Oil a Classic Bubble, Detached From Reality, Like Houses, Dotcoms, and Tulip Bulbs

[aleonard]

I found this interesting and was wondering if anyone else thinks this might be true?

Oil a Classic Bubble, Detached From Reality, Like Houses, Dotcoms, and Tulip Bulbs (http://www.clusterstock.com/2008/5/oil_is_a_classic_bubble_detached_from_reality_like _houses_dotcoms_and_tulip_bulbs)


We hear this argument all the time, but it's nice to see someone put some intelligent numbers behind it. Anatole Kaletsky, writing in the Times Online (http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article3980797.ece):


The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US. But surely, you will say, this commodity boom is different? Surely it is driven by profound and lasting changes in global supply and demand: China's insatiable appetite for food and energy, geopolitical conflicts in the Middle East, the peaking of global oil reserves, droughts caused by global warming and so on. All these fundamental points are perfectly valid, but they tell us nothing about whether the oil price will soon jump to $200, stay at $130 or fall back to $60 next month.

To see that these “fundamentals” are all irrelevant, we have merely to ask which of them has changed in the past nine months. The answer is none. The oil markets didn't suddenly discover China's oil demand nine months ago so this cannot explain the doubling of prices since last August. In fact, China's “insatiable” demand growth has decelerated. In 2004 it was consuming an extra 0.9 million barrels a day; in 2007 it was consuming just an extra 0.3 mbd. In the same period global demand growth has slowed from 3.6 mbd to 0.7 mbd. As a result, the increase in global demand growth is now well below last year's increase of 0.8 mbd in non-Opec production, according to Mike Rothman, of ISI, a leading New York consulting group.

Why, then, are commodity prices still rising? The first point to note is that many no longer are. Rice, wheat and pork are 20 to 30 per cent cheaper than they were two months ago, when financial pundits identified Asian and African food riots as the first symptoms of a commodity “super-cycle” that would drive prices much higher. And the price of industrial commodities such as lead, zinc and nickel, supposedly in short supply a year ago, has now dropped by 40 to 60 per cent. In fact, most major commodity indices would already be in a downtrend were it not for the dominance of oil.

But oil is the commodity that really matters and surely the latest jump in prices proves that demand really does exceed supply? Not at all. In the late stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created “special purpose vehicles” to acquire vast “inventories” of bonds for which there were no genuine buyers - and dozens of similar examples can be cited from the bubbles in internet stocks and Japan. Similarly, the International Gold Council reported this week that gold demand for commercial uses and investment fell 17 per cent in January, just as the gold price surged through $1,000 for the first time.

Now consider the situation today in oil markets: the Gulf, according to Mr Rothman, is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for “financial derivatives” that allowed investors to bet on the future value of these bonds.
More at Times Online > (http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article3980797.ece)

[Andy A.]

I firmly believe the present price of oil is driven by speculators on the commodity market by far more than the relationship of supply and demand. And when it jumps up and bite some of them in the rear, I'll be among the first to cheer. I'll be the first to admit I really don't understand how the commodity market work, but I am sure if there is a way to "short" the price of oil it is being done.

[rapunzel]

Robert Reich was making this same point on NPR a few weeks ago. He explained the "innovative products" the banking & investment sectors were coming up with to market to baby boomers that allowed them to invest in commodities markets in much the way mutual funds allow people to buy stocks. He explained that since these people never intended to take delivery of the goods, they were clearly speculators, and whenever speculators enter a market in significant numbers you get a bubble. He seemed to be blaming the lack of oversight on these institutions that allowed them to create these products for consumables for throwing the global markets off balance in such a way that it threatens to destabilize markets and governments around the world.

[goodwitch58]

:idontno:So, my question is....who's in control of all this? Shelly..what's your take?

[goofer44]

I have to admit that I am in agreement. Oil is priced in dollars and since the dollar has gotten blitzed, the price of the commodity has increased dramatically to compensate for the money lost in the currency. I sold calls against my entire energy portfolio ...cvx xom bp cop hal...yesterday and today through shorting in the money call options. That will give me good downside protection if energy stocks contine to fall and if they don't I will be assigned on my calls at a very nice profit in the stocks. I have held these stocks for 4 years. Time to fish in other waters.....or stay very liquid.

