Does $95 oil matter?
How about the fact that, even with oil at $95, XOM can't beat estimates? My long-standing thesis that the law of large numbers will sink big oil (see "Exxon – Unsafe at Any Price") may have been a little early but XOM was trading at $77 but I stand by my call that IT WAS OVERPRICED AT THAT NUMBER!
I'm not going to get into it here, I wrote it all a year ago and both XOM and TSO (LOL on their earnings by the way!) have been Focus Puts for us in October and I think I'll be right on target with the Jan/Nov $57.50 puts spread we have in our $10KP and $25KP when the market opens this morning!
While TSO is very understandable with earnings dropping from $1.96 last year to .34 per share this year, XOM only missed by a nickel, coming in just shy of the $1.75 estimated with "just" $9.4Bn in profits. What's really scary here is the revenue miss – XOM posted "just" $102.3Bn in revenues vs $112.97 expected. The miss was due to the very thing the oil pumpers work so hard to deny – DEMAND DESTRUCTION! People actually do consume less when you charge more, what a surprise!
Meanwhile XOM bought back $7Bn of their own stock last quarter. That's out of about $70Bn worth of total transactions, a level that has been pretty steady since I pointed it out last year. That means that 1 out of 10 sales of XOM stock goes to — XOM! Think of the BS effect this has on the XLE and other energy ETFs as well as the DJI when the company relentlessly keeps buying it's own stock at ANY price. It's actually worse than that because the other 90% of XOM's transactions are buyers AND sellers, who generally even out so pretty much the ENTIRE share imbalance that has caused XOM's price to rise from $86 to $94 (10%) over the past 3 months has been the sole result of XOM's purchases.
As an Exxon shareholder you can be glad your company has such faith in their stock that they put 75% of their cash flow into it or you can be angry that this bloated, stupid, useless, thieving dinosaur of company has nothing more productive to do with $28Bn in cash this year than buy their own stock at what may be a bubble top. If the price of XOM drops back to $65, aside from $150Bn worth of market cap, $56Bn of CASH that took XOM 2 years to earn (and it looks like it will not take them a lot longer than that to earn them again) will literally evaporate over night. Are we diversified? Errr… No!
OK, moving on… So we played this perfectly, shorting into yesterday's idiotic Fed rally and rolling up our DIA puts all the way to the $140s, which should give us a nice bonus this morning. When the Dow was peaking at 3 pm a member asked if it was time to switch off our brains and join the rally (as our puts were killing us) I said: "Can’t turn off brain yet. There is no rally here – we are just back to yesterday’s open. If we don’t close over 13,900 it will be a huge loss of momentum and what’s the catalyst we’ll be looking for to break 14,000? Someone is working really hard to create a rally here but you can’t have a real stock rally with rates climbing – it’s like another pipe opening up for the water (money) to flow to. No matter how small, you’re going to lose some pressure."
Although we did break 13,900 on a desperate pump into the close I warned members (and I hate to be a Chicken Little but sometimes the sky actually IS falling!): " This is not a rally, this is limping halfway back to our 14,200 high from a sharp and relentless drop to 13,600. The big drop came 10/19 at 13,900 (to 13,550) after a protracted sell-off from 14,200 on the 10th. So here we are on the 31st at 13,930 (and boy was that finish forced!) acting like everything is great. After the last Fed blast (9/18) we drifted flat along 13,800 for a week so it’s all going to be about next week’s action. Today is meaningless."
Last night I gave my overview of the economy, which was kind of scary, but not as scary as the 100.1% rise in foreclosures since last year. 446,726 homes are currently in some form of foreclosure and that's up 33% from Q2. Since we know, thanks to Mr. Sparkle, that ARMs will be resetting at an alARMing rate for the next few years, it is easy to imagine that 33% gain driving foreclosures up from the current level of 1/196 homes (was 1/400 last year) to 1 in 150, 1 in 100, maybe even 1 in 50 homes. Will that matter? At 33% a quarter we could get there in just 18 months. Party on mainstream media!
No wonder Credit Suisse (source of this chart and loser of $1.9Bn in write-downs themselves) downgraded Citigroup today! This being month 10, we still have $300Bn worth of resets to get through in the next 12 months before we get a break. With an average US mortgage of $240,000, that's another 1.25M homes, 100,000 homes a month that are facing the kind of painful adjustments I've warned about over the next 4 quarters.
Not surprisingly (well not to my readers, it seems to be shocking the TV crowd), consumer spending did actually slow in September, up 0.3% vs. the 0.4% expected even as incomes grew 0.4%. Let's not forget that gas prices have, so far, lagged the rise in oil. Now we are entering the winter with record high heating oil prices so what will happen if gas prices start to soar as well? TSO's news show they clearly have no choice but to raise prices, $95 oil is killing them as well.
China raised their gas and diesel prices by 10% (they artificially depress the prices as people making just $2,000 a year can hardly afford to buy even a $2,000 car if gas is going to cost a week's salary). Asian markets were mixed and Japan stopped supporting us in Afghanistan as this administration has now blown all credibility with this disastrous monetary policy (Japan is mad because, with rates at 0.5%, they can't keep up with us so we are ruining their economy too). Another reason Japan wanted out of Afghanistan is the mounting total of civilian casualties that doesn't bother our press at all but causes outrage around the world. Again, the play here is TASR – if Bush wants to keep soldiers mired in wars that are going to last for decades he needs to start using less-lethal attacks!
Europe is trading off this morning and our own futures are in the dumps so good luck! As I said on Monday:
"But there’s no sense in dwelling on that now or on the $93 oil or the dollar at 76 (all-time low) or the Euro’s all-time high or the possible unwinding of the carry trade or gold punching through $800 or the fact that earnings (with 57% of the S&P reporting) show shocking weakness in the US that is being offset by foreign growth. Nope, we’re not going to talk about any of that as it’s time to party like it’s Jan 13th 2000 (5 days before the collapse). This is kind of like 11:45 on New Year’s eve when we’re all a little tired (those of us who are parents that is) but we pull it together for the big event (in this case the Fed on Wednesday) but, once that ball drops and the band goes home, that party ends really fast!"
