Economy

I can't believe I didn't buy GES at $15... sometimes you just don't pay attention.


The End of the End of the Recession

Dang

Crazy. I guess I'm just lucky. How come AAI is the only airline that makes money?

Not sure why AAI is so much better than everything else

I invested in AAI (AirTran) many times because of 3 main reasons. But I still don't really know why it's so much better than all the other airlines in terms of stock performance. (See picture http://intelligentshare.com/2009/04/not-sure-why-aai-is-so-much-better-than.html) My reasons: It's an airline that is largely recession proof because it services the low-end (and travel is a necessity), price of oil was going down (S&P says it can be profitable with oil at $80), and it has a low cost structure. Ok there's many more, such as the predictability of the stock. It's low price. It's always winning awards. It's ability to expand during a recession. And its current assets is higher than its market cap (although it might not be true as I write).

However, I still don't know how this one airline is so much more superior in stock price performance than all the other airlines especially european ones. Yes there was a bankruptcy risk but they have mobile tangible current assets, so I doubt that. European ones should not be performing that bad considering they had such a big currency advantage in oil, a big part of costs.

Euro, Dow, Automaker bailout, think outside box

EUR:
It seems like it's the only sound currency. But please explain why EUR is so strong. I haven't had time to delve further. USD is screwed because of the government's money printing policy. At first I thought Fed was doing something very stupid: let's print money, bailout the economy with money we don't have, lower interest rates to zero, and reverse this recession. But there's good reason after some thought. GBP is ridiculously low compared to USD and EUR. I didn't understand why so I bought... lost money on that. Of course buying EUR/USD was very profitable.

Update 19/12/08: ECB just announced they will cut rates and the currency just dropped like crazy.

Update 21/12/08: GBP should go down further. Interest rates being cut and it has no significant exports. Finance sector dead.

Dow:
In the very short term such as today and tomorrow, it may go up. But a recession doesn't just last 4 quarters and it was up overall this week...

Auto-bailout:
Probably going to happen, but I don't think it should. It's government's responsibility to take care of its people. So many industries depend on the auto industry and so many more jobs: Suppliers, distributors, bankers, advertisers, etc. Ford is actually looking pretty smart after their near bankruptcy. If its re-structuring is a good model, it's a good sign these other automakers can be saved. However, I am going to argue it's probably more difficult to save than to start a new. There are so many labor union problems. They're international companies with extremely complicated joint ventures and equity agreements. Even in the early 2000s, people saw weakness in auto demand and the need for them to merge to stay competitive. Sure jobs will be lost, but new ones will come along with new automakers created by the void.

Essentially, big companies are very difficult and costly to turnaround. And did you know most turnarounds involve job loss? This is not a service industry such as airline that is vital to the economy. They only gave airlines bankruptcy protection and at best should only do that for the automakers. They are making a product so efficiently, that there's no point.


Outside the box
What about thinking outside the box? How about sending the talented US work force to Asia or Europe? Make it easier for them to get visas for working abroad by talking to other countries. When the world has problems, countries should work together politically. Look what that did to the EU. Expand NAFTA so labor visas or easier to get for graduates in Canada and Mexico. They aren't trying to take away your crappy blue collar jobs anyways. What about creating smaller auto manufacturers that are more focused? Or just use all that money and buyout Toyota? Or push electric cars with electric recharging stations or electric grid roads program in a New Deal fashion. I remember the US used to be bad ass with slavery and taking Indian and Mexican land. What happened? Now you're just helping Iraq and before you got any oil or converted it into a State, you're getting kicked out? I think the US needs to play hardball with the world. Yeah you got the right idea, depreciating your money to the extreme. Yeah I got 14 trillion in debt but it's in USD so that's like 14 Euros. I don't have cash on me, why don't I take you to dinner and we call it even C:

Are you kidding? British Pound Weakens to Record Low of 90 Pence Against Euro

Roll 18%, L40%, H 23%, F19%

You know you're on the right track when you have a couple of best days in a row. I don't even know where to begin, nor should I write about it because of my involvement in some undisclosed activities. Anyways... let's hope this continues.

Tomorrow though will be a calm day because I got to prep for a test on Monday. Next week? and week after? Forgetaboutit. Pretty dam packed... Pretty pretty dam packed.

And Happy Birthday to my mom! You're the best and I love you.

Shorting Oil

The time may begin for shorting oil. I don't know if there was a bubble or if there still is. I haven't done enough research to know, but from what I have gathered. Oil is faltering.

This means two things. Airline stocks should be seeing a recovery and ETF for shorting oil should be popping up. Both these things have happened. The question is for how much return is there?

http://finance.google.com/finance

Q2 GDP US Economy Data, Oil, Employment, etc.

