May 18, 2009

Global Market Comments
May 18, 2009

Special Las Vegas Money Show Issue

Featured Trades: (PBR), (CX), (DUK), (GOLD), (SILVER), ($BSE)

1)    Last week, I dropped in on the rock festival of investment conferences, the Las Vegas Money Show, at the posh and cavernous Mandalay Bay Hotel. A mild 95 degrees outside, I mingled with the Hawaiian shirt and cargo short wearing masses, with a sharp eye out for the next big investment themes. The event was organized in partnership with the top drawer financial blog aggregator, Seeking Alpha. The high profile confab attracted several industry celebrities, such as OptionMonster's John Najerian, Standard & Poor's Sam Stoval, retired Fed Governor Robert McTeer, and the Gartman Letter's Dennis Gartman.  I have to confess, I was stunned by the variety of exhibitors presenting their wares. Heavyweight players like TradesStation and Thinkorswim were there, offering presentations of their sophisticated trading tools on the hour. Some of the widely followed newsletter families were there, including Mark Skousen's Forecasts & Strategies. I was surprised by the number of great industrial companies there using the venue for traditional investor relations, like Petrobras (PBR), my favorite emerging market oil company, Cemex (CX), my preferred developing infrastructure firm, and Duke Energy (DUK), the best US electric power utility. There was a profusion of gold and silver mining companies, bullion dealers, and American eagle bearing coin brokers, which I thought was unique to Nevada. But regulars tell me this is a trend that has been building nationally for a couple of years. Reeally! Is that how gold flew to $1,000?  Exploration oil and gas limited partnerships were also in abundance, side by side with alternative energy start ups looking for new venture capital. There are in fact 11 Money Shows put on around the country each year by Sarasota, Florida based Charles and Kim Githler and their hard working staff of 70, attracting 75,000. In the business now for 31 years, they have expanded their offerings to international venues, and their "Money Cruises" have made them the largest booking agent for Crystal Cruises. All in all, it is a must go event for those who need to keep in touch with the broader investing universe out there.

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2) One can't help but be overwhelmed by a sense of history walking by the Las Vegas Strip's City Center; unquestionably one of the worst commercial real estate disasters ever. The glitzy, ultra modern, Cesar Pelli designed. 63 acre complex occupies the quarter mile between the Bellagio and the Monte Carlo Hotels and will become one of the wonders of the world if it is ever finished. Nearly completed are the Mandarin Oriental, Aria, Veer, Harmon, and Vdara Hotels, offering 4,000 rooms and 2,600 condos. They will be adorned by two casinos, a convention center, a new theater for the Cirque du Soleil, an enormous shopping mall, and parking for 7,500. The finished project will employ 12,000. But strikes and overruns sent costs soaring to $8.5 billion, and the project is now hopelessly behind schedule. I saw a total of one worker in a cherry picker working on the building with a screwdriver. The other guy going up in an elevator turned out to be a lender contemplating a jump off the top. Kirk Kerkorian wanted to build the ultimate Sin City destination resort when his MGM-Mirage partnered with Dubai World years ago. The relationship has soured, with Dubai World filing suit against its partner for negligence and mismanagement, which it later withdrew. The bigger question is who is going to stay in these rooms? Those who financed trips to Las Vegas with home equity loans or subprime credit cards definitely are not coming back. If the project files for bankruptcy, it will leave a gigantic eyesore at the heart of the tourist area as a monument to excess, in a city of excesses. Unfortunately, what happens in Vegas doesn't always stay in Vegas, as a financial collapse would send shivers through the industry globally.

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The Condos Are Not Moving

3) The Las Vegas residential market has broken every record with the speed and the viciousness of its collapse over the last two years, with the median price plunging 56% from $360,000 to $160,000. Driving around the outskirts of the city there is no shortage of half finished neighborhoods, complete with vacant shopping malls. But after a near shut down in December, it appears that the market has hit at least an interim bottom. In March, a halving of the price produced a doubling of the volume, with new sales jumping from 1,954 to 3,626 units in a year. Bargain basement buyers are definitely chewing through record high inventories, as they are in other black holes like Sacramento and Stockton, California. I don't want to get too excited here, but this is what bottoms look like.

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4) I know that Las Vegas is not in India, but I can't let today's letter go out without mention of today's stunning move in India. The Congress Party won an upset victory in national elections, its coalition taking 262 out of 543 seats, paving the way for much needed economic reforms. At the top of the list is a liberalization of foreign investment restrictions, which will unleash torrent liquidity into the stock market. After two limit up moves took the Bombay Sensex ($BSE) up 17%, exchange officials shut down the market. This 'melt up' is a great 'tell' for global capital markets as it shows you the tremendous extend of the latent buying of high growth emerging markets that is out there. This is a theme that I have been hammering away on all year, and will continue to do so until I cash in my chips (gratuitous Vegas reference).

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'In America, the cruelty of not letting your staff know where they stand is outrageous,' said Jack Welch, former CEO of General Electric.