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Client Talking Points

Weimar Nikkei

The Nikkei jumped another 1.5% overnight, and Japanese equities are up 77.3% since November. Wow. That’s what happens a country debases its currency. Yields on Japanese government bonds (JGBs) rose 5 basis points overnight, and now are above Keith’s long-term TAIL risk line of 0.81% to 0.85%.

Gold and Silver

Silver prices are down 4% this morning, the biggest percentage move this morning. Gold itself is immediate-term oversold now that consensus is starting to lean on the short side (74,432 short contracts in the CFTC futures/options data this morning is the highest since the data has been available in 2006.)

Asset Allocation

CASH 39% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

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

As volatility seeps into the Japanese government bond complex, the game of interconnected risk rolls on.”-- @KeithMcCullough

QUOTE OF THE DAY

“If you’re going through hell, keep going.” – Winston Churchill

STAT OF THE DAY

$1.1 billion, the price that Yahoo! Reportedly is paying for Tumblr