Pinnacle Entertainment (PNK)

Jake Fuller of Thomas Weisel Partners agrees with me on choosing Pinnacle Entertainment over the Vegas casinos. See CNBC's article titled, "Casino Stocks: Don't Bet On the Biggies." Of course, I made the same call weeks ago, only to see Pinnacle Entertainment become a victim of the overall market decline:

PNK is Pinnacle Entertainment Inc. Although their HQ is in Las Vegas, they don't own casinos there. The six casinos they own are in Louisiana, Indiana, Missouri and Reno, NV; in addition, they operate casinos in the Bahamas and Argentina. This is a fairly small company--its market cap is still under 1 billion. So why choose this stock over WYNN, LVS, or MGM?

I watched a PBS documentary on Vegas recently, and let me tell you, Steve Wynn and his vivacity are a hoot to watch. The documentary reminded me of how cool Vegas used to be, starting with the Mafia and the Rat Pack, moving to JFK/RFK and Howard Hughes coming in to clean up Vegas, and then ending with shareholders and Wall Street finishing the job. What struck me most during the documentary is that Vegas seems like it's all out of gimmicks. The old Sands, where the Rat Pack used to play, is gone. Steve Wynn's Mirage is no longer the epitome of cool. By focusing so much on the future and demolishing anything older than a decade, Vegas has neglected to preserve its history, which would have been a tourist draw (who wouldn't want to walk on the same stage that Sammy Davis Jr. danced on?).

To be fair, when I went to the new Wynn hotel in Vegas, I was impressed. I wasn't impressed in the sense that this hotel was something wild, something fun--but it was a darn nice hotel and casino, and the no-smoking sports book didn't hurt (of course, it's impossible to find a seat). Would I fly out from California to Vegas just to see the Wynn hotel? That's the million dollar question, isn't it? I wouldn't--and if I did, there's nothing in that particular hotel that I couldn't get by staying at another hotel nearby and, say, walking over to view the Wynn's Ferrari display. The problem with sinking so much money into these hotels is that it's based on the hope that the high rollers will come to you and make up for the initial costs. But other than Charles Barkley, it's unclear why an international client would fly to the Wynn rather than another more exclusive resort, say, in Macau.

The next stage for Vegas hotels is to do what the Hard Rock Hotel has done--make each room unique so that customers are paying for the inside of their room, not the outside. I genuinely look forward to staying at any Hard Rock Hotel (HRH), because you don't necessarily know ahead of time which rock star your room will be based on. The problem with the HRH is that they don't have good locations (the one in Vegas is off the strip), and it's harder for them to expand in an already saturated market. But Vegas as a whole doesn't seem too much different than it was ten years ago, and so far, other than making its hotels more lavish, there's no new major attraction. With a looming recession, people might go to Reno or a cheaper hotel instead.

PNK is building casinos in areas where casinos are a unique, new attraction. It's like a Walmart coming to a tiny town--even if it's not fancy, even if it's just downright ordinary, the lack of competing attractions will still promote a steady stream of business.

Also, labor costs are cheaper in Indiana, Missouri, Louisiana, etc. A major cost of any Vegas casino is their unionized workforce and sheer number of employees needed to run all the attractions (or did you think the lions at the MGM fed themselves all day?). Especially in a slower economy like Indiana, casinos won't have as hard of a time finding cheaper labor and good employees. That's good news for the Midwestern and Southern-based casinos and PNK.

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Dave Barry Has a Blog

Dave Barry has a blog:

http://blogs.herald.com/dave_barrys_blog/

My favorite Dave Barry column is at this link:

http://findarticles.com/p/articles/mi_qn4188/is_20030720/ai_n11403113

I used to enjoy reading him every Sunday, but either the San Jose Mercury News stopped running his syndicated column, or he stopped writing for the Miami Herald.

I heard him speak at UC Davis about ten years ago. He was entertaining, but not laugh-out-loud funny. One audience member asked him about his height (he is not very tall), and although he was not happy about that question, he was classy enough to brush it off in a laid-back style.

American Anti-Immigration Fervor as Old as Benjamin Franklin

Some people view America's immigration scenario with trepidation; others with resigned acceptance; and others with open arms and optimism. While it is easy to write off the Minutemen and others as ignorant rednecks, none other than Benjamin Franklin expressed unease at immigration into America. Mr. Franklin was concerned about Germans. My point in sharing his letter and concern is to show that every single wave of new immigration brings fear, even to educated people, but years later, such fear is always forgotten. America's ability to incorporate all manners of people has been absolutely stunning and most likely the key to our success. 

