Why Americans Work so Hard But Feel So Poor

This article from "The Atlantic" gives a short but informative view of why America's work force works harder, while productivity has risen, yet workers feel financially squeezed.

http://www.theatlantic.com/business/archive/2011/07/squeezed-dry-why-americans-work-so-hard-but-feel-so-poor/241252/#

Chinese Imports to the US

Newspaper headlines are dominated these days about the rise of China as a global economic source.  Frequently, Chinese imports are blamed for joblessness in the US.  But how much of today's unemployment picture relates to Chinese imports?  How much do we really buy from China?  The San Francisco Federal Reserve Board's web site includes the results of a recent study concerning the percentage of goods and services sold in the US that are sourced from China.  The authors, Galina Hale and Bart Hobjin, conclude the following:

Of the 2.7% of U.S. consumer purchases going to goods labeled “Made in China,” only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.

Since the share of PCE [personal consumption expenditures] attributable to imports from China is less than 2% and some of this can be traced to production in other countries, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States. 

The entire article may be read at the following link:

http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html?utm_source=home

Investing in Stocks

I sometimes get asked about how I decide what stocks to buy for client portfolios.  The answer is not easy or simple, however, a general summary might give some insight into the process.

Investing in stocks requires original research.  Research can be looked at in two ways:  macro and micro.  I define macro as looking at “the big picture”.  This includes international economic trends, international politics, domestic (U.S.) politics and domestic economic trends, what is happening in the bond market and commodities markets.  Macro research also covers industry trends.  For example, I ask the question: Which economic sectors should outperform and underperform, given the outlook for international and domestic economic and political trends?  Normally, in a bad economy, or heading into a bad economy, so-called “defensive” industries tend to do better than ones that will suffer in an economic downturn.  Procter & Gamble is a classic “defensive” stock.  Everyone has to wash clothes, eat, and spend money on grooming products, regardless of the economy.  People might trade down from name brands that P&G sells, but nevertheless, companies that sell everyday necessities that are consumable products are a natural investment option in a bad economy.

Micro-level research involves researching specific companies.  For example, before I invest in a stock, I look at research reports from various research providers, but I also do my own research by looking at the current annual report and SEC-mandated 10-K report to assess a company’s prospects.  I have specific criteria that I use when evaluating a company’s financial strength, future prospects and ownership structure.  Once I decide that a company meets my criteria, and if the time is right from a macro level, that stock may be purchased for client portfolios.

Because I am more a strategic than a tactical investor, I tend to hold stocks for a longer time than a typical mutual fund.  This holds down taxes for clients who have standard accounts that are subject to tax whenever a sale is made in their portfolios.  It also helps hold down transaction costs for all clients, including clients who own IRA accounts and other types of tax-deferred accounts.

Another Opinion About Investing in Gold

The investment manager of the First Eagle Gold Fund, Rachel Benepe, has an interesting take on gold, and the best way to buy it.  Her answer is not to buy gold bullion; rather, it is to buy a mutual fund with a diversified portfolio that includes gold bullion as well as the stocks of many companies that mine for gold.  The interview of Ms. Benepe can be found at the following link:

http://finance.fortune.cnn.com/2011/08/16/golds-climb-is-perfectly-rational/

Wells Fargo: Gold is a "Bubble Poised to Burst"

Check out this short article which discusses Wells Fargo analysts' belief that gold is in a bubble that is poised to burst.  It also lists who is buying and who is selling gold.

http://www.fa-mag.com/fa-news/8225-gold-a-bubble-poised-to-burst-wells-fargo-says.html

Effect of S&P's Downgrade on US Treasury Debt on the Stock Market

How will the stock market open on Monday, August 8, after Standard and Poor's downgraded US Treasury debt from AAA to AA+?  It could go either way -- up or down -- depending on whether or not investors were already expecting the downgrade. 

Surely, S&P had been telegraphing for weeks its intentions, depending on how the debate on Capitol Hill related to the debt ceiling turned out.  S&P stated previously that unless there was a credible plan put on the table to reduce spending by $4 trillion dollars that the company would downgrade US Treasuries.  When the final agreement came in with a proposed reduction in spending (from the "baseline" level) at about $2.1 trillion over a 10 year period, it should have come as no surprise that S&P would downgrade the US government's debt.

