ExxonMobil's profits should make them nervous

see "Exxon Mobil Sees Record Profit for U.S. Co." (AP via Yahoo, 1/30/06) http://biz.yahoo.com/ap/060130/earns_exxon_mobil.html?.v=6 ExxonMobil reported a quarterly profit of $10.7 billion, and an annual profit of over $36 billion, both records for any publicly listed company. With the stock up over 3%, or $2, at this moment, shareholders are cheering...for now. If I were an ExxonMobil executive I would virtually feel the laser sight on my back from Democrats foaming at the mouth for a "windfall profits tax". The idea of a windfall profit for a company like this is galling. And I don't mean the idea that they have one, but the idea that anyone could claim that such a thing exists. Oil companies spend many billions of dollars on exploration and research to put themselves in a position to make a profit when things go their way. It is no different than a gold company seeing its earnings and share price rise as the price of gold rockets up. (Newmont Mining, for example, is expected to report earnings at the end of February twice as high as it did just 6 months prior.) Yet we don't hear politicians clamoring for a windfall profit tax on Newmont, nor should we. The difference is political: Americans use oil every day, both directly and indirectly but we don't use gold every day. We are very attuned to the price of oil ever time we fill our cars. Many Americans inappropriately blame (or credit) politicians for the price of commodities like oil when those politicians rarely have any actual (or even potential) significant effect on the price. Politicians make the most of this economic error, inserting themselves into free markets without justification and with much greater risk to our economy than their economically illiterate brains can comprehend. After last quarter's earnings reports from oil companies, the often sensible Senator Chuck Grassley (R-IA), apparently overwhelmed by populist idiocy, caled for the companies to donate 10% of their profits to help people with their heating bills. Not only is this an absolutely inappropriate role for a Senator (particularly a Republican who is theoretically against socialism), but it also demonstrates that politicians do not recognize the existence of shareholders. Over 50% of Americans now own stock either directly or indirectly. And you can bet that a large percentage of them own ExxonMobil through index funds. So, attacks on ExxonMobil and other big corporations are attacks on the financial and retirement security of millions...probably tens of millions...of Americans. Nevertheless, I expect the attacks to continue. It will likely be all bark and no bite, but loud enough barking can cause seriously negative reactions by markets as well as changing corporate behavior in ways which hurt us all.
  • Lucy Stern
    Comment from: Lucy Stern
    01/30/06 @ 02:18:11 pm

    I don't know whether you have noticed but the price of Gold is steadly going up. Gas prices are also steadly going up.

  • Mike DePinto
    Comment from: Mike DePinto
    01/30/06 @ 11:44:08 pm

    Liberals who claim that the oil companies “gouge” consumers should look no further than their own homes. Would homeowners who have enjoyed considerable gains over the last few years appreciate the government creating rules limiting the price at which they could sell their house? Of course they would not! Why should the rules be different for oil companies that have benefited from owning another commodity rising in price? The Dems will certainly take aim at this easy target, but hopefully their rhetoric will stay just that.

  • Christopher Sanders
    Comment from: Christopher Sanders
    01/31/06 @ 01:38:41 pm

    The quickest way to handle the PR side of the "excess" profits is to split the stock and pay a whopping dividend. All the while offering a DRIP (Dividend Re-Investment Program) that allows customers to buy more stock. Thereby putting a great deal of the money back into Exxons hands. They also need to announce massive new endeavors to secure more oil reserves and to develop know reserves that are hard to reach.