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POPULISM AND GAMING: SUPPORT FOR NV HOTEL TAX REMAINS HIGH

Our friends at First Rain highlighted a Nevada poll showing 60% of Nevada voters approve a 3% tax increase to 13% of room revenues. The room tax issue will be on the ballot in a non-binding referendum. The referendum will likely apply pressure to legislators to actually enact a tax hike. This is consistent with our populism theme. As state budgets continue to deteriorate, look for legislators to attempt to hit up their favorite punching bags: the casinos; for the children, of course. Nevada, Illinois, and New Jersey remain in rough shape fiscally.

As can be seen in the chart, the impact to the Nevada gaming companies looks manageable. However, with 40,000 hotel rooms in the state, MGM would be hit the hardest, reducing 2009 EPS by about 7%.


MGM would be the hardest hit

MGM: Dubai bailout? Not today...

Suffice to say, the day trading community has had some fun whipping around in MGM the last few days. Up +20% on Friday, then down -9% today. Its a good thing my partner, Todd Jordan, has the edge here. Today's breakdown was a material one. This stock is a short to $26.20.
  • MGM closing below $30.99 is very bearish.
    KM
(chart courtesy of stockcharts.com)

MCD – Mapping the Response

Earlier this morning, I posted the results to the question I posed to MCD franchisees regarding their current level of contentment (relative to past periods) as it relates to how they feel Oak Brook is handling the issues facing franchisees today (please refer to my ‘The Question’ posting for more details). To recount, “1” is 100% contentment and “10” is wanting out as fast as you can.

When you match up that franchisee sentiment with MCD’s stock price, it becomes apparent that increased levels of franchisee anxiety does not bode well for the overall MCD system and its stock price. For reference, the late 1990’s to 2002 was one of the worst periods for McDonald’s franchisees and not surprisingly, MCD’s stock. This number has now crept up to 5.2 (above the 3.7 average)…Stay tuned!
MCD’s Stock Price Relative to Franchisee Sentiment

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Marking US Homes To Market

This morning's existing home sales release for the month of July was better than toxic. Toxic was the June report of 4.85M homes. July came in a touch better at 5.0M.

Prices are finally coming down (down -7% year over year), and this is starting to stimulate some tepid demand. I still think prices have to come in another -14% in order to alleviate this untenable inventory position of unsold homes. On the inventory front, month’s supply is still extremely elevated at 11.2 months.

If you are long a US home and looking to sell it, marking it to market rather than to model is my advice.
KM

(picture: http://www.willowmanorapts.com/ForSale2.jpg)

Requiem for the levered longs: swap rate spread to treasury vs. the S&P 500

This is a very interesting chart when you consider it in the context of cost of capital for the levered long "Activists" out there in the US market place; particularly those who rely heavily on “buying stock on swap”.

As the leverage cycle rolls over alongside the economic cycle, access to capital will continue to tighten. This will lead to some mega blowups in the land of levered long hedge funds.

Keep your eyes on this developing "Trend”.
KM

Stagflation in the world's 5th largest economy, The United Kingdom...

Scotsman, Ian Macleod, a professional card player and war hero turned conservative politician, is credited with coining the term stagflation.

In 1965 while speaking before the House of Commons Macleod famously observed “We now have the worst of both worlds—not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of “stagflation” situation.”

Macleod died in 1970, but he would certainly recognize the implications of the chart attached below. With the GDP numbers released on Friday for the second quarter the UK economy is clearly entering the worst of both worlds.

Andrew Barber
Keith McCullough
Research Edge LLC

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