CLIENT TALKING POINTS
USTs
We witnessed no selloff in long-term Treasuries yesterday when US stocks went red. The rotation here is still very early as one of the most bullish net long positions in all of the CFTC data (futures/options) 3 weeks ago was in the long bond (and short SPY); 1.96% and looking like 2.02% is very easy to achieve if Bernanke acknowledges economic gravity in his testimony tomorrow. (Fed’s Evans just did)
Gold
Public enemy #1 for gold is Bernanke laying off QE5. That is key. Closely behind that is bond yields rising. The “End of the World” trade remains under pressure after an unconvincing 1-day bear market bounce yesterday to lower highs. I have another lower-low of $1339/oz support in play now.
JGBs
We are witnessing some solid follow through in one of the world’s most asymmetric moves off all-time lows (long-term JGB yields); 10yr JGB yield up another full 5bps this morning to 0.89% (+31bps in the last month) after breaking out above my TAIL risk line of 0.81% last week. We’re short.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 38% | US EQUITIES | 18% | |
| INTL EQUITIES | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 26% |
THREE FOR THE ROAD
TWEET OF THE DAY
“My research team is crushing it on the long side right now – world class team, on a run.” @KeithMcCullough
QUOTE OF THE DAY
“The only man who never makes a mistake is the man who never does anything.” – Teddy Roosevelt
STAT OF THE DAY
$253,000,000 – the amount of money 26 year old Tumblr CEO David Karp will receive from Yahoo’s $1.1B acquisition; $278,000,000 – the amount of money this weekend’s lone Powerball winner will walk away with after taxes.
