Why Vladimir Putin Is More ‘Judo Master’ Than Chess Player

“Vladimir Putin firmly believes that martial arts teach such knowledge, abilities and skills that every politician needs. Putin believes that judo trains both your body and your mind. It develops strength, reaction, endurance, teaches self-control, the ability to feel the moment, to see the opponent’s strengths and weaknesses, to strive for the best results and constantly work on improving oneself.”

- From the Kremlin’s website on Putin’s “Interests”


It’s no secret to any student of Russian President Vladimir Putin. The man loves Judo.


Putin started practicing Judo when he was 11 years old and Nikita Khrushchev was still at the top of the Soviet totem pole. He holds a black belt in the sport, is an honorary president of the European Judo Union and has even written a book on the subject, “Judo: History, Theory, Practice.” Last year he was ceremoniously awarded a ninth “Dan” (out of 10) in Taekwondo (for comparison’s sake, that’s higher than Chuck Norris’ eight Dan achievement), and recently attended the World Judo Championship in the southern Urals to view the Russian men’s team take second place to Japan.

Why Vladimir Putin Is More ‘Judo Master’ Than Chess Player - 1. putin


Oftentimes, when commentators try to size up state actors and their influence on geopolitics, the discussion quickly turns to the metaphor of a “chess game” – and the current Russia vs. Ukraine (and the West) conflict appears no different (witness this week’s cover of The Economist with Putin standing on a giant chessboard).


We think the metaphor of a chess match misses the mark in Putin’s case.  We think the metaphor of a Judo fighter is more apt in capturing the essence and approach of Putin since he joined the KGB in 1975.


Moreover, like any great Judo competitor, we fully expect Putin to continue to play to his strength by exploiting Europe’s reliance on Russian oil and gas and leveraging his popular support and Cult of Personality he’s built at home. 


As news headlines fly back and forth on talks of cease fires and additional sanctions between Russia, Ukraine, and the West, we fully expect Putin’s focus to remain squarely on Ukraine, THE key region where he derives strategic influence over the West. We further expect his meddling to continue roiling global markets throughout the year (Note: on a year-to-date basis the Russian equity market RTSI is far and away the worst performing major global equity market, down nearly -14%).


Gaming Influence


If there ever were a “grand” strategy vis-à-vis Ukraine, it has greatly morphed over recent months: Russia lost its Ukrainian puppet leader in Victor Yanukovych and Western sentiment towards Russia dramatically shifted after it annexed Crimea and participated (directly or indirectly depending on who you talk to) in the downing of the private airliner MH17 over Ukrainian territory.


Like a Judo fighter, Putin has the ability to pick his spots of attack. Advantageously, he has the luxury to take a defensive posture (let the opponent strike first) given his strong hand (energy assets).  Meanwhile, despite being compared to Hitler by British Prime Minister David Cameron, or claims that he’s is under the influence of Satan by an Orthodox Church official in Kiev this week, as Adam Gopnik writes in a New Yorker article titled Crimea and the Hysteria of History (March 7, 2014), Putin may in fact be behaving quite rationally as far as Russian history is concerned:  


“Russia, as ugly, provocative, and deserving of condemnation as its acts may be, seems to be behaving as Russia has always behaved, even long before the Bolsheviks arrived. Indeed, Russia is behaving as every regional power in the history of human regions has always behaved, maximizing its influence over its neighbors—in this case, a neighbor with a large chunk of its ethnic countrymen.”


Deriving Advantage


Since his early days in office, Putin has proactively cultivated a macho Cult of Personality, flexing his strength at home and abroad.   Look no further than the widely-circulated press photos of him shirtless on a horse in the wilderness some years back (see photo below) to more recent videos of Putin “scoring goals” amongst former and current professional hockey players. Putin has created a bravado and brawn which serves to throw off and intimidate opponents while also increasing his appeal at home. 

Why Vladimir Putin Is More ‘Judo Master’ Than Chess Player - 2. putin


Fresh off the pride of hosting the Olympic games in Sochi and the “success” of annexing Crimea, Putin’s popular support is now riding at all time highs. According to a Pew Poll, it stands at 83%! 

