- Martin Sosnoff
I participated wildly at the dawn of the Jet Age. Boeing brought forth its transcontinental model 707 that spanned the Atlantic and Pacific oceans. I wasn’t smart enough to buy up half of downtown Honolulu (Bishop Street) or amass raw acreage on Maui.
But I did leverage myself with aerospace convertibles in 1961. Eastern Airlines, United Aircraft and Boeing. I grabbed onto money brokers who financed convertibles on 10 points margin. You bypassed FRB margin requirements at 90% then. I cursed McChesney Martin, who made his reputation as the FRB chairman who took away the punch bowl.
What’s ludicrous now is the broadly trumpeted quarter-point bumps coming, probably over next couple of years. With inflation raging at 7% hall-of-fame chairmen like McChesney Martin and Paul Volcker would have bumped Fed Funds to 7% months ago. Where are the 90% margin rates? Nowhere.
What I loved about the pre-Jet Age was the Street then was a small village with just a few feisty operators. The public didn’t know how a hedge fund operated. I remember when George Soros managed $20 million which made him a big operator then.
My point is there was minimal competition for good ideas then and they stayed actionable for months at a time, not just overnight. Those days, Soros shorted the pound, billions worth, in the face of the Bank of England remonstrating to the world they would never even dream of such as act. Days later, the Bank of England devalued the pound and George cleaned up. In the financial world veracity is a sometimes thing, lest we forget.
I flirted then with going for control of an airline, namely U.S. Air, which traded at 4 bucks. But, I was thrown off by its crappy route structure, mainly the East Coast. Everyone hated this property, but when the environment got a little better the stock got a lot better. I remember it topping out around 40 bucks, without my participation.
The market capitalization currently for American Airlines approximates $13 billion, matched by $13 billion in balance sheet liquidity. They ain’t getting snuffed out overnight. Lately, I took the coward’s way out, buying a block of their convertibles with a 6.4% coupon. The bond matures in approximately 3 years. Then, they’ll fund a new convert with a lower coupon, say 5%.
The downward spiral for American Airlines started end of 2017 when it traded near $60 a share. Later, it bottomed at 10 bucks in March, 2020, along with everything else. The S&P 500 Index has more than doubled, since then, but our airline logged just a 40% gain. Never fall in love with airlines, a lousy capital-intensive business. Look to its prime industry suppliers. Herein it was Boeing. It bottomed in March, 2020 at par. Even with all their 737 MAX issues, it ticks now near double par, still the dominant supplier of aircraft.
This buy-the-suppliers concept goes way back to the 1850s Gold Rush when Levi Strauss furnished jeans to gold prospectors in California. Nowadays, I’m looking for end-of-Covid-19 plays, namely the gaming stocks. My operating history dates back decades when I pursued a hostile tender offer for Caesars World. Today, Caesars is a spiffy property, comfortably capitalized.
Wynn Resorts has been cut down to half its peak reached years ago. Spiraling gas prices at the pump now are a new traffic inhibitor for prospective gaming players. Even so, Wynn should reach a cash flow neutral position by yearend. Then, earnings power reasserts itself in a relatively Covid free setting, Wynn could double, selling around $150 or better.
My leading indicator is Steve Wynn, and other honchos who turned into players in the contemporary and modern art markets. Despite Wall Street’s funk, Christie’s and Sotheby’s revenues hang in. A younger generation of Chinese are now active bidders. Not that they’re the savviest players in town.
Let the sun come up like a red rubber ball.
I own 2 of the 10: Microsoft and UnitedHealth Group. They’re 15% growers with few visible impediments. The remainder of the list is too pricey for my taste. A proxy bundle to play is the NASDAQ 100 Index which you can do from your armchair. I gotta devour all the financial statements with a magnifying glass or lapse into a funk. Alas!