While China hoped that the Beijing Olympics would focus world attention on the country’s stunning accomplishments, 2008 has been a difficult year for China and for investors in Chinese companies. The local Chinese stock markets suffered a decline of almost 50% from their levels in late 2007. The buildup for the August Olympics emboldened human rights activists to protest China’s policies in Tibet, and violent riots broke out in Tibet itself. And then came the horrific tragedy of China’s earthquake, with more than 85,000 people dead or missing and another 300,000 injured. But I believe that the lasting legacy of the cataclysmic Sichuan quake will be a tectonic shift towards a freer China, an enhanced image of the Chinese government, and a renewed commitment to encourage rapid growth in the poorer central and western regions of the country. And the recent declines in Chinese stock prices have provided investors with a very attractive entry point to correct the substantial underweighting of China in the investment portfolios of most individual and institutional investors.
The government’s actions after the quake contrast sharply with China’s response to the 1976 Tangshan earthquake and with the U.S. government’s response to Hurricane Katrina’s devastation of New Orleans. In 1976, when a quarter of a million people perished, the government’s response was slow. Moreover, like the initial reaction in Myanmar, China closed its doors to assistance from the outside world, and national leaders made no effort to visit the site of the disaster. Moreover, the propaganda department denied the severity of the 1976 calamity and banned the media from covering the tragedy.
Today the government’s response has been markedly different. One hundred thousand troops were sent in to help with disaster relief. Prime Minister Wen Jiabao flew immediately to the disaster area, and he has been seen frequently on TV at the front line overseeing the relief effort. President Hu Jintao, acting more like a politician than an authoritarian leader, has visited tent-making factories and has urged plants to run “at full gear” so that 900,000 tents could be sent quickly to the affected areas. To be sure, the first instinctive reaction of the apparatchiks running the propaganda agencies was to ban reporters from visiting the site. But reporters ignored the ban, and it was later lifted.
The Chinese government’s response also contrasts starkly with the U.S. response to Hurricane Katrina. President Bush waited for two days to visit stricken New Orleans and flew over the disaster area without landing. The U.S. government response was widely viewed as inadequate and ineffective and helped send Bush’s popularity ratings to new lows. Premier Wen, in contrast, has become a populist hero.
Moreover, the “firewall” that surrounds the internet in China has been severely breached. Countless bloggers have heaped praise on the rescue effort but have also been unafraid to offer sharp criticism of officials who supervised the construction of the shoddy schools and buildings that crumbled when the quake hit. Ordinary citizens have rushed in to help, independent of any planning by the government. The surge of patriotic fervor has even muted the voices of those criticizing China’s policies with respect to Tibet.
Prof. Benjamin Friedman of Harvard University has argued that economic growth eventually leads to increased political freedom. Some China hands have been skeptical that the Friedman hypothesis applies to China. The 2008 earthquake may well prove to be a defining moment in China’s development into a flourishing civil society with increased personal freedom and with a government that is less distrustful of its own citizens.
China’s troubles over the past year provide an excellent opportunity for international investors to increase their holdings of the stocks of Chinese companies that trade in Hong Kong (so-called “H” shares) and New York (so-called “N” shares) as well as in open capital markets around the globe. The following factors suggest that the equity securities of Chinese companies are more attractive today than has been the case for some time.
First, the long-run economic effects of the quake are likely to be positive. To be sure, in the short run China will be subject to increased inflationary pressures because a substantial share of the pig population has perished, and the destruction of some irrigation systems will hinder agricultural production for some time. But in the long run the Chinese government is likely to redouble its efforts to bring the kind of economic success that has been achieved in the eastern part of the country to the poorer central and western areas.
