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Thursday Value Overview

Thursday’s edition has more commentary on Bank of America (BAC), Berkshire Hathaway (BRK.B), Wells Fargo (WFC), American Express (AXP), U.S. Bancorp (USB), Bank of New York Mellon (BK), M&T Bank (MTB), Goldman Sachs (GS), and Apple (AAPL). We close with some information on an economic leading indicator.

Apparently my rant yesterday about Bank of America wasn’t totally off base. As we now know, Warren Buffett got out of his bath tub yesterday with the idea to make an offer to Brian Moynihan. That offer was accepted by Bank of America’s board this morning. My view is that they did not need to raise capital, but they did need a major figure (other than Bruce Berkowitz) to show faith in the bank. Financial companies always rely on faith. Bank of America, and Brian Moynihan, now have the most well-respected cheerleader there is in their corner. The bottom for the stock has most assuredly been put in. There’s no reason why the stock won’t now trade up to its tangible book value at a minimum. That means there is still plenty of room for it to run in the near term.

Dealbook notes some of Berkshire’s other bank investments. Buffett increased his stake in Wells Fargo last quarter to nearly $10 billion. He has $7.8 billion in American Express and $1.8 in U.S. Bancorp. His Bank of America ownership is already worth more than the $5 billion he put in because of the run-up in stock price today. He also owns a stake in Bank of New York Mellon and M&T Bank. This is a fairly wide cross-section of financials. It appears the whole sector is cheap. Don’t forget about those Goldman Sachs warrants too.

The other big news, and probably bigger news than the Buffett deal (unless you own Bank of America stock like I do) is the Steve Jobs announcement. It sounds like not much will change on a day to day basis, but the announcement really does make you worry about the health of Steve Jobs. If anything, I think the takeaway is that this should be seen as a sad day. Much has been said about Jobs, but my take is that it is amazing what one person can do, whether that person was Thomas Edison, Henry Ford, whomever. Steve Jobs is a truly remarkable and unique human being. Innovations that help mankind take giant leaps forward can come from the mind of one person.

Leading indicators have been all over the place the last three weeks, which is a major reason why there has been so much market volatility. Todd Sullivan shows how one leading indicator, rail traffic, has retaken a positive trajectory. If you follow the link you can see the trendline moving upward despite many fits and starts. I think the economy is in good shape going forward for the rest of the year. The last month we saw a crisis of confidence, nothing more, nothing less. We can get past that.

Disclosure: Long BAC, 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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