Here’s a company that will require a little risk taking but can give you a return well above the long term stock market average of 10% a year, in fact 34% a year, and you can do it in a bond not a stock. That means you will know exactly what you will make, to the penny, before you invest.  In my experience, this requires a lot less risk than the
average stock investment.

The story goes like this.

A group of very savvy bankers got together and found a way to make money on airliners; 777’s, Airbuses, etc. They buy the airliners from the manufacturers, Boeing (NYSE:BA), Airbus, and then lease them to airlines all over the world, not just the rude, inefficient ones here in the U.S. That’s not fair, Southwest isn’t rude or inefficient.

The bankers make their money on the spread between what their loans cost them to buy the airplane and what the airlines pay to lease them. These are very long leases and have been very profitable for the bankers.

The planes are leased to the best airlines in the world and they make up most of the newer planes in their fleets. The planes you hear about that are being retired for cutbacks are not the leased airplanes. They are the older less efficient models.

The airlines love this arrangement because it takes all kinds of debt issues off their hands and they have a known cost going forward for an airplane. Maintenance and repairs are their problem, but their balance sheets are not loaded up with billions of dollars of depreciating aircraft that will eventually be worthless.

The bankers love it because they make a ton of money for basically pushing paper, which is what bankers do best. Sounds like a win-win, doesn’t it?

Here comes the risk part. This company that leases airplanes is owned by AIG. Yuck!

Wait, this is the only profitable division of AIG and lots of people want to buy it. There was a five billion dollar buyout offer this past weekend. But it’s still owned by AIG, right?

This is where you have to be willing to bet on the winning portion of AIG and take a little risk. Consider this strategy.

There is a very short maturity bond from the company, which is called International Leasing, which will give a great current yield for a few years, 8.51% and a very nice capital gain, 54.8%.

The short maturity limits our market risk because we aren’t marrying this one for 20 years or more, less than four years. It also carries an investment grade rating of BBB+, which gives us a lot of credit quality to bank on.

Here is the actual bond;

International Leasing, BBB+, cusip 45974va73, coupon 5.5%, cost 64.6, or $646, maturity 9/5/12, or about 40 months. The current yield is 8.51% (5.5/646) and a total return of 114% (capital gains $354 and seven interest payments of $55 divided by your cost of $646). That’s an annual return of 34%.

34% a year from an investment grade bond! You have got to be kidding me!

Yeah but, what if AIG goes under? That’s where the fact that International Leasing is one of the only profitable divisions, if not the only profitable part of AIG, comes in.

There are lots of people who want this company. If anything I believe AIG will milk it for a big sale price or continue to run it for the revenues. It’s a cash flow cow.

A very profitable company that many people want to own that happens to have a bum for a parent. The real question is will International Leasing be in business in 40 months? The answer is yes and this bond will be fine.

As with all investments, limit how much you have in any one bond.

This is exactly the type of strategy I send out every week in the Bond Trader and will be presenting at the Gloom and Boom Conference in Miami June 5, 6 and 7. Click on the link for all the details.

Good luck.

Source: Judging Risk

American Airlines, Continental and Delta have all announced cutbacks due to rising fuel costs.

Consumers are also being squeezed. USA Today reports that summer airfares in the US are set to rise by as much as four times thanks to spiraling oil prices.

“The sector-wide downturn is pretty textbook,” says Theo Casey in Fleet Street Daily.

Airliners tend to suffer most in a weak economy. The airlines biz is very cyclical, i.e. very sensitive to the business cycle. Revenues tend to pick up in times of economic expansion, and fall in periods of economic contraction. Airliners also are at the mercy of the oil markets, which are at all-time highs.

This isn’t just a recession. This is a recession combined with the raw asset prices getting too high to handle. Lower revenues were already on the cards with the threat of UK, US and Eurozone recessions. But throwing in oil prices that range from $125 – $135 a barrel, the problem is made much, much worse.

In terms of affordability, air travel has flown in the opposite direction of things like higher education, houses, and designer jeans,” says Andrew Gordon in Investor’s Daily Edge.

People have to fly. And, globally, it’s inevitable that they’ll be flying in greater numbers. Higher prices may slow this trend, but it won’t reverse it. Flying is already taking off in Asia. For example, China’s domestic airline industry is just a fifth of the size of the U.S.’ domestic market, but it’s growing much faster. In 20 years time, it’ll be about half the size of the U.S. market.

And market liberalization is in the air. Many more markets will soon receive a strong boost as governments ease regulations. New Open Skies agreements between the European Union and the United States and Canada are a start. Further market reform will open up Asian and North African markets. The result? The global airline industry will outperform the world economy in the coming years.