[TreeFrog]

It's a parabolic runup in price. Always a classic precursor of the inevitable crash. Uh, where have we seen that recently?

[6thGen]

Finally something I agree with you people on. We are seeing a short squeeze in the runup. Once that's flushed, it's over Johnny.

http://s.wsj.net/public/resources/images/P1-AL604A_BUBBL_20080515213615.gif

and

Bears Baffled by Oil Highs
By GREGORY MEYER
April 21, 2008; Page C10

As crude-oil prices edge further into uncharted territory, life as a bear has become lonelier than ever.

Benchmark crude futures have registered an electric performance so far this year and now -- near $117 a barrel -- hover well above some of the highest near-term forecasts. The speed of the ascent has caught many market participants off guard and forced banks and brokerages to repeatedly revise their oil-price outlook upward.

Yet some analysts continue to warn that oil prices are teetering close to a steep fall -- at least back near $80 a barrel. For these observers who see the world's oil supply-and-demand balance loosening and weighing on prices, the red-hot rally is nothing short of astonishing.

"I personally think this is the mother of all bubbles," said Michael Lynch, president of Strategic Energy & Economic Research Inc., a consulting firm in Amherst, Mass. He expects prices to pull back to $80 a barrel by late June, and in the long run step down to $50 as pent-up supply in Iraq, Nigeria, Venezuela and other underproducing exporters starts to flow.

For Tim Evans, an energy analyst and inveterate bear at Citigroup in New York, that bubble is "still expanding," filled with sentiment that seems to ignore signs of what he views as a supply surplus through the end of this year.

"There's no supply-demand deficit," Mr. Evans said.

The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world's top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration.

The benchmark crude futures contract on the New York Mercantile Exchange first touched $100 a barrel on Jan. 2 and has marched higher since then. Nymex crude has risen 22% this year and 91% since the start of 2007, settling at $116.69 a barrel Friday after touching a record intraday high of $117.

The International Energy Agency, the Paris-based energy watchdog of the world's richest nations, earlier this month lowered its forecast for world oil demand growth by 460,000 barrels a day and now envisions demand will total 87.2 million barrels a day this year, nearly 1.3 million barrels a day more than last year. The IEA also sees supply from outside the Organization of Petroleum Exporting Countries growing by 815,000 barrels a day, the strongest growth since 2004, leading bears to contend the world is amply supplied.

The bulk of the oil market doesn't seem bothered by this argument. Buyers have been emboldened by what they see as faltering supply, with OPEC members holding oil production steady and supply from outside the cartel growing but not as quickly as originally expected.

While the Federal Reserve's aggressive interest-rate easing cycle is aimed at stimulating the economy at a dangerous impasse, the oil market has taken its monetary policy cues squarely from the weak dollar. As fears gather that the rate cuts are leaving the U.S. economy extremely vulnerable to inflation, the rise in the price of oil is also seen by some as an early harbinger of those gathering price pressures, reminiscent of the commodity price spike in the early 1970s.

Mr. Lynch at Strategic Energy argues the dynamics of supply and demand justify a price of $30-$40 a barrel, while jitters in unstable exporting regions might reasonably double that price.

"But $114? I mean, the run-up in price we're seeing in the last six weeks or so has happened while the fundamentals have, generally speaking, gotten bearish," he said.

Even with red flags on the horizon and oil prices shattering predictions, the rally has generated a sort of self-fulfilling momentum.

"We're stuck in this rut of an upward market until something major changes in the macro picture," said Adam Robinson, an energy research analyst at Lehman Brothers. After revising up, Lehman sees the Nymex benchmark crude averaging $89 a barrel this quarter and $93 in 2008.

To Mr. Evans of Citigroup, those factors are already here. Higher prices are sowing the seeds of their own collapse, he says, as consumers start cutting back and producers search for oil that once was too costly to extract. By his reckoning, oil should be trading between $70 and $80 a barrel.

"We don't need any further evidence for this market to turn lower," he said.

Write to Gregory Meyer at greg.meyer@dowjones.com

[MissCritter]

I started a thread based on this article this morning and got no takers. Reading the article is a bit akin to sitting through an economics class, so it's a bit offputting to say the least. But the author's view is thought-provoking:


That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.


