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OI Technical Staff : 9/17/2005 10:00:02 PM

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Jeff Bailey : 9/17/2005 4:20:12 AM

Note to President Bush : Something I've got to get off my chest. First, I should disclose that I did vote for Mr. Bush in both elections.

My note to Mr. Bush would be a bit critical of his speech to the nation the other night.

I should also want to disclose that I have donated money to relief efforts to try and help those impacted by Hurricane Katrina, but President Bush, I disagree with one part of your speech the other night.

I believe that the Federal Governent should help states with relief efforts when it comes to the safety of the nation's citizens.

However, I'm not sure I agree that the nation of taxpayers should pay for, or assist business to re-build.

Perhaps President Bush misspoke when he was talking about Americans, and how entreprenurial Americans are. Then President Bush outlines thoughts on how the taxpayer would "foot the bill" to offer business' various incentives to re-build various business areas impacted by Hurricane Katrina.

My disagreement comes from the "free market" belief that I, and probably 90% of investors hold dear. When has an entrepreneur ever needed an incentive to do anything? An entrepreneur takes risk! And for that risk, they look for reward. Reward from the market (persons, industry) it serves! Not just financial reward, there are other rewards. But is it, or should it be the federal governments place to offer financial, or tax-credit incentives in order to get somebody to do something, they wouldn't otherwise do?

I won't go into the reasoning behind building a city below sea level. Those entrepreneurs that did live, or do business below sea level knew the risk. And for that risk, they looked for some satisfactory reward.

What happens now if these kinds of risk are "subsidized?"

While this commentary may seem like I'm standing on a soap box, what I'm trying to convey is this.

I don't mean to try and speak for the "market," but most free economy thinkers simply don't like subsidies. There's a great quote in one of the pages of The Stock Trader's Almanac regarding subsidies. Something like ... Anytime you subsidies anything, it promotes mediocrity.

Should the federal government (and any person payng federal taxes) be offering billions of dollars to re-build anything caused by a natural disaster? Especially with a current account deficit that we have? The free market side of me says "no."

Atwood, KS. Good heavens. That little town is hungry for some type of business stimulus. At this point, they are trying to do things on their own to encourage industry to move there. In the next couple of months, should they expect the federal government to kick in a couple million to help them out? If so, what about St. Francis, KS just down the highway?

Does anyone understand what is taking place in the airline industry? Hey! All I have to do is file for Chapter 11, cut some jobs, get rid of some pensions, force the unions to "give in." If I can file for Chapter 11 before my competition does, then I can get lean, (even though I've tried to get fat on breadcrumbs) and not bother trying to hedge my fuel cost risks. Then, once I get rid of my creditors and give my shareholders a big fat capital loss, I can then come back into the market and do it all over again. No? U.S. Air has proven they could do it a couple of times!

Delta and Northwest will most likely come out of Chapter 11 looking pretty. Not the current shareholders of DAL and NWAC, but the company's themselves, if the courts don't order them to close their doors/cabins for good.

Guess what's next?

Was it a coincidence that minutes after Delta announced it was filing for bankruptcy that Northwest did? I don't think so. Northwest management probably knew it was better to go along also. Hey, if the competition is going to "get lean," then we shouldn't let them get a jump on us.

Should the bankruptcy courts allow DAL and NWAC to stay in business and not liquidate to pay off their creditors, then other airlines will either suffer the same eventual doom, or they'll have to change the way they do business (hedge your fuel, cut pay/benefits and re-negotiate union contracts). Why? Because as poorly as DAL and NWAC were/are managed, they beat you to Chapter 11, they'll be leaner and "debt free" once they reorganize.

Look at UAL. They're went bankrupt, and they're as big, if not bigger than they were when they filed! Ahhhh.... Chapter 11 is like a subsidy gone wild! Yes, cut some fat here, restructure this there, cut those pensions there. Then come out and do it all over again as long as the federal court allows me to.

Don't tell the courts about how free markets work! At least not until they see another airline file for bankruptcy!

I can only imagine UAL trying to get out of bankruptcy, but they'll be screaming to the high mountain that DAL and NWAC should be liquidated, and that there's just too much competition as it is.

Several industry analsyts strike a tune when they say "it isn't a matter of if they'll go bankrupt, it is a question of when." If an airline can't get consessions from their unions and get rid of pension liabilities, they won't be able to compete with other like JBLU and LUV.

One reason some airlines don't hedge their fuel costs may well be that the fuel prices are the smallest of worries at this point in the game.

Ah yes. Bankruptcy without order to liquidate is not all that dissimilar to "subsidy." If the federal courts will let me kiss my creditors goodbye, but still let me conduct business at a more competitive financial position than my competition, then I'm much better off being in bankruptcy than out of it!

Well... there are two things that have really eaten at me this week. I believe both are somewhat "market related."

In the future, I might also have to come back to these comments and thoughts.

This week's move in gold did not go unnoticed, and it is my hunch that much of it comes in response to Hurrican Katrina, and the "Bush-plan" to offer federal aid in areas that federal dollars needn't be offering support. Financial aid to human life is good policy. But, financial aid/incentive to encourage entrepreneurship? New Orleans and other cities along the Gulf Coast are wonderful places. I don't think federal dollars are needed for entrepreneurs to realize that!

Hey, even Forrest Gump realized it! How did he make his millions? As I remember, some type of storm wiped out all his competition, and when the storm cleared, his boat survived and he had all the shrimp to himself. Yes, he was "lucky," but he didn't need a subsidy.

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