Second, the stock market’s decline during 2008 has increased the attractiveness of Chinese equities. Warren Buffett, Alan Greenspan, and other observers worried that Chinese stock prices toward the end of 2007 were at bubble levels. But the growth of earnings for Chinese companies remains strong, and price-earnings multiples have declined to levels consistent with those in other world financial markets. Hence PEG rates (the ratio of the price-earnings multiple to the expected long-term growth rate of company earnings) have become very attractive relative to other world markets. While no one can forecast short-term movements of stock prices, we do know that valuations today are far more attractive than they have been for some time.
In addition, investors in the equities of Chinese companies are likely to benefit from the continued appreciation of the Yuan. China has let its currency appreciate by approximately 5% per year since it loosened the peg between the Yuan and the U.S. dollar two years ago. It is highly likely that such appreciation will continue, since China still has probably the most undervalued currency in the world. As the Yuan appreciates against the dollar, U.S. investors will own a share of Yuan earnings that will translate into increasing dollar values over time.
Chinese stocks are also good diversifiers. While China is not decoupled from the rest of the world, the movements of its economy and stock markets have tended to have a low correlation with other world markets. Of course in times of great distress we can’t be overconfident of the benefits of diversification since all markets tend to move together. Still, China is expected to grow rapidly in 2008 while the U.S. economy is likely to crawl to a standstill.
Finally, most investors are severely underweighted in their exposure to China. China has 5% of the world’s GDP at official exchange rates. When adjusted for purchasing power parity, China probably has about 10% of the world’s economic activity. The exposure of most individual and institutional U.S. investors to China is substantially lower than 10%. It is not sensible to be underweighted to an economy that has enjoyed the most rapid growth rate of any major country in the world over the past 25 years.
Since Deng Xiaoping reintroduced capitalism into China, the Chinese economy has enjoyed an unprecedented growth rate in output and income that has averaged close to 10% a year after inflation. Under Mao, socialism meant shared poverty. Deng proclaimed, “To be rich is glorious”; under his leadership, hundreds of millions of Chinese have been lifted out of poverty, and China’s national income (adjusted for purchasing power) has become the second largest in the world. By liberating the energy of the Chinese people, Deng provided a stunning example of the power of free market capitalism. China’s current leaders give us some hope that at least some degree of political freedom will follow. That would be good news for all who value freedom – and good news for investors in China as well.
The good-time capital of the US has hit a losing streak. Guy Adams reports on an epidemic of bankruptcies, foreclosures and mass lay-offs
5 July 2008
Since the day Las Vegas was created in the shimmering Nevada desert, visitors have been drawn by one simple promise: "What happens in Vegas stays in Vegas". The motto adorns the city's road signs, and has inspired everything from its souvenir T-shirts to the local tourist board's seductive advertising campaigns.
These days, that motto is imbued with a worrying sense of irony. Because America's most outrageous city is facing a growing multitude of problems, and they all boil down to a single, unavoidable point: right now, far too little happens in Vegas, because not enough people are actually staying there.
The onset of global slowdown, high petrol prices, and a nation-wide housing slump is spelling disaster for a town that owes every aspect of its wealth – from that gaudy replica of the Eiffel Tower to those scale models of Venetian canals and the Pyramids of Egypt – to its ability to inspire free-spending hedonism.
With Americans cutting back on luxuries, and the price of transport rocketing, the so-called "Vegas vacation" is facing the axe. This week, as the nation celebrated Independence Day, major hotels were taking stock of a fall in all-important room occupancy rates from their usually impressive 95 per cent levels to nearer 80 per cent.
More worryingly, new figures showed gambling revenue has also dropped – a further 3 per cent this month – starting a price war between worried firms anxious to lure punters back. Hotel rooms, which last year averaged $130 each, now go for less than $100 (£50).
At the vast Planet Hollywood resort, the clatter of fruit machines and poker chips was this week replaced by an uneasy – and, for Vegas, very unusual – calm. A large if slightly tatty double room could be found for less than $80.
No tourist resort can afford to lose its buzz. Yet the slump now runs so deep it's starting to hurt even the town's Elvis impersonators, wedding chapels, and sex industry. When money's tight, the prospect of stuffing another $20 bill into a lap-dancer's gyrating stocking-top somehow doesn't seem quite so enticing.