However, investors may not have paid enough attention to the specifics of S&P's warnings. In this case, we could expect a negative tone to the stock market on Monday.  It all depends on how professional investors and retail investors react to the news.

It is very likely that the news leaked out to Wall Street's professional investors just before we saw the 512 point drop of the Dow Jones Industrial Average on Thursday.  After all, S&P contacted the Treasury Department before the downgrade, and it would have been pretty easy for the news to have filtered out to Wall Street traders before the downgrade was publicly announced on Friday evening.  If the news had already leaked, and had been incorporated into the stock market's valuation, then Monday may not be a down day for the stock market.

But don't discount the power of retail investors (those who do not manage money professionally, but instead manage their own money, work for a living and have not been keeping up with the possible implications of the debt ceiling deal) to make a statement of their own.  If they were caught unawares, it is quite possible that this contingent will make its feelings known on Monday.  If this is the case, we can expect a drop in the stock market averages, perhaps a big one.

Right now, I am preparing my shopping list for when the time will be right to invest the cash in my client accounts that is now sitting on the sidelines.

Brokers May Abandon IRA Business

Yes, you read that right!  Brokers' concern:  they may be forced to assume a fiduciary duty to their clients under new US Department of Labor rules.  The government believes that brokers who have a conflict of interest should disclose that fact to their clients.  Brokers feel differently.  Complete details are found at the following link:

http://www.fa-mag.com/fa-news/8047-firms-may-drop-millions-of-ira-savers-on-rule-change-sifma-says-.html

Update to Salesmen and Pressure

My last post dealt with a situation where one of my clients and her husband were being pressured by a salesman to sign on to a contract for work on their heating and air conditioning system as well as replacement of their water heater.  The salesman tried to tell them that major renovations had to be done -- rewiring, replumbing and such -- with a cost of both jobs approaching $17,000.  I told my clients to tell the salesman that they had spoken to their financial advisor (me), and as a result of that conversation, would like to sleep on it and get back to the salesman in a couple of days.

The next day, they phoned another plumber and another HVAC provider, and the estimate for the total cost of both repairs came in at $5800.  In fact, the couple went with those service providers and the total bill for both repairs came in just as estimated.

It just goes to show you that you should never be pressured into accepting the first estimate.  Gathering up 2-3 estimates on a repair job should be a normal part of your financial decision-making.

Salesmen and Pressure

A few moments ago, I received a phone call from a distraught client about an issue that was in part financial and in part about the need for some home repair (yes, it is Saturday evening).  The client's air conditioning unit had failed, and the HVAC technician, in the process of evaluating that problem, somehow introduced a plumber into the discussions.  The cost of the repairs quickly escalated beyond what the client expected.  The client and her husband were being pressured into making decisions immediately to follow through with the repairs, and pressured into taking the "same as cash, 12 month payment plan" option.

The client had also had some health issues over the last month, and that added to her stress.  She called me wondering what to do about this salesman who was pressuring her into making a decision tonight.

I told my client that she needed to tell the salesman that she "needs to sleep on this" and that she would "phone them next week concerning her decision."  I told her that if she wanted me to speak to the salesperson directly that I would be glad to do so on her behalf.  I also told her that I could put her in touch with a general contractor who might be able to provide another estimate.

Takeaways:  Do not let salesmen pressure you into making a snap decision. Gather up other quotes before hiring someone to do the work.  One part of financial management is making sure that you are receiving quality service at the lowest price possible.  This is one scenario in which requesting multiple quotes will help you receive quality service at the lowest price possible.

Another point is that your financial advisor may or may not be available during evenings and weekends.  If you desire such availability, make sure that you have discussed this in advance with your advisor before you make a decision to hire them.

A Checklist for Surviving Spouses

This article from Morningstar gives a great checklist for surviving spouses -- men or women whose spouse has passed away.  It is also a good article for executors who are responsible for managing the estate of any person, including non-spouses.

http://news.morningstar.com/articlenet/article.aspx?id=383820&part=1

Essential Reading for Investors Thinking About Investing in Structured Notes With Principal Protection

Structured products are on the regulators' radar, as I mentioned in a previous post:

http://labradorinvestments.blogspot.com/2011/06/finra-boss-discusses-structured.html

Most individual investors (people like you, your family and your friends, as opposed to institutional investors such as banks, trust companies, hedge funds and investment advisors) do not understand these complex products.  FINRA (the Financial Industry Regulatory Authority), a regulator that was formerly called the NASD (National Association of Securities Dealers), has prepared an excellent, readable and understandable summary of a product called Structured Notes With Principal Protection.

http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P123713?utm_source=MM&utm_medium=email&utm_campaign=Investor_News_060911_FINAL

I urge anyone who might be approached by a broker touting these products to read this summary.

