The Dividend Cafe - Monday - January 5, 2025

Episode Date: January 5, 2026

Today's Post - https://bahnsen.co/4q14ZAi Dividend Cafe 2026: Venezuela's Impact on Energy Markets & Market Rally Analysis In the first Dividend Cafe of 2026, the focus is on the major market rally observed on Monday and its underlying factors. The discussion is heavily centered around the recent geopolitical developments in Venezuela, including the U.S. military operation that led to the arrest of Venezuelan leader Nicholas Maduro. The script explores different potential scenarios for Venezuela's political future and the market implications, particularly for the energy sector. Additionally, there are insights on the age of companies going public, recent economic data, and the housing market trends. Upcoming content for the year ahead is also highlighted. 00:00 Introduction and Upcoming Yearly Review 01:18 Market Recap: A Strong Start to the Year 03:08 Energy Sector and Venezuela's Impact 07:38 Venezuela: Geopolitical Developments 14:52 Economic Updates and Housing Market Insights 17:19 Conclusion and Weekly Expectations Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividing Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello, and welcome to the first Dividend Cafe of 2006. What a Monday it was, what a weekend it was. And so the new year is most certainly off with a bang, not a whimper. I don't want to start with the kind of Monday play by play and really the bulk of my comments here today are obviously going to be about Venezuela, although there's plenty of things to discuss. So we're going to go thoroughly around the horn here. And yet I just want to make sure you're all aware that this coming Friday, which is January the 9th, the Dividing Cafe will be our annual year behind year ahead commentary. It'll be a full

white paper. There'll be a downloadable PDF online. I'll do the normal podcast, do the normal video, but it's a pretty extensive review of everything last year and appropriate commentary around that. And then our themes and forecast and perspectives on the year ahead. So it's something that we've done for many years now. It was a real endeavor last week. I enjoyed writing it a great deal, but I'm excited to bring that to you this coming Friday in the Dividing Cafe. For today, let me just simply say that the Dow was at one point up over 800 points. It closed up just below 600.

It's a little deceiving because that's about a one and a quarter percent move for the Dow where the S&P and the NASDAQ were each up a little over 60 basis points. So on a percentage basis, about half of the move up in the S&P and NASDAQ is the Dow. But nevertheless, it was a day in which all markets were rallying, and it was not the case from the futures action early this morning. So for those who say, well, the Venezuela events over the weekend caused the market to rally today. You know, the markets had all weekend to absorb what took place, and the futures were pretty much flat, up a tiny bit from early this morning all the way. up until the point of the open. So I think there are a lot of other things at play.

And I'm going to say the same thing I said about Friday's market action. There is a lot of things having to work their way through the market right now mechanically, both in terms of stuff that was not bought last month that is now being bought or stuff not sold last month, now being sold, and then vice versa around what a particular tax objective might have been, things that people were waiting. to realize a tax gain or a tax loss into this year, things that were accelerated last month, and now after a 30-day,

what's called wash sale period, get re-bought. And so this is a very common thing in the early trading days of the year that some stuff is a little just sort of off as trading books get kind of re-normalized and because of tax-oriented type things, but there's other things to play too. Now, look, this was a heck of a rally, and I want to point out that energy was the big mover on Friday

and then was again the mover today. And the energy move is certainly more Venezuela-specific today. You had some of the big upstream integrated names, particularly Chevron, which is a Dow component, up over 5% on the day. But you also had oil services names that are not Dow components, names like Schlumberger and Halliburton, for example, that were up eight to nine percent. So the energy sector today was largely responding to some of the

events in Venezuela, but overall it was just a risk on rally. As I mentioned, top performer was energy, which was up across the whole sector, 2.7 percent, and utilities were the worst performing sector down a little over 1%. So with my comments on window dressing and market maintenance aside, We'll see how things play out for the rest of the week. But look, there's a lot going on about the cyclicals and the industrials, materials, energy, certain financials. These seem to be catching a bid early. And even with all three market indices up today,

a lot of the defensives were down. And so there was a pretty specific cyclical versus defensive theme in the markets. Okay, I'm going to get a couple of things out of the way and then get into Venezuela, because I have a feeling once I start talking on Venezuela, I'm not going to stop. But just because I don't want to deprive those of you who are taking this via video or podcast to some of the information I do have in the written, but there's a couple of things that I just are anecdotally pointed out outside of the Venezuela news, if you will.

