🕰 To time, or not to time, the market

What’s going on here?

Diamondback Energy closed in on a $50 billion merger on Monday, just the sort of spending you’d expect from the Texas-based oil and gas company’s glitzy moniker.

What does this mean?

Endeavor Energy has been in high demand, with major oil and gas companies like ConocoPhillips sidling up to the privately held $25 billion business. But Diamondback has outbid them all, pitching a stock-and-cash deal that would turn the duo into one $50 billion company. Together, they’d have nearly as much land as ConocoPhillips and the capacity to churn out more than 400,000 barrels of crude oil a day, enough to secure one of the sector’s top spots.

Why should I care?

Zooming out: A whole greater than the sum of its parts.

Oil companies like Exxon, Occidental, and Chevron were scouting for partners last year. No surprise: the more land and equipment an oil company has, the more slippery stuff it can pull from the ground, and the more money it can make. The whole process – called “consolidation” – tends to save them money, too. Not only can they share resources and costs, but they can invest the savings into all sorts of projects. Good job, too: governments are clamping down on fossil fuels, so traditional oil and gas firms will need to work on sustainable solutions to meet increasingly stringent standards.

The bigger picture: It’s a power play.

Smaller oil firms can play fast and loose with their production schedules, but bigger companies need to take a steadier approach. That means sitting on their hands even when a higher oil price tempts them to pull their fingers out, in turn producing less oil than if they were still two smaller companies, say. That’s a headache for oilfield services and midstream operators that make their money solely transporting and storing black gold: with merged oil companies becoming bigger fish in a shrinking pond, the middlemen will be at their mercy.

What’s going on here?

Germany’s market for office buildings suffered from one too many obstacles last year, posting its sharpest drop on record.

What does this mean?

Home isn’t just where the heart is: it’s where the laundry machine, sofa, and free lunches are. But while you can’t blame workers for steering clear of fluorescent lights and repetitive conversations when they can, the lasting shift to home-working has left a lot of office blocks abandoned. Combine that with higher interest rates, which make it more expensive for purchasers to borrow cash, and the commercial real estate industry has been forced to slash prices lower and lower. Nowhere is that more evident than in Germany, where office prices slumped by 13% last quarter compared to a year ago. That means they fell 10% during 2023 – the most since records began in 2003. Investment bank Jefferies reckons that’s just the start, predicting that German offices will eventually shed 40% of their value from their previous heights.

Why should I care?

For markets: Don’t bank on it.

German banks have kitted out the industry with plenty of loans over the years – money that’s now looking a lot harder to pay back. Deutsche Pfandbriefbank even called this the “greatest real estate crisis since the financial crisis” last week, announcing that it’s putting more cash aside as cover in case borrowers can’t make good on their loans. Investors heeded the warning, pushing the German bank’s stock and bond prices lower – along with those of a few major competitors.

The bigger picture: Germany can’t catch a break.

Germany’s economy, usually the pride of Europe, shrunk in every quarter except one last year. Analysts aren’t hoping for much better this year, either, predicting that the economy will stay the same or shrink even more. Commerzbank, for example, has already penciled in a 0.3% decline, and a full-on real estate crisis would make that look practically optimistic.