Big Banks on Moody's Radar for Possible Downgrade

In what appears to be a dyspeptic moment, Moody's, a nationally-recognized bond rating organization, has put several of the biggest U. S.-based banks on its radar for a possible downgrade of their credit ratings.  The reason:  Moody's is skeptical that the U. S. government will bail out these banks should they get into financial trouble again in the future.

Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase & Co., Bank of New York, Goldman Sachs Group, Morgan Stanley and State Street Corp. are all affected.

http://online.wsj.com/article/SB10001424052702304563104576361353111885360.html?mod=djemTAR_h

Moody's action may increase borrowing costs of these banks, which would have a ripple effect throughout the economy as the banks scale back their lending or increase interest rates and fees that they charge to customers.  This action by Moody's may or may not have a meaningful impact on the U. S. and global economies going forward.  But it surely does not help sustain any economic recovery that now is under way.

CFA Credential is Very Popular in Asia

 As many of my clients and friends know, I am a Chartered Financial Analyst.  This designation was first awarded in 1963, and the purpose of the exam was to elevate the ethics of the investment advisory profession and to show that the CFA has demonstrated mastery over a wide range of subjects with a fair degree of depth.  Subjects generally include Ethics, Quantitative Methods (i.e. statistics), Economics, Financial Statement Analysis (including an understanding of accounting at the Advanced Accounting level), Fixed Income Securities (i.e. bonds, or debt securities) -- analysis and valuation of these securities, Equities (i.e. common stocks) -- analysis and valuation of these securities, Portfolio Management (i.e. managing investments for individuals and institutions) including development if Investment Policy Statements (IPS) and purchasing investments to meet the requirements of the IPS, and Alternative Investments (Real Estate, Mutual Funds, Derivative Products, etc.)

This article discusses the fact that growth in the number of CFA candidates has surged in Asian markets but is rather flat in the US.
 
http://www.fins.com/Finance/Articles/SB130686424931820513/Asian-CFA-Registrations-Surge?Type=0

FINRA Boss Discusses Structured Products

If you deal with a broker (or, less likely, an investment advisor) who is discussing whether or not a so-called "Structured Product" is suitable for your portfolio, the following article is for you.  This article deals with the need for hightened scrutiny of brokers who suggest the purchase of structured products for client portfolios to assure that these products are suitable for clients.


What are structured products?  These are complicated and artificial products (not securities) that do not directly relate to specific companies.  To me, they are like the plastic cheese that is sold in some grocery dairy cases.  They do not represent the "real" thing that you are trying to purchase and consume.  They are also fraught with risk, and are very profitable to the brokerage firm that is hawking the structured product.

Many times, structured products are so-called "derivative" instruments, meaning that their price is "derived from" some other asset (such as commodities) or security.  Structured products can use leverage, meaning that the investment returns are amplified by using debt to purchase additional exposure to the investment that is supposed to influence the price and investment returns of the structured product.  For example, if you put $1 into an investment in a structured product that uses leverage, the manager of the structured product may borrow money from a bank to increase your exposure to whatever the structured product's performance is intended to shadow.

I believe in keeping things simple:  invest in securities that you understand and that bear a direct relationship to the company or government that you are wanting to invest in.  Common stocks are pretty simple:  they represent an ownership interest in a publicly-traded company.  Owners of common stocks are part owners of the business and share in the profits and dividend distributions of the company.  Debt (or bonds) are investments in which the issuer (a government, agency or corporation) promises to pay to the investor periodic interest payments as well as the original principal value of the investment at maturity, if not before (in the case of callable bonds).  There are some complicated bond contracts (or "indentures"), but generally speaking, if you buy a plain vanilla bond, you know what you are getting.  Cash equivalents are securities that mature in  year or less.  They are commonly found in money market mutual funds and are also available for sale at brokerage houses.


http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20110524/FREE/110529972

If a broker recommends a "product", especially a "structured product", I recommend running away as fast as your feet can carry you.  They are typically inappropriate for an individual investor.  The brokerage firm, and your broker, are likely to be paid a nice commission for selling the product to you.  So think twice if your broker recommends "products" to you.

