Tuesday, November 29, 2011

American Airlines Goes Belly Up; Housing Slides, but Confidence is Up?

AMR, parent company of American Airlines, filed for Chapter 11 bankruptcy protection Tuesday morning in federal bankruptcy court in the Southern district of New York.

While it seems an inappropriate time for an airline to file for bankruptcy, the timing could prove beneficial to the airline, the last of the major carriers to undergo reorganization. The company, while it has over $4 bllion in unrestricted cash, has $9 to $12 billion in debts.

The company announced that flights would not be disrupted and no immediate layoffs were announced. AMR lost $162 million in the third quarter and has posted losses in 14 of the last 16 quarters.

A pre-packaged bankruptcy such as this sure sounds all bright and cheery on the surface, but these things have ripple effects, as some vendors and creditors are surely to get stiffed or be forced to take pennies or dimes on their dollars. American Airlines will survive, but unseen companies will be hurt down the line and many employees will likely lose their jobs. The American recovery lives on, but why didn't the government bail out AMR like they did General Motors? Maybe they've lost interest in business.

The current S&P/Case-Shiller 10-and-20-city indices both fell month-to-month and year-over-year, as housing continues to deteriorate Despite the lowest mortgage rates in decades, potential homeowners are largely shut out of the market by stringent underwriting standards and, more importantly, the lack of jobs needed to finance and support the payments on a home purchase.

Declining by 3.9% in the third quarter, the index showed a bit of relief from the second quarter's 5.8% decline, though there wasn't much hope in the report, which tracked sales through September. Only Detroit and Washington, DC reported gains during the period, of 3.7 and 1 percent, respectively. Home prices have fallen back to 2003 levels nationally.

Wall Street shrugged off the bad housing data and focused instead on the Conference Board's index of consumer confidence which rocketed up to 56 in October, from a revised 40.9 in September. It was the largest monthly gain in confidence since April 2003, though the current reading comes off a two-year low for the gauge.

Meanwhile, over in Euro-land, finance ministers kicked off a two-day summit designed to define a framework for the various entities - countries, the ECB and the ESFS - to deal with the ongoing debt crisis. Some of the ideas being floated around this time involve countries trading a bit of sovereignty for more bailout funding, and leveraging the ESFS roughly 2.5 times, to provide funding for stressed economies, mostly in the Southern part of the continent.

As usual, nothing concrete has - or will - come from these meetings, as European leaders inch closer to a complete currency collapse, which now, along with the breakup of the Euro currency partners, is rated by top economists as a 50/50 chance.

Here in America, the few traders still not completely scared away pushed stocks higher for a second straight day on the Dow and S&P, though the NASDAQ finished in the red. Trading volume was extremely thin. If there is to be a so-called Santa Claus Rally, it's not likely to awaken any sleeping children and will probably be sold off in a session or two, as the choppiness and extreme volatility is not likely to abate before the European crisis either is resolved or blows up completely.

Dow 11,555.63, +32.62 (0.28%)
NASDAQ 2,515.51, -11.83 (0.47%)
S&P 500 1,195.19, -2.64 (0.22%)
NYSE Composite 7,149.71, +29.16 (+0.41%)
NASDAQ Volume 1,621,070,500
NYSE Volume 3,951,292,750
Combined NYSE & NASDAQ Advance - Decline: 2486-3131
Combined NYSE & NASDAQ New highs - New lows: 65-166
WTI crude oil: 99.79, +1.58
Gold: 1,713.40, +2.60
Silver: 31.85, -0.31

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