NYT : Mickey Turns 90, and the Disney Marketing Machine Celebrates

Mickey Turns 90, and the Disney Marketing Machine Celebrates

LOS ANGELES — A two-hour prime-time special on ABC. Cupcakes the size of cars at Disneyland Paris. Collaborations with a dozen fashion designers, including Marc Jacobs. More than 30 books, including one from Taschen so big it comes with a carrying handle.

Small and subtle are not the Walt Disney Company’s style. But a new effort to focus attention on one of its oldest characters, Mickey Mouse, is truly something to behold.

Disney is using Mickey’s 90th birthday as a monstrous marketing moment, with the company’s cross-promotional machine revved up to what may be its highest level yet. Every corner of the $168 billion company is contributing to the campaign, which will intensify on Sunday when ABC runs “Mickey’s 90th Spectacular.” Disney theme parks will be hosting events into next year

Disney executives describe the effort as a chance to polish the company’s broader brand and remind people — as Netflix moves deeper into family entertainment and Disney prepares to unveil its own streaming service — that the Magic Kingdom has been serving up beloved characters for decades. Mickey made his official debut in 1928 in “Steamboat Willie,” Hollywood’s first cartoon with synchronized sound.

Unless lawmakers intervene, as they have in the past, Disney’s control of the Mickey copyright will expire in five years. So there’s no time like the present to rally around him.

Disney has billions of dollars in merchandise sales to consider. Mickey and his friends (Minnie, Pluto, Goofy) make up Disney’s top-selling consumer products franchise, generating annual retail sales of at least $3.2 billion, according to The Licensing Letter, a trade publication. That tally does not include the Disney Store chain or outlets at Disney’s theme parks. Disney does not disclose sales information, although a spokeswoman said the franchise had been growing both domestically and overseas.

There are challenges, however, the result of a shifting retail marketplace (the demise of the Toys “R” Us chain) and declining television viewership. Disney’s child-focused cable channels are important Mickey engines, serving up animated specials, shorts and series. Mickey also has strong competitors in the preschool market — “Paw Patrol” on Nickelodeon, for instance.

“The challenge for any character, but especially for Mickey since he’s so historic, is maintaining relevancy,” said Marty Brochstein, a senior vice president at the International Licensing Industry Merchandisers’ Association. “And the adults are almost more important than the kids in that way. The grown-ups decide what the money gets spent on.”

Here are some of the components of Mickey-palooza:

Mickey the Muse
Associating older characters with of-the-moment artists is a tried-and-true way to demonstrate relevancy. That strategy appears to be part of the thinking behind “Mickey: The True Original Exhibition.” This Disney-created exhibit, running Thursday to Feb. 10 in a 16,000-square-foot space in Manhattan, features Mickey-inspired creations by contemporary artists like Amanda Ross-Ho, Shinique Smith and Daniel Arsham.

“With the scale of Disney and who Mickey Mouse has become, a lot of people forget that Walt Disney was a real artist,” Mr. Arsham said in a statement. “Being able to make my own mark on his legacy is a real dream.”

Tickets to the exhibit cost $38, and some time slots are already sold out. Darren Romanelli, a Los Angeles designer who works as DRx, served as curator.

Prime-Time Takeover
Fifteen dancers in formation. Drummers dangling from wires over the stage. Indoor fireworks. And the actress Kristen Bell, who provided Anna’s voice in “Frozen,” positioning Mickey as bringing “a much-needed warmth and reliability in a world where consistency is something hard to come by.”

So begins “Mickey’s 90th Spectacular,” a two-hour special on Disney-owned ABC on Sunday night. Produced by Don Mischer, whose credits include Super Bowl halftime shows and multiple Academy Awards ceremonies, “Mickey’s 90th” features performances by Josh Groban, Meghan Trainor and the K-pop group NCT 127, among others. Presenters include Robert A. Iger, Disney’s chief executive, who personally oversees the Mickey brand.

“We wanted to celebrate how this little character transcends boundaries,” Mr. Mischer said by phone after the taping. “He’s an everyman who sometimes fails but keeps trying. Who can’t relate to that?”

But it was tricky to find the right tone, said Charlie Haykel, another producer. “We didn’t want a history lesson,” he said. “And we didn’t want it to turn too sentimental.”

Stickers for Everyone
Mickey’s popularity has remained remarkably stable over the years, according to Henry Schafer, executive vice president for the Q Scores Company, which measures the popularity of celebrities, brands and licensed properties. A springtime poll by the company showed that 26 percent of the United States population ranked Mickey as a favorite cartoon character, far above the average. Mr. Schafer said Mickey’s appeal was particularly high among Latinos, 39 percent of whom said he was a favorite.

