More from Today’s Financial News:

After nearly a decade of getting kicked around by the nation’s investors, airlines are finally starting to get some positive attention. More importantly, the barrens of the friendly skies are finally starting to look like profitable ventures.

Notice, however, that I “starting” to “look” like profitable ventures. As of last quarter, the only major airline to post a profit was AMR Corp. (NYSE:AMR), the owner of American Airlines. And its earnings were a mere pittance of total revenues.

All the rest, companies like Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), and United Airlines (NYSE:UAUA), all lost significant sums of money.

But the airline environment is drastically different than it was just a few months ago. For one thing, oil prices are significantly lower. Even better, it looks like folks are still willing to take to the sky even as the economy slows. Airline bookings have exceeded industry estimates.

Just as I said in an earlier article, the outlook may not be that bad for the nation’s economy.

Blazing the trail

While industry sentiment is on the rise, investors are looking at other airline industry news today.

I am sure you have already heard Northwest and Delta have finalized their merger deal. In a $2.6 billion all-stock acquisition, all of Northwest’s operations will be under the Delta umbrella by next spring.

The deal created the world’s largest airline, a veritable flying behemoth. With over 75,5000 employees, routes to 375 cities and 66 countries, Delta will be the industries dominant player.

That is, unless another super-airline emerges.

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What if they’re right?

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You see, the real news from the Delta/Northwest merger is not that the combined company will create $2 billion in revenues and cost savings for Delta, with over $500 million in savings next year.

What investors are truly celebrating is the fact that such deals are possible. When federal regulators gave their nod, it proved to investors that mergers would be allowed and showed the synergistic qualities such moves could make.

Now investors in airlines like United, American, and Southwest are wondering what lies in store for them.

Everybody wants in

Across the Atlantic, Sir Richard Branson, the owner of Virgin Atlantic is digging through his contact list looking for an opportunity to strengthen his airline’s core business. Rumor has it, he may be close to a deal with a long-time rival, British Midland Airways.

All across the airline industry, share prices are soaring today. Investors are looking into the future and liking what they see.

That is good news for investors that bought shares last week. What about folks looking to invest today?

I say, do not fall into the airline trap. The gains will not continue.

The nation’s airline industry has been in trouble for nearly a decade. A slowing economy, fuel prices that remain historically high, and a customer base that absolutely hates the service they are receiving is far from good news.

Instead of investing in a risky, cyclical business like an airline, search out companies with strong histories of success that are selling at decade-low prices. For a list of four of my favorites, click here.

Source: Airline industry finds some wings

• St. George Bank Ltd., Australia’s fifth-largest bank, yesterday (Monday) agreed to a revised $14.4 billion takeover offer from larger rival Westpac Banking Corp. (ADR: WPK). St. George shareholders will receive a special dividend of 23 cents per share, worth $133 million in total. Westpac is offered 1.31 of its shares for every share of St. George.

• Chile is doubling the amount private pension funds can invest abroad, The Associated Press said yesterday (Monday). The percentage pension funds are allowed to invest internationally will increase from 30% to 45% as of Oct. 1. The ratio will then be moved up to 50% on Dec. 1, 55% on April 1, 2009, and 60% on Aug. 3, of that year. The measure should help the funds’ to become more profitable and keep Chile’s peso from rising too much against the U.S. dollar.

• Trading on the London Stock Exchange was suspended for about seven hours yesterday (Monday), as the world’s third largest share market struggled with a systems failure. The LSE plans a series of system upgrades and is migrating Italian equities to its trading platform TradElect this month, according to Reuters.

• South Korea’s financial regulator yesterday (Monday) urged Korea Development Bank to be cautious in making any investment in Lehman Brothers Holdings Inc. (LEH) Korea Development Bank “should be very prudent in its approach to acquiring Lehman given the condition of financial markets at home and abroad and that it has not yet been privatized,” Jun Kwang-woo, told The Associated Press. Lehman could post losses of up to $4 billion for the third quarter, and may be looking to raise fresh capital to help offset the losses.

• A 2002 Chicago Tribune story, mistakenly reprinted on a Florida news website, sent shares of United Air Lines Inc. parent company UAL Corp. (UAUA) plunging to a new low of just one cent before trading was halted. The story detailed the airline’s Dec. 9, 2002 bankruptcy claim. “United has demanded a retraction from the Sun-Sentinel and is launching an investigation,” the Chicago-based carrier said in a statement, Bloomberg News reported.

• Consumer credit increased $4.6 billion in July to $2.59 trillion the Federal Reserve announced yesterday (Monday). The increase was about half of what was expected and a decline from June’s increase of $11 billion. Banks remain risk-adverse with tight credit-lending standards, while consumers are paring back on spending as the job market and economic outlook remain uncertain, Bloomberg News reported.

