Strategies Part 1


Exxon, Chevron Count Every Dollar to Protect $40 Billion Hoard
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By Joe Carroll
March 25 (Bloomberg) --
Exxon Mobil Corp. and Chevron Corp., their coffers swollen by last year’s record oil prices, are maneuvering to preserve a combined $40 billion in cash amid a global financial crisis that roiled the banking system.
Exxon Mobil Chief Executive Officer
Rex Tillerson says he checks in every night with Treasurer Don Humphreys to make sure the money is still there. The largest U.S. oil producers won’t say where they’re putting cash, even as both acknowledge going to greater lengths than in the past to protect their funds.
“Relative to the financial markets, the biggest challenge we’ve had is making sure all the
cash is there every morning,” Tillerson said in a presentation this month to investors and analysts in New York. “I tell Don he has to count every dollar before he goes to bed at night, and he tells me he does.”
The company began shifting cash around last year as prices for credit-default swaps signaled greater risk of collapse at some financial institutions, Humphreys said at the same meeting. Cash stockpiles are key to funding capital budgets that total almost $1 billion a week combined at Exxon Mobil and Chevron, especially after crude prices dropped $100 a barrel from 2008’s all-time high, said
David Lundberg, an analyst at Standard & Poor’s Ratings Services in New York.
Irving, Texas-based Exxon Mobil, the world’s biggest company by market value, had $31.4 billion in cash and cash equivalents as of Dec. 31, more than
Warren Buffett’s Berkshire Hathaway Inc. or Microsoft Corp. Chevron had a $9.3 billion cash hoard, four times its total at the start of the 6 1/2-year bull market for oil that ended in mid-2008.


Commentary: There is a very good reason the world's largest corporation is going to greater lengths to protect their cash. Despite the stock market bounce, the banking system remains unhealthy with many off balance sheet items forgotten for the moment. Further, with the Fed now buying Treasuries to support budgetary expansion, bond auction failure is becoming a greater concern down the road. The report of an auction failure today in the UK is indicative of ongoing problems. Monetization (and the resulting inflation) is the direction governments are heading.

If this enormous corporation is putting 40 weeks worth of cash aside, as individuals and investors perhaps we should consider similar action. My personal goal is to have three months household operating costs in the bank within a short time and continue building savings over the next year. I will then ensure I have ready access to cash outside the banking system in case of an unexpected event while still hoping for the most positive outcome. Governmental insurance of deposits is reassuring, yet it would be prudent to consider that any claim submitted in the unlikely event of bank failure would likely take months to be honored.

To summarize, my number 1 goal is to have ready access to 3 to 6 months expenses in the event of employment loss or loss of easy access to my funds.

Comments

  1. Very interesting blog indeed! Thanks for the great infomation. From Mrs. Slug in Oregon.

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