Disney’s vast theme park operation is one reason the squeaky-voiced rodent has remained so embedded in the culture. The parks, which attracted more than 150 million visitors last year, offer the masses a touch point — quite literally. Walking-around Mickeys sign autographs and pose for photos.

For the current campaign, the Disney parks will stock commemorative merchandise, sell “limited edition” desserts and host a dizzying number of events billed as the World’s Biggest Mouse Party. Hong Kong Disneyland will hand out birthday stickers to guests as they enter, for instance, and Disneyland Paris has those colossal (inedible) cupcakes on display. Starting in mid-January, Disney World in Florida will introduce a Mickey-focused “street jubilee.”

What About Minnie?
Poor Minnie. Always in the shadow of her boyfriend. But Disney has not left her out entirely.

She dances with Mickey on the ABC special and is front and center in the Mouse Party theme park events. Disney also arranged for her to receive a star on the Hollywood Walk of Fame. (Mickey got his 40 years ago.) The sidewalk plaque was unveiled in January by Mr. Iger and Katy Perry, who wore polka dots in the character’s honor.

“To this day, no one rocks a bow, the color red or a dot quite like her,” Ms. Perry said at the time. “Trust me. I am trying.”

In recent years, Disney has put Minnie forward as a style icon, dispatching her to New York Fashion Week and arranging for Minnie-inspired collections or garments from Coach, Vans, Diane von Furstenberg and other fashion brands. Those efforts have increased Minnie licensing revenue considerably.

But the numbers are the numbers: Mickey has about 14.2 million followers on Facebook, while she has 4.8 million.

NY Post : Grenfell Tower disaster threatens to derail Arconic sale

Grenfell Tower disaster threatens to derail Arconic sale - https://nyp.st/2P8wxGw

Liabilities associated with the Grenfell Tower disaster in London are threatening to derail the sale of New York-based aluminum giant Arconic, The Post has learned.

Apollo Global Management, the buyout firm headed by billionaire Leon Black, has demanded that liabilities from the June 2017 fire — which left 72 people dead and is being investigated by Scotland Yard — be ring-fenced as a condition for any bid for the company, sources close to the situation said.

That’s despite the fact that Apollo has lined up financing for a buyout worth more than $15 billion including debt, according to sources. Arconic shares on Friday were recently at $21.21, giving the company a market cap of about $10.3 billion.

As reported by The Post, a rival bidding bloc formed by buyout rivals Blackstone and Carlyle Group has already been investigating the Grenfell liability ahead of making any bid.

With Apollo doing the same, Arconic will likely have to first cut a deal to sell its building and constructions systems division — the unit that was implicated in the Grenfell disaster — to another buyer before signing a deal to sell the entire company, a source said.

The timing and prospects for such a deal aren’t clear. Since July, Arconic has been shopping the unit, which had supplied aluminum cladding that was partly blamed for the quick spread of the devastating fire in the 24-story residential building in West London.

“The sale process for the building and construction systems business is well underway and has drawn robust interest,” CEO Chip Blankenship said on a conference call earlier this week.

The company also said it is conducting a strategic review of all operations, not commenting on whether it was also exploring a full company sale.

The chances of a sale happening with any party are now about 50-50, according to one source close to the talks.

Arconic’s building and construction business represented about 8 percent of Arconic’s overall 2017 sales of $13 billion. Most of Arconic’s sales come from selling aluminum parts to the aerospace industry.

Reuters reported this week that Apollo Global Management was in advanced talks to buy Arconic.

The Post reported earlier this week that the rival bidding team led by The Blackstone Group and Carlyle Group was gauging the potential liability costs facing Arconic.

That includes figuring out how many Arconic tiles used in high-rise buildings throughout the world were sold, and what the statute of limitations is in each jurisdiction.

Apollo declined to comment. Blackstone and Carlyle didn’t immediately respond to requests for comment.