Gold Is Not An Investment

This article, published in the New York Times, calls gold a speculation, not an investment. 

http://bucks.blogs.nytimes.com/2011/05/23/gold-is-not-an-investment/

The Times article makes many of the same points that I made a few days ago in the post below:

http://labradorinvestments.blogspot.com/2011/04/is-gold-good-investment.html

What is a Fiduciary? Why You Should Care.

As an investment advisor registered under the Investment Adviser act of 1934, I am required to put my clients' interests first.  This is known as a fiduciary standard.  Brokers are not held to the same standard, unless they happen to hold the CFA (Chartered Financial Analyst) designation.  (The CFA Institute's Code of Conduct and Standards of Professional Conduct require CFA charterholders to act as a fiduciary by putting their clients' interests first.)  The CFA Institute's Code and Standards may be found at the following link:

http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n14.1

This short article reviews the confusion, even among investment advisors and brokers, about what it means to be a fiduciary.

http://www.advisorperspectives.com/newsletters11/When_is_a_Fiduciary_not_a_Fiduciary.php

Another good article on this subject may be found here:

 

http://www.labradorinvestment.com/uploads/tdw.pdf

What does "putting your client's interests first" mean?

• A fiduciary puts himself into the other person's shoes.  He/she makes investment decisions as if he were the client, taking into account the client's investment objectives, including risk tolerance and need for income, among other factors.
• A fiduciary places trades in their clients' accounts before they place a trade for the same common stock or other investment in their own accounts.
• Similarly, a fiduciary will sell a common stock or other asset out of client accounts before he places the sell order in his own account.
• A fiduciary does not sell common stock or other investments out of their own account to clients, as brokers often do.  Brokerage firms often earn significant undisclosed profits by trading as principal (buying or selling stocks or bonds for the brokerage firm's own account) with their customers.
• Investment advisors do not sell clients mutual funds or other so-called "proprietary products" -- their own brand of mutual funds or investment vehicles.  Some brokers will sell their own brand of mutual fund or other investment vehicle that pays a higher commission rather than mutual funds run by a rival firm that pay lower commissions.
• Investment advisors who do not take commissions (and instead charge fees based on a percentage of assets, a flat rate or an hourly rate) do not have an incentive to buy and sell stock to produce commissions.  In other words, they do not have an incentive to "churn" the client's account.
• Investment advisors are under a continuing duty to assure that the investments in client accounts, taken together as an entire portfolio, are appropriate for the client.  As time passes, the client's investment objectives may change, and if that is the case, adjustments to investment holdings may be appropriate.  Brokers are only held to a "suitability" standard, in which they are only responsible for assuring that the investment is appropriate for the client on the day that the investment was purchased.

Top 10 Thriving Industries

This Wall Street Journal blog post in the Real Time Economics blog lists the top 10 thriving industries.  Interestingly, they fall into two major categories:  Technology (Information Technology and Biotechnology) and government supported/sponsored/influenced industries.

The top 10 are:

Voice Over Internet Protocol Providers (VoiP)

Wind Power

E-Commerce &  Online Auctions

Environmental Consulting

Biotechnology

Video Games

Solar Power

Third-Party Administrators & Insurance Claims Adjusters

Correctional Facilities

Internet Publishing & Broadcasting

http://blogs.wsj.com/economics/2011/05/16/top-10-thriving-industries/

17 Products That Were Invented By Accident

This article discusses seventeen products that were invented by accident -- ranging from the microwave to Kellogg's Corn Flakes and chocolate chip cookies.

http://www.thestreet.com/story/11122700/1/17-products-that-were-invented-by-accident.html

Is the US Falling Behind on Quality of Infrastructure?

The answer to this question depends on who you ask.  In one article, published by the Washington Post, the thrust of the story is that the U. S. is falling behind dramatically vs. the major emerging market countries such as China, India and Brazil.  The Urban Land Institute published a report indicating that the U. S. should invest $2 trillion in rebuilding its transportation network in order for it to continue to drive efficiency and global economic leadership.

