Bernanke, Bernanke and Bernanke

Client Talking Points

Japan

Abe is finally acknowledging the increase in implied volatility in the JGB market. That’s new – which means it’s probably going to continue and the Japanese central planning duo of Abe/Aso are going to now have to jawbone 3 markets all at once – Weimar Nikkei, Yen, and JGBs – Godspeed with that. Nikkei rips another new high +1.6% to +51.5% YTD as the Yen hits a new low at 102.88. 

Copper

Get the dollar right, get commodities right. Copper up 1.2% (making a lower high here this morning) and Gold is trying to bounce again too – watching both very closely into and out of the Bernanke testimony; acknowledging economic gravity would be nice – that would give us a green light to do more of the same (buy Dollars, short commodities, short treasuries, buy consumption stocks, etc).

USD

#StrongDollar been front-running a subtle shift in Fed policy for months; US Dollar Index remains in a Bullish Formation with a risk range of $83.57-84.69; if Bernanke does the right thing today, shorting EUR/USD probably signals go to me today too; we’ll see; $1.30 big resistance there.

 

***We are obviously keeping a very close eye on Bernanke’s testimony today.  Good chance he panders to the Keynesian doves. What we expect him to do, and what he will likely do, remain on opposite ends of the spectrum. Meanwhile, we had all-time SPY highs in the USA again yesterday – housing data, Bernanke testimony, and jobless claims all on our 48 hour radar screen.

Asset Allocation

CASH 36% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% 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.  

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

If u feel better going to bed thinking about how many people like u vs how many wins u have, I want to play against u @keithmccullough

QUOTE OF THE DAY

“I may be crazy, but it keeps me from going insane.” – Waylon Jennings

STAT OF THE DAY

In an Internet minute there are 6 million Facebook views, 2+ million search queries in Google, 1.3 million video views and 100,000 new tweets on Twitter.



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