As with all of my visits to Sin City, I made a beeline to my inside guy ? a blackjack dealer at Caesar?s Palace. It?s been a slow summer and an even slower fall. With global warming delivering the hottest summer in history, the last place tourists wanted to visit was the desert. Midwesterners have been particularly hard hit, as the heat has caused crop failures on a Biblical scale and shriveled incomes. Still, business has been infinitely better than 2008-2009, and most hotels are modestly hiring.

It is wonderful strolling through the finally completed City Center. The glitzy, ultra-modern, Cesar Pelli designed, 16.8 million square-foot, 63- acre complex occupies a quarter-mile on the city?s fabled Strip between the Bellagio and the Monte Carlo Hotels.

It will unquestionably become one of the hedonist Wonders of the World. It includes the Mandarin Oriental, Aria, Veer, Vdara, and Harmon Hotels, offering 4,000 rooms and 2,600 condos. They are adorned by two casinos, a convention center, a new theater for a Cirque du Soleil show called Zarkana, and parking for 6,900.

No matter how healthy the rebound in Las Vegas may be, the forlorn Fontainebleau Resort remains abandoned. The $3 billion, 4,000 room, 68 story hotel, casino, and condo project was to be one of the city?s grandest yet. It was 95% complete when the crash hit and construction ground to an immediate halt, wiping out all of the original equity investors. Nobody does creative destruction like America.

Corporate raider, Carl Icahn, bought it for $156 million, then flipped the furniture for $200 million, getting the hotel for free. He is sitting back waiting for a foreign sovereign wealth fund to buy him out at a huge profit. That is what Carl does, bless his soul. In the meantime, the towering structure stands as a monument to the hubris, greed, and excesses of the 2000?s.

My global strategy luncheon at the Bellagio was a total blast, as usual. There was much speculation on the market impact of QE infinity, how the energy revolution was changing the investment horizon, when the bond market bubble would finally burst, and the chances of war with Iran. The guessing game was for which taxes would go up and how much. One gentleman from Canada kindly informed me that since January, he had made $1 million for his personal account from Trade Alerts on the Japanese yen. That?s why I do this job, to level the playing field for the regular guy.

However, navigating this immense convention center can be devilish. Some of my guests went to the U.S. Aids Conference in error, while some of the AIDS people visited my lunch by accident. They were politely redirected. This is why I tell people to allow an hour just to get from the parking lot, past the dancing girls and craps tables in the Casino, to their seat at my table.

I always enjoy doing these lunches, as the feedback I gain from readers is invaluable. Not only do I learn about new, unexplored asset classes and local micro business trends, there are always good suggestions on how I can improve my own service. I also have to confess that hearing about the latest Internet rumors and conspiracy theories is a real hoot. I tell people that all tips obtained from the Internet should be assumed to be wrong, unless, of course, they come from my own newsletter.

The Forlorn Fontainebleau

Welcome to Sin City

Long time readers of this letter know too well that I have been hugely negative on the sector since late 2005, when I unloaded all of my holdings (click here for ?The Hard Truth About Residential Real Estate?).? However, I believe that ?forever? may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.

Let?s back up for a second and review where the great bull market of 1950-2006 came from. That?s when a mere 50 million members of the ?greatest generation?, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million individuals never hesitating to borrow more to pay higher prices. When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because my father was an ex-Marine. This is where our suburbs came from.

Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer?s who earn less than their parents, marking down prices as fast as they can. As a result, the Federal Reserve thinks that 45% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 70 million homes. Don?t count on selling your house to your kids, especially if they are still living rent-free in the basement.

The good news is that the next bull market in housing starts in 10 years. That?s when 85 million millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer?s. The next recession will probably knock another 25% off real estate prices. Think 1982 again. Fannie Mae and Freddie Mac will be long gone, meaning that the 30-year conventional mortgage will cease to exist.

All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world. With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.

To make matters worse, Ben Bernanke?s current massive monetary expansion assures that there will be one at least one, and possible two interest rate spikes by 2030. If you think the real estate market is bad now, wait until mortgage rates hit 18%.

For you millennials out there just graduating from college now, this is a best-case scenario. It gives you 10 years to save up the substantial down payment banks will require by then. You can then swoop in to cherry pick the best neighborhoods at the bottom of a 25 year bear market, much like your grandparents did in 1954. People will no doubt tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That?s what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.

Just remember to sell by 2060, because that?s when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your parents are now.

My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.

I asked who was coming. She said Reagan?s Treasury Secretary, George Shultz, Clinton?s Defense Secretary, William Perry, and Senate Armed Services Chairman, Sam Nunn. I said I?d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.

When I arrived at San Francisco?s Mark Hopkins Hotel, I was expecting the usual mob scene. I was shocked when I saw the three senior statesmen making small talk with their wives and a handful of others.

It was a rare opportunity to grill high-level officials on a range of top secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days. I moved in for the kill.

I have known George Shultz for decades, back when he was the CEO of the San Francisco based heavy engineering company, Bechtel Corp. I saluted him as ?Captain Schultz?, his WWII Marine Corp rank, which has been our inside joke for years. Since the Marine Corps didn?t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he already was familiar with ballistics, trajectories, and apogees.

I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn?t fight them there, we would be fighting them in the streets of Los Angeles. He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy. To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.

I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament. Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.

Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930?s, although he never mentioned this in any election campaign. As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which today generates 10% of the total US electric power generation.

Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.

I had not met Bob Perry since the late nineties when I bumped into his delegation at Tokyo?s Okura Hotel during defense negotiations with the Japanese. He told me that the world was far closer to an accidental Armageddon than people realized.

Twice during his term as Defense Secretary he was awoken in the middle of the night by officers at the NORAD early warning system to be told that there were 200 nuclear missiles inbound from the Soviet Union. He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch.

When the US bombed Belgrade in 1999, Russian president, Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter response. Fortunately, his generals ignored him.

Perry said the only reason that Israel hadn?t attacked Iran yet, was because the US was making aggressive efforts to collapse the economy there with its oil embargo. Enlisting the aid of Russia and China was key, but difficult since Iran is a major weapons buyer from these two countries. His argument was that the economic shock that a serious crisis would bring would damage their economies more than any benefits they could hope to gain from their existing Iranian trade.

I told Perry that I doubted Iran had the depth of engineering talent needed to run a nuclear program of any substance. He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.

Ever in search of the profitable trade, I asked Perry if there was an opportunity in the nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster. He said there definitely was. In fact, he personally was going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5th generation technology that uses small, modular designs, and alternative low risk fuels like thorium.

I had never met Senator Sam Nunn and had long been an antagonist, as he played a major role in ramping up the Vietnam War. Thanks to his efforts, the Air Force, at great expense, now has more C-130 Hercules transport planes that it could ever fly because they were assembled in his home state of Georgia. Still, I tried to be diplomatic.

Nunn believes that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind. But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as this year.

Nunn applauded current administration efforts to cripple the Iranian economy, which has caused their currency to fall 70% in the past six months. The strategy should be continued, even if innocents are hurt. He argued that further arms control talks with the Russians could be tough. They value these weapons more than we do, because that?s all they have left. Nunn delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets. I hadn?t heard that.

As the event drew to a close, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 26 years ago. He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 92. I responded ?I want to be like you when I grow up?. He answered that I was ?a promising young man.? It was the best 61th birthday gift I could have received.

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