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Client Talking Points

Deflation Continues

The great commodity bubble brought forth by the monetary policy of the Federal Reserve has popped. Since the "Bernanke Top" of mid-September, commodity prices have come down considerably across the board. The CRB Commodity Index, which measures 19 different commodities, hit a fresh year-to-date low yesterday and can continue that trend quite easily. The fall of oil and ag prices drastically drags down markets (Russia, Korea, etc.) highly levered to commodity prices.

Pain in Spain

Spain continues to drag the European Union down with a slew of bad economic data. No wonder investors are nervous - the country just reported an unemployment rate of 27.2%. That's more than 1 in 4 people out of work. Whether that's by choice of their own is up to the imagination. So what's next? The ECB will likely cut rates again, giving global markets a shot of adrenaline that's welcomed by everyone.

Asset Allocation

CASH 23% US EQUITIES 25%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

"$LINE $LNCO probably closes up today, just because nothing about how these stocks act makes sense to me" -@HedgeyeENERGY

QUOTE OF THE DAY

"I have long been of the opinion that if work were such a splendid thing the rich would have kept more of it for themselves." -Bruce Grocott

STAT OF THE DAY

US Initial Jobless Claims fell 16,000 to 339,000 last week, the lowest level in 5 years.