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects
Jul 29	10:00 AM	Consumer Confidence	Jul	51.9	50.0	50.0
Jul 30	8:15 AM	ADP Employment	Jul	-	-	-60K
Jul 30	10:35 AM	Crude Inventories	07/26	-	NA	NA
Jul 31	8:30 AM	Chain Deflator-Adv.	Q2	-	2.7%	2.3%
Jul 31	8:30 AM	Employment Cost Index	Q2	-	0.7%	0.7%
Jul 31	8:30 AM	GDP-Adv.	Q2	-	2.8%	2.3%
Jul 31	8:30 AM	Initial Claims	07/26	-	380K	395K
Jul 31	9:45 AM	Chicago PMI	Jul	-	50.1	49.0
Aug 1	12:00 AM	Auto Sales	Jul	-	5.0M	NA
Aug 1	12:00 AM	Truck Sales	Jul	-	5.0M	NA
Aug 1	8:30 AM	Average Workweek	Jul	-	33.8	33.7
Aug 1	8:30 AM	Hourly Earnings	Jul	-	0.3%	0.3%
Aug 1	8:30 AM	Nonfarm Payrolls	Jul	-	-55K	-75K
Aug 1	8:30 AM	Unemployment Rate	Jul	-	5.5%	5.6%
Aug 1	10:00 AM	Construction Spending	Jun	-	-0.2%	-0.3%
Aug 1	10:00 AM	ISM Index	Jul	-	50.5	49.2

Airline Industry Bankruptcies & Profitability

Interesting list of airlines that went bankrupt (like Techcrunch's Deadpool). They say you can't make money with airlines unless you're short selling.

Profitability

Higher fares are a prerequisite for higher yields which are essential for industry profitability. Yield, a measure of fare levels, is defined as revenue per revenue passenger mile (RPM). RPMs are a measure of traffic volume: one RPM indicates that one passenger has flown one mile.

Lastly, the graph below compares the performance of AMEX Airline Index (composition) with the S&P Index from 1992 to May 2008.

Airline Industry and AirTran Holdings Inc.(AAI)

If you bought LCC, 5 days ago you would have made 30-55% returns. DAL 21-30% and AAI (which I own) 15%.

So I thought I'd post some interesting findings about the Airline industry which should be consolidating finally. Although many people have been burned by it and Warren Buffett stays away from it, I think it has really been ravaged enough. I see limited down side and high upside here. There's so many reason why I invested in AAI which I won't go into now because it's exam time. The only thing that bothers me now about it is its PE is 31 compared to LCC's of 9. I am not sure I have found a good reason for this yet. (from BusinessWeek)

Canadian airlines: Wild blue wonder

Megan Harman
From the April 28, 2008 issue of Canadian Business magazine

Talks of a global slowdown have markets on edge, yet one industry typically regarded as a foolproof economic barometer has seen nothing but blue skies. The domestic airline industry is flourishing. For 14 months in a row, WestJet has filled its planes to record levels, and last year Air Canada posted its strongest results in history. Demand is so strong that two new carriers are set to launch this year. All this good news even has analysts scratching their heads. “I’m as surprised as anyone about the resilience and the demand for air travel in Canada,” says Ben Cherniavsky, a Vancouver-based aviation analyst at investment firm Raymond James. It’s either a sign of a higher propensity to travel, he says, or simply an indication that the economy is not doing too badly after all.

The strong Canadian dollar is one factor, since many buy aircraft and fuel in U.S. dollars. “We’ve been able to weather increases in prices, especially on the fuel front, a lot better,” says Sam Barone, president and CEO of the Air Transport Association of Canada. Even though fewer Americans are flying internationally, Canadians have helped maintain a strong cross-border flow. Toronto-based Porter Airlines’ first U.S.-bound flights, to New York, received more bookings in the weeks prior to their late-March launch than all its other routes combined.

But the months to come might not be so rosy. With a potential recession hampering Canada’s largest trading partner, “there are a few clouds on the horizon,” says Barone. New carriers are edging onto the market with caution. Calgary-based Corporate Jet Air’s small-scale launch this spring will feature flights between Toronto and Calgary, testing the air before expanding to other cities. Its focus on speed and convenience for business travellers is not unlike that of Porter, but lavish amenities set Corporate Jet Air apart: planes that used to seat 50 have been transformed into roomy 18-seaters, and an all-inclusive fare features “gourmet” food and drinks, and limo service to and from the airport. “People are becoming more affluent and less patient, and more willing to pay for a premium service,” says Betty Ledgerwood, director of marketing and branding. “We just see that there’s a big niche in the market.”

