Thursday, April 10, 2008


It seems there have been many false alarms over the past many months. Today, CAL closed up $1.12 and then traded up another $.36 after the market closed. The encouraging news during the day included an increase in fares of $30 by UAUA which was matched by DAL and CAL before the market close and the announcement that DAL and NWA have received preliminary approval to share in profits and loses on all transatlantic flights. The sharing of profits and loses in a market is almost as good as a merger in those markets. Cost might not be cut as much but over lapping route structures can be eliminated. It takes powerful computing to maintain all the variables and to figure all the possible combinations to maximize yields. Yellow-Roadway freight survived a number of "trucking wars" by learning how to fill up trucks. In the new global business environment, the few remaining international carriers aggregate the few from here and there into the full plane going the distance. If the justice department allows DAL and NWA to share profits and losses on transatlantic flights, the next step of merging the carriers is only another small step. If DAL and NWA can share, then CAL and AMR will be allowed to share with their chosen partners. With numerous foreign carriers flying into the US market, it is not like the competition has been eliminated. The international market is growing rapidly. We need healthy airlines to serve the public.

By the way, US exports continue to soar off the top of the chart. How can there be a US recession if the world is buying goods from the US like never before? I enjoyed an article on the Cafe Hayek blog today that pointed out that while the pundits talk about the loss of manufacturing capacity in the US, the data show that the US manufactures triple the amount since 1970. The author then writes another sentence where he puts the world TRIPLE in bold letters. He goes on to say that the miss statement of fact by the left leaning news services tempts him to mention the word triple a third time.

The implication of the left is that the high paying manufacturing jobs are going over seas and the US is being stuck with low paying service jobs. The reality is that most of the service jobs pay more than the manufacturing jobs and the manufacturing jobs are not going over seas but are being totally eliminated by productivity gains. We make TRIPLE the amount of goods using half the number of workers. That is not a bad thing but a great thing.

The key point for airline travel is that businesses have a lot to gain from finding the low cost producer of each and every product, no matter where the location. If Ceylon has an abundant supply of carbon black, then the components that use carbon black should be imported from Ceylon. The results will include the necessity of considerable air traffic between the USA and Ceylon.

I repeat, the market made an intra-day bottom on January 21 that has been tested and that has held. Since that time, the FOMC has crashed the cost of money. The price of money and the price of commodities have historically followed one another. I believe the price of gold and oil are being held up by the perception of high risk of war with Iran. I do not believe the risk is as high as is perceived. The pounding of the Sadr crowd is something that was politically impossible last year. It is a strong indication that the ruling government in Iraq is a stable government. Iran would certainly like to control Iraq but the indications are that Iraq is getting closer to being able to stand on its own. General Petraeus has called for a pause in troop withdrawals because he does not want to risk losing the gains made over the past year. This cautious approach is reasonable. We cannot say that the war is over. We still must deal with the nuclear threat. Today, Amadenijhad fired two more cabinet members. The economy in Iran is deed in the tank. The pressure to "make a deal" continues to mount. Israel has let it be known that it will only a minor provocation will result in the bombing of the nuclear facilities. I believe a deal is near.