You can read the entire article here: http://www.harpers.org/archive/2008/02/0081908

By the way, he predicts the next bubble to be alternative energy.

[aleonard]

I started a thread based on this article this morning and got no takers. Reading the article is a bit akin to sitting through an economics class, so it's a bit offputting to say the least. But the author's view is thought-provoking:



You can read the entire article here: http://www.harpers.org/archive/2008/02/0081908

By the way, he predicts the next bubble to be alternative energy.

Sorry, Miss C. Didn't mean to copy threads, but I thought your article was geared towards the housing bubble. This was the first one I came across on oil.:wave:

Plus, I guess I need an economics class. This was easier for me to digest:blush:

[MissCritter]

Sorry, Miss C. Didn't mean to copy threads, but I thought your article was geared towards the housing bubble.


No apology needed, aleo. My grammar was off. I was referencing another article about the new boom/bubble/bust cycle the author feels we're destined for. The herd just heads from one get rich quick gimmick to the next. :bang:

Overpriced tech, housing, oil I can live with, but if the price of red wine and chocolate goes sky high, we're gonna have a problem. ;-)

[aleonard]

No apology needed, aleo. My grammar was off. I was referencing another article about the new boom/bubble/bust cycle the author feels we're destined for. The herd just heads from one get rich quick gimmick to the next. :bang:

Overpriced tech, housing, oil I can live with, but if the price of red wine and chocolate goes sky high, we're gonna have a problem. ;-)

I heard ammo is becoming an artificially inflated market as well :biggrin:

[SHELLY]

:idontno:So, my question is....who's in control of all this? Shelly..what's your take?

Now's a great time to buy! The prices never go down! Buy before you're priced out of the market! 1,000 people move to Florida every dah........ay, huh?... :shock:...:blink:...:blush:...sorry--wrong script.

The oil run-up is part demand; part speculation; part the Fed trashing the US dollar. I think the "smart money" is probably exiting oil....maybe going into "water?" :idontno: The "investulations" may keep the oil prices gyrating for serveral months or up to a year.

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[traderx]

I just looked at a graph depicting the price of oil. The price is riding a steep slope right along the upper Bollinger Band, usually a precursor of a correction. While markets can be rational, when it comes to commodities, there are so many worry points that factor in. I don't think the grilling of large oil execs by the Dems helped much this week.

You know, it is interesting that many people point a finger at the oil companies and moan about the "windfall profits" but we tend to forget that companies are owned by shareholders just like you and me. Unless you have specifically avoided financial instruments which do not include oil, we all probably own a piece of Exxon, Chevron and BP. Of course, then you get to pay taxes on your gains. Diabolical isn't it? :bang:

[TreeFrog]

Overpriced tech, housing, oil I can live with, but if the price of red wine and chocolate goes sky high, we're gonna have a problem. ;-)

Red Truck for $8.05 a bottle (in case quantities) at Chan's. It ain't fine wine, but it'll get you by until the price of gas comes back down. Meanwhile, stock up on M&Ms.

[MissCritter]

Red Truck for $8.05 a bottle (in case quantities) at Chan's. It ain't fine wine, but it'll get you by until the price of gas comes back down. Meanwhile, stock up on M&Ms.



Done. http://www.thesmilies.com/smilies/edible/m-m.gif http://www.thesmilies.com/smilies/edible/redwine.gif

[TooFarTampa]

I just looked at a graph depicting the price of oil. The price is riding a steep slope right along the upper Bollinger Band, usually a precursor of a correction. While markets can be rational, when it comes to commodities, there are so many worry points that factor in. I don't think the grilling of large oil execs by the Dems helped much this week.

You know, it is interesting that many people point a finger at the oil companies and moan about the "windfall profits" but we tend to forget that companies are owned by shareholders just like you and me. Unless you have specifically avoided financial instruments which do not include oil, we all probably own a piece of Exxon, Chevron and BP. Of course, then you get to pay taxes on your gains. Diabolical isn't it? :bang:

My mom owns waaaay too much Exxon. She inherited it and has been loathe to sell it. Every year I convince her to sell 10 percent. She loooves those dividends, though, so she will probably not dump most of it anytime in the near future. I worry since she is 65 and it is about 25 percent of her portfolio! One stock! :yikes:

I will have to remind her how much she loves those dividends next time she complains about gas prices. She is smart, and generally handling her funds very well, but I do worry about all that Exxon.

