To stay in Vegas, you’d have to get to Vegas. And that costs money no-one is willing to spend right now. Accordingly, the supposedly recession-resistant vice stocks are taking it on the chin. Just yesterday [Thursday], we claimed our own 25% short profits share from the collapse of Las Vegas Sands (LVS) share price.

Today, I’d like to direct your attention to Wynn Resorts, Limited (NASDAQ:WYNN).

When it came to the subject of Macau, casino mogul Steve Wynn said on Wednesday: “The central government and the Macau government putting a crimp in or a slowdown in visitation was an attempt to give the community a chance to absorb the stuff that had been built.”

But that really makes no sense at all. Revenue growth has slowed as global recession and new travel restrictions on mainland Chinese tourists have hit all Macau casinos. Allowing “the community to absorb” new casinos doesn’t bring renminbi, yuan or dollars into the till. And the outlook that this may change is getting dimmer by the day:

Citi just downgraded Ctrip.com International, Ltd. (NASDAQ:CTRP), China’s premier travel service provider for hotel accommodations, airline tickets and packaged-tours in China. Analysts reduced it from a Buy to a Sell, slashing its price target from $53 to $18. We dipped below that price this morning.

If the outlook for the company who’d make a mint off shuttling Chinese gamblers to Macau is lagging… when China is lathering a good third of its currencies reserves into work-creation programs (infrastructure investment is nothing else!)… and when the companies responsible for China’s prosperity are closing at a record pace… it is time to bail.

WYNN is currently trading at around $30.15, down a hundred bucks from its 52-week high of $137.93, and uncomfortably close to its 52-week low of $28.06. Other than $3 LVS, WYNN still has a decent height to fall from.

I say short it at current levels, for gains of 15-20% by New Year’s. Cover at $33 should there be an upward bounce.

Source: After LVS, Wynn set to lose

If it doesn’t happen as one of the final acts of the Bush administration, it will happen as one of the first acts of the Obama one.

The question is, will it help the fast-falling auto industry?

It’ll help retailers. The overwhelming evidence is that the last round of stimulus checks helped pick up consumer spending in the second and third quarters.

But big-ticket retailers like auto dealers play in another sandbox entirely. Unless these checks have a couple of more zero’s than the previous ones, the auto industry’s fate is tied to getting another $25-billion loan package from the government.

The auto industry needs it. And from Obama’s latest statements, it looks like it will get it. And just in time.

The auto industry is getting battered from three trends…

1. A worsening global economic slowdown

2. A global credit crisis which has dried up lending (including for autos)

3. A strengthening dollar, which makes American cars more expensive in overseas markets

The numbers published last week on October sales were abysmal. Toyota (NYSE:TM) reported a 23 percent drop, Ford (NYSE:F) a 30 percent drop, GM (NYSE:GM) 45 percent and Chrysler 35 percent.

GM is burning cash so quickly it warned this past Friday it’ll run out of money during the first half of next year. It sounds like GM is in shock: “In my 27 years, I have never seen a month like this. It was like somebody turned off the lights in the month of October,” a GM official said.

The auto industry is in a free fall. September’s auto sales numbers were terrible. It showed a loss of 30 percent. October’s was worse. It showed a loss of 33 percent.

It’s bad and getting worse. By all means don’t go bottom-fishing in this sector now. If anything, shorting the sector makes much more sense.

Source: What’s Going to Stimulate Auto Sales?

This from Taipan Daily:

Last week, I wrote to you as to how our local hausfraus had found a convenient way to raise funds without the trouble of visiting such sordid places as pawnshops. Their solution: gold-selling parties wherein nice men would come to the house and relieve them of their excess jewelry.

Apparently the need to convert baubles to dollars is not limited to the Maryland upper middle class these days. According to Bloomberg, the pawn business is booming in, of all places, Beverly Hills. Except, as usual, Cali has to do poor Maryland one better, so the “nouveaux pauvres” are cashing in Rolexes and Picassos in record numbers.