• Crude oil for October delivery increased yesterday (Monday) on the threat of Hurricane Ike in the Gulf of Mexico. Futures traded on NYMEX edged up 11 cents to settle at $106.34 a barrel after earlier trading between $104.70 and $109.89, Reuters reported. Gains were moderated by a strong greenback.

• Alberto-Culver Co. (ACV) announced yesterday (Monday) that it would purchase global rights to the Noxzema skin care brand from The Proctor & Gamble Co. (PG). Financial terms of the deal were not disclosed, but include Noxzema’s existing business in the United States, Canada and parts of Latin America, Reuters reported.

Source: Global Investing Roundups Monday, September 8th, 2008

Good day… And welcome to August. The markets had a little more movement yesterday as the U.S. GDP report came in lower than expected, and had a hidden surprise for dollar bears (more on that later). In addition to the poor GDP numbers, personal consumption dropped, and the GDP Price Index also showed a decrease. The employment cost index was flat, and the weekly jobless claims were slightly higher than expected at 448K. More Americans filed initial unemployment claims last week than at any time in more than five years. The only positive piece of data released in the United States yesterday was the volatile (and somewhat unreliable) Chicago Purchasing Managers number which showed an increase back above 50.

With all the bad data, the dollar sold off rather sharply and the euro (EUR) jumped a full cent to trade over 1.57 for a short while. But the dollar bears didn’t celebrate for long, as the dollar sharply reversed course as crude oil prices rode to its rescue. As I explained earlier in the week, the price of crude oil and the U.S. dollar have had a very tight relationship lately, with a correlation of 0.9. Just after the dollar fell due to the GDP releases, crude oil began a sharp $3 drop and saved the U.S. dollar from further losses. The price of oil has continued to slide, and is now down over 11% in the past month. This has helped prop the dollar up in spite of a number of poor economic reports here in the United States.

But I promised some explanation of the U.S. GDP report in the opening paragraph, so here it is. While the second quarter numbers came in slightly lower than economists had expected (1.9% versus expectations of 2.3%), a revision to the fourth quarter ‘07 GDP report is what caught everyone’s attention. You see, the report revealed that the U.S. economy actually shrank in the fourth quarter of 2007. Previously, the Commerce Department had reported the U.S. GDP for fourth quarter ‘07 at a 0.6% gain. Back when the number came out, the news media was using the figure as proof that we weren’t in a recession. Well now the Commerce Department has come clean and admitted the true number. The world’s largest economy contracted at a 0.2% annual pace in the fourth quarter of last year.

This number now confirms the general picture of weakness that Chuck and I have been painting. And in spite of the temporary boost from tax rebates, I think the recession that the U.S. is now in will only deepen. Revised government figures have also shown that consumer spending slowed more than previously estimated, and that the housing slump worsened during the end of 2007. Harvard University Professor Martin Feldstein agrees with the Pfennig. “The U.S. may now be in a ‘very long’ recession with little that the Federal Reserve can do to help”, said Professor Feldstein during a Bloomberg radio interview. “I don’t see recovery on the horizon.” Feldstein was a former advisor to President Reagan, and headed the National Bureau of Economic Research until June of this year, so he knows what he is talking about.

Former Fed Chief Alan Greenspan also chimed in yesterday in a CNBC interview. The Former Fed head said falling home prices are “nowhere near the bottom” and that the resulting market turmoil isn’t showing signs of abating. Greenspan sure should be an expert on the housing crisis; he helped to create it! I just wonder what the current FOMC members think when Greenspan sits back and comments on the mess he left them with. You know Bernanke would love to just give it all back to him to deal with!

With all the experts commenting on how bad the U.S. economy is – and not giving a rosy picture for the future – Treasury Secretary Hank Paulson decided it was time to try and ride to the rescue. Paulson said he expects the government’s fiscal stimulus plan will boost economic growth in the second half of the year, offsetting a housing downturn and high energy prices. What planet is this guy on?? How many times has he come out and said ‘the worst is almost over, it will be better next quarter’? Here is a quote from Paulson which I just have to share with you: “While our economy faces substantial difficulties that will continue to drag on growth in the short term, it is important to remember our long-term fundamentals are strong”. I guess Paulson wasn’t included on the memo about the record $490 billion budget shortfall, and he probably just forgot all about having to come to the rescue of Fannie (NYSE:FNM) and Freddie (NYSE:FRE). “Strong Fundamentals”??? Paulson has ingested too much of the Kool-Aid the administration has been pushing.