[Mango]

I have to admit that I am in agreement. Oil is priced in dollars and since the dollar has gotten blitzed, the price of the commodity has increased dramatically to compensate for the money lost in the currency. I sold calls against my entire energy portfolio ...cvx xom bp cop hal...yesterday and today through shorting in the money call options. That will give me good downside protection if energy stocks contine to fall and if they don't I will be assigned on my calls at a very nice profit in the stocks. I have held these stocks for 4 years. Time to fish in other waters.....or stay very liquid.

You and everybody else today on the street it looks like.

[traderx]

...Oil is priced in dollars and since the dollar has gotten blitzed, the price of the commodity has increased dramatically to compensate for the money lost in the currency.

I believe the weak dollar argument for the oil price spike is overstated. The largest exporter of oil to the US is Canada and the USD and Canadian are basically at parity. The third largest is Mexico and you need ten Pesos to the dollar. Saudi Arabia is second and I am not sure what their currency is and how it compares to the dollar. Rounding out the top five are Venezuela and Nigeria, I believe. The top five account for seventy percent of total oil exports to the US. It is difficult to see how the decreased value of the dollar has materially contributed to the incredible rise in oil prices.

[goofer44]

My mom owns waaaay too much Exxon. She inherited it and has been loathe to sell it. Every year I convince her to sell 10 percent. She loooves those dividends, though, so she will probably not dump most of it anytime in the near future. I worry since she is 65 and it is about 25 percent of her portfolio! One stock! :yikes:

I will have to remind her how much she loves those dividends next time she complains about gas prices. She is smart, and generally handling her funds very well, but I do worry about all that Exxon.


Your mom should definitely lighten up on her xom holding !!! Way too much exposure in one stock. You should also explain to her that the dividend yield is less than 2%. Short term CD's are yielding much more, with no risk. Checkout Bankrate.com for good deals on cd's and money market funds. Also your mom will pay 15% in capital gains on her xom gain now as opposed to a much higher rate if a democrat is elected president.

[30A Skunkape]

Your mom should definitely lighten up on her xom holding !!! Way too much exposure in one stock. You should also explain to her that the dividend yield is less than 2%. Short term CD's are yielding much more, with no risk. Checkout Bankrate.com for good deals on cd's and money market funds. Also your mom will pay 15% in capital gains on her xom gain now as opposed to a much higher rate if a democrat is elected president.

Blasphemy!:wave:

[TooFarTampa]

Your mom should definitely lighten up on her xom holding !!! Way too much exposure in one stock. You should also explain to her that the dividend yield is less than 2%. Short term CD's are yielding much more, with no risk. Checkout Bankrate.com for good deals on cd's and money market funds. Also your mom will pay 15% in capital gains on her xom gain now as opposed to a much higher rate if a democrat is elected president.

Thanks goof. I agree and I knew I could count on you for some insight. It is time for our annual talk about this I guess. :roll:

What you say about the tax rates is interesting. I think eventually, when slapped in the face with an out of control debt and ballooning budget, both parties are going to agree that tax rates will have to go up. I think you are right that the Democrats are more likely to act sooner on this than the other side. I don't think you can blame the mess on either party! No one has done anything about our impending long term budgetary doom for at least four election cycles!

This article was interesting to me. It's a little bit about why, and a little bit about what to do. Simplistic for some perhaps but I found it enlightening.

http://money.cnn.com/2008/05/08/pf/retirement/revell_taxes.moneymag/index.htm

Today's low rates can't last. The tax cuts of the past decades were supposed to lift economic growth (which they did) and hike tax receipts faster than federal spending (which they did not). Not even close. The resulting tsunami of federal debt is one reason to expect your taxes to rise over the next quarter-century.

