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One Step Closer To Recession: Goldman Cuts S&P Price Target To 4,300; Slashes GDP Forecast

One Step Closer To Recession: Goldman Cuts S&P Price Target To 4,300; Slashes GDP Forecast

It took Goldman three months to slash its (widely…



One Step Closer To Recession: Goldman Cuts S&P Price Target To 4,300; Slashes GDP Forecast

It took Goldman three months to slash its (widely mocked) 2022 year-end S&P price target of 5,100 published in mid-November (at the time we said it would take just a few months for the target to be cut and we were right) to 4,900 in mid-February. Back then Goldman's chief strategist David Kostin listed three scenarios, the third and most bearish of which was that if the US economy tips into a recession, "the typical 24% recession peak-to-trough price decline would reduce the S&P 500 to 3600" to which we said that's what would happen "but before we get there expect another 200 point S&P target in one month, and then another, and then another."

One month later, this is precisely what happened, when in mid-March Goldman's David Kostin again cut his year-end price target to 4,700 (from 4.900), but more importantly, Kostin grudgingly raised the odds of a recession writing that "the current S&P 500 index level of 4260 suggests roughly a 40% likelihood of a downside recessionary case." He then noted that in such a "recession" scenario, the bank expects reduced earnings and valuation multiples would cause the S&P 500 to decline by 15% to 3600, similar to the 24% drop he had warned previously (Goldman also noted that this represents a 15% drop from current levels and is probably sufficient to trigger the Fed's put).

So fast forward another two months, when our prediction that Goldman would continue to slash its S&P price target by 200 points every month or so was spot on again, because as of this weekend, two months after Goldman cut its S&P target to 4,700, the bank's chief equity strategist has just published his latest forecast (full note available to professional subscribers), taking down the bank's price target to 4,300 (or 200 points per month for two months); as a reminder this was 5,100 just three months ago!

How does Kostin explain this dramatic reversal in his original cheerful forecast, which apparently could not anticipate any of the things that took place in the past few months? Here's how:

We revise our forecasts for earnings, interest rates, and the yield gap. We lower our S&P 500 year-end 2022 price target to 4300 (from 4700). Our new price target represents a 7% return from today. Our 3-month forecast equals 4000, with expected gains likely coming later in the year.

Finally admitting what we have been saying all along, Kostin concedes that "much higher equity prices in the near-term would ease financial conditions and be antithetical to the Fed’s goal of slowing economic growth", in other words, every time stocks jumped it would only prompt Powell to come out with even stronger hawkish jawboning .

That said, while Goldman expects an overshoot to 4,000 in the near-term (or undershoot since the S&P dropped as low as 3,855 on Thursday, touching the edge of a bear market), the bank remains somewhat hopeful that the worst is now behind us and "a contraction in economic growth is priced in equities and our baseline forecast suggests the worst of the decline is likely behind us assuming a recession is averted." Kostin also assumes that as the year progresses "investors will gain confidence about decelerating inflation, the path of Fed tightening, and recession risk, and equities will rise modestly driven by EPS growth."

Kostin then breaks down the revision in his forecast by factoring in for a stronger than expected Q1 earnings, offset by everything else deteriorating:

1Q earnings season was better-than-feared. Consensus expected +5% year/year growth in S&P 500 EPS, but firms realized +11%. Both sales and margins posted positive surprises. Analyst revisions to 2022 and 2023 have been slightly positive, mostly driven by Energy. We raise our 2022 S&P 500 top-down EPS growth forecast to +8% (vs. +5% previously). We maintain our 2023 EPS growth forecast of +6%. Our revised S&P 500 EPS estimates equal $226 and $239. Faster sales growth and better-than-feared Financials earnings are the primary drivers of our revision. Our net margin forecast remains unchanged. We expect margins will rise by 11 bp to 12.3% in 2022. However, excluding Energy, we forecast net profit margins will contract by 22 bp as input cost pressures weigh on companies.

Our sales, margin, and earnings forecasts remain below bottom-up consensus. Our economists’ 2022 real US GDP growth forecast is below-consensus and China’s zero COVID policy poses a clear downside risk to EPS growth. From a revenue perspective, we expect the headwind from a stronger trade-weighted dollar will need to be incorporated into analyst models. Investors have already started to reflect this risk; our domestic sales basket (GSTHAINT) has outperformed our international sales basket (GSTHINTL) by 10 pp YTD. While quarterly net profit margins have slipped modestly from their peak in 2Q 2021 to 12.1% in 1Q 2022, consensus expects an expansion during in 2H 2022, which appears too optimistic in our view. However, we believe it will take time for analysts to trim their forecasts closer to our top-down estimate. Our S&P 500 valuation and index forecasts assume that market participants price the index at year-end 2022 based on the consensus 2023E estimate of $250.

