CLIENT TALKING POINTS
Currency Wars
Big moves on the currency front this morning. With Japan's finance minister and central bankers saying that their plan to debauch the Yen is unopposed and A-OK, more people know that further pain in the Yen is coming. It dropped -1% this morning overnight versus the US dollar to 99.12 - a new low. A lower Yen isn't just a mess for Japan, it's hurting Korea too, as evidenced by recent declines in the KOSPI index. Meanwhile, in China, the Yuan is floating high and dry, making a big move to the upside to 6.17 versus the dollar - a 19 year high! This is good for the Chinese consumer. Like the American consumer, they too can appreciate lower prices at the pump and grocery store.
Playing Ball
The US stock market has been all over the place this week and is constantly changing. We don't sit still when the market makes moves; we move along with it and adjust our risk levels accordingly. We remain bearish on commodities and bullish on consumption, which helps drive global growth. Trust us when we say that no American consumer is out there complaining about lower gas prices at the pump and cheaper food at the store. As far as the almighty S&P 500 goes, our immediate-term TRADE risk range is 1. We'll be keeping an eye on it today and if our process indicates we should be buying the SPX, then we'll buy it. For now, we're comfortable sitting on the sidelines waiting for our turn to trade.
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.
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.
HOLX
HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.
Asset Allocation
| CASH | 34% | US EQUITIES | 20% | |
| INTL EQUITIES | 15% | COMMODITIES | 0% | |
| FIXED INCOME | 6% | INTL CURRENCIES | 25% |
THREE FOR THE ROAD
TWEET OF THE DAY
"It's Japanese POMO time: BOJ OFFERS TO BUY 300B YEN IN DEBT LONGER THAN 10 YEARS" -@zerohedge
QUOTE OF THE DAY
"Well-timed silence hath more eloquence than speech." -Martin Fraquhar Tupper
STAT OF THE DAY
IBM reported a profit of $3.03 billion, or $2.70 a share, down from $3.07 billion, or $2.61 a share, a year earlier, missing expectations.
