THE MINING BUBBLE
CLIENT TALKING POINTS
THE MINING BUBBLE
Yesterday, Industrials Sector Head Jay Van Sciver put out a note on Caterpillar Inc (CAT) that detailed how we’ve hit peak levels in the mining sector. The company will struggle to grow and drive revenue going forward as the cycle winds down and the miners slow equipment purchases. This morning, mining giant BHP Billiton (BHP) said that it was stalling and scaling back projects worth $50 billion collectively. Falling commodity prices with rising currencies do not bode well for miners. Xstrata recently announced it would also be scaling back projects in an effort to preserve capital. Van Sciver called peak mining several weeks ago and now it’s coming to fruition in the mainstream media.
THE HOT NEW JAUNT
That’s Philadelphia lingo for you right there, but seriously, have you seen the new Lebron X shoes from Nike (NKE)? They go for $315 and are on the fast track to usurp Jordans as the “must have” shoe that gets released in a new iteration each year. Pre-orders have sold out and any retailer selling these will have a line snaking around the block of people camping out for a pair. Here’s what Retail Sector Head Brian McGough thinks about the Lebron X hype (we’re inclined to agree):
“In no way, shape or form does this have any bearing on the broader revenue stream of a $25bn company. But it shows how their marketing engine is synching with innovation in order to test price points that were never before even a pipe dream. A more commercial version will be sold to the masses at $180 – again, a price point that most would think is unattainable in this environment.”
BUDGET BREAKDOWN
The Congressional Budget Office (CBO) is set to release its updated budget and economic outlook today. We’ll put out a fully detailed analysis of the note later on, but we do not expect the release to be positive. Similar to the rhetoric of Paul Ryan, it’s likely to recommend drastic cuts to spending combined with an effective growth policy. This is nothing new. The US is spending its way into a fiscal nightmare that we soon will not be able to wake from. Please remember that the direction of the U.S. budget is a key factor that will drive the value of the U.S. dollar over time.
_______________________________________________________
ASSET ALLOCATION
Cash: Flat
U.S. Equities: UP
Int'l Equities: Flat
Commodities: Flat
Fixed Income: DOWN
Int'l Currencies: Flat
_______________________________________________________
TOP LONG IDEAS
NIKE INC (NKE)
Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.
- TRADE: LONG
- TREND: LONG
- TAIL: LONG
FIFTH & PACIFIC COMPANIES (FNP)
The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.
- TRADE: LONG
- TREND: LONG
- TAIL: LONG
LAS VEGAS SANDS (LVS)
LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.
- TRADE: LONG
- TREND: NEUTRAL
- TAIL: NEUTRAL
_______________________________________________________
THREE FOR THE ROAD
TWEET OF THE DAY
“6% of us poor, poor Americans don’t have high speed Internet access. Yet 15% are on food stamps. Can ANYONE explain that to me?” -@SchatzWSJ
QUOTE OF THE DAY
“The average, healthy, well-adjusted adult gets up at seven-thirty in the morning feeling just plain terrible.” –Jean Kerr
STAT OF THE DAY
$315. The price of a pair of Lebron X sneakers being released by Nike in collaboration with Lebron James.