  "Inconveniences may one day arise among us. Those [immigrants] who come hither are generally of the most ignorant, stupid sort of their own Nation... [F]ew of the English understand the German language; and so cannot address them either from the Press or Pulpit... Few of their children in the country learn English...they will soon so outnumber us, that all the advantages we have, will not, in my opinion, be able to preserve our Language and even our Government will become precarious." 

Mr. Franklin shows some humanity at the end of his letter when he says, "I say I am not against the admission of Germans in general for they have their Virtues; their Industry, and Frugality is exemplary." Do those traits remind anyone of the current crop of immigrants? 

I still say Thomas Jefferson's Louisiana Purchase was the single greatest achievement in American history--for what good is the Constitution without a large canvas for its implementation? America's vast landscape has allowed and will continue to allow more immigration for many more decades. The major issue is not whether America needs more immigrants--it has always had them--but how we can incorporate new immigrants and minimize wage losses in the industries they impact.

© Matthew Rafat (July 2008)

Reading List: Pensions, Global Econ, and Spending

We're approaching the holiday July 4th weekend, so I thought I'd share some book tips on my list:

1. While America Aged, by Roger Lowenstein.

Mr. Lowenstein echoes exactly what I have been saying about the inherent corruption in government, more specifically, how government workers are slowly bankrupting the younger and unborn generations.

http://www.amazon.com/While-America-Aged-Bankrupted-Financial/dp/1594201676

2. When Markets Collide: Investment Strategies for the Age of Global Economic Change, by Mohamed El-Erian.

Mr. El-Erian ran Harvard's multi-billion dollar endowment fund and was lured away by Wall Street.

http://www.amazon.com/When-Markets-Collide-Investment-Strategies/dp/0071592814/ref=pd_sim_b_4

3. Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire, by Laurence J. Kotlikoff.

This is a recommendation from Laura Rowley, who has a blog on Yahoo Personal Finance.

http://www.amazon.com/Spend-Til-End-Revolutionary-Standard-Today/dp/1416548904/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1214860083&sr=8-1

Letter to SJ Mercury re: Taxation of Services

I had a letter published in the SJ Mercury News re: taxation of services. Here is the link, in case anyone is interested (scroll down):

http://www.mercurynews.com/letters/ci_9750543

In addition to disproportionately falling on minorities, the middle class, and the poor, a service tax would create other problems. If the government starts taxing services, many small businesses might be tempted to go "underground" or not report certain transactions. I am not sure who wins when governments set up taxation systems that are sure to create enforcement problems. Although technically, the tax is passed onto consumers, it causes compliance costs for small businesses. For example, I do my own taxes; however, if I had to collect a sales tax, I would probably have to hire a CPA or accountant to make sure I was following the law properly.

These same arguments--the disproportionate impact on those least able to afford the tax, and potential enforceability issues--have been used against replacing an income tax with an additional sales tax on goods. Perhaps replacing an income tax with a national consumption tax on goods may be choosing the lesser of two evils.

Stocks Update

The WSJ hurt all casino investors today. Pinnacle Entertainment (PNK), the casino operator I recommended earlier, fell over 6% today. The probable cause? The front page of the WSJ had an article about casinos being laden with debt and being poor investments in a recession. Smaller casinos like Boyd Gaming (BYD) as well as larger ones (MGM, LVS) plunged. While I only lost a few hundred dollars (about 300 dollars) on the PNK trade, my percentages decreased significantly. My major holdings are still in GE and PFE. I sold the 1000 shares of General Electric I bought last week and made a few hundred dollars on that trade.

Open Positions
CNB = +3.99
EQ = +0.22 (excluded; movement too limited to be relevant)
EWM = -6.82
GE = -6.64
IF = -8.83
PFE = -7.64

Average of "Open Positions": losing/negative average of 5.19%

Closed Positions:
Held more than seven days but less than one year:
PNK = -16.7%
PPS = -2.8
WYE = +2.4%

Held less than 7 days:
GE (1.0%); ICE (2.0%), MMM (0.5%), MRK (0.1%), PFE (1.3%), SCUR (15%) (Overall record in this category is a 3.31% average gain)

Daytrades:
PFE = +0.5%

Average of "Closed Positions" sub-categories, except for Daytrades: losing/negative 2.39%

Combined Total Averages, excluding Daytrades: losing/negative 3.79%

Compare to S&P 500: losing/negative 7.27%
[from May 30, 2008 (1385.67) to July 1, 2008 (1284.91)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

NVIDIA Corporation Annual Shareholder Meeting (2015)

Jen-Hsun Huang reminds me of James Dean, if James Dean was a Silicon Valley tech founder and CEO.  As Nvidia’s President and CEO, Mr. Huang’s leather jacket, jeans, and cool demeanor are refreshing to see.  Whereas most CEOs and board members crumble when presented with a question requiring some thought, Mr. Huang not only relishes the questions, he enjoys displaying his prodigious intellect.  Perhaps that’s only natural when he’s led Nvidia for 20+ years and battled Intel (INTC) successfully. 