The average age of companies going public right now is 14 years. The companies that are going public on average are 14 years old. That's a report that came out over the weekend from Apollo. Now, that's the median age. There are a heck of a lot of companies going public longer than that in plenty shorter. But my point being that this was about five to six years in the late 1990s. So you have seen the age of maturity of businesses before they come to public markets more than double in 25 years. I did a capital record podcast.

The link is in Dividendon Cafe today just before the holidays about some of the social consequences of this. But I would say that the outside of the societal consequences from a pure investment standpoint, there's quite a few implications as well. And I would encourage you to look at that further. Now, I want to make one other comment because it is a source of interest to, me. I don't want to say irritation because I don't know that I'm totally irritated by it as much as just surprised that there is a heavy focus in all of the 2026 reports I've read so far, not the one that I wrote, but a lot of the ones that I've read from other strategies,

some of whom I don't care for a ton, but some of which I care for a lot. And I read a lot of analysis from other people, whether I agree with the analyst or not, to always keep myself diversified and challenged around various points of view. But when you hear things that are largely driven for 2026 about the commodities, the commodity cycle continuing to do really well, Japan continuing to be the international leader, the cyclicals driving what, you know, will be market growth in 26, AI CAPEX continuing at the same pace or higher, you know, all of those things could absolutely happen. But that's essentially a 25 review that is being projected into a 26 forecast.

And maybe everything that has been playing out in late 2025 is what 26 will be about. But if so, there has to be a fundamental rationale for that beyond just, well, that's what's been going on. So we think it will continue. Some things will continue. Some things may not. But I don't think it's a helpful forecast for 26 to just keep the taste. playing from 25 as if all these things will repeat. History, at least generally, is not said so.

Now, speaking of things that were most certainly not in the bingo card coming into the new year, let's look at what took place with Venezuela over the weekend. By now, you likely know that the U.S. did run a military operation Friday night, going into Saturday morning, arrested the leader of Venezuela, Nicholas Maduro, who is now here in New York City, where he had been facing indictment charges for well over four years. The president addressed the nation and said that as of right now, the U.S. is going to take an active interest in the next steps in Venezuela and they are going to encourage U.S. companies to go in and deal with some of the oil production capacity there. It was a pretty major geopolitical event.

And from a market standpoint, I think a lot of people spent the weekend wondering what would happen, both in oil markets as well as in equity markets. And I would also add that I think there's a lot of people wondering what the kind of short-term shakeout may be. People tend to get that stuff really wrong. And then there's a different question around what the longer-term scenario may be. So Louis Gob is a macroeconomist at GovCal Research. and a friend of mine and a colleague and one I look up to a great deal, he suggested three

major possibilities of where this goes. And I'm sure even Louis would say there's more than three and there's nuances within each three. But I think it's a really helpful framework as far as three broad categories. So I'm going to read those now. The first being that the current regime in Venezuela, but ex-Maduro, will keep power and kind of have to work a deal with the U.S. behave friendlier to the U.S., and we're likely be forced to cut off activity with China as part of that. That's scenario one. And I'm going to come back to why I think that's the most likely scenario, but by no means a foregone conclusion. Number two is that they do decide to have a new election and that there will be a transfer of power to whoever wins the election.

But as Lily pointed out, that's complicated because you literally have 8 million Venezuelans that have left the country in the last 20 years. And with refugees all over in different parts of Latin America, different parts of North America, how that would go remains to be seen. And whether or not the U.S. would be comfortable with an election taking place that then keeps the narco-terrorist in power. So I don't know that that's what will play out. but a new election is certainly on the table as a possibility. Number three would be that there is infighting within the country. The U.S. stays out of it. There's a lot more refugees that leave the country.

And then that puts a lot more question around the safety of oil assets, of infrastructure, and the sort of geopolitical standing, both of the U.S. and the way they're dealing with Venezuela, and then what Venezuela's relationship to the rest of the world may be. I don't know that we will get clarity anytime soon, but I do think it's pretty obvious that what the Trump administration's indicating is most likely is scenario number one. And that's more than likely what they prefer to happen, but there's various things that could pivot that and change it. Look, the stock market rally, I don't think, is really all that correlated to Venezuela. The energy sector, though, there is an expectation.

that there's significant business opportunity for the oil services companies and a lot of the drillers, producers, particularly the large ones that have assets there already and have the relationships in place to go do such. And so that becomes a very big short-term opportunity for them. But will Venezuela putting more oil on the global stage be a good thing? Look, oil prices today ended up a little over a dollar that was about almost 2%. Excuse me, that's right, almost 2%. Now, they had been down a few pennies last night.