The airline industry isn’t so much broken as it is overcrowded. It’s mainly a matter of too many seats available for too few customers. If the industry continues to consolidate, supply and demand should rebalance. Then investors will be able to focus on the solid fundamentals of the industry – reasonable prices and growing demand.

Of course, once explained the answers are obvious. The planes we see flying above us, whether military or commercial, are pretty old and inefficient. New fuel-efficient and eco-friendly ones are badly needed. And that is why we’ve noted this in our diary, because new planes use a lot of titanium… and this commodity is becoming increasingly more valuable.

US giant Boeing is pretty optimistic in its current market outlook. It sees new planes making up 80 percent of the 36,400 airplanes that will be in service in 2026.

Both Boeing and Europe’s giant, Airbus, see huge demand for planes coming from Asia-Pacific. The market is described as dividing up on the lines of 31% Asia-Pacific, 27% North America and 24% Europe. Then by 2026 the emerging countries of Argentina, Brazil, South Africa, with around 3bn people, will also want more planes.

Titanium is magic for aircraft manufacturers. It is corrosion resistant and has the highest strength to weight ratio of any metal. It is as strong as steel but 45% lighter. It occurs in the earth with a number of mineral deposits, principally rutile and ilmenite.

It was discovered in Cornwall in 1791 by amateur geologist and pastor William Gregor, then vicar of Creed parish. Uses have been found for it at a slowly increasing rate. Now it is more fully appreciated, supply is forecast to stay steady (or fall) but demand is expected to rise sharply.

As usual China’s position is key

The titanium minerals market was in deficit last year. As usual with metals and minerals, China’s position is key. It is no longer an exporter. Plus energy shortages in South Africa, producer of 27% of the market, are cutting supplies from there.

While the US has been using less, China has been using more. And whilst titanium’s toughness makes it such a popular alloy for metals, it also goes into paints, coatings and plastics – where its anti-corrosive properties are a winner.

Asia is the fastest growing market with projections of future growth rates of 6-7% a year. China, which has a demand of 650,000 tonnes per year, is seeing growth rates of 10% a year and above – according to producers. The largest amount of titanium consumption is in paints and coatings, followed by plastics. Analysts forecast that China will represent 17% of global consumption by 2010-2011.

India is the next power house with growth rates of 8-10% per year while demand in southeast Asia is growing at a healthy 4-6% per year. Vietnam also has strong growth but from a small base.

Prices of Chinese imports of ilmenite, the main feedstock for titanium, have risen by around 50% so far this year. With global demand for titanium minerals expected to rise by 3.6% this year on average, more price rises seem on the cards. Apparently, a lift of 1% in Chinese GDP results in a 2.2% lift in titanium consumption.

A little Irish one to watch

A little producer that we’ve been watching, although it is still very early days, is actually an Irish company, quoted in Dublin and on AIM. This is Kenmare Resources. Last year it produced 86,000 tonnes of ilmenite, but this is forecast by broker Canaccord to leap to 541,000 tonnes this year and 747,000 next.

So that means, says Canaccord, that it should soon be making reasonable profits — from losses of nearly US$10m last year – to break even this year, and then on to profits of US$19m in 2009, with US$79m in 2010.

By Erin Hamilton and Isabel Turner

Source: Titanium Is Flying High

“The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity,” the policymaking Federal Open Market Committee (FOMC) said in the statement announcing the interest-rate move. Central bank policymakers also said that “recent information indicates that economic activity remains weak” before going on to say “uncertainty about the inflation outlook remains high” and noted that the Fed would continue to monitor both economic growth and inflation closely.

The Fed launched this rate-cutting campaign on Sept. 18, not long after it became clear that the U.S. subprime mortgage meltdown was having a global impact. The reason: Banks in Germany and France had – for whatever reason – invested in debt obligations that were backed by subprime mortgages. And when the subprime market blew up, so did the holdings at those foreign banks.

Before the crisis broke, and even in its early weeks, Fed Chairman Ben S. Bernanke and other U.S. leaders repeatedly maintained that the problem was limited in scope and that no real “crisis” would evolve. Today, an estimated $312 billion in write-downs and credit losses later, the central bank has slashed interest rates seven times and helped engineer the bailout of The Bear Stearns Cos. (BSC) by JPMorgan Chase & Co. (JPM).

