Seeking Alpha
Profile| Send Message| ()  

As is the typical situation as oil goes up, airlines go down - we said this would happen even though Allegiant Travel (ALGT) managed to make money last year at $140+ oil. This is just how the program trades work, so I continue to build a position here, essentially every $2-3 down, I am adding to this stake. I hope to be able to buy down there at $38, but thus far I've pushed the position up to a 4% stake with a series of buys Wednesday and Thursday. The stock is dirt cheap but people continue to pile into forward 30, 35 PE stocks because

that's where the "hot money" is.

There was the large PAR investment divestiture which led to the volume surge Wednesday, but essentially, you can plot these two charts in inverse. The market appears to be going with my stagflation... err, return to growth with inflation rather than Hugh Hendry's deflation scenario as judged by the spike in all commodities. Doesn't mean it is correct in the long run, but the market is always "right" in the near term.... inflation it is.

I wrote a piece on greenfaucet this week about bursting inventory of crude [Rising Reserve of Unused Oil Puts Strain on Storage] - and we still have bursting inventory of natural gas

  • Natural gas in storage was 23.3 percent above the five-year average of about 1.56 trillion cubic feet, and 34 percent above last year's storage level of about 1.43 trillion cubic feet, according to the government data.

but it does not matter; the market is "forward looking" and not full of speculators. Or when you throw fiat paper onto the world, all assets get inflated over their correct prices.

Now again this market is now under the Goldilocks scenario - we can have just enough inflation to signal everything is fine and a return of growth is coming, but not enough to hurt the consumer. Larry Kudlow must be smiling somewhere. As I drive around and already see $2.39 gas, I can tell you local residents are not smiling as much. I continue to cross my fingers for a return of $3.50 gas while the world is in recession - I'd just love to see Ben on Capital Hill answering that line of questions.

I'm shooting for at least S&P 890 on the downside for S&P 500 with further progress to 870 highly probable if Goldman / Treasury humors me; at which point I'll be rather ambivalent about the market in either direction, but assuming up, up, and away we go based on the market influencing mood and "confirming" that all the things government is doing is "right" (dogma).

I find the market very pricey and many individual stocks rich, but valuation has simply not mattered in this current situation so I am going to throw it to the side as well... I've left a ton of profit opportunities on the table thinking "wow, should I really buy that at 37x earnings?" only to see said stock rocket up another 40%.

We are now pricing in the "we can't have -6% GDP forever or else we'd have no economy by 2013 " and "we can't lose (government statistics) 650K jobs a month or we'd be at 15%+ unemployment by mid 2010" and "retail sales will recover from -8% to -15% Year over Year" (comparisons versus last year will start to get very easy soon).

However on retail sales, as with the hotels and all these other guys showing "higher sales" or "higher occupancy," remember in the end it comes down to profit. Anyone can goose occupancy or "sales" with huge discounts. Many hotels [REVPAR] are dropping prices 30%+ to drive occupancy, and stores have been slashing prices to draw in sales. That's different from earnings.

We say this all the time, but all people worry about at this moment is seeing the percentages "improve" no matter what it means on the bottom line. For now that's good enough. And the ability to chop so many heads has allowed for profits (or losses) to stink, but be "better than expected". The bar is very low now, but at some point, the bar will change. Knowing when is impossible - it's all about sentiment.

The conversation shall now shift from "will there be a recovery?" (of course there always will be) to "what shape will it be?" I see nothing to change my stance even with an avalanche of sickening policies to urge consumers with debilitated balance sheets to continue to "spend like the good ole days". After this bounce from unsustainable -6% GDPs, I expect a lot of blah as we move to the new normal. This should supress PE multiples but indeed the exact opposite is happening at this moment.

My trusty DayStar Technologies (DSTI), Ascent Solar Technologies (ASTI) barometer worked again - they explode upward, and always within 1-3 days, solar stocks and the market overall falters. We'll see where Goldman Sachs / Treasury believe is an appropriate level to put the S&P 500.

Disclosure: Long Allegiant Travel in fund and personal account

Source: Building Allegiant Travel Position on the Way Down