Why Vladimir Putin Is More ‘Judo Master’ Than Chess Player - 3. putin


Digging in deeper, Putin has been able to maintain high popular appeal throughout his time in office – and this despite popular uprisings that have toppled and challenged authoritarian regimes throughout North Africa and the Middle East over recent years.  


What’s been Putin’s edge to command such support and prevent uprisings at home?  As The New Yorker’s David Remnick, a long student of all things Russia, explains in a Letter From Moscow: Watching The Eclipse in The New Yorker (August 8 & 11, 2014):


“…Putin was able to do what Yeltsin had not: he won enormous popular support by paying salaries and pensions, eliminating budget deficits, and creating a growing urban middle class. It was hardly a secret that Putin also created his own oligarchy, with old Leningrad pals and colleagues from the security forces now running, and robbing, the state’s vast energy enterprises. This almost unimaginably corrupt set of arrangements, which came to be known as Kremlin, Inc., outraged nearly everyone, but the relative atmosphere of stability, in which tens of millions of Russians enjoyed a sense of economic well-being and private liberty, provided Putin with a kind of authoritarian legitimacy.”


Indeed, yet the risk appears in the ability to disguise a “sense of economic well-being and private liberty.”


Resource Legitimacy


Critically, Putin’s authoritarian legitimacy could not be solidified without the country’s resource legitimacy.  In what’s known as “Dutch Disease,” the country has relied squarely on its natural resources for economic growth at the expense of developing and diversifying the economy. Will this come home to roost?  Like any cycle, Russia may be able to disguise its decline over the medium term, but over the longer term—especially should oil prices abate—things get much more troublesome.   


Russia’s energy leverage over Europe clearly remains significant. The share of Russian gas as a percentage of EU imports has grown from 22% in 2010 to over 30% today. The Economist estimates that 50% of all gas that flows to the EU passes through Ukraine. For a refresher on demand at the country level, the NYTimes offers an illustrative graphic (see below):

Why Vladimir Putin Is More ‘Judo Master’ Than Chess Player - 4. putin


While the EU has made developments since periodic suspensions to Ukrainian gas delivery in 2006 and 2009 (for failure to pay incurred debts), they’ve not been significant enough to offset a Russian shutdown. As the chart shows, not only does the eastern bloc (highest = Estonia, Latvia, and Lithuania) have the majority of its consumption tied to Russia, but Netherlands has a 34% exposure, Germany 30%, and Italy 28%. No small potatoes.


Estimates suggest that if Russia were to shut-off supply lines through Ukraine (still a seemingly unlikely scenario though a greater leverage point as we move deeper into the colder months), the EU could survive for an estimated three months with current reserves. We call that significant leverage!


In addition, and as my commodity-focused colleague Ben Ryan points out:  Europe’s ability to source oil and gas is both limited and much more expensive than Russian-sourced energy. For example, LNG that Germany purchases in the international market is about double what it costs when sourced from Russia. Tack on that there is virtually no capacity from the U.S. shale oil boom to help Europe in the immediate, or even intermediate term, and the U.S. has no LNG export facilities.


Finally, Putin has an additional competitive advantage in the recent completion of the Nord Stream pipeline that transfers LNG from Vyborg (near St. Petersburg) up through Finland, and across the Baltic Sea to Germany. In essence, Russia could cut off all supply to Ukraine and not completely isolate the largest European countries.


Playing To Strengths


Despite all the trade sanctions that both Russia and the West may throw at each other, could analyzing the geopolitical posturing be as simple as this? – Russia, while playing with a weak economic hand, can hold on to its energy rich leverage, and simply, like a Judo competitor, wait for the West to move before countering? 


We think it’s that simple.


For us, the promise of Russia intimately mingling with Ukraine for the foreseeable future is high – especially as we move into colder months when heating oil becomes a human necessity.   Jigoro Kano, the founder of modern Judo in 1882, outlined the central principles of the sport:  seiryoku zen’yō or maximum efficiency, minimum effort.  Is this not Putin’s game plan? 


