« Just Another Manic Monday »

Dow down 800 points only to rally in the last 45 minutes to close down 370 points to just under 10,000. The Dow rose above 10,000 in 1999. Here we sit in 2008 at the same levels. Of the 3,500 or so stocks traded on the New York Stock Exchange, 1,700 traded at 52-week lows today while 1 stock traded at a yearly high. On the NASDAQ, 1,100 stocks traded at 52-week lows and 3 traded at highs. Oil traded down $6 and change per barrel to $85 and change, and the dollar to euro ended at 1.35+. (The relationship of oil prices and the strength of the dollar is proving quite meaningful)

Back in July I wrote about Leverage Detoxification: Banks and Airlines. Today’s analysis of the market’s activity can only highlight the deleveraging/unwinding well underway with no real sense – yet - of where the bottom just might be found. The same might be said of what is going on in the airline industry. But, the airline industry’s problems pale in comparison to what is happening in the US and global financial markets.

Today I heard it said that deleveraging the markets could lead to disinflation. This would be a very bad outcome. It was not that long ago that we were talking about stagflation as oil prices were marching toward unimagined levels while the global economy was showing every sign of the slowdown that now appears on every continent’s doorstep.

So as we search for the bottom in the markets, analysts will say that heavy volume on the down side is critical before the real buying can begin. In Wall Street terms, capitulation is the term that market strategists refer to when all investors sell all of their stocks just to get out when it appears there is little hope of profiting by holding the instrument. We do not see this activity as of yet.

Wall Street observers are referring to the market’s current activity as a “Buyer’s Strike” – meaning that they are neither buying nor selling. It is a buyer’s strike for air travel that makes me very nervous right now as I cannot imagine just how many airline tickets have been bought over the past 5 years with proceeds from home equity loans and lines of credit.

So, on this Manic Monday, Sun Country files for bankruptcy protection with very little cash. They join Frontier in reorganization. I would not want to be in either carrier’s shoes. But then again, I would not want to be in any airline’s shoes that might be forced to file. In the case of each Sun Country and Frontier, both carriers have loyal local followings but add very little to the overall air transportation system. Just as Lehman Brothers was determined to not be vital for tomorrow’s Wall Street, neither Sun Country nor Frontier is vital to tomorrow’s airline industry.