What a difference a year makes.
Last December, we looked into 2020 with almost universal bullishness. The American economy was humming along and taking with it all demographic groups, all regions, all industries.
One of those industries, gaming, appeared especially poised for a bang-up 2020.
Casinos expected to ride the economic wave as consumer confidence and growing discretionary income are the sustenance of slot machines and gaming tables.
Plus, casinos had kickers: the growing willingness of management to cut marketing costs by focusing on profitable players and the proliferation of sports and online wagering creating new revenue streams that promised to be more than material.
Nowhere was the optimism greater than on the Las Vegas Strip.
The year would begin, as it always does, with the world’s greatest trade show—the Consumer Electronics Show—once again bringing in record numbers of attendees. More shows would follow.
The new love affair between professional sports and gambling was evidenced by the NFL scheduling its annual draft of collegiate players on the Strip, an event projected to attract three-quarters of a million cheering, jersey-wearing and, most of all, free-spending fans.
The Las Vegas Raiders were to literally kick off a permanent new attraction in September, drawing tens of thousands of football fans from California and around the country on at least eight weekends a year.
It was all brilliantly sunny blue skies ahead.
Then Covid struck.
Today we look back at shattered expectations, a flashing-by economic depression and, perhaps most bizarrely, a stock market that is hitting record highs.
We now look into a new year that has as many questions as 2020 last December appeared to have answers.
The biggest question somewhat ironically might have the easiest to answer: When will people feel safe to congregate and to fly?
With vaccines rolling out, people will begin to truly return to normal by spring or the second quarter or summer, depending on choice of expert. But the important answer is that return to normal behavior is within sight.
Those of a bearish bent say the world is changed forever. We will Zoom more and travel less. Hotels, airlines and resorts will simply have to lower their expectations.
To which, I say: Hogwash. Human nature has not changed in a matter of months. In fact, the millions of people socializing in the midst of the pandemic suggests the post-pandemic world will be met by a flood of pent-up demand for socializing and entertainment.
Remember, the double horrors of World War I and the Spanish Flu were followed by the Roaring Twenties. That does not mean there will not be long-term or even permanent changes. Safe health practices will stay for those who operate businesses of public accommodation. We will Zoom more. But we will meet face-to-face, too.
As with any period of economic stress, there are changes that make companies stronger. Today, we see new technologies accelerated, such as Zoom.
In gaming, the two trends mentioned above of cost cutting and proliferation of sports betting and iGaming have both accelerated and promise bigger rewards than could have been anticipated a dozen months ago.
Perhaps the more worrisome questions are, where will the American economy and stock prices go in 2021?
The desire to protect people from the economic impact of Covid and government-ordered lockdowns is conflicted. On one hand, employees and owners of, say, restaurants are not to blame for their plight and deserve some level of protection. And Covid relief has doubtlessly helped avert a long-term economic depression.
However, there comes a point where too much is counterproductive. And there is increasingly expressed concern that pouring more trillions of dollars into the economy might lead to short-term relief but long-term pain.
Already, there are signs of nascent inflation and accompanying higher interest rates.
We should not blithely pile up debt by the trillions. It was, in fact, stunning to hear a senior economic adviser to President-elect Biden say that we can afford to spend trillions because interest rates are low.
Inflate the economy and those rates won’t stay low. American households already pay $2,900 a year funding the interest on the national debt. Throw trillions more on top of that and see interest rates rise from under 1 percent to 5 or 6 percent or more, and debt service will be unmanageable.
Of course, the government could go the Venezuelan route and simply issue orders as to what banks can charge or what employers must pay, but then we’d get Venezuelan results. Politicians cannot repeal the laws of economics.
That gets us back to stock prices. In many cases, they are astronomical. That is no secret. We all know about the rocket rides taken by Tesla, Peloton, Zoom and their ilk.
We see in gaming where some sports betting company stocks are selling at 20 and 30 times future sales, no less earnings. And that is sales three and four and five years down the road. If we should have learned anything by the unpredictable events of 2020 it is that we cannot, with assurance or specificity, forecast three and five years out.
One common expression this year is that business has been pulled forward. That is, people would have spent money eventually, anyway, on, say, renovating the house. But now, stuck at home, they are renovating earlier than would have been the case. That leads to the question of whether spending on items like appliances and new kitchen cabinets will slow next year and help slow the economy with it.
In the stock market, the question might be whether stock prices are being pulled forward. Many stocks are selling at valuations based on business expected in 2022 or 2023 or later.
Let’s hope this does not lead us a year from now, as we reflect on 2021, dwelling on the day the bubble burst.