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Weekly Commentary Letter 6.1.2021
Are we at a tipping point?
One side effect of the pandemic was a collapse in demand for oil, which led to “the largest revision to the value of the oil industry’s assets in at least a decade,” reported Collin Eaton and Sarah McFarlane of The Wall Street Journal.1
Last week brought another reckoning for big oil as a court ruling and shareholder influence made it clear companies need to revisit their strategies for emissions reductions and clean energy. Here’s what happened:
1. Do it faster. In the Netherlands, a court ruled an Anglo-Dutch oil producer would need to lower its emissions by 45 percent from 2019 levels by 2030, far more quickly than the company had intended.2
“Analysts said the…ruling could set a precedent for similar cases against the world’s biggest corporate polluters, which may now face related lawsuits and be forced to overhaul their business models,” reported Derek Brower and Anjli Raval of Financial Times.2
2. Change direction. For weeks, a U.S. oil supermajor had done battle with an investment group that holds 0.02 percent of its shares. The investment group wanted the company “to gradually diversify its investments to be ready for a world that will need fewer fossil fuels in coming decades” rather than focus on carbon capture and storage solutions, reported Sarah McFarlane and Christopher Matthews of The Wall Street Journal.3
To that end, the investment group nominated four outside board-of-director candidates stating, “A Board that has underperformed this dramatically and defied shareholder sentiment for this long has not earned the right to choose its own new members or pack itself in the face of calls for change…shareholders deserve a Board that works proactively to create long-term value, not defensively in the face of deteriorating returns and the threat of losing their seats.”4
Other shareholders agreed and, in a highly unusual outcome, two of the four candidates were elected to the board, reported Ben Geman of Axios.5
3. Less is more. Two other multinational energy companies experienced shareholder uprisings recently, reported Sergio Chapa and Caroline Hyde of Bloomberg. Shareholder proposals to aggressively reduce emissions and limit pollution by a company’s customers were approved despite the companies’ boards urging shareholders to vote against the changes.6
Major stock indices in the United States finished last week higher.7
(The one-year numbers in the scorecard below remain noteworthy. They reflect the strong recovery of U.S. stocks from last year’s coronavirus downturn to the present day.)
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; Federal Reserve Bank of St. Louis; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
HOW MUCH IS A CEO WORTH? The COVID-19 pandemic created enormous losses for many companies so it might seem logical some CEO pay packages would decline along with companies’ profits. In fact, a number of CEOs announced high-profile salary cuts last year, reported Axios.8
The stinger is salary is often a small part of CEO compensation. While executive compensation packages vary from company to company, they often include:8, 9, 10
• Base salary
• Short-term incentives such as bonuses
• Long-term incentives such stock options
• Benefits such as health and life insurance, retirement plans, and paid vacations
• Perquisites (perks), such as financial counseling, tax preparation, security, cars and drivers, corporate aircraft, and country club fees
When all aspects of CEO pay are considered, the majority of CEOs received higher pay in 2020.
“Fortunately for those CEOs, many had boards of directors willing to see the pandemic as an extraordinary event beyond [CEOs’] control. Across the country, boards made changes to the intricate formulas that determine their CEOs’ pay – and other moves – which helped make up for losses created by the crisis,” reported Stan Choe of the AP.11
As a result, median pay for CEOs at companies in the Standard & Poor’s 500 Index was $12.7 million, according to data analyzed by Equilar for the AP. That’s a 5 percent pay increase over 2019 levels. In contrast, wages and benefits for non-government workers who were employed went up by 2.6 percent in 2020.11
“Companies have to show how much more their CEO makes than their typical worker, and the median in this year’s survey was 172 times. That’s up from 167 times for those same CEOs last year, and it means employees must work lifetimes to make what their CEO does in just a year,” reported AP.11
Weekly Focus – Think About It
“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”
–Adam Smith, Economist and philosopher12
* These views are those of Carson Coaching, not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
1 https://www.wsj.com/articles/2020-was-one-of-the-worst-ever-years-for-oil-write-downs-11609077600 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/06-01-21_WSJ-2020_was_One_of_the_Worst_Ever_Years_for_Oil_Write-Downs-Footnote_1.pdf)
2 https://www.ft.com/content/fa9946b9-371b-46ff-b127-05849a1de2da (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/06-01-21_FinancialTimes-Climate_Activists_Hail_Breakthrough_Victories_Over_Exxon_and_Shell-Footnote_2.pdf)
3 https://www.wsj.com/articles/oil-giants-are-dealt-devastating-blows-on-climate-change-as-pressures-intensify-11622065455 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/06-01-21_WSJ-Oil_Giants_are_Dealt_Devastating_Blows_on_Climate_Change_as_Pressures_Intensify-Footnote_3.pdf)
6 https://www.bloomberg.com/news/articles/2021-05-26/chevron-investors-back-climate-proposal-in-rebuke-to-management (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/06-01-21_BloombergGreen-Chevron_Investors_Back_Climate_Proposal_in_Rebuke_to_C-Suite-Footnote_6.pdf)
7 https://www.barrons.com/articles/stock-market-earnings-news-storm-clouds-51622244159?refsec=the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/06-01-21_Barrons-Its_a_Peak_Good_News_Market-Why_That_Could_be_a_Problem-Footnote_7.pdf)