Hedgeye’s Early Look: “The Entitlement is Gone”

Howard Penney shares his perspective as to why a prestigious business card means little these days, and how it’s all about owning the intellectual debate.
Wall Street is a small place. Living and working in the New York metropolitan area I’m constantly running into people that have worked at various bulge bracket Wall Street firms over the years. After talking with them, the reaction is always the same “I’m so glad I don’t work there anymore,” or “I can’t believe what has happened to XYZ Company.” To digress… the thought of some sovereign fund running one of these companies might be good news in the short run, but disastrous long term. I’m probably not going out on a limb in saying that most Wall Street executives don’t want to work for the government of ….. Nor does a U.S. issuer want to be advised by the government of ….!

Yesterday evening, I had such an encounter with an ex-Lehman salesman. We spent 90 minutes on the sidelines of our daughters’ high school soccer game talking shop, but more importantly watching the girls crush Mountain Lakes 6-0 and yes, my daughter Caroline scored the winning goal – the first one. We both concluded that being ex-bulge bracket employees has its rewards – it has freed us up to sell our stock, which in the case of some fine people I know, is worthless now.

When I first started at Morgan Stanly in the late 1980’s, it was a big benefit to have the Morgan name on my business card. The doors that would open just because I worked at “Morgan Stanley” were amazing. I always joked that a janitor could say he worked at Morgan and people would be impressed. I have not worked there for the past eight years, but I don’t get the feeling that the same entitlement is there today. Of course, the company du jour is Lehman. Previously it was Bear Stearns. In a perverse way, I could argue that some Bear employees were lucky; their Firm was the first to fail. The employees of the second to fail will not be so lucky. Where are they going to go? Goldman/Morgan/Merrill? Not likely! B of A/Wachovia? Maybe some of them… Where are the empty seats?

This is all leading to an investable theme – Wall Street unemployment. Not a new theme, but one that is not going away nor has it completely played itself out (Brian has been talking about the impact here on key players in retail). Profiting from other people’s agony is not pleasant, but we are in the business of generating ideas for our clients. Yesterday in our morning meeting we talked about companies like Tiffany, and others exposed to major Wall Street and international tourism markets (which should take a hit as the dollar strengthens). From where I sit, the whole world can do nothing but afford to eat at McDonald’s – Those same-store sales numbers are so good it can’t be true!

Everything we do at Research Edge is about making clients money – everything! In this environment, without that we don’t have a jobs. No one can rely on the implied entitlement awarded by a Morgan/Goldman/Merrill business card. We need to be right!

We are all experienced, successful analyst/PMs that are coming together to form a business model, that will hopefully improve our collective investment process. Nobody in this world is ever done learning, and if we can make you think – about a company, industry, or macro theme -- then we have both won. More importantly, we don’t have a sense of entitlement, we take nothing for granted.

Function in disaster and finish in style!

Howard Penney
Managing Director

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