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Tuesday Value Overview

August 30, 2011 | About:
Today’s edition refers to the Bank of Ireland (IRE), Lions Gate (LGF), and Clorox (CLX). We’ll start with happy birthday wishes for Warren Buffett today, who turns 81 today. For those worried about Buffett’s age, which seems to be a lot of reporters today, take a quick glance at an actuarial table. An average 81 year old has a good 7.5 years left. I think we all can agree that Buffett is not average. Turnaround artist Wilbur Ross is betting big on Ireland. He joined four other investors buying up a 34.9% stake in the Bank of Ireland. Ross believes Ireland is the country to bet on because they cut spending so quickly and severely and won’t have continued sovereign debt problems like the rest of Europe. The Bank of Ireland was forced to raise $7.4 billion earlier this year.

Lions Gate is down big after hours as Carl Icahn agrees to sell his stake. Each party will agree to dismiss and release any claims against each other. A Lions Gate company will buy about a fourth of Icahn’s 44 million shares, a director’s entity will buy about a fourth, and Lions Gate will have the right to direct where the other half will be sold in the next 35 days. Icahn will sell the stake for $7 per share. This should leave Icahn with a profit, but nearly as much as he would have liked. Icahn has decided to bail because his “slate is pretty full at the time.” In fact, he made another offer today for Clorox (CLX).

In honor of Hurricane Irene, I think it would be worthwhile to take a look at the broken window fallacy. Unfortunately since most of us (well, not me and hopefully not you) are Keynesian, this lesson bears repeating even though Bastiat destroyed more than 150 years ago. Take a look at Café Hayek’s post today: The Microeconomics of the Broken Window Fallacy. A quick excerpt:

Right now, there are a lot of unemployed construction workers. What does a hurricane do? A hurricane IS good for carpenters and glaziers and roofers. But it’s unproductive work. It gets the home owner back to the status quo. It doesn’t create anything new or valuable. I’m not saying the production is wasted. I’m saying it’s a repair. Why is that important?

Imagine a world where there hasn’t been a hurricane and I want to help the unemployed carpenter. Here are two ways to do so. One is to burn my house down and then call the carpenter and give him $100,000 to rebuild my house. Here is the second way. I call the carpenter and say, I feel bad that politicians artificially increased the demand for housing at the end of the 20th century, pulling you into an industry that cannot be sustained at its current level. I feel bad that you’ve been unemployed for three years. So I’m going to give you $100,000.

Michael Vick signed his second $100 million contract of his career a few days ago. Remember, his first was nullified. He still owed about $20 million to creditors, including the Atlanta Falcons and his former agent. Darren Rovell breaks down how much Vick will actually collect from his new contract. Once you skim taxes off the top, it’s very little. Once you consider that only $35.5 million of it is guaranteed, he’ll have to continue to play very well for many years just to pay off his creditors after taxes. His agent better ramp up those endorsement deals.

Disclosure: No positions

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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