DC prepares action after United Airlines dragging incident


Tensions Growing Over North Korea and Syria

Jonas Max Ferris: Only defense stocks like growing military fears. While we were already planning on increasing defense spending under Trump that was more a power move to prevent having to get into conflicts in the same way that if you pull up to a light with a supercharger sticking out of your hood the guy next to you may be less likely to challenge you to a race. I'm not saying that is a good strategy necessary but it was our strategy in all likelihood. Markets and investors liked Trump's 'stay out of it' campaign talk. While America has a strong enough economy to handle surprise costs it is still a negative. The Iraq war wasn't a huge direct hit to the economy or markets but there were issues in the oil markets that only recently went away and there is a general issue of us seeming like a washed up power like Russia by fighting to lose. There is also the new issue that such entanglements could mean no time for what investors really want which is tax reform. You can already see stress in the markets and with volatility with this recent trouble. There is the additional problem of getting into a war with Russia on the other side.
That all said ignoring N Korea until they have better nukes isn't a strategy. I'd think investors/market would rather see us sit out Syria and get a plan with other nuclear powers to destroy N Korea's ability to make nukes without engaging their much larger army than Saddam had. This is no easy task. It is also probably one the perception is Trump is not up for and doesn't play into his areas of strength.

Gary B. Smith: Almost all military action, especially when it's unpredictable hurts markets in the short term...and is generally negative for the economy in the long term. This is not generally true in most standard economic models. In fact, most models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment. 9/11: The biggest economic impact of the 9/11 attacks was how the increased defense spending led to the U.S. debt crisis. Without the War on Terror, the debt would be $16.2 trillion or less ($18 trillion minus $1.8 trillion. The War on Terror meant that fewer funds were available for stimulus programs to boost the country out of the 2008 financial crisis. Fewer jobs were created, which meant less tax revenue, further increasing the debt. That also meant less funding for infrastructure repair and replacement. In addition, any introduction of uncertainty CAN cause a change in consumer behavior, although this is generally short term.

John Layfield: Military action will not affect the market unless it does something to the world economy. Strikes in Syria don't affect oil prices significantly and North Korea is so isolated-that unless the conflict escalates there will be little effect. I do think a strike in North Korea-unless it is short and successful-will shake consumer confidence.

Morgan Ortagus: Okay for NK/China, what would US action in NK mean for the market economy?
Well, the short answer is nothing good. Clearly instability in Asia will throw off the world's markets. But I would argue that allowing NK to have the ability to launch their nukes would be far more destabilizing for global and American markets. The question is, do you accept an ICBM in NK hands that can reach America? They already have nukes. But will we allow them to develop a military delivery system (plane or missile). They are marching towards this. Challenge for Trump: what's his red line? What's his goal?
Two ways to protect: build a missile defense system that you hope will knock it down. Otherwise you have to tell them (through China) that we're going to degrade their missile program through kinetic action.
China benefits from the instability. They like the tension it creates. They are scared of Trump taking action. They're doing more because of Trump but there's still a long way to go. The whole world is testing Trump. What will he actually do? From a crass market perspective, I would argue that instability in Asia would actually drive investors to the US and the developed world-- you definitely wouldn't keep your money parked in the emerging markets in the scenario that the US takes action. Japan and South Korea have had a rough few years economically, and the majors corporates located there would take a massive hit as well.

Jessica Tarlov: Geopolitical jitters have certainly hit the markets. Trump had been benefitting from the argument that his administration was settling things and leading to increases in economic growth/markets - what he needs to win re-election. Should watch defense stocks. But also remain concerned about consumer confidence - Americans don't want another war and could start behaving differently as tensions continue to rise (Syria, Russia, and NK now!)

