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Look on the Bright Side

The silver lining in the dark cloud is starting to get bigger

Look on the Bright Side

Yes, there are worrisome economic signs out there, like a double-dip in housing prices and some lousy recent employment numbers.

And there are the usual scare headlines, such as Las Vegas having the fifth-worst economy in the world (or that it will soon), according to the Brookings Institute.

But the amount of positive news appears overwhelming, and some of the huge negative stories we see are almost classic signs of a turnaround point. Consider:

• Private-sector employment, despite the recent hiccup, has posted its largest gain in three years in recent months.

• Consumer confidence has jumped.

• Fantini Research’s National Revenue Report for October showed a 4.1 percent gain in regional gaming revenues, the biggest jump in the three years we have been publishing the report.

And revenue growth has accelerated:

• July               +2.6 percent

• August          -0.1

• September    +3.1

• October        +4.1

Factor out Atlantic City, which has its own peculiar woes, and regional gaming revenues soared 7.07 percent.

And while not all of November jurisdictions had reported as of this writing, most of those that had reported posted positive comparisons to the previous year.

• Statistics out of Las Vegas have been strengthening.

Consider October: Las Vegas Strip gaming revenue leaped 16.07 percent. Revenue in the beleaguered locals market rose 6.2 percent. Citywide visitation grew 5.7 percent. Hotel occupancy jumped 1 percent even as room count increased 4.6 percent. Hotel rates rose 2.6 percent. Air passengers rose 2 percent. And all of those figures were well ahead of year-to-date numbers, thus evidence of accelerated improvement.

• In the lodging industry nationally, hotel occupancy and revPAR are growing at an accelerating rate, too. Convention attendance has been growing, and rates for future bookings are starting to approach 2008 levels.

• Emerging economies such as India and China continue their rapid growth, fueling revenues for Asian casino operators, their suppliers and hoteliers.

• Holiday-season retail sales are strong. Consumers are still being cautious and are not splurging, but they are spending more. Heck, even General Motors reported an 11.4 percent U.S. sales increase in November.

Consumer caution isn’t necessarily bad. Prudent growth is better than the carefree spending, reckless borrowing and over-development that helped get us into this mess.

And for those who worry about the big things, like the debasement of the American dollar and the competitiveness of American industries, President Obama’s national deficit commission has presented a tough, but fair and attention-getting, roadmap to get America’s financial house back in order.

Their recommendations will be debated fiercely, but there is no question that between the Tea Party phenomenon and the commission report, politicians are getting the motivation and the cover to finally act.

Thus, as treacherous a field of land mines as the future happens to be, these kinds of statistics and potential policy shifts make it clear that the U.S. economy is recovering, and may recover faster and more solidly than expected.

And as it recovers, consumer discretionary industries will bounce back with it.

Indeed, it should bounce back faster, as stocks of casino companies fell so hard, and so much of their operating costs have been taken out that new dollars should fall to the bottom line.

Further evidence that we are working our way up was displayed at G2E, where we recently reported the combination of double-digit attendance growth and that exhibitors were nearly unanimous in their beliefs at customers were looking to buy, not just to look.

Finally, the wreckage of the recession and financial crisis is still strewn all about, in the form of unfinished construction projects, canceled projects, and the growing number of lender-owned properties.

But that phenomenon also presents opportunities, such as Dennis Gomes demonstrated in buying Resorts Atlantic City for $35 million, and Penn National in acquiring a class-A property like M Resort at a steep discount.

On the lodging side, investors have a whole new selection of publicly traded REITs to choose from as veteran hoteliers hit the IPO market bringing forth companies designed specifically to buy high-quality, often upscale-to-luxury properties at distress prices. And hotel companies themselves, such as Marriott and Starwood, are singing the song of improved rates and occupancy with little new competing capacity coming online.

On the gaming side, casino stocks bounced back from their near-death lows of March 2009 and, while they have paused at times, Macau-oriented companies continued to surge.

But the typical casino and supplier stock has stepped back in recent months, a healthy sign for investors in a recovering economy, though shares have resumed their advance most recently.

And much as recovering consumers are starting to spend discretionary money again to the relief of casino operators, casino companies are starting to make the first tentative sounds about buying slot machines and other gaming equipment again.

In sum, there’s room for more optimism about the gaming industry, and the various ways to invest in it, than has been the case in a long time.


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