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Note to Seeking Alpha, please don't bother publishing this article. This article doesn't offer any indepth analysis or advice.

Normally, I can investigate a company's financials and business outlook to arrive at an investment thesis. I might wish to go long, short, or just ignore the company and its stock altogether.

But right now, with the heightened uncertainty in Europe, analysis is useless. Correlations among most equity securities are close to one, and the headline risk dominates any security analysis. If the headlines are positive, then it is risk on, or, if the headlines are poor or uncertain, it's risk off.

I suspect that most fiduciaries have moved to the sidelines as much as possible. While they might miss a rally, their primary concern is not to be caught in a meltdown. Later, if necessary, they will chase the market upward. If Europe is able to stabilize for a while, then we might be in a position for a major advance. There are a lot of ifs and maybes.

While I have reduced my exposure to the markets from my summer levels, I still have reasonable exposure. Depending upon how Europe plays out, this might be a wise or not-so-wise strategy.

Of the articles I read this weekend, here are two articles with opposite directions. First, a negative or cautious Telegraph article: Prepare for riots in euro collapse, Foreign Office warns. Preparing for riots doesn't sound encouraging, does it? Next, a positive or hopeful Bloomberg article IMF Readying Loan of as Much as $794 Billion for Italy, La Stampa Reports. If the IMF or some other party rides to the rescue, then that will certainly influence Monday's markets.

Unfortunately, I do not have much to offer in terms of advice or recommendations. For now, I suggest paying attention to the headlines and making sure that your portfolio can withstand these challenging times.

The markets have been extremely difficult to navigate during the past two months with the brouhaha over in Europe taking center stage. As I write this post after the close on Friday, I note that VIX is at nearly 43 and VXO is at nearly 44. These are extreme measures.

In light of this uncertain financial environment, I have adjusted my positions. Like most investors, I have suffered with the onset of the uncertainty. And, perhaps unlike some, I have de-risked or reduced my exposure. However, I am still not entirely comfortable with my new positions, because the European situation is so uncertain.

The trick is to stay in the game. Make sure that your risk exposure is something you can live with. As Todd Harrison says over at Minyvanville.com, "... [There will be] fewer and newer players by the time we get to the other side."

As I was winding up my day last night, I read George Soros's article How to stop a second Great Depression in the Financial Times.

Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now.

Three bold steps are needed. First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct the banks to maintain their credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance their debt at a very low cost. These steps would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.

In addition to Soros's article, I viewed a video interview Fear will save the eurozone with Lawrence Summers and Martin Wolf of the Financial Times. Although it doesn't have an inspiring title, it is a worthwhile interview.

Please note, you might require a subscription to view the article and video interview.

Make sure that your positions do not leave you with excessive risk. I hope your trading and investing goes well in these uncertain and volatile times.

Please note: You can click through on each graph to show a larger version. The first graph is shows data from 1945 to present. And the second graph shows data from 2008 to present.

As part of mapping out my investment strategies, I try to determine where we are in the economic cycle. At present, we are at a confusing time. We have just finished QE 2, and the economy appears to be slowing precipitously. And to complicate matters further, Europe is in a mess. I do not even pretend to understand all of Europe's problems. I just know that several countries are having extreme problems and many of Europe's banks might be insolvent. So, as my first task, I am trying to understand the economic health of the United States.

About a week ago, CNBC interviewed Joe Petrowski, the CEO of Cumberland and Farms-Gulf Oil, concerning gasoline consumption and a possible recession. He indicated that gasoline consumption has fallen recently. To demonstrate the reduced volumes, I graphed Energy Information Administration's data.

Because gasoline is so important to our way of life, I think it is an excellent indicator of the health of the economy. As discussed by Petrowski and shown in the graphs, gasoline consumption has fallen in recent months. Yet, not all of the economic data points to a recession. However, the weakness in gasoline consumption does give me pause.

Like you, I am tired of the political squabbling in the United States. Political leaders should be putting aside their ideologies to solve our pressing problems; however, the politicians seem to see these times as an even better opportunity to score points. The behavior by all sides is shameful.

