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Thursday Value Overview: BAC, WFC, AIG, JPM

September 08, 2011 | About:
We kick off Thursday with the President’s speech and then opening night for the NFL. I highly recommend two interviews linked to below: Bruce Berkowitz and Bill Gross. I refer to Bank of America (BAC), Wells Fargo (WFC), AIG (AIG), and J.P. Morgan (JPM). Finally, learn which NFL franchise is worth the most. CanadianValue posted an excellent interview with Bruce Berkowitz from 1992 detailing his thoughts on having such a large position in Wells Fargo at the time. That one certainly turned out well for him and sounds pretty similar to what he’s currently saying about Bank of America and AIG right now. I want to be a little bit of a devil’s advocate here, even though I own Bank of America. Today’s environment really is different than then because of the Fed’s response and the extreme federal government spending. The level of bank hatred is significantly higher and the banking crisis was certainly much deeper this time around. Regulations are much higher. I get a little worried that this may be a pre-2008 Bill Miller situation where Berkowitz is applying his previous big win from the early 1990s to today’s circumstances. All of those things being said, I think Berkowitz is right. While we may not get to two times book value for some of these names, even getting to one times book will provide a tremendous return.

Bloomberg reports that Ray Dalio of Bridgewater Associates has returned 25% so far this year. Bridgewater’s AUM is $100 billion, so that is an incredible feat. Bridgewater is a macro fund, so it’s tough to draw too many conclusions out of their positions. But Dalio’s ideas may help to lead you to some stocks where their future growth hasn’t already been baked into the stock price. The following example suggests value investors should more heavily look for stocks in emerging markets over the long term:

Dalio expects emerging creditor nations to be tomorrow’s economic leaders. Countries such as China and India that have currencies and monetary policy linked to those in the U.S. are experiencing inflationary bubbles because their interest rates are too low, he says. They will have to unlink from the U.S. or face intolerable conditions. Emerging economies will account for 70 percent of global GDP in 15 to 20 years versus 47 percent now.

Thanks to Jacob Wolinsky for this one: Bill Gross says that QE1 and QE2 (and the future Operation Twist) have destroyed credit creation. Jamie Dimon talked about this a few weeks ago. Dimon said that J.P. Morgan was succeeding despite the flattened yield curve and despite government intervention. I highly recommend watching this video:



In honor of football starting, Forbes ranked the most valuable teams. The Dallas Cowboys come out number one with a $1.85 billion tag. The Washington Redskins come in number two. My beloved Chicago Bears are at least in the top 15 that are worth at least $1 billion. The cheapest NFL team? The Jacksonville Jaguars clock in at $725 million.

Disclosure: Long BAC and the Bears

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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