Friday, August 01, 2008

The wacky world of economics

Just another example that proves my theory that any so-called "expert economist" one sees on tv or sees quoted in print is just spewing theories that have NOTHING to do with the reality of the American model. And the American model is that the stock market controls everything, while it should control nothing.

On the front page of the DMN news today is the following headline...

"Exxon sets record but sees stock fall"

So EM once again announces a record profit, earning $11.68 billion in the 2Q. However, EM's stock dropped 5% yesterday. Now what sense does that make? What "economic theory" does this fall into? And the reason the stock fell - because EM didn't earn what market analysts estimated. So the value of EM stock fell not because of what the company DID (break an earnings record), but because it didn't do (break the earnings record by more $$) what some analysts THOUGHT it should do. This makes no sense to me at all. The value of stock, or a company, should be based on how well do they do what they do, do they make smart business decisions, do they make money, etc. Not do they meet some forecast or ideal of analysts. The message here, in simplistic terms, is that it's not good enough to make more profit in a quarter than any company has ever made. So who or what is controlling the stock market - companies or analysts? And who should?

Later on in the article, there is another example of the power that the stock market has, which in my opinion is too much and is based not on reality, but on theories or perceptions or who knows what. Here are the closing 2 paragraphs of the front page article:

"Investors drove UP (emphasis mine) the share price of Houston-based Marathon Oil Corp., a smaller company that also tries to do it all, after it announced that it MIGHT (emphasis mine) split its exploration and production business and its refining and marketing business into two independent companies.

"You're dealing with a company that's much smaller in terms of market cap," said Mr. Harper. "But nonetheless, I think Marathon's SAYING (emphasis mine) the type of things investors want to hear in respect to maximizing shareholder value for the longer term."

So, Marathon's stock goes up based on them saying they might do something, while EM's goes down based upon something they actually did, which is make record profits. Guess if EM wants their stock price to go up, and therefore maximize shareholder value, it should just start saying things rather than actually doing something. Yea, that makes lots of sense.

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