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Client Talking Points

JAPAN

The certified central planning gong show continues as this little critter called volatility enters the matrix for #WeimarNikkei bulls. Yen strengthens toward 100 with 10yr JGBs rallying to 0.88% (down 4bps). Nikkei tumbles -5.2%;  overnight, down -13% in the last week. Happy month end.

OIL

With the USD/YEN oversold, Gold is overbought, and Oil turns south first – this is what US consumption #GrowthAccelerating bulls want to see. Brent Oil is -8% YTD, but we haven’t seen bulls capitulate like I think they did in Gold. Failing at $103.98 TRADE resistance helps the bear case.

USD

Holding all lines of support on the US Dollar Index during this week’s correction. Higher-lows and higher-highs is what we call healthy. EUR/USD looks like an interesting short again at 1.30. We’ll consider putting that on this morning after we see the river card (jobless claims).

 

Asset Allocation

CASH 30% US EQUITIES 22%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% 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

"We're short both the Yen and JGBs: I don't get asked why I'm not long Nikkei anymore"

@KeithMcCullough

QUOTE OF THE DAY

"I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one's strengths and weaknesses are." - Ray Dalio

STAT OF THE DAY

10,000,000: The estimated number of people who watch Netflix without paying a dime.