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.
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.
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.
Asset Allocation
| CASH | 36% | US EQUITIES | 18% | |
| INTL EQUITIES | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 28% |
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.