Gambling on Casino Stocks
Strength across entire slate of names I admire - but don't own.
Hello from New York, where my television is telling me Najarian is on fire - but I'm decidedly sparkless and simply playing out the string on one of the statistically worst and qualitatively most difficult trading months in memory.
A writing binge yesterday, both here and in a few dozen emails, has left my brain dry and my hands feeling clawed enough to consider being Freddie Krueger tonight. I'm being mocked by previously considered stocks on both the long (casinos, why must you mock me so?) and short (not since I missed the first 20 points of the drop in Toyota (TM) have I been mocked the way Electronic Arts (ERTS) is mocking me today).
I'm handling the pain by A) wallowing in my YouTube.com addiction, B) sending the links I find to anyone naïve enough to be on my IM list and C) whining.
Here's what I'm doing to fill the gaps between A, B and C:
- Mulling the field position of the tape, it seems the election results next week would be a logical event catalyst to put in one last thrust higher. Seem too obvious, Child? Consider the 5% straight-shot rip we put in after 2004's election didn't repeat the uncertainty of 2000. Or the 10% point DJIA ripper we put in between the middle of March 2003 to the end of the month, as America blissed-out over the idea that we could still take out fourth-rate military forces with relative ease (we stink at fixing the mess we make - but that's a whole different article).
I do have a point, and it's this: Don't let the idea that you know (or believe) this rally is doomed cloud your short-term strategy. The market "hates uncertainty" and continues to behave like it wants to move higher, despite the 1100 points and counting we've put in this week. Obvious or not, I'd rather keep my short powder dry until Tuesday proves (again) that, for all its problems, the US can still hold a successful election. Trade the tape in front of you, not the one you think should be there. The tape in front of me acts pretty well; beyond that idea, what I think it "should" be doing matters not one whit.
- The daily insult of my having missed the upward move in casino stocks all week has gone from the level of "someone calling me names on the Internet" (near as I can tell, an hourly event, to which I'm emotionally immune) to the point of "Hitting on Mrs. Jeffmacke in my own living room."
Look at today's 24% rally in Las Vegas Sands (LVS), the 15% move in Wynn Resorts (WYNN) and the strength across the entire slate of names I admire but don't own. Today's news peg is that MGM Mirage (MGM) was able to sell $750 million in senior secured notes at 93%, which works out to about 15%. MGM had offered the notes at a slightly less usurious 93.132% but, hey, done is done. According to the 'smart as she seems' Karen Finerman, they are now trading at 90%, which works out to a yield of just under 16%. The drop in the notes presumably explains why MGM's stock is "only" up 8% as I type.
Now, casino games are well-known to favor the house but it seems worth noting that only one game, Keno, offers the casino an advantage greater than the 15% MGM paid to dump its debt on the market. Either MGM is betting large on folks playing a lot more Keno, an insanely fast recovery in the leisure market, benevolent treatment from the Chinese or all three (a trifecta I'd put at roughly 1,000,000,000,000,000 to 1). Should the stocks be higher? It's not for me to say, but no. Will they continue higher? Probably but I wouldn't bet on it with Charles Barkley's money.
Sometimes the hardest trade is doing nothing except watching the show. The casino stock rally seems like one of those times.
Editor's Note: Professor Macke called after this piece was submitted to say that he bought MGM. To quote the man, "The chart looks good to $20. Position is small. Got a tight stop and no pride whatsoever."
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