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But these suddenly cash-strapped suntan state dentists and lawyers can’t hold a candle to the humongous cash hole Detroit’s “Big Three” find themselves desperately trying to fill.

Can I Get $25 billion for a Cup of Coffee?

Late last week, an ad-hoc committee from GM, Ford and Chrysler flew down to Washington and went down on their collective knees before Nancy Pelosi and Harry Reid begging for a second $25 billion hit.

That’s right, I said second hit, because about four weeks ago, Cap Hill approved another $25 billion in low-interest loans to help the automakers and their suppliers keep plant doors open.

Apparently, this was only a drop in the old coffee cup, because the very next day after visiting the Capital, Ford (NYSE:F) posted third quarter losses of $129 million, and announced that it would have to lay off another 2,260 white-collar jobs.

Hemorrhaging Cash Onto the Factory Floor

Actually, if you dig into the report a bit, you find that Ford really lost some $2.7 billion making cars and the like. Fortunately for stockholders, Ford managed to off some $2 billion in health care costs onto union workers.

Its compadre in pain, General Motors (NYSE:GM), announced that it also lost $2.5 billion in the third quarter – and even went so far as to plainly state that it would simply run out of cash in 2009 if Washington doesn’t bail it out.

All three manufacturers have made it quite clear that these losses and layoffs are trivial compared to the pink-slip blizzard that will engulf us if they do not get a sizable chunk of Washington’s trillion-dollar bailout fund.

Those 2,260 Ford execs will have plenty of company kicking around on America’s collective street corner. October saw another 240,000 workers turned out into the brisk fall breeze.

It’s a Pink-Slip Parade!

That hit was on top of the 127,000 guys and gals fired in August, and the 284,000 let go in September. Tot it all up and so far this year, some 1.2 million jobs have spiraled down the maw of “the recession no one would name,” raising our national unemployment rate to a 14-year high of 6.5%.

When the usual crowd of economists saw these figures, they were shocked and dismayed. The slide-rule types had actually been calling for the unemployment rate to ease a bit. Now they are being forced to trade in their predictions of a short and shallow recession – most probably over before it is even officially pronounced – for warnings of a long hard slog.

So how did investors take this news? They loved it!

After a drubbing in the form of two straight days of 400-point-plus losses, the selling actually paused for a moment on Friday, when the market caught wind of rumors of yet another round of Fed rate cuts.

How Cheap Is Cheap Enough?

I can’t tell you for a fact whether the Fed will actually venture into the sub 1% realm, or whether this is just more smoke. Practically speaking, the Gray Men of C Street really don’t have to do much of anything more right now, as the London credit benchmark has already plunged to a four-year low.

At 2.29%, LIBOR (the rate that banks loan to each other) is at its lowest level since November 2004. The TED spread (the gap between bond rates and borrowing rates) is down under 200 points for the first time since the Lehman collapse. By some measures, in other words, credit is actually cheap again.

So hey, if credit is this cheap, why isn’t Detroit going to a bank for much-needed spending cash? Or selling bonds on the open market for that matter?

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For the same reason Ford, GM et al. aren’t selling stock shares for more than a couple of bucks a pop: risk-wise, they stink!

Rotten Through and Through

These guys were teetering on the edge of bankruptcy long before our great financial houses managed to shoot themselves in the collective foot with bogus mortgage bonds. Now the only way they can cover payroll is by begging from Uncle Sugar.

In the end, Uncle will somehow manage to keep their doors open, if for no other reason than to prevent rioting outside plant gates across America. But I strongly suspect that both share and bondholders will get screwed along the way.

My call: Short Detroit with both hands and both feet.

Source: “Will Work for $25 Billion” – Why Detroit Might Be Saved, But Shareholders Won’t

This from Money Morning:

If there’s a proverb that captures the outlook for the U.S. economy in the New Year, it’s the one that says: “It’s always darkest before the dawn.”