(ZH) In California, Home Sales Are Plunging Like It Is 2008 All Over Again

In California, Home Sales Are Plunging Like It Is 2008 All Over Again


What goes up must eventually come down...
For years, the California housing market was on the cutting edge of “Housing Bubble 2” as we witnessed home prices in the state soar to absolutely absurd levels.
In fact, it got so bad that a burned down house in Silicon Valley sold for $900,000 earlier this year, and a condemned home in Fremont sold for $1.2 million. But now things have changed in a major way. The hottest real estate markets in the entire country led the way down during the collapse of “Housing Bubble 1”, and now it looks like the same thing is going to be true for the sequel.
According to CNBC, the number of new and existing homes sold in southern California was down 18 percent in September compared to a year ago…
The number of new and existing houses and condominiums sold during the month plummeted nearly 18 percent compared with September 2017, according to CoreLogic. That was the slowest September pace since 2007, when the national housing and mortgage crisis was hitting.
Sales have been falling on an annual basis for much of this year, but this was the biggest annual drop for any month in almost eight years. It was also more than twice the annual drop seen in August.
Those numbers are staggering.
And it is interesting to note that sales of new homes are being hit even harder than sales of existing homes…
Sales of newly built homes are suffering more than sales of existing homes, likely because fewer are being built compared with historical production levels. Newly built homes also come at a price premium. Sales of newly built homes were 47 percent below the September average dating back to 1988, while sales of existing homes were 22 percent below their long-term average.
At one time, San Diego County was a blazing hot real estate market, but now the market has turned completely around.
In fact, the county just registered the fewest number of home sales in a month since the last financial crisis…
A combination of rapid mortgage rate increases and decreased affordability, San Diego County home sales collapsed 17.5% to the lowest level in 11 years last month, in the first meaningful sign that one of the country’s hottest real estate markets could be at a turning point, real estate tracker CoreLogic reported Tuesday.
In September, 2,942 homes were sold in the county, down from 3,568 sales last year. This was the lowest number of sales for the month since the start of the financial crisis when 2,152 sold in September 2007.
And it can be argued that things are plunging even more rapidly in northern California.
In the San Francisco Bay area, sales of new and existing homes were down 19 percent in September on a year over year basis…
Home sales in the San Francisco Bay area have been falling for months, but in September buyers pulled back in an even bigger way.
Sales of both new and existing homes plunged nearly 19 percent compared with September 2017, according to CoreLogic. It marked the slowest September sales pace since 2007 and twice the annual drop seen in August.
If a new real estate crisis is really happening, these are precisely the kinds of numbers that we would expect to see. If you still need some more convincing, here are even more distressing numbers from the California real estate market that Mish Shedlock recently shared…
  • The California housing market posted its largest year-over-year sales decline since March 2014 and remained below the 400,000-level sales benchmark for the second consecutive month in September, indicating that the market is slowing as many potential buyers put their homeownership plans on hold.
  • Existing, single-family home sales totaled 382,550 in September on a seasonally adjusted annualized rate, down 4.3 percent from August and down 12.4 percent from September 2017.
  • September’s statewide median home price was $578,850, down 2.9 percent from August but up 4.2 percent from September 2017.
  • Statewide active listings rose for the sixth consecutive month, increasing 20.4 percent from the previous year.
  • Inventory reached the highest level in 31 months, with the Unsold Inventory Index reaching 4.2 months in September.
  • September year-to-date sales were down 3.3 percent.
Of course a similar thing is happening on the east coast as well. At this point, things have cooled off so much in New York City that it is being called “a buyer’s market”…
New York City’s pricey real estate has become a “buyers market,” new data suggests, characterized by lowball offers and a rise in the number of properties staying on the market for longer.
The latest figures from Warburg Realty show that among higher-priced homes, New York City is in the throes of a “major shift” that reflects a cooling market, the likes of which hasn’t been seen in almost a decade.
“Offers 20 percent and 25 percent below asking prices began to flow in, a phenomenon last seen in 2009,” wrote Warburg Realty founder and CEO Frederick W. Peters in the report, which surveys real estate conditions around the city.
In the final analysis, it is no mystery how we got to this point.
During the Obama era, the Federal Reserve pushed interest rates all the way to the floor for years, and this caused “Housing Bubble 2” to become even larger than the original housing bubble.
Now the Federal Reserve has been aggressively raising interest rates, and this is now busting the bubble that they created in the first place.
So if you want to blame someone for this mess, blame the Federal Reserve. The Federal Reserve has created huge “booms” and “busts” ever since it was created in 1913, and hopefully the American people will be outraged enough following this next “bust” to start calling for real change.
I have been calling for the abolition of the Federal Reserve for years, and there are many others out there that also want to return to a free market financial system.
History has shown that free markets work exceedingly well once you take the shackles off, and as a nation we desperately need to return to the values and principles that this nation was founded upon.

Barron's : Hilton Is Considering Options, Including Spinoffs and a Possible Sale

Hilton Is Considering Options, Including Spinoffs and a Possible Sale

The Activist Spotlight
Hilton Worldwide Holdings (HLT)

Business: hospitality

Stock Market Value: $21.3 billion ($71.95/share)

What’s Happening: Pershing Square has acquired a 3.7% position for investment purposes.

Key Numbers:

32%: Pershing Square’s return on a 2016-17 investment in Hilton

$82.04: Hilton’s stock price as recently as Sept. 27

Behind the Scenes: While Pershing Square prefers activist investments and is never completely passive, this situation might show it at its most passive. Pershing believes that Hilton is one of the best businesses in the world—a capital-light, free-cash-flow producing, high-margin operation, with strong brands and managers. Nonetheless, Pershing feels that it can be helpful, and that it has something to add, particularly to a company with a real estate element and a franchising business, two areas in which Pershing historically has excelled.