Yesterday marked the seventh time since mid-September that the U.S. central bank reduced the Federal Funds rate, the interest rate that banks with excess reserves charge one another for overnight loans. The Fed Funds rate also serves as the benchmark for the Prime Rate, the base rate that commercial banks use to price loans to their best and most-credit-worthy customers. Wachovia Corp. (WB) and other lenders pared their Prime Rates by a similar quarter point – reaching 5% – shortly after yesterday’s Fed action.

Stocks soared in early trading. But then the markets shed those gains following the announcement of the expected quarter-point cut and ended mostly flat. The blue-chip Dow Jones Industrial Average Index was down 11.81 points (-0.09%), to trade at 12,820.13. The tech-laden Nasdaq Composite Index shed 13.30 points (-0.55%), to reach 2,412.80. And the broader Standard & Poor’s 500 Index decreased 5.35 points (-0.38%), to hit 1,385.59.

“The markets pretty much knew what was coming and what we wanted to see were the changes in the statement,” said Joel Naroff, president and chief economist of Naroff Economic Advisors, in a note to clients. “There were some, but the Fed still left itself plenty of wriggle room to do what it pleased.”
 
Central bank policymakers have slashed the Fed Funds rate by a total of 3.25 percentage points from its starting point of 5.25% level in mid-September, and the comments that accompanied yesterday’s announcement seemed to indicate the committee was content to step back and allow rate reductions to work their way through the U.S. economy.

The committee also reduced the lesser-known Discount rate (the rate charged at the Fed’s discount window) by a quarter point to 2.25%.

A Look to the Future

The committee did leave some room for future cuts by stating it “will act as needed to promote sustainable economic growth and price stability.”

Some analysts took the statement as a clear signal the Fed plans to pause.

“We do not expect to see a rate cut at the next few meetings without a substantial contraction of the economy,” Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told Bloomberg News. “We are not yet to Memorial Day weekend, but the Fed effectively told us today to take the summer off.”

But the language was ambiguous enough to leave the statement open to some interpretation.

Ian Shepherdson, North American economist at High Frequency Economics, sees it differently. The Fed may “intend” to stand back and take a breather, but if a series of reports show that the U.S. economy is weakening, all bets are off.

“If the data deteriorates further, as we expect, the Fed will ease again,” Shepherdson said in a note to clients. “Today’s statement is important – [but only] today. Tomorrow, the numbers are back in charge.”

Steve Gallagher, chief economist at Societe General SA (OTC: SCGLY) in New York, called the statement a “soft non-binding pause.”

Not a Unanimous Move

Two FOMC policymakers reprised their dissenting votes. Both Richard Fisher, president of the Federal Reserve Bank of Dallas, and Charles Plosser, president of the Federal Reserve Bank of Philadelphia, had opposed the last rate reduction. Yesterday, they were again the only voices of dissent against yesterday’s rate cut, opting instead to hold rates steady.

“The two dissents show they are still worried about inflation,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Holdings Inc., told Bloomberg “This is a Fed ready to watch from the sidelines.”

Playing to a Global Marketplace

The real question investors have now is this: What happens next?

Whatever the answer turns out to be, it’s almost certain to have a global spin – and a global impact. And that answer is likely to contain two other terms: Inflation and the dollar.

In its commentary, the Fed did warn that “some indicators of inflation expectations have risen in recent months.”

Indeed, many would argue that the Fed itself – with its ambitious rate-cutting campaign – has actually fueled domestic inflation and exacerbated the decline of an already weak greenback.

Here’s why some analysts believe that. The central bank’s preferred inflation barometer – the personal consumption expenditures price index – rose at only a 2.2% annual rate in the first quarter. But that indicator excludes food and energy prices – the most volatile and steeply climbing portion areas in the U.S. economy.

Officially, the U.S. inflation rate stands at about 4%, though many experts – including Money Morning Contributing Editor Martin Hutchinson – believe the actual U.S. inflation rate is much higher.

In fact, with yesterday’s latest rate cut by central bank policymakers, anyone who has closely followed the steep-and-steady increases in energy, food prices, commodities, healthcare, and a university-level education may find it tough to argue that prices aren’t headed even higher, still.

Because interest rates abroad are higher than they are in the United States, capital has moved out of the U.S. market and into the higher-yielding regions. The result: The dollar has dropped precipitously.

The fact that most central banks abroad have held rates steady even as the Fed pared U.S. rates has only exacerbated the greenback sell-off.

Indeed, the interest-rate reduction could set in motion a series of diverse global events that will impact such seemingly unrelated areas as European inflation, global food prices, the U.S. dollar, American exports, and the already chilly relationship between the European Central Bank (ECB) and the government of France.

