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(B)(N) FDX FedEx Corporation

March 21, 2013

Drama. The high-flying FedEx Corporation was rerouted yesterday by anxious investors who appear to be disturbed that the last quarterly earnings are down (31%) from the previous quarter and that the full year earnings might come in below their expectations, or, at least, somebody’s expectations (The Associated Press, March 20, 2013, FedEx reports 31 per cent drop in quarterly profit, sees full-year earnings below expectations). Without a map and compass of their own, how are investors to know where they are and what’s up or down, right or left? Twelve million shares changed hands yesterday, which is four times the usual daily volume (including the day before and all of last week, when everything seemed OK), and the stock price dropped from $106 yesterday to $99 today and a loss of market capitalization of $2.2 billion.

Is it over? Will investors step in today and start buying or will even more investors decide to sell or take profits if they’ve held the stock long enough? We don’t know, but the company has been in the Perpetual Bond™ since $92 in December (please see Exhibit 1 below) and it’s still in the Perpetual Bond™ now with the ambient but distressed stock prices still trading above the price of risk, the Risk Price (SF), of $93 which could be as high as $96 reflecting the strongest balance sheet in years.

Our estimate of the downside due to the demonstrated stock price volatility is minus ($6) and we can protect ourselves from investor anxiety by buying the July put at $98 for $4 per share today and partially offsetting the cost of that by selling or shorting the July call at $105 for $2.20 per share so that for a net cost of $1.80 today ($4.00 less $1.20), we will have no less than $98 in July and no more than $105. We can also “work” our options as more information becomes available and continue to collect our dividends of $0.56 per share per quarter (yielding only 0.56% at the present time) while we think about what to do, and avoid the really quick “thinkers” who might be on the road today.

Exhibit 1: (B)(N) FDX FedEx Corporation – Risk Price Chart

(B)(N) FDX FedEx Corporation

FedEx Corporation will continue to leverage and extend the FedEx brand and provide its customers with convenient and seamless access to its entire portfolio of integrated services.

(Please Click on the Chart to make it larger if required.)

The Risk Price (SF) is our best estimate of the “price of risk” which is the least stock price at which investors have demonstrated a determination to buy and hold the stock at prices above the price of risk. It is also the stock price at which a Nash Equilibrium is established between “risk seeking” and “risk averse” investors. Please see our Posts, The Price of Risk, August 2012, and The Nash Equilibrium & Its Stock Price, October 2012, for more information.

It’s because we know “where we are”, so to speak, and are “risk averse” – we want to keep our money and obtain a hopeful but not necessarily guaranteed return above the rate of inflation – that we can buy and hold with confidence whereas “risk seeking” investors are typically driven by transient factors (such as an earnings report) and “statistics” which can be said to predict the past but seldom now. They could be right but when will that be?

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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