Today we will get some more data in the United States reflecting the so-called ’strong economic fundamentals’. Payrolls in the U.S. are predicted to show a seventh monthly decrease in July. With the predicted 75K loss in jobs for July, the unemployment rate is expected to rise to 5.6%. Manufacturing payrolls will again be hardest hit as they are predicted to have fallen by 40K during July. But cutbacks at UAL Corp. (NASDAQ:UAUA) and Starbucks Corp. (NASDAQ:SBUX) signal that firings are spreading beyond builders and manufacturers as the cost of raw materials soars. Many are expecting accelerated declines in payrolls through the end of the year, which would put additional pressure on an already overburdened U.S. consumer. These employment figures will reinforce concerns that the economy is in a recession, as the July cuts will bring the total drop in payrolls so far this year to more than half a million. But don’t worry; Secretary Paulson says the long-term fundamentals are strong!!

The negative data may force the U.S. dollar to give back some of the gains it took during the strange month of July. Now that we are in August, a step back to review July is appropriate. The greenback strengthened 1% against the euro and 1.6% versus the yen (JPY) in July, on speculation that the U.S. growth slowdown is spreading to other nations. Crude oil also helped the dollar, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years. Oil had the biggest one-month decline since December 2004. While I agree that the world’s economy will slow in the coming months, growth will continue at a pretty good pace in Asia and the developing world, keeping demand for oil and other commodities up. While the fall in oil during July propped up the U.S. dollar, I don’t think we can count on further dramatic declines.

The worst performing currency for the month of July was the New Zealand dollar (NZD), which fell by 3.88% versus the greenback. New Zealand fell after the Reserve Bank of New Zealand lowered interest rates on July 24 and signaled they will continue cutting rates. This was the first reduction in interest rates in 5 years, and with a bias for more cuts, the currency has sold off. Many investors had moved into the kiwi chasing high yields, so the expected cuts in interest caused this ‘hot money’ to move back out. Investors in the New Zealand dollar would be advised to exit these positions as they come due.

So where should investors turn? According to the Economist’s ‘Big Mac Index’ the best values are in Asia. The Economist magazine compares prices for (NYSE:MCD) McDonalds Corp.’s burger globally, and is a light-hearted barometer of whether currencies are properly valued against the dollar. As of July 26, when the Economist published its 2008 index, 10 Asia-Pacific region currencies were undervalued against the U.S. dollar, many significantly so. Currencies which were below their true worth, according to the Economist, included 52.1% in Hong Kong, 48.7% in China, 26.6% in Japan, and 18.2% in Singapore. It is nice to see that the ‘Big Mac Index’ agrees with our thoughts that the Asian currencies are undervalued.

Our metals trader, Kristin Kuchem just came in. She has been on the road in Las Vegas this week, and will be out again in San Francisco next week. It is great to have her back on the desk; should help with the phone volume today. Now on to the Big Finish…

Currencies today 8/1/08… A$ .9355, kiwi .7281, C$.9756, euro 1.5566, sterling 1.9754, Swiss .9537, ISK 79.47, rand 7.3230, krone 5.1409, SEK 6.0646, forint 149.92, zloty 2.0673, koruna 15.44, yen 107.63, baht 33.55, sing 1.3696, HKD 7.8038, INR 42.41, China 6.8432, pesos 10.01, BRL 1.5654, dollar index 73.34, Oil $122.89, Silver $17.59, and Gold… $911.52

That’s it for today… I can’t believe summer is already starting to wind down. I got home last night and my daughter was decorating her new book bag, already getting excited about going back to school. My son, who is facing his first year at a pretty tough high school, is much less excited. August is probably my least favorite month here in St. Louis, as the temperatures reach well into the ’90s and humidity is always high. Makes my training for the upcoming LSL triathlon and Chicago marathon a little harder, as I’ve been having to run in the evenings instead of first thing in the morning. I guess I really shouldn’t complain though, the beauty of living here in St. Louis is that the weather is never the same for very long. Before you know it we will be complaining about the cold! Hope everyone has a Fantastic Friday, and a great weekend.

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: U.S. Dollar Saved by Oil

• Crude oil for September delivery gained $4.58 yesterday (Wednesday) to close at $126.77 a barrel on the New York Mercantile Exchange, MarketWatch reported, after the Energy Information Administration announced crude supplies fell 100,000 barrels to 295.2 million barrels for the week ended July 25.

• Comcast Corp. (CMCSA), the largest U.S. cable television provider, announced yesterday (Wednesday) that net profit in the second quarter rose to $632 million, or 21 cents a share, from $588 million, or 19 cents a share, in the prior year, Reuters reported. Comcast stock gained 89 cents, a 4.64% increase, to close at $20.07 on the news.

