That's a kind of... bizarre take on it. Investors are essentially deciding that Exxon's profit margin is not high enough to justify its stock price, which is perfectly rational and has nothing to do with any kind of class warfare.
Investors selling stock because its price/profit ratio isn't high enough is not a signal to Exxon that they should be increasing their prices, its simply indicative that the investor thinks that the stock is overpriced in comparison to its real value. I
For all the railing against Big Oil, the fact is that their profit margins are still fairly low even in this day of hyper inflated oil prices. The $10B profit you're seeing is on a total revenue over over $150B. Their profit margin is actually somewhere around a little less than 8%, which many investors feel is vastly underperforming.
We see $10B profit and think oh my god that's obscene but in reality Exxon is underperforming and needs to decrease its operating costs.
Just for comparison, Starbucks's profit margin is a little under 12%.
This isn't a commentary on Exxon's profit margin. Rather, its a commentary on how the stock market works. Investors believed that given the record fourth quarter of 2007 and the ever increasing fuel prices, that the profit margin would be higher. As to what it signals...it signals that if Exxon wants to have higher share prices, it should either reduce its costs, as you say, or it should increase its prices. It's perfectly rational within its limited domain of considerations.
I think it's instructive to point this out, because policies have been pushed forcefully by our government over the past couple of decades that, among other things, safeguard the investments of international capital over the domestic needs of developing countries...in other words, neoliberalism. Argentina in many ways broke this chain when it defaulted on its debt a few years back, and the current shift to the left of the Andean nations is also an indicator of the populations of those countries pushing back on what is really a global financial hegemony centered in industrialized nations. International capital itself, as a force, has demonstrated it has a herd mentality--investment is less about building community, and everything about making a profit. On the U.S. domestic front, what I'm referring to bears a striking resemblance to our bail-out of Bear Stearns in the midst of mass home foreclosures.
We always seem to be fighting over whether or not to regulate, or to what extent. I think these questions have to be answered within the broader context of social safety nets, and to do so an understanding that the stock market itself is unconcerned with social safety is essential. More plainly, it's an amoral and inhumane economic system, not linked to considerations of human health and wellbeing. Lets call it plainly what it is...why beat around the bush? 
Anyhow, to wrap this up...back to Exxon and their 8% profit margin being under-performance (which is tangential to the main point I'm making) I'd have to know what the profit margins of the other big oil companies are, both this year and over time. I don't know those things, but could probably find out. Comparing Exxon's profit margin to that of Starbucks, however, is like comparing apples and oranges. And nothing changes what these stories clearly point out: this was the second best quarter *ever* for Exxon, the first being the 4th quarter of 2007.
Wish i could join you on this one Marjorie, but Dan is nearer the mark because in fact, single digit profit for oil and gas concerns are very much the norm.
As is reaction from investors when quarters are down. That's out of Exxon's hands.
If large oil and gas were that all controlling, they'd have a hand in crude prices and delivery. They do not. These things do not happen in a vacuum.
What you offered really wasn't a commentary on how Wall Street works. It was a reaffirmation on the basics of the investment class that drives it.
If it wasn't a profit motive, then what the heck would be the driver?
Call me crass, but I'd unload my (few) stocks I hold in any company I have i-n-v-e-s-t-e-d in with an expectation of increasing performance quarter by quarter so my stock value rises and I can send my kids to college if it kept dropping. The social safety net is my financial well being via that companies performance. A perfectly fine system.
It has absolutely nothing to do with building community. We have other mechanisms for that.
Calling out a lack of a, "mechanism in place that tempers the profit motive with a consideration of the larger collective good of society," is socialism in it's purest. How is it possible that this is still a viable argument?
Let's remind ourselves that there has never been a socialist system that has stood the test of time. Why? Because human nature will not allow it. Not government's. People.
Socialists sytems are corrupt (with the few creaming off the top), financial and morally obscene, and at the end of the day, loaded with citizens as financial losers in the extreme.
If you temper the profit motive for Exxon you temper that motive for every start up in the new green economy as well. Is that proper?
Yes, we need checks and balances. Yes, we must regulate. Paul Krugman's piece in the NYT's today of the nature of the free for all in certain segments of WS is a good read. No argument from right thinking free market people.
