Thanksgiving Talk

Barely before I picked up the phone and started holiday season's greeting, the other end of the phone came with such barrage, “there will be no solutions to European crisis. Absolutely no solution. Even the German Heaven had problem selling debts. If Europe down, China will be down, India will be down, everything will be down. Not even gold isn't safe. We should keep a lot of cash.” I put myself together and realized this is one of the most pessimistic opinions that floating around. We then skipped the greeting part.

I go with one seemingly unrelated report on airline fare first. Nowadays long distance first class flights are more and more like private jet. The reclined seats are spacey. One airline even goes to the extreme: it puts a normal bed next to the seat. All the clients want is comfortable sleep during these long-distance flight. The benefits of these gadgets are obvious: the first class fare normally generate 50% of total revenue. The prices of first class are usually 5x to 10x to economy tickets. That means the 10% to 20% people generate half of the revenue. Airlines do their best to allure high class customers. In other words, quality is more important than quantity.

Now pull back from that topic at the start. I don't think the situation is that dismal, although it is serious. The Big Three in Europe, Germany, France, and Italy, as well as ECB just had a meeting to discuss the Euro zone problems. They tried to keep budget down so that they can meet capital requirements. This is truly uncertain time because of the complexity in European political web. When the big guys collaborate, just like the airline business, it is easier to stabilize. The 3 out of total 27 EU countries realized that they must ally. That is the most important message. In addition to that, recent bond yield hikes didn't come to consensus: some fund managers think the countries can meet their responsibilities even with 7% yield for short period of time so they are attractive. Even the worst of the worse happens, EU collapses, some still think individual country have their own currency. The Fed has been printing money to tolerate higher level of debt, why can't they do that?

Some more clear positive news in the U.S. side.

- Last quarter customer spending is up;

-Thanksgiving holiday spending is estimated to be up 2.8%, before official numbers;

- After adjustment, GDP is at 2%, within expectation;

- Unemployment rate is down (some say it is hard to find clear economy direction out of unemployment rate. I don't know what is more important than employment);

- Companies hold hundreds of billions cash;

- Warren Buffet has been in buying spree in the last quarter;

- Larry Fink thinks that bond yield can't make long term investment sense. The only way to go is equity, with high quality dividend;

- Although it is slow, consensus shows that economic recovery is expected to grow over time.

So the situation isn't that dire.