Mining: Troubles and Bubbles

Our recently launched Industrials coverage has been well received – and with good reason. In a time where King Dollar continues to trend higher, we’ve begun to witness a commodity bubble coming apart at the seams. You can see it in precious metals and oil and the final outcome is all but certain at this point in time.

 

 

Mining: Troubles and Bubbles - MINING bubble1

 

 

The next bubble of trouble about to burst is mining investments. Allow us to be succinct and to the point:

 

• Current levels of capital investment by miners is at bubble-like levels

• If depreciation and amortization represents an estimate of maintenance capital spending, current capital spending is heavily skewed toward increasing output

• Mature, cyclical industries (mining is among the most mature) do not support high levels of growth investment in the long-run

 

The chart above says it all. Investments in mining are a losing battle. And one of the biggest names in the game is about to feel the pressure: Caterpillar Inc. (CAT). This Dow Jones Industrial Average stalwart has enjoyed stellar performance relative to the S&P 500 since 1993. CAT has returned 393% while the S&P 500 has put up a puny 16.9% gain during the same time period. Caterpillar’s success is heavily dependent on this explosion of investment by miners.

 

Witness the chart below to see for yourself. This is not sustainable. Consider this the official warning shot from Industrials Managing Director Jay Van Sciver.

 

 

Mining: Troubles and Bubbles - MINING bubble2


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