• Navigation system maker Garmin Ltd. (GRMN) lowed its full-year outlook to $4.13 per share from an earlier estimate of $4.40 per share in light of the weakening U.S. economic conditions, Forbes reported. Yesterday (Wednesday), the firm missed earnings expectations for the quarter ended June 28, causing shares to plunge over 20%.

• UAL Corp. (UAUA), parent of United Air Lines Inc., filed suit yesterday (Wednesday) against the Air Line Pilots Association union, The Wall Street Journal reported. UAL is seeking an injunction against an unlawful sickout, which caused United to cancel an abnormal number of flights.

• Private employers added 9,000 jobs in July, a private report by ADP Employer Services said yesterday (Wednesday). In June, the private sector slashed 77,000, according to revised data. June was originally reported as 79,000 jobs lost.

• Nisssan Motor Co. Ltd. (ADR: NSANY) said yesterday (Wednesday) that it plans to offer buyouts to about 6,000 workers at its two Tennessee plants and eliminate a night shift at one of them, Reuters reported. Citing lower demand for pickup trucks and sport utility vehicles the company said it would offer technicians and salaried employees a lump sum of $100,000 or $125,000, depending on tenure, as well as medical and car purchase benefits.

• ArcelorMittal (ADR: MT) had a second-quarter surge in earnings, as high steel prices offset soaring mineral costs. Net income rose to $5.84 billion from $2.72 billion a year earlier. Revenue was $37.84 billion, from $27.2 billion a year earlier.

• Nintendo Co. Ltd.’s (OTC ADR: NTDOY) quarterly profit rose 31.5% on the runaway success of its Wii game console. The Wii outsold Sony Corp.’s (SNE) PlayStation 3 and Microsoft Corp.’s (MSFT) Xbox 360, putting Nintendo in the leading position in the three-way game console battle, Reuters reported. April-June net profit rose 33.7% to $1 billion (¥107.27 billion) on sales of $3.9 billion (¥423.38 billion), up 24.4%.

Source: Global Investing Roundups Thursday, July 31st, 2008

Fortunately, the analyst consensus holds that the economy expanded at a faster pace than the 1% rate of the first quarter, putting us safely outside of recession territory. Investors get another view inside the struggling labor market where layoffs (mainly among financials) have resulted in overall job contractions for five consecutive months.

Economists hope for another positive showing for manufacturing from the ISM index, especially on the heels of last week’s strong durable goods data. Finally, Exxon-Mobil Corp. (XOM) and Chevron Corp. (CVX) headline this week’s installments in the ongoing earnings season as investors get a reprieve from the weak financial releases and see just how much record oil and gas prices have padded the pocketbooks of those energy-sector executives [Click here for additional insight on Chevron, in Money Morning’s new “Buy, Sell or Hold” feature.]

Market Matters

The Federal Communications Commission late Friday approved the $3.3 billion merger of Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR), a move that means the still-nascent industry might actually be able to operate at a profit. [Please click here for a complete news story on this satellite radio merger posted elsewhere in this issue of Money Morning.]

With the immediate threat of a Freddie Mac (FRE)/Fannie Mae (FNM) failure looking less and less likely, investors were able to focus more on the heart of earnings season. Thus far, the results have been mixed (or confusing) at best. Of course, financials took top priority (again) as the nation’s largest bank by asset size, Bank of America Corp. (BAC), saw its profits decline by more than 40%, much to the delight – that’s right, delight – of investors who feared much worse. Wachovia Corp. (WB) followed up with a trifecta of bad news:

• A greater than expected loss.
• A dividend cut.
• And some employee pink slips.

And yet, its stock price was up for the week as investors began to believe the worst of the news may be behind us (a feeling that will only last until the next bit of bad news hits).

Outside of the financial world, investors had plenty of reasons to grin. Heavy equipment-maker Caterpillar Inc. (CAT), oil giant ConocoPhillips (COP), communications staple AT&T Corp. (T) and the world’s biggest drugmaker Pfizer Inc. (PFE) each announced strong earnings. Even Internet retailer Amazon.com Inc. (AMZN) shrugged off prospects for weak consumer activity and raised its year-end forecast. Southwest Airlines Co. (LUV) accomplished what none of its competitors could do by reporting its 69th consecutive profitable quarter, thanks to some “ingenious” hedging moves. On the downside, US Airways Group Inc. (LCC), UAL Corp. (UAUA), and JetBlue Airways Corp. (JBLU) suffered along with the rest of their winged brethren; Costco Wholesale Corp. (COST) showed that even discounters can struggle during dire times (apparently consumers can’t afford bulk purchases); and Ford Motor Co. (F) posted its worst quarter – ever. [Please click here for a “Buy, Sell or Hold” analysis of Ford shares elsewhere in today’s issue of Money Morning.]

