In today’s briefing:
- Fed’s Latest Financial Stability Report Highlights Pitfalls of Fiscal Profligacy
- Investing During an Era of American Exceptionalism
- Bitcoin 100K: Buy or Fade the Animal Spirits?
- Fenix Resources (FEX AU): Positive Developments At Iron Ridge And Other Catalysts
- Iron Ore Tracker (9-Dec-2024): Stuck In A 95-110 USD/Ton Band, Restock On The Cards?
- Copper Tracker 9th Dec 2024: All Eyes On the China Economic Work Conference (CEWC)
Fed’s Latest Financial Stability Report Highlights Pitfalls of Fiscal Profligacy
- The Fed’s latest report on financial stability indicated elevated valuations for risky assets versus Treasuries, while valuations for residential and agricultural properties are also historically high.
- Residential mortgage and company debt do not pose major risks to financial stability due to high levels of equity in owner-occupied real estate and robust corporate profits.
- Continued fiscal profligacy poses the greatest threat to the US financial system via the banking system and raising the cost of capital for the corporate sector.
Investing During an Era of American Exceptionalism
- This year was one of American exceptionalism and asset return domination, led by the leadership of the Magnificent Seven.
- . We believe Magnificent Seven leadership is likely to fade in 2025.
- We expect that 2025 will be a year of transition from growth to value, large caps to small caps and paper to hard assets.
Bitcoin 100K: Buy or Fade the Animal Spirits?
- Now that Bitcoin has exceeded the psychologically important 100,000 mark, it is becoming evident that the FOMO risk-on stampede is in full force.
- Our review of market internals leads us to conclude that the risk-on FOMO stampede that’s driving the animal spirits is on the verge of becoming exhausted.
- Our base case calls for a brief period of consolidation or shallow weakness, followed by a rally into year-end.
Fenix Resources (FEX AU): Positive Developments At Iron Ridge And Other Catalysts
- This is a follow-up to our initiation, Fenix Resources (FEX AU): Small Cap Iron Ore Miner With Great Upside. The flagship mine added another 5 years to the existing 3-year mine life.
- At a 60 AUD/ton operating margin for 1.4 million tons/Yr (assuming 100 USD/ton iron ore price), this is an additional 60-65 mn AUD of cash profit for 5 years.
- The company has commenced production in the Shine iron ore mine (1.2 mtpa) and will shortly begin production in the Beebyn-W11 mine (1.5 mtpa) in early 2025 after obtaining permits.
Iron Ore Tracker (9-Dec-2024): Stuck In A 95-110 USD/Ton Band, Restock On The Cards?
- In the countdown to the China Economic Work Conference (CEWC), which will be held on December 11th/12th, the iron ore market remains range-bound, expecting further clarity on the economic stimulus.
- Stocks like Vale (VALE US) and Fortescue Metals (FMG AU) continue to trade at double-digit dividend yields (9-10%), assuming 100 USD/ton.
- With China’s PMI improving, despite high inventories, there is an expectation of a restock for iron ore in the short term. We remain skeptical and continue to see range-bound activity.
Copper Tracker 9th Dec 2024: All Eyes On the China Economic Work Conference (CEWC)
- In the countdown to the China Economic Work Conference (CEWC), which will be held on December 11th/12th, the copper market remains range-bound, expecting further clarity on the economic stimulus.
- The market has looked through the PMI uptick due to the seasonal uplift and order inflows in anticipation of Trump tariffs, although equities seem a little more positive.
- We prefer Southern Copper (SCCO US) in the copper space for its high ROIC and future growth. Check out our recent initiation, Lundin Mining (LUN CN): Cheap Play on Copper.
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