Regardless of any formal announcement of whether or not the United States drops into an actual recession, the ongoing credit crisis guarantees a contraction of the American economy by virtually every measure we know. That period of darkness will be marked by a dramatic slowdown in economic activity, as well as by rising unemployment, additional declines in U.S. stock prices, and constant volatility. It could last as long as 12-18 months.

But when the dawn does come, it will be one to remember. If U.S. President-elect Barack Obama gets it right – and I have every reason to believe that he will – then investors will be presented with the greatest investment opportunity of our generation. At that point, shares of American companies will be at such low levels that wholesale buying by individuals, mutual funds, pension funds, institutional money managers, and foreign-controlled sovereign wealth funds, will generate gains that will not only make us whole, they will make us rich once again.

The Recipe for a Recession

Whether or not the United States is technically in a recession ultimately will be divined by the National Bureau of Economic Research (NBER). The business-cycle dating committee of this privately run, nonprofit economic research group is right now studying five factors in an attempt to determine if the United States has entered a recession and, if so, when that downturn started, MarketWatch.com reported. Those five factors are:

• Gross Domestic Product (GDP).
• Industrial production.
• Employment
• Income.
• Retail sales.

Regardless of any formal announcement by the NBER of whether we’re in a recession, the credit crisis guarantees a general contraction of economic activity, by every measure.

“Any doubt that we’re officially in a recession can be put aside,” Anthony Karydakis, former chief U.S. economist for JPMorgan Asset Management (NYSE:JPM) – and now a professor at New York University’s Stern School of Business – recently wrote in Fortune magazine. “The rapid deterioration of labor markets points to a sharp decline in hours worked and output in the fourth quarter. This is likely to lead to a decline in personal consumption to the tune of 5.0% or so for that period. Since [consumer spending] makes up about 70% of the economy, the stage has already been set for real GDP to shrink at a more than 4.0% rate in the fourth quarter.”

Confirmation of that belief is evident by looking at each of the NBER’s five key indicators.

• Gross Domestic Product (GDP): The U.S. Commerce Department estimated that the U.S. economy, as measured by GDP, rose 0.9% in the first quarter. In the second quarter, GDP advanced an estimated 2.8%. For the third quarter, GDP declined an estimated 0.3%. My own econometric models suggest that GDP actually contracted at a 1.5% pace in the third quarter and will decline another 2.75% in the fourth quarter. For the year, that would mean the U.S. economy actually fell 0.55%. The U.S. economy last posted a full year’s negative GDP in 1991, when it declined 0.2%. Verdict: Recession.
• Industrial Production: This measure of output by the nation’s factories and mines dropped 2.8% in September, and a very steep 6.0% in the third quarter. Verdict: Recession.
• Employment: The U.S. Bureau of Labor Statistics announced Friday that October’s unemployment rate was 6.5%, a jump of 0.4%, which was double what most economists expected, and also its highest level in 14 years. The economy has now lost a total of 1.2 million jobs since the beginning of the year, with nearly half of those losses occurring in the last three months alone, pointing to an acceleration in the pace of erosion in labor markets. Karydakis, the Stern School professor, wrote in Fortune: “By way of comparison, during the 2001 recession and in the sluggish growth that followed in 2002-03, the unemployment rate reached a peak of only 6.3%, in June 2003. We’ve already exceeded that mark and, given that we are still in the early phase of the current recession, the unemployment rate should be expected to push toward the 7.5% range – and possibly higher – during the next three months to six months.” Verdict: Recession.
• Income: Personal income increased $24.5 billion, or 0.2%, and disposable personal income (DPI) increased $25.7 billion, or 0.2%, in September. Personal consumption expenditures (PCE) decreased $33.6 billion, or 0.3%. Excluding the rebate payments made to U.S. taxpayers under the Economic Stimulus Act of 2008, DPI increased $30.3 billion, or 0.3%, in September, and increased $44.0 billion, or 0.4%, in August. Verdict: Too close to call.
• Retail Sales: October retail sales are coming in well below already-diminished expectations, and some reports have been downright depressing – including The Neiman Marcus Group Inc. -26.8%; The Gap Inc. (NYSE:GPS) –16%; The Nordstrom Group (NYSE:JWN) -15.7%; J.C. Penny Co. Inc. (NYSE:JCP) -13%; Kohl’s Corp. (NYSE:KSS) -9%;  Ltd. Brands Inc. (NYSE:LTD) -9%; Target Corp. Inc. (NYSE:TGT) -4.8%; and Wal-Mart Stores Inc. (NYSE:WMT) +2.4%. In a report last week, Moody’s Investors Service (NYSE:MCO) projected that the retail sector’s woes will continue into 2009 as consumers cut back on buying apparel, footwear and accessories “in order to save money for essentials.” The credit rating firm said in a separate report that holiday spending “will prove even weaker than expected,” amid October’s financial-market swoon. Verdict: Recession.