"This year already we've seen the Minx closing, the Mensa club closing, and the Crazy Horse closing," says Dolores Eliades, owner of the OG, the second biggest "adult cabaret" venue in the world. "By another 12 months from now, I expect another two or three major venues will have gone.
"We've seen a drop in custom here too: maybe 180 people coming in when before we got 200. It's a difficult business, but the girls still have to make a living. We will survive because we own our own premises, we have a good name and location, we don't buy on credit, and we've been around for a long time. But we're very lucky in that respect."
To quantify the Vegas slump, look to the stock market. Shares in casino operators, the engine room of an economy reliant on its liberal attitude to public morality, have been haemmoraging value like a down-on-his-luck gambler.
Las Vegas Sands, which controls the Venetian and Palazzo resorts on the famous neon-lit Strip that runs through a "miracle mile," has dropped below $50 a share, a third of its value last September. MGM is at $28, from over $100 a year ago. Wynn resorts, owned by the ebullient billionaire Steve Wynn – a Texan version of Donald Trump – neared $70, from almost $180 last year.
This week, in an attempt to prevent financial meltdown, Nevada's Tourism Alliance convened an "Air Crisis Briefing" in an effort to prevent airline plans to halve the number of flights to the resort. The city's gut-busting "eat all you can" buffets are also being scaled back to account for the US's 4 per cent food inflation. Where a long queue of obesity once trailed across The Bellagio hotel restaurant's ornate carpets, demand for its famous (but now pricey) lunch buffet had on Thursday slowed to a trickle. In what sounds suspiciously like a panic measure, the Golden Gate Hotel this month even said it was doubling the price of its signature 99 cent shrimp cocktail.
For the inhabitants of the desert resort, which was founded in 1905 and became prosperous after gambling was legalised in 1931, it's no joking matter. The growing unemployment crisis (MGM just axed another 400 middle-managers), plus a downturn in the tips that form a significant portion of the Vegas economy, has a human cost, too.
Local bankruptcies have quadrupled. The property market, which rode the wave of a boom for most of the past decade is now below its peak by anything from a quarter to a third (depending on whose figures you believe), while Nevada now boasts, if that is the right word, the nation's highest foreclosure rate.
The number of empty homes has caused a health scare after it emerged that mosquitoes – possibly carrying the killer West Nile virus – are breeding in abandoned swimming pools. "We've had crews pumping out pools every day this week," Devin Smith, who manages the city's Neighborhood Response Division, told the Las Vegas Review Journal. "Two years ago, we may have pumped six pools in a season. Now we're probably pumping that a week."
Other sectors of Las Vegas aren't looking too healthy, either. Attendance at conventions, which account for roughly a quarter of the city's income, dropped by 7 per cent this year as impoverished firms cut back on their delegations to recession-hit events such as the Homebuilders Convention.
"The current rate of overall unemployment in this state is 6.2 per cent, the highest since May 1994," said Jered McDonald, an economist with the Nevada Employment, Training and Rehabilitation Department. "Las Vegas seems to be getting the worst of it. Other parts [of the state] aren't so bad; in fact the gold-mining industry is booming, so the drop in employment in big metropolitan areas is actually bigger than that figure suggests.
"With the high oil prices, people don't have much disposable income to spend on gaming and entertainment. So we are looking at a short-term slump, certainly. In the longer term, everything depends on what's going to happen to oil prices."
But the biggest threat of all is that Las Vegas might somehow be perceived to have lost its buzz. Like any tourist economy, the city's fortunes depend squarely on being seen as a "hot" destination, a tag that becomes difficult to justify if potential visitors hear reports that the place is struggling.
As a result, no major strip operators are publicly advertising their new low room rates. None would be interviewed for this article, regardless of the concerns shareholders might have for their fortunes. A spokesman for Wynn Las Vegas, for example, said "Respectfully, we must decline" the opportunity to discuss trading conditions.
