Wall Street Folly

Cheap Seats Available – Airlines Are Flying With a Strong Tailwind Housing Hangover? – Housing’s Hidden Headache Much at Stake – The Fall Docket: Business Cases Abound The Perfect Storm – Florida’s Housing Hurricane The Silver Lining In HP’s Scandal Juicier Apple Is Tempting

Cheap Seats Available – Airlines Are Flying With a Strong Tailwind

IT MAY BE TIME FOR INVESTORS TO RECONSIDER their understandable aversion to U.S. airline stocks. The industry may be in its best shape ever because of wrenching cost cuts at mainline carriers such as American Airlines, Continental Airlines, United and US Airways Group, that have made them competitive with low-cost operators like Southwest Airlines and JetBlue Airways. The favorable changes in recent years, particularly involving labor, haven’t happened easily, often coming at the point of the sword in the bankruptcy process. U.S. airlines notched one of their most profitable quarters ever in the three months ended in June, despite punishing oil prices in the range of $70 to $75 a barrel. The reasons: lower cost structures, restrained capacity growth and a robust economy.

The just-concluded third quarter looks good, but not as strong as the second quarter. Traffic declined in the wake of tighter security restrictions that followed news of the foiled London bomb plot in August.

For the first time since 2000, the industry could be profitable in the seasonally weak fourth quarter, owing in part to the recent sharp drop in oil prices and the loosening of federal rules on liquids in carry-on luggage. The outlook for 2007 looks bright, barring a sharp economic slowdown. In fact, next year could be the most profitable ever for airlines.

The new prosperity is being felt and fueled by airline passengers, who have to contend with crowded airplanes that regularly are more than 80% full. Empty middle seats increasingly are a thing of past, especially on flights out of busy hubs like the three New York-area airports….

Housing Hangover? – Housing’s Hidden Headache

HOME BUILDERS HAVE THRIVED IN THE PAST five years as easy money fueled enormous demand for houses — as well as abundant supply. The role of low interest rates and novel loan structures in helping buyers enter the market — or trade up to McMansions — has been well-documented. Less understood is the potentially problematic financing that has enabled developers to increase their supply of land to meet, and perhaps exceed, this unprecedented demand.

Unlike in past housing cycles, when they borrowed heavily from banks, home builders today also use options and off-balance-sheet joint ventures to buy land. When times were flush, these financing vehicles enabled the industry to expand without bulking up its debt. But now that the housing market has weakened, land options and joint ventures could come back to haunt some companies, their financial partners and the broader economy — not to mention stockholders.

The pain could be twofold: If orders dry up and home builders are forced to write off their option deposits or joint-venture investments, which are considered assets, some could face substantial hits to book value. Alternately, builders’ earnings could be nicked if joint-venture gains turn to losses…..

Much at Stake – The Fall Docket: Business Cases Abound

THE STAKES FOR BUSINESS AND INVESTORS DURING the fall Supreme Court session, which opens this week, are higher than they’ve been in several years. A patent case, a tobacco case, a banking case and a couple of antitrust cases have the business community on the edge of its seat. Here’s a rundown:

• Watters v. Wachovia Bank
• KSR International v. Teleflex
• Philip Morris USA v. Mayola Williams
• Bell Atlantic et al. v. William Twombly and Lawrence Marcus
• Weyerhaeuser v. Ross-Simmons Hardwood Lumber….

The Perfect Storm – Florida’s Housing Hurricane

HURRICANE SEASON COMES EVERY YEAR in Florida, but a really damaging storm comes along maybe once a decade.

So it is with Florida real estate: After years of good weather, the Florida housing market is due for a Category 5 hurricane. Sample recent headlines from the real-estate page: August existing home sales in Florida drop 34%, condo sales off 41%.

Pay attention, Northerners and left-coasters: Although much of the country is safe from hurricanes and skyrocketing homeowner’s insurance, the real-estate hurricane knows no boundaries.

Just as a hurricane needs warm water to feed its power, the housing industry’s hurricane was fed by reckless investors feeding money into a real-estate bubble during the last few years. And not just Florida’s: Investors have fueled all of the hot housing markets, including Arizona, California, Northern Virginia, Nevada and many of the Eastern Seaboard markets….

The Silver Lining in HP’s Scandal

THE SECRET IS OUT. The board of Hewlett-Packard isn’t the epitome of corporate governance and astute business leadership. But we didn’t need Pattygate to reach that conclusion. If there is a residual benefit from this unseemly quagmire of inept corporate espionage, it is this: The Palo Alto tech titan may finally fix its board.

HP’s board has been less than stellar for some time now, starting as early as the twilight of former CEO Lew Platt’s career. By all accounts, Platt was an affable leader who benefited by having the dot.com wind at his back for much of his reign as HP CEO from 1992 to 1999 (he was elevated to chairman in 1993).

But critics contend that Platt’s poor leadership was responsible for HP’s turn-of-the decade fall from grace, which led the board to recruit inexperienced super-saleswoman Carly Fiorina from the mid-ranks of Lucent Technologies to replace him. Critics point to Platt’s belated entry into the cut-throat personal computer business in 1995 — a decade after Microsoft went public — as his biggest misstep. The board probably should have started to nudge him toward early retirement then, but he didn’t retire until 1999.

A greater sin than Platt’s, however, was the passive board’s unwillingness to question his strategy….

Juicier Apple Is Tempting

DURING A PRESENTATION I GAVE at a personal-finance conference back in 1992, I asked the Mac owners in the audience to identify themselves. Just two from a group of about 300 people raised their hands. "I like my Mac," explained one of them, "but I have a PC for my serious work."

That seems an apt summation of the two computing systems’ long battle: in one corner, the Mac, expensive, fully outfitted with software and suited for graphics-heavy games; in the other, the PC, cheaper and stripped down (with loads of options to build-your-own), but able to handle most jobs with ease.

But the nature of this bout is changing for everyone, including electronic investors. The newest Macs offer PC-like pricing, especially since they come as an integrated set that doesn’t need pricey add-ons. In turn, PC users who have been waiting to upgrade to Microsoft’s delayed next-generation operating system, Vista, can’t help but look on a little enviously.

Through its new Intel-based Macs, Apple Computer offers a tempting alternative. Its third-quarter report to shareholders boasted huge sales increases, and says that the company — already enjoying iPod’s huge success with consumers — now holds 12% of the laptop market, up from 6% in January. Desktop sales haven’t experienced the same leap, but analysts expect that will change as the Intel chips are installed in future systems. (Apple didn’t respond to our queries for this story)….