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Non-Tech : Investor Alley - Stock Help and Picks
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To: Early Bird who wrote (6)8/11/1998 2:34:00 PM
From: simarx  Read Replies (1) of 26
 
Mike, What you are looking for is a summary of various macro-economic effects. There are a lot of industry inter-dependancies, such as the one you pointed out, namely the price of oil and how it affects the airline industry. Of course, the principle that needs to be followed is that any reduction of costs on the expense side of an industry is positive and the reverse holds true as well.

It gets complicated once we start going into specifics however. Using your same example, let's take it to the next level:

Lower Fuel Costs = Better Earnings for Airlines = lower fares for passengers = increased bookings for airlines = airlines decreasing commissions for smaller travel agents = closing of smaller travel agents = more business for larger travel agents as the travel agent business continues consolidating.

Of course the other component is a good national economy which also increases travel demand. So under current conditions, we can surmise that Airline stocks will do well as well as the larger travel agents. We can also predict that smaller travel agencies (10 or so agents) will either close down or consolidate with the larger agencies (Another reason why I am so bullish on IFLY right now.)

I am looking to see if these inter-dependencies have been published, but the first place to start looking is under macro-economics. That is an excellent question and one that many investors should be asking.

Here is another example: The Asian Market Crises = Reduced Electronic Component prices = lower cost of goods for US buyers = Strong Economy with insignificant Inflation = Lower interest rates = Continued growth.

However that example gets complicated: Although we have a stronger economy and are able to maintain lower interest rates to fuel the growth, the multinational companies will eventually start feeling the hurt abroad and that will effect their profits. So we can surmise the following: Short-term DOW components will do well until they are hit by the longer-term effect of Asia. Since the Asian crisis started last year around this time, we can expect various DOW companies to start reporting the effect now.

However, this actually has a silver lining. The smallcap environment will continue to benefit from decreasing interest rates and cheaper foreign components, fueling their growth and increasing their profit margins. So while we may be bearish on the DOW, we can be bullish on the Russell 2000. So a flight to the smallcap market may be in order. Expect to see analysts starting to look to the smallcap market for relief. There are many profitable under-valued companies in the smallcap that have been ignored with investors concentrating on the larger companies. This may be the time the Smallcap market starts making its moves.

simarx@yahoo.com
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