And on the horizon is further strife. As a hangover from the frenzied growth of two years ago, Las Vegas is also in the grip of a speculative building boom, with dozens of cranes towering over the Strip.
Wynn Resorts is building a $2.2bn hotel, and Encore and MGM are spending $9.2bn on a 76-acre project called CityCenter. More than 40,000 new rooms will exist in four years, in a city that has 7 per cent of America'shotel beds. The prevailing emotion among business leaders is a mixture of optimism and denial. The Association of Greater Las Vegas Realtors, for example, claims the housing market is finally turning the corner after a "correction" to the long-running bull market that had made Vegas America's hottest location for almost a decade. Rick Shelton, the association's vice- president, insists that the long-term future is rosy and, to illustrate his point, draws a diagram on a napkin in a local cocktail bar. It consists of a circle with the initials "BLM" written outside it.
"This is the map of Vegas," he said. "Inside that circle is the city. Outside it, everything is owned by the Bureau of Land Management. So there's really nowhere else for the city to expand. And yet, the census bureau has forecast that the population of Vegas will grow from two million now to three million by 2016. There's nowhere for those people to go. So this town is another Tokyo, with land as a commodity. You fly in here and you see desert and you think, 'Building, building, building'. But it can't be built on, so prices must go up. And all those Harvard economists are missing that key component when doing their prognosis of our market. The way I see it, we have been in check, and are now aligned for the next spurt, and I'm talking a power arc that's got between seven and 10 years to run."
Dolores Eliades says the history of Las Vegas shows it will find a way to adapt and survive. "Historically, Las Vegas is able to withstand the problems of the rest of the country. When people face hard economic times, they come here to get away from their problems. In the US, people are escape artists, and they deal with problems a little differently from the rest of the world. I believe the history of this town proves I'm right, I really do."
2 comments:
China's Tectonic Shift
Burton G. Malkiel
June 10, 2008
While China hoped that the Beijing Olympics would focus world attention on the country’s stunning accomplishments, 2008 has been a difficult year for China and for investors in Chinese companies. The local Chinese stock markets suffered a decline of almost 50% from their levels in late 2007. The buildup for the August Olympics emboldened human rights activists to protest China’s policies in Tibet, and violent riots broke out in Tibet itself. And then came the horrific tragedy of China’s earthquake, with more than 85,000 people dead or missing and another 300,000 injured. But I believe that the lasting legacy of the cataclysmic Sichuan quake will be a tectonic shift towards a freer China, an enhanced image of the Chinese government, and a renewed commitment to encourage rapid growth in the poorer central and western regions of the country. And the recent declines in Chinese stock prices have provided investors with a very attractive entry point to correct the substantial underweighting of China in the investment portfolios of most individual and institutional investors.
The government’s actions after the quake contrast sharply with China’s response to the 1976 Tangshan earthquake and with the U.S. government’s response to Hurricane Katrina’s devastation of New Orleans. In 1976, when a quarter of a million people perished, the government’s response was slow. Moreover, like the initial reaction in Myanmar, China closed its doors to assistance from the outside world, and national leaders made no effort to visit the site of the disaster. Moreover, the propaganda department denied the severity of the 1976 calamity and banned the media from covering the tragedy.
Today the government’s response has been markedly different. One hundred thousand troops were sent in to help with disaster relief. Prime Minister Wen Jiabao flew immediately to the disaster area, and he has been seen frequently on TV at the front line overseeing the relief effort. President Hu Jintao, acting more like a politician than an authoritarian leader, has visited tent-making factories and has urged plants to run “at full gear” so that 900,000 tents could be sent quickly to the affected areas. To be sure, the first instinctive reaction of the apparatchiks running the propaganda agencies was to ban reporters from visiting the site. But reporters ignored the ban, and it was later lifted.
