Oil is not tobacco

February 3, 2020, 10:56 AM UTC

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Good morning.

“I’m done with fossil fuels,” CNBC’s Jim Cramer sputtered after Exxon and Chevron reported disappointing earnings Friday morning. “They’re just done. We’re starting to see divestment all over the world… These stocks don’t want to be owned by young people… The world’s turned on them… They’re tobacco.”

Cramer may be right about investor sentiment. Energy today accounts for just 3.8% of the value of the S&P 500—down from 16% in 2008. And the sharp market reaction on Friday shows even the remaining investors are skittish. Exxon stock fell 4.1% and Chevron fell 3.8%, wiping out $19 billion in market value.

But Cramer’s wrong comparing oil to tobacco. If the tobacco industry shut down tomorrow, the world would be a better place. If the oil industry shut down, we’d return to the dark ages, with human suffering on an unprecedented scale. Global demand for oil and gas, according to this McKinsey report, won’t peak until after 2030. In the meantime, the industry needs to keep doing what it is doing. Shunning oil and gas stocks is a spectacularly silly way to fight climate change.

So what’s an investor who’s concerned about climate change to do? Well first of all, don’t focus on the product, focus on the production. Investors (and regulators) should be riding herd on producers to control gas flaring and methane emissions. They should pressure them to invest in cleaner production methods, and in alternative fuels. And they should be skeptical of companies planning massive investments to reach more supply. All of that points to picking Chevron over Exxon. Indeed, this may be one case where share buybacks make sense. If Chevron can’t create the energy future itself, better to free up its capital for those who can.

Separately, my vote for the best Super Bowl ad this year goes to Budweiser. Director Katherine Bigelow’s ode to the “typical American” was a beautiful antidote to the divisiveness fueled by impeachment proceedings and primary season. You can watch it here.

If you prefer a good laugh to an uplifting message, second choice is Hyundai’s hilarious celebrity riff on Boston accents promoting its new “Smaht Pahk” technology.

More news below.

Alan Murray


Chinese markets

Mainland Chinese markets, which have been closed for an extended Lunar New Year break, have tumbled on their reopening due to the delayed impact of the Wuhan coronavirus. The CSI 300 fell by more than 9%, with more than 2,600 stocks falling by the 10% daily limit. Beijing shoveled cash into the system today, in order to ensure sufficient liquidity. But the long-term effects of the extended shutdown that businesses are still experiencing won't be easily erased. Fortune

Worldline buy

The French payment-services provider Worldline is to buy its local rival, Ingenico Group, for $8.6 billion. Combined, Worldline says, the two will form the fourth-biggest player on the global stage. Ingenico's shares popped 9.9% on the news—the sale price is 17% higher than Friday's closing price—and Worldline's fell by as much as 8.5%. Bloomberg

Bernie Ebbers

Bernie Ebbers, the former WorldCom CEO who spent over 13 years behind bars over a massive accounting fraud, has died at the age of 78. The so-called "telecom cowboy" was granted early release in December due to his deteriorating health. Ebbers and other WorldCom executives improperly boosted the company's profits by booking operating expenses as capital spending. Restated earnings sent WorldCom into what was at the time the U.S.'s biggest bankruptcy filing. Wall Street Journal

Airbus bribes

AirAsia, the continent's biggest budget airline, has denied claims that Airbus bribed it to take 180 of its planes. The allegations came out following Airbus's agreement to pay $4 billion in fines to settle corruption accusations from authorities in the U.S., U.K. and France. AirAsia says it will cooperate with British and Malaysian authorities, which are probing the new allegations. BBC


Coronavirus and events

Fortune has a rundown of the various events that are cancelled or postponed thanks to the coronavirus crisis. Examples include U.N. biodiversity talks that have been moved from Kunming to Rome, the cancellation of Asia Horse Week in Hong Kong, and the shifting of an Olympic qualifying tournament from Wuhan to Sydney—some are concerned that the entire Tokyo Olympics may be under threat. Fortune

U.K.-EU talks

The U.K. and EU are beginning their post-Brexit talks on their future relationship. On the EU side, the line is that the U.K.'s future access to the bloc's market will be directly linked with its willingness to align with EU rules. British Prime Minister Boris Johnson disagrees, saying his country has no need to align with EU rules because it will abide by high standards anyway. Financial Times

Westpac sued

Westpac, one of Australia's biggest banks, has been hit with seven U.S. class action lawsuits in the space of a week. The suits relate to Westpac's alleged facilitation of money laundering and payments that may have been for child sexual exploitation. Reuters

Bezos sued

Jeff Bezos is reportedly being sued for defamation by Michael Sanchez, the brother of Bezos's girlfriend Lauren Sanchez. Michael Sanchez claims Bezos defamed him by falsely identifying him as the source of the naked photos of the Amazon mogul that ended up in the hands of the National Enquirer. A report last week stated that Michael Sanchez received a $200,000 payment from the tabloid, and his sister still believes he was the source. Daily Mail

This edition of CEO Daily was edited by David Meyer.

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