Higher interest rates. Our Rates strategists now expect the nominal 10-year US Treasury yield to rise to 3.3% at year-end 2022 (vs. 2.7% previously) driven by real yields. We assume real yields will end 2022 at 0.5% (vs. 0% previously).

Our forecast is that the P/E remains unchanged from today at 17x. Previously, we assumed the low real rate environment would support a P/E of 20x, 10% below the valuation at start of the year. But YTD the market has priced the equivalent of 8 additional 25 bp Fed hikes and real rates have risen sharply. During the last 8 weeks real rates have surged from -1.0% to +0.2%. Our revised outlook of lower growth and higher rates no longer supports meaningful P/E expansion. Our new P/E multiple forecast ranks in the 70th historical percentile and is consistent with pre-pandemic multiples, but below the past cycle’s peak of 18x in 2018. In our baseline, the relative valuation of stocks vs. real rates would rank in the 46th percentile vs history.

Lower yield gap. We expect the gap between the S&P 500 EPS yield and real 10-year US Treasury yield will narrow modestly to 530 bp (vs. 560 bp today). This yield gap would match the level experienced in April 2021 but remain above the average since 1990. We model the yield gap as a function of economic growth, policy uncertainty, the size of the Fed balance sheet, and consumer confidence. By the end of the year, our baseline assumes a slight improvement in growth expectations relative to the pessimistic outlook currently priced by cyclical vs. defensive industries. Valuation will benefit from reduced policy uncertainty and higher consumer confidence. These positive dynamics should more than offset the headwind from tightening financial conditions and allow the earnings yield gap to compress.

While Kostin tries to sound hopeful, the reality is that for the third time in a row the Goldman chief strategist not accidentally brings up that in a "downside" scenario, "a recession would push the S&P 500 11% lower to 3600", which is just slightly above the level Morgan Stanley expects stocks drop to in this bear market before they reverse. However, in a novel twist, today for the first time Kostin admits that if by year-end the economy is poised to enter a recession in 2023, "a combination of reduced EPS estimates and a wider yield gap would drive a lower index level" suggesting that the S&P may slide well below 3,600:

Earnings typically fall by 13% from peak-to-trough during recessions. However, equity prices move ahead of earnings. We assume by year-end the current 2023 EPS estimate of $250 would be cut by 7%, consistent with history. Our macro model implies the yield gap widens to 700 bp and the P/E multiple narrows to 15x.

Translation: just above 3,400.

In another downside scenario, Kostin writes that while the economy may avoid recession, real rates could continue to march higher, which would lead to a lower valuation multiple pushing the S&P 500 index down by 6% to 3800. In this scenario, if the Fed is forced to hike by more than Goldman economists expect and real rates rise to 1% - similar to the peak reached during the last cycle in 2018 - Goldman's macro model suggests that higher rates will more than offset the lower yield gap. In this scenario, the forward P/E would equal 16x, the lowest level since 2020.

Bottom line: Goldman has thrown in the towel and the bank which in early February expected stocks to hit 5,100 now says don't be surprise if they drop to 3,400. And that's why the David Kostins of the world get paid the big bucks.

But wait, there more...

In another confirmation of our skepticism, Goldman's chief economist Jan Hatzius published a note on Sunday in which he again cut his overly optimistic GDP forecast (having done so most recently in March), and now expects GDP growth as follows:

  • Q2 '22 to 2.5% from 1.5%
  • Q3 '22 to 2.25% from 2.5%
  • Q4 '22 to 1.5% from 2.5%
  • Q1 '23 to 1.25%
  • Q2 '23 to 1.5%
  • Q3 '23 to 1.5%
  • Q4 '23 to 1.5%

And visually:

These changes imply a downgrade in 2022 GDP growth to +2.4% on an annual basis (vs. +2.6% previously) and to +1¼% on a Q4/Q4 basis (vs. 1.6%), and a downgrade in 2023 growth to +1.6% on an annual basis (vs. +2.2%) and to +1½% on a Q4/Q4 basis (vs. +2.0%). In other words, just as we said in March, the hockeystick forecast that Goldman laughably presented two months ago has not only flattened but has inverted.

Of course, Goldman has refused to forecast a recession (yet), and instead frames the continuing slowdown (as a reminder Goldman was nowhere near the -1.4% Q1 GDP print), as a "necessary growth slowdown." According to Goldman, the slowdown is a byproduct of the Fed's tightening in financial conditions, and the bank thinks the