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The 5 Dumbest Things on Wall Street: Oct. 7

2. AMR Stays Aloft

It's easy to beat up on airlines. Stranded leisure travelers do it. Bumped business passengers do it. Late night comics do it. Let's face it, we've all done it.

But when Wall Street traders hammered shares of AMR (AMR), the parent company of American Airlines, down to $1.75 on Monday over bankruptcy rumors, well, that was less than fair in our opinion. And for the short-sellers who piled on when it went south of $2 ... well, that certainly wasn't the smartest move because the stock zoomed back above $2.50 barely a day later.

American Airlines has repeatedly said that is strongly opposed to filing for bankruptcy protection, and while we would normally dismiss this as corporate hooey, the company does have $4.2 billion in unrestricted cash to back up its boast. Monday's column in The Wall Street Journal, which detailed American's problems did not help quiet the bankruptcy chatter even though it concluded that the market for airline debt is healthy and that "American filing for bankruptcy out of choice is unlikely." Basically, it said that other airlines are better investments.

Duh! Of course they are. Delta (DAL) and United Continental (UAL), AMR's two principal competitors, went into bankruptcy in the middle of the past decade, reduced costs, and then merged with competitors to leap past American in the size of their global route structures. Now both have the advantages of lower costs and bigger networks.

But like Ford (F), which also saw its biggest rivals go bust and then come back leaner and meaner, AMR is not a shoe-in candidate for Chapter 11. It may end up there eventually, especially if it does not solve its labor problems, but right now, the math says it won't happen because some short-sellers picked up the Journal and misread an article. Or at least it won't happen this week.

Shortly before Monday's close, AMR issued a statement, saying that "While we generally don't comment on AMR's share price performance, there is no company-driven news that has caused the volatility in AMR shares today. Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference."

Shortly after the close, veteran Standard & Poor's airline analyst Jim Corridore reiterated a hold rating on the carrier, saying "We would be surprised by a bankruptcy filing in the next 12 months."

And while it's easy to beat up on Wall Street analysts -- heck, we do it every week -- his assertion seems more than fair in our opinion.

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