Last week we got a taste of Putin’s tactics:  as the West cautiously hailed Ukraine’s announcement that they agreed to a truce (cease fire) with Russia, Putin allowed the story to gather steam for a bit. Then he commented:  well, Russia is not a party to the conflict, so actually Russia can’t be part of a Truce… , or something to that effect.   In other words, the West gets tripped on itself, while Putin exerts minimum effort to receive considerable results.


That’s Judo.


Matthew Hedrick







Cartoon of the Day: Bubble Bath

Takeaway: Yes, it's a bubble.

Cartoon of the Day: Bubble Bath - bubble cartoon 09.09.2014



Q&A | McCullough: Small and Mid Cap US Equity Bubble "Epic"

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Retail Callouts (9/9): PLCE, KATE, HD, TGT, FRAN, JCP, COH, LULU, WMT

Takeaway: Another big reading from ICSC, PLCE adds Vill from KATE, HD breach could be biggest yet, Rakuten coughs up $1bil for Ebates



Wenesday (9/10)

  • VRA - Earnings Call: 9:30am
  • FIVE - Earnings Call: 4:30pm
  • WTSL - Earnings Call: 4:30pm
  • RH - Earnings Call: 5:00pm


Thursday (9/11)

  • LULU - Earnings Call: 9:00am
  • KR - Earnings Call: 10:00am
  • ULTA - Earnings Call: 5:00pm




Takeaway: Another big reading from the ICSC up 4% YY - with a slight deceleration on the 1yr and 2yr trend line. Looking at the change in growth rate by calendar quarter: 1Q down 85bps, 2Q up 48bps, and 3Q to date up 163bps. We'll reiterate what we said last week. "US retailers should be killing it in this kind of environment. Most are. But for companies that but up questionable quality numbers (like KSS) but get rewarded anyway, we'd simply ask what they'll look like when this strength ends?"


Retail Callouts (9/9): PLCE, KATE, HD, TGT, FRAN, JCP, COH, LULU, WMT - 9 9 chart1

Retail Callouts (9/9): PLCE, KATE, HD, TGT, FRAN, JCP, COH, LULU, WMT - 9 9 chart2



PLCE, KATE - The Children's Place taps former Kate Spade exec as group VP, finance



  • "The Children's Place has appointed Robert Vill as group VP of finance. He will report to Michael Scarpa, chief operating officer and CFO."


Takeaway: This is a big win for PLCE. Some people know Vill as the Investor Relations contact at LIZ/FNP/KATE. But the reality is that he played the CFO role in large part since Mike Scarpa left what was then Liz Claiborne in 2008.  It's natural for the two to connect again for many reasons. But this is not the role we expected to see Vill take. He has always been extremely tight with Scarpa, but was also invaluable to Bill McComb throughout the period he transformed LIZ into KATE. It is only a matter of time before McComb lands another CEO role, and we fully expected Vill to be his CFO. Guess not.


HD, TGT - Home Depot Data Breach Could Be the Largest Yet



  • "Home Depot confirmed on Monday that hackers had broken into its in-store payments systems, in what could be the largest known breach of a retail company’s computer network."
  • "The retailer said the exact number of customers affected was still not clear. But a person briefed on the investigation said the total number of credit card numbers stolen at Home Depot could top 60 million. By comparison, the breach last year at Target, the largest known attack to date, affected 40 million cardholders."


Takeaway: We still think that the key takeaway is that this breach is so big, but so few people seem to care relative to past breaches. Sadly enough, the consumer is getting used to data security lapses. They may be more forgiving for past offenders as well, including Target.


Rakuten to Buy Ebates in Japan’s Biggest E-Commerce Deal



  • "Rakuten Inc. agreed to buy U.S. rebates website Ebates Inc. in Japan’s largest e-commerce deal as the operator of the country’s biggest online mall seeks overseas growth through acquisitions."
  • "Rakuten will pay $1 billion in cash for all of Ebates, it said in a filing to the Tokyo Stock Exchange today. San Francisco-based Ebates offers cash rebates to customers who buy products ranging from laptops to lipsticks from the website’s retail partners."
  • "Rakuten’s billionaire chairman Hiroshi Mikitani is betting the purchase will help the Tokyo-based company push its global e-commerce strategy. Rakuten has also been plowing cash into technologies such as mobile applications and online video as it seeks to add to its online marketplace business."


