All About the Dollar

Client Talking Points

YEN

One way to get the US Dollar right is to get the USD/YEN pair right. We made a call to re-short Yens at 101.21 on Friday, as that was immediate-term TRADE resistance; no support to 103.66, then 107.11; Yen down = Weimar Nikkei up too. Bottom line: Getting the USD right remains critical.

DAX

We saw a big move in European Equities this morning, led by the majors (FTSE +1.5% and DAX +1.2%). The immediate-term TRADE line for the DAX that matters to me is 8398, and its back above that now – no resistance to 8546.

UST 10YR

Treasury yields are continuing to track US jobless claims like a glove (pro growth signal with bullish momentum); 2.04% on the 10yr this morning widens the Yield Spread (10s minus 2s) to +179bps wide (new 3 month highs). That is powering the Financials (XLF) higher, up +5.5% for May alone.

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

"Gold has been considering an end to QE for 5 months #study"

@KeithMcCullough

QUOTE OF THE DAY

“A coach is someone who can give correction without causing resentment.” -John Wooden

STAT OF THE DAY

Mass layoffs in the U.S. (cuts involving 50 employees are more) are at the lowest level since June 2007.


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