Last week we focused on the importance of the cash flow statement. Eventually companies have to generate enough cash from operations to fund investing, operations, and a dividend to share holders.

And with so much of the slippery stuff around, and discount predictions on the rise, could a two-year price high occur in the near future? IF the real world price is less than $60, the futures at $71 seems, well, pricey.

This Column May 10, 2018.

And sure enough as I write today Friday May 25, domestic US prices have fallen back below $70. Crude is down $4.69 to $69.02.

Last week we focused on the importance of the cash flow statement. Eventually companies have to generate enough cash from operations to fund investing, operations, and a dividend to share holders. That is a growing problem for Exxon Mobil and Chevron. Over the last four quarters Exxon Mobil had negative cash flow of $772 million dollars. The dividend requirement is 3.334 billion per quarter. And so one might ask, who does the stock price remain as high as it is? Probably because

Well this is Exxon Mobil. XOM is included in most every major energy ETF and those have experienced buying stockholders really like the dividend, if it were cut, the stock price would be as well.

Chevron Texaco CVX has negative cash flow for the same period of -$260 million. The dividend requirement here is now $2,135 billion a quarter. So the two companies are trapped. They must pay the dividend but cannot generate enough cash to operate, invest and pay the dividend I suspect this is paving the way for a new group of mid-level players like Conoco, Phillips, as well as US producers like Anadarko and Marathon. Yes I now those holding CVX and XOM love that dividend. But at the current high prices it may pay to diversify elsewhere.

I notice that the stock market has made a low in the early part of the last four months. It seems on track to repeat that pattern again. The Dow Industrials are one of the weaker performers among major indexes. The DJIA has a pattern of lower highs with bounces at 23,500. It just hit resistance at 25,000 and is now down for the third day in a row. A trip back to 24,000 seems reasonable.

Gold may have just bounced at support of $1,290. Silver remains in a sideways formation.

The US Dollar has finally risen above its year long downtrend. I suspect Trumps’ threat of a 25% import tariff on European autos is designed to resonate with the US Auto Workers who voted for him. I doubt that will actually happen after the November elections.

For now markets are repeating their usual post May slumber.

Dennis Elam is a professor at Texas A&M San Antonio. Contact Dennis at dennislelam@gmail.com.