Money talks and BS walks.

As almost anyone in the world knows, Las Vegas is a town that revolves around gambling. Yes, we have fabulous natural attractions like Mt. Charleston and Lake Mead. Our weather is typically hot, hot, and hotter. Many seniors come for an attractive personal income tax rate, which is zero. Zero is hard to beat, but with a dim bulb-ed leader as Governor and many Californian’s itching to leave the People’s Republic, it is not out of the realm that the income tax situation changes at some point. Not for the better, mind you. Anyway, our city very much is interested in money. Dinero. Cash. If you go to a restaurant, not that many people are going that much these days, and you want a table when it is crowded, you probably are going to have to kick in a few bucks for the greeter. You want in to a popular night club? Uh, better not be stingy or you will be waiting a while. It’s all about the cash. Cash. Cash. Cash. Imagine that. The same thing is applicable in most locale’s all over the world, especially in popular places. It is why we have the quote that money makes the world go round. Guess what? It also is true in the corporate world.

For any listed company, the ability to allocate capital is a distinguishing factor for a management team. The best companies have a leadership which finds efficient ways to raise and deploy funds. As an example, when they spend one hundred dollars on a project, the best companies will see returns of many multiples of that hundred dollars over a short time frame. A good case study is the Las Vegas Sands when they built their first casino in Macau. The payback period on the project was a year, which is essentially a 100 percent return over that time frame. Notice I did not specify the return on equity. If the project is mostly debt-financed, the return on equity is much higher. It is for this reason you see investors flock to the same management teams at the same companies. When Microsoft or Amazon is earning forty and fifty percent returns (or more) on their deployed capital, and doing it every year for a decade, it is why their stock continues to have buyers. Conversely, if you are a management team which deploys capital poorly, investors will avoid your stock. As a good example, the MGM spent billions on a project here in Las Vegas called the City Center. It took at least a decade to earn the money back on that project. In fact, it almost caused the MGM to go bankrupt in 2008. Today, over 13 years later, the stock trades at nearly the same price. Just as important, companies that don’t earn returns at all, meaning they destroy capital, ultimately get starved of it. We have seen retailers, shale exploration companies, mining entities, and fixed-line telecommunication providers all lose access to funding because they don’t generate any return on investment. Capitalism is brutal that way, and investors spare no mercy (or time) on entities that don’t generate sufficient returns. Money talks and BS walks in the stock market, too.

In the market last week, it was a huge week for earnings as IBM began the week by beating estimates, but again did not have any revenue growth. What else is new? Netflix missed as subscriber growth slowed, while Tesla exceeded estimates, primarily due to tax credits. Later in the week, Intel missed as the data center number was weak while Coke posted better than expected results. Locally, Las Vegas Sands remains confident on business improving when the world opens up. Amen, and the sooner the better, though with Covid numbers picking up all over the world, it appears our best hope is the vaccine route. Go big pharma, go big pharma, go big pharma. Say it loud, say it proud. You too, Bernie.

Turning to the political world, Thursday night Donald Trump and Joe Biden had their final debate. After every contest, each party and their supporters always proclaim victory no matter what the actual results indicate. I am sure you watched it and have your own impression. Let’s turn towards a different contest, but one which may have a big impact on the final outcome, that being the ability to raise money. In this regard, Joe Biden has the advantage and a dramatic one at that. The reason for this superiority has been the contributions from wealthy contributors who work on Wall Street, and in Silicon Valley. His edge over Donald Trump in the third quarter alone amounted to over $300 million dollars. In Las Vegas, every other second on television we see a Biden commercial. When you turn to YouTube, there it is, a Biden ad. Maybe you want to tweet, or check your Facebook feed (be careful, they might not let you if there is something about Hunter there), low and behold, Joltin Joe is telling you to vote blue. Those dollars are also being raised in massive amounts for the Democratic effort to push the Senate blue as well. Lindsay Graham’s opponent has raised an all-time record amount in his effort to best the Senate Judiciary chairman. Whether it is in Las Vegas trying to get a seat at a restaurant, a contender for a Senate seat, or a Presidential candidate, the same truth applies. Money talks and bs walks.