And then there's the looming retirement of 77 million Baby Boomers. The oldest Boomers have already become eligible for Social Security, and they'll become entitled to Medicare in three years. According to research by the National Center for Policy Analysis, if today's low tax rates remain in place, a staggering 76% of all federal income tax revenue in 2050 will be soaked up by those two programs alone - before a penny is spent on defense, national parks, health care for the poor or haircuts for congressmen.

Clearly, something has to give; it will undoubtedly include today's historically low tax rates. And that has major implications for your retirement savings strategy.

[SHELLY]

Your mom should definitely lighten up on her xom holding !!! Way too much exposure in one stock. You should also explain to her that the dividend yield is less than 2%. Short term CD's are yielding much more, with no risk. Checkout Bankrate.com for good deals on cd's and money market funds. Also your mom will pay 15% in capital gains on her xom gain now as opposed to a much higher rate if a democrat is elected president.

The dividend yield is a function of the stock price paid--so if Mom has been holding XOM for quite a while, her yield will be considerably more than 2%.

She should pare down her holdings for sure--are all the shares being held in taxable accounts? Start with trying to convince her to rebalance the XOM stock in her tax deferred accounts so she won't take a tax hit.

Good luck trying to talk her out of her hot stock...we should all have such problems :cool:

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[goofer44]

The dividend yield is a function of the stock price paid--so if Mom has been holding XOM for quite a while, her yield will be considerably more than 2%.

She should pare down her holdings for sure--are all the shares being held in taxable accounts? Start with trying to convince her to rebalance the XOM stock in her tax deferred accounts so she won't take a tax hit.

Good luck trying to talk her out of her hot stock...we should all have such problems :cool:

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Shelly




The dividend yield is a function of the CURRENT annual dividend paid divided by the CURRENT price of the stock. The same for bonds. Current coupon divided by Current price of the bond equals current yield.

[sunspotbaby]

Gas prices typically don't go down much though, bubble or not. Am I right?

[SHELLY]

Shelly




The dividend yield is a function of the CURRENT annual dividend paid divided by the CURRENT price of the stock. The same for bonds. Current coupon divided by Current price of the bond equals current yield.

You're correct insomuch as CURRENT yield is the annual dividend divided by the current stock price...however, in this case, Mom isn't holding XOM at the current price (I'm assuming), she's hanging on to stock whose cost basis is considerably lower than current price. So even though the current dividend yield of $1.60/$90.60 would be 1.7% to the normal guy on the street... that same $1.60 for Mom, who is holding XOM @ $15 a share, would 'appear' to yield 10.66%--not to mention the 75-clams in appreciation ...go Mom!


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[TooFarTampa]

You're correct insomuch as CURRENT yield is the annual dividend divided by the current stock price...however, in this case, Mom isn't holding XOM at the current price (I'm assuming), she's hanging on to stock whose cost basis is considerably lower than current price. So even though the current dividend yield of $1.60/$90.60 would be 1.7% to the normal guy on the street... that same $1.60 for Mom, who is holding XOM @ $15 a share would yield 10.66%--not to mention the 75-clams in appreciation ...go Mom!


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Go mom is right! Her cost basis from when she inherited it is about $22 a share. Most or at least part of it has been in her family since the Standard Oil days, so she is very emotionally attached to it. I asked her today about the numbers, and it makes up just a hair under 25 percent of her portfolio. Mom is doing great -- she is not wealthy but has long term care insurance, a small mortgage she could pay off easily if she wanted to, good health, comfortable portfolio, etc. Every planner has told her to cut way back on the XOM but she is definitely stalling. Her brother is worse. He won't sell any of it!

As she points out, it has done very well for her, but she admitted today that she has no idea why it recently went down $5 and then went back up. I told her that's a sign that she probably should sell more, especially given that the stock has quadrupled in value since the early 90s. She worries about the tax "hit" but then I brought up the impending capital gains tax hikes (thanks goofer :D). I hate to tell her to sell something that has done so well for her, but I don't want her to miss out on a great profit taking opportunity either. :idontno: Thanks for letting me ramble.

[TooFarTampa]

Gas prices typically don't go down much though, bubble or not. Am I right?