After two recent spinoffs, Hilton is now a fee-based business that primarily franchises and manages branded hotel properties. Pershing believes that two key investor concerns now weigh on Hilton’s share price: a potential cyclical downturn in lodging and a potential competitive threat from Airbnb.

After conducting an extensive analysis of the industry and Airbnb, Pershing believes it likely that revenue per available room would average positive growth over a three- to five-year period, even if at first it might decline, and that Hilton’s business model is unlikely to face a meaningful threat from Airbnb, as the two tend to compete for different types of customers.

While Pershing didn’t acquire its position with an activist plan, it will certainly engage amicably with Hilton management.

Barron's : A Scary New Missile Could Start a New Arms Race

A Scary New Missile Could Start a New Arms Race

Starry sky 2 sounds peaceful enough, and when China’s top aerospace scientists announced in August that they had successfully tested a device of that name, they described it as an aircraft. But the details of this flight—sustained speeds between five and six times that of sound, combined with abrupt changes in direction—delivered an unmistakable message to Pentagon analysts. China is close, perhaps just several years away, to fielding a fearsome new weapon called a hypersonic missile. That could make today’s missile defense systems obsolete, drive a new arms race, and keep money pouring in for military contractors.

Understanding the hypersonic threat, and America’s rising rivalry with China more broadly, is one way for investors to make sense of the outlook for defense stocks. After six years of outperformance, they’re slumping. With U.S. budget deficits ballooning, and Democrats predicted to win control of the House on Election Day, investors seem to anticipate that a two-year surge in defense funding under President Donald Trump will give way to a slowdown. From the Reagan peak to the Clinton low, a 13-year stretch, the defense budget shrank by 35%, adjusted for inflation. During President Barack Obama’s tenure, it declined by 30% over five years. In a budget crunch, it’s easier to find cuts in weapons procurement than in categories like personnel and maintenance, adding to volatility for weapons makers.

In reality, the chances of deep cuts from here look overstated. Already agreed-upon spending will increase revenue briskly enough for the likes of Lockheed Martin (ticker: LMT), Northrop Grumman (NOC), and Raytheon (RTN) through the end of the decade. Beyond that, it seems likely that budgets will remain flat, perhaps rising with inflation, during what some industry analysts describe as a shift from a war-on-terror footing to Cold War 2.0, with rising investment in futuristic weapons offsetting declines in legacy programs. Longer-term headwinds include fiscal strain and a potential deflationary effect from new technology, including software.

Climbing Back
Military spending is on the upswing after inflation-adjusted declines during the Obama administration. Defense budget in 2019 dollars, 1950-2019


For now, however, the selling in defense shares appears overdone. Lockheed stock is down 7% this year, not counting dividends, versus a gain of 2.5% for the S&P 500 index. Earnings are soaring. Wall Street predicts a 32% rise this year, to about $17.50 a share. That puts the stock, recently around $300, at 17 times earnings, on par with the S&P 500, and down from 24 times earnings a year ago. By 2020, Lockheed’s profits are expected to hit about $24.50. The stock trades at just 12 times that figure, with a 2.9% dividend yield. All of this points to potential for double-digit annual returns over the next few years, no matter how the midterm elections shake out. The outlook is similar for other defense heavyweights.

Hypersonic missiles provide a useful example of why budgets look secure in the near future, but also why they could come under pressure over the long term. Broadly defined as maneuverable missiles that can travel at five times the speed of sound or faster, they combine the strengths of cruise and ballistic missiles with the weaknesses of neither, and add capabilities all of their own.

Cruise missiles can be guided during flight and delivered to precise targets, but typically fly close to, but not over, the speed of sound, or Mach 1, which is about 770 miles an hour. A typical Tomahawk missile, for example, flies at 550 mph. Last year, the U.S. launched 59 Tomahawks targeting a Syrian airfield in response to a chemical attack on civilians by that country’s government. Ballistic missiles can fly much faster, but mainly follow a gravity-defined path, like a baseball thrown from center field to home. These include intercontinental ballistic missiles, or ICBMs, which exit and re-enter the atmosphere. Among them: the Trident II, which can deliver nuclear warheads anywhere on Earth from U.S. submarines, and can reach a terminal velocity of Mach 24.