For any of this to happen, however, the Fed first has to act. Most observers believe the U.S. central bank’s policymaking Federal Open Market Committee (FOMC) will reduce the Federal Funds rate for the seventh time since mid-September, dropping the benchmark borrowing cost from 2.25% to 2.0%.

According to many experts, the Fed’s timing will be excellent. Economists have increasingly come to believe that the U.S. economy is probably in a recession already, although most await more-certain evidence before actually making the pronouncement.

Some of that evidence could come out today. U.S. stocks traded in a narrow range yesterday (Tuesday) as the market awaited two important announcements: The advance estimate of U.S. Gross Domestic Product (GDP) and the central bank’s rate-reduction decision – both due out today.

“Another large batch of companies has reported quarterly earnings results, but overall, they have failed to move the needle that much as the market is in a wait-and-see mode ahead of the GDP data and the FOMC decision on Wednesday,” Patrick O’Hare at Briefing.com Inc. told the AFP news service.

There are some strong dissenters.

“There is no reason why the Fed should be cutting rates right now,” Richard Yamarone, director of economic research at Argus Research Corp., told MarketWatch.com.

What Tales GDP Doth Tell

Although GDP is a lagging indicator, analysts anxiously await the report since it will demonstrate whether the U.S. economy is as weak as many believe. According to a Reuters‘ poll, first quarter GDP is expected to clock in at a sluggish 0.2%, down from a 0.6% growth rate in the fourth quarter. Reuters developed the consensus estimate by averaging 89 predictions, which ranged from contraction of 0.8% to growth of 1.5%.

Most analysts, including those at UBS AG (UBS) and Lehman Brothers Holdings Inc. (LEH), felt March’s surprisingly strong durable goods orders and an increase in inventories would tip the balance in favor of slim growth in the first quarter. However, analysts did note that inventory increase could signal weakness ahead, especially if not supported by the accompanying increase in sales needed to create the “sell through” that would keep additional inventories from piling up.

“A $5 billion accumulation of [inventories] would add almost a full percentage point to GDP growth and, in our forecast, constitutes the difference between a positive and a negative result,” RBS Greenwich Capital said in a note to clients.

A positive GDP estimate, however slight, could mean the U.S. economy is poised to skirt a true recession. The textbook definition of a recession is two consecutive quarters of negative GDP growth.

But the weak GDP estimate, which will be announced early this morning, could prove the justification the FOMC needs to recommend another rate reduction this afternoon.

CME Group Inc.’s (CME) Chicago Board of Trade futures are pricing in an 82% chance that the FOMC will recommend the U.S. Federal Reserve make a quarter point cut, bringing its key interest rate down to 2.0%. When the Ben S. Bernanke-led central bank started its rate-cutting campaign last year, the Fed Funds rate stood at 5.75%.

And if policymakers do order the rate-reduction, most analysts believe it will be the last one for awhile; those same CBOT futures indicate a 71% chance that the Fed will hold the line on interest rates when the committee meets again in June.

“The direction of Fed policy hangs in the balance, and there are people like me that hope the central bank quits sooner rather then later,” Jack A. Ablin, chief investment officer at Harris Private Bank, told The New York Times.

But here’s where the global wild cards come into play.

When Everything’s Wild

With its ambitious rate-cutting strategy, the Fed has stoked domestic inflationary pressures and helped accelerate the decline of an already-sinking dollar.

Officially, the U.S. inflation rate stands at about 4%, though many experts – including Money Morning Contributing Editor Martin Hutchinson – believe the actual U.S. inflation rate is much higher. In fact, anyone who studies the sharp increases in energy, food prices, commodities, healthcare, and a university-level education may find it tough to argue that prices aren’t headed higher.

Even with a bit of a rebound, of late, the dollar is down more than 7.3% against the euro in the past six months, 12.35% in the past 12 months and nearly 28% in the last 54 months. The greenback is down substantially against other key currencies, too, and that’s helped fuel a massive run-up in the cost of energy and food-related imports – all highly inflationary for U.S. consumers.

At the same time, however, the cheap dollar has made U.S. exports very competitive abroad. Indeed, for foreign buyers of such big-ticket products as Boeing Co. (BA) jetliners, the plunging dollar has served as a global blue-light special. Boeing’s bureaucratic arch-rival, Airbus SAS, hasn’t been able to compete, and a week ago was actually forced to raise prices on two of its commercial jets – citing rising steel prices and a falling dollar as the two key causes.

On Sunday, French Economy Minister Christine Lagarde said the gap between the U.S. and Eurozone interest rates was way too large, and called for a change in interest-rate policies – either by the Fed or the European Central Bank (ECB).