But why get thrown because what seems like an "obscene" amount of profit? Dan is right. It's the percentages that's the real story. Not the amount of zero's, as counter intuitive that may be.
Microsoft, for example, has had margins near 30% since forever. Obscene by many standards. Yet, Gates has been quite the force for the greater good, no?
The dollar is weak. Over $120 a barrel is the result. OPEC is holding these guys by the berries. 30 refineries have been off line for years (and not another one in sight), throttling output to the marketplace. Profit drops. Investors make their move. Simple economics.
There's no message being sent to anyone by Exxon about what matters. None at all.
Exxon doesn't really have the ability to raise the price of oil. Oil is a fungible commodity - people don't care where they get it from.
There's a mis perception that Big Oil is turning the screws on consumers but its simply not true. The oil companies very, very limited control over the price because they have very very limited control over oil production in general, and no control over demand for it.
The thing is, for investors, the net total profit is *irrelevant*, because what really matters is the the profit per share ratio. Therefore from an investor perspective, this was not a particularly good quarter for Exxon. Exxon (and its competitors) is essentially a middle-man.
The reason I pointed out Starbucks's profit margin is that it shows that Starbucks is actually gouging consumers more than Exxon is, because they're charging a larger premium over their costs than Exxon is.
Exxon is making such a huge net profit because of the amazing large amount oil they're selling. Going by this quarter's results they're selling $550 Billion per year, and 92.5% of that is going to cover their costs.
I understand your point but just pointing to their net quarterly profit and saying "second best quarter ever" doesn't really tell the whole story. Personally instead of seeing how Wall Street works as being inhuman, I see it as the ultimate expression of humanity- people doing what they perceive to be in their own best interests. When an investor sees Exxon with a 8% profit margin and Chevron with a 10% margin, it makes sense for them to dump Exxon and buy Chevron.
You both make my point pretty well, which again...is about how the stock market functions, using Exxon as an example. Investors started selling off shares when the profit margin came in lower than expected, despite record profits. And my elaborated point in this thread is that its not a system that takes into account human health and wellbeing, so it needs to be regulated.
In the macro world of neoliberal development, profits for an international investor class are the end, rather than the means of developing an economy. Neoliberal policies of the modern era, pushed by our government, have limited the ability of developing countries to develop their own economies as they see fit by restricting their access to capital if they don't do things like privatize, eliminate government subsidies and tariffs, and end protections of indigenous industries, etc. All to protect investors such as Gene (your description was perfect--its all about profit, not the place you're investing your money). Our economy, on the other hand, as well as that of most industrialized nations, including Japan and Korea, have developed with plenty of government regulation and controls in place -- such as ones that the neoliberal's would prohibit today in the third world. It's hegemonic to the extreme. There's been push back against this by a middle-class of countries that have more power in the last couple of years.
As to your comments about Socialism, Gene. I'm not referring to adopting a state capitalist system like the USSR. I'm talking about regulating financial markets, so that we don't become a country of beggars and kings. Also, I think we should stop attacking the *social* system we have in place here in the United States--one that came to the rescue of capitalism after the Great Depression, as it turned out. If you think socialism is evil, do you also think we should eliminate medicaid, social security, highways, the postal service, etc, etc?
I guess I'm still confused on this accounting for human health and well being in our system vs. others..
I see your broad point...its certainly familiar...but I have to ask, Which countries are you referring to that do it another way to the greater well being of the citizenry? China? Venezuela? Mexico? Others?
Is Hugo Chavez the answer/antidote to a free market system? You'd have a hard time convincing the greater good is served by his recent moves.
I guess I'd ask what regulations specifically are you looking for that result in a better accounting of human welfare and well being. Not broad strokes, because regulation is not broad.
And there's a miles wide gap between socialism as a political construct and social service. There's no attack on social systems here. Not even a hint of one. Not sure you even made that connection.
The problem, again, is/was in your wording about 'tempering the profit motive.' That's a miles wide difference from regulation. Calling for anything that interferes with desire (or motive, if you prefer) to succeed by any man or woman is 'socialist' at it's base.
That is fundamentally inhumane.
And yes, we are now down to swapping buzz phrases. Since I started it with a vaguely Reagen-esque position, I'll take the blame for it...