The Chinese government’s response also contrasts starkly with the U.S. response to Hurricane Katrina. President Bush waited for two days to visit stricken New Orleans and flew over the disaster area without landing. The U.S. government response was widely viewed as inadequate and ineffective and helped send Bush’s popularity ratings to new lows. Premier Wen, in contrast, has become a populist hero.
Moreover, the “firewall” that surrounds the internet in China has been severely breached. Countless bloggers have heaped praise on the rescue effort but have also been unafraid to offer sharp criticism of officials who supervised the construction of the shoddy schools and buildings that crumbled when the quake hit. Ordinary citizens have rushed in to help, independent of any planning by the government. The surge of patriotic fervor has even muted the voices of those criticizing China’s policies with respect to Tibet.
Prof. Benjamin Friedman of Harvard University has argued that economic growth eventually leads to increased political freedom. Some China hands have been skeptical that the Friedman hypothesis applies to China. The 2008 earthquake may well prove to be a defining moment in China’s development into a flourishing civil society with increased personal freedom and with a government that is less distrustful of its own citizens.
China’s troubles over the past year provide an excellent opportunity for international investors to increase their holdings of the stocks of Chinese companies that trade in Hong Kong (so-called “H” shares) and New York (so-called “N” shares) as well as in open capital markets around the globe. The following factors suggest that the equity securities of Chinese companies are more attractive today than has been the case for some time.
First, the long-run economic effects of the quake are likely to be positive. To be sure, in the short run China will be subject to increased inflationary pressures because a substantial share of the pig population has perished, and the destruction of some irrigation systems will hinder agricultural production for some time. But in the long run the Chinese government is likely to redouble its efforts to bring the kind of economic success that has been achieved in the eastern part of the country to the poorer central and western areas.
Second, the stock market’s decline during 2008 has increased the attractiveness of Chinese equities. Warren Buffett, Alan Greenspan, and other observers worried that Chinese stock prices toward the end of 2007 were at bubble levels. But the growth of earnings for Chinese companies remains strong, and price-earnings multiples have declined to levels consistent with those in other world financial markets. Hence PEG rates (the ratio of the price-earnings multiple to the expected long-term growth rate of company earnings) have become very attractive relative to other world markets. While no one can forecast short-term movements of stock prices, we do know that valuations today are far more attractive than they have been for some time.
In addition, investors in the equities of Chinese companies are likely to benefit from the continued appreciation of the Yuan. China has let its currency appreciate by approximately 5% per year since it loosened the peg between the Yuan and the U.S. dollar two years ago. It is highly likely that such appreciation will continue, since China still has probably the most undervalued currency in the world. As the Yuan appreciates against the dollar, U.S. investors will own a share of Yuan earnings that will translate into increasing dollar values over time.
Chinese stocks are also good diversifiers. While China is not decoupled from the rest of the world, the movements of its economy and stock markets have tended to have a low correlation with other world markets. Of course in times of great distress we can’t be overconfident of the benefits of diversification since all markets tend to move together. Still, China is expected to grow rapidly in 2008 while the U.S. economy is likely to crawl to a standstill.
Finally, most investors are severely underweighted in their exposure to China. China has 5% of the world’s GDP at official exchange rates. When adjusted for purchasing power parity, China probably has about 10% of the world’s economic activity. The exposure of most individual and institutional U.S. investors to China is substantially lower than 10%. It is not sensible to be underweighted to an economy that has enjoyed the most rapid growth rate of any major country in the world over the past 25 years.
Since Deng Xiaoping reintroduced capitalism into China, the Chinese economy has enjoyed an unprecedented growth rate in output and income that has averaged close to 10% a year after inflation. Under Mao, socialism meant shared poverty. Deng proclaimed, “To be rich is glorious”; under his leadership, hundreds of millions of Chinese have been lifted out of poverty, and China’s national income (adjusted for purchasing power) has become the second largest in the world. By liberating the energy of the Chinese people, Deng provided a stunning example of the power of free market capitalism. China’s current leaders give us some hope that at least some degree of political freedom will follow. That would be good news for all who value freedom – and good news for investors in China as well.
