January 2009


That XOM is a resource company, oil & gas, thus the investor must account for the depletion of the assets, including plant. The amounts charged off by the company are quite likely to be irrelevant for the individual investor, thus, he should make his own.

If we place the reserves at a optimistic 20 yrs and a conservative 11 yrs, we can then amortize the value in the ground and ascertain whether we are buying value.

…………………………………………………6 yrs………………..Current
Paid for entire company……………….$363822……………$423958
Less Cash Assets……………………….$26051……………..$38434
Paid for company………………………$337771……………$385524

Earnings before amortization………..$60320………………$91406
Earnings required on cash @ 5%……$1302……………….$1921
Balance earned on drilling……………$59017……………..$89484
% earned before amortization……….17.4%………………..23%

Investors amortization
11 yrs [maximum]……………………$5311……………….$8053
20yrs [minimum]…………………….$3016………………..$4474

Earned after amortization
Minimum earnings…………………..$53705………………$81431
Maximum earnings………………….$57304………………$85010

% earned on investment

Thus, we can see that we [as investors] are both aligned with the earning power of the business, and earning a very attractive return on our investment.


10 Best Performing Industries
Industry Name Percent Change

DJ US Water Index 28.92%
DJ US Aerospace & Defense Index 8.48%
DJ US Electricity Index -6.87%
DJ US Brewers Index -8.54%
DJ US Home Improvement Retailers In… -10.34%
DJ US Pharmaceuticals Index -12.84%
DJ US Restaurants & Bars Index -13.32%
DJ US Pharmaceuticals & Biotechnolo… -14.12%
DJ US Waste & Disposal Services Ind… -16.70%
DJ US Biotechnology Index -17.25%

10 Worst Performing Industries
Industry Name Percent Change (over time selected)

DJ US Full Line Insurance Index -91.30%
DJ US Aluminum Index -78.16%
DJ US Mortgage Finance Index -77.88%
DJ US Coal Index -73.21%
DJ US Nonferrous Metals Index -69.57%
DJ U.S. Industrial Metals & Mining… -69.07%
DJ US Platinum & Precious Metals In… -67.79%
DJ US Automobiles Index -66.84%
DJ US Tires Index -66.70%
DJ US Basic Resources Index -65.30%



Exxon Mobil Corporation (Exxon Mobil) through its divisions and affiliates is engaged in exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. Exxon Mobil is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. Exxon Mobil also has interests in electric power generation facilities. Affiliates of Exxon Mobil conduct research programs in support of these businesses. Exxon Mobil Corporation has several divisions and affiliates, many with names that include Exxon Mobil, Exxon, Esso or Mobil. The Company operates in three segments: Upstream, Downstream and Chemicals. In April 2008, Galp Energia SGPS S.A. has acquired Exxon Mobil Corporation’s businesses in Spain and Portugal.

First some of the problems.

It would seem that management are capitalising a portion of receivables onto the Balance Sheet. I would suspect that these are potential writedowns at some point in the future. Assume the worst and adjust for them as writedowns at $0.29/share

Management are also capitalising Operating expenses. This of course directly enhances the bottom line, and inflates Net Income. This is particularly obvious in the forthcoming 2008 financials, where I have adjusted for potential results [obviously they may be slightly better or worse] thus I have adjusted by $0.16/share

Total adjustments = $0.45/share

Positive adjustments.

Management have discretionary cashflows through squeezing suppliers of some $0.21/share that has offset the deductions.

Adjusted per share adjustments = $0.21 – $0.45 = [-$0.44/share]
Adjusted Net Income = $9.80 – $0.44 = $9.36/share

The margins, notwithstanding the adjustments are outstanding. With a six year aggregate of 16.5% on a primarily common stock capitalization, this represents an outstanding return.

The common stock capitalization at 90%+ shows very low leverage. This in the current climate in part accounts for the relative out performance of XOM to it’s peers.

Pension liabilities = $34.5 Bil
Pension Assets = $27.8 Bil

While underfunded, this is not at a point of danger with XOM’s earning power taken into consideration.

Reserves are at 21.5 Bil bbs [oil/gas] which represents circa 22.6 yrs based on the current 2.6 Mil daily production. Thus, there is a substantial timeframe of safety currently.

Reserves are being replaced at a 1.74% compounded rate. They are thus growing at 0.74% compounded. This represents value for common share holders.