The Washington Post story can be read at the following link:

http://www.washingtonpost.com/local/study-2-trillion-needed-for-us-infrastructure/2011/05/16/AFyppB5G_story.html?hpid=z3

This piece from the Wall Street Journal paints a different picture, albeit solely related to China:

http://online.wsj.com/article/SB10001424052748703421204576328640297396406.html?KEYWORDS=heard+on+the+street

The Wall Street Journal article suggests that China's infrastructure is so inefficient that logistics costs are around 21% of GDP (total economic output), compared to 10% for the U. S. and 13% for India.  The piece blames China's focus on manufacturing, a fragmented transportation system, high tariffs for road transport, and multiple providers "piling on fees."

The truth is probably somewhere in between these two vastly differing views.  

Transportation infrastructure is one key area that helps the U. S. maintain its global economic dominance and its ability to a maintain higher-than-average standard of living for its residents.

Transportation infrastructure is a natural place for government and private industry to work together for the betterment of U. S. residents and business interests.

Three Million Job Openings

There were 3 million job openings available at the end of March, according to this short piece from a Wall St. Journal blog that focuses on economics.

http://blogs.wsj.com/economics/2011/05/11/more-than-3-million-job-openings-in-march/?mod=djemRTE_h




United States Oil Fund (USO)

This article from the Wall Street Journal discusses how poorly the United States Oil Fund has performed (up 19%) versus the commodity it is supposed to track, the price of a barrel of West Texas Intermediate crude oil (up 123%) since the beginning of 2009.  It just goes to show you that you can try to use ETFs (exchange traded funds) to attempt to track the performance of an actual commodity, but the performance results that you receive may not be what you expected.


http://online.wsj.com/article/SB10001424052748703864204576317481454589652.html?mod=djemheard_t

Exchange traded funds are mutual funds that trade on an organized stock exchange, such as the American Stock Exchange.  Unlike regular mutual funds, whose prices are established at the end of each trading day, and which can only be traded once per day, ETF prices float throughout the day and can be traded during normal business hours for the stock exchanges.

Oil and Gasoline Inventories Above Expectations

As this article in the Wall Street Journal explains, oil prices and prices of oil stocks are declining today on reports that inventories of crude oil and gasoline are above expectations heading into the summer vacation/driving season.  This correction in commodity prices is healthy.  With gasoline prices hovering around $4/gallon, a decline in the price at the pump would be a welcome relief to cash-strapped consumers.

http://online.wsj.com/article/SB10001424052748703864204576316830036397882.html?mod=djemTAR_h

Commodities Prices Take a Tumble

As I wrote in a previous blog post about the price of gold, gold appears to be a crowded trade.  The following quote from a Bloomberg article today confirms my suspicions, and generalizes the notion to take in other commodities as well, such as oil and silver:

“It’s panic,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. 'You have those super crowded trades. Now you’re in liquidation mode. There’s nothing to do with weak U.S. economic data. It’s not a global financial crisis. It’s a classic liquidation move in a crowded trade.' "

The full article is on Bloomberg, a free Internet web site devoted to investments:

http://www.bloomberg.com/news/2011-05-05/oil-metals-fall-as-slowing-global-growth-drags-down-stocks-euro-climbs.html

As I have mentioned to clients many times, "the cure for high prices is high prices".  The meaning:  when prices get too high, counterbalancing takes place.  In the case of commodity price inflation, the following tends to occur:  (1.) economies slow down as commodity prices cause businesses and consumers/employees to cut back on purchases of other goods and services reducing overall demand, (2.) consumers of the commodity will try to find substitutes for the commodity whose price has risen (again, reducing demand), (3.) consumers of the commodity will cut back on their purchases, since their dollars only stretch so far (reducing demand yet again), and (4.)  as the price of the commodity goes up, producers of that commodity tend to produce more to take advantage of the price spike.  In other words, high prices cause an increase in supply of the "hot commodity", alleviating the imbalance between those who would like to buy the commodity, and those who sell the commodity.


In the case of commodities today, part of the price rise should be blamed on emerging market economies that are demanding more and more of everything, as their economies grow and develop.  The other part of the recent price spikes that we have seen in commodities is speculators driving up prices by buying commodities that they really do not need.  Instead, speculators are buying commodities because they believe that the price momentum will continue to rise.  Again, this is the bigger fool theory:  bigger fools buy a product not because they need it or because the price is a bargain; rather, they buy because they believe that there is a bigger fool out there who will buy the product at an even higher price.

Are Oil Industry Profits Really Excessive?

With gasoline prices at $4.15/gallon or so, politicians have been calling for investigations into the pricing of a barrel of oil, which feeds into the price of a gallon of gasoline.  But are the industry’s profits really excessive?