"To be forewarned is to be forearmed."
Down and out in Las Vegas
The good-time capital of the US has hit a losing streak. Guy Adams reports on an epidemic of bankruptcies, foreclosures and mass lay-offs
5 July 2008
Since the day Las Vegas was created in the shimmering Nevada desert, visitors have been drawn by one simple promise: "What happens in Vegas stays in Vegas". The motto adorns the city's road signs, and has inspired everything from its souvenir T-shirts to the local tourist board's seductive advertising campaigns.
These days, that motto is imbued with a worrying sense of irony. Because America's most outrageous city is facing a growing multitude of problems, and they all boil down to a single, unavoidable point: right now, far too little happens in Vegas, because not enough people are actually staying there.
The onset of global slowdown, high petrol prices, and a nation-wide housing slump is spelling disaster for a town that owes every aspect of its wealth – from that gaudy replica of the Eiffel Tower to those scale models of Venetian canals and the Pyramids of Egypt – to its ability to inspire free-spending hedonism.
With Americans cutting back on luxuries, and the price of transport rocketing, the so-called "Vegas vacation" is facing the axe. This week, as the nation celebrated Independence Day, major hotels were taking stock of a fall in all-important room occupancy rates from their usually impressive 95 per cent levels to nearer 80 per cent.
More worryingly, new figures showed gambling revenue has also dropped – a further 3 per cent this month – starting a price war between worried firms anxious to lure punters back. Hotel rooms, which last year averaged $130 each, now go for less than $100 (£50).
At the vast Planet Hollywood resort, the clatter of fruit machines and poker chips was this week replaced by an uneasy – and, for Vegas, very unusual – calm. A large if slightly tatty double room could be found for less than $80.
No tourist resort can afford to lose its buzz. Yet the slump now runs so deep it's starting to hurt even the town's Elvis impersonators, wedding chapels, and sex industry. When money's tight, the prospect of stuffing another $20 bill into a lap-dancer's gyrating stocking-top somehow doesn't seem quite so enticing.
"This year already we've seen the Minx closing, the Mensa club closing, and the Crazy Horse closing," says Dolores Eliades, owner of the OG, the second biggest "adult cabaret" venue in the world. "By another 12 months from now, I expect another two or three major venues will have gone.
"We've seen a drop in custom here too: maybe 180 people coming in when before we got 200. It's a difficult business, but the girls still have to make a living. We will survive because we own our own premises, we have a good name and location, we don't buy on credit, and we've been around for a long time. But we're very lucky in that respect."
To quantify the Vegas slump, look to the stock market. Shares in casino operators, the engine room of an economy reliant on its liberal attitude to public morality, have been haemmoraging value like a down-on-his-luck gambler.
Las Vegas Sands, which controls the Venetian and Palazzo resorts on the famous neon-lit Strip that runs through a "miracle mile," has dropped below $50 a share, a third of its value last September. MGM is at $28, from over $100 a year ago. Wynn resorts, owned by the ebullient billionaire Steve Wynn – a Texan version of Donald Trump – neared $70, from almost $180 last year.
This week, in an attempt to prevent financial meltdown, Nevada's Tourism Alliance convened an "Air Crisis Briefing" in an effort to prevent airline plans to halve the number of flights to the resort. The city's gut-busting "eat all you can" buffets are also being scaled back to account for the US's 4 per cent food inflation. Where a long queue of obesity once trailed across The Bellagio hotel restaurant's ornate carpets, demand for its famous (but now pricey) lunch buffet had on Thursday slowed to a trickle. In what sounds suspiciously like a panic measure, the Golden Gate Hotel this month even said it was doubling the price of its signature 99 cent shrimp cocktail.
