Saturday, July 05, 2008

Las Vegas: All flash and no cash

It's very popular to look/act the part here in flashy Las Vegas.

The cheap-money driven economic boon, which lasted through 2006, allowed the local masses to drive the best of new cars, wear fancy designer clothes, dine at trendy/expensive restaraunts and/or hang out at any one of the myriad of overpriced nightclubs here in town -- requiring a $20+ dollar cover charge (after a > 1 hour wait) and $8+ dollar drinks, just for the privilege of looking/acting like "you are someone" while hanging out with the "in" crowd.

Personally, though in the top 10% income bracket myself (just a point of reference -- not to boast), I'm too damned frugal (ok -- and too old) to really worry about these things, but I often laughed beneath my breath as I watched these eager masses of "trendy" folks fighting for their "perceived" status of "Got Bank" -- as I knew it was all a facade, wouldn't last, and the bills would one day come due.

When discussing the issue with friends, we would jokingly refer to the trend as "all flash and no cash".

Looks like we were right, as the party bills are now coming due and the years of "flash" now require some overdue "cash".

MensHealth ranks Las Vegas as top U.S. city for personal debt

If the number of foreclosures and bankruptcy filings didn't tell you Nevada's consumers stand on shaky financial ground, perhaps a new study will convince you of the fiscal peril visiting a legion of locals.

Web site has named Las Vegas America's top city for the amount of personal debt -- credit card balances, auto loans, home loans and other consumer financing -- its residents carry. And those considerable obligations could worsen an already stagnant local economy, experts say.

Editors from didn't comment for this story by press time. But a summary of criteria they used to develop their roster listed statistics including foreclosure rates, housing prices, bankruptcy filings, credit scores, levels of credit debt and credit usage.

Las Vegas or Nevada dominate at least a few of those indicators.

The state has spent most of the last year as No. 1 in the nation in foreclosures, according to Irvine, Calif., real estate research firm RealtyTrac. Las Vegas landed among the markets experiencing the biggest slides in housing prices -- 20.2 percent year-over-year in the first quarter, according to the National Association of Realtors -- and the state frequents the top 10 list in number of bankruptcies. And a recent TransUnion study found the Silver State has a higher percentage of consumers delinquent on credit card payments than any other state.

The West dominated's list of worst cities for debt, with seven of the top 10 falling within or west of the Rockies.

Billings, Mont., posted the lowest load of personal debt.

Trends among local consumer agencies testify to growing debt loads in Southern Nevada.

Michele Johnson, president and chief executive officer of Consumer Credit Counseling Service in Las Vegas, said the nonprofit's client base jumped 70 percent this spring compared with a year ago. The stories she hears from the group's newest clients revolve mostly around housing, with interest-only and option adjustable-rate mortgages squeezing homeowners who can't afford rising borrowing costs.

"I've never seen it this bad. Never," said Johnson, who's worked for the service since 1982.

Reasons for high debt in Las Vegas stump experts. But Johnson speculated the influx of residents and high cost of living play roles.

"A lot of folks move here knowing that jobs are very plentiful, so they uproot themselves, move here with minimal assets and find the cost of living is much higher than they anticipated," Johnson suggested. "Insurance and day-care costs are very high, and though jobs are plentiful, they're not necessarily well-paying."

The result: Consumers fall back on credit cards to supplement income and meet monthly expenses.

Throw in exotic mortgages, which tens of thousands of local consumers took out from 2005 to 2007 to buy homes, and the problem compounds, Johnson said. As interest rates adjusted upward, housing payments ate into earnings and forced expenses ranging from food to utility bills onto plastic.

Snowballing debt, in turn, makes it tougher for consumers to respond to economic contraction.

"Consumers (with substantial obligations) just don't have the flexibility to spend, and any hit to their income becomes magnified through the burden of keeping current on their debt," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa. Markets experiencing economic downturns would suffer even more if residents carry big debts, he added.

Rising debt also hurts economies because it leaves consumers with less discretionary cash. The drop in spending on nonessentials hits big-ticket items hardest, with buyers picking up fewer cars, appliances, televisions and other high-dollar goods, Naroff said. Smaller operations, including restaurants and local retailers, suffer as well.

