Alstrynomic Business Lesson 102
February 03, 2009
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If things ain't moving....the economy is slowing.
This tonight from United....
United January traffic down 10.9%; capacity falls 10.5%
But it is not just the largest airline in the country whose people traffic is down double digits, it is air cargo as well. Not only air cargo but trucking tonage and rail too.
We are seeing the movement of people and goods down 10-20%. That means that hotels, retail, manufacturing, and other important industries are also seeing a coresponding or greater decline. Loss of revenues, when it comes to employment, can be a much more important figure than profits....as it deals with quanitity of output and labor necessary to produce it.
Right now we are seeing revenues crashing in Autos, Airlines, Construction, Housing, Finance, Trucking, Retail, Hotels, and Manufacturing . We are likely looking at over 50% of GDP and probably more as a percentage of employment.
At this rate.....if sales continue to decline....we should easily exceed 20% unemployment by summer.
Lesson 102:
If people and goods ain't moving....the economy is slowing. And let me tell you....based on my contacts IN THE TRUCKING INDUSTRY.....things are slowing.
Again, showing how meaningless relative performance can be in a falling market, if trucking is slowing 20% but air freight is slowing 30%, even though trucking is beating its air benchmark by ten points, if fixed costs require an 85% revenue base to remain solvent, trucking is bankrupt and shareholders are out in the cold.
What have we learned so far....
101...If a company is going bankrupt, stay out of the way as relative peformance doesn't matter when it comes to shareholders.
102..If things ain't moving, the economy is slowing. And often the things that move have high fixed costs....but not always...so be very careful.
Right now, based on high leverage and the rapid decline in revenues accross many industries, you should not be surprised if half the companies in the S&P go bankrupt and shareholders of those companies are totally wiped out!!!!
Heck, if you do a balance sheet analysis on many, Banks, Homebuilders, Auto Companies, Auto Suppliers and Airlines you might already find many to be considered effectively underwater.
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