Free Markets and Wall Street by Charles Payne - Wall Street Strategies -- Seeking Alpha

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Free Markets and Wall Street by Charles Payne 0 comments

Sep 17, 2009 01:31 PM | about stocks: AMR, C, EK
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“Love and marriage, love and marriage
It’s an institute you can’t disparage
Ask the local gentry and they will say it’s elementary
Try, try, try to separate them, it’s an illusion
Try, try, try and you only come, to this conclusion”
-Frank Sinatra
This is how capitalism works. Today, shares of several battered companies all made moves that underscore how American-style capitalism is supposed to work. It’s not unlike love and marriage, where you can’t have one without the other. The deals represent the prices paid for miscalculations and also the reward for having cash when others need funding. In the new world order, it’s the other way around. Those that were smart, frugal, or even lucky enough to do the right thing to have cash are being portrayed as scoundrels while those that went in over their heads or miscalculated are deemed worthy of bailouts. This is true in the business world and non-business world.
Today’s Deals
- American Airlines (AMR) announced that it raised $2.9 billion in conjunction with plans to consolidate business operations. The company raised $1.0 billion through the advance sale of the AAdvantage frequent flyer program to Citigroup (C), another $280.0 million from a unit of GE Capital (GE), and $1.0 billion via a sale-lease back deal with a different unit of General Electric.
- Eastman Kodak (EK) raised $700.0 million in deals announced this morning. The beleaguered company is raising $400.0 million through senior notes due in 2017 to KKR, which also will get warrants to purchase 53,000,000 shares (not sure of strike price) and two seats on the board. Eastman Kodak also raised another $300.0 million in a private placement with institutional investors. One of the biggest worries of investors was Eastman’s ability to pay notes that were redeemable a year from now; management will use $575.0 million in proceeds today to buy those notes back.
This is how things work; once again those evil Wall Street investors come to the rescue. How many people could have lost their jobs at American Airlines or Eastman Kodak without today’s actions? This is something that the White House really needs to ponder unless they plan to be lender of only and last resort for the entire nation (if so, better get more printing presses and pass out wheelbarrows). By the way, Eastman shares are getting hit because they gave up a lot and many speculators were looking for an outright acquisition. Hey, it beats going out of business. At the end of the day, we have to remember that companies mostly get in trouble by becoming complacent and not assessing risks; and still sometimes they go out of business. That is not happening with the names mentioned above, but if they are in trouble and the free markets can’t, or won’t, come to the rescue, then that’s the way it’s supposed to be.

Charles Payne is the founder and chief analyst of Wall Street Strategies (www.wstreet.com). He is routinely sought after by prestigious news organizations for his stock market, political, and general opinions. For more information about Mr. Payne, refer to the company's website, www.wstreet.com.

Stocks: AMR, C, EK

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