Last year I wrote a story in support of Exxon's massive profits, arguing that they were not extraordinary given the company's size and that many other companies, large and small, had much higher profit margins. I could have re-posted the same story this year since Exxon Mobil (NYSE: XOM) reported similar results and the same short-sighted folks whined about it in the same knee-jerk reaction. The stock closed last Friday at $85.37 per share, up about 13% in a year, not including the 1.7% yield.
In last year's article I even commented on the difficulty XOM faced in dealing with Mr. Putin and Mr. Chavez, and I guess my words rang all too true given the current mess in Venezuela. In order to play on the world stage, you have to be big and this is particularly evident in the oil business.
So I'm on record that I do not mind Exxon's size or profits. Let me go further and state clearly that I also support its lawsuit to freeze Venezuelan assets until XOM is compensated for the theft of its investment. If it were not for Exxon's investment and technological know-how, the government and people of Venezuela would be a lot poorer.
That said, I do not know the full extent of the agreements between Exxon Mobil and the government and I would not side with the oil giant if it could be argued that the agreements were so long and so one-sided that they took advantage of a disadvantaged, unknowing partner. That in fact may be the position of the Chavez government; however, I doubt it weighed as heavily as the political and financial issues. So the courts should settle it.
What got me thinking about the subject again was not oil or profits but a very good article from the March 2007 issue of Smart Money by Roger Lowenstein. The article highlights foreign trade and all the benefits that flow from it. It speaks against populist politicians who tell the masses what they want to hear.
The best example of this was uttered by former Republican presidential candidate Mitt Romney, when he told Michigan auto workers that he would restore their industry back to its old glory. That is not possible and he knows it. Perhaps this might have been expected of former Democratic candidate John Edwards, but alas they are all capable of pandering to the audience.
Lowenstein reminds readers that this country was built by hard working immigrants and trade, and for Republicans to be down on immigration reform and Democrats to be bad-mouthing trade and business is not economically smart. He even points out a great example from history: "Two centuries ago politicians from Virginia, New York and Massachusetts had to be coaxed into allowing free trade among states."
Many of our greatest companies are finding most of their growth prospects outside the United States. Isolationism contributed to the Great Depression and despite all the rhetoric, trade and immigration have only led to economic expansion and prosperity for American workers and consumers.
There is much more to be said on the subject, but I will leave that for reader comments and, depending on the response, a follow-up post.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. To find potential opportunities and verify my track record, read Chasing Value or Serious Money. Disclosure: I do not own shares of XOM.
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Reader Comments (Page 1 of 1)
2-19-2008 @ 3:10PM
Mason said...
While congress pursues inportant issues such as steroid use in baseball and cheating in football instead of the plight of the economy, the war, terrorism etc., we can all feel confident that they are really doing the important jobs for which they were elected!
2-19-2008 @ 4:11PM
John said...
Mason,
GREAT comments! Can we interest you in running for something?
Why are we like sheep, going to the slaughterhouse? The Special Interests ARE RUNNING THE USA!
Regards,
John
2-19-2008 @ 4:19PM
Greg said...
Oh, Mason, yes! Why is the Congress spending time on the baseball-steroid question? Is that like a father running back into a burning house to rescue his baseball trading card collection while his children lie asleep upstairs? Did I vote for a major league dispute arbitraitor when I thought I was voting for two senators and a representative to settle issues that actually affect my life? If all baseball and football flew off to Mars, I'd still find entertainment on TV. If the economy flies off to Mars, will I have a TV, or a home in which to watch it?
2-19-2008 @ 4:31PM
georgeo'brine said...
As a massachysetts resident I often found Mr. Romney's assertions to be deliberately deceitful.
2-19-2008 @ 5:17PM
georgie said...
IT'S ALL ABOUT CHOICES. Each time you go out to a party, club, bar or good restaurant you could have purchased a share of Exxon stock.
If you believe oil will continue to go up then why not buy some XOM. Then you can benefit from the growth and get quarterly dividends to spend as you wish.
