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David White
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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • Short Airlines in the European No Fly Zone

    The Icelandic Eyjafjallajoekull volcano started erupting for a second time in a month on Wednesday April 13, and it has erupted consistently since. The winds pushing the volcanic ash over Northern and Central Europe are supposed to continue until Monday at least. Most Northern and Central European airports are scheduled to be closed until Monday (based on the latest predictions).

    The eruptions have no expected end date. They may go on for weeks or months. Whenever the wind blows toward Europe, the airports may close down. The air is at least mildly hazardous to your health. Many businesses will be hurt, especially the tourism business. Who would schedule a trip to Europe with the large possibility of ash in the air? How could one enjoy the lively atmosphere of the sidewalk cafes, when they are deserted due to ash? Could you enjoy your food with ash in it? Could one enjoy seeing ash laden tulips in the Netherlands? The short term damage is measurable. The long term damage may be. The volcano could stop near term, but who would have faith in that? We are in for at least 3+ months of fear at least. We may in reality see 3+ months or more of these “ash filled” conditions with the wind blowing the ash at its whim over Europe.

    With this in mind, one has to think the airlines will be dramatically effected. They are losing $200M/day currently. By the end of Friday they had already cancelled 20,000+ flights. The US airlines will be negatively effected, but the European airlines will be devastated. Initial estimates of costs to the airline industry are $200M/day.

    The airlines’ equities have rallied recently beyond reasonable values on expectations of profits. Now they may see their expected profits turned to losses overnight. One has to believe this will push them downward. The table below shows some pertinent data for three big European airlines: British Airways (OTC:BAIRY), Air France - KLM (OTC:AFRAF), and Lufthansa (OTCQX:DLAKY). I have included AMR for comparison.

     

     

    Stock

    BAIRY.PK

    AFRAF.PK

    DLAKY.PK

    AMR

    Current Price

    $36.16

    $15.90

    $17.24

    $8.79

    1 yr. Target Price

    $46.00

    N/A

    $21.10

    $12.86

    PE

    No Earnings

    No Earnings

    No Earnings

    No Earnings

    FPE (FY2011)

    278.15

    No Earnings

    57.47

    18.70

    Mean Recommendation

    1.0

    --

    1.0

    2.0

    FY2010 EPS Est.

    -$4.52

    N/A

    -$0.19

    -$0.63

    FY2011 EPS Est.

    $0.13

    N/A

    -$0.30

    $0.47

    FY2010 Revenue Estimate

    $12.14B

    N/A

    N/A

    $22.40B

    FY2011 Revenue Estimate

    $12.67B

    N/A

    N/A

    $23.88B

    Fiscal Year End

    March

    --

    December

    December

     

     

    I apologize for the lack of data, but much of the data I wanted was not available on Yahoo and TD Ameritrade. AMR has a debt to capital ratio of 142.51% (MRQ). I checked British Airways on the London Stock Exchange. That shows British Air has a net debt that is roughly 3 times the market capitalization. It appears to be in even worse shape than its American counterparts. It has been fighting a strike recently. With this latest news, it is hard to believe that this stock will be able to justify its price. Although I have not looked, Air France - KLM and Lufthansa are likely in roughly the same boat.

    This new volcanic activity in Iceland gives every indication it may be a long term problem. It has already hurt airlines. It will hurt them much, much more. There is the actual business. Then there is the future business of those vacationers who try Mexico, Central America, South America, and Australia/New Zealand as alternative destinations. They may discover they prefer those regions. The Olympics are coming to Rio de Janeiro. Many may take that as an invitation to pre-screen the area. Mexican and Central American beach areas are already loved by huge numbers. Rio is famous for its beaches. These areas may get more business still.

    The above 3 stocks are good shorts. Unfortunately, you cannot short OTC Bulletin Board securities. If you own them, I would strongly suggest selling them for now. You can always buy them back if you so decide. If you want to short them, you will have to short them on their individual exchanges. British Airways trades on the LSE under the symbol, BAY. Air France - KLM trades under the symbol AF on the NYSE Euronext. Lufthansa trades on the Xetra and the Frankfurt Stock Exchange. You will have to consult your broker about how best to access these systems.

    If you are only interested in US traded stocks, you might look into AMR, CAL, and UAUA. They all have substantial European routes. They all are heavily indebted with little or negative book values. Ryanair (NASDAQ:RYAAY) is another stock that is getting hurt badly in Europe. However, it has a debt/capital ratio of only 48.57% compared to the much higher ones of AMR, UAUA, and CAL.

    Good luck trading.



    Disclosure: no positions at this time.
    Tags: RYAAY, AAL, UAL, UAUA
    Apr 18 4:35 AM | Link | Comment!
  • The Short Term Euro Direction Seems To Have Changed To Upward
    The EU has very slowly and painfully been coming to a resolution about the Greece debt problems. This weekend they agreed on a more concrete bailout package. They will float loans to Greece for up to 30M Euros at 5%. The IMF will provide another 15M Euros of loans at 5%. The Greek CDS spread rates are already down considerably in reaction to this news. This bodes well for the near term performance of the Euro. The FXE chart below indicates that a short term upward trending bottom may have been reached.



    This could be the start of a bigger turn, although some economic indicators argue against that. Still it seems likely to be at least a short term move up of the FXE to the $137.50 level. The FXE is just passing through its 20-day moving average, and its 50-day moving average seems likely to be penetrated to the upside soon. We will all have to wait for further developments to try to predict much more. Pundits as famous as Jim Rogers and George Soros are saying the FXB should go down longer term (it has been rising recently). This likely means the Euro will go down in sympathy. I wouldn't care to argue with them without a lot more evidence to go on.

    Good luck trading.


    Disclosure: no postions at this time
    Tags: FXE
    Apr 12 6:26 AM | Link | 4 Comments
  • GLD Just Broke Above A Significant Resistance Level
    We have had a lot of good economic news lately. The auto sales in march were better than expected. The jobs numbers were lower than expected, but they did not include as many Census jobs as had been predicted. The "core jobs number" was actually higher than expected. The ISM numbers were great. Bond yields and commodity prices have been going up, but not too much (i.e. some inflation). Plus the EU seems to have come to a more "real" bailout solution for Greece this weekend. This is great economic news for Europe. This would all seem to mean that gold is going higher in the near term. The GLD ETF chart would seem to give credence to this thesis. See below:



    It indicates that GLD has just broken through a significant resistance point. With the good economic news on many fronts (for example, South Korea just upped its GDP estimate for 2010 to 5.2%), there doesn't seem to be a good reason that GLD should not rise higher. The chart would seem to indicate it will. The chart indicates that the next stage of upside should be clear sailing to the $119 to $120 range. You can place a stop at approximately $112 to play this upside move. GLD may go higher than $119 to $120, but we will have to wait to evaluate the GLD situation and the economic news at that time. For now the near term move looks like a good play. If the economic news turns dramatically sour with earnings, that would change this outlook.

    Disclosure: no postion at this time.
    Tags: GLD
    Apr 12 6:02 AM | Link | 3 Comments
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