Hypersonics promise ballistic-like speed with cruise-like maneuverability, plus the ability to fly at low altitudes. The result is a weapon that can penetrate any of today’s missile defense systems, and keep its target unknown until minutes before impact. Like other missiles, hypersonics can theoretically be equipped with a variety of warheads, but they can also do profound damage with no warheads at all, due to their high kinetic energy. A 500-kilogram projectile that hits a target at Mach 8 delivers the destructive power of three metric tons of TNT. Put differently, a hunk of metal moving that fast can be as deadly as six Tomahawks. That raises the possibility that these weapons can one day be deployed cheaply to counter the world’s most expensive military assets. “Imagine a $500,000 Chinese missile that can neutralize a $20 billion U.S. carrier group,” says James Cross, a portfolio manager at Franklin Templeton Investments, who specializes in aerospace and defense.

Research on hypersonic flight is decades old, but the subject is suddenly front-of-mind in defense circles. In March, Russian leader Vladimir Putin touted “invincible” hypersonic missiles, and in July, days after he and Trump held a meeting, the Kremlin’s ministry of defense released videos of hypersonic tests. U.S. officials are well aware of the threat from China and Russia. “I’m sorry for everybody out there who champion some other high priority,” said Michael Griffin at a March conference, shortly after he was confirmed by the Senate as undersecretary of defense for research and engineering. “But there has to be a first, and hypersonics is my first.”

Hypersonics don’t change the threat of mutually assured destruction in the event of an all-out nuclear exchange between superpowers. But they could make smaller-scale or regional conflicts riskier by sharply reducing decision-making time in the event of an attack, and encouraging adversaries to strike first. In a report last year, Rand Corp. urged a hypersonics nonproliferation treaty among the U.S., Russia, and China, warning of “hair-trigger states of readiness.” If a pact is in the works, it isn’t obvious from Trump’s recent announcement that the U.S. will withdraw from an arms-control treaty with Russia that dates back to the Cold War, or from battling China over trade.

In September, JPMorgan defense analyst Seth Seifman estimated that U.S. spending on hypersonics will multiply four times, to $1.5 billion, in the current fiscal year, and exceed $5 billion a year—perhaps much more—in the next decade. “Historically, technologies like this can lead to action and reaction, and maybe an arms race,” says Richard Aboulafia, an analyst with defense researcher Teal Group. “Russia has more intellectual property, but China has more resources. And China has more reason to change the game.”

In the context of a $700 billion U.S. defense budget, hypersonics alone won’t move the needle greatly for defense contractors, even Lockheed, an early winner of development contracts. But hypersonics are one example of what industry experts describe as a shift from counterterrorism as an investment priority to competitiveness with near-peer nations. Adjusted for local purchasing power, China’s total military spending now probably comes close to that of the U.S., according to Credit Suisse analyst Robert Spingarn. One source of ongoing tension is China’s interest in projecting strength in its nearby waters, including the 110-mile-wide Taiwan Strait, which separates the mainland from Taiwan, which China considers a breakaway province. In October, the U.S. sailed two warships through the strait in a show of force.

Beyond hypersonics, the Department of Defense is eager to keep up with China in emerging fields, such as artificial intelligence and the ability to deploy vast swarms of unmanned drones. Defense companies are having to learn from Silicon Valley about how to innovate and take risks with their research, says Franklin’s Cross. And there’s a rising role for America’s tech titans. “In China, the biggest tech companies have already been recruited by the government and have been given assigned portfolios like A.I., bioengineering, and autonomous vehicles,” says Cross. In the U.S., the Department of Defense announced that former Symantec CEO Michael Brown will head a new innovation unit in Silicon Valley, which will try, among other things, to persuade tech outfits to work with the military.

Technically, the U.S. defense budget remains subject to steep cuts triggered in 2013 and running through 2021—the so-called sequester. But Congress has passed three budget agreements to help neutralize the sequester, the latest covering the budget through the current fiscal year ending in September 2019. A $717 billion defense authorization act signed by Trump in August paves the way for one of the largest funding increases in recent decades. Much of the spending will go toward weapons procurement after a yearslong lull. Top programs include F-35 Lightning II jet fighters from Lockheed; Virginia-class submarines, Ford-class aircraft carriers, and Aegis destroyers from General Dynamics (GD) and Huntington Ingalls (HII); and KC-46A tanker planes from Boeing (BA).

‘ Imagine a $500,000 Chinese missile that can neutralize a $20 billion U.S. carrier group. ’

—James Cross, a portfolio manager at Franklin Templeton Investments
The plan for next year’s funding was recently thrown into uncertainty. The Pentagon has been preparing a $733 billion budget. On Oct. 26, Deputy Secretary of Defense Patrick Shanahan announced at a conference that he had been asked by the White House’s budget director to come up with a $700 billion plan instead. Shanahan mentioned hypersonics research as a target for cuts, and said he would proceed for now with preparing two budgets. “It comes down to a judgment call of how fast we modernize,” he said.

