Buckle Your Seatbelt

Client Talking Points

YEN

There's been a big mean reversion blowout to my intermediate-term TREND line in USD/YEN. This level matters, big time. The intermediate-term TREND line is 95.66. This is a new risk to manage on a much more important duration than what I have been working on for the last 6 months (just risk managing the immediate-term TRADE range of #StrongDollar vs Burning Yen). Japanese Finance Minister Aso didn’t intervene overnight, so that’s what’s getting you this last push. If the Yen doesn’t stop going up from here, my model is going to be confused

USD

TREND support for USD Index is 81.34. One thing that can get the dollar to bounce is a blowout jobs report this morning. It's not clear what consensus thinks about the report into the print, as that seems to change every 3 hours of trading. The last 3 hours yesterday gave us a nice rip. 1624 or higher in the SP500 puts the 2013 bears under siege again. I think both 10yr UST yields and USD will be going up at the same time if that happens.

10YR UST

2.02-2.22% is the immediate-term risk range for the 10yr. So at 2.05%, we’re testing the low end of that range into the jobs print. That suggests consensus expectations remain bearish on growth. A blast toward 2.22% in a day would be interesting, but not surprising. We have no edge on the jobs report, and never will. Weekly rolling NSA Jobless Claims is what matters in our model most.

Asset Allocation

CASH 20% US EQUITIES 31%
INTL EQUITIES 19% 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 don’t pretend to have an edge on the payroll number - anyone who does is paid to pretend #NFP

@KeithMcCullough

QUOTE OF THE DAY

"The best thing one can do when it is raining is to let it rain."

- Henry Wadsworth Longfellow

STAT OF THE DAY

According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.


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