The U.S. Fed has been slashing rates to jump-start economic growth while also keeping a horrid housing market from putting the entire economy to sleep. The ECB, by contrast, has kept rates high to combat inflation – even though that strategy is pushing Europe into an undesirable slowdown.

“We are in a delicate situation where we have, on the one hand, an American Federal (Reserve) which has a policy of very low rates and a European Central Bank which has maintained high interest rates,” Lagarde told LCI Television and RTL Radio, the global wire service Reuters reported. “The differential in interest between the two, it seems to me, is a little too big at the moment.”

Paris has long been a vocal critic of what French President Nicolas Sarkozy has termed the ECB’s overly narrow focus on fighting inflation. But Sarkozy and Co. have been criticized by both Germany and the ECB for attempting to meddle in the business of a supposedly “independent” central bank.

But if the central bank does pare short-term interest rates, it’s likely to be the last such move in awhile; the Fed will take a break and give its rate cuts a chance to work their way through the U.S. economic system.

Despite an active-economic-calendar schedule this week – which includes a report on first-quarter gross-domestic product, and several other statistics that could confirm that the U.S. economy is entrenched in a recession – the Fed’s machinations should dominate this week’s headlines, given that the central bank’s interest-rate-setting arm is set to meet Tuesday and Wednesday.

Any announcements about interest rates will be made at 2:15 p.m. Wednesday. Experts also say that whatever the Fed says about its expectations will be just as important as what it actually does to the benchmark Federal Funds rate.

“I don’t think there’s any question that they’ll cut [a quarter-percentage point] off the rate,” David Rosenberg, chief economist for Merrill Lynch & Co. Inc. (MER), told The International Herald Tribune. “The real question is what they say about the future. It won’t be an ‘all clear’ signal. But they’ll find a way to tell the markets that they’ve done enough for now, simply put.”
Not everyone agrees.

“There is no reason why the Fed should be cutting rates right now,” Richard Yamarone, director of economic research at Argus Research Corp., told MarketWatch.com.

Yamarone may be thinking back to some of the public comments certain of the central bankers themselves have been making.

Back on April 18, Fed officials hinted that they would be reluctant to cut the benchmark Federal Funds rate yet again, given that the slumping U.S. economy also faced a major inflationary threat. Indeed, Philadelphia Fed President Charles Plosser warned against believing that interest-rate cuts were “the solution to most, if not all, economic ills.”

Plosser is one of the Fed’s major anti-inflation hawks At the time, Plosser was merely the latest in a string of policy-makers to warn about the rising risks of inflation, essentially suggesting that another rate cut would probably be a very tough sell.

In a speech at Drexel University’s LeBow College of Business in Philadelphia, Plosser said real interest rates were now at “an accommodative level, meaning borrowing costs were low enough to start boosting the U.S. economy’s growth rate back toward its normal historical norm, Reuters reported.

The futures market is projecting a Fed Funds rate of 1.75% by the end of this year. Here’s a look at the futures market’s month-by-month expectations for short-term borrowing costs for the remainder of 2008:

• April: 2.17%.
• May: 1.89%.
• June: 1.85%
• July 1.79%.
• August 2008: 1.76%.
• September 2008: 1.76%.
• October 2008: 1.77%.
• December 2008: 1.73%.

The worries about inflation that Plosser and other inflation hawks have are very real. And those concerns don’t exist solely on our side of the Atlantic. The low U.S. rates are contributing to a weakness in the greenback that’s sent the American currency to record lows against most other key world currencies. That’s fueling a massive run-up in the cost of energy and food-related imports – and that’s inflationary for U.S. buyers.

But it’s made U.S. exports very competitive abroad, acting almost as a big discount for foreign buyers of such wares as Boeing Co. (BA) jetliners. In fact, just last week Boeing surprised Wall Street with record earnings and announced a record order backlog. And pan-European arch-rival Airbus SAS., was forced to announce a price increase on several  of its commercial airliners – because of rising steel prices and because of the falling dollar.

French Economy Minister Christine Lagarde yesterday (Sunday) that the gap between the U.S. and Eurozone interest rates was way too large, and called for a change in rate policies on one side of the Atlantic, or the other.

“We are in a delicate situation where we have, on the one hand, an American Federal (Reserve) which has a policy of very low rates and a European Central Bank which has maintained high interest rates,” Lagarde told LCI Television and RTL Radio, the global wire service Reuters reported. “The differential in interest between the two, it seems to me, is a little too big at the moment.”

Paris has long been a vocal critic of what French President Nicolas Sarkozy has termed the ECB’s overly narrow focus on fighting inflation – and has previously been criticized by Germany for meddling in the business of the “independent” central bank.

