Wednesday, March 19, 2008


Today, it looks like the market is pulling back from the big surge of yesterday. Looks can be deceiving, the market is playing a game of hide and seek.

The turn is here, basic materials stocks are down 4.3% and energy stocks are down 3.3%. This is consistent with the decline in gold of more than $60 per ounce.

I must repeat that there are dozens of indicators at historical levels that have produced average market returns of greater than 20% over the coming year. This average return will include the groups that will fall in price by 20% or more. A lot of companies and individuals will benefit from lower commodity prices, the key commodity being oil. One of the key beneficiaries of lower oil prices will be airlines.


NWA pilots have a lot to gain from the merger of NWA with DAL, including $50,000 to $100,000 per pilot in equity and pay increases of 25%. Since the two sets of pilots appear to be unable to resolve their differences, NWA pilots have proposed mediation of the dispute. I am a big fan of mediation. The bible says that people should resolve their differences on the way to court and mediation is often a great way to resolve disputes. There are many famous cases where a sharp "middle man" has been able to see both sides of an issue and to pull the parties to a satisfactory middle. A good mediator can sometimes use the wisdom of Solomon to convince the two parties that a live transaction is better than a dead baby. In any good trade, both parties win. If one party is afraid to be "bested" then both parties lose. The best deal may be very different than the first deal offered by either party. I am reminded of the time a friend of mine put up a business for sale and advised several competitors that he would take the best offer received by fax before 5 PM. A couple of competitors entered the auction. Before noon one party offered 5 million. The second bidder went to 7 million at about 2 o'clock. The first bidder was informed that he was "out" and he raised his price to 8.5 million. The second bidder said the price was too rich for him and declined to bid anymore. My friend was happy with the bid of 8.5 million and ready to accept at 5 pm, however, at 4:45 and new bid came in from a third party of 13.4 million. Needless to say, there was "great joy in Mudville" on that day. Even after the last bid, my friend was careful to inform the first bidder than he was "out". At 5 pm the 13.4 million was accepted.

The bottom line is that the merger is a win-win situation. I don't know that mediation will work but I am glad to know that the pilots are still searching for answers.

Some readers have sold airline stocks in recent weeks. Holding on through tough times is hard, but when the going gets tough, the tough gets going. If you are out, it is time to get back in, the bidding is just getting underway! The move up in airline shares today is hiding behind the big plunge in materials and energy stocks.