New Orleans Investment Conference – Will stagflation kill the local casino?

I recently attended the New Orleans Investment Conference. While this annual conference is targeted toward the individual investor, some of the take-aways can be applied to the casino and racino world.

The focus of the conference was on gold as an investment and even the potential return to the gold standard – neither of which really matters for our purposes. However, many of the panels delved further into some troubling markers and underlying problems in the US economy.

Former Fed Chairman and feature guest speaker Alan Greenspan  participated in  panel discussions  and a question and answer session. Unfortunately, much of his time was spent responding to questions about decisions he made during his tenure at the Fed. However, Greenspan did question the power of the Fed, said he “never said that the Central Bank was independent,” referred to their balance sheet as a “pile of tinder.” With the current US inflation rate lagging below the 2% target, Greenspan anticipates that the Fed will continue to take steps toward raising the inflation rate.

For me, the real message from the conference is in the declining value of the dollar, which leaves casino patrons with less discretionary income. Dr. Marc Faber drove this message home with his excellent 60 slides in 60 minutes presentation, painting a troubling picture of the current state of the economy. While the Fed is trying to reach the inflation target, growth is slowing, wages are steady or declining, and commodity prices are falling. He pointed out that millennials are earning less than their parents did, and baby boomers are poorer than their parents were in retirement. According to Dr. Faber, the median income has declined since the 1980s by around 36%.

He also pointed to a troubling statistic -- 31% of car loans are now subprime. While the risk to financial institutions is likely low, the risk to the individual is high. What does this mean for casinos? The average Joe no longer has discretionary income. Not only can he not afford to gamble, he can’t even afford the car that would take him to work.

In our regular travel to casinos across the southeast, we’ve seen cutbacks or even closure of many of the casinos targeting locals, while deluxe destination casinos are growing and expanding. With wage stagnation becoming a key concern, a strategy targeting the wealthy and ultra-wealthy may be the key to growth.