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May 08, 2008

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Stupid Equity Guy

Sir Anal,

Thank you for taking the time to ponder the implications of an energy spike. The far end of the CL market is in rocket mode... Backwardization is being backed up into a setup where contango will take over...

Expectations of inflation are growing...

~SEG

Stupid Equity Guy

Here is an interesting chart about gas price taxes and possible savings if removed for the summer...

http://graphics8.nytimes.com/images/2008/05/06/us/0506-nat-sub-webGAS2.jpg

Anal_yst

SEG, expectations of inflation may be growing, but the equity markets continue to - in my mind - presume that the worst is over. Just look at the "teen retail" numbers that came out recently. Markets seem to be focused on the y/y revenue increases and not on any of the macro fundamentals (high commodity, food, energy prices), ballooning consumer credit balances, and every other piece of relevent information.

Hopefully I won't fall victim to Keynes' (in)famous phrase about the markets and liquidity...

Calgary Schmooze

By referring to recent teen retail numbers, are you talking about your recent trip to the mall?

Stupid Equity Guy

Schmooze,

That was how I read it... BUTT I am not trying to put words into Sir Anal's mouth...

~SEG

Who's secret identity might become known if I pull off a take down in a sector you and I both work/invest in... No more details until later... but if it happens, you will hear about it up there... and I will probably write an obituary/after action report for the boys to post here...

Calgary Schmooze

SEG - I didn't know you were that into p0rn. haha

But if you're going to take anyone out, please make it involve SU. I can't think of a better way to open up the eyes of Canadian citizens and politicians than to have the crown jewel get plucked by foreigners.

Anal_yst

Not so much referring to my trip to the mall, as I am referring to the retail same-store sales numbers that came out this week. Whoohoo ARO posted 25% increase in same-store years over same quarter last year - oh yea, thats sustainable...

Stupid Equity Guy

Schmooze,

Even with the worlds smallest GS Institutional account, I doubt they will let me leverage up to take down SU...

Being an honest Piker... I have to say its small cap time, and its south of the border... but you will hear about it on the grapevine because of the approach taken...

~SEG

Being a piker I have to recruit someone with actual experience in running one of these suckers... I am more of the Hitman then the race car driver in this one...

Fake Steve Fienberg

Analyst, don't bring this spotty analysis with you to the buyside.

This is a simple fixed for floating swap, they can either hedge it in the futures market, buy insurance or take on the risk unhedged. The issue with the airline industry is not one of unhedged energy costs but rather one of too much competition being kept afloat in the market by a cabal between AIG, GE Capital and Boeing in order to sell air planes and excise huge financing fees.

Anal_yst

@ Fake Steve Feinberg

Besides being just a back-of-the-evelope "analysis", my point was that Airlines (on the whole) have tried and mostly failed (miserably) at hedging their fuel exposure in the futures market, save Southwest who seems to be the only airline who understands hedging in the slightest. I wish "yourself" the best of luck in this endeavor though.

As far as the fixed-for-floating swap goes, good luck getting any bank (or half-intelligent) counterparty to do that deal in the current environment. Ordinarily I'd agree with your suggestions that its a simple proposition, and maybe 2 years ago, but again, best of luck. Going unhedged leaves them with the uncertain out-lays I pointed out. Playing the futures market could be even worse (again, using airline's efforts here as a guide). Maybe they'll suck it up in return for the big deal fees they're hoping to get from you in the future?

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