This is what everyone but SHELLY said about housing prices three years ago. :wave:

[SHELLY]

Go mom is right! Her cost basis from when she inherited it is about $22 a share. Most or at least part of it has been in her family since the Standard Oil days, so she is very emotionally attached to it. I asked her today about the numbers, and it makes up just a hair under 25 percent of her portfolio. Mom is doing great -- she is not wealthy but has long term care insurance, a small mortgage she could pay off easily if she wanted to, good health, comfortable portfolio, etc. Every planner has told her to cut way back on the XOM but she is definitely stalling. Her brother is worse. He won't sell any of it!

As she points out, it has done very well for her, but she admitted today that she has no idea why it recently went down $5 and then went back up. I told her that's a sign that she probably should sell more, especially given that the stock has quadrupled in value since the early 90s. She worries about the tax "hit" but then I brought up the impending capital gains tax hikes (thanks goofer :D). I hate to tell her to sell something that has done so well for her, but I don't want her to miss out on a great profit taking opportunity either. :idontno: Thanks for letting me ramble.

Show her the linked chart of Citigroup and ask her how she would feel if that happened to Exxon?


http://finance.google.com/finance?chdnp=0&chdd=0&chds=0&chdv=0&chvs=maximized&chdeh=0&chdet=1211683389437&chddm=98532&q=NYSE:C&




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[TooFarTampa]

http://finance.google.com/finance?chdnp=0&chdd=0&chds=0&chdv=0&chvs=maximized&chdeh=0&chdet=1211683389437&chddm=98532&q=NYSE:C&


Visual aids are always appreciated. :wave:

[traderx]

Link is to a long term graph of gasoline prices. Adjusted for inflation, we are paying a little less for gasoline than we did in 1979. Interesting...

http://www.randomuseless.info/gasprice/gasprice.html

[goofer44]

You're correct insomuch as CURRENT yield is the annual dividend divided by the current stock price...however, in this case, Mom isn't holding XOM at the current price (I'm assuming), she's hanging on to stock whose cost basis is considerably lower than current price. So even though the current dividend yield of $1.60/$90.60 would be 1.7% to the normal guy on the street... that same $1.60 for Mom, who is holding XOM @ $15 a share, would 'appear' to yield 10.66%--not to mention the 75-clams in appreciation ...go Mom!


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Your thought process on yield is flat out wrong. Ask any financial planner, stock broker, finance professor etc. Yield has absolutely nothing to do with cost basis.

[SHELLY]

Your thought process on yield is flat out wrong. Ask any financial planner, stock broker, finance professor etc. Yield has absolutely nothing to do with cost basis.

AKA: Effective Dividend Yield.


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[goofer44]

AKA: Effective Dividend Yield.


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You are comparing apples to oranges. Effective dividend yield is something entirely different and has nothing to do with deciding whether to buy a stock for yield. When I first bought XOM it was trading at 42.50 paying an annual dividend of $1.08 with a then current yield of approx 2.5%. the dividend has risen to $1.60 with current yield of 1.76%. I have made a substantial long term capital gain and my dividend income has risen by 60%. In my opinion XOM has become too dear. The EFFECTIVE YIELD is a function of earnings and a payout ratio. For illustrative purposes if I want to replace xom with a stock with a higher yield, there is clearly an abundance of companies......just check out the banks. Since no one has a crystal ball to forecast what stock prices will be a year from now, one must compare current yields not effective yields. JNJ KO PEP GE BAC PG MO have all raised their dividends every year for the past 10 plus years. THIS DOES NOT MEAN THEY WILL DO SO IN THE FUTURE. Citibank and WACHOVIA have raised their dividend annually for many years EXCEPT FOR NOW. They have drastically cut their dividends. I believe Bank of America, which has also raised their dividend annually, will more then likely cut their dividend going forward. If I was to advise TFT's mom, I would suggest selling XOM down to 10% of her portfolio and buy GE ( 4.07 % )and MERCK ( 3.92 %) with the proceeds. NO ONE EVER WENT BROKE BOOKING A PROFIT. I like MERCK'S defensive nature and GE has one of the strongest balance sheets of any company. I would also suggest PEP, JNJ or PG on any pullback. The only bank I would suggest buying is JP MORGAN under 40. Currently it yields 3.6 % with a price of 42.30. All these names yield appreciably more than XOM. I still like XOM for the long term but I think I will be able to buy it under 80 in the not too distant future. Then I will reestablish my position. :idontno:

[Zebraspots]

I'm too much of a novice to understand what goofer and shelley are arguing about, but 25% is a pretty big chunk of a portfolio. If the other 75% is highly diversified, maybe it's okay, but lotta eggs in one basket! :blink:

[SHELLY]

You are comparing apples to oranges. Effective dividend yield is something entirely different and has nothing to do with deciding whether to buy a stock for yield.

