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The Miami Meltdown is Moving to Vegas

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, August 9, 2006

In April 2000, Steve Wynn paid $270 million for a small decrepit hotel halfway down the Las Vegas Strip called The Desert Inn.

He imploded it, cleared the site, and put up a new hotel.

The new hotel is called Wynn Las Vegas, and right now, it’s the hottest hotel on The Strip. Each room cost $1 million to build. The whole thing cost $2.7 billion. Wynn owns the only golf course on The Strip. You’ll pay $500 per round, as long as you’re a hotel guest.

A Vegas guide told me the Wynn is the only hotel that doesn’t subcontract its transportation service to outside limo companies. This way, when you use Wynn’s car service, you’re guaranteed to travel in either a Rolls Royce or a Bentley.

Then he told me the story of the Gucci dog. A high roller came to stay at the Wynn and brought a small dog with him. He requested a pair of brand new Gucci loafers from room service for his dog to chew on. So Wynn’s staff sent up a leather Gucci sports bag filled with loafers.

A second Wynn hotel – called the Encore at Wynn Las Vegas – is under construction next door. This one will cost $1.4 billion.

Vegas is booming. All in all, 20,000 hotel rooms are currently under construction in Las Vegas and will be online in the next three years. To give you perspective, in the decade 1996-2005, hotels built 32,000 rooms. One project – the City Centre by MGM Grand – will cost as much as $7 billion.

I arrived in Las Vegas last week to support a friend playing in the World Series of Poker. While I was there, I got to check out some real estate.

DailyWealth hit the nail on the head with a similar investigation into Miami five months ago. Only by going there and posing as a buyer was I able to see what was really going on with all those new condo developments.

I found tons of unsold condos and warned that a crash was coming. The homebuilder and bank I wrote about have fallen 45% and 25% respectively, and I wouldn’t be surprised if they’re bankrupt within a couple of years.

The first thing I did in Vegas was sign up for a tour of a new timeshare development they’re building at the south end of the strip. Just for agreeing to listen to the sales pitch, they gave us $150 in free show tickets, roller coaster rides and meal vouchers. Then they drove us out to the development site for two hours, hit us with a long sales pitch and showed us a model condo.

They used Las Vegas’s growth statistics to push their agenda. They said Las Vegas is the fastest growing city in America and 71,000 new people arrive each month to live here. It’s also the world’s most popular tourist destination, they told us, with 35,000,000 visitors each year.

The poker pro tells me there are still weekends when you can’t find a spare hotel within ten miles of the Strip. Downstairs, the restaurants and bars are jammed, you can’t walk around the casino without bumping into people, and there’s still a long line at the front desk.

Demand has been outstripping supply for the past few years and prices have been rising fast. Our sales lady told us her house had gone up from $120,000 to $700,000 in the last five years!

This is the problem. People have come to think that casinos will always be busy, house prices will always go up, and Las Vegas will always be the fastest growing city in America. Worse, they make business decisions based on these assumptions.

Next, we drove twenty-five miles out of the city and scoped out Las Vegas from a hillside. The city lies in a large brown crater so I could see the whole thing. Away in the distance, I picked out The Strip. Between us, hundreds of thousands of new houses carpeted the valley like a reddish-brown moss. They all looked the same.

When a freight train slams on the emergency brakes, it takes miles to stop. When a construction boom gets going, the same thing happens. Investors end up building too much capacity. Prices always come back down.

It’s happening in Miami. It’s happening in Las Vegas too. Hotel rates will fall, real estate prices will decline, they’ll virtually give away timeshares, and in 15 years, many of the newer subdivisions will be ghettos.

Good investing,


Market Notes


It doesn’t stop with a better view of Niagara Falls… Canada’s view of the stock market is also a heck of a lot better than the American side.

With a 110% gain in the past three years, the returns from the iShares Canada Fund (EWC) are dwarfing the gains from the S&P 500 (30% in the same period).

Rich in timber, gold, oil, and minerals, Canada can give thanks to the commodity bull market and fiscal discipline for the rise.

In addition to large weightings in Canadian banks, the Canadian ETF holds giant commodity players like EnCana (oil and gas), Suncor (oil sands), Cameco (uranium), Barrick (gold), and Inco (base metals). 

And as our chart today shows, the trend of these Canadian commodity producers is up...

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