United Parcel Service Inc. (UPS) had trouble dealing with the higher gasoline costs, while Texas Instruments Inc. (TXN) lowered its outlook for the year. Some reports required a tad bit more analysis. While Apple Inc. (AAPL) rejoiced over its “best June quarter for revenue and earnings” in its history, it disappointed investors with a weaker-than-expected end-of-year forecast.

Toymaker Hasbro Inc. (HAS) benefited from strong demand for “Iron Man” products, though management worried about the holidays as the company finds itself forced to pass along higher gas prices to consumers. Merger talks resurfaced (another sign of business optimism) as drugmaker Roche Holding Ltd. (OTC ADR: RHHBY) will acquire the remaining shares in Genentech Inc. (DNA) it doesn’t already own. Finally, Carl Icahn will have more say in the future of Yahoo! Inc. (YHOO) deals as he and his “cronies” will be given three seats on that “infamous” board.

Consumers got an even greater reprieve from recent energy woes as oil prices continued their decline, and crude even dropped below $123 for the first time in several weeks. Likewise, gas prices declined to just above $4 a gallon nationally (a drop of 10 cents per gallon) as the higher weekly inventory report revealed a continued slide in demand, and as service stations owners looked to regain those gas-guzzling customers.

While investors tried to make sense over the recent earnings reports, some took solace in the lower energy prices, and hope the “trend” continues as summer travel winds down and the holiday shopping season approaches.

A surprisingly weak housing report put a damper on the newfound optimism from the oil decline and prompted some late-week selling that moved the Dow Jones Industrial Average Index into the red for the week. Still, the general mood seems to be changing, as investors are more willing to dip their toes back into the equity pool – though let’s hope they do so without badly stubbing their toe in the process.

• Wachovia Corp. (WB) said yesterday (Tuesday) that it lost $8.86 billion in the second quarter and would be forced to slash its dividend and cut 10,750 jobs. Wachovia said it lost the equivalent of $4.20 per share in the April-June period. Over the same period of time last year, the bank earned $2.34 billion, or $1.22 per share.

• Caterpillar Inc.’s (CAT) second-quarter profit jumped 34%, $1.11 billion, or $1.74 per share, for the three months ended June 30, compared with $823 million, or $1.24 per share, a year earlier. While the domestic market falter overseas sales for the company increased 60% of quarterly sales and revenue coming from outside North America, up from 55% a year earlier.

• The Office of Federal Housing Enterprise Oversight said yesterday (Tuesday) that U.S. home prices fell a record 4.8% in May from the same month last year. On a seasonally adjusted basis, prices fell 0.3% from April to May. The index is down almost 5% from its peak in April of last year, the Associated Press reported.

• United Parcel Service Inc. (UPS) said yesterday (Tuesday) that its profit fell nearly 21% in the second quarter despite a more than 6% increase in sales. Profit was $873 million, or 85 cents a share, in the second quarter, compared to $1.10 billion, or $1.04 a share, for the same period a year ago. Revenue grew to $13 billion from $12.2 billion. “We’re feeling the impact of higher energy costs throughout the company,” Chief Executive Scott Davis told the Associated Press.

• Two out of the 12 Federal Reserve directors wanted an increase in the discount rate in June, according to documents released yesterday (Tuesday). Dallas Fed President Richard Fisher and Kansas City Fed President Tom Hoenig asked that the discount rate be raised from 2.25% to 2.50% in June, MarketWatch reported, a request that was ignored by the majority of the Federal Open Market Committee.

• Light, sweet crude for August delivery fell $3.09, hitting a six-week trading low yesterday (Tuesday). On their last day of trading, August delivery contracts settled at $127.95 a barrel in afternoon trading on the New York Mercantile Exchange, CNNMoney reported. September delivery contracts, which begin trading today (Wednesday), are priced at $128.42.

• UAL Corp. (UAUA), parent of United Air Lines Inc., yesterday (Tuesday) announced a new credit-card/frequent flyer agreement that would boost liquidity $1.2 billion, Reuters reported. The news, helped along by lower oil prices, pushed UAL stock up over 65% for the day with a gain of $3.42 to close at $8.41.

• Federal Communications Commissioner Michael Copps voted against the proposed merger between Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR) late Monday night, The Wall Street Journal reported. It’s the first vote against the deal, as two commissioners have voted for it and two others have yet to vote. The deal must receive majority approval from the five-member FCC board to proceed.

