A DOUBLE WOW DAY!

DOUBLE WOW!

Any day that the oil price hits a new high and closes the day up a dollar per barrel is a significant day. It is a WOW day when the broad averages such as the NASDAQ closes up on a day when this happens. It is a DOUBLE WOW DAY when airline stocks hold their own on such a day.

Today the airlines were mixed with some up and some down a little. AWA has increased about 50% in value in just a few weeks. AWA has made a deal to buy USAir. USAir just reported an operating loss of around $60 million for the quarter. The operating loss included an extra fuel expense of about $160 million for the quarter! Had the fuel cost been the same as last year, USAir would have made $100 million for the quarter!

All of a sudden, I am reminded of 7-11 stores. A lot of folks think 7-11 stores make a killing when the price of gas goes up. The reality is that they make a killing when the price of gas goes down. Airlines are getting hurt in the short run by high gasoline prices. The high prices will give them the justification to raise the price of each seat. Then when gasoline prices go down, they will be slow to lower the price of the seats.

First there will be a catch-up even while prices are high. By the summer of 2006, I expect all the major airlines to be making profits even while fuel prices are high. Then as additional fuel supplies gradually come on line, airline margins will surge. The companies will be very profitable. Finally fuel prices will decline and everyone will want to pile onto the airline wagon.

Oil stocks are going to continue to have strong profits for many months to come but that does not mean the stocks will go up a lot from today's prices. The big growth is going to be in technology as companies scramble to become more productive as a way to cut cost and compete in the global market place. Are there technology companies who have a decent sized "moat" to protect themselves from "growth without margins". I believe there are. TXN, QCOM, MOT and NOK are great examples. These four companies "own" big chunks of the cell telephone market. TXN and QCOM are fierce competitors as are NOK and MOT. All four companies have patents and economies of scale that give them the ability to compete without giving away the store.

Of course there are a number of Korean and Japanese companies and even other European and Chinese companies that compete for the same business. Business is always tougher than most any employee of a big company can even understand. Certainly most government workers, school teachers and others have a difficult time understanding how difficult it is for a business to earn a profit. (Don't get me wrong, I know that business people do not fully understand the frustrations of being a teacher or a government employee.) The point is that the world is a competitive place and that right now is the time to own the big growth companies.

It is true that small growth stocks have done well in recent years. It is also true that our economy has moved into the expansion phase. We are in an age where innovation is not as key as is executing a good plan. Certainly QCOM, TXN, MOT and NOK will continue to try to innovate. However, the relationships these firms have developed and contracts already in place will go a long way to insuring that their products will be shipped in ever increasing numbers as the demand for electronic mobile communication expands rapidly.

The fact that these international companies are in hot competition bodes well for the airlines. The fact that it is inexpensive and easy to make a call from China to Boston does not lessen the need for employees to travel from China to Boston and back but it increases this need. In the past several months, CAL, for example, has introduced dozens of new flights to and from far eastern locals. CAL has been able to redeploy assets in ways that have increased load factors to record levels. My family has taken a large position in CAL--our largest stock holding. We didn't stop with CAL. We own shares of AWA, AMR, NWAC and even a smaller position in DAL.

The Chairman of NWAC has sold 75% of his stock. He admits that the company may have to enter bankruptcy. It would be foolish for the union employees to force the company into bankruptcy but wages have always been downwardly inelastic. It is very hard to get any person much less a large group of people to accept pay cuts. In this case, it is obvious that the cuts must happen. For NWAC to compete, it has to lower its costs to be in line with the other majors. DAL and NWAC employees must bite the bullet or accept unemployment.

In the NY Times (If I recall correctly) today, an article today reported that the Chairman believes the union will ultimately do what is in the best interest of the employees. Bankruptcy would force the loss of jobs and or draconian cuts in pay. The employees will be well served to accept cuts of lower magnitude than what they would see in bankruptcy. It is hard to win a game of chicken and it is a mistake to get drawn into such a game. NWAC is in such a game. The company is going to wreck or make a drastic and positive turn. I'm betting the company will make the turn.

Again, if a reasonable compromise can be reached, the next several years could be very rosy. Cost will have been cut sufficiently such that fuel costs will not cause a loss. Then when fuel cost go down, the gains could be very large indeed. My target for CAL is $64 per share. About 4 times the current price. 2010 is my target date. Buy shares in the company and let me know about your purchase. When the stock hits $64 you will be invited to a party at Myrtle Beach South Carolina.

BUY THE BULL! BUYING THE BULL DOES NOT REQUIRE YOU TO BUY THE HOTTEST CURRENT SECTOR. REIT'S, HOUSING NOR OIL ARE WHERE I WOULD PUT NEW MONEY. THE AIRLINE SECTOR WILL BE AN EXTREMELY BUMPY RIDE IF THERE ARE MORE TERRORIST ATTACTS. THE PERCEIVED RISK IS VERY HIGH--THE ACTUAL RISK IS NOT NEARLY SO HIGH. BUY THE BULL! DOUBLE YOUR MONEY A FEW TIMES AND YOU WILL REALLY LOOK FORWARD TO THAT LAST DOUBLE!