Friday, November 07, 2008

England is Rocking and Rolling

This morning, the lowest BOE interest rates in 53 years are having an effect. Some UK banks passed the 1.5% cut along to their customers and some are using the cut to help restore balance sheets. The ones who did not pass the full cut along are betting that the others will not aggressively go after new customers during these difficult times. Of course, sooner or later, competition will force the full cut to be given to customers.

British Airways is up 15% this morning. It does not take much to give a beaten down stock a good rise. The news does not look so good but the price of the stock indicates that short sellers are covering. In the USA, short interest fell from 17 Billion to 13 Billion Dollars last month. Airlines are reducing ticket prices by eliminating fuel surcharges. Just 4 months ago, the largest expense of airlines was the fuel costs, but that cost has been cut in half!

The huge leap in short to long interest rate spreads is the most positive thing of all. The best indicator of future GDP growth is the yield spread and this forecast of growth in England just jumped straight up. It is no surprise that BAY would soar when the prospects for growth soar. The UK is rocking and rolling and the move is broad based. Stocks of all sorts are so depressed than one can throw a dart at the stock page and consistently hit a big one year winner.