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Client Talking Points

Gold Getting Crushed

Gold prices are dropping further and faster, down another 1.5% overnight, and down 25% since September. It’s getting close to our oversold signal. We’ve have crystal clear on the reasons why. Like 1982 when consensus didn’t think the US economy was recovering, it was actually recovering. Gold didn’t like #GrowthAccelerating 31 years ago, and it doesn’t like it today.

JGBs Again

We had one of the biggest moves in the JGB market in roughly a decade in the past week. We had a 30 basis point move higher, then overnight we had a 10 basis point drop to a yield of 0.82%. Machine tool orders were weaker, and consumer confidence was slightly lower in Japan. We’re watching JGBs closely here.

Asset Allocation

CASH 48% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

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.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 

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.

Three for the Road

TWEET OF THE DAY

“Some of these mining execs are straight out of Atlas Shrugged. Horrible for shareholders.” -- @KeithMcCullough

QUOTE OF THE DAY

“It’s hard to beat the person who never gives up.” – Babe Ruth

STAT OF THE DAY

45-3, the Miami Heat’s record in their last 48 games following their playoff series victory over Chicago last night