Oil Futures Up, Oil Stocks Down

It seems a complete contradiction, but oil companies' stocks aren't keeping pace with rising oil prices. Far from it, according to the Wall Street Journal:

The stock price of major oil companies hasn't kept pace with the price of a barrel of oil, which is now 95% more expensive than 12 months ago. Investors are skeptical that majors such as Exxon Mobil Corp. and Royal Dutch Shell PLC, which do everything from drilling oil to refining it to selling it, are going to have big futures. The stocks are actually down this year.

Apparently analysts are saying that they face problems in oil production in the long term, "making some observers think these companies may not even be around in 10 to 15 years." Jeez, Louise. It makes you wonder why they aren't pumping huge amounts into alternative energy - or even something that seems totally unrelated. When your business depends on goop you pump out of the ground and you know supplies are limited, you might think that finding something with some long-term potential would be, oh, I don't know ... necessary?

Wikileaks Reports JP Morgan Document on 10B5-1 Trading Plans: Claims Inider Trading

Wikileaks is reporting sudden discovery of the 10B5-1 trading plan:

A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing 'how-to' programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.

However, life just isn't that simple. There are several ways of structuring these plans, and there has been some evidence that these plans may be getting better results than you might mathematically think.

But the story isn't new, and the SEC is hardly ignoring potential abuse. Also, if someone uses the particular approach mentioned in this leaked document, they will probably lose the legal protection that 10B5-1 plans offer. Also, an executive wishing to game the system has much more effective and invisible methods of doing so. I covered the topic last December in Corporate Secretary.

Adolescent Investing

You've undoubtedly seen the news stories today about the loss in stocks in the face of the quarter percent interest rate drop by the Fed. The standard rationale being offered is that Wall Street expected a half point drop. That is equivalent to saying that a screaming teenager's tantrum about not getting to do something his or her friends are doing. It's not - the problem is a lack of maturity and realism on the part of the one doing the screaming.

It's clear that Wall Street invests based on emotion, and not strictly on logic. People like Alan Greenspan have pretty much said so, and if you look at the way stocks react, you can see direct evidence and not even wait for the experts to weigh in. So, investors wanted a double cone and instead got a single scoop, and so decided that they'd go home and pout.

In other words, there's no reason to get that upset or worried about the market, because it's as useful as getting twisted up over a teenager on a rant. What the grown-up parent or investor does is take all this in stride and do what is necessary anyway.

Stock Market High Evidence of High Investors?

I shake my head, looking at the new Dow record: 14087.55. With Citigroup and UBS melting down, with other financial services firms only showing strength when the financial reports don't include the late summer, with housing taking a beating and Wal-Mart and Target and Home Depot feeling the pinch, with the Supply Management index being weaker than was expected (though still just above the contraction level), you might not think this was a time to be betting on stock market prices sitting at high levels. But, even as top grade bonds are doing well, so are equities. The Financial Times has an "explanation" from an analyst:

“Everyone’s expecting bad news but, once it’s out, it’s either not as bad as everyone thought or at least it’s out in the open,” said Richard Sparks, senior equity analyst and equity options trader at Schaeffer’s Investment Research.

“The expectation is still that there will be a rate cut when the Federal Reserve meets at the end of this month. The market has decided that it is going to happen.”

If ever there was proof that people are completely and unrepentantly nuts, this is it. There will be a Fed rate cut at the end of the month because the market has decided that there will be a Fed rate cut at the end of the month. If Sparks is right, then investors are walking right past investing, long beyond betting, and walking into the heart of the Faithful. Look at what the analysts are saying (again from the FT article):

The most significant economic data to come are the September payrolls figures due at the end of the week. Investors expect a rebound in job creation after the decline of 4,000 for August – the first fall in four years.

“We continue to expect overall payroll employment to be up 125,000 in September and look for little change in manufacturing jobs,” said Ted Wieseman, economist at Morgan Stanley.

Homebuilder stocks rose sharply on Monday after an analyst at Citi Investment Research said recent share price falls meant it was time to buy into the sector.

When you make your living leading the Faithful, I guess you can't afford to show doubt, even when that oncoming light in the tunnel is getting larger, and rounder, and there's the sound some equate to the roar of a tornado. The train is coming.

Greenspan on the Daily Show

Alan Greenspan has been making the rounds for his new book, and one stop was to see Jon Stewart last week. At one point during the conversation, he made what I thought was a fascinating statement - that in the last 50 years, he hasn't seen a real improvement in the ability to forecast what the market was going to do. The problem is that people either feel euphoric or fearful, and then make decisions based on emotional states, not on reason.

Anyone who has a solid grasp on marketing could have made the same point, but it sounds different when someone who has spent so many years trying to use mathematics to grasp mass behavior comes out and says so.