With Eurozone inflation running at about 3.6% – its highest rate since the measure for that portion of the European market began in 1997, the European Central Bank (ECB) has left its key refinancing interest rate unchanged at 4.0%, despite some very definite signs that Eurozone growth is slowing.

By comparison, the key U.S. interest rate is at 2.25%, though it may be heading lower this week, and inflation is “officially” said to be at right about 4% – though such experts as Money Morning Contributing Editor Martin Hutchinson believe the actual U.S. inflation rate is actually much higher.

Although the FOMC meeting is likely to top the economic the economic news of the week this week, the GDP report will come in a fairly close second and will be nearly as closely watched by some experts. The reason: Many eternal pessimists are expecting the report to show negative growth during that three-month period.

Why is that important? Simple: According to the National Bureau of Economic Research (NBER), two consecutive quarters of negative growth constitutes a recession.

Most folks “feel” like the U.S. economy is already in a recession. An official designation by the NBER – which usually comes well after the fact – would simply make it official.

In the meantime, some of these other reports this week could help serve as an interim and unofficial “confirmation” of that dour diagnosis of the U.S. economy:

• The health of the manufacturing sector will get a solid assessment via Thursday’s release of the much-watched ISM survey and Friday’s report on factory orders.
• The all-important U.S. labor markets will get significant scrutiny via Thursday’s report on initial jobless claims and Friday’s reports on the U.S. unemployment rate and on non-farm payroll data.
• We’ll get a bit more insight into the psyche of the American consumer with Tuesday’s report on consumer confidence for the month of April and Thursday’s report on personal income and spending for the month of March.
• And we’ll get an overview of Corporate America’s health, as U.S. energy giants Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) reveal how their profit reports have been boosted by record energy prices [likely also prompting new calls for Congressional investigations into allegations of price gouging].  Starbucks Corp. (SBUX) will follow up recent warning with an actual announcement, while Office Depot Inc. (ODP) and Radio Shack Corp. (RSH) will give investors a look inside the world of retail.

Market Matters

Two weeks ago, investors disregarded any semblance of bad news (and lately, there has been plenty) and instead took the stock indices to their highest levels in months. Last week, investors allowed the earnings releases to guide their trading activities while awaiting the Fed’s interest-rate decision and commentary.

So just what did the recent earnings reports say about the current state of Corporate America?

Financialscontinue to stoke the negativity (no surprise there) with Bank of America Corp. (BAC), investment banker Credit Suisse Group (CS), and bond insurer Ambac Financial Group Inc. (ABK) reporting more disappointing results.  Drugmakers, on the other hand, enjoyed a nice quarter with Merck & Co. Inc. (MRK) and Novartis AG (NVS) beating expectations.  While a sluggish economy can’t keep folks out of McDonald’s Corp. (MCD) (as least in its international markets), it does seem to be impacting coffee intake as Starbucks warned that this week’s results (and those for all of 2008) will miss earlier projections.  Of course, dire times lead to more nervous smoking (and higher cigarette sales) as happy Philip Morris International Inc. (PM) shareholders found out this quarter.  While cost-conscious folks stayed home and watched more DVDs, Netflix Inc. (NFLX) warned that future subscriber growth may be limited.

Both Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) posted sizable losses on skyrocketing fuel costs, leading some analysts to question the wisdom behind the proposed merger. While the world’s largest shipper, United Parcel Service Inc. (UPS), experienced a jump in profits, management expressed concern about the quarters to follow, since consumers just don’t seem quite as interested in finding out “what Brown can do for you.”  Even techs, which previously had been a savings grace for the market, turned pessimistic this week.  Apple Inc. (AAPL) and Texas Instruments Inc. (TXN) reported decent earnings, but warned about their respective outlooks.

Likewise, high-tech bellwether Microsoft Corp. (MSFT) disappointed with its profit numbers, while investors wait with trepidation to see what becomes of Microsoft’s bid for Yahoo! Inc., (YHOO). Meanwhile, Yahoo beat “The Street’s” expectations. However, the three-week deadline that Microsoft gave Yahoo to come to an agreement on its unsolicited bid passed Saturday without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile, MarketWatch.com reported.

ConocoPhillips (COP) showed that record energy prices are not hurting everyone, as the No. 3 U.S. oil company reported a 17% increase in profits.

Transactions typically imply growing confidence in corporate boardrooms as management finds the value in certain acquisition targets.  Last week, News Corp. (NWS.A) moved closer to buying Newsday and giving Rupert Murdock greater control over the New York press.