Source: Global Investing Roundups Wednesday, July 23rd, 2008

The airline industry has been battered by the surge in oil prices. Major companies have already cut services, raised fees, and announced job losses. And share prices have collapsed since the start of the year: United Airlines (UAUA) is down a whopping 84.6%, Delta Airlines (DAL) 64.8%, Continental (CAL) 48.7% and Northwest (NWA) 58.9%.

So why invest now? Eric says a correction in crude oil prices is inevitable; and when fuel goes down, airline stocks will fly again…

Why the World’s Worst Business Is Now One of the Best Buying Opportunities on the Planet

by Eric Roseman

Skyrocketing energy prices are making the headlines almost daily since last spring. Over the last 12 months, crude oil prices have more than doubled and gas prices are heading to US$5 per gallon.

Meanwhile, out in the financial markets, investors are blindly buying energy stocks. Commodity fund managers are lunging after crude oil and natural gas futures. A full-blown mania now surrounds the energy pits.

In just about every facet of global business and consumer livelihood, high energy prices are wreaking havoc. Prices are rising, if not soaring, for most goods across the world. Oil’s ubiquitous role is forcing consumers and companies alike to boost spending, reducing discretionary income and slicing corporate profits.

Oil’s “Unstoppable” Prices Are Yesterday’s News

But surging oil is yesterday’s news. Demand destruction is underway. There will be a point when high prices finally force consumers to use less oil products, buy less gas and other distillate fuels. Granted it doesn’t seem like it, but consumers are already buying less gas since April.

What Goes Up WILL Come Down: Oil’s Path This Year

Since March 31st, crude oil prices have soared more than 35% — an astonishing rally in a short period of time. At some point, a correction looms. That’s when some sectors suffering from expensive oil will post some spectacular gains. That includes my absolute favorite contrarian play right now: Airlines.

The Worst Business in the World

Yes, I know the airline industry is arguably the worst business in the world right now.

Soaring jet fuel prices, expensive labor costs and rising airport user fees are forcing carriers worldwide to cut routes, reduce capacity, and shed labor. Many analysts forecast several big carriers, mostly in the United States, will probably collapse this year if jet fuel prices remain at these elevated levels.

In fact, you could say airline stocks have been a one-way ticket to the poorhouse lately. That’s certainly been the case over the last 18 months as input costs have surged, mainly because of a 100%-plus rally for jet fuel.

Airline stocks also earn the dubious ranking as the worst performing sector of the market over the last 12 months — even worse than the financials!

Since June 2007, the AMEX XAL Airline Index of global carriers has collapsed a formidable 62%. Over the same period, jet fuel prices have doubled. Airlines have cut capacity. Also, executives in the business are warning that we’re facing the worst economic climate for the industry since 9/11. In short, these are dark times for airline executives, employees and passengers.

Notice: It’s the Exact Opposite of Oil in the Airline Sector

How Many Airlines Do You Know that Are Raising Dividends?

Historically, I’ve avoided the airline sector like the plague. I’ve only turned bullish on this sector a handful of times in my 16-year investment career.

But at these bombed-out levels and ultra-low valuations the airlines are just too contrarian to ignore. Plus, I see a major catalyst coming for rapid price appreciation in the airlines on the heels of lower oil prices in the months to come.

I’m now buying one of the best-managed airlines in the world. This blue-chip company just raised its dividend again recently. The stock now pays an effective 8% per annum in one of the world’s strongest currencies. That yield is almost twice the rate paid by 10-year bonds in the United States and Europe.

This stock is also trading at a 52-week low, still earning profits and has most of its jet fuel hedged at about US$75 per barrel. How many airlines do you know that are still making money, yet alone raising dividend payments?

The way I see it, if oil prices suffer a 20% correction or more, which is highly likely after a nonstop blistering rally since last summer, industries leveraged to the price of oil or in this case, jet fuel, will rocket higher.

Since the advent of the sub-prime debacle in July 2007, every segment of the commodity bull market has suffered a correction — except the energy complex. The rally has literally been unstoppable so far.

Go Against the Herd for the Best Profits By Christmas

All secular bull markets face corrections — even oil. These corrections tend to be brutal. So you can expect oil prices to post a savage correction. When that happens, the industries that have been handcuffed by high oil prices will post major reversals — including the best-managed airlines.

Plus, global governments are now throwing everything they can at high oil prices, including the Saudis, so the odds of a brief respite are growing more likely by the day.

If oil prices decline, as I expect them to, then input costs for all carriers will decline markedly, if even for just several months. There is certainly enough room to juice this speculation for at least a quick 35% to 50% profit, possibly more. Plus, add some dividends into the picture, profitable earnings, and a big bear market rally and you should hit a home-run in airlines before December.

