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Thursday Value Overview

June 30, 2011 | About:
The last day of the quarter was a good one. We’ve got some leading indicators, some Amazon (AMZN) news, more Bank of America (BAC) background information, some John Paulson gossip, Alan Greenspan comments, and an interesting Chase Coleman stock to look at, Bitauto Holdings (BITA).

The day started out with blowout numbers for business activity in the Midwest. This leading indicator was expected to drop from May to June, but it instead rose by nearly 8%. That set the stage for a big morning rally and it made Larry Fink look good. Of course, the jobs situating continues to look bad. There was a 1,000 claim drop for this week to 428,000. If only those unemployed were invested in the stock market!

California is the latest state where Amazon will "fire" their affiliates. It appears 10,000 affiliates will be affected. Gov. Jerry Browne's tax hike plan would require Amazon to collect sales tax in the state. The way around this is for Amazon is to drop the affiliates and make sure they didn't build any warehouses in the state. They've done this in other states where this sort of tax scheme was implemented, causing the states to lose more tax receipts than they had previously collected. At some point, enough states will implement these rules and the scales will tip. Until then, and absent a different ruling from the Supreme Court, Amazon will continue to retreat to more business-friendly states.

Here's a little more background on Bank of America's announcement yesterday about the Countrywide charges. One unnamed director called it "the worst decision we ever made." This just keeps making Ken Lewis look worse and worse. The purchase price was $2.5 billion in 2008, but the charges are now more than $20 billion this quarter alone. This is a great example of how underlings follow when corporate leaders want to make a purchase at all costs. The article describes how the due diligence team in 2008 was "designed to have a predetermined answer." Just another example of how screwed up corporate acquisitions can be. No doubt there will continue to be more examples in the future.

John Paulson apparently had been trimming his stake in Bank of America since last quarter. We'll have to wait until the end of the quarter to see just how much, but reports seem to think it was substantial. This story has all the markings of some unauthorized leak to make Paulson look bad, so I wouldn’t get too worked up over it.

Speaking of maestros (or former maestros), Alan Greenspan got back in the fray today with some interesting remarks. I think he probably just stated the obvious, that QE1 and QE2 haven’t actually entered the economy. I would add the word “yet” to that. Anyway, it seems a bit uncouth for the former chairman to be criticizing the current chairman when one, say President Obama, could say that the former chairman’s policies got us into this mess. The irony here, in my humble opinion, is that Greenspan’s policy of straying from intervention helped cause the financial crisis. Each one of his liquidity issues caused a bubble.

Finally, here’s a stock to look at. Chase Coleman just raised his stake in Bitauto Holdings. This is a Chinese company that had its IPO last fall and now trades for about $5 cheaper than that. It is an online marketer for new and used cars in China. It is interesting and certainly deserves some more research done to it.

Disclosure: Long BAC

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.

Visit Steven Kiel's Website


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