Insurance giant Liberty Mutual Holding Co. Inc. agreed to buy SAFECO Corp. (SAF) in a $6.2 billion deal that will create the 5th-largest property and casualty firm.  Triarc Cos. Inc. (TRY) soon may be adding those terrific “hot-and-juicy” square burgers and addictive Frosty drinks to its Arby’s roast-beef-sandwich menus as it looks to acquire Wendy’s International (WEN) in a deal valued at $2.34 billion. And, of course, there’s still the Microsoft-Yahoo proposal.

With a mixed week on the earnings front, stocks traded relatively flat as investors took some profits from last week’s newfound bullish sentiment, while still searching for a bargain or two.

Economically Speaking

For many Fed-watchers, the prospect for another rate cut has been a foregone conclusion.  After all, central bank Chairman Ben S. Bernanke and clan have let their creative juices flow [not to be confused with the creative juices of those Wendy’s hamburgers] over the past few months; the Fed has tried everything from the aggressive rate-cutting campaign to liquidity injections to arranging the buyout of The Bear Stearns Cos. Inc. (BSC) by JPMorgan Chase & Co. Inc. (JPM).

Suddenly, some great prognosticators believe the Fed may be “seven and done” as they drop the Federal Funds rate again (by a minimal quarter of a percentage point this time around) – before going on a “summer hiatus” to give their earlier work the time to take effect.

With oil prices hovering around the (once unheard of) $120/barrel level, some policymakers are sure to claim that inflation should be considered as critical a concern as the sluggish housing market to the U.S. economy’s health. Indeed, comments such as those of Philly Fed President Plosser make it clear that inflation is already becoming an increasingly important consideration.

Additionally, the European Central Bank seems content to keep its lending rate at 4%, so further Fed actions will continue to have devastating impact on the value of the dollar.

The economic calendar was relatively light last week as analysts rested up for this week’s vast array of important data. After a surprising climb (better known now as an aberration) in February, existing home sales plunged again in March, while new homes sales fell to their lowest level in more than 16 years.

Furthermore, the median price of a new home dropped by more than 13% last month, the largest such decline in almost four decades.

Durable goods orders fell in March, as well, although once the volatile transportation sector was removed from the equation, the results did not look half bad.

We hope that investors and analysts got plenty of rest over the weekend to get ready for the bustle of economic reports due throughout this week. Talk of recession should resume with the release of the first-quarter GDP, which many eternal pessimists believe will show negative growth during that three-month stretch.

Weekly Economic Calendar

Shares of the world’s No. 2 commercial jetliner-maker soared $3.53 each, or 4.49%, to close at $82.09 because of Boeing’s record backlog and a bullish outlook for next year. Earlier yesterday the shares touched $83.36, the biggest increase since June 2006.

Investors had pushed the stock down 15% in the quarter over worries about delays in the “Dreamliner” jetliner program, and the surprise loss of a $35 billion U.S. Air Force tanker contract to a team that included Airbus and U.S. defense contractor Northrop Grumman Corp. (NOC).

Boeing is one of the companies that Money Morning has written about repeatedly, having identified it as a so-called “Global Titan” – a company that’s positioned to capitalize on worldwide trends and that derives the bulk of its sales and profits from such fast-growing overseas markets as China. Jetliner deliveries rose 8.5% last quarter, with almost two-thirds getting delivered overseas.

Profit from continuing operations rose to $1.21 billion, or $1.61 a share, from $873 million, or $1.12, a year earlier, the Chicago-based Boeing reported. Sales advanced 4.1% to reach $16 billion. The results beat the average estimate of $1.35 per share, according to a survey of 20 analysts conducted by Bloomberg News.

Profit for 2009 will be $6.80 to $7 a share on sales of as much as $73 billion, Boeing said in its first forecast for 2009. That projection also exceeded expectations: Analysts had predicted that profits would increase from about $5.93 a share this year to $6.87 next year – even after about a dozen estimates had been slashed after Boeing announced another delay in its 787 Dreamliner program, the third time the airliner maker has pushed back the scheduled first flight for the high-tech commercial jetliner. But the company announced a record backlog.

“We are encouraged that they added to the backlog in the first quarter,” Eric Marshall, research director at the Dallas-based Hodges Capital Management, said in a Bloomberg Television interview. Delays to the 787 Dreamliner program, which dragged down Boeing’s stock price this year, have “created an attractive opportunity for long-term investors. We think the stock could go back above $100 over the next year,” which is why Hodges is adding to its Boeing position of 330,000 shares.

From yesterday’s close, a move to $100 would represent a return of 22%. And that doesn’t include income from Boeing’s current dividend yield of 1.95%.

