Something's happening here. What it is ain't' exactly clear. There's a man with a buy order there, telling me I don't have to beware.
That's how I feel these days by the decision of some fast traders gunning the airlines and the cruise ships every morning well before the market opens.
The concentration is in American Airlines (AAL) , Southwest (LUV) , United (UAL) , and Delta (DAL) , JetBlue (JBLU) on the airline side of things and Royal Caribbean (RCL) , Carnival (CCL) and Norwegian (NCLH) on the cruise side.
It is relentless and it defies all reasoning about how stocks used to trade. In fact it is almost like the old schemes of the 80s when I would watch stocks be bagged, gunned and liquidated; they called it BGL for the bagged, gunned and the process and I never lived it, railed against it and tried to stop it with writings here, but it was futile.
The big difference this time? There is no liquidation.
It's hard to find the time that all of this started happening. I know that it did coincide with when Buffett blew out his airline stakes on May 3rd. We don't know the full story, what price he got on each. But consider these prices: American $11, Southwest $26, Delta, $23, and United $25.
These marked about the exact bottom.
At the time the analysts put out some pretty grave price targets. For example, Evercore slashed its price target on American to $1 from $10 when Buffett exited on May 1. At the time the stock was at $12. In retrospect with the stock at $21.
It's odd because the CARES Act, which was created back in March and executed at April 14, gave $12 billion to the airlines. American got a $5.8 billion from the government, a $4.1 billion grant and $1.7 billion in loans. The Treasury also acquired warrants to purchase 13.7 million shares at $12.51.
Now the stock's at $20, up 40% Thursday and 36% Friday. In retrospect the $1 price target at Evercore was premature or at least ill-advised. Speaking of advice, should the Treasury take the near double that it created? Always good to sell much higher the price that Buffett dumped, no?
American is not wasting time. It is planning some big severance packages even as they weren't supposed to lay anybody off. But it voluntary. Why not? American plans to fly only 55% of its domestic schedule in July versus last year, and 20% of its lucrative international schedule. Its stock was at $20.11 in pre-market.
All of the airlines present opportunities for U.S. Treasury to bail. Secretary Mnuchin gave United roughly a $3.5 billion grant and $1.5 billion in loans. It also got warrants to purchase 4.5 million of common stock at $31.50. United was at $46 in pre-market.
Southwest took a $2.3 billion in a payroll grant and nearly $1 billion in loans. It also got warrants to purchase 2.6 million shares struck at $36.47. The stock was at $39.85 in pre-market.
Delta took $3.8 billion in total payroll assistance with a grant of $1.6 billion and 1% of the company at $24.39 in warrants. The stock was at $36.65.
JetBlue, for good measure got $685 million in grants and $250.7 million made as a loan. 2.6 million shares of common stock at $9.50. It was at $15 in pre-market.
Spirit's (SAVE) pretty's much the same thing, too, they just didn't disclose anything I can find.
Because of the bagging, these stock prices all seem pretty inflated. TheStreet called the American rally "insane" last Friday. For the record I had nothing to do with the piece. I was on vacation.
As far as the cruise lines you have some major moves off the bottom. Carnival sold $500 million of shares -- 71,875,000 altogether -- at $8 on April 1 and $1.75 in in convertible bonds at 5.5%. It also sold 71,875,000 shares at $8 at the end of April. It was now at $21. It also sold $4 billion of $11.5 at $20.23. Its pre-market price was $25.14
Royal Caribbean raised $2 billion last week, with three year bonds at 9.12%, which was on top of $1 billion in three year convertible notes with a 4.25 coupon. That's on top of $3.3 billion at 11.7% 3 year notes and 12.3% of five year notes. That's a huge amount of debt but it could get them through until mid-2021, according to Bloomberg because it is burning $250 million to $275 million per month. Its pre-market price was $76.00
Is this all too optimistic? This morning Carnival CEO Arnold Donald told the Telegraph "that the fall out from Covid-19 has been devastating for travel and tourism broadly and obviously for the cruise industry, we have no revenue but large ongoing expenses because of the assets that need to be nurtured."
Norwegian took in $675 million at 12.25% on May 15th , according to people inside the deal. Its pre-market price was $25.80.
The stock was at $10. They also raised some money through stock but we don't know the price, according to Bloomberg. It is most likely around the $10 area.
Now there are plenty of stocks being run in the morning: Boeing (BA) , several oils, including Apache (APA) , but the most glaring are the airlines and cruise ships because their projections are so low even as their stocks are now so high.
Wall Street analysts fought almost all of these rallies. In fact, many called them fanciful.
Obviously the voracious pre-market buyers don't think so. Nor do the sellers because these stocks gap up every time.
Something's very wrong here. I don't know how this can be. But it is happening and it seemingly can't be stopped.
What it is ain't exactly clear, except for a gunning I have never seen before.