Newton's Law

"Vegas will never suffer another downturn."

This bold prediction was made by a cabbie who was driving me to my hotel in Vegas on a business trip two years ago. The comment came after I questioned all the frenzied building activity that was taking place on the Strip, and elsewhere. I particularly noted the hugely expensive property that was being built across from my hotel, which was to include luxury condos, a hotel and a casino.

The cabbie's premise was based on the notion that Sin City's gambler base was sufficiently international to weather any downturn. "Our whales come from Asia, Europe, the Middle East. We're recession-proof," he proclaimed.

I remember thinking at the time, "Oh boy, another 'things are different this time' claim."

Now, Vegas is facing what one Wall Street gaming analyst calls "its most severe downturn ever.

Remember that hugely expensive property across from my hotel? The developer defaulted on his construction loan in January. The Tropicana has filed for bankruptcy, as has the entire Lake Las Vegas resort complex a half-hour from the strip, which includes a private lake, three golf courses, luxury homes, and two premier hotels - one of which, the Ritz, has separately filed for protection.

A number of other planned projects are on hold, including a re-creation of the Plaza hotel, another tower on the Trump casino and hotel, and a Boyd project. Boyd was downgraded as a result, and other gaming stocks are plunging as the casinos are losing money. Dubai World invested heavily in MGM Mirage for a new project in Vegas, but they've fallen behind in raising necessary funds, and now that too is in peril.

Of course, part of the problem has been overbuilding, of both casino/hotel/condo properties and housing. Vegas leads the nation in home price declines, with the latest S&P/Case Shiller data showing the market down 28.4% year-over-year.

Ouch.

And part of it, undoubtedly, has to do with the US recession.

But part of it, too, belies my cabbie's assertion that Vegas is inflation-proof because it's globally diversified. The problem is, it also has competition. Gaming has increased in developing meccas like Dubai, which has become the playground of the European "whales," and Macau, which has become Asia's gambling center. Huge investments by the UAE and China has led to similar frenzied building in those locations, so the whales have somewhere else to swim.

The cabbie also didn't count on one other thing: a global recession. Who says that a downturn here can't spread? It has, and the effects will be felt for several more years.

It just goes to prove that what goes up, must come down. And how appropriate that Las Vegas has proven to be a house of cards.