If U.S. exports are taken out of the GDP calculations going back to January, it’s apparent that there has been very little domestic growth in the economy. And when revisions are finalized in the next few months, we’ll be looking back at the recession that we’re all but certain is upon us right now. Until the credit markets are freed up and borrowers are extended credit at reasonable rates, it’s unlikely that credit, the centerpiece of the economy, will be anything other than a major cog in the wheel.

There are some signs of a thaw, but not anytime soon. The U.S. Federal Reserve’s lowering of the Fed Funds target rate to 1.0%, and coordinated rate reductions by the Bank of England and the European Central Bank, as well as other major world-wide central banks, may start to ease the stranglehold gripping the worldwide credit markets. The London interbank offered rate (Libor), a critical interest rate against which trillions of dollars of mortgages, bank loans and derivatives are priced, dropped to 2.39% last week from a high of 4.82% on Oct. 10.

The prospect of President-elect Obama’s choosing a different means of attacking the credit crisis will be closely watched and, by itself, may create an air of confidence that perceptions will change. But changed perceptions will not be enough.
The truth about our economic outlook is that it is predicated on demonstrably better transparency. If U.S. banks follow the lead of their European counterparts, which have recently been freed from fair-value, mark-to-market accounting, and which may retroactively mark assets to “internal models” back to July, then balance-sheet clarity will continue to be cloaked in darkness. Lack of confidence in the banking system will persist, especially among the banks themselves. The first order of attack needs to be the creation of a fundamental leadership position that leads to an open, transparent and accountable measure of balance sheet assets and liabilities. As long as failing banks are being propped up, this cycle of credit contraction will persist.

The outlook for the economy is inextricably tied to the price of oil. The run-up of benchmark crude this summer to the record $145 a barrel level, and its subsequent fall to half that level, has wreaked havoc throughout the economy. Similarly, the run-up in commodity prices, and their subsequent fall, also has caused a lot of damage. Together, the dramatic rise and fall in the pricde of oil and other commodities is a harbinger of greater volatility in the future.

Follow the Money

Follow the money. Capital rapidly inflated the tech-stock bubble. When that bubble burst, capital flowed into and flooded the hard-asset world of real estate. When that bubble burst fast, speculative money dove into oil and commodities. When the U.S. and world economies looked weak, those bubbles burst. The looming threat of inflation this past summer instantly gave way after the drop of oil, gold, metals and agricultural commodities. And now, deflation is seen as the looming threat on the horizon.

Which threat should we worry about?

The answer is – both. The prospect for near-term deflation seems all too real. As raw material prices fall and finished good prices fall due to a lack of purchasing power resulting from lack of credit and world-wide recessionary fears, the U.S. consumer has fundamentally changed his or her collective psychology. Is U.S. consumerism, which is responsible for 70% of GDP, in full retreat? If it is, as all measures project, then it’s likely that government stimulus efforts will overshoot their intended mark.
Just look at what the United States has done already as it battles this financial crisis. It has:

• Handed out more than $150 billion in stimulus rebate checks.
• Floated a $700 billion financial bailout rescue plan – almost $160 billion of which has already been placed.
• Bailed out American International Group Inc. (AIG), to the tune of $125 billion.
• Covered JP Morgan Chase & Co.’s bet on taking over The Bear Stearns Cos. – to the tune of $29 billion.
• Looked to lend struggling automakers $25 billion.
• Agreed to guarantee depositors at all banks.
• Stepped in to buy commercial paper that no one else will buy.
• Guaranteed money-market-fund investors.
• And backstopped the Federal Deposit Insurance Corp. (FDIC), Fannie Mae (FNM) and Freddie Mac (FRE).