For the inhabitants of the desert resort, which was founded in 1905 and became prosperous after gambling was legalised in 1931, it's no joking matter. The growing unemployment crisis (MGM just axed another 400 middle-managers), plus a downturn in the tips that form a significant portion of the Vegas economy, has a human cost, too.
Local bankruptcies have quadrupled. The property market, which rode the wave of a boom for most of the past decade is now below its peak by anything from a quarter to a third (depending on whose figures you believe), while Nevada now boasts, if that is the right word, the nation's highest foreclosure rate.
The number of empty homes has caused a health scare after it emerged that mosquitoes – possibly carrying the killer West Nile virus – are breeding in abandoned swimming pools. "We've had crews pumping out pools every day this week," Devin Smith, who manages the city's Neighborhood Response Division, told the Las Vegas Review Journal. "Two years ago, we may have pumped six pools in a season. Now we're probably pumping that a week."
Other sectors of Las Vegas aren't looking too healthy, either. Attendance at conventions, which account for roughly a quarter of the city's income, dropped by 7 per cent this year as impoverished firms cut back on their delegations to recession-hit events such as the Homebuilders Convention.
"The current rate of overall unemployment in this state is 6.2 per cent, the highest since May 1994," said Jered McDonald, an economist with the Nevada Employment, Training and Rehabilitation Department. "Las Vegas seems to be getting the worst of it. Other parts [of the state] aren't so bad; in fact the gold-mining industry is booming, so the drop in employment in big metropolitan areas is actually bigger than that figure suggests.
"With the high oil prices, people don't have much disposable income to spend on gaming and entertainment. So we are looking at a short-term slump, certainly. In the longer term, everything depends on what's going to happen to oil prices."
But the biggest threat of all is that Las Vegas might somehow be perceived to have lost its buzz. Like any tourist economy, the city's fortunes depend squarely on being seen as a "hot" destination, a tag that becomes difficult to justify if potential visitors hear reports that the place is struggling.
As a result, no major strip operators are publicly advertising their new low room rates. None would be interviewed for this article, regardless of the concerns shareholders might have for their fortunes. A spokesman for Wynn Las Vegas, for example, said "Respectfully, we must decline" the opportunity to discuss trading conditions.
And on the horizon is further strife. As a hangover from the frenzied growth of two years ago, Las Vegas is also in the grip of a speculative building boom, with dozens of cranes towering over the Strip.
Wynn Resorts is building a $2.2bn hotel, and Encore and MGM are spending $9.2bn on a 76-acre project called CityCenter. More than 40,000 new rooms will exist in four years, in a city that has 7 per cent of America'shotel beds. The prevailing emotion among business leaders is a mixture of optimism and denial. The Association of Greater Las Vegas Realtors, for example, claims the housing market is finally turning the corner after a "correction" to the long-running bull market that had made Vegas America's hottest location for almost a decade. Rick Shelton, the association's vice- president, insists that the long-term future is rosy and, to illustrate his point, draws a diagram on a napkin in a local cocktail bar. It consists of a circle with the initials "BLM" written outside it.
"This is the map of Vegas," he said. "Inside that circle is the city. Outside it, everything is owned by the Bureau of Land Management. So there's really nowhere else for the city to expand. And yet, the census bureau has forecast that the population of Vegas will grow from two million now to three million by 2016. There's nowhere for those people to go. So this town is another Tokyo, with land as a commodity. You fly in here and you see desert and you think, 'Building, building, building'. But it can't be built on, so prices must go up. And all those Harvard economists are missing that key component when doing their prognosis of our market. The way I see it, we have been in check, and are now aligned for the next spurt, and I'm talking a power arc that's got between seven and 10 years to run."
Dolores Eliades says the history of Las Vegas shows it will find a way to adapt and survive. "Historically, Las Vegas is able to withstand the problems of the rest of the country. When people face hard economic times, they come here to get away from their problems. In the US, people are escape artists, and they deal with problems a little differently from the rest of the world. I believe the history of this town proves I'm right, I really do."
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