Two important facts in these changing economic times:
Fact number one: The higher-end crowd is making money again. The economy has improved, Wall Street bonuses are back in vogue. Luxury buyers are loosening their purse strings once more.
Fact number two: There is an increasing disparity between low-income earners and high-income earners, not just in America, but throughout industrialized countries. Luxury retailers have done an excellent job targeting their brands to the higher-end market and the luxury-item buyers are very loyal to the brand of their preference.
This morning comes news that LVMH Moet Hennessy Louis Vuitton SA is buying the world’s third-largest jeweler, Bulgari, for about $5.2 billion. LVMH already owns these brands: “Louis Vuitton,” “Hennessy,” “Donna Karan,” and “Glenmorangie” and 20% of Hermes International among others.
My readers might think these luxury brands will be the first to face difficult times if the economy starts to contract again, but America is only a small market for these high-end luxury brands. Asia is the biggest market for these brands and the rising upper-class in Asia just “eats up” the luxury brands.
Milan-based luxury retailer Prada SpA announced this morning that it would be going public…raising $2.0 billion on the Hong Kong Stock Exchange (HKSE). Hence, here you have an Italian iconic brand deciding to list on the HKSE as opposed to a European stock exchange. Why? Because Hong Kong is closer to Prada’s fastest growing sales region, Asia.
LVMH Moet Hennessy Louis Vuitton SA stock was trading at the equivalent of only $40.00 U.S. a share in January of 2010. Just 15 months later, it trades at $111.00 U.S. a share. At the rate this company is expanding, it might own the luxury brand market soon. Keep an eye on this stock.
Michael’s Personal Notes:
I rant so much about owning the precious metals stocks, my colleagues think that readers will be opting-out of PROFIT CONFIDENTIAL as they will eventually get tired of being beaten over the head by my screams to get into the precious metals. I beg to differ. The precious metal bull market is only in Phase II. The most spectacular profits still lie ahead and my readers’ biggest gains from the precious metals play have yet to come.
This morning, silver hit a new 31-year high, up three percent alone today. Last week marked the fifth consecutive week that gold bullion prices rose. The precious metals are rising as I predicted; gold and silver stocks have been the biggest winners of the year so far.
“Oil, Gold Climb on Libya Fighting; Greek Debt Risk Increases,” flashed the headline on Bloomberg this morning. I don’t buy it and I do not want my readers to buy it either. The media always tries to find something to attribute the rally in metal prices to, but they do not understand the real reason gold is rising…and it all comes down to a couple of world economic events:
Inflation is rising. Last week, gas prices hit $4.00 a gallon in California and $8.00 a gallon in the United Kingdom. Gold rises during inflationary times. The U.S. dollar is close to breaking below major support levels against other popular world currencies. If the U.S. dollar continues to fall, the viability of the greenback as the world’s official world reserve currency will come into question. And only gold can replace the U.S. dollar as the reserve currency.
Where the Market Stands; Where it is Headed:
The Dow Jones Industrial Average opens this morning up 5.1% for the year. I still haven’t changed my opinion on the market: We are in the midst of a bear market rally that will bring stock prices even higher in the immediate term.
Short- to long-term, I’m bearish on stocks because of rising long-term interest rates, rising inflation, lack of action by the government to curtail spending, and the quiet devaluation of the greenback.
What He Said:
“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on consumer spending. And, in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi in PROFIT CONFIDENTIAL, February 25, 2008. By the end of 2008, the rest of the world was realizing that the recession would be much longer and deeper than most had realized.