Takeaway: No direct public company implications here, but the simple fact that a Japanese company is buying an early cycle non-asset-based US e-tail startup for $1bn in cash is pretty much huge any way we slice it. In order of magnitude, this is like when Amazon bought Zappos for $928mm six years ago -- near the top of the last cycle.  At least Zappos had a brand. And a loyal customer base. And warehouses. And suppliers. And revenue. 




FRAN - 2Q14 Earnings


Retail Callouts (9/9): PLCE, KATE, HD, TGT, FRAN, JCP, COH, LULU, WMT - 9 9 chart3


JCP - J. C. Penney Commences Tender Offers for 6.875% Medium-Term Notes due 2015, 7.65% Debentures due 2016 and 7.95% Debentures due 2017



  • "J. C. Penney Company, Inc. announced today the commencement of cash tender offers  by J. C. Penney to purchase up to $300 million aggregate principal amount of the three outstanding series of securities issued by JCP, and for which the Company is co-obligor, described in the table below, except that with respect to the 7.95% Debentures due 2017, J. C. Penney is only offering to purchase up to $100 million principal amount."





  • "Coach, Inc. ... today announced the appointment of Gebhard Rainer, as President and Chief Operating Officer, effective September 29, 2014."
  • "Mr. Rainer joins Coach from Hyatt Hotels Corporation, where he most recently held the position of Executive Vice President and Chief Financial Officer. Previously, Mr. Rainer served as Managing Director for Hyatt International Europe, Africa and Middle East (EAME) LLC from January 2007 to August 2012 overseeing all aspects of the company’s business in the region. Mr. Rainer has more than 30 years of experience in progressively more senior operating and finance roles, and has extensive international experience, having lived in the Caribbean, the Middle East, Eastern Europe, Western Europe, and the United States."


LULU - New Lululemon Flagship Signals Identity Crisis for Embattled Retailer



  • "The recent unveiling of the Lululemon flagship store in downtown Vancouver offers a glimpse into what the future may hold for the embattled retailer. Lululemon has been under intense scrutiny since a series of blunders have hamstrung the brand’s image and damaged its share price. But it's what's missing from the flagship store that may worry investors: the essence of the Lululemon brand."


WMT, TGT - Wal-Mart to Kill 'Express' Store Brand: Report



  • "Wal-mart U.S. will rebrand all its Express stores to Neighborhood Markets in an effort to streamline its retail offer, according to a report in the Arkansas Democrat-Gazette."
  • "Citing an internal company memo from Wal-mart U.S.’ chief development officer, the newspaper reported that the Express moniker will be eliminated, with all new small stores in the future called Neighborhood Markets. The 21 existing Express stores will be converted to the Neighborhood Market banner in coming months"


Twitter's 'Buy' Button Debuts With Burberry



  • "The social network, which boasts 271 million average monthly users, on Monday unveiled a 'buy' button that allows users to buy directly from a tweet. The move is an attempt by the social network to generate another revenue stream and satisfy the ever-hungry Wall Street for ongoing growth."


WAG - Walgreens Appoints Barry Rosenstein of JANA Partners LLC to Board of Directors As Company Progresses Toward Alliance Boots Merger



  • "Walgreens announced the appointment of Barry Rosenstein and a second new director to be named to its board of directors as the company continues moving forward to complete its merger with Alliance Boots GmbH."

LEISURE LETTER (09/09/2014)



  • Sept 9: 
    • BofAML Gaming & Lodging Conference
    • GLPI & HPT at Wells Fargo Net Lease REIT Forum
    • EXPE & OWW at DB Technology Conference
  • Sept 11:
    • Macau Legend at Credit Suisse Macau Gaming Day
    • MGM China at Credit Suisse Macau Gaming Day
    • Sand China Ltd at Credit Suisse Macau Gaming Day


CZR (Bloomberg) will begin talks with at least five senior bondholders to restructure the obligations of its biggest unit, according to two people with knowledge of the discussions. Pacific Investment Management Co., Elliott Management Corp., BlackRock Inc., Brigade Capital Management LLC and Beach Point Capital Management LP have agreed to enter confidentiality agreements with the company to formally begin talks, according to the people, who asked not to be identified because the negotiations are private. The agreements signal talks are heating up to restructure about $12 billion of bonds as the company struggles to service debt taken on in its 2008 buyout by Leon Black’s Apollo Global Management LLC and TPG Capital.

