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What's the Rush in the Market?

Jason Stipp

Jason Stipp: I am Jason Stipp for Morningstar and welcome to the Friday Five.

Black Friday shoppers weren't the only things rushing around last week. Morningstar markets editor Jeremy Glaser is here with five hurry-up stories from the market.

Jeremy, thanks for joining me.

Jeremy Glaser: You're welcome, Jason.

Stipp: So what you have for the Friday Five this week?

Glaser: Well, I am going to talk about central banks, AT&T, American Airlines, Tiffany, and Daimler.

Stipp: So, the markets were pretty happy on Wednesday after some coordinated central bank action. What's your take away from that?

Glaser: There really was a rush into stocks when central banks across the world got together and said that they are going to take extraordinary steps to make sure that European banks have access to dollar liquidity. This has been a major concern for European banks. There aren't a lot of, say, U.S. money market funds that are just falling over themselves to lend dollars to European banks right now given all  the sovereign debt problems over there. So, this really was a big sigh of relief for them,

And you could hear this sigh of relief from investors. I think they cheered a few things. The first was just the actual announcement, that you're getting these dollars out there, I think certainly frees up the European banks possibly to lend, possibly to keep them solvent for at least a little bit longer.

Secondly, it showed that the global policymakers are still able to come together and have a coordinated response to this kind of crisis, and I think that that certainly cheered people up.

But this action really wasn't all good news. I think first it just shows how dire the situation has really become, that you have banks from across the world, who feel like they need to step in to keep the problems from spilling over into lending and spilling over into the rest of the global financial system.

I think that for a while we hoped that maybe it could contained just in Greece just in the periphery or just in Europe, and I think that's looking increasingly unlikely. That this is truly a global crisis and not just a European crisis.

Secondly, this really isn't a long-term solution. The market was rallying almost as if the entire crisis had been solved, and this really just buys some time. It gives the banks some breathing room, but it doesn’t deal with any of the underlying issues.

And I think we are going to be hearing a lot more about those issues in the coming weeks in front of the European Summit that's due, and then also the large amount of debt that Italy has to refinance in January.

Stipp: In the telecom space, Jeremy, there was some rushing around related to the AT&T/T-Mobile deal. What's the story there, and why is AT&T kind of scrambling now?

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Glaser: Even here in Chicago, you can almost hear the sound of lawyers and lobbyists rushing into Washington, D.C., to try to save the AT&T/T-Mobile deal. AT&T actually went ahead and pulled their applications to the FCC, saying that they don't want the FCC to even consider the merger yet, while they are dealing with the lawsuit that was filed by the Department of Justice.

It's really become a big mess. After AT&T withdrew the proposal, the FCC came out and said that they thought it would be horribly anticompetitive, and that T-Mobile really was this force for innovation and something they didn't want to see be completely rolled up into AT&T to create this monolithic wireless carrier.

It just shows that there's going to be a lot of regulatory hurdles between now and if this deal ever gets done. Even when it was announced, we were very skeptical--our analyst Mike Hodel was very skeptical--if regulators were going to go along with this. It looks like they're not going to give it an easy pass.

I think that there's still a chance that it would get done maybe with some huge conditions, but it's looking less and less likely, and I think this week AT&T is really scrambling to find that Plan B.

Stipp: Also this week, American Airlines rushing to bankruptcy court. They're not the first, of course, legacy airline to end up there. What's the story with this and what's the impact for the airline industry?

Glaser: American Airlines really is the last of the major legacy network carriers to file Chapter 11. They had taken as a point of pride that they hadn't done that, but really their cost structure had grown so much, and was so much more expensive than some of the other airlines like Delta and United, that they weren't really able to compete in the marketplace.

Our analyst Basili Alukos has thought that this was going to happen for a while. He says that this is really just them succumbing to the inevitable.

I don't think this is necessarily a bad sign for air travel. I think that one of the reasons that American was almost forced into Chapter 11 was how good the results of some of their peers were. That the ones who had really brought their cost structures in line, had been very disciplined about revenue management, disciplined about adding capacity, were really starting to post some pretty impressive profits, and a string of impressive profits, which is something that usually doesn't go hand-in-hand with the airline industry. And American Airlines failure to do this I think really just highlighted how many problems they're having.

They're not in an immediate liquidity crunch. They probably had another year of cash on-hand ... they wouldn't really have run into big problems, but they just figured they might as well get it out of the way, start the negotiations with labor, start figuring out how to right size their route network in order to be profitable again.

So, I don't think that this bodes poorly for the airline industry. I don't think we're going to see another string of Chapter 11 filings, and it should put American Airlines back on to a more stable footing.

Stipp: At the top of the Friday Five, I mentioned holiday shoppers, and it seemed like a good number of them were rushing into Tiffany. They reported results this week. It seems a little bit strange that in a tough economy Tiffany is doing so well. What do you make of that?

Glaser: We've talked about this before, that high-end shoppers are really ... spending a lot more money than people on the lower end of the shopping spectrum, and results from Tiffany, I think, really just underscored this.

Folks are out there buying high-end diamonds, buying fancy bracelets, whatever they want to get at Tiffany's. The stores are doing great, and sales are not only improving in North America, but also in emerging markets, also across the entire world. I think it just shows that even with all of the bad news coming out of Europe, and all of the potential economic uncertainty, there still really are glimmers of hope, particularly at the high end of the market, that consumers aren’t this bunker mentality, and I think that's probably a good sign for the recovery going forward.

Stipp: So Jeremy, speaking of the affluent consumer, there was also news out of the ultra high-end auto market that indicates there will be less choice there. One of the ultra high-end cars is no longer going to be available. What are you going to do now?

Glaser: Well, I'm sure that many people were rushing to dealers in order to get an order for their Maybach, which Daimler said that they're going to discontinue after selling only 44 in the United States this year.

This car, which ranges anywhere from $400,000 to over $1 million, just never really took off. So, I think it shows that even though luxury consumers may be willing to splurge on that diamond at Tiffany's, maybe the market for these ultra-ultra high-end cars was not as robust as they expected. But don't worry; you can still get your Rolls-Royce or your Bentley or your Aston Martin, and if you want to spend that much money on a car, you still have the opportunity to.

Stipp: Well, Jeremy, thanks for keeping the Friday Five rolling this week.

Glaser: You're welcome, Jason.

Stipp: For Morningstar I'm Jason Stipp. Thanks for watching.