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The Most Terrible Time of the Year

Autumn brings shivers to investors, but what will it mean for gaming companies?

The Most Terrible Time of the Year

We’re now into autumn, the most beautiful season of the year in parts of the country graced by flaming foliage—but often the ugliest on Wall Street.

This is the season of stock-market crashes, from 1929 to 1989, and of otherwise often-desultory results for investors.

And certainly, worries have driven the stock market down in a frenzy of volatility since summer, as investors worry about everything from European sovereign debt to the U.S. national debt to America’s perceived political paralysis.

More germane to the gaming industry are the recent plunge in consumer confidence and September’s disappointing jobs report.

The unemployment rate and consumer confidence are the two economic measures that casino executives like to track, because a jobless person doesn’t have much money to spend beyond necessities, and a fearful or pessimistic one isn’t in the mood to spend on entertainment.

Still, we have got to say, the world does not appear to be coming to an end. Hotel room rates continue to rise and, despite all the fear that growth will slow, they instead appear to be accelerating, at least in Las Vegas.

And gambling revenue growth is holding up.

And then there are all those new casinos opening over the next couple of years adding to the sales of slot machines and table games.

Openings in places like Ohio are going to happen. They are not speculation, like what will happen to the economy or consumer sentiment. They are scheduled in.

Still, it is true that the economic trends today are similar to those that have preceded other modern recessions, so no one can dismiss a possible double dip.

But we can question whether a recession would have the same harsh effects on American gaming as the last one.

Meanwhile, most casino companies already have cut their spending to ride out tough times. And few would face the structural crises of 2008 and 2009 when way too much debt combined with recession and frozen financial markets triggered defaults and their subsequent crises that led so many into bankruptcy reorganizations.

And stock prices, after having come back from their March 2009 lows, are still low for many companies, at least those not driven higher by Macau and Asian bullishness. Those stocks may deserve bullish prices.

In other words, though more tough times may lie ahead, it’s not a certainty, and the value in many gaming stocks might still be there, though it could be a long wait to realize that potential.

And with the market swinging wildly on every bit of news and rumor, maybe it’s time to give it a rest and look at what people are actually doing.

• Las Vegas: People are still coming to Las Vegas and spending their money.

Here are a few new data points to illustrate.

Passenger counts at McCarran International have risen about 4 percent year-to-date.

And people don’t appear to be changing travel plans. The latest weekly surveys by Rodman and Renshaw analyst Robert LaFleur and Joe Greff of JP Morgan have shown rising room rates quoted to free and independent travelers, an indication that American consumers are coming back.

As for the group business, casino operators have been unanimous in saying that future bookings are strong and there has been no negative effect yet from the financial market turmoil of recent weeks.

• Regional casinos: People are still spending at regional casinos, too.

Fantini’s National Revenue Report shows casinos won 2.8 percent more from customers in July than last year.

That figure was lower than June’s 5.8 percent leap, but can be considered stronger if factoring out casinos closed by flooding along the Ohio, Mississippi and Missouri rivers.

• Insider buying and selling: This spring and summer saw lopsided selling of shares by executives in all kinds of industries.

That appears to have slowed, and we’re seeing some buying in the most beaten-down sectors, such as lodging.

The best example in gaming is Pinnacle, where CEO Anthony Sanfilippo has been a steady buyer at market prices.

In one recent two-week period, Sanfilippo reached into the open market to buy 100,000 shares. That is more than the token purchase corporate executives sometimes buy to send a signal.

It’s a real commitment and a loud message that the guy who knows most about his company is voting with his own wallet.

Nor was he alone. New CFO Carlos Ruisanchez bought 10,000 shares and director James Martineau 1,000 around the same time.

As the old saying goes, there are numerous reasons to sell shares, but only one reason to buy—a belief the price is going up.

And directors buying is also considered a good sign, as they don’t have the political motivation to send a message, so their buying is generally thought of as a pure belief in higher prices ahead.

Obviously, they can be wrong, and we’ve seen enough to know that a bear market can overcome fundamentals for a long time.

But all things considered, following insiders is probably better more often than not.

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