Takeaway: Long road ahead but positive development


GENM:MK – received regulatory approval to raise up to 5 billion ringgit ($1.58 billion) with medium-term notes. Funds will go towards operating expenses, capital expenses, investments and property development, the Company said in an announcement to the stock exchange.  Notes from the programme will have a maturity of one to 20 years.

Takeaway: A sizable capital raise for Genting Malaysia, could an acquisition be in the near future?


LVS & 1928:HK – announced an "8-Day Flash Sale - Save Up To 40% Off" room rates at its Macao properties for bookings September 9 - 16, 2014 for stays until February 20, 2015.

Takeaway: Interesting timing to announce a hotel room sale in Macau, given the mass and VIP segment gaming revenue weakness.


PENN ( Hollywood Gaming at Dayton Raceway at 12:01 AM late Friday night/early Saturday morning, a coding error activated a promotion that gave everyone on the floor free play, and workers did not catch the mistake for several hours. Despite the money lost overnight, the Racino held that promotion anyway, which resulted in even more winners.

Takeaway: Despite this error, Dayton outperformed expectations.


SGMS – announced that it has signed an extension of its contract with the Colorado Lottery to continue as a provider of instant lottery games and related services. Under the agreement with the Colorado Lottery, Scientific Games will continue as the Lottery's primary instant game provider for three additional years beginning July 1, 2014.

Takeaway: Good contract extension.


H – announced Gebhard F. Rainer, Executive Vice President and CFO, notified the Company that he will step down effective September 26, 2014 to pursue another professional opportunity. Mr. Rainer’s resignation is not a result of any disagreement with the Company’s independent auditors or any member of management on any matter of accounting principles or practices, financial statement disclosure or internal controls. As of September 26, 2014, Mr. Mark S. Hoplamazian, the Company’s President and Chief Executive Officer, will assume the additional duties of principal financial officer of the Company pending the search for Mr. Rainer’s replacement.

Takeaway: An unfortunate departure for Hyatt. 


HOT – priced an offering of $350 million principal amount of 3.750% senior notes due 2025 and $300 million principal amount of 4.500% senior notes due 2034 through an underwritten public offering. The closing of the offering is expected to occur on September 15, 2014 and is subject to customary closing conditions. Starwood intends to use the net proceeds from the offering for general corporate purposes, which may include the repayment of commercial paper, repurchases of its common stock, or the payment of previously announced special dividends to stockholders.

Takeaway: More evidence of an expedited share repurchase program. As a result of the lower share count, earnings estimates will be revised higher for 2015 and beyond.


HOT – Grand Wailea, the Maui hotel in the Waldorf Astoria portfolio, will receive $30 million in upgrades. Improvements include upgraded meeting spaces, guestroom updates such as 55-inch flat-screen TVs and the addition of property-wide artwork from local artists. Work is scheduled to be completed next year.  The 780-room Grand Wailea opened near the southwestern corner of Maui in 1991. The hotel was acquired by the Government of Singapore Investment Corp. last year.

Takeaway: Repositioning and reprogramming assets for the ADR up trend.


WYN (Pocono Record) is on the verge of selling 525 acres of steep, heavily wooded, undeveloped land in Smithfield Township New Jersey to the National Park Service. According to The Trust for Public Land, the 525 acres will likely be sold for about $4 million. Final sales price will be based on an appraisal yet to be performed. In 2004, WYN purchased the 1,000 acre tract from the original developer. Since then WYN, has decided it was not in its best interest to pursue a home development business and thus is selling the land. 

Takeaway: Simplifying the balance sheet and selling non-performing assets.