PS: There's a reason, btw, that London will soon be a bigger stock market trading center than Wall Street. It'll happen in less than a decade if not sooner.
It's not because it's the end result of developing an economy...it actually is more about the means. Just take a look at who is participating as international investors. Profit and people can co-exist.
Your take on capitol being restricted unless they do X,Y, and Z is not the current reality. It assumes that the US is the largest trading partner for every developing country out there. Not so. Not even close.
That idea is old, cliched, and not relevant.
The rest of the world in many and growing ways has figured out that they-do-not-need-us.
I guess I don't understand how you would like to regulate the stock market to the point where "investors" buy a stock because the company grosses a certain flat sum versus selling the same stock because various (basic) economic indicators say the health of the company is not what it should be. That's like telling people that making $3 for every $20 you invest is better than making $2 on every $10 you invest simply because 3 is more than 2.
Nor can I see how instilling that sort of reaction would somehow promote more human health and wellbeing. I think in order for this to make any sense to me I need either an argument that explains why people should have bought rather than sold Exxon, or an explanation of how you want the system to change so buying Exxon becomes logical. And for that matter, why it's relevant to Exxon and Wall St. but not, say, ebay... 
If the world has figured out that they do not need us (which is not something I'm prepared to say actually), Hugo Chavez has certainly had plenty to do with it. But even more saliently, if you ask me, it was Argentina thumbing their nose at the IMF/World Bank that led the way. But to think those institutions and the neoliberal ideology is no longer present or relevant in development circles is a bit of a fairy tale.
And yeah, I think the profit motive should be tempered in a way that provides health and wellbeing to society. And it is in fact, through the social programs I described. Those were put in place along with regulation of financial markets as a response to the Great Depression, which rocked this country as well as the rest of the world. And, they have been under attack in the last couple of decades. For instance, reference this blog I wrote recently about the elimination of the Glass-Steagull Act, during Clinton's administration in the late 90's: http://m-pyre.blogspot.com/2008/...ing-
feeble.html
As to how to regulate the financial markets, Bingaman in fact included regulation on speculation last week, in his comments about how to address the problem of spiraling fuel prices. He mentioned speculation as a culprit in rising oil prices, and quoted the WSJ, March 21, 2006:
"Hedge funds are taking ever-larger bets in a futures market that is smaller than the stock or bond markets, and the funds are using borrowed money to maximize their bets, magnifying the impact on energy market prices."
Trevor, I will send you the transcript of his comments, maybe you can decipher all the lingo for us. More on this later, I have to run...
Blaming the futures markets for oil prices is putting the cart before the horse. Futures trading is just betting on what the price of a commodity will be at some point in the future, nothing more.
Hedge funds are very troublesome because they have such a high barrier of entry that only the already rich can possibly get into them (most have a minimum entry amount of a half million or more dollars.) They're also almost completely unregulated and mostly unsupervised by the FEC which gives them a competitive advantage over the investment instruments that we peons can get in on (basically, mutual funds.) As a result they tend to have higher returns but can also have disasterous losses that would not be tolerated in the mutual fund market.
Incidentally, Chelsea Clinton works for the largest hedge fund in New York while her mom is pretending to be a good ole girl in Indiana.
It occurs to me that some of you might be put off by the words I chose to use. ie, "amoral" and "inhumane." One simply means that there are no moral characteristics. The other that there is a lack of pity, kindness or compassion, although I can see that there are more evil connotations to the word also. In general, I think they're accurate words for a trading system anchored in numbers. It requires human intervention to provide humanity, or morality. And its an macro enterprise. This isn't about individuals. Those of us who work in the U.S. are almost forced into participating if we want to save for retirement. We're complicit even if we don't want to be, in a system that leaves out the huge majority of humans on the planet.
Gene, I really don't get how you got from my comments earlier some notion that I'm comparing the U.S. to other countries that manage their economies in a better way. What I'm talking about is a world system that we are all mired in, one that is not static though--it's changeable. As to old-school notions of socialism, there's a lot of good there, much of which has been incorporated in the U.S. and other industrialized nations. Some people on occasion say that a return to conditions that existed during the Great Depression are what we need in order to re-balance our economy between the lower and upper income classes. What they mean by that is that Americans need to be jostled out of their complacency through a mass descent into poverty in order to force a redistribution of wealth. I get the point, but am really not there. I hate to imagine the human misery that would be exponentially greater in such a case than what we already have. This is why you will see me saying we need to regulate our economic system...instead of nothing at all.
