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What casino stocks can tell us, in charts

October 23, 2011

Resort and casino stocks are the best barometer I can think of to represent the true state of the economy. Historically, when times are good and cash is free-flowing, companies like Wynn, Las Vegas Sands, and MGM (at least used to) haul in kings’ ransoms. From gaming profits — the house always wins, or wynns if you prefer — to high-budget shows, to full-capacity weekends, the gaming resort revenue triforce is unstoppable…when times are good. Now, please direct your attention the following two charts of WYNN and LVS:

Notice that in spite of the recent hopium addiction of the markets for the last month, both WYNN and LVS are in lockstep down. Do you see the similarity to late 2007? It looks identical to me. Gambling and staying at the WYNN is the ultimate luxury good. Is a weekend at the Encore vital to your survival? I’m guessing that in Maslow’s hierarchy of needs, a Friday night gambling and going to a shitty Criss Angel show is about 100 light years above the pyramid’s capstone. That’s why spending a weekend at the Bellagio or the WYNN is the first thing cash-squeezed people will cut from their budgets.

It’s no surprise that WYNN’s earnings were well below expectations. Average people are broke, and markets are just about to realize this ugly truth. WYNN has dropped through the key $135 support, signifying the start of a trend downwards. LVS is slowly spiraling down in spite of its price being propped up by the markets’ hopium.

Mark my words: if gaming stocks tell us anything, it’s that we are right now in the equivalent of February, 2008. Tharr be rough seas ahead.

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