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).
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 | 30% | US EQUITIES | 22% | |
| INTL EQUITIES | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 30% |
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.