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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.

Asset Allocation

CASH 38% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 26%

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

“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.