Paper Chase: An Increase in the Revenue of Airlines
Airlines saw an increase in revenue of $2.5 billion in the first three months of 2013 because of baggage and other additional fees. We have seen investors who shy away from airline stocks gravitate towards them over the last year.
The Department Of Transportation released their Air Travel Consumer Report with a 67.7% on-time arrival rate, 18 tarmac delays of more than 3 hours, and 29.14% delayed flights due to weather. This turned out to be the third worst winter in three decades, increasing travelers frustration. Social Media is increasingly being used to connect with travelers. Jet Blue, who has been targeted for poor service, has seen a halo effect of brand loyalty as they respond to travelers’ complaints via social media.
United recently announced that they will be more stringent with their bag policy. Delta has changed frequent flyer miles to favor prices they’ve paid rather than miles flown.
Best and Worst Airports
The best airports according to consumers all have local food, swift check-ins, and TSA pre-check. They are: Portland, Tampa, and Austin. The worst airports are: Little Rock, La Guardia, and Billings/Logan in Montana.
The economy is in good shape as the uncertainty about public and fiscal policy has subsided. This is the main reason why the Fed is not cutting their forecasts.
America’s major banks are in good shape. The Fed released the results of its stress tests. The findings reveal that 29 of 30 banks passed, with Zion being the only one to fall short. Stress tests determine if banks can withstand an economic downturn, and help the Fed decide to approve bank plans for dividends and buybacks. Last week, Janet Yellen availed herself to the media for the first time since replacing Ben Bernanke as the head of the Federal Reserve. She stated that the Fed would continue to slow bond buying by $10 billion and stop using 6.5% as an unemployment target for when rates will be raised. She also talked about when she thought rates would go up. She stated that she thought next fall would be a good environment, but it was unclear as to whether she was talking about raising interest rates or increasing tapering. The market did not like the comments and fell Wednesday only to recover most of its losses by Thursday.
In my opinion, Yellen’s remarks had less effect on the market than forecasts from Fed participants which had the Federal Funds Rate at 2.25% at the end of 2016, an increase from 1.75% in December. The market has been pricing in an overly passive rate hike cycle for quite some time now, with the idea being that rates will be raised at 1% per year. They have never been raised lower than 2 percentage points. The economy is getting better and investors should anticipate that the Fed will raise rates.
While it’s good news that the Fed feels confident the economy will improve enough to give them the ability to raise rates, the Fed has been wrong on its forecasts over the recent years. They have overshot on the economy and have been wrong about inflation. If rates are expected to rise in early 2015, expect it to happen later rather than sooner.
Surprisingly, there was no fall out from the Russian annexation of Crimea, for it could dramatically impact the European economy. Germany’s economy is very sensitive to Russian action. If Germany falters, the surrounding European economies will falter. Additionally, the Chinese economy has slowed and the market is sensitive to news from China.
The vast majority of investors think deflation is currently a bigger threat than inflation. Energy prices were thought to be weak because of our energy boom. Prices wont be weak to Russia‘s actions, and the geopolitical risk premium high. This inflation dynamic will push the Fed to normalize policy faster than markets expect, which may dampen enthusiasm.
Overall, it is a good sign there is liquidity in the market and companies are going public. The stock market (at its heart) is about young companies raising money so they can expand and hire more people. That being said, some of these deals have been quite frothy. Castlight Health in particular is very 1999ish, which no one wants. Cloud companies without tremendous track record or revenue have some eye opening IPOs. The market is definitely frothy, but a lot of investments are still in pockets.
What I’m Doing
I am not committing any new dollars to the market right now. If there is a pull back of approximately 5.8% in the market due to Fed normalizing policy concerns, or a rise in interest rates, that is when I will jump back in. Fed normalizing policy as a sign of an improving economy has never ended the bull market, advanced towards a recession, nor been the end of economic expansion.
Newly married couples must elect to file taxes either jointly or separately. Filing jointly offers greater tax benefits if both partners work. Filing separately is better if one spouse’s income is much greater. Also, single people usually just file for standard deductions. If newly married, check to see if you qualify for itemized deductions for better savings.
New parents got a $3900 personal exemption per child in 2013. The child tax credit provides up to $1,000 per child under 16. The child care credit for kids 12 and under exists for day care or summer camp.
Savings and Retirement
If you have no 401k plan and are looking to save, you can deduct your traditional IRA contributions until April 15 for 2013. $5500 is the IRA contribution limit for 2013, and it’s $6500 if you are over 50. Parents, grandparents, or people nearing retirement may want to consider rolling over to a Roth IRA to hedge against rising tax rates. If you pay the taxes now, you are able to withdraw penalty free at 59.5. Also, seniors can deduct medical expenses that exceed 7.5% of income.
Disclaimer: Killing The Breeze is not a registered investment advisor or advisory service. It does not tell or suggest which securities or currencies should be bought or sold. The employees or affiliates of Killing The Breeze may hold positions in the stocks, currencies or industries discussed here. There is a very high degree of risk involved in the market. Killing The Breeze assumes no responsibility or liability for any trading or investment results. All content posted is for educational purposes only and independent advice should be sought from a professional to confirm validity and accuracy of any claim made.
The information should only be a starting point for doing additional independent research in order to allow you to form your own opinion regarding trading decisions. You should ask the firm with which you deal about the terms and conditions of the specific securities which you are trading and associated obligations. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.