POP QUIZ

Which U.S. President presided over the lowest unemployment rate, on average, over their term? (The answer is at the bottom of this newsletter!)

IN THE NEWS

😵‍💫 Long-Term Bonds Look Like Collapsing Meme Stocks

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Volatility surged in September, prompting Bloomberg’s chief rates correspondent to compare losses for bond investors to “some of the most storied (stock market) crashes in recent history — such as the collapse after the dot-com bubble burst.”

Historic selloff: Prices on 30-year Treasury bonds have fallen enough that yields are touching 5% — the highest for “long bonds” since 2007.

• (FYI: The U.S. government raises money by selling bonds that get paid off over various periods, from three months to thirty years. Those coming due in 30 years are called long bonds.)

And few are willing to bet that the pain in long bonds is over. Rather, “retail traders” — non-professional mom-and-pop investors — are fueling the selloff, according to bond investing legend Bill Gross.

Why? Well, the Fed’s rate hiking campaign hasn’t helped, but others are increasingly using “bond vigilantes” as an explanation.

• That is, investors demanding higher returns for investing in U.S. government debt, funding its spending while budget deficits swell and inflation remains above historical norms.

Why it matters:

Collapses in meme stocks and popping stock market bubbles are inevitabilities in financial markets.

But the same isn’t expected in the bond market, especially not for U.S. Treasury bonds — there’s a reason a greater portfolio allocation to bonds is considered ‘conservative’ and more to stocks is ‘riskier.’

• Of course, long bonds carry significantly more risk than shorter-term bond investments (you’re buying something that doesn’t pay off for thirty years!)

Long bond pains: To be clear, investors will (or should) get their money back if they hold long bond investments until they ‘mature’ in three decades.

Yet, many don’t make these investments to hold them for half their adult lives. So these are paper losses, but they still hurt if you need to sell those bonds sooner.

• Said differently, long bond investors will get the bond’s principal back if they wait long enough. But their investments are now worth less when flipping to others.
• And if they do hold them, they’ll earn a below-average interest rate on those bonds compared to long bonds issued today at higher rates — kinda like keeping your money in a bank paying 2% interest rates while everyone else gets 5%.

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🛢️ Exxon Mobil Nears $60 Billion Deal For Pioneer

Photo by Sébastien Jermer on Unsplash

Exxon is eyeing its biggest deal in 25 years, a blockbuster deal that could reshape the oil industry if it goes through.

The lowdown: Exxon, the oil giant, is in talks to acquire Pioneer Natural Resources, as the energy giant wants to emerge as the top U.S. shale oil producer. Importantly, it’d give Exxon tons of West Texas acreage at the center of America’s shale oil boom.

The agreement could top $60 billion — the largest corporate acquisition in the world this year.

• We’re looking at a deal that would be Exxon’s biggest acquisition since merging with Mobil Corp. in 1999 — party!
• The deal could unite two big acreage holders in the Permian Basin of Texas and New Mexico, elevating Exxon to be the dominant oil producer with an output of about 1.2 million barrels per day, more than many oil-producing nations.
• Exxon has said that area is critical to its growth plans, part of a wider vision to retreat from international projects for those closer to home in the Americas.

Low-cost, low-risk: It’s a big deal because, as Bloomberg reports, “it would also extend Exxon’s inventory of top-tier drilling locations in the basin by decades, providing low-cost, low-risk crude well beyond 2050 to feed its giant refinery network on the Gulf Coast.”

With a market capitalization of around $50 billion, Pioneer saw its share rise 10% Friday on the news. Exxon, meanwhile, has a market value of about $436 billion.

Why it matters:

Exxon had been searching for acquisitions in the Permian for years. The pandemic led to a sharp drop in oil prices, hurting Exxon’s finances. Then it spent big on global projects, forcing it to borrow billions to continue paying shareholder dividends.

• In 2022, after Russia invaded Ukraine, Exxon’s profits surged to a record $59 billion as energy prices rose. Its stock gained over 80% last year, giving it enough financial strength to pursue the megadeal with Pioneer.

Selectivity: In July, Exxon CEO Darren Woods told investors he’d be “picky” with potential mergers and acquisitions (M&A). But in Pioneer, Exxon found exactly what it was looking for in sticking to its bread-and-butter oil & gas business and expanding its reach.

• The news disappoints environmentalists and lawmakers, who had hoped Exxon would invest more in cutting carbon emissions.

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QUICK POLL

Do you use stock options in investing?

Login or Subscribe to participate in polls.

Yesterday, we asked: Will the U.S. economy slip into a recession in 2024?

— 65% said “Yes”

— 35% said “No”

TRIVIA ANSWER

President Lyndon B. Johnson is estimated to have presided over the lowest average unemployment rate of any modern president during his term (1963-1969.)