, the hostile offer would net the pair $94 million more money, which is slightly less than the total compensation offer from ETE. I guess that would make the real losers in all of this the shareholders of either potentially acquiring company.

Disclosure: Long GOOG

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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