Blue Horseshoe Loves Delta Airlines

Full disclosure: Patrick recently bought and now owns 625 shares of Delta Airlines common stock. Any advice Patrick gives should be taken at one's own risk. Patrick has been known to make bad stock picks over the years, so you should take anything he says with a grain of salt. Either way, get ready for another long, boring post.

America is back. Despite a recession, the most disastrous attack on U.S. soil in history, 2 wars, and a tripling of oil prices, the American economy and stock market continues one of the most robust expansions ever. The Dow will probably hit a record high for the first time in 6 years either this week or next.


The Dow nears an all-time high; Delta looks like a buy

Now, I won't delve too deeply into the really technical boring stuff (actually, yes I will), but to be fair the bond market is predicting a recession some time next year. The reason is because the Fed probably kept interest rates too low for too long, precipitating an unsustainable boom in housing. This means these real estate "malinvestments" (investments which originally were thought to be profitable but turned out not to be) have to be liquidated, freeing up capital so it can be channeled to what is truly the most profitable use. The effects of this process of capital reallocation is the fundamental cause of recession. Workers in the overinvested sector have to be laid off, orders drop off, etc. It's a necessary, temporary correction in a cycle caused by the central bank that must be allowed to run its course. The best medicine government can offer during recession is no medicine.

I know none of ya'll give a damn about all the crap I just said, but the bottom line is this: the economy will probably slow somewhat next year, as bad real estate investments are washed out. The severity of this slowdown will depend on just how much of a correction there will have to be. People like TC know 100 times more about the answer to this question than me, but, because it's real estate, I don't think things are going to get that bad. By its very nature, real estate is a very stable sector, and things are more apt to just taper off instead of fall dramatically like during the volatile '99-'00 tech bubble. Plus, gas prices are falling and inflation is in check, so this may help soften the blow.


It's usually a good idea to put in nice, feel-good illustrations to help break up long posts into managable, bite-size pieces.

Anyway, for my money gang, right now I would buy Delta Airlines (symbol DALRQ). I sold every stock I owned today and bought in at $1.45 per share. The company is expected to emerge next spring from bankruptcy, and if gas prices continue to retreat going into the holiday season, and Delta continues to pick up the slack left from smaller carriers like AirTran and JetBlue who have dropped many of their transcontinental routes, I don't see any reason why this stock won't triple by year end. This way you can ride the traditional year-end rally, and if things do turn sour next year, you'll still have a substantially undervalued stock that can only go higher. It's so ridiculously cheap, you can't really get hurt anyway.

I guess my main point is that 5 years after a recession and demoralizing terrorist attacks, free-market capitalism continues to be the best path to prosperity, and it always wins in the end. No amount of terrorist threats from Al-Qaeda, no amount of militant posturing from Iran or Venezuela, and no amount of overburdensome government spending/intervention can stifle its beneficial forces. Here's to Dow 12,000!