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Friday Value Overview

July 08, 2011 | About:
Ending the week we have David Einhorn’s quarterly letter, talking about Yahoo (YHOO), Warren Buffett on Bloomberg alluding to Berkshire Hathaway’s (BRK.B, BRK.A) Mastercard (MA) position, a note about the terrible jobs report, and the bubble in online couponing.

One of my favorite gurus, David Einhorn, released his Q2 letter today. Not surprisingly, he dropped Yahoo (YHOO), which he had bought into in the first quarter believing the sum of the parts were worth significantly more than the stock price. As we now know, you can't trust the sum when one or more of the parts are Chinese. Einhorn also made comments on the Greek crisis, detailing how the game is rigged among rating agencies, the government, and European banks. Credit default swaps were like gasoline thrown on fire for the 2008 crisis. He is intimating that swaps on Greek and other struggling European countries have the potential to create another crisis. I've long thought credit default swaps should simply be banned, at least in the U.S. What's the economic benefit to them other than a distortion to the markets? While we're on common sense policies that will never be implemented, I also think we should implement an 80% capital gains tax rate on securities held less than a day. Call it the really short term capital gains rate.

Warren Buffett was on Bloomberg today and said Todd Combs added a few positions since February and, in all, Berkshire has bought about $4 billion in common stocks since then. It's known that Berkshire added Mastercard in the first quarter, and added one or more other stocks which it received an exemption from disclosing as the position is built. Buffett said he believes employment will pick up as housing does, since such a large bulk of the unemployed came from the industry. He also said he sees no evidence of a double-dip recession coming.

By now readers know how poor the unemployment report was, with meager gains in June and downward revisions for April and May. The nonfarm payrolls number was a big surprise primarily because the ADP report was so good, estimating 157,000 new jobs in June. Which report is more reliable? Who knows. We'll just have to wait and see what kind of revisions come out in the future. At any rate, today's news put a dent in investors' optimism.

I couldn’t believe this when I saw the headlines: Coupon site LivingSocial is looking to raise $1 billion in an IPO valuing the company between $10 and $15 billion. Ridiculous. As most followers of Guru Focus know, it’s tough to pay up for companies that have no moat, and it’s hard to believe that LivingSocial or Groupon or any of these other sites aren’t in one of the most competitive spaces on the internet. Yeah, they may have a head start with their sales forces, but they could get undercut at any time. Anyway, the fact that the IPO will be such a small percentage of their so-called value means they or their bankers know that the bubble mentality of investors in the space will bid up valuations. It will be interesting to do a post-mortem on these companies five years from now.

Disclosure: Long BRK.B

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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