My discussion about the 'effective dividend yield' on Mom's stock wasn't a recommendation to buy or hold XOM, it was merely a factual statement about her current position in the stock and probably part of the reason as to why Mom was seeing value in holding on to a substantial quantity of XOM.

I agree that Mom should liquidate some of the XOM, but instead of reinvesting in another stock, she should invest in things she'd always dreamed of doing (i.e., world cruise; African safari; boat trip down the Amazon) or visit a place or participate in an activity that the benefactor never had a chance to experience--for instance, raise a champagne toast on the top of the Eiffel Tower and say, "thank you, this one's for you."
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[TooFarTampa]

My discussion about the 'effective dividend yield' on Mom's stock wasn't a recommendation to buy or hold XOM, it was merely a factual statement about her current position in the stock and probably part of the reason as to why Mom was seeing value in holding on to a substantial quantity of XOM.

I agree that Mom should liquidate some of the XOM, but instead of reinvesting in another stock, she should invest in things she'd always dreamed of doing (i.e., world cruise; African safari; boat trip down the Amazon) or visit a place or participate in an activity that the benefactor never had a chance to experience--for instance, raise a champagne toast on the top of the Eiffel Tower and say, "thank you, this one's for you."
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I agree Shel, and it is what I would do, but my mom doesn't travel. She has no desire to go anywhere! Anyhoo, since she does not travel and does not desire a better house, car, etc. and buys pretty inexpensive clothing, etc., her expenditures are very low. She is also still working. Her retirement plans right now involve cutting down to 3 or 4 days a week. :blink:

I agree with everyone that she is holding too much XOM, but we talked about it again today and she says that since many people are rating it as a "buy" she will just hold onto it for now. (When I pointed out that they do not say "buy" if you already own too much XOM it did not help.)

I told her to sit down this week, while things are good, run the numbers and come up with an absolute stop loss price in which she would sell a large portion. Or a series of stop loss prices in which she would sell 10 percent, another 10 percent, etc. Then I told her she needed to share those prices with me so I could nag her at an appropriate time. She agreed. :clap:

Thanks for taking the time for thinking about my mom everyone. :wave:

[SHELLY]

I told her to sit down this week, while things are good, run the numbers and come up with an absolute stop loss price in which she would sell a large portion. Or a series of stop loss prices in which she would sell 10 percent, another 10 percent, etc. Then I told her she needed to share those prices with me so I could nag her at an appropriate time. She agreed. :clap:

Thanks for taking the time for thinking about my mom everyone. :wave:

Capital idea!

Sounds as if your Mom is loving life and doing just fine, if it ain't broke there's no need to fix it; and if holding a bunch of XOM is her only problem in life then it's all good.

BTW--how was Italy?

.

[30ashopper]

There's always a silver lining -


The FHWA’s “Traffic Volume Trends” report, produced monthly since 1942, shows that estimated vehicle miles traveled (VMT) on all U.S. public roads for March 2008 fell 4.3 percent as compared with March 2007 travel. This is the first time estimated March travel on public roads fell since 1979. At 11 billion miles less in March 2008 than in the previous March, this is the sharpest yearly drop for any month in FHWA history.

Additionally, the U.S. Department of Transportation estimated that greenhouse gas emissions fell by an estimated 9 million metric tons for the first quarter of 2008.


:clap:
Link (http://www.dot.gov/affairs/fhwa1108.htm)

[scooterbug44]

When I went to the bank at lunchtime there was an empty car running and it was cool enough out that I had on long pants and a sweater and didn't even have MY ac on while driving. :bang:

IMO prices aren't high enough yet!

[Miss Kitty]

There's always a silver lining -



:clap:
Link (http://www.dot.gov/affairs/fhwa1108.htm)

My faith has been restored. Someone is getting the message.