One reading of this is that, to spur a compromise, the Pentagon is floating the prospect of program cuts that would be unpopular in Congress. Adding to the uncertainty is the need for one more budget deal to head off what is left of the sequester. Another wild card: It has become common over the past two decades to top off base budgets with supplemental funding for “overseas contingency operations,” and to use these to pay for long-term operations, not just unanticipated events.

Byron Callan, managing director of Capital Alpha Partners, which supplies defense research to investors, sees a 1% base budget increase next year. Credit Suisse’s Spingarn notes that fiscal 2018 and 2019 spending was driven by a push to replenish the military. He predicts that this focus will dissipate, but be replaced by an emphasis on China, with the likely result being a tailwind for defense companies, but not a big rise in outlays beyond current levels.

If that’s the case, shares of defense contractors could have another leg up after next year’s budget is resolved. Over the past decade, Lockheed has traded at an average of 15 times near-term earnings projections, so if the 2020 consensus holds, that implied price of 12 times earnings is likely to look low to investors. Likewise, Raytheon and Northrop fetch 13 times projected 2020 profits. Raytheon’s focus on missiles, like Lockheed’s expertise in flight, makes it a likely key player in hypersonics. The same goes for Northrop, which completed an acquisition of Orbital ATK in June, gaining new exposure to rocket propulsion systems. Mergers and acquisitions could increase, as large research-and-development budgets become more important in vying for futuristic weapons contracts. In October, military communications specialists L3 Technologies (LLL) and Harris (HRS) agreed to combine. Raytheon and Lockheed collect about 30% of their revenue from exports, which provides insulation from U.S. budget cuts, but carries other risks. Graphic images out of Yemen, where a U.S.-backed Saudi coalition’s war against Houthi rebels has put 14 million civilians at risk of starvation, could prompt a backlash from Congress.

Long term, the clearest risk for defense companies is that the U.S., following hefty tax cuts, returns to trillion-dollar yearly deficits. Debt held by the public, recently 78% of gross domestic product, is expected to hit 96% within a decade. Defense is about half of discretionary spending, so fiscal hawks seeking cuts outside of entitlement programs are likely to look there. Over time, it’s also possible that new technology will replace pricier legacy systems. “If you can get hypersonics down to $2 million a copy, that could cut into spending on conventional weapons and air-defense systems,” says Capital Alpha’s Callan. Artificial intelligence could be even more disruptive, letting swarms of cheap drones overcome pricier battlefield assets. “Pilots cost $1 million to train and need housing, but not A.I.,” says Callan.

For now, however, the recent shakeout among defense stocks seems extreme, and election risk, overstated. “Historically, a mixed Congress has been good for defense,” says Teal’s Aboulafia. “A Republican at the top and a Democratic Congress has been really good.”

Barron's : How Electric Vehicles Should Give a Jolt to Copper Miners

How Electric Vehicles Should Give a Jolt to Copper Miners

Copper prices have dropped 18% in recent weeks, creating a long-term opportunity to get in on some cheap copper-mining giants with generous dividend payouts. Their prospects will depend on a major technological transition: the move from gasoline-powered to electric vehicles.

“If you’re bullish on global growth over the next 18 to 24 months, you have to own copper-related assets, especially since current prices aren’t high enough to fund new-mine development,” says Adam Johnson, founder and author of the Bullseye Brief financial newsletter. “Longer term, and this is key, rising electric-vehicle production will shift the entire demand curve since EVs require multiple times the copper content of internal-combustion engines.”

Investors should consider buying shares of a handful of European-based miners: Rio Tinto (ticker: RIO), Glencore (GLEN.UK), and Anglo American (AAL.UK). All are diversified, but they’re also among the largest copper miners. Better yet, they have hefty dividends of 5%, 5.1%, and 4.7%, respectively.

The stocks are cheap relative to the main U.S. rival, Freeport-McMoRan (FCX), which trades at almost 14 times next year’s earnings and has a measly 1.8% dividend. Rio Tinto shares trade at a P/E around 11; Glencore’s and Anglo American’s at less than 10. And Rio Tinto announced a $3.2 billion share buyback earlier this month. That news “reinforces our positive view of Rio’s capital returns potential,” said a recent report from U.K. broker J.P. Morgan Cazenove.

Meanwhile, New York research firm CFRA says it expects the return on equity for Glencore to move above its recent average level. The firm also sees the potential for meaningful cost reductions to improve margins at Anglo.

Besides the favorable valuations, these stocks will benefit from the switch to electric vehicles. To make these cars and trucks, manufacturers will require an additional 1.7 million metric tons of copper each year by 2027, according to the International Copper Association. Battery-powered EVs use an average of 183 pounds of the metal versus between 18 and 49 pounds for conventional cars, according to data from the Copper Development Association. The difference is even starker for buses. A bus running with a hybrid electric and diesel engine needs 196 pounds of copper, but a fully electric-powered bus requires 814 pounds. Charging ports for electric cars also need copper.

