Even Icarus wouldn’t fly Southwest

Happy Friday!

The 3Q2021 Quarter in Review is available. Pay particular attention to the last section (titled “Looking Ahead”). Back in late August, I suggested that we should prepare for the economy to start slowing down at some point, so I extrapolated this subject.

Don’t forget the punchline here – deceleration is good for the economy and the stock market. Slow and steady wins this race.

Ok let’s get started…

Prior to kids, I traveled more than most pilots. I averaged 140,000+ miles (domestic) and maybe half that internationally on a good year. During that time up in the air, I learned to hate everything about Southwest Airlines, and still to this day, they are #1 on my “Do Not Fly” list.

But apparently there are people out there who enjoy sitting backwards during takeoff and feel invigorated by those aromatic notes of sewage emanating throughout the cabin. To each his own – I’m not one to judge.

So, when I read about Southwest in the news, I generally hope nothing but the worst for them, which is why this week felt like Christmas.

However, given the statistically significant probability that political undertones could metastasize from this story, I’m not going to touch the conspiracy theories for now (refusing to fly Southwest is pretty easy, but flying too close to the sun can be trickier).

I just have one question for Southwest’s c-suite regarding their decision to lie to the media… What the hell were you thinking?

Moving on to energy…

I’m not crazy enough to have an opinion on where oil or natural gas is headed, but anytime I see multiple sell-side reports published on why oil’s next stop is $100, I pretty much assume that the price is about to get hammered. There’s a straightforward reason for this phenomenon:

Michael Jordan plays basketball, Zamfir plays the pan flute, and OPEC members cheat.

It’s just this simple. Most of these countries need money, and now that oil is at a multi-year high, it’s prime time for game theory because whoever cheats first is going to get paid. This added supply tempers price somewhat, which then causes the other cartel members to open the spigot 12 minutes later etc., etc., etc.

Anyway, I don’t care if XLE is up 54% this year. My overall opinion of the energy sector remains unchanged – I can’t see much entrepreneurship and innovation coming out of the energy sector anytime soon, so therefore, I’m happy to sit this trade out.

Moving on to inflation…

More data came out this week widening the disconnect between the Fed and those who think we are about to repeat the 1970s. We’ve discussed inflation extensively over the last year. I’d wager the U.S. settles in to 3-4% annualized inflation after some of these supply issues get resolved. If so, this tailwind for stocks should stick around for a while.

But there’s no question that inflation needs to be watched closely. If I’m wrong and it’s materially higher than the upper end of this range, then we’ll need to change our approach.

Speaking of the Fed and inflation, here’s the “Meme of The Week”…

Lastly, I’m breaking up…

I’ve recently begun a journey that I may end up regretting in ways I can’t even begin to imagine. I’m leaving gmail and transitioning my personal emails to something more private. I’ll skip the reasons why, because by now they should be obvious, but what’s far less apparent is how awful this process could become.

And no this has nothing at all to do with Gruden. I’ve been planning this for months now, so don’t think for a second there’s any corollary here.

Enjoy the weekend…