CCL – Celebrity Cruises has canceled the November 21 three-night sailing of Celebrity Constellation in order to replace a piece of the ship's diesel engine. Affected passengers are being notified and offered alternate sailings or a full refund. Constellation is using the two gas turbine engines instead of the diesel engine. As such, there has been no impact to the ship's top speed. All passengers booked on the November 21 sailing may rebook on select Constellation sailings in 2015, in like accommodations, at protected/lowest-available rates, or on any Celebrity sailing at prevailing rates and receive $100 in onboard credit per cabin ($200 for those booked in suites). The select dates available for Celebrity Constellation are: January 5 or 24, February 7 or 21, or March 7.

Takeaway:  Celebrity has been having multiple operational problems lately.


CCL(Travel Weekly) is waiving deposits on some cruises and lowering the threshold for tour conductor credits to encourage group bookings in September. Through Sept. 30, initial deposits will be waived on groups booked for sailings between March 1, 2015, and April 30, 2016. Agents doing group bookings are eligible for a free berth for every 10 booked; the normal rate is one free berth for every 15 booked. As a special bonus, Carnival is offering one free cruise berth for every eight full-fare guests berthed on select five- to 14-day sailings from a number of ports, including Galveston, Baltimore, New York, San Juan and Port Canaveral. Group fares for the promotion begin at $249 for three- to five-day cruises and $449 for voyages of six days or longer. Certain restrictions apply, Carnival said.

Takeaway:  Promotional environment has not slowed.


RCL (Travel Weekly) Azamara Club Cruises has changed Le Club Voyage, its loyalty program, by adding new features but dropping others, including free Internet and laundry service. Among the new benefits are more complimentary voyage nights for achieving a higher tier in the program. 


National Basketball Association (NBA) on Sports Betting – Adam Silver, commissioner of North America's National Basketball Association (NBA) league, has predicted that struggling state budgets and a wider acceptance of gambling by US citizens will lead to legalized sports betting across the country. Speaking at the Bloomberg Sport Business Summit, Silver said that the NBA does not have any moral issues with gambling on games and is not against such moves.

Takeaway: Expect the NBA owners group to weigh-in on the topic and demand their fair share of the revenues.


New Jersey Sports Betting – New Jersey Governor Chris Christie and Attorney General John Hoffman declared New Jersey casinos and racetracks can offer sports betting without fear of prosecution or civil liability, setting up another possible showdown with professional and college leagues. Sports wagering at casinos and racetracks is now legal as long as it doesn’t involve New Jersey’s college teams or any collegiate events in the state, according to AG Hoffman.  The directive came as Gov. Christie started his Atlantic City Gaming Summit with industry executives and legislators yesterday. 

Takeaway: Pulling the goalie to help promote New Jersey gaming. Positive for CZR and BYD.


Trump Entertainment Resorts – filed Chapter 11 bankruptcy. The company owns two properties in Atlantic City. Trump Plaza is set to cease operations on Sept. 16, and the Trump Taj Mahal may also shut in November. A bankruptcy court reorganization could give Carl Icahn two additional hotels in Atlantic City. Funds controlled by the New York-based billionaire are Trump Entertainment’s largest creditor. Icahn also controls 68 percent of Las Vegas-based Tropicana Entertainment Inc., which owns the Tropicana in Atlantic City. This will be the third time the entire company was put into bankruptcy -- it sought court protection in 2004 and again in 2009, when Trump gave up the chairmanship. Trump Entertainment sold the Trump Marina hotel to Landry’s Inc. for $38 million in 2011. It has since been renamed the Golden Nugget.

Takeaway: Less competition in AC


Room Key – CEO John Davis will step down at the end of the month. Davis has led the hotel booking website since its 2012 launch. Room Key is owned by six hotel companies: InterContinental Hotels Group, Wyndham Hotel Group, Choice Hotels International, Marriott International and Hyatt Hotels Corp. The website, created to reduce online distribution costs relative to selling though online travel agencies, lists hotels from more than 100 brands. Steve Sickel, a former executive with InterContinental Hotels Group, will take over as interim CEO. Davis is the co-founder of 1-800-FLOWERS and the founder of hotel technology company Pegasus Solutions.  Sickel was most recently senior vice president of distribution and relationship marketing at IHG before stepping down late last year to start a consulting company.


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

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