And now we’re getting wind of another stimulus package and more help for everyone.

If, in six months to a year, the credit markets are facilitating borrowers again, the massive buildup of U.S. debt will result in a falling dollar and higher interest rates.

That spells inflation.

A massive re-inflation of the economy portends another flood of speculative money into oil and commodities. The cycles are increasingly condensed, more volatile and will be increasingly more disruptive.

Welcome to the brave new world of global finance and speculation.

The Federal Reserve’s balance sheet has ballooned from $900 billion to more than $1.8 trillion. That’s 13% of GDP. The Treasury Department has telegraphed its intention to float $550 billion of debt in the fourth quarter and estimates it will have to float another $368 billion in the first quarter of 2009. Our national debt will then be close to 49% of GDP.

If there is an easing of credit in the economy, and borrowers come to market with the pent-up demand that has not been met for the past year, the competition for funds will raise interest rates. Higher interest rates will counter any stimulus effect from government programs.

Who will buy U.S. Treasury debt if the world is less apprehensive about credit quality? Lenders will once again seek higher returns, potentially forcing the Treasury Department to increase its rates. The potential of this event may sink the dollar if investors perceive that the U.S. economy is stagnant and the world is awash in dollars. The yield curve – the spread between the Treasury’s two-year and the 10-year paper – has been steepening. A steepening yield curve, where short-term borrowing costs are low and long-term rates considerably higher, is good for banks that borrow short and lend long.

But if the perception of risk diminishes, and the perception of future inflation increases, the yield curve will invert and the threat of rising rates will cause a sell-off in the short end of the curve and a rush into longer-dated maturities. Any increase in short-term interest rates would be painful for struggling banks. An inverted yield curve would be devastating, and inevitably would lead to more bank failures.

Always a Silver Lining – My Forecast

The outlook for the economy is not rosy – and that’s an understatement. But there is a silver lining. Even in the near term, the stock market will present innumerable wealth-creation opportunities.

• First, there are plenty of shorting opportunities out there now, and more will present themselves in the future.
• Second, in due course – in perhaps 12-18 months – we will be presented with the investment opportunity of our generation. If President-elect Obama gets it right, and I believe he’s got the potential to bring us all together and get the country through this (and if you’re reading this Mr. President-elect, I’d like to put in my vote for [New York Fed President] Timothy Geithner as next U.S. treasury secretary), American companies will be able to be purchased so cheaply that fortunes will be made. The recovery will not only make us whole, it will make our people and our nation rich again.

I have absolutely no doubt that the United States will lead the world back into balance. The sea change that has arrived is the result of the conservative experiment having lost its true moorings, pushing the economy into disaster. Not that a wholesale swinging of the pendulum to the other side would be good. In fact, it would be disastrous. We have the potential to end up with a new, fair, transparent and judiciously regulated environment where capital formation can again spread its wings and the U.S. economy can fly.

There are new hands reaching into the colorful box of beads that comprise the American landscape and economy. From any human perspective, the United States is more than a microcosm of the universe; it is the center of the world as we know it. It will take time to construct the new mandala. We all need to meditate on the process to ensure that the design we embrace will ultimately be inclusive, forward-looking and – like all great art – an inspiration to all who view it.

PS. This is a cut-down version of the original Money Morning article, which can be read by clikcing the link below.

Source: For the U.S. Economy in the New Year, the Pain Will Precede the Promise