Wednesday, October 13, 2010

MGM, Inflation Swaps Redux, Mortgage Fraud, The Fed

If you read the Bloomberg story about MGM Resorts this morning you might think that they're doing a massive secondary offering because things are peachy!

" MGM Resorts International plans to sell about $550 million in stock, taking advantage of a 49 percent jump in the shares this year and signs that a record Las Vegas gambling slump is easing. 

The company, the biggest casino operator on the Las Vegas Strip, will sell 40.9 million shares, according to a statement yesterday. Founder and top shareholder Kirk Kerkorian will sell 27.8 million shares, reducing his holding after considering strategic alternatives for the past year. 

MGM and Kerkorian’s Tracinda Corp. are tapping public markets as a record slump in Las Vegas eases and casino stocks rally. Las Vegas Strip gambling revenue jumped 21 percent in August, Nevada’s Gaming Control Board said last week."

"Slump easing!"  And the very title of the article: "Vegas starts to recover!"

There's one problem. If you looked at MGM's earnings release, the numbers, even compared to the nine months from Jan-Sep 2009, which should have been the easiest comps in history, were pathetic.

I think the Reuters article on the subject paints a slightly more accurate picture, emphasis mine:
""It is surprising that Tracinda is selling a bunch of stock," said Jefferies and Co analyst David Katz. "It could be for any of a number of different reasons, of course, but none of them are positive."

That cuts all the sugar and spice out, doesn't it?  It reminds me of a quote from The Man, Steve Wynn:

"It is the job, and you can take this as a final statement on the subject going forward. It is the job of board of directors and especially of the CEO to take advantage of the market when that market movement is extreme. When a company increases its value by 100% in 60 days, that’s an unnatural movement of value and the market also goes the other way sometimes. These unnatural movements in value, no company gets to be worth twice as much in 60 days as it was before to any intelligent person, so when that happens, we take advantage of it. If everybody is so hungry for shares, we let them have some. If the shares go down, we buy them. And that, that is a statement of policy in this company, period."

I can translate that for you:  "Sold to you, SUCKA!" 
One thing that jumped out at me from MGM's earnings was this statement:

"CityCenter expects net revenues of $413 million in the third quarter, including $166 million related to residential operations, of which $28 million related to forfeited residential deposits."

$28mm in forfeited deposits!  You can do your own math  - I don't know what the average deposit was, but if it was $100k, that's 280 units. If it was $50k, that's 560 units.  

- Moving on, Nemo finally wrapped up the inflation swaps expectation debate we had more than a month ago.  I think he's agreeing with me.

"The moral is that risk and risk aversion are meaningless without reference to a portfolio."

- I haven't written at all about the foreclosure fraud crisis, and I hope not to for as long as possible - there are plenty of people out there who are doing great work on the subject, including Mike at Rorty bomb who is up to part 5 in his series on the whole shebang.  (That link has links to his other 4 parts as well).  Barry Ritholtz also has a good summary.

- The Pragmatic Capitalist (now: Pragmatic Capitalism) has been no fan of the Fed's handling of monetary policy, and I share his skepticism.  I snip his recent piece in its entirety:

"No wonder America is losing more and more of the wealth pie to Asia.  This quote from David Rosenberg pretty much speaks for itself:
“Brian Sack at the New York Fed stressed the need for the Fed’s actions to bolster asset inflation as to boost the wealth effect on spending (QE “adds to household wealth by keeping asset prices higher than they otherwise would be…”).  We just can’t seem to wean ourselves off this asset-dependent economy — and how directed by a Fed official that the attempt here is to bring asset values above their intrinsic value.  Amazing way to run an economy.  Whatever happened to skills, productivity, education, job creation, innovation?  Or thrift — when did that virtue become a dirty six-letter word?”
I’m thoroughly disgusted with the response of government over the last 24 months…."


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