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CALL TODAY (NEM) | Happy Assumptions vs. Sad Realities

Please join us TODAY (Tuesday, December 22, 2015 at 11AM EST) for a review of the bear case on Newmont Mining.



  • Toll Free:
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  • Confirmation Number: 13627484 

For the corresponding slides please reply to the reminder email, and we will send them along. 


CALL TODAY (NEM) | Happy Assumptions vs. Sad Realities - Marketing Image




NEM is typically perceived as a ‘premium’ gold miner, but, for one, we aren’t sure there really is such a thing.  Long-term, NEM has been a secular underperformer; we expect that underperformance to continue.  NEM may struggle with comparatively high costs in a declining gold price environment.  We are not convinced that NEM’s 2015 cost reductions reflect the underlying production economics and expect the shares to be further derated by the market in 2016.




  • Assumption vs. Reality:  A look at key assumptions behind NEM’s costs and those of competitors
  • Charges Coming:  NEM may need to again adjust asset values lower, potentially with broader implications
  • Likely Value Trap:  Cyclicals in a downswing typically look cheap as conditions deteriorate
  • No Gold Cure:  With mine production likely to exceed estimates and gold continuing to move out of favor with investors, we expect gold prices to decline in most major currencies. 

RTA Live: December 22, 2015


NKE | Key Issues

Takeaway: Here’s what we care about headed into the print. There are broad implications not just for Nike, but for its US retail accounts as well.

Here’s a quick overview as to what we’re looking for from Nike tonight.

  1. A Big EPS Beat: We’re at $0.93 vs the Street at $0.86. This company has not missed a 2Q in well over 10 years. It’s not gonna start now.
  2. Futures. We all know that 9 out of 10 times, the consensus futures estimate is +1/-1 the prior quarter’s 2-year trend. But that only proves to be correct 4 times out of 10. So the question is…are we plus, or minus. Let’s keep in mind that this is an unaudited number that management does not even know until 1-2 weeks before the print. That said, we’re looking for 15% Global C$ growth in Futures, including 10% growth in North America. The latter would represent a 400bp sequential slowdown from 1Q results.
  3. Bifurcation in Futures and Results. One of the key factors behind our long term call on Nike (and our short on FL) is that Nike is likely to build its e-commerce business from $1.2bn last year to $11bn by 2020. That’s nearly 60% ABOVE the e-comm target Nike gave the Street at its analyst meeting earlier this year. This means two things…
    • Futures: At some point, futures will become extremely less relevant, as futures only applies to Nike’s wholesale business. Naturally, we’ll likely hear the company talk about this when there is the inevitable downturn in futures.
    • Gross Margins: Gross margins are likely headed well over 50% vs the 46% it reported last year, as e-commerce margins are about 20 points above wholesale.
  4. E-commerce: We need to see growth this quarter of at least 40%. We’re modeling 50%. It’s going up against a tough comp vs last year (65%), but lets face it…when we’re making a case that e-comm will grow from $1bn to $11bn, going up against a ‘tough comp’ is absolutely irrelevant. Every quarter should be a tough comp, otherwise we’re simply wrong in our thesis.
  5. US Commentary: Here are a few points that matter a lot, both for Nike and for retailers like FL, FINL, DKS, HIBB, etc..
    • Saturation: If we were to ask only one question on the call (we generally don’t ask our questions publicly on conf calls) it would sound something like this, “Over the past six years, Nike has increased its penetration in key wholesale accounts from 40-50%, to 60-80%. At the same time it used the resulting cash flow to invest in the plant, people and systems needed to aggressively grow the leg of distribution – Nike DTC (e-comm) -- that will propel Nike from $30bn in sales to $50bn.  With zero square footage growth opportunities for the traditional retailers in the US, and Nike incrementally taking higher ASP product for its proprietary distribution network, how can the traditional retailers actually grow? We understand the ‘innovation agenda’, and the ‘category offense’, but unless Nike convinces the consumer to break out of a 35-year paradigm of per capita purchasing patterns – it seems like we’re at a point where it’s all about price for the legacy retail models. No?”
    • Basketball: Not hugely relevant to Nike, but relevant to retailers like FL where about 40% of sales are basketball. FL recently said bball sales slowed, despite a 4% increase in the number of Nike launches during its reporting period, and a 7.4% boost in average price point?
    • Inventory Levels: US inventories were elevated at Nike last quarter, and the company noted that it should be cleaned up by the end of Q3 (Feb). We need to see meaningful progress towards this goal, or at least increased confidence that it is being fixed. Reminder, Nike’s confidence in clearing out inventory might be bullish for Nike, but not necessarily the wholesale channel.
  6. On-site Manufacturing: Nike has kept this out of the forefront of the discussion for two years now. But it’s going to be a very relevant, very soon. Aside from driving the DTC model, it will gain even more leverage over retailers who will pay top dollar (in raw cash, working capital, or in margins) to have this technology in stores. We don’t think Nike will talk about this specifically, but we think it becomes a part of the discussion in the next calendar year.

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INSTANT INSIGHT | Why Treasury Yields Are Down

What is happening to the 10-year Treasury?


The fact that yields are coming down, following last week's rate hike by the Yellen Fed, seems counterintuitive. Below is a brief excerpt from a note sent to subscribers earlier this morning by Hedgeye CEO Keith McCullough explaining why:


"... The U.S. 10-year Treasury yield was down to 2.18% yesterday and is holding 2.19% so far this morning with Yield Spread compression (10yr minus 2yr) still testing YTD lows as #GrowthSlowing in Q4 remains obvious to anyone who is rate of change driven and data dependent."


INSTANT INSIGHT | Why Treasury Yields Are Down - 10 yr treasury


Got it? #GrowthSlowing.

McCullough: The Three Signs of Coming Recession


In this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough breaks down the three precursors to a U.S. recession and urges viewers to be wary of one in 2016. 

CHART OF THE DAY: Defanging Disney And Apple | $AAPL $DIS

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 


"... Consider an “expensive” and a “cheap” stock that are currently being defanged:

  1. Disney (DIS) broke its intermediate-term TREND line of $111, 2x in 2015 (AUG and DEC) on accelerating volume
  2. Apple (AAPL) broke its intermediate-term TREND line of $119, 2x in 2015 (AUG and DEC) on accelerating volume

Disney (DIS) now fits the intellectually appealing “expensive that is trending down” short-idea criteria, whereas Apple (AAPL) is crushing the valuation intellects as “cheap” continues to get cheaper."


CHART OF THE DAY: Defanging Disney And Apple | $AAPL $DIS - 12.22.15 EL chart

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