With regard to Europe, I do not think anyone, including various leaders in Europe, has a good handle on what problems are developing in Europe. Finland is demanding that it receive collateral for its participation in the Greece bailout. Finland and Greece as well as other countries have been trying to find a way to solve the collateral problem without giving all other countries collateral too. All involved keep issuing statements that they will solve this problem, even though they have been working on it for over a week with no solution in sight. Then Christine Lagarde, the former finance minister from France who is now the IMF chief, saying that the banks in Europe need capital. Yet, many of the European leaders say she is wrong. And, to top it off, we do not know which countries are in severe distress. Yes, Greece is in severe distress. But what about Italy and Spain? They appear to remain open questions.

Even though I read as much as I can about all these issues, I do not feel as though I have a strong grasp of all these issues. There is too much uncertainty about too many issues that are too important. Consequently, I have restructured my investment position to reduce my risk exposure.

With the commodity volatility, I found June was a challenging month. For the most part, I have left my positions unchanged. That is, I remain with a heavy bias toward commodities.

The release of oil from the Strategic Petroleum Reserve certainly shook up the market. However, I agree with Mark Fisher's view that he expressed 23 June 2011. And here we are a week later, and oil prices are up with West Texas Intermediate and Brent at roughly $95 and $112 respectively.

I am looking forward to earnings season when we will get greater insight as to how companies are performing and their outlooks for future.

For those who are tuning in via RSS or email, you might have to visit my blog to see CNBC's video of Mark Fisher.

When I discussed the third quarter results for Exxon Mobil Corporation (XOM), I was bullish on ExxonMobil. My summary comments were as follows:

Given the current outlook for continued high oil prices as evidenced by the futures curve, reasonable refining and chemical margins, a strong pipeline of new and exciting projects with solid returns, I look favorably upon ExxonMobil. Then, if I consider the analysts' forecasts for 2010 and 2011 and use Friday's closing price of $66.40, I see that the 2010 p/e ratio is about 11.5 and the 2011 p/e ratio is 10.6. While I still regard $55 as a floor price, providing the current macro environment remains, I regard $60 as low price. At $60, ExxonMobil stock would trade at less than a 2011 p/e of 10. And, as I indicated in my second quarter review, I view $80 as being a high or rich price.

In light of the rapid rise of the stock price, my near term bullishness is tempered somewhat. The near term will be governed by the success of Quantitative Easing 2 (QE2), investors' reaction to the elections, and fund managers' race for performance into yearend. Short term investors will need to continue monitoring developments and adjust accordingly. Longer term investors should enjoy solid returns.

On Monday, 06 February 2011, ExxonMobil's stock price closed at $83.93, up $17.53 or about 26.4% since my prior comments. The last few months have been good to those invested in oil and gas companies, and especially good to ExxonMobil investors.

I will provide my summary information for ExxonMobil's fourth quarter conference call held on Monday, 31 January 2011. While preparing my comments, I relied upon ExxonMobil materials from their web site and Seeking Alpha's transcript. I encourage readers download ExxonMobil's slide presentation (PDF, ~700kb), because I will be referring to those slides in my discussion below.

ExxonMobil Press Release

• Earnings were $9,250 million, an increase of 53% or $3,200 million from the fourth quarter of 2009.
• Earnings per share were $1.85, an increase of 46%.
• Capital and exploration expenditures were $10.1 billion, up 22% from the fourth quarter of 2009.
• Oil-equivalent production increased 19% from the fourth quarter of 2009. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up 18%.
• Cash flow from operations and asset sales was $14.7 billion, including asset sales of $1.7 billion.
• 83 million shares of its common stock were purchased at a gross cost of $5.8 billion. The average price was approximately $69.88. Of the $5.8 billion, $5 billion were spent to reduce the number of shares outstanding.
• Share purchases to reduce shares outstanding are currently anticipated to equal $5 billion in the first quarter of 2011. Purchases may be made in both the open market and through negotiated transactions, and may be increased, decreased or discontinued at any time without prior notice.
• Dividends per share of $0.44 increased by 5% compared to the fourth quarter of 2009.
• A joint venture agreement was signed with Qatar Petroleum to progress the Barzan Project. The project is expected to supply 1.4 billion cubic feet per day of natural gas with first gas planned for 2014.
• Fayetteville shale assets of Petrohawk Energy were acquired, including 150 thousand net acres and 95 million cubic feet per day of net production, providing an attractive addition to XTO's existing position in the Fayetteville trend.
• Expansion of the carbon dioxide capture plant at our LaBarge facility in Wyoming was completed. The expansion increases the amount of carbon dioxide captured by the plant by 50%. The facility is now capable of capturing, in one day, a carbon dioxide volume equivalent to the emissions of 1.5 million cars.

