Bear with me for some economic spit-balling.. Two paths forward, generally speaking, that I'm thinking about.
A) the industrial recession - malaise spreads [not good times]
B) the industrial recession - malaise abates/ recedes and the CFO staring contest (game of chicken) turns into a whirlwind of capex
Focusing on 'B', you'd expect oil to move markedly higher perhaps towards $100/bbl and there are good odds that the US economy prints something wild like 5%+ GDP!
Unless something breaks along the way.
Now, I've been positioned conservatively for some time and still see no reason to chase; that being said there is room for positions beyond healthcare - beyond risk taking in biotech's (though I do like the independence of catalysts to markets).
Along these lines, Hess and Chevron are merging but due to Exxon's meddling there is quite the spread on the deal. Chevron is set to pay 1.025 shares for each Hess share. Now the two are trading together so you'd need to want to be an owner of Chevron and Chevron also yields quite a bit more with regard to the dividend but the sooner the deal closes - the quicker that Hess dividend steps up materially (plus there is a buyback program on).
Given the modest premium Chevron is paying and the value of Hess long term, this seems like an obvious one - if you want to be an owner of Chevron. My sense is that waiting for Chevron's earning's release is prudent as there could be an easy $10-15 of downside from today's levels.
Ceteris paribus there seems to be a spread of about 10%, with a timeline seeing things come to fruition or not this Fall.
Under scenario 'A' you'd want this deal to fall apart as oil likely continues to languish though long term it makes a lot of sense; especially when you consider Chevron's asset footprint and outsized exposure to California (pre-Hess), etc..
Just a thought!
Either scenario can see doldrums for equities in general given where they are entering the year; with scenario 'a' that would be a best case outcome... fwiw
br. -john
p.s. I'm quite inclined towards scenario 'B' at the moment but that is a big fat asterisk ' unless something breaks' - ideally that something is at the periphery and gives us a warning .. we've seen the news about corporate bankruptcies but as noted - that is healthy and many were repeat offenders. But with the advent of all the private lending - you have to wonder! As Art Cashin would say, "Stick with the drill – stay wary, alert and very, very nimble."
Data Dispatch: US corporate bankruptcies soar to 14-year high in 2024; 61 filings in December | S&P Global Market Intelligence
p.p.s. my thinking remains that 5-7% on long bonds is totally possible stateside - should we get well into that range, the cash will be getting put to work there foremost
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