"A lot of people used their homes, especially if they got a year or two of price increases, to get home equity lines of credit and loans, and those loans became an important source of income," Naroff said. "Those (equity) funds purchased a lot of goods."

It's not the first time consumers overextended themselves en masse, Naroff said, and he expects the historic cycles to repeat themselves. That means indebted consumers will retrench in the next two to three years, cutting back on credit and improving their balance sheets.

But Naroff noted one key difference this time around that could lengthen recovery time. Unlike previous eras, big mortgages anchor today's heavy debt loads, and those heavy obligations mean "it's really going to take a while to get things back together again," Naroff said.

"It's going to spread at least through next year," he said. "How much farther is hard to know. Part of it will depend on how the economy bounces back."

Bottom line:

The Las Vegas housing market has tanked, credit markets have dried up, tourism is falling, gaming revenue is down, inflation is raging, and the bills are now coming due.

Certainly things are looking bad for Vegas now, but just wait to see what happens when the casino layoffs begin in earnest and the unemployment lines grow... We ain't seen nothing yet!




Patrick said...

Debt-Laden Casinos Squeezed by Slowdown

Wall Street Journal

The gambling slowdown that began early this year is taking a serious toll on Las Vegas, with banks, investors and private-equity funds growing as tightfisted as the consumers who are gambling less in the slumping economy.

Patrick said...

Foreign Tourists To U.S. Slips

LAS VEGAS (AP) -- Despite the weak U.S. dollar, a boom in international travel around the world hasn't translated into an explosion of foreign tourists to the United States.

Explanations range from post-9/11 security headaches and lower airfares elsewhere to poor marketing by the U.S. Whatever the cause, travel industry experts say the U.S. is missing an opportunity to make up for the shortfall in domestic tourism caused by high fuel prices.

At Heli USA Airways, one of several operators that whisk visitors on aerial tours of the Las Vegas Strip and nearby Grand Canyon, vice president of marketing and sales John Power said the faltering U.S. economy and competition from other countries are crimping business.

Justin_n_IL said...

First off thank you for the Schiff video link. I thought you might like to hear this Ron Paul interview from July 3rd.

Justin_n_IL said...

Does this sound familiar Randy? "Many sites have already been "locked" by Blogger for their political content or their links, on the pretext of being so-called "spam sites".

Anonymous said...

Made it to headline!

Randy said...


Thanks for the links. Pretty Ironic about the falling casino stocks... I was warning one of my coworkers about the troubles ahead(~ 12 months ago) when he was gushing about his bulletproof MGM stocks. Now I wonder if he stayed with them and took the ensuing 60% haircut...


Not a problem. Appreciate the Ron Paul link. Read the article but will have to come back for the video. Good stuff.

Regarding the "Blog Locks": Agree... when pleading my case on a blogger helpline, I noticed there were numerous other "alternative" and "economic" Blog-sites with the same problems. Makes one wonder...

Anon 10:19--that was a good article. Thanks


patrick said...

Feeling the Pinch

Nevada's brothels hit hard times


patrick said...

Hi Randy,

If you continue to have problems with Google's NSA Blogger, you might want to checkout,

It's free and home to some very controversial--albeit accurate--political content/bloggers.

The learning curve is a little steeper than Blogger, but worth it.

FWIW- I used Wordpress as a standalone on my own server without any problems before moving up to Drupal.


patrick said...

Wondering where the tourists are

Nicolas and Juanita Cignetti are bringing down Las Vegas just as they built it, a little bit at a time.

The Canton, Ohio, couple has been visiting Las Vegas -- sometimes as often as six times a year -- since the Rat Pack prowled the Sands hotel and a gallon of gasoline cost 33 cents.

Now gasoline costs more than $4 a gallon and the Cignettis aren't planning a return to Las Vegas, choosing to stretch their money further at an Indiana riverboat casino or a West Virginia hotel-casino. With airfares rising, the national economy declining and Americans cutting back on everything from road trips to restaurant meals, Wall Street is fearful that middle-class vacationers like the Cignettis who helped fuel the rise of modern-day Las Vegas are ready to turn their backs on Sin City.