Bankruptcy filings by American Airlines (AMR, quote) today and from General Maritime (GMRRQ, quote) earlier in the month emphasize the profitability of shorting the exchange-traded fund for airlines, Claymore Airlines (FAA, quote), and for shipping, the Guggenheim Shipping ETF (SEA, quote).
This was detailed on www.emergingmoney.com in a previous article, “Shorting transports into a possible commodity bounce.”
Since that time, both FAA and SEA have declined further. Each is now trading near its low for the year. For 2011, FAA is down more than 36% and SEA is down more than 48%.
Next year does not look any better for either ETF or the underlying industries they track.
High fuel prices will continue to plague shippers and airlines. In addition, economic growth is slowing in China, India and Europe. It is still anemic in the United States, too. This reduces traffic — both passenger and commercial — for ships and planes.
In addition, many carriers and shippers are loaded with debt from overly ambitious development strategies when times were better.
Shorting the ETF can be better than simply shorting individual stocks in trouble because profits can be made from the decline of the industry without being caught off-guard by unexpected developments in individual company stocks, such as a takeover or merger.
Besides, by this point the share prices of many airline and shipping stocks are so low there is little to gain from shorting.