ExxonMobil Conference Call - Presentation

Slide 3

• Straightforward comments on the world economy, oil and natural gas prices.
• Although most profit drivers are positive, increased industry capacity has decreased chemical margins.

Slide 4

• Fourth quarter financial highlights have been discussed.
• The $7.2 billion of shareholder distributions includes $5.8 billion in share purchases, of which $5 billion were used to reduce shares outstanding. The Company expects to reduce spend another $5 billion to reduce shares outstanding in the first quarter of 2011.
• CAPEX is $10.1 billion.
• Although I am mixing accounting earnings with cash flows, it is interesting to note that shareholder distributions plus CAPEX exceeded by a wide margin the quarterly earnings.

Slide 5

• Slide 5 contains annual data as opposed quarterly data in the prior slide.
• The large CAPEX value is largely attributable to the XTO merger as well as continued progress on the Kearl Lake Oil Sands project in Alberta.
• Cash flow of $51 billion remains strong.

Slide 6

• Slide 6 shows the bridging in earnings between 4Q 2009 and 4Q 2010
• U/S - upstream; D/D - downstream; Chem - chemicals; C&F - corporate and financing.
• Financing activities were up $190 over the same period last year.

Slide 7

• Slide 7 has the same format and information as prior slide, except 4Q versus 3Q.

Slide 8

• Slide 8 has the same format and information as the prior two slides, except 2010 versus 2009.
• We see the largest contributor to earnings growth was the upstream division, although all business lines contributed.
• Corporate and financing expenses excluding special items for the full year in 2010 were $2.1 billion, up $340 million from 2009, because of a tax charge related to the U.S. Healthcare Legislation and financing activities.

Slide 9

• Slide 9 highlights major project accomplishments in the upstream division with respect to liquids production.

Slide 10

• Slide 10 is the same as slide 9, except gas production.

Slide 11

• Slide 11 is similar to prior two slides except it focused on unconventional production in North America.
• The Company has about 70 rigs across the United States working on unconventional plays.

Slide 12

• Side 12 is similar to slide 11, except its focus is international.
• Germany, Indonesia, and Argentina are prominent areas ExxonMobil's unconventional portfolio.

Slide 13

• Slide 13 outlines the Company's major exploration initiatives.
• Gulf of Mexico (GoM), Turkey, Russia and Asia Pacific (Indonesia and Australia) are important areas.

Slide 14

• Slide 14 shows earnings for 4Q 2010 versus 4Q 2009.
• The majority of increased earnings resulted from higher "realizations" or price. Crude oil price increased $10.84 per barrel while natural gas $0.29 per kcf (thousand cubic feet).
• Volume and Mix effects of $560 million were largely attributable to Qatar.
• Other including higher operating expenses and unfavorable foreign exchange impacts.

Slide 15

• Slide 15 shows the volume growth between 4Q 2010 and 4Q 2009.
• The largest contributor to growth was the XTO merger, and the next largest growth driver was the strong performance production in Qatar.

Slide 16

• Slide 16 shows the earnings differential between 4Q 2010 and 3Q 2010.
• Again, strong oil prices of $9.81 per barrel and stronger gas prices $0.71 per kcf helped the most.

Slide 17

• Volumes increased nearly 12% from 3Q 2010 to 4Q 2010 because of stronger seasonal gas demand in Europe.

