Monday, June 09, 2014

Airlines Stocks Go Ballistic Courtesy Of The Renter Capitalist Bubble-rama


For anyone with any kind of memory beyond the last handful of years, the airline industry is the going out of business industry sans Southwest and a few regional discount carriers.  This industry has never consistently made any money. 

At one time sanity prevailed and the government recognized that profit was not easily achievable.  Living wages were paid and since there was little competition to mitigate price gouging and exploitation, democracy regulated the industry.   Maybe there were better solutions but having a transportation industry always in flux and on the verge of collapse probably isn’t practical for overall national security, commerce, society and business continuity interests.

Today, we once again have a monopoly in the airline industry.  Except this time it is a deregulated monopoly.  That means democracy is at the mercy of corporate capitalism, corporate control and corporate rent-seeking behavior.  So, airlines have followed suit with railroads and countless other industries.  They have little, if any, competition and collude to set prices and prey upon society.   They have taken away all excess supply and thus are now extracting massive amounts of rent for the very controlled supply that is now available.   Personally, I’d rather just ditch airlines for domestic travel and build a high speed national public transportation system similar to Japan.  But that is neither here nor  there. 

The question is if this strategy of deregulated airline monopolies will work.  Is it really different this time?   For consumer travel, it clearly will not over the long run.  People will simply limit or quit traveling depending on income.  No family of four is going to fly to Disneyland for $3,000 round trip airfare.  Especially with so many poverty wages and stagnant income growth.  Businesses will develop alternative means to flying whether that is videoconferencing or whatnot.  Additionally, the airline industry is very tied to globalization for its profits. International corporate travel is a large source of profit.  I wouldn’t be betting on that market as noted in a prior Boeing post. 

Domestic airline travel has shown substantial signs of weakness through travel data provided by airports and by the Bureau of Transportation Statistics.   But that hasn’t stopped the renter capitalists from manipulating these stocks to the moon.  Delta, whose chart is shown above, has seen a massive, low volatility (manipulated) perfectly linear-regression rise in the last year or so.   In the past month or so, it has actually increased its rate of ascent, starting what is most certainly its blow off and ultimate implosion.  It’s not alone in the airline sector.  American Airlines, as another example, is up about 800% in a little over a year.  These massive bubbles have pushed the Dow Transports to staggering bubble land.  

Delta is trading at a whopping 35x free cash flow.  That is the definition of insanity.    Historically, if there was any cash flow at all, Delta may have traded at a very, very small fraction of this number as profits and positive free cash flow were clearly understood to never be sustainable.   To give some comparative to other looney valuations of today, Apple, a company I noted was once trading at more than all stocks in Greece and Italy and was closing in on the value of all stocks in Russia, is only trading at 14x free cash flow.   But this really has nothing to do with any type of analysis.  It’s simply another outcome of the destruction of money that we are in the midst of.

The stock market is completely unglued from reality whether we are talking about Apple or Delta or frankly, anything else.   The Federal Reserve, Wall Street, financial predators, renter capitalists and the investor class have created a bubble unprecedented in its breadth and valuations.   Life today is a bubble created through the artificial illusions of political and corporate idiots.

posted by TimingLogic at 1:07 PM