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Client Talking Points

The 10-Year Fight

Treasuries are widely held and people put on massive positions in the 10-year as a flight to safety or whatever you feel like calling it. The point  is that at 1.75% yield, more people are hooked on being safe then on getting out there and buying growth directly via XLY or XLP. We'll see what happens with the 10-year this week.

Burning The Yen

Tough cookies for the Japanese Yen yet again. The country's currency will continue to be debauched. 99.36 vs the USD after we saw the USD/YEN cross test and fail at our 1st line of 97.11 TRADE support; no legitimate resistance (or policy shift to stop it) for that cross to 110 according to KM. Better watch out and you better not complain about FXY holdings. 

Asset Allocation

CASH 18% US EQUITIES 26%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 30%

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

"Don't whine about the market you want; risk manage the one you have" -@KeithMcCullough

QUOTE OF THE DAY

"People who like this sort of thing will find this the sort of thing they like." -Abraham Lincoln

STAT OF THE DAY

S&P 500 is up +13.3% year-to-date - how higher can the market go?