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Old School Wall Street

“A good player plays where the puck is. A great hockey player plays where the puck is going to be.”

-Wayne Gretzky


Just over three years ago, we started Hedgeye with the philosophy that the research business should be transparent, accountable and trustworthy.   At the time, many of our Old School Wall Street critics derided us for naively entering the investment research business with a simple philosophy.  Needless to say, three years, forty five employees, and hundreds of clients later, Hedgeye isn’t such a novelty.  Neither are our core values.  


We’ve made a few enemies amongst the Old School Wall Street crowd over the course of the past few years, but we’ve made many more new friends, some of whom we are now honored to count as subscribers to our research.  Yesterday, it seems, we made a new enemy in Peter Boockvar, the Sales Trader /Equity Strategist from Miller Tabak.  Boockvar, it seems, is not so crazy about transparency.


At Hedgeye, we are fond of an expression called “YouTubing”. This expression means to analyze and, sometimes, critique, the public comments of politicians, executives, and market commentators.  “YouTubing” is not meant to be a personal attack, but rather a critique related to the substance of those views articulated.  In the Web 2.0 world, if you make public comments, you should expect to be “YouTubed”.  As a firm, we make many public comments, and fully expect to be held accountable to them.


Intraday yesterday Keith tweeted the following via @KeithMcCullough:


“If Boockvar is long Nikkei and short Yen here, now he knows why no one will ever give him money to manage”


This was in response to an appearance by Boockvar on CNBC yesterday, where he discussed his case for Japan. That video is here:


http://www.cnbc.com/id/15840232?video=3000010657&play=1  (if the link doesn’t open, copy and paste it into your browser)


A paraphrase from his appearance was:


“Japan is going to want to print their way out of this. Therefore you want to be long their equities, and short their currencies and short their bonds.”


It seems Boockvar’s thesis is that printing money will lead to increasing interest rates in Japan, which will lead to an increase in Japanese equities.  In fact, he also made a bullish call on Japanese equities on December 31st, 2010 on CNBC, which he articulated in this clip:


http://seekingalpha.com/article/244389-peter-boockvar-says-buy-japanese-equities (if the link doesn’t open, copy and paste it into your browser)


Thesis drift, anyone?


Needless to say, Boockvar’s response to Keith’s public critique was less than hospitable and was topped off by calling Keith some not so nice names in a private communication.  Boockvar’s use of schoolyard epithets does nothing to enhance his professional standing in our eyes.  Now, we don’t mean to pick on Boockvar, he just typifies a gang we call Old School Wall Street, and this is just the latest example of how rattled they get by real-time accountability.  Twitter on!


Since articulating a coherent view in 140 letters on Twitter can be challenging, we want to restate our position on Japan. Our bearish view on Japan is something we began articulating in Q4 of 2010, in a thesis called Japan’s Jugular.   A key highlight of this thesis is, in contrast to Boockvar’s view, that printing money will have just the opposite impact.  It will lead to increased debt, slowing growth, and declining equity prices.  In fact, in 18 years of Keynesian experimentation, from 1992 to 2010, Japan had on average +0.85% year-over-year GDP growth.  Over the same period, the Nikkei 225 returned -55%  No, Mr. Boockvar, this time is not different . . .


Naturally any good contrarian is looking for a buying opportunity given the dramatic sell off in Japan over the past few days.  We would caution against this, despite the relief rally this morning, for two reasons:

  1. Unknown unknowns – The derivative impact of the earthquake has been damage to the nuclear power infrastructure in Japan.  At this point, there is limited information from which to evaluate the real impact of this damage, in particular at the Fukushima Dai-Ichi plant, where this morning it was reported that a second reactor may have ruptured.  The point is, we have no idea how this will end and be resolved.
  2. Known knowns: The Japanese economy reached a negative inflection point last year when its pension plan began selling assets to fund pension obligations.  This highlights two key components of our negative thesis on Japan: demographics and debt.  Japan has both the oldest population in the world, with ~22.7% of the population 65 years of age or older, and is the most indebted developed nation, with a debt-to-GDP ratio of 205%+.  The risk is that this tragedy only accelerates negative growth in Japan due to an inflexibility created from almost two decades of Keynesian policies.

Of course, there will be an opportunity to get long the Japanese recovery trade eventually. As always, duration matters; however, after the January 17, 1995 Kobe earthquake, Japanese equities lost (-24.7%) before bottoming out nearly six months later on July 3. The Nikkei 225 did not break even until nearly 11 months later on December 7 of that year.


Now a public service message to Peter Boockvar and Friends:


This is the new Wall Street where accountability and transparency matters.  While your long term track record is cool, let’s just start with the last three years.  For the record, every single position we’ve take in the Hedgeye Portfolio since inception is on our website for the world to see.  We encourage you to do the same.


Next time you want to challenge someone to head down to the schoolyard for disagreeing with your thesis, add me to that list.  My email is .  My friends call me Big Alberta, and I’ll be waiting at the puck for you.