Sometimes, it pays to look the other way behind the trail of a blazing bull market in energy prices. In this case, some airlines will reward investors with big profits over the next 6-12 months. I’m betting on it.

Source: Why the World’s Worst Business Is Now One of the Best Buying Opportunities on the Planet

Crude futures encountered a volatile week last week as traders analyzed the contrasting news from aboard. On one hand, the news that Saudi Arabia may be increasing oil production and that China is hiking gasoline and diesel fuel prices should dampen demand and move prices lower. On the other hand, Israel threatened Iran’s nuclear facilities and rebels reportedly attacked a Chevron Corp. (CVX) plant in Nigeria late last week (both should contribute to higher oil prices). For now, crude stands around the $135 per barrel level.

Despite his low popularity rating, President George Bush has yet to relinquish the limelight as he blamed the Democratic Congress for the record gas prices. Playing his own political game, President Bush proposed lifting the ban on drilling in certain environmentally friendly regions, knowing full well that such an idea will be met with great resistance. He also acknowledged that such measures would have little impact on the current state of the energy sector as new drilling would take years to implement and even longer to generate any real results.

Lehman Brothers Holdings Inc. (LEH) announced a startling $2.8 billion loss in the second quarter, its first since going public, though the company avoided (for now) becoming the next Bear Stearns Cos. Inc. (BSC) by raising $6 billion in new capital. Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) both reported declining earnings, though each bested The Street’s already dire expectations.

Rumors have Merrill Lynch & Co. Inc. (MER) and Citigroup Inc. (C) taking more write-downs, negating prior speculation that the worst of the credit crisis had ended. That speculation resurfaces on a fairly regular basis, and whenever it does, we’ve emphatically told Money Morning readers to ignore it. Our view was supported this week over in Europe when analysts at Royal Bank of Scotland Group PLC (RBS) said looming write-offs would cause a global stock-market crash by September.

In non-financial corporate news last week, FedEx Corp. (FDX) reported a quarterly loss and projected a pretty negative outlook for 2009 due to soaring fuel costs. After its snubbing by Yahoo! Inc. (YHOO), Microsoft Corp. (MSFT) denied any interest in other Internet acquisitions at this time. Continental Airlines Inc. (CAL) and UAL Corp. (UAUA) (United Airlines) are teaming up in a “non-merger” alliance to help create new revenue sources and cost efficiencies without the risks and red-tape of a full-fledged transaction.

In the “misery-loves-company” category, the global markets struggled mightily last week as the Shanghai Composite Index fell to a 16-month low and has declined about 50% on a year-to-date basis. Likewise, indexes in Tokyo, Bangkok, and Hong Kong have followed suit.

Here at home, the Dow Jones Industrial Index plunged below 12,000 for the first time in more than three months, as rising food and energy prices and ongoing negativity from financials continued to weigh on investors. Bonds, which had come under pressure lately over future Fed policy, were the recipients of a flight-to-quality mentality as some investors sought the safe haven of the Treasury markets. For the time being, however, it’s all about those skyrocketing food and energy prices.

But then again, don’t economists always downplay “volatile food-and-energy prices” as they tell us to focus on so-called “core” inflation?

Source: All Eyes Will be on the Fed as Investors Look for Signals on Both Inflation and Interest Rates

• Continental Airlines Inc. (CAL) became the latest airline to announce reduced flight service and jobs cuts yesterday (Thursday). Continental will eliminate 3,000 jobs and 16% of its flight capacity, The New York Times reported. The cost cutting efforts follow similar moves from UAL Corp.’s (UAUA) United Airlines, Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL).

• France Telecom SA (ADR: FTE) announced yesterday (Thursday) that it was pursuing a $42 billion bid for Sweden’s TeliaSonera AB (PINK: TLSNF), The Associated Press reported. TeliaSonera dismissed the initial offer as too low, but France Telecom reported it has the backing of the French government and could up its bid.

• The Mortgage Bankers Association (MBA) announced yesterday (Thursday) that both the percentage of loans in foreclosures, as well as the number of foreclosure starts, climbed to levels not seen since 1979, MarketWatch reported. For one- to four-unit properties, 2.47% of all mortgages outstanding were in foreclosure, up from 2.04% in the fourth quarter, according to the MBA’s latest National Delinquency Survey. At the end of first quarter 2007, only 1.28% of such homes were in foreclosure.

• The number of U.S. citizens filing first time unemployment claims fell last week, the Department of Labor said yesterday (Thursday). Initial jobless claims decreased by 18,000 to 357,000 in the week that ended May 31, the lowest level in more than a month, due in part to the Memorial Day holiday, Bloomberg News reported.

