Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Thomas Cook's Fall from Grace - A Cautionary Tale for the Entire Global Economy

Companies / Company Chart Analysis Oct 03, 2019 - 04:35 PM GMT

By: EWI

Companies

Since its very first 11-mile train tour on July 5, 1841, the Thomas Cook travel company has been taking adventure-seekers around the world, from river cruises down the Nile (a.k.a. "Cook's Canal"), railcars up to the mouth of Mount Vesuvius, and spaceships to the surface of the moon! (Between 1950 to 1996, Cook's "Moon Registry" had a 100,000-flight manifest).

But on September 23, 2019, Thomas Cook filed for one of the most dismantling bankruptcies in recent history, shuddering the world's oldest travel firm and leaving hundreds of thousands of travelers high and dry. The stranding prompted the UK's largest-ever peace time repatriation effort, a 10-day long, 60 million-pound rescue effort coined Operation Matterhorn.


So how did Thomas Cook's fall from grace happen? Well, there's one easy target: "Why did Thomas Cook Go Bust? ... One factor towers above all others: the huge pile of debt." (Source: September 23, 2019 Guardian). Essentially, after decades of tamping down unpaid loans, the company's $2 billion debt burden erupted (as the volcano Vesuvius in 1944, which destroyed Cook's funicular railcar the "Vesuvio"), burning the business into a bankrupt crisp. But that isn't the whole story. Cook's massive debt didn't cause its collapse. Not finding someone to bail it out of said debt -- did.

To understand the distinction, late 2017/early 2018 becomes pivotal. At the time, Thomas Cook was flying high with renewed growth, the birth of a new tourism market in Turkey and Egypt, a revival of an old 1980's ad campaign "Don't Just Book It, Thomas Cook It!," its first-ever foray into commercial TV, and a soaring stock price which had increased five-fold since the dark days of the 2011 financial crisis. All of this, even though the firm was heavily indebted to its shareholders and strapped by credit-funded buyouts.

But the "D" word wasn't seen as a deterrent to future growth. You gotta spend money to make money: "Few in London's tourism industry have publicly suggested the capital will suffer" (Source: July 2017 Bloomberg). Specific to Thomas Cook, a February 8, 2018 news source cheered:

"We believe that Thomas Cook has reported a robust set of Q1 results which show that it has continued to grow booking volumes strongly, despite passing through material cost inflation to customers."

As late as April, analysts upwardly revised their ratings from "neutral" to "buy," prompting this April 30, 2018 The Times headline: "Sunny Outlook for Thomas Cook." The bullishness was predicated, however, on the idea that markets are driven into the future by present data, such as strong earnings, when in fact, they are driven by human behavior. An exclusive report from Elliott Wave International, "What You Need to Know Now About Protecting Yourself from Deflation",explains:

"When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending.

These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend."

From an Elliott wave perspective, the shift in mood unfolds in the form of technical patterns on a company's stock chart. In July 2017, an important tourism bellwether, the FTSE 350 Travel & Leisure Index, displayed five waves up since 2009, thereby signaling an impending change of direction. The index bobbled along for 10 months, but, in May 2018, prices finally broke, and a mere 20% decline was apparently all it took to take down Britain's overindebted travel giant Thomas Cook. In just the past 12 months, Cook's investors have suffered through three profit warnings and watched the value of their stock plummet to 10 pence, a 93% decline. Some analysts argue that the shares are worth less than that.

From the June 2019 European Financial Forecast

Ultimately, highly indebted companies are fine so long as social mood is rising, which supports a willingness to assume risk and lend. The speed and extent of Thomas Cook's fall from grace shows what can happen when that mood reverses. The question now isn't if, but who will be the next industry icon left stranded with no one willing to come to the rescue?

Club EWI's exclusive report, What You Need to Know Now About Protecting Yourself from Deflation, pivots off the idea that the signs of major sea change in the global economy are underway and writes: "If you miss that, you miss the warning. Meaning: you won't see the beast in time. " Fortunately, the entire report is available for FREE to all Club EWI members. Get instant access.

Who is Elliott Wave International?
EWI is the world's largest independent technical analysis firm. Founded by Robert Prechter in 1979, EWI helps investors and traders to catch market opportunities and avoid potential pitfalls before others even see them coming. Their unique perspective and high-quality analysis have been their calling card for nearly 40 years, featured in financial news outlets such as Fox Business, CNBC, Reuters, MarketWatch and Bloomberg.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in