We’ve all heard the doom and gloom about casino stocks. I’m not sure I get all the fuss. Either they’ll be going up or they’ll be going down. It’s a 50/50 prop, right? So we shouldn’t be surprised when they decline in value for a while. Small comfort, I’m sure, to those who’ve substantially invested in them, but that’s why it’s an investment and not a savings account.
So I was a little taken aback by part of this statement, quoted in the LVRJ, which made me wonder if we’re asking too much of our sibyls:
Meanwhile, Nicholas Danna IV of Sterne Agee & Leach Inc. started MGM Mirage coverage with a "hold" rating and $11 price target. The analyst cautioned that MGM's dependence on Las Vegas, with more than 80 percent of its revenue coming within close proximity of the Strip, puts the casino operator in a tough spot "during a period of increasing supply and declining demand."
Danna also warned that MGM's $9.2 billion CityCenter project, set to open in Las Vegas late next year, is somewhat of a question mark as its returns are uncertain and the complex may hinder some of the company's existing Las Vegas properties.
ReviewJournal.com – Business – Casino stocks fall on rising anxiety.
I’m talking about the second paragraph, of course: the first is quite sensible. Let’s deconstruct this for a second: City Center’s prospects are a “question mark” because “its returns are uncertain.”
Isn’t uncertainty the nature of the future? Is there anything in the future that isn’t uncertain? Besides death and taxes of course. Five years ago–hey, three years ago–a ton of people were saying that Las Vegas real estate was going to keep appreciating with no end in sight. Obviously, their confidence masked a deeper uncertainty.
I think the problem is a semantic one–it’s just the way the sentiments were expressed. The analyst has some sound questions and clearly has a solid grasp of the fundamentals here. If you don’t wonder whether new supply will grow the market or just cannibalize the existing customer base, you’re being far too optimistic. But it’s impossible to say for sure, looking in from the outside. And whenever people want to know exactly what’s going to happen in the future, they are bound to get disappointed.
As a member of the Las Vegas/gambling biz commentariat, I’m frequently asked to speculate about the future. Usually I say that I don’t know since the past is not a reliable predictor. But maybe I’ll just start making Delphic pronouncements that will come to pass no matter what happens: “Great fortunes will be made and lost in Las Vegas over the next few quarters.”
If you’re not up to speed, here’s the story: we don’t know what’s going to happen in the future. Back in 1991/92 (for that matter in 1998), lots of people predicted apocalypse when new casino supply hit the market. I used 91/92 because the economy was similarly balky then. It turned out that the bears were, in the big picture, wrong, because gaming stocks and the casino business continued to grow and prosper. But history suggests that, in the short run, the bears are sure to be right at some point. The question is, when?