For those of you who have followed my ramblings for a while now, this should give you a big laugh. All the way back in October of 2009, I was buying up MGM with two hands, for almost $9 a share.
It seemed an obvious move to me. They were a beaten down, massive company in an industry which has enormous barriers to entry. They had a huge debt load, but as the credit environment eased, they suddenly had the world at their fingertips.
I anticipated that they would start to massively roll over their debt. And they did, within a month of my purchase.
I watched in elation as my investment skyrocketed to $17 a share.
On the way, I took profits, scaled back, and played the dips and troughs. I made an obscene amount of money playing MGM, always long but with strategic sales. I followed their developments.
I stayed in their fucking hotels.
But I realized I was becoming blinded a few months ago. MGM Detroit is still doing fabulously and Macau is on fire, but the rest of company is not.
I think the final straw for me was when they announced they were going to blow up an entire section of their new resort in Las Vegas.
You’ve got to be fucking kidding me!? This is how the company has been managed; they can’t even get proper surveying before blowing $1 billion??
But that’s all why I sold out of the company, not why I’m shorting them.
The reason I’m shorting MGM is their bond repayment schedule.
They owe somewhere between $500 million and $1 billion a year, every year, for the next decade, and still owe several billion dollars after that. Even though they began to restructure back in 2009-2010, they didn’t fucking do it hard enough.
The stupid bastards played it soft, probably thinking they could just half-ass it into the recover. Well guess what chaps? The recovery never came.
Even factoring in the $1 billion they made off the Macau IPO, it’s not enough. That $1 billion isn’t enough to get the company through 2012, on its own. And now with credit freezing up, the ability of MGM and its idiot management to restructure debt is effectively off the table.
Throw in that some major institutional holders are in trouble themselves (think Paulson) and this company is fucked over a spindle.
The company trades down regardless. If we get a slowdown that affects their earnings even slightly, then they’re in bankruptcy before 2014.
I opened a short today for $9.98 a share. It’s under 10% of my holdings, and I’ll add to it as I see fit.
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good stuff
10 bucks pivotal
Fuck yes! CLP just finished their deal; they sold off 6 properties for over $100 million with an average age of over 20 years and picked up 3 brand new properties, with better cost, for a little over $90 million with an average age of a little under 4 years.
Profit margins are up. Net cash for the company is up. Operational costs are down.
I will be having a drink tonight to celebrate. This probably won’t reflect in the price, just because of what is going on right now in the world, but make no mistake this is a great play on the companies part.
Ha – thought we weren’t supposed to fall in love with our stocks. That’s ok, I have been full-on homo for AWK lately, even though last week I had to buy back shares for slightly more than what I sold after they announced an earnings increase. Netflix is also providing me with far more entertainment than either their streaming service or DVDs provide, watching their stock disintegrate; I don’t have a position long or short but it is somehow nevertheless gratifying to see their arrogance “rewarded”. My tiny ZSL position is down today but I am hopeful I will soon see extreme liquidation in silver, providing me with even more boner fide gratification.
Cain,
Do you have a stop and how long is your time frame to see this start to move down?
I don’t trade with stops, but if you’re looking for one, I’d talk with one of the technicians on our beloved site.
I’m sure ChessNwine or Cajun could provide you with a good framework.
Personally, I think stops are dangerous ways to reliably lose money, and am super patient so I can hold on pretty deep into losses.
My time frame is pretty quick now. If I start to see the credit market thaw, then obviously I cover. This should move down hard within the next month or two.
I agree. I’ve lost lots of money with stops just to see the stock recover. Just curious though about how far you’d let something drop. I know chess would place either a mental or hard stop around 7-8%, whereas Fly will generally not take a hit much greater than 15% at the most.
I once held a long to a 98% loss because I wasn’t convinced it was hurting (GKK). Turns out, I was wrong, but got out for a 50% cut.
I trust on my abilities to spot the difference between good and bad choices. I’m usually right, but when I’m wrong and don’t realize it, things get interesting.
Usually, I start questioning my position after 10% loss. Lately, it’s been more like 20%, just because things are so volatile.
Look at CCJ. I’m off about 40% there, from the initial purchase. But I don’t think people know what the fuck they’re talking about, so I keep adding in small increments.
think it will go bankrupt today
(laughter) Imagine if the Department of Justice discovers that Macau was just one big Ponzi scheme?
MGM’s Cosmopolitan(?), yeah, they it’s structurally faulty, I say stop naming your eateries with dumb names like “The Wicked Spoon.” Duh.
CT – I don’t always agree, but love (no homo) your statements regarding the logic and reasons for your trade/positions. I don’t trade full time so I learn a lot from your posts.
You appear to be growing into the position – nice work.
Thank you, my northern friend
Mr Thaler,
Props and due respect for your eternal, excellent grasp of the fundies and generously sharing explanations of such. Perusing the short float on MGM makes me a bit nervous, as when we had the little debacle with that school loan stock whose little cunt whore name shall never be mentioned. Maybe prudent to wait for rips to enter shorts? Just sayin’. Thanks as always. Cherish every one of your posts.
Probably, which is part of why I kept it inside a full position.
MGM only has to pay ~500 million a year for the next two years. After that the the payments get over a billion a year in 2013.
With the Vegas and Macau numbers that continue to come out with steady traffic levels I’d bet they still have a fair chance to get reigns on that debt over the next couple years and if that is the case this thing is going off.
Any reason I’m wrong?