The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE              3/5/97          3/12/97
S&P 500 (SPX):           804.26        785.77 (-2.39%)
CBOE Gaming Index (GAX): 213.69        208.37 (-2.49%)
Nasdaq Composite:       1304.45       1249.29 (-4.23%)

Las Vegas, NV (March 19, 1997) -- This will be a rather short update this week due to the fact that this Fool is in Las Vegas for a conference and is incredibly short on time. Make sure to check back next week for a more comprehensive look at some of the announcements and product rollouts.

I will tell you this, dear Fool, that this particular conference, the International Gaming Business Exposition (IGBE), cannot hold a candle to the World Gaming Congress that happens each fall. It is dominated by the smallish players in the industry and almost all of the big names were no-shows to this conference. Noticeably absent were major companies such as IGT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %>, CASINO DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSDS)") else Response.Write("(Nasdaq: CSDS)") end if %>, and MIKOHN GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKN)") else Response.Write("(Nasdaq: MIKN)") end if %>. About the two largest public gaming companies there were PAUL-SON GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSON)") else Response.Write("(Nasdaq: PSON)") end if %> and GAME FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFIN)") else Response.Write("(Nasdaq: GFIN)") end if %>, both of which are relatively small companies. Spying on what the up-and-coming companies have to offer in the future is sound research, but a comprehensive conference this was not. Again check back next week for a better look. No "HOT HOT" news to report at this time.

The Chicago Board Options Exchange Gaming Index (Index Symbol: GAX) once again split the competing indices by underperforming the big-cap dominated S&P 500 and trouncing the technology weighted Nasdaq Composite. However, pretty much all the markets got beaten up this week as the specter of inflation and consequently higher interest rates weighed on the market. The early part of 1997 is giving me deja vu from 1994 -- when the economy was good but rising interest rates tempered the bull market all year long. 1994's stock market had the walking flu, and it appears to this Fool that 1997 could also end up in the mediocre category. That is, if interest rates are indeed raised. Some of the people I consult on macro-economic issues tend to think the Fed will in fact raise rates this year, but it still remains to be seen.

Rising interest rates have a disproportionately large effect on the gaming industry due to the fact that most casino companies are highly leveraged. Rising rates increases the cost of borrowing money and consequently puts a damper on construction spending. Rising interest rates will likely tap the brakes on the expansion we are seeing in the industry. The inverse of this is also true, where low rates catalyze expansion. One look at the proliferation of casinos on the Las Vegas strip or the Midwest over the past two years shows how the low cost of borrowing invites expansion. Interest rates are probably one of the most important economic factors to watch in this industry, especially if a company you are researching has a particularly high debt-load. Keep an eye on those yields!

STRATOSPHERE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWVQ)") else Response.Write("(Nasdaq: TOWVQ)") end if %> reported that its consolidated cash flows for the first four weeks of February was $983,421. This brings the monthly average cash flow at the unit for the past five months to $1,615,736, which is approximately $600K below where it needs to be for the prepackaged bankruptcy agreed to by its bondholders and its majority equity owner GRAND CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> to take effect. If conditions do not improve, it looks like renegotiation is in order. Nevertheless, we are headed into the spring and summer months, which are historically strong for Las Vegas. Once again, stay tuned!

Now for this week's earnings:

American Casino <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACES)") else Response.Write("(Nasdaq: ACES)") end if %>: $.06

Florida Gaming (Nasdaq Small Cap: BETS): ($.03)

Trans World Gaming (Nasdaq Small Cap: IBET): ($4.65)

I promised to be short, and I didn't disappoint! Take care, good luck, and stay Foolish everyone!

Did you know. . .
That modern change machines use magnetic variables in the ink to validate American currency?

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