Great Lessons on Oil, Earnings and Banking

Here’s what we learned today on The Opening Bell:

1.    CEOs think oil prices are headed higher next year. Southwest Airlines CEO Gary Kelly made that clear to me. 45% of Southwest’s fuel portfolio is hedged this year and 65% for next year. He said the average oil price ranges from low 70s to mid 80s. Oil just closed at a new high today and is up 60% on the year.
2.    Joshua Rosner from Graham Fisher joined me on bank earnings this morning. Yesterday, JPM reported. Today GS & Citi reported. All three reported better than expected #’s. The real strength is coming from the capital markets, investment banking and trading businesses. What does that tell us? JPM’s Bear Stearns purchase and BAC’s Merrill Lynch purchase are likely to be winning combinations in this recession. So much for that too big to fail conversation! Looks like traditional commercial banks providing loans are faring far worse than banks with capital markets and banking businesses. We’ll see how long that trend lasts.
3.    Capital flows into the markets have gone in one direction: to fixed income. Fixed income inflows have been 18 times higher than their equity counterparts. According to Morningstar, a net $254 billion was added to bond funds thru Q3 of this year versus $14.5 billion to stock managers. My good friend Charles Payne reviewed a couple stats with me. Unfortunately , investors dumped $50 billion worth of equities in February and March at the market lows. Not pretty! Now we know why people are calling for a bubble in the bond market.

Take a look at the interviews below.

Here is Gary Kelly, Southwest Airlines Chairman & CEO. Last quarter he told me it was the worst revenue environment for airlines ever. He sounded slightly more optimistic today but still very cautious about rising costs.

Jeff Rubin former chief economist at CIBC says now is the time to buy oil. He predicts $85 by year-end and triple digits by the end of the 1st quarter next year. He believes rising oil prices led to the global recession not subprime mortgages. He’s concerned it could stall the recovery in 2010.

Joshua Rosner, Managing Director at Graham Fisher & Co. is cautious on banking. He shared some disparaging statistics on small businesses and access to credit. A very big road block for recovery. Take a look.