This is way off topic but if someone is going to speak with that sort of authority about hedge funds, I feel an obligation to correct those presumptions. Futures traders, like it or not, do set the commonly accepted price for a barrel of oil. That's what a front month future is for, and it's the same way with any commodity. For that matter, futures trading can just as easily dictate what happens in the equity and debt markets too.
Also, Avenue Capital isn't even the largest hedge fund on its block. And she's essentially left it to help her mother campaign, which is an awfully noble act in my book .
Hedge funds are subject to gross hyperbole and there's no reason to go along with it. Not only that, but there are ways for everyday investors to get exposure to hedge funds other than simply being extremely wealthy. Finally, except in cases of extreme bull markets like the late 1990's, hedge funds are both better and safer investments than nearly any other vehicle. One large blow-up every 5 years does not a catastrophe make. I'd be happy to have a discussion about them any time, although I'm not sure this is the right topic for it.
To stoke the flames of the m-pyre fire...
The bit about Starbucks "gouging" its customers more falls a little flat for me when you take into consideration the compensation of Exxon's CEO vs. Starbucks-- CEO compensation being a part of both corporations' operating expenses. Starbucks CEO James Donald (according to Forbes) received $2.70 million in total compensation versus $21.70 million for Exxon CEO Rex Tillerson. Perhaps Starbucks' profit margin is better in part because their executives, while paid handsomely, aren't paid quite as handsomely as their oil company brethern. Granted, $19 million is chump change vis-a-vis total sales, but there is a lot of play in these numbers that likely cloud our ability to judge exactly what is going on.
I'm all for making executive pay over 10 times the average worker's salary non-deductable for corporate tax purposes (A little off-topic, but thought I'd throw that in there).
Marjorie, I agree that the repealing of Glass-Steagall was ill-advised to say the least. It happened at a time when it seemed hard to imagine anything like the subprime crisis happening, and only saw a way for both commercial and investment banks to make more money together rather than the disaster of tying their fates to one another only to watch them find ways to lose money twice in the same marketplace. In fairness, several measures (like Reg. FD) were enacted around the same time in order to help the average investor be more well informed, and level the informational playing field so to speak. Not exactly a fair trade, but there you have it...
The difficulty with Bingaman's ideas toward regulating oil trading is two-fold. One problem is that it's been happening for decades, only on a much smaller scale (because the oil markets simply made up a fraction of total US investment), so now that larger funds are involved on an every day basis they have no choice but to push the market around to an extent. So you have essentially the same dynamics in place that have gone unfettered (and been largely without problems) for decades, and plenty of people will argue that this is merely a temporary blip that a continuing free market will fix over time. They resist the notion that "speculators" are moving markets because in reality commodities trading has always been speculative. No one has actually taken delivery of these sorts of commodities since the end of the gold standard. Wall St is notoriously slow to recognize genuine changes within its industry.
The other problem is simply more practical: How do you begin to regulate a trading practice that, while based in America, is both worldwide and 24-hour? Realistically it would be immensely difficult, and what's more America can't push a fair-trade agenda out of one side of its mouth while regulating free-market oil trading on the other side simply because we're unhappy with our own energy prices. At that point we just look whiny.
I like Trevors last point above...as well as his earlier point that we not flip out when we have a blip and call for a massive shake down (Glass - Steagall?!) that can often times result in something worse.
Marjorie. I think I finally get where you're coming from if I'm interpreting you correctly that we have a system that has NO regulation in your view...resulting in what you're seeing as a lack of compassion or factoring in human condition and the like.
Do I have that right? You feel there's zero regulation currently?
Trevor makes a point about slow reaction from WS. No argument there. I'll refer again to Krugman's piece yesterday. The checks and balances in place that came from the depression, as he said, has served us well over the last 50 years.
