Saturday, July 19, 2008

XOM: what's the fair share price? Also, banks "not on the SEC List" find themselves marks for short selling

Light crude oil has fallen about $19 in the past week. It fell slightly Friday, and XOM (ExxonMobil) rose slightly. The suggestion, from this combination of circumstances, is that about $81 is a “fair market price” for an XOM share based on its earnings potential, and that prices in the 90s recently were the result of speculation and are not sustainable by earnings. A retiree who owns substantial XOM could use that price to estimate a stable value for his assets.

Financial writers propose all kinds of theories for letting a little of the pus out of the oil futures price. Perhaps this sounds like putting Orajel on an aching tooth and putting off the visit to the dentist for a root canal job or extraction. But one big reason is that Bush himself lifted the Executive ban on most offshore drilling (one that had been put into place by his father), and Congress is hinting that it may be willing to do the same. Barack Obama may not support that, and it’s possible that the energy crisis may really help McCain—because drilling and exploration will bring down gasoline prices. But they may exacerbate global warming unless they are undertaken very carefully.

Of course, another reason is that Congress is hinting at regulating commodities speculation with some sort of margin requirement. Even the talk of that can knock the wind out of speculation. Nevertheless, the speculators have provided us with ample warning, as did CNN: we must do something about the glowing global demand for energy at the same time that more carbon dioxide is building up in our increasingly Venusian atmosphere.

Related to all this is a Wall Street Journal weekend story (p B1 “Personal Finance: Money & Investing” by Kara Scanell “SEC Short-Sale Rule Gets Negative Reviews; Banks Not on List Fear They’re Now Even Bigger Targets,” link here. There are 19 mortgage firms on the list, including Freddie Mac and Fannie Mae. I can remember in the office that co-workers would make jokes about selling short back in 2000 or so – a few people logged on to their home computers from work and did it at “home from work”. It was “fun” when the dot-com bubble burst. (I didn’t do it.) Now, the banks not on the list but maybe close to belong on it feel that they are the new marks.

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