Common shares are [and have been] the subject of repurchase. To date the ownership base has been reducing at a 2.8% compounded basis. Thus, holders are benefitting from this management policy.

Valuation = $136.52/share
This is a conservative valuation, and thus trading at circa $77.00/share represents a 76% discount from fair value.

In summary, barring some management manipulation, Exxon represents a conservatively capitalised, highly profitable and massively undervalued investment common stock.

However, I shall run another analysis, to provide confirmation [or refute] of the initial analysis.


Mish is still arguing a deflation. Also, accusing inflationists of being misguided.

Inflationists simply do not understand the destruction of bank credit accompanying in conjunction with the decline in asset prices. Nor do they understand the changing attitudes towards debt. This is a once in every 3-4 generational occurrence. Hardly anyone alive has experienced anything but inflation all their lives until about a year or so ago. A rude awakening is at hand.

We have therefore a number of important points to consider:

*Destruction of Bank credit
*Decline in asset prices
*Changing attitudes to debt
*Change of paradigm

I shall address each point in turn. As each point requires quite a lengthy discourse and analysis, I shall devote a number of posts to cover each topic.


HOO. Buying a 75% position @ $4.49 for an investment [portfolio] position. The analysis will follow.

Cascal N.V. (Cascal) provides water and wastewater services to its customers in seven countries: the United Kingdom, South Africa, Indonesia, China, Chile, Panama and The Philippines. In a typical water project, the Company collects raw water from surface and groundwater sources, treat the water to meet the required quality standards and then supplies the treated water through a distribution network to its customers’ premises. In a typical wastewater project, Cascal collects the wastewater from its customers’ premises, treat the wastewater to meet the required standards and returns the treated water to the environment. The Company provides these services under long-term contracts or licenses that typically give it the right to provide its services within a defined territory. In June 2008, Cascal B.V. acquired 100% of the Servicomunal and Servilampa companies located immediately to the north of Santiago, Chile.



Thought you’d seen it all…think again. flip-flop-fly, my main man manages money like the space magician that he claims to be. Thought fundamentals were lame, technicals for retards, quants for calculator brain challenged dolts…here we are…the classic art of money management.

The SEC Needs to Investigate CNBC
January 29, 2009 – 7:11 pm
Some of you people ask and ponder: “Fly, if you hate CNBC so much, why do you watch it? ”

Well, for one, there is not much of an alternative. But, more importantly, their commentary and rumor mill department moves markets. In my business, information is everything.

Well, CNBC is now reporting the so called “bad bank” idea, floated out there by Fuckhead Steve Leisman, is just a pipe dream. Gasparino is now reporting the Government has no idea how to implement such a program, without bankrupting ALL OF THE BANKS.

Wake the fuck up SEC. Those assholes on CNBC just spread a rumor that jacked bank stocks higher to the tune of 30% in one day. Now, one day later, we find out it was all bullshit?

You have to be fucking kidding me. You— have— to— be— fucking— kidding— me.

I allocated millions of dollars yesterday, based upon some end game for the banks and now I find out, while relaxing with the kids, it was just some crazy eyed story.

They (CNBC) are repeat offenders and legal action should be pressed.


Make banks stick to their two critical functions – mediating the payments system and connecting lenders to borrowers.

To safeguard the payment system, banks must hold 100 per cent reserves against their deposits either in cash or short-term US treasuries. With 100 per cent reserves, banks runs will be history.

This is not true of the current system, notwithstanding Federal Deposit Insurance Corp insurance. The FDIC’s potential liability exceeds $4 tn; its assets are less than $50 bn. A run on the banks would require massive money creation and engender greater economic panic.

To ensure their second function – the uninterrupted connection of suppliers of and demanders for funds – banks should be limited to a) packaging conforming mortgages and conforming business loans (commercial paper) within mutual funds and b) marketing these mutual funds to the public. The model here is Fidelity, not Lehman Brothers.

With the government ready to absorb losses, banks are talking outrageous risks knowing that Uncle Sam will cover them if things go south. Raising the trivially low capital requirements of banks, as Paul Volker’s Group of Thirty Commission just proposed, won’t change this behaviour.

What will change this behaviour is to not let it happen. Banks should be allowed to initiate only conforming, i.e., government-approved, AAA-rated mortgages and business loans. These would be long-term, fixed-rate loans with 20 per cent-down and payments below 25 per cent of income.

