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All I do is (short) WYNN WYNN WYNN no matter what

October 14, 2011

Casinos in Macau rack up more than 50% of the Chinese Administrative Region’s GDP, and more than 70% of the region’s government. Wynn Resorts draws about 70% of its revenue from its two Macau hotel/casinos. The other %30+ comes from the Wynn and Encore in Las Vegas.  This symbiotic relationship is about to hit the rocks. Here’s why:

China‘s exports grew only 17.1% during September over the same period a year ago. This was less than anticipated, which means China is feeling the effects of the first-world’s economic stagnation. Since China can’t export as much as it would like (falling demand in US and Europe due to economic concerns), it’s economy will be dragged down as well. Most who stay and gamble in Macau or Chinese or South-east Asian. Slower economy = fewer gamblers, and we all remember how hard and how fast casino stocks were hit in 2008. Look for a repeat coming before Christmas.

Wynn is the prime short candidate here, trading at a whopping 43+ P/E, and relying heavily on just a few sources of revenue (only 4 resorts, 2 in Macau that account for 70% of wealth). LVS has a more diversified and established presence, and with lower expectations. And everyone knows MGM isn’t getting out of the doghouse anytime.

Markets today are expected to open higher, which means today is primetime to short WYNN. I  recommend shorting or picking up a couple of the $105 Dec. 15th puts for less than $5 a pop.

Why might I be wrong?

WYNN learned from 2008, China won’t be affected by Europe or the US, blah blah blah.

Why the longs are wrong:

Analyst and consensus expectations for WYNN are exponentially higher than for LVS or MGM, that’s why this stock price is set up to come plummeting with any kind of bad news. China will, and already has been negatively impacted by Europe and US economic stagnation. Who will China export to when Europe and the US don’t have money to buy anything? Somehow, I don’t see China exporting to sub-saharan Africa anytime soon.


Steve's beaming smile must have been before the elbow incident...

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