This wasn't a meaningful move. I mean, oil is still sitting around $58. But nobody believes that Venezuela, no matter how this shakes out geopolitically with the U.S. and Venezuela, nobody believes that they're going to be in a position to have a ton of new oil coming to the global market anytime soon. There is a significant amount of infrastructure work that has to be done with antiquated assets. That's why the oil services companies become more needed. And there's a big question as to whether or not U.S. companies would want to spend that money to do something like that before they have clarity on the geopolitical stability.

They don't want to go spend a few billion dollars and they have those assets seized and these types of things have happened in a third world country like Venezuela before. So I would expect that there is a lot more uncertainty to come. But the thing I want to make clear is the U.S. companies might be asking the U.S. government for support in this.

And when I say that, that's not because it's what I want. I would very much hope that doesn't happen, but is there a possibility of the Export Import Bank or the International Development Finance Corp getting involved, it's very possible. As it stands now, though, and we go through this, at Dividy Cafe, all these data points are written out.

Venezuela is not in the top 20 in terms of global oil production. They're not even in one of the top 20 producers. Now, they are a member of OPEC Plus. But they were producing over three and a half million, Venezuela was, over three and a half million barrels of oil per day in the 1970s. And they're basically right around one million barrels per day now. So a meaningful decline in their ability to bring oil to market.

So there's different ramifications for U.S. oil producers, for U.S. oil services companies, and for refiners, and for Canadian companies. And there's different ramifications for all these categories, short-term and long-term. You saw some of the short-term expectations play out today, and then longer-term, there's just a lot of questions. But I think that's the general issue,

and hopefully that provides both a geopolitical handicapping of where things stand. And I'm sure I'm going to have more to say in our daily recap each day this week. Okay. Then real quickly, on the economic front, getting outside of Venezuela, the White House announced that they were delaying tariff implementation for a year on imports of furniture and kitchen cabinets. The ISN manufacturing number came out. It was another month of contraction, I believe, that is 36 of the last 38 months, maybe 37 of 39, where manufacturing has been negative. On the housing front, the K. Schiller index for 2025 is showing across all 20 put together just 1.3% home price appreciation, basically a flat year for home prices. But what's far more interesting is that 10 of the 20 cities actually saw a negative price

appreciation. I will be talking about housing market and pricing quite a bit in the year ahead forecast that comes out in Dividy Cafe Friday. The other thing I'd look at at Dividycafe.com is a chart on Austin rental market. I use it as an example because it's one of the more robust economies in the country. And yet you see a really meaningful decline in rents and the reason being the natural laws of supply and demand where they had a big surge higher in population, job growth, wage growth that led to a lot of capital and a lot of building new development. And so rent prices had gone higher until what new supply came on the market that equalized supply and demand. And then as

that equilibrium came to be, now rents are dropping substantially. So I, but when I say substantially, rents in Austin are down 21% from their 2022 highs. It's a classic case in a successful city of supply demand forces at play. First, the supply and demand curve is moving one way and rent price is going higher than supply curve moving the rent price down the other way. I would definitely look at that chart at divinitycafay.com. All right, so I'm not expecting the rate, the Fed or cut rates here in January. There's an 18% chance in the federal funds rate futures market that they might. We're up to about a 50% chance of a rate cut by the March meeting. We say, said what we had to say on the energy front, Venezuela. I will leave it there. By the way,

clients will be receiving a pretty long weekly portfolio holdings report on Wednesday. They always get that report on Wednesday, but this one is a particularly long one because we're recapping the particulars of our portfolio holdings and strategies in this Wednesday's report. So I want to bring both the Wednesday and Friday expectations to your attention. But no, I've gone on long enough here for a Monday in the Dividing Cafe. We'll keep you posted each day this week with our daily recap and reach out any time with any questions you have. In the meantime, thank you for listening, thank you for watching, and thank you for reading

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