New Look at Potential Impact on Fliers as D.C. Prepares Action on Dragging Incident

Jonas Max Ferris: If you define hurt flyers as raise ticket prices than it will hurt flyers. It is embarrassing that republican lawmakers are jumping on the United trend like united needs a rule to prevent doing this again. The government needs to focus regulations on the places where the consumer has no or little power -- utilities, cable companies, some internet giants now, drug companies, etc., if a consumer can switch AND the company in question has a huge brand at risk very little regulation is needed. Specifically with airlines the government needs to look at mini-monopolies and collusion on certain routes, not general policies that customers can switch out of. Occasionally there are times when government regulations can prevent bad outcomes from natural competition but these are rare. Pollution applies here, as does say billboard size/zoning type rules. There may be a race to the bottom with ticket prices where the government needs to step in to prevent an undesirable outcome but this doesn't likely cross that line.
The government didn't need to crack down on exploding Samsung phones b/c we have Apple in a highly competitive situation. If consumers really cared about United they would simply choose another airline. I bet for all the outrage 99 percent of consumers would take a United flight over say American or JetBlue for a $10 savings. Internet outrage is easy, paying more for a different service that doesn't offend requires actually doing something that you make a sacrifice.

Gary B. Smith: Like almost all times when gov't intercedes, it'd hurt fliers. Ban overbooking? Idiotic!
It means selling 180 tickets for a 200-seat plane. The remaining 20 tickets would be for people who were delayed for an earlier plane, or who for other reasons need to get re-booked. But doing so would make the price per ticket 20-50 percent much more expensive. No one argues that United was wrong. But, the market will correct United's actions: bookings may go down and the doctor will receive compensation through the courts. And, travelers will still get low fares. If gov't intercedes you can say goodbye to a roundtrip ticket from Orlando to LA for less than $500. Despite incredible growth, airlines have not come close to returning the cost of capital, with profit margins of less than 1 percent on average over that period. In 2012 they made profits of only $4 for every passenger carried.

John Layfield: This was a disaster, only 1 in 16,000 passengers are bumped and 91 percent of them do it voluntarily. However, this was beyond stupid on United's part. I do think there is a problem with buying a ticket and being forced off the plane, especially for employees (they have 11,000 flight operation employees-figure it out).

Morgan Ortagus: Government already heavily/over regulates the industry and imposes several taxes that raises the tickets prices exponentially. If you look at the breakdown of the price of a ticket the majority of the price are taxes. Perhaps this administration can help with their 2 to 1 regulatory relief program by getting rid of many of these rules. Although, airlines will always find another way to charge fliers for something. Maybe there will be a fresh oxygen tax next. Everything will increase fares. The airlines will use any excuse to raise fares, even if it makes no logical sense. Airlines charge overbooking fees because their actuaries, when proving a flight, assume a certain number of no shows and compensate for that. So, if they can't compensate for an average number of no shoes, they will make it up on other passengers.

Jessica Tarlov: My understanding is that overbooking is usually not a problem and critical to ensuring that airlines can turn a profit (or just break even). Serious concern that fares will go up, particularly harmful to consumers at a time where you're charged for bags, etc.

Report: DNC Urges Supporters to Fight for ObamaCare at GOP Senator's Town Hall

Jonas Max Ferris: They need to focus on telling people to vote in elections not protesting, arguing, etc., these are tactics that would be necessary in China or Russia where you can't vote in your people to fix things. If the government is wrapped up in something you don't like that both parties are behind, like Vietnam, by all means protest. If both parties are allowing an injustice you can't vote your way out of, like civil rights issues, it makes sense. Obamacare can be saved by one trip the voting booth. Even if Obamacare is killed, it can be un-killed with voting. Just don't vote for Jill Stein again because you don't like how Hillary was palling around with bankers.

Gary B. Smith: Why not? If the people really, truly want ObamaCare, then let the Dems own it. Apparently for a large section of the country, it's terrific. That's democracy. At some point, it'll either succeed or fail, or the gov't will run out of money to support it. But, it'll be what the people voted for...

John Layfield: The senator is an adult and can handle it. This is perfectly fine, and it should be welcome for free speech in this country.

Morgan Ortagus: Good for Jeff Flake for standing up for himself. These protestors were ridiculous and had faux outrage when they should be mad at the previous administration for passing the ACA.

Jessica Tarlov: Yeah why shouldn't Dems be pushing people to go to townhalls and express their frustrations? I don't think they're inciting violence - just saying get out there and defend Obamacare!

Stock Picks

Gary B. Smith: GM makes money. TSLA doesn't. Buy GM: stock up 50 percent next 5 years

John Layfield: Make money on airlines that don't drag you off the plane. Delta up20 percent in a year, I do own it

Jonas Max Ferris: JetBlue gets free publicity of their no overbooking policy thanks to United public shaming JBLU up 20 percent in one year