Nvidia’s 2015 annual meeting took place at the company's HQ in Santa Clara, CA.  About 50 people attended.  Unlike in past years, there was no “annual yearbook” or product displays, and sadly, the food options have dwindled to just a few pastries, a plate of fruit, and coffee and water.  If you come to the meeting, you’re coming to see Mr. Huang, who clearly takes deserved pride in the company he’s built.

He opened the meeting by talking up Nvidia and how it’s the “best in the world in our field.” He mentioned that Nvidia early on recognized video games would be tech-driven, a prediction which turned out to be “absolutely right.”  Looking forward, visual computing and game simulations will drive technological innovation for a few more decades as video games become even more complex. 

Despite being the leader in video game technology, Nvidia no longer wants to be known as a mere video game company.  It has branched out into virtual reality (the future of video gaming), self-driving cars, and deep learning (AI, image recognition, pattern recognition, etc.).  Nvidia’s sales to the auto industry are booming, with 85% growth from FY14 to FY15.  That’s more than cloud and HPC growth—53%—during the same time period.  Mr. Huang said that future cars are going to be “computers on wheels,” and “safer and easier to drive.”  Overall, “simulation work” is largely done on Nvidia technology, which allows people to “see the world around you in real time.” 

Nvidia has two women on its board, Dawn Hudson (CMO, NFL) and Persis Drell (Dean, School of Engineering, Stanford University).  I asked how Nvidia could become more diverse, as all the board members except for Mr. Huang appeared to be white, which is an unusual composition in the very diverse Silicon Valley, where about 40% of Santa Clara County residents are immigrants. 

Mr. Huang delivered a great response, unlike many other companies, which become defensive under the same line of questioning (I’m looking at you, San Jose Water Company (SJW), with your one female board member and not a single person of color in the front of the room at your 2015 shareholder meeting).  Mr. Huang responded that “through diversity, we get better answers,” and explained that it was difficult to attract board members when Nvidia was known only as a video game tech company.  Now, as Nvidia successfully branches out into several different areas, it is getting more and more attention and interest. 

I then asked what advice he had for a new entrepreneur starting out in Silicon Valley.  That’s when he delivered the line of the night—“Don’t go into video graphics,” which caused the entire room to laugh.  When the noise settled down, Mr. Huang said that success requires serendipity, and it’s never just one person—it’s the people you’re surrounded by.  As for how he’s managed to remain CEO for so long, Mr. Huang showed a bit of a Mark Cuban streak when he remarked that he and the company (have not been and) should not be complacent.  Today, in part because of his leadership and willingness to take calculated risks, Nvidia is succeeding on multiple platforms—PC, cloud, and mobile, while some other companies struggle with the shift to mobile, such as Intel (INTC). 

When the meeting ended, I wanted to talk to some board members.  I wasn’t impressed with board member Dawn Thomas—she seems standoffish and plastic—but I was honored to talk to Stanford’s Persis Drell.  I asked her how to increase diversity on the board and in Silicon Valley.  She said it would take time, but talking about the issue was the first step.  Also, diversity of experience matters, not just race or gender—she remarked that one of the best people she had on her team was a white gentleman who was ex-military, and because of his military experience, he was comfortable pushing to get things done when others might sometimes dither. 

As for why persons of color in America are underrepresented in the science and engineering fields, she said some of it has to do with resources.  Many kids have access to computers and other resources at an early age, but this access is not universal.  I couldn’t help but think of where Bill Gates might be had his parents not enrolled him in a school where a computer company provided computer time for the students.  In the 1970’s, having access to computers was not common, and Gates’ privileged access allowed him to become who he is today.  It was a pleasure speaking to Dr. Drell. 

Let’s start talking about diversity, complacency, and other difficult topics, folks.  The world ain’t gonna fix itself, but as long as there are people like Dr. Drell and Mr. Huang—intrepid pioneers who aren’t afraid to meet challenges head-on—I have a feeling things are going to be just fine.

(Originally published May 21, 2015, referring to NVIDIA's May 20, 2015 annual shareholder meeting.)