Dollars and Jens
Thursday, September 29, 2005
Goldman Sachs
I'm a bit reluctant to say more about this than that it lies somewhere between truth and conventional wisdom, which is as much as I hope for from the media; however, I will note that claims of Goldman Sachs becoming a "giant hedge fund" are probably both exaggerated and misleading.

Tuesday, September 27, 2005
My favorite industry to blog about
US Airways Group Inc. and America West Airlines completed their merger Tuesday, creating a company that plans to mix low-cost efficiency with the reach and service of a bigger carrier.

"Today we start a new chapter in aviation history," said Douglas Parker, the America West chief executive who will lead the fifth-biggest domestic carrier by volume.
Chapter 12, presumably.

There are a lot of details left out of the story that would interest me, namely the terms offered the former creditors of US Airways.

Tuesday, September 20, 2005
The Bureau of Transportation Statistics has a new airline financial data report.

FOMC decision
I'd like to read a dissenting statement from Mark Olson.

Sunday, September 18, 2005
FOMC and prediction markets
There's an FOMC meeting on Tuesday, and the market strongly expects the Fed to tighten again on schedule. While many markets have a good ability to predict events, both by pooling information and by pooling different expertise, there's a third (and even more compelling, in my mind) reason the federal funds futures tend to be good at forecasting fed moves, at least in the short term: because the folks who make the decision want it to. The federal reserve uses the funds market a feedback mechanism; if it seems to expect the board of governors to go all soft, while the fed plans to hike rates, they look for opportunities to sound hawkish, and vice versa. That the market estimate of the funds rate has tacked back toward the likelihood of a hike, and none of the governors has drawn special attention to threats to the economy or talked up that the inflation data are really benign, suggests a tacit confirmation that the market is thinking the same thing they are.

It could also be that there haven't been the opportunities the fed would need for slipping in those statements, or that there isn't even a consensus within the fed as to what to do. I refuse to be surprised if the fed does pause, but that they won't seems the way to bet.

Saturday, September 17, 2005
Elasticity of Demand for Gasoline
Too much can be made over the fact that the quantity of gasoline demanded has plummetted; if the gasoline just isn't there, consumers can pound their high-chairs (or pay up) all they want, and in the short-term, it won't generate any more supply. But combined with the fact that prices haven't doubled, this indicates that people are responding to incentives. All summer, people have already had some incentives, relative to last year, to use less gasoline, and I wonder if that helped. But the graph doesn't show much change until well into August.

Anyway, I thought you might be interested.

Thursday, September 15, 2005
I've agreed with pretty much everything Dean has said with respect to the airline industry, but I don't plan to celebrate over the bankruptcy filings of Northwest and Delta. The problem is that they're expected to emerge from it. Liquidation would be cause for celebration; this just prolongs the problem.

Tuesday, September 13, 2005
again with the airlines
Dead man walking:
"Delta’s problem is not labor, it’s debt," said Michael Boyd, an aviation industry consultant. "They have achieved labor cuts, and can achieve more because they have only two unions. But until they can restructure their debt, they are in big trouble."
Know what EBITDA's good for? Not much, but here's what to make of the fact that Delta's EBITDA is negative: even if Delta couldn't liquidate its assets, and was left trying to bleed its assets for whatever it could squeeze out of them, it would find them already squeezed dry, at least with their current uses and management. Restructuring the debt may be necessary, but it's certainly not sufficient; if Delta can't do something about the way it's run — its labor costs, or whatever else — it can't survive. If current shareholders remanded the company to the creditors, the creditors should themselves leave this puppy by the side of the road.

Or, better yet, sell it for scrap.

Should You Sell Wal-Mart?
Most people would say, "No, of course not, what kind of stupid question is that?" But here's an interesting case in favor.

Not a convincing case, in my estimation. I don't think the long-term economic effects of Katrina are going to be as dire as he suggests at the beginning of the article. And I think free cash flow is a better metric for a company whose capital expenditures are driven by maintenance rather than growth — Wal-Mart's capital expenditures are a lot higher than their depreciation expenses, and I don't think this is because the accountants are understating their depreciation costs by a factor of three.

Still, if Wal-Mart interests you, read the article and run the numbers yourself.

Full disclosure: I have no position in Wal-Mart (though I'm considering getting one). Also, the first sentence of this entry is stolen from the Simpsons.

Friday, September 02, 2005
Beyond the immediate human disaster in New Orleans, of course, Hurricane Katrina is having a dramatic effect on the economy. It's not clear yet how that's going play out in the long term, but the initial effects are dramatic enough. Oil prices are getting a lot of play; natural gas jumped 20% at the open Monday morning. Real 5-year interest rates dropped 11 basis points on Tuesday and 9 more Wednesday. October federal funds futures suggested a possible 50 basis point hike at the next FOMC meeting, and now suggest only a 70% chance of even 25bp.

Goldman Sachs, last I heard, has suggested the hurricane will cut half a percentage point from GDP growth the next two quarters, and could turn out to be much worse.

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