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Is MGM a Winner?


Trading the best-in-breed casino.


Good morning from New York where it remains the middle of the night everywhere except my basement office. I have a perfectly good explanation for my waking with a 4-handle ("Daylight Savings Time!") until I realized Springing Forward should have kept me in bed later, not gotten me up pre-dawn.

You have thus been given a brick-sized "Grain of Salt" with which to take the following observations:

  • I've spent the weekend pondering and re-pondering my suddenly more bullish stance. Bottom Line, my book has gotten more bullish into the rip. I've been unable (or willing) to follow my 11-month old custom of dumping winners on the long side as we've rallied. On the other hand, I've dumped about half my dollar (UUP) long and am lugging only a wee plug of my SDS 2x S&P short (SDS). I not only haven't sold but have actually added to the McDonald's (MCD), Wal-Mart (WMT) and Burlington Northern (BNI) I've spoken of being long. Most humiliating, I actually bought MGM Resorts (MGM) on Friday, both up and when it dropped to a 15-handle late in the day.

  • Getting longer an absurdly sharp rally turns my standard acute ambivalence into relief. Like all eggheads, I can cite Great Thinkers such as Bernard Baruch's 10 rules of investing to justify my moves. Baruch was as successful as more modern investors/philosophers like George Soros with only a fraction of Soros' shameless pomposity. Among BB's wisest statements: "Don't try to buy at the bottom and sell at the top. This can't be done -- except by liars". But Soros doesn't return my calls and Baruch has been dead since 50-years before I was born. Neither gentleman is going to get me out of losing trades.

  • Which brings us to my new position in MGM casinos. I'm not pretending to have caught anything near the bottom on MGM. I've been openly critical of the gaming industry's prospects and the price of MGM's money raise -- which, in an odd coincidence, I made note of here, shortly before the esteemed Financial Times.

  • Truthfully, I have only two defenses for my MGM purchase. 1) Despite the huge rally in the last week of October, MGM lost 50% from September 19th, when the Steve Wynn July Short Massacre Buybuck peaked. MGM was down 72% in 40 days at the start of last week. I don't have to catch that exact bottom; I just want the chunk from $16 to where I see MGM resistance near $20. 2) The money MGM raised was absurdly expensive but it was, at the very least, more clearly defined than Las Vegas Sands' (LVS) agreement to get caned by Singapore.

  • If I were to throw a #3 in there, all I could say was MGM is a trade. These stocks trade in crazy bursts, the last one being catalyzed last summer by Steve Wynn's massive buyback to drive MGM from 50 to 120. I like MCD and Trains but I wanted some juice for a quick flip.

  • I'm not sure how many of the above excuses were uttered by Charles Barkley on his way to losing $10 to $15 million in casinos. Depending on the outcome of my trade, it's either to my favor that I wasn't actually drinking when I made my trade or it'd be one heck of an argument for my getting hammered prior to every trading day. At the very least, my going Dean Martin would certainly spice up Fast Money.

  • On the delicate topic of intoxicated trading, if you haven't read this column by Michael Lewis, channeling a disgruntled hedge fund manager, you're missing out on high humor.

  • Today will be a good "tell" for the trading week. The most bullish scenario is a downward thrust early and an upward close. "Fade the Last Hour" was as close as the stock market gets to an "easy trade" for the last two weeks of October. That trend reversing (or at least abating) was a positive development at the end of the month. I'm willing to throw some cash on the line thinking the newer trend continues this week, through the election. America believes in a Strategy Called Hope. The challenge for we cynics is trading on such absurdly doomed beliefs without either drinking the Kool-Aid or making ourselves feel filthy. I hate Kool-Aid and am immune to filth (I was in a fraternity, sold shoes at Macy's (M), ran a hedge fund and wear make-up every day -- Pig Pen was Howard Hughes, locked in an airtight Las Vegas suite, compared to what I have become in terms of filth).

  • Finally, regarding my position in the US Dollar. Believe it or not, I do have a much more evolved justification than my general suspicion of all things "Not American". I'm both over-educated and a born verbal-slinger. I could empty a room and a Nielsen count rambling on about the relative merits of the US Dollar, for all its faults, vs. even-more-fake currencies used by the rest of the world. It simply makes for more interesting television to boil the case down to "I like the dollar because Canada can bite me".

  • If you're waiting for the government to confirm that we are in a recession, you're either putting too much faith in your government or paying too much attention to TV Pundits. I think two things about the recession debate: 1) I declared a recession in January, based only on traffic in Malls and the delta of the unemployment rate first demonstrated in January. 2) I'm not sure what on earth has taken the rest of the punditry to catch up to the obvious but, frankly, the markets are down 40% since January so I like my methodology more useful, from a trading perspective than whatever it is the propeller heads are doing before getting comfortable uttering the R word. Unemployment rates matter and are still faked. Ignore the rest of the data.

  • For what it's worth: I'm moderately bullish but it's not a suicide pact: My stop for MGM is a 13-handle, BNI needs to trade $75 to get me out, Wal-Mart taking out last week's touch of 49 and change would concern me and MCD wont be allowed to become a losing trade for me, now that I'm up a decent amount on it. As we say around the 'Ville, sometimes wrong but always honest.
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Positions in MCD, SDS, MGM, UUP, WMT, BNI

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