The Omnipotent Poobah Speaks!

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Stock investing is a world far-removed from the everyday financial physics most of us live by. Every quarter, stock analysts trot out their balls - er, crystal balls - and predict how much a company should make in the next quarter. If a stock merely meets the estimate, the stock tanks and in some cases pulls others down with it. If the stock beats the estimate - but only if they do it by a substantial margin - they get a nice hefty paycheck for their “inspired” performance. But if the stock underperforms, it’s ass-slappin’ time at the OK Corral.

Today was ass-slappin’ time. Sort of.

Exxon, the multinational of all multinationals, announced their first quarter net income rose 17% - or their second most profitable quarter ever. In terms of large amounts no common person can truly understand, that’s an increase of $1.6 billion. As they say, “a billion here, a billion there and pretty soon, you’re talking about real money”.

The Brilliance of Bean Counters
Exxon’s madly brilliant bean counters figured out that production is down and they can’t pass along the entire cost of $100+ per barrel oil. The goose that laid the golden egg is pooping no-yolkers it seems. Now I’m no financial genius, but I’m guessing $4 per gallon gasoline might just be why. And with $10 per gallon gasoline in the too-distant future, I’ll make a bold prediction - they’ll sell even less gas next quarter.

If you’re a granny with say 1000 shares, Exxon’s 40 cent per share dividend will net you $400. After taxes and broker commissions, the dividend will leave just about enough to fill up your Prius. Whoo hooo! Those working for peanuts, sans dividends, won’t even see that. The minimum wage here in California is $8 per hour and gas is running at $4+ per gallon. Each burger flipper will work 2 hours to buy their gallon (actually, figuring in taxes makes the situation worse, but these numbers are depressing enough).

Exxon has raised dividends for each of the past 26 years. Those 26 years have included hurricanes, wars, and hundreds of Alan Greenspan farts. Come hell or literally high water, Exxon made more money even as intuitive changes in the market would suggest they should be making less, the dividend rose. Even as they complained their taxes were too high, the dividend came as regularly as a 30-minute pizza. Even with dozens of investigations into suspicious looking profits, the dividends rose.

Racing Against Wilbur the Mule
Twenty-six years is an impressive feat, quite dependable really. However, large-scale stockholders are always quick to point out that they should pay fewer taxes because investment is such a quirky, unreliable business - a business in which they never know where their next million is coming from.

I’d advise all those Nervous-Nelly stockholders to consider this: Exxon is making a $5 million profit every hour. I think your shares - the ones Exxon is paying top-dollar to buy back at a premium should you think their stock is too risky a bet - looks as risky as betting for Secretariat in a race against Wilbur the Mule.

Is the situation really this simple? Truthfully, no. There are dozens of reasons why oil waxes and wanes and it truly is a risky business, just as any other investment is. But oil’s also an extremely profitable business. Exxon and many other oil companies (except those run by Shrub apparently) will soldier on against a terrible failure to save 10 cents per share next quarter. And I’d reckon that large-scale stockholders will soldier on too, although they’re likely to complain loudly about losing the 10 cents. Even the non-stock-holding burger flippers will soldier on because they have no choice.

Now, where did I put that spatula?

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The Poobah is a featured contributor at Bring It On!

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