The problem's today clearly call for regulatory reform in these OTHER cuts of the marketplace. The trick will be how much and for what reason. Krugman's point that the forces against change currently is well taken. As is his point that perhaps a Democratic sweep this year will check that. I hope so.
For me the answer is about more participation in the market. This is a huge discussion in the AA middle class community; how to get more young blacks to stop taking the bait about the system being inherently evil and against people like "you" (AA) and realizing "we" can virtually re-shape the marketplace by getting in the game.
It's slow progress, but we're getting there. A good clue was in the 80's when middle income people discovered/agreed to the viability of the common man/woman throwing their lot in with WS to retire on vs. relying on Social security.
Same for the reform movement a few years ago when we shook loose the shackles of 401k's and the like so people could move around their savings more fluidly without penalty.
And saying that, it must be noted that shackling people's savings with the threat of penalty in hindsight is a stark example of how regulation can actually hurt people.
The wave of considering a moral imperative for investing in a company has been a growing trend for quite some time. I wish it would be bigger. And it will be with more participation. Same for the rise in investment clubs driven by a moral/racial/gender/whatever imperative.
The importance of black and brown people participating in the market cannot be overstated. The simple fact is, and I'll apologize for this, is that blindly hating the markets simply because of some perceived (or real) evilness is a white indulgence we simply cannot afford. Our circumstance and long term financial health demands otherwise. We need to build wealth and build it now.
At the end of the day my problem with macro wide brush painting of the markets as inherently evil and immoral swipes individuals as well. It's not fair.
You temper the profit motive and you also temper the investment impulse by regular folk.
On who does not need America, perhaps that's best left to another thread...or this? I'll wait and watch.
Gene, the Glass-Steagull Act was a regulatory structure put in place to control the banking industry after the meltdown of the Great Depression. It was repealed in the late 1990's.
I have not said there is zero regulation anywhere in this thread. Instead I've said regulation is important, and noted that there's been a roll-back in regulation. Really, its a trend I've been watching throughout my adult life.
In my blog post, I simply pointed out through the use of two very mainstream articles that the stock market reacted with disappointment to the profits made by Exxon, even though that company had its second best quarter ever:
"It's net income rose 17% in the first quarter, buoyed by high oil prices. But that was less than Wall Street expected, and Exxon's shares fell..."
As the mortgage lending crisis shows us, the financial markets have an enormous impact on all of us. And this blog simply illustrates that there is a disconnect between how Wall Street reacts to less profit than is expected and what is happening concurrently in relation to that same scenario for many, if not most, Americans. High fuel prices are causing severe pain for those who are tethered to their cars in order to put bread on the table.
I think this is an important point to make, because there is a very strong strain of thought that markets should be unregulated, that there is an "invisible hand" that if simply left alone will lead to an economic equilibrium that is good for society. But the larger social environment isn't factored into a numbers game like the stock market...you have to admit, it's a touch removed.
I understand the racial wealth divide in this country, but it is not indulgence on my part to be highly critical of a system I can hardly escape. To say that this is indulgence is like saying I'm not patriotic if I don't wear a flag pin. And frankly, the most critical people I know, who see the world for what it is more clearly than most, are middle class black folks...who still invest their money in it.
Finally, on this thing you keep posing about "tempering the profit motive" being equal to dampening down human motivation...calling for adequate regulatory structures to temper a system that has only one goal--increasing the bottom line--in a way that protects the common good, does not equate to tempering the investment impulses of regular folks. If anything, such structures protect the investments of regular folks--the Glass Steagull Act is a good example of something designed to do just that.
The Democrats released their plan to deal with the energy crisis today...you can see a summary here: http://democrats.senate.gov/news....cfm?id=297375&
One of the points is geared toward stopping "Market Price Speculation":
"Stop Market Price Speculation – The Administration’s failure to regulate the oil futures market has lead to exorbitant speculation. The Consumer-First Energy Act establishes two key limitations on speculation. First, the bill prevents traders of U.S. crude oil from routing transactions through off-shore markets to evade speculative limits and sets forth reporting requirements. The bill also requires the Commodities Futures Trading Commission to set a substantial increase in the margin requirement for all oil futures trades, contracts or transactions. Recently, one oil company executive indicated crude oil prices could be inflated due to speculation in the futures market."
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