Even without EVs, the market isn’t producing enough newly mined copper to keep up. Global mined production totaled 20 million tons last year, versus demand of 23.8 million tons, according to data from the International Copper Study Group. The deficit typically gets filled through recycled metal or a drawdown of inventories. Moreover, auto-related demand hasn’t yet peaked, and major increases in mined supply can take years to develop.

Mining is risky. The industry has long been highly cyclical, with deep troughs and high peaks. The recent surge in the greenback presents headwinds to prices, which are dollar-denominated. Mines can also get disrupted by earthquakes, asset forfeiture, and environmental calamities.

Still, the shift from fossil-fuel-powered vehicles to electric-powered ones looks set to be a secular, long-term trend from which mining company shares should benefit. During the 2008 recession, usage of refined copper fell by less than 1%, or 148,000 tons, according to ICSG. However, usage of copper in EVs and associated hybrid vehicles is expected to add more than 200,000 tons to demand this year, which will rise steadily for the next decade, according to a 2017 study commissioned by the International Copper Association.

>>> WPP’s former CEO Martin Sorrell says he and Warren Buffett discussed Berkshi

WPP’s former CEO Martin Sorrell says he and Warren Buffett discussed Berkshire Hathaway takeover of WPP in 2012
03 NOV 2018
WPP’s [LON:WPP] former CEO Martin Sorrell says he and Warren Buffett discussed a takeover of the FTSE-100 advertising agency by Buffett’s investment vehicle Berkshire Hathaway in 2012, The Times reported. The report quoted Sorrell, who said that Buffett, in a “brief conversation,” had offered 925p per share for WPP.
Sorrell said Buffett had been “really interested” in acquiring WPP. However, the talks came to nothing as Sorrell and Buffett could not agree on a valuation, the item said.
WPP’s share price closed 20.8p up at 913.8p in London on Friday, 2 November, giving the company a market capitalisation of GBP 11.53bn (EUR 13.13bn).
Background:
A Daily Telegraph report on 25 October said WPP had hired the investment bank Goldman Sachs to advise on a sale of its Kantar market research arm. The report did not cite a source for the information.
A Wall Street Journal report on 25 October also said WPP was looking for a buyer for Kantar, citing people familiar with the matter for the information.

>>> Week-In-Review: Stocks Stage Rebound Following October Sell-Off

Week-In-Review: Stocks Stage Rebound Following October Sell-Off

The S&P 500 staged a rebound effort this week, tallying a 2.4% weekly gain. The continued expectation that the market was due for a bounce-back after last month's sell-off, compounded with mostly upbeat earnings and easing trade tensions underpinned the rally. As for the other major averages, the blue-chip Dow Jones Industrial Average gained 2.4%, the tech-sensitive Nasdaq Composite gained 2.7%, and the small-cap Russell 2000 gained 4.3%.

Cyclical sectors were largely the best-performing groups this week, with the lightly-weighted materials sector (+6.1%) and the heavily-weighted financials (+4.4%) sectors leading the advance. The consumer discretionary sector (+4.0%) also had a notable gain. On the downside, utilities was the only group to settle in the red, losing 0.6%.

U.S.-China trade tensions eased this week, with U.S. President Trump saying that he had a "long and very good conversation" with China's President Xi, adding that the two leaders will be getting together at the upcoming G-20 summit in Argentina. There were some conflicting reports as to whether Mr. Trump has asked his cabinet to begin drafting a trade deal, but the president did say he thinks a deal will eventually be reached.

On the earnings front, Facebook's (FB) third quarter report was "good enough" to temper negativity surrounding the stock, helping to ease growth-related worries. Apple (AAPL), on the other hand, raised some red flags after forecasting softer-than-expected revenue guidance for the holiday quarter and announcing that it will no longer provide unit-sales data for the iPhone, iPad, and Mac.

Other notable companies to report earnings this week included Pfizer (PFE), Coca-Cola (KO), Chevron (CVX), Exxon Mobil (XOM), General Motors (GM), eBay (EBAY), T-Mobile US (TMUS), DowDuPont (DWDP), and Starbucks (SBUX), all of which beat estimates. Conversely, results from General Electric (GE), Kellogg (K), Spotify (SPOT), and Wayfair (W) came in below consensus.

In M&A news, IBM (IBM) acquired Red Hat (RHT) over the weekend for an all-cash offer of $190 per share; that represents a 63% premium over Red Hat's October 26 closing price.

Highlighting this week's batch of economic data was the Employment Situation report for October. Nonfarm payrolls increased by 250,000, higher than the Briefing.com consensus of 190,000, while average hourly earnings increased 0.2% as expected. The unemployment rate remained at a nearly 50-year low of 3.7%. The key takeaway from the report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path. The U.S. Federal Reserve will be meeting next week, but no rate hike is expected until December.