Keep your head up and stick on the ice,


Daryl G. Jones


Old School Wall Street - Chart of the Day


Old School Wall Street - Virtual Portfolio


CNBC VIDEO: Investing Post Japan Earthquake

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.


Notable news items and price action over the past twenty-four hours.

  • MRT said this morning that it may sell the company as part of an effort to enhance shareholder value.  The two largest shareholders of the company, affiliates of Castle Harlan, Inc., and Laurel Crown Partners LLC, authorized the move.
  • PEET shares gained post-market on a story from DealReporter stating that the company has seen takeover interest including from SBUX.  As we wrote in our 2/15 note, “PEET – WHY SBUX SHOULD BUY PEET”, we believe such a transaction would make sense for Starbucks.
  • SBUX said 100 stores in Japan were closed
  • CPKI was raised to Buy from Neutral at Buckingham Research.
  • CPKI gained 4.5% on accelerating volume.
  • CBRL was raised to Buy from Hold at Standpoint Research.
  • CBRL gained 1.2% yesterday, also on accelerating volume.
  • JACK, THI, and KKD all declined on accelerating volume.




Howard Penney

Managing Director

CHART OF THE DAY: The Keynesian Endgame



CHART OF THE DAY: The Keynesian Endgame -  chart


Business as usual




  • Gaming revenue for 2010 grew by 67.9% to HK$57.2BN and Adjusted EBITDA grew 113.2% to HK$4.8BN
    • VIP gaming operations revenue: HK$38.9BN
    • Mass table revenue: HK$17.2BN
    • Slot revenue: HK$1.2BN
  • Grand Lisboa Adjusted EBITDA was HK$2.6BN in 2010; and had an Adjusted EBITDA margin of 16.4% based on HK GAAP or 26.4% based on US GAAP calculations
  • "Casino Grand Lisboa’s daily net-win per mass market gaming table increased by 23.5%, net win per VIP table increased by 7.8% and net-win per slot machine increased by 12.2%."
  • "New VIP gaming areas opened on the 38th and 39th floors of the Grand Lisboa in September 2010 and the new Grand Lotus gaming area for premium mass market customers opened in February 2011."
  • 4Q2010 gaming revenue grew 19.3% sequentially
  • "SJM continued to lead in market share of the Macau casino gaming market, with 40.1% of mass market table gaming revenue and 29.5% of VIP gaming revenue, and increased its overall market share to 31.3% from 29.4% in 2009"
  • Cash and equivalents at YE were HK$15.3BN
  • The Board recommended the payment of a final dividend of HK30 cents per ordinary share. If approved, the dividend is expected to be paid on May 18, 2011 to the shareholders of the Company whose names appear on the register of members of the Company on 29 April 2011


  • Especially pleased that they exceeded that of the Macau market in 2010
  • New casino Oceanus has ramped up nicely and new third party model is working well
  • 2011 has started off strongly. Launched new floors at Grand Lisboa
  • Cotai: Currently awaiting the formalization of their license.  They plan on building an integrated resort that will include a state of the art Mass Casino and non gaming facilities
  • Ho family dispute: reiterated that there will be no impact on SJM holdings and no change in management


  • Will there be any change in the Board of Director?
    • No - the number of board members will stay the same
  • Cotai timeline? Land grant must be given first. Once that is approved then the final engineering drawing get done. Traditionally the government lets the market decide who gets to develop first depending on each concessionaire's ability to get financing.  Won't start building until they have an understanding on where the table cap will go in 2 years from now
  • Cost of the project?  There is a shortage of unskilled labor which has caused the minimum wage to rise.  On the technical side - there is also some pressure.  There hasn't been as much pressure on the gaming employee side.  They do have a 5% salary inflation pay raise in place to retain good people.
  • Is 4Q2010 EBITDA a good run rate for 2011 EBITDA?
    • There are no one time items in the 4Q... EBITDA was just a hair above 3Q EBITDA.  So yes its a good base
  • Oceanus: began the year with 269 tables, today its running with a 172 tables and 27 tables at the Jai Lai.  They are doing about 2.5x per table of what they were doing - part of that is due to trimming tables.
    • There are a lot of shared costs between Grand Lisbao and Oceanus which is why they don't break out EBITDA between the properties
  • The premium Mass has been very strong for the first 2 months of 2011 at the Grand Lisboa in 2011 but the hold rate has been very soft as well in VIP.
  • Cotai - they would not raise cash from new stock issuances or convert sales.  They do have over HK$15BN of cash on hand which would take a while to draw down
  • Why was the 4Q EBITDA margin down? There was a greater mix of VIP than Mass. High 3%-4% range is a good range for margin
  • There has been a lot of work and some construction disruption at the Lisboa
  • Don't anticipate that the opening of the Galaxy World will have a large impact on their market share. They are going to be doing a pre-emptive campaign in advance of the Galaxy opening.
  • Are they hitting capacity constraints at Grand Lisboa?
    • During the big holiday periods they are capacity constrained on the main gaming floor but have managed to migrate a lot of that traffic to the second floor.
    • If they add tables they need to remove tables from other properties
  • Any impact from the Japan earthquake?
    • they have very few Japanese players at their casinos

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