Slide 18

• Slide 18 captures the increased earnings from 2009 to 2010.
• Upstream earnings were just over 24 billion, an increase of 7 billion from 2009.
• Higher global realizations, most liquids, led to an earnings increase of $6.5 billion. Higher volumes from Qatar added $1.2 billion. Increased operating expenses and unfavorable foreign exchange movements decreased earnings by $690 million.

Slide 19

• Slide 19 shows the volumes increase from 2009 to 2010.
• Excluding the addition of XTO, volumes increased a robust 6% or 250,000 oil-equivalent barrels per day due to strong project performance in Qatar and strong operational results across our global Upstream portfolio.

Slide 20

• Slide 20 moves to the Downstream division with descriptions of its "Best-in-Class" Operations.

Slide 21

• Slide 21 emphasizes its World-Class brands.

Slide 22

• Downstream earnings were $1.2 billion, up $1.3 billion from the 4Q 2009. Higher margins were the main driver with some assistance from lower operating costs.

Slide 23

• Slide 23 shows downstream earnings from comparison 3Q 2010 to 4Q 2010. Better margins were offset by unfavorable foreign exchange and higher maintenance costs.

Slide 24

• Slide 24 shows downstream earnings comparison from 2009 to 2010.
• Earnings were up $3.6 billion, up $1.8 billion from 2009. As shown, better margins were the largest driver.

Slide 25

• Slide 25 shows progress in important chemical projects.

Slide 26

• Slide 26 shows chemical earning increase from 4Q 2009 to 4Q 2010.
• As shown, the largest driver was improved margins.

Slide 27

• Slide 27 is similar to slide 26, except is from 3Q 2010 to 4Q 2010.
• As discussed, increased capacity in the chemical industry has reduced margins.

Slide 28

• Slide 28 is similar to prior slides except that is shows the growth in earnings from 2009 to 2010.
• The improved margins are the largest driver.

Slide 29

• Although Downstream and Chemicals are managed separately, ExxonMobil captures integration and optimization benefits.
• Again, margins were the largest profit driver.

Slide 30

• Slide 30 is a self-evident summary slide.

ExxonMobil Conference Call - Question and Answer

Rather than provide a blow-by-blow account of various analyst questions and Company answers, I will attempt to group the questions. Analysts often ask follow up questions.

XTO Merger

ExxonMobil is pleased with its progress in its XTO merger. Technologies and best practices are being shared. Attrition has remained low. Activity has increased over the year.

XTO contributed $120 million to fourth quarter earnings, and the full year, about $259 million. Of the $120 million, $84 is associated with the hedge and $36 million in the base. In the fourth quarter, production was 520,000 barrels of oil equivalent. Liquids production was 87 kbd while gas production was 2.6 mcfd.

Drop in Effective Tax Rate

The lower effective tax rate is the result of different mix of upstream, downstream, and chemical, as well as a different mix of geographies.

Brazil

ExxonMobil completed its Sabia Well and encountered non-commercial quantities hydrocarbons. Consequently, it was expensed in the fourth quarter. The Company is continuing to analyze data from all three wells that it drilled in the block. Because of the vast amount of data, no further updates are available. However, more updates will be available in future quarters.

Gulf of Mexico

Hadrian-5 well is the Company's most important well. ExxonMobil was just about to start and commence operations when the moratorium started. The Company has submitted a revised permit application and is awaiting its approval. Good progress continues to be made with respect to the marine well containment system.

Asset Sales

An analyst asked if higher commodity prices would drive more asset sales. David Ronsenthal, VP ExxonMobil, responded that asset sales are not driven by commodity prices. Instead, the Company relies upon a disciplined approach where it is willing to sell assets if a buyer places a higher value upon them than does ExxonMobil.

Analysis and Discussion

Please note that you can click through graphs to see larger images.

As we see in the chart above, West Texas Intermediate oil prices have strengthened since my prior comments. Moreover, there is a strong contango curve in the early months.

As we see from the chart, ExxonMobil's stock has shot up since late summer.