Weak Greenback Stings Airbus

With a decline in the greenback of nearly 9% so far this year, Boeing has gained an advantage over its bureaucratic European rival, Airbus. Most of Airbus’ costs are euro-denominated, while Boeing’s sales are conducted chiefly in dollars.

Airbus, currently the world’s biggest maker of commercial aircraft, said it’s raising the price of its planes in response to the dollar’s decline against the euro, and to offset an escalation in metal prices fueled by the ongoing global commodities boom.

The list price of the single-aisle Airbus A320-series jet will rise by an average of $2 million as of May 1, while twin-aisle airliners will typically cost $4 million more, the Toulouse, France-based Airbus said Tuesday.

“The price increase is mainly triggered by the weak U.S. currency and the overall increase of the world’s raw-material prices, especially with regards to metal,” Airbus said.

The falling dollar hurts earnings at both Airbus and its parent company, European Aeronautic, Defence & Space Co., when revenue from dollar-denominated aircraft sales is “translated” into, or converted into, European euros.

Metal costs also have crimped profits, as the price of aluminum alone has soared 28% just this year, due to supplies constrained by rising purchases in China, and shortages of energy needed to make the lightweight metal.

Conversely, a weakening dollar makes foreign purchases of Boeing aircraft cheaper – almost as if the buyers are getting a price cut. But since Boeing doesn’t have to convert those dollars into a different currency, the “price break” buyers are getting has no effect on its revenue or profit.

Boeing also is getting a boost as carriers such as Continental Airlines Inc. (CAL) buy more of the U.S. airplane-maker’s Boeing 737-class jet to replace older, less fuel-efficient aircraft to reduce the effect of record oil prices. Unfilled commercial orders rose to an unprecedented $271 billion.

Boeing Chief Executive Officer W. James McNerney Jr. had held back his annual forecast until yesterday to learn more about delays in the Dreamliner, which is at least 14 months behind schedule and won’t enter service until late 2009.

Boeing said that its commercial sales rose 8% to reach $8.16 billion, generating a 39% jump in operating earnings, while Boeing’s military business saw sales fall 1.8% to reach $7.58 billion, even as profit increased 10 percent. Boeing is also the second-largest U.S. defense contractor, trailing Lockheed Martin Corp. (LMT).

Boeing said today it expects to deliver 500 to 505 airliners in 2009 – up from as many as 480 this year. Asia is expected to be a major market going forward, as will be China. Consider that:

• The global demand going forward is almost beyond belief. China alone will require 3,400 new airplanes worth about $340 billion over the next 20 years – an average of $17 billion annually. And that doesn’t include other Asian markets, such as Vietnam, which will need to modernize their air fleets as they commercialize their commodities.
• The Vietnam deal announced in November is worth $1.9 billion.
• In fact, over the next two decades, Boeing has forecast that air carriers worldwide will need to acquire 28,600 commercial aircraft – with a value of $2.8 trillion.

Boeing spent $1.2 billion last quarter to buy back 15.6 million shares, part of a $7 billion repurchase authorization. Thirteen of 24 analysts in a Bloomberg survey recommend the company’s stock; nine say to hold it, and two recommend selling.

Founded in Seattle by timber millionaire William E. Boeing back in 1916, the company got its start building seaplanes and operating a series of air transport services. In 1933, Boeing built the world’s first true commercial airliner, the Boeing 247, which was all metal, instead of the conventional wood, fabric and metal construction of that time.

But the company really came to prominence in the late 1930s, in the depths of the Great Depression, when it made a bet-the-company decision to develop a long-range Army Air Corps bomber on spec. The four-engined aircraft was so impressive that an awestruck newspaperman dubbed it the “Flying Fortress.” The name stuck. That airplane was the Boeing B-17, a heavy bomber without which most experts say the Allies might never had defeated Germany in World War II.

With the arrival of the jet age in the 1950s, the company risked its own capital to develop what eventually became the Boeing 707, a jetliner that leapfrogged offerings from Great Britain’s De Havilland, France’s Sud Aviation and Russia’s Tupolev – and revolutionized jet airliner travel in the process. A subsequent model, the 737, is the best-selling commercial jet ever. Boeing’s double-decked, humpbacked 747 “Jumbo Jet” debuted in the late 1960s, and opened the door to true intercontinental travel.

Since World War II, Boeing has also been a heavyweight in the defense-aerospace sector, building long-range bombers, aerial tankers, missiles, and helicopters, among other weapons systems. The military-contracting business has helped Boeing through periods in which there might have been a lull in the commercial side of the company’s business.