Betting That This Time, the House Doesn't Wynn

Includes: LVS, MGM
by: TraderMark

We've been bears on Las Vegas Casinos for a long time [Feb 13, 2009: Leaving Las Vegas.... Literally], [Apr 14, 2008: Things I've Been Negative on Since Fall 2007]. Moody's decided it was a good time to downgrade Las Vegas Sands (LVS) and MGM (NYSE:MGM) debt... I assume the stocks trading in the $1-$2 range was a tip off.

  • Moody's Investors Service cut some ratings for MGM Mirage and Las Vegas Sands Corp. late Tuesday. Citing the likelihood of continued softness in Las Vegas, Moody's reduced MGM's probability of default rating to "Caa2" from "Caa1" and dropped its corporate family rating to "Caa1" from "B3." It expects Las Vegas to continue to come under pressure as consumers tighten their discretionary spending during the recession, which will cause a drop in gaming revenue and further deteriorate MGM's liquidity.

We like Wynn Resorts (NASDAQ:WYNN), the best out of this group - but it's the best house in a very awful neighborhood. I don't want to speculate on bankruptcies in this litigious society, but let's just say things are not looking great for the two peers mentioned above. And no Mr. Geithner - there is no recovery coming anytime soon and yes the US consumer is toast for a long time.

Since the other 2 names are below $5, we can no longer short them, so Wynn it is. I am starting a 1.9% stake (just in case the market continues to rally) in the $20.30-$20.50 range, but this will be a long-term short that we will trade around. The stock has surged from $15 to near $21 the past few sessions and is sitting right below its 20 day moving average.

If the stock market surges (potentially up to the 50 day moving average), I'd expect this name to run up as shorts flee, so position size is not extreme yet. If the market rolls over, I'll expand this short in a meaningful way (or on a pop up to the $28 range); 2%ishis a good start for now until I see what the market does - sorry Steve Wynn. Still one of my favorite CEOs.

[Feb 25: Wynn Resorts Misses by a Country Mile]

[Feb 5, 2009: Jaw Dropping Action in Casinos]

[Oct 3, 2007: A Top in Casino Names? Wynn and Las Vegas Sands]

[Nov 1, 2007: China Can't Save Las Vegas Sands - It's Getting Crox'd]

Short Wynn Resorts in fund and personal account