🎙️ Bond Vigilantes

The labor market seems nearly unstoppable. U.S. job growth surged in September, adding 336,000 positions, almost double than expected 🔥

It’s more confirmation of the labor market’s strength despite numerous challenges. Unemployment remains at 3.8%, near the record low.

💭 The unemployment rate has been so good, in fact, that it’s been below 4% since December 2021, a stretch not achieved since the 1960s.

— Shawn and Matthew

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Long-term bonds look like collapsing meme stocks

• Exxon’s big $60 billion bet on Pioneer

• Accounting loses its luster

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

😵‍💫 Long-Term Bonds Look Like Collapsing Meme Stocks

The latest meme stock? Not Gamestop, AMC, or Bed, Bath & Beyond. Instead, the market for long-term U.S. government debt (Treasury bonds) looks rather meme-esque.

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%.

Read more

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🛢️ Exxon Mobil Nears $60 Billion Deal For Pioneer

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.

Read more

MORE HEADLINES

🎰 Casino giant MGM expects $100 million hit from hack and data breach

😅 What rising borrowing costs mean for you

🌱 Returns on ESG ETFs are “unremarkable”

🍪 These Girl Scout cookies are being discontinued

🤑 Alaskans collect $1,312 oil dividend

QUICK POLL

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

— 65% said “Yes”

— 35% said “No”

🧾 Why No One’s Going Into Accounting

For years, accounting was considered a safe profession, a job that would “never go away” and pay fairly well. Heck, it’d even make you sound pretty well-off and sophisticated during small talk at happy hours.

But median yearly salaries for accountants have fallen in recent years, adjusted for inflation, while salaries for management analysts, marketing specialists, financial analysts, and even teachers have risen steadily.

• That imbalance has driven many professionals away from the industry, which could worsen an existing accountant shortage.
  

• Over 300,000 accountants left the industry between 2019 and 2022, and enrollment at top college accounting programs has fallen by double-digit percentages.

Accounting always lured graduates with solid pay and job security. As KPMG’s CEO says, the profession was a “surefire way for a person that had zero money to come out the other side of college and have a successful career.”

Why it matters:

Since 2017, Florida Atlantic University (FAU) — which wields one of the country’s largest accounting programs — has seen its accounting program enrollment cut in half.

AI to the rescue? A representative from FAU says it’s “the worst accounting enrollment crisis” in decades. That will likely push accounting firms and their clients to rely more on artificial intelligence to offset a decline in human accountants.

Seth Siegel, CEO of one of America’s largest accounting firms, told The Wall Street Journal, “We have to accept a potential reality where there are fewer people that are lining up to enter…But the people who are will have a highly diverse set of skills.”

• Those more diverse skill sets include learning how to utilize AI-powered tools, which promise to boost a single accountant’s productivity dramatically.

Read more

See you next time!

That's it for today on We Study Markets!

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