Don't punish the small investor who took the risk because you chose to spend you money in other directions
2-19-2008 @ 5:25PM
Jean said...
Exxon's huge profits aside, when asked if they could help out Americans who had to make choices between heat and food, they declined. Venezuela, however, stepped up to the plate.
2-19-2008 @ 5:33PM
Sheldon L said...
Venezuela stepped up with who's money Jean? How did they step up? They are a part of why oil prices are higher.
2-19-2008 @ 6:38PM
roger knight said...
As a Northeastener who moved to texas soon after graduating college I had heard just about too many stories about the "bad greedy oil companies"
After living in Texas for some years and working mostly with or for oil and gas related companies I can honestly say that these companies are no different from most other big business enterprises.
The risks are enormous, from political unrest in those countries in which they operate, to "dry holes". It is a very risky business, and if I have learned anything about finances at all, I hope I have learned that in every aspect of investment, the greater the risk, the greater the reward.
I do not hear people complaining about paying $150.00 or even $300.00 for a pair of running shoes were manufacturing cost for them is about $7.00!
In all reality, that gallon of gas we pay $3.00 for only nets oil companies around $0.11!. The federal tax on that same gallon of gas is GREATER than the profit of those companies who did the seismic research, the drilling, the core tests, drilled for it, produced the oil, transported it for refining, built the refineries, transported it again to a retail location.
Federal and state goverments derive more net cash from that one gallon of gas than the producers do!
So, tell me........Who is really cashing in here?
2-19-2008 @ 6:50PM
jerry mcdonald said...
no the courts should not settle this or any other problem. I will not abide by any world court sticking it's nose in my business.Screw the world court, wto, and any other organization.XOM knew the problems when they invested in venezuala.The people certainly didn't benefit from anything in oil.As all people in the world, they get raped by business and government.
2-19-2008 @ 7:04PM
Helen E said...
Just what we need, more folks trying to convince the unknowing that it's not the huge oil who's running our country, but our government. Who the hell do they think we americans are, mushrooms? So they continuously feed us all that bullsh''t, and keep us (supposedly) in the dark. Folks it's not government that runs our country. It's the oil companies. They squeak, and our goverment runs with the oil can. That's a fact.
2-19-2008 @ 9:28PM
Tim said...
Currently various government entities get between
40 and 50 cents per gallon, Exxon gets about 10 cents and the pols would like to take that too. We need less government not more.
2-19-2008 @ 7:46PM
Sheldon L said...
Jerry M,
Venezuela has taken in billions of dollars in oil revenue as XOM's partner. They decided they did not like having a partner so they took the whole thing by force.
How much money goes to the people and how much is skimmed off the top is anybody's guess.
How many jobs are you providing? How much energy? Is the government taking a bigger slice of the pie then you take home? How about we nationalize your house the day after you pay off the mortgage?
I would not suggest for one moment that the oil companies or big business get a free pass on anything. They need "adult supervision" but your cynical view that big business is inherently bad is foolish and shows a lack of any economic understanding.
2-19-2008 @ 9:14PM
Eddykatz said...
we have exported two million jobs but imported
five million. next time you pass a foreign car dealership look inside.How many service workers
do you see. how many mechanics etc.There are a lot.In addition ten foreign car factories have been built in the united states.
Who buys the planes that boeing builds.
Americans in most cases know nothing about economics.
2-20-2008 @ 11:06AM
charlie said...
Democrats promise higher taxes. Mrs. Clinton said she was going to take from "those that have done well, and give to those that have not done so well" Proving the power to tax is the power to destroy. And by -the- way, what Authority gives her this power??
3-13-2008 @ 6:24PM
PLReese said...
While I admit I am not a wiz at buying stock I have watch ExxonMobil for several years. I realized the stock gained a little in value today but for the last several weeks it has fallen steadily from around $95/94 per share to the present, while crude has now risen steadily to $109. My question is simple, why has the stock price dropped, I would think that it would also be raising in value?