Client Talking Points
We've got a nice yield rip alongside very bullish US consumer confidence, jobless claims, and housing data as of late. Consensus says don’t fight the Fed; I say don’t fight the data. Bernanke is way behind the curve now. +187bps wide and widening on the 10s/2s spread makes the Financials a happy hunting ground to buy on red. We bought NSM back yesterday; 2.17% 10yr Yield, overbought up here.
Russia remains one of our top macro short ideas next to Yens and JGBs right now, so this was a position we didn’t cover on red last week. RTSI -2.2% this morning leads losers in a weak European Equity session. Russia is back down double digits (-10.3% YTD) and should continue to weaken, provided that the PetroDollar trade of the last decade remains under #StrongDollar attack.
It's been a while since Hong Kong flashed the negative divergence of the Asian session, but here it is. Despite China holding its gains, Hang Seng down -1.6%, breaking my immediate-term TRADE line of 22,796 support (that’s new, so we’ll watch that). Meanwhile, Philippines +1.6% (we’re long) led gainers in Asia; KOSPI +0.4%, back to bullish TRADE and TREND.
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Top Long Ideas
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 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.
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
"consensus says don’t fight the Fed; I say don’t fight the data – Bernanke way behind the curve now" @KeithMcCullough
QUOTE OF THE DAY
“Somewhere in the world someone is training when you are not. When you race him, he will win.” -Tom Fleming
STAT OF THE DAY
According to Gallup, three-quarters of U.S. adult workers say they will continue working past retirement age, with 40% saying they will do so because they want to, and 35% because they will have to.