The government, via the Federal Financial Authority, would use tax records to verify loan payment-to-income ratios. It would also spot check collateral. Once approved, the banks would bundle and sell “their” loans within mutual funds.

Again, traditional bank runs wouldn’t arise. And today’s bank runs, which entail lenders and equity investors avoiding risky banks, wouldn’t either. Why? Because banks would bear zero risk. Mutual fund owners would bear risk, but not the banks. And these lenders would know they were buying government-approved AAA-rated loans, not Bear Stearns‘ CDOs.

This limited purpose banking is a modern version of narrow banking proposed by Frank Knight, Henry Simons, and Irving Fisher. Banks would hold deposits, cash checks, wire money, originate loans, and market mutual funds, including money market funds with no guarantee of par value redemption.

With limited purpose banking, financial crises would largely disappear. Banks would never fail, never stop originating loans, never expose the public to massive liabilities, and never see their stock values evaporate. Banks would be stable, boring economic cogs – like gas stations.

The Fed would also gain full control of the money supply. To expand the money supply, the Fed would continue buying treasuries from the public and supplying cash. But banks wouldn’t be multiplying and contracting M1 (cash plus demand deposits) based on their ever changing decisions about lending deposited funds.

Milton Friedman, who also advocated narrow banking, blamed the Depression on the Fed’s failure to offset the M1 money multiplier’s collapse. In the past year the M1 multiplier has contracted by over 40 per cent, forcing the Fed to double base money. If the multiplier shoots back up, we could see the money supply and prices explode.

What about investment banks, brokerage firms, hedge funds, and insurance companies? What’s their right financial order?

Again, regulate to purpose. Investment banks take companies public and assist in mergers and acquisitions. They shouldn’t be permitted to invest in their clients’ companies.

Brokerage firms are here to help us buy and sell assets, not to gamble on spreads.

Hedge funds are here to help limit risk exposure. They aren’t here to insure these risks themselves.

Finally, insurance companies are here to diversify risk, not write insurance against aggregate shocks.

The FFA and “less is more” limited purpose banking won’t prevent asset markets from occasionally going nuts. But the functioning of financial markets will no longer be in question. Nor will con artists, parading as “financial engineers,” ever again be free to wreak havoc on the nation’s finances and its citizenry.

I notice that while the ability of the Banks to expand the money supply has been removed, the role of Central Banks, via the Federal Reserve, has not.

Thus, the government still [in practical terms] controls the ability to create inflation. Why not take the next step and return to a currency [money] backed by real value: gold, oil, wheat, tin, rubber…a basket of commodities?

However, as far as it goes, definitely a step in the right direction.


Although I am British, I don’t really follow the UK markets too closely. However, I did live under all the various Prime Ministers, excepting Gordon Brown. Therefore, for no particular reason, the chart. However, Labour, our Socialist government, as opposed to the Conservatives, who certainly under Thatcher, championed free markets and de-regulation. The effects of the two political camps can be clearly seen in the chart.



The Fly Says:

XOM is worth $60

January 28th, 2009 at 10:03 am

Based on what I wonder? Most likely absolutely nothing, just some random number he pulled out of his arse. I have more or less completed an analysis of XOM and will post the results later.


January 23, 2009 press release, Schlumberger Chairman and CEO Andrew Gould talks about the availability and price of oil.

“….. The sharp drop in oil and gas prices due to lower demand, higher inventories and the belief that demand will erode further in 2009 as a result of reduced economic activity, is leading to rapid and substantial reductions in exploration and production expenditure. At current prices most of the new categories of hydrocarbon resources are not economic to develop. It will take time for inflation to be removed from the system and to bring finding and development costs more in line with lower oil and gas prices.

We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins. Exploration offshore will be somewhat curtailed but commitments already planned are likely to be honored. Seismic expenditures particularly for multiclient data are likely to decrease from last year. …

The key indicator of a future recovery in oilfield services activity will be a stabilization and recovery in the demand for oil. The recent years of increased exploration and production spending have not been sufficient to substantially improve the supply situation. The age of the production base, accelerating decline rates and the smaller size of recently developed fields will mean that any prolonged reduction in investment will sow the seeds of a strong rebound (in exploration activity). ….”

Thus, oil, again, is destined for higher prices. Oil is a vital and central ingredient to so many products, that it would be almost impossible to replace it economically for possibly a generation, even if we were trying to. That no-one is seriously looking for major alternatives simply means that from here, oil goes higher.

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