Feb

6

 Sooner or later, Free Markets uncover the true value of assets. I don't think this law can be argued to any legitimate extent, so long as Free Markets are kept free.

As a soon to be married man, my friends across the country have decided to make Las Vegas the bachelor party destination taking place over the middle weekend in March. I have been to Las Vegas four times over the last year and change - October 2007, March 2008, August 2008, and December 2008. The decline in overall business activity has been dramatic over this time period for the obvious reasons plaguing the overall global economy, mainly an evaporation of liquidity and wealth destruction. Perhaps only in financials has there been poorer performance and a market cap destruction greater on a percentage basis than in the leading casino names - LVS, MGM, BYD, WYNN, etc.

The action in the casino shares is a good reflection of the fundamental decay of the business. The market has been working here perfectly, but I am wondering if something else is going on. Las Vegas is an interesting place. There are hundreds of thousands of good people there for sure. They show up to work, they provide good personal service, they cook delicious meals, they offer amazing choices to the consumer, they go to church and temple, etc. But the main component to the economy there surrounds around Deception. Deception in the form of free rooms, free drinks, free private jet travel (it's tremendously tempting), free golf, free entertainment, free Armani shopping sprees, etc. But, all of these efforts are to deceive you into sitting down at a table game so that you part with your money. Just because something is legal does not necessarily mean that it is ethical. Yes, gamblers are cautioned to bet with their heads, not over them, etc. It is also common knowledge that odds suggest each game is designed to take the gambler's money. The gambler sits at their own risk, etc.

Las Vegas even deceived the market for a while. The astronomic rise in shares into October 2007 was symbolic of the market buying into the concept that Las Vegas had transitioned itself from a gambling destination to an entertainment/resort destination. Credit Ratings went higher for every star or diamond the megaplexes received in service ratings.

But alas, the market has finally woken up after it's liquor-filled weekend at the Wynn. Though there are similar elements, the Deception of Las Vegas is different from the Deception of the Market, unless of course your trading station has women in skimpy outfits parading around you, "Coffee, Juice, Soda….", or worse, "Cocktails, Beer, Champagne…..".

James Lackey comments:

Feb '91, Saudi Desert,  15 minutes after we arrived in our left hook stage… BBC reported some new peace deal in the works. I reported it to my commander.. He looked at me like I was the sucker at the tables. "Lack we didn't bring all these tanks out to the desert not to kill them all"

Same for Vegas. and if you wish to remain married……………………………………


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2 Comments so far

  1. Mark on February 6, 2009 2:08 pm

    I will take the other side of your thesis.

    Do you not think that the stock market, commoditys and currency markets use deception? las Vegas is much more honest than the stock markets.

    Las Vegas is pure capitalism at its finest. The creativity and beauty of a resort like the new Encore is simply amazing.
    I would argue that Wynn is one of the finer companys in the s&p. No bailouts, big growth pipeline and plenty of cash.

    It sounds as though you are deadset against gambling, liquor, cigarettes or anything that does not meet with your moral visions.

    Many people do indeed come for the spa or world class restaurants and do not gamble so heavily.
    Indeed the new Encore has a Marine bioligist to ensure that the seafood is of the highest quality in the world.

    I would argue that there is great value in certain gaming stocks. I dont know that LVS or MGM will make it in there current form, however I do know that Vegas will be back and will be back stronger than ever with more creativity and capitilistic ingenuity than ever.

    Macau is growing like wildfire even with the visa restrictions which will be done away with. There building a bridge from HK to Macau starting next year.

    Singapore legalized gambling, Taiwan just did and the mother of all gambling meccas Japan will soon.

    Like it or not it is a growth industry and here to stay.

    My father, A frequent of the old Dunes was talking in 73-74 that Vegas might not be the same what with all the expansion and recession. Same thing in the 80’s.

    The strong will survive and gaming is a fast growing industry.

  2. James M. Schroeder on February 6, 2009 2:20 pm

    This may sound odd, but I think Vegas is pretty honest about its deception. Vegas, at least in my experience, is in the business of selling deception. That’s not to say that there aren’t a few people out there who actually believe they are an odds on favorite to walk away with more money than they came with, but for the most part I think the vast majority of people are reasonably responsible when they go to vegas. People go to Vegas to fulfill all sorts of delusional fantasies (even if in the back of their minds they no the fantasies are delusional), and Vegas simply gives them what they want.

    In the interest of full disclosure: I’m going in a few weeks and it will be my second time in the last year, and admittedly I’m biased because I love the place. I have a set amount of gambling money and I fully expect to lose it, and in return I’ll get a few hours of entertainment, and the chance (however unlikely) of winning some money. It’s a fair trade for me.

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