• Stocks in China fell to a six-week low Thursday (yesterday) on speculation that the government would tighten prices to curb inflation. The move that would shave profits from the country’s commodity titans. The CSI 300 Index, which tracks 300 stocks traded in Shanghai and Shenzhen, fell 1 percent to close at 3,512.14, the lowest since April 23, Bloomberg reported.

• The U.S. government announced yesterday (Thursday), via the Department of Justice, that it is suing Honeywell International Inc. (HON) for selling material used in bulletproof vests that it alleges was defective, The Associated Press reported. According to the DOJ, Honeywell had scientific data that showed the ballistic material, known as Zylon, “degraded quickly over time, especially in hot and humid conditions,” leaving the vests unfit for use. The department also alleges that Honeywell failed to notify the government or the vest manufacturer, Armor Holdings Inc., of the defect.

• E.I. Du Pont De Nemours & Co. (DD), commonly known as DuPont, said yesterday (Thursday) that it is targeting a 40% increase in soybean and corn yields over the next 10 years through its Pioneer Hi-Bred unit, according to Thomson Financial. The company expects DuPont Agriculture & Nutrition segment sales to grow by 6% to 8% and earnings by more than 15% on average between 2007 and 2010.

• Swiss pharmaceutical maker Novartis AG (ADR: NVS) spent nearly $1.3 million lobbying the U.S. government in the first quarter on drug and health care issues, according to a recent disclosure form, The Associated Press reported. Novartis lobbied on bills designed to ensure the government has a sufficient stockpile of influenza vaccine in case of an outbreak.

Source: Global Investing Roundups: Friday, June 6th, 2008

• Automatic Data Processing’s (ADP) National Employment Report, released yesterday (Wednesday) indicated that 40,000 U.S. private-sector jobs were added in May. “ADP hasn’t been a good forecaster of the job report lately. But if it’s right then the economy is stronger than we thought,” David Wyss, an economist with Standard & Poor’s told Forbes. “So far, this isn’t much of a recession.”

• MetLife Inc. (MET) announced it plans to purchase a home-mortgage business from First Horizon National Corp. (FHN) The deal includes the home loan unit of First Horizon’s Tennessee Bank National Association, with 230 offices in the U.S., the New York-based life insurance firm announced yesterday (Wednesday) in a statement, Bloomberg News reported.

• UAL Corp.’s (UAUA) United Airlines will ground 70 planes and cut 1,100 jobs in an ongoing effort to cut costs due in large part to skyrocketing jet fuel costs. This is the second round of cutbacks in two months for the nation’s second-largest air carrier as the price of jet fuel has increased 76% in the past year, adding $3 billion to United’s fuel expenses, Bloomberg News reported.

• The J.M. Smucker Co. (SJM) will acquire Folgers, from Procter & Gamble Co. (PG) for stock in a deal valued at $2.95 billion, the companies said yesterday (Wednesday). The deal will give P&G shareholders a 53.5% stake in Smucker, and Smucker will issue a one-time dividend of $5 per share to its shareholders prior to the deal, The Associated Press reported.

• The Institute for Supply Management said yesterday (Wednesday) that its service sector index was 51.7 in May, stronger than expected, but still a drop from April’s reading of 52. A reading above 50 indicates the sector, which comprises roughly 80 percent of the total economy, is growing, while a reading below 50 indicates contraction.

• Emerson Electric Co. (EMR) abandoned its pursuit of Chloride Group PLC, Europe’s largest maker of backup power supplies, after the company rejected a $1.36 billion takeover proposal. Emerson was hoping the deal would beef up its Network Power division, which produces equipment to protect hospitals, banks and airports from power failures, The Associated Press reported.

• Chain restaurant operator Bob Evans Farms Inc. (BOBE) posted strong fiscal fourth-quarter results yesterday (Wednesday), a sign one analyst says means isn’t economic health, but rather, a reallocation of value-minded assets. “We think there are an increasing number of value-conscious customers moving from bar-and-grill restaurants to Bob Evans,” analyst Stephen Anderson of MKM Partners told Reuters. The company reported fourth-quarter net income of $16.1 million, or 52 cents a share, on revenue of $436.4 million.

• Billionaire investor and vocal Yahoo Inc. (YHOO) critic Carl Icahn said in a letter to the board that he will move to replace Chief Executive Officer Jerry Yang and pursue a takeover by Microsoft Corp. (MSFT), Bloomberg reported. “It will be extremely difficult for Microsoft or other companies to trust, work with and negotiate with a company that would go to these lengths,” Icahn wrote, referring to Yang’s refusal of Microsoft’s $33-a-share offer.

Source: Global Investing Roundups Thursday, June 05, 2008