It is instructive to look at the revenues, expenses, taxes and profits of a variety of industries to determine whether or not “big oil” is, in fact, as profitable as the politicians seem to think. 

When reviewing the information below, it is helpful for the reader to understand the definition of each of the line items, so a definition of each is as follows: Revenues (also referred to as Sales) is defined as all sales to end customers.  Expenses includes all expenses of the company except for interest payments on debt and taxes.  Pre-tax Income is income after all Expenses are deducted from Revenues, except for taxes.  Taxes includes all income taxes plus any other taxes that might be charged (for example, taxes levied by political subdivisions that an oil company must pay for each barrel of oil extracted from oil fields located in each political subdivision).  Net Income is the income after all Expenses, Interest and Taxes are deducted from Revenue, and is the amount available for shareholders for dividends payments, stock buybacks and reinvestment into the business.

Take, for example, four well-established companies:  Exxon Mobil, Wal-Mart, Johnson & Johnson and Intel Corporation.  Revenues, taxes and profits for 2010 (and fiscal 2011 for Wal-Mart), are shown below (all amounts are in billions of dollars):

Wal-Mart: Revenues $421.8, Expenses $398.3, Pre-tax Income $23.5, Tax $7.6, Net Income $16.4.

Wal-Mart’s Expenses were 94.4% of Revenues, Pre-tax Income was 5.6% of Revenues, Taxes were 1.8% of Revenues, and Net Income was 3.9% of Revenues.  Wal-Mart’s tax rate was 31.7% of Pre-tax Income.

Johnson & Johnson:  Revenues $61.6, Expenses $44.6, Pre-tax Income $16.9, Income Taxes $3.6, Net Income $13.3.

Expenses represented 72.4% of Revenues, Pre-tax Income represented 27.4% of Revenues, Income Taxes represented 5.8% of Revenues and Net Income represented 21.6% of Revenues.  Johnson & Johnson’s tax rate was 21.3%.

Intel Corporation:  Revenues $43.6, Expenses $28.0, Pre-tax Income $16.0, Income Taxes $4.6, Net Income $11.5.

Expenses represented 64.2% of Revenues, Pre-tax Income represented 36.7% of Revenues, Income Taxes represented 10.6% of Revenues and Net Income represented 26.4% of Revenues.  Intel’s tax rate on Pre-tax income was 28.8%.

Exxon Mobil:  Revenues $383.2, Expenses $294.2, Other Taxes $36.1, Income Before Income Tax  $52.9 (which is after Other Taxes), Income Taxes $21.6 and Net Income $31.4.  Pre-tax income before any taxes are applied:  $89.1.

Exxon Mobil’s Expenses in 2010 were 76.8% of Revenues, its combined taxes (Other Taxes and Income Tax) represent 15.1% of revenues and its Net Income (the “bottom line” available to shareholders) is 8.2%.  Another way to look at this is that Taxes represent 64.8% the income before any taxes are applied!  It is hard to fathom how politicians can believe that Exxon Mobil is the one profiteering, when various governmental entities take almost 2/3 of the pre-tax profits!

So to summarize:  Wal-Mart’s Revenues exceed Exxon Mobil’s by $38.6 Billion. Wal-Mart’s Income Tax is 1.8% of Revenues as compared to Exxon Mobil’s 15.1%.  Johnson & Johnson’s tax rate on Pre-tax Income was 21.3% as compared to Exxon Mobil’s 64.8%.  Intel’s Net Income as a percentage of Revenues is 26.4% as compared to Exxon Mobil’s 8.2%.

Exxon Mobil’s Net Income figure seems large because it is a large company, not because it is gouging motorists at the pump.  Exxon Mobil needs large amounts of capital to drill oil wells, and the company spends many years developing these properties before it receives any payback in the form of oil and gas flowing from the completed wells.  Government’s take is extraordinarily large, which takes capital from the company when it could be reinvesting those dollars in finding more oil and gas to alleviate the supply and demand imbalance that is driving up gasoline prices.

Implications for your investments: If you own an S&P 500 index fund, Exxon Mobil represents 3.2% of your money invested, and Energy stocks (many of which are paying a similar percentage of their profits to the tax collectors), represent 11.8% of the S&P 500 index.  The taxes levied on these companies are being levied, indirectly, on you.