Below is a table outlining ExxonMobil's revenue and earnings estimates.

I will provide a brief quote from Wall Street Journal article Exxon Mobil's Machine Isn't a Spent Force. Please note readers might require a subscription to WSJ to view the article.

Over the past decade, Exxon bought back $174.4 billion of its own common stock, according to Capital IQ, more than Chevron, BP and Royal Dutch Shell combined. Overall, 61% of its operating cash flow went to shareholders as buybacks or dividends, compared with its rivals' average of 41%.

Buybacks usually come out of Exxon's free cash flow, after capital expenditures and dividends. In its last quarter, however, it paid out $18.1 billion in capital expenditures, dividends and buybacks but brought in just $13 billion. This fits with a trend. Since late 2008, Exxon has in effect borrowed to help fund buybacks in most quarters. Operating cash flow collapsed by half in the year after oil prices peaked in mid-2008, but capital expenditures increased by more than half. UBS expects capital expenditures to rise 19% this year.

As demonstrated in the article, ExxonMobil returns significant portions of its operating cash flow back to its shareholders. It maintains a well disciplined approach to running its business.

One of the perceived negatives during the last several quarters was the Company's merger with XTO. Now, the XTO merger is no longer an issue. With the release of its 2010 The Outlook for Energy: A View to 2030 (PDF, ~8mb) document, the Company has begun to show its longer term strategy regarding natural gas. Below are some quotes from page 29 of the document.

Electricity powers industry, as well as homes, offices, retail stores and critical services such as hospitals. Rising demand for electricity, and the choices of fuels used to generate that electricity, is one of the largest influences on the global energy landscape through 2030.

Global electricity demand will rise by more than 80 percent through 2030 - led by Non OECD nations, where demand will be up more than 150 percent.

...

Growing production of natural gas to fuel advanced power plants will help meet this rising demand. As a clean-burning energy source, natural gas will also help mitigate environmental impacts, as the power-generation sector is the single largest contributor to global energy related CO2 emissions.

...

However, many governments are seeking to limit greenhouse gas emissions by enacting policies that put a cost on CO2 emissions. As CO2 costs go up, economics shift. Coal - which emits far more CO2 than other fuels - becomes less economically attractive.

ExxonMobil anticipates that, by 2020, adoption of these policies will be equivalent to adding CO2 costs of about $30 per ton in the OECD. At this level, natural gas becomes a lower-cost source of electricity than coal, while nuclear and wind become increasingly competitive. This shift becomes even more pronounced if CO2 costs rise to $60 per ton, which is where we anticipate policies in the OECD will drive costs by 2030.

Given the outlook for continued higher commodity prices, I remain bullish on ExxonMobil. As you saw in my prior comments, I was slightly cautious then. Obviously, with the benefit of hindsight, I wish I had been more aggressive. That said, I still performed well.

Now, the stock is up substantially, yet I remain bullish. As we saw in the slide comments, oil and natural gas prices, refining margins, chemical prices all strengthened on a year over year basis. During the recent quarter, chemical margins softened with new industry capacity brought on stream.

As long as the world economy continues to recover, commodity prices should remain firm. With expected higher prices, analysts have raised their revenue and earnings targets. According to Yahoo! Finance (see above chart), analysts expect ExxonMobil to earn $7.04 in 2011. Using a P/E of 12 to 13, we get a stock price of about $84.50 to $91.50.

Almost everyone it seems is expecting, waiting, or hoping for a five to seven percent pullback. Should that pullback happen soon, that might be an attractive entry point if you are not already long ExxonMobil stock. Could the stock go move beyond the $84.50 to $91.50 range? Yes, if commodity prices or margins move, then I expect earnings and stock price to move too. So we need to remain vigilant with respect to the global economic recovery and commodity prices.

Disclosure: Long ExxonMobil stock, long and short puts, for an overall net long position.

On Saturday, 28 June 2010, I photographed Badlands near Drumheller, Alberta. If you click on my Flickr profile link, you will be taken to Flickr where you can see more of my pictures.