Model Portfolio timbo56:SSOF1

Thank goodness Las Vegas represents only slightly more than ½ of 1% of the U.S. economy, because it has been punched in the stomach and is about to get punched again. Las Vegas has a fundamental problem: It relies on inexpensive air faire to get travelers to those hotels and gaming tables. Now that the economy is very bad, Las Vegas is hurt by the bad economy. But if the economy recovers, oil prices will go up, and so will air faire. There will no longer be any way to get those masses of tourists in and out.

What’s worse, huge new developments are slated to open that will increase the number of hotel rooms in Las Vegas by about 15,000. Each time one of these huge developments is finished, an army of construction workers will find themselves out of a job with no relief in sight in Las Vegas. As they leave for greener pastures, the demand for housing will fall still further. Of course those new developments will have to hire clerks, maids and card dealers, but if the total number of visitors does not rise, that just means that somehow people doing these jobs at other places will be let go. Just because there are more hotel rooms does not mean that the ratio of hotel workers per visitor will change. I expect that several older hotel/casinos will close. So construction worker employment will decline and I don’t see anything to make up for that decline.

As the construction workers leave, employment of service providers will fall. Teachers, for the children of the construction workers, waitresses, for the restaurants that serve the construction workers and on and on and on, will lose their jobs. The population will fall still further. I don’t see a bottom for Las Vegas real estate. When there are more homes than people to live in them, competition can drive prices down and down to a very, very low point. Las Vegas real estate has dropped a lot already, but it certainly has room to be cut in half, again.

So it is worth avoiding stocks that have Las Vegas exposure as a significant percentage of their business. Wells Fargo (WFC) has Las Vegas exposure. In any analysis of Wells Fargo this must be taken into account. Needless to say, stay away from casino stocks, such as MGM Mirage (MGM), Las Vegas Sands (LVS) and Wynn Resorts (WYNN). I don’t currently have a short position in any of these stocks, because I am waiting for the market to rise a bit first. But if WYNN rises to 50, I will certainly short it.

I believe that there should be an effort at the federal level to save Las Vegas. It should begin now, because government action always takes time. Some federal functions should be switched at least partially from the D.C. area to the Las Vegas area. The developing disaster should be a concern to all right-thinking persons, because it stands to hurt a lot of innocent people.