AirTran Holdings, Inc., Statement On Completion of Recent Financing

ORLANDO, Fla., May 1 /PRNewswire-FirstCall/ -- AirTran Holdings, Inc. (NYSE: AAI), parent company of AirTran Airways, Inc., one of the nation's leading low-fare air carriers, today, in conjunction with the initial closing of the public offering of its debt and equity securities announced last week, issued a statement from Bob Fornaro, president and chief executive officer:

"The successful completion of these offerings, in combination with our low cost structure, high quality product and young all-Boeing fleet, provides improved financial flexibility and uniquely positions AirTran Airways for the challenges the industry faces in dealing with record high fuel costs. AirTran Airways is on solid footing during these turbulent times in the industry as evidenced by the following:

-- The initial closings of our concurrent offerings of our 5.50 percent Convertible Senior Notes due 2015 and our common stock have today been completed, including the full exercise of the underwriters' over-allotment option on our Convertible Senior Notes. Net proceeds to the Company of the concurrent offerings (including escrowed funds of approximately $12.3 million), were approximately $140.3 million. A closing with respect to the sale of an additional 2,346,875 shares of common stock pursuant to a partial exercise of the underwriters' over-allotment option is scheduled to occur on or about Friday, May 2, 2008.

-- Enhanced invested cash balances.

-- Lowest non-fuel unit costs in the industry (a position we intend to maintain. )

-- Proactively re-casting our business for success in a high fuel environment.

-- Reducing our capacity growth against the current environment from a prior planned 10 percent from Sept. through Dec. 2008 and from a prior planned 10 percent in 2009 to no more than flat in both periods to improve unit revenue.

-- Managing our fleet order to maintain balance of capacity and revenue.

-- Number one airline in quality as ranked by the Airline Quality Rating.


S&P research on AAI (click to enlarge)

Lastly, I think it would be good to buy a rail company as fuel prices keep going up. However, it seems Amtrak is a US government company.

A Random Walk Down Wall Street--Review

A lot of what was taught in Investments class is covered in A Random Walk Down Wall Street by Burton Malkiel. This book was actually a recommended read and I happened to see it in the library yesterday so I grabbed it.

It's such a great investment review for me because I haven't invested in so long. I barely remember strategies such as Dow Theory after graduating. So I'll just summarize it here:

Dow Theory- it is the idea of resistance and support. Once the stock penetrates the resistance or support, it is likely to keep going in that direction for a while.

Relative-Strength system- buys and hold stocks that are outperforming in the recent past (relative strength)

Price-Volume- stock rises on large or increasing volume because of excess interest. (I've used this to buy stocks in the news back in October, e.g. CROX and GM)

Odd-Lot- If there's a increase in odd-lot buys, sell because amateurs are trading the stock and they're most likely wrong.

Filter method- Buy stocks that move up 5% from its low and sell after a 5% drop from its high.

There's more technical analysis methods such as using MA, short interest, and advance/decline ratio as indicators.

By the way, the book says since there are transaction charges, none of these are consistently profitable compared to a buy and hold strategy.

I remember answering a question on semi-strong form market efficiency which says that a stock's price is accurately priced because all public information is incorporated, but I just realized that a big buyer or seller will often spread out his transaction over a relatively long time as to not disturb the stock price, and because of controls. And because of what the stock specialist does. So I just thought of that. But not too many practitioners believe in EMH since they know they can manipulate stock prices.

By the way, I think I should of bought Simon Property Group instead of General Growth Properties.

Canadian Currency beats US Currency!

It was predicted by many that the Canadian currency would reach par with the US currency by the end of the year. As of October 5th, one CAD is worth 1.01838 USD. Today.

Damn. I feel proud. But this also means I have to invest in US exporters that mostly have domestic inputs.

OTTAWA - The Canadian dollar defied gravity Friday, rising above US$1.02 at one point, as the high-flying currency got additional lift from a report showing Canada's unemployment rate fell last month to the lowest level in 33 years.

It was a day of astonishing news for the Canadian economy, which had been expected to start feeling the pain from the summer subprime mortgage crisis in the United States that many thought would send shock waves rippling into in this country.

Statistics Canada reported early Friday that the jobless rate had tumbled to 5.9 per cent in September and that the economy churned out an additional 51,100 new jobs during the month over August. link

However, there's a little bit more to it. Sure it means TD can now buy an American bank (Commerce Bancorp), and try to move into the US market. But economists say the loonie's purchasing power is really only equal to only about US84¢ even though it's trading at a 31-year high of about US$1.02. The reason is:

"First, the price level is higher in Canada," it said, noting that a Canadian dollar cannot buy as much in real goods and services in Canada as a U.S. dollar can in the United States.

"Something that might cost $10 Cdn here, might cost US$8 in the U.S.," Mr. Orr said, explaining in an interview that is largely because the U.S. market is more competitive. link

So what does that mean in terms of macroeconomics and forex trading opportunities? I have to think about that tonight after the party.