Overseas, European and Asian stocks rose with Wall Street this week. In Germany, Chancellor Angela Merkel announced that she won't be seeking re-election as head of the CDU, following disappointing results for her party in a regional election. Her plan, however, is to remain Chancellor until 2021. Meanwhile, the Bank of England and the Bank of Japan released their latest policy decisions, keeping interest rates unchanged.

>>> US Close Dow -0.43% S&P -0.53% Nasdaq -1.03% Russell +0.19%


Closing Market Summary: Apple, Conflicting Trade News Drag Market Lower

Stocks fell on Friday following conflicting U.S.-China trade reports and softer-than-expected sales guidance from Apple (AAPL 207.48, -14.74, -6.6%). Futures rallied overnight on a Bloomberg report indicating U.S. President Trump asked his cabinet to draft a trade deal, but stocks eventually fell into negative territory after White House officials denied the report.

The S&P 500 lost 0.6%, the Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. Small caps outperformed, with the Russell 2000 adding 0.2%. All four major indices closed solidly higher for the week, adding between 2.4% and 4.3% apiece.

Director of the United States National Economic Council Larry Kudlow confirmed in a CNBC interview that the cabinet was not asked by President Trump to draw up a trade plan for China. Later, as stocks traded at session lows, President Trump reiterated his belief to reporters that the U.S. will reach a trade deal with China. This led stocks to cut their losses in late afternoon trading.

In earnings, Apple raised some red flags after forecasting weaker-than-expected sales for the holiday quarter and announcing it will no longer provide unit-sales data for the iPhone, iPad, and Mac moving forward. The company did beat both top and bottom line estimates though.

On the other hand, energy Dow components Exxon Mobil (XOM 81.95, +1.28, +1.6%) and Chevron (CVX 114.73, +3.56, +3.2%) rose after both reported above-consensus earnings. The energy sector showed relative strength, but still lost 0.1%. On a related note, WTI crude extended its recent downward trend, losing 0.9% to $63.20/bbl and reaching its lowest level since April.

Highlighting Friday's batch of economic data was the influential Employment Situation report for October, which showed a nonfarm payrolls increase of 250,000, higher than the Briefing.com consensus of 190,000. Also, as expected, average hourly earnings increased 0.2%, and the unemployment rate remained at 3.7%.

In short, the strong jobs report validated labor market trends that will keep the Federal Reserve on a tightening path. The CME FedWatch Tool indicated a 80.7% chance of another Fed rate hike in December, up from a 74.5% chance the previous day. The Fed will meet next week, but no rate hike is expected.

Treasuries sold-off with equities on Friday, pushing yields notably higher across the curve. The Fed-sensitive 2-yr yield and benchmark 10-yr yield spiked seven basis points each to 2.91% and 3.21%, respectively, compared to 2.81% and 3.08% yields last week. Also, the U.S. Dollar Index added 0.2% to 96.48.

Reviewing Friday's economic data, which included the Employment Situation report for October, the Trade Balance report for September, and the Factory Orders report for September:

  • October nonfarm payrolls increased by 250,000 while the consensus expected an increase of 190,000. The prior month's increase was revised to 118,000 from 134,000. Nonfarm private payrolls rose by 246,000 while the Briefing.com consensus expected an increase of 185,000. The previous month's increase was unrevised at 121,000. Average hourly earnings increased 0.2% (consensus +0.2%), while the previous month's increase was unrevised at 0.3%. The average workweek was reported at 34.5 (consensus 34.5). The unemployment rate remained at 3.7% in October (consensus 3.7%).
    • The key takeaway from the October employment report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path
  • The Trade Balance Report for September showed a widening in the trade deficit to $54.0 billion (consensus -$53.4B) from a downwardly revised $53.3 billion (from -$53.2 billion) in August.
    • The key takeaway from the report is the same as last month in that it has yet to confirm the tariff actions are succeeding in cutting the trade deficit with China specifically and in general.
  • Factory orders increased 0.7% in September (consensus +0.4%) following an upwardly revised 2.6% increase (from +2.3%) in August. Excluding transportation, orders were up 0.4% for the second straight month.
    • The key takeaway from the report was the understanding that shipments of nondefense capital goods excluding aircraft -- the component that factors into GDP forecasts -- declined for the second straight month.

Looking ahead, investors will receive the ISM Non-Manufacturing Index for October on Monday.

  • Nasdaq Composite +6.6% YTD
  • Dow Jones Industrial Average +2.2% YTD
  • S&P 500 +1.9% YTD
  • Russell 2000 +0.8% YTD