CrossProfit_

A Tale of Two Industries

Mr. Murdoch (author),

Historically speaking, GM and XOM tend to move in the same direction for a number of reasons which anyone of them is too long for a comment.

We do get from time to time several months where one takes the lead while the other catches up and sometimes while one changes direction the other will tread water for several months before following.

See the following weekly close charts for 2008 and compare GM and XOM (or CVX or COP for that matter). Don't forget to compare 2007, 2006 etc. You can go back 5+ years with just one click.
GM www.crossprofit.com/vi...
XOM www.crossprofit.com/vi...

However, the long awaited break in the correlation was always envisioned as the exact opposite to your prognosis!

GM is no longer the GM of yesterday. It is NOT the world's largest manufacturer and for the past decade has slowly, yet steadily, been losing the efficiency and quality battle with Honda and Toyota. Such being the case, GM is likely to decline during an up-tick in the price of gasoline while XOM will prosper on all levels. (Notice that this is linked to the price of gasoline and NOT directly to crude.)

The current (temporary) slack in energy stocks is not because the bottom is falling out from the price of crude ($145 was way overdone and $120 is still too high), as crude at $100 should send XOM up 15% from current levels. Proof that the market is not expecting crude to fall to $85 is the fact that VLO (a refining pure play) has declined as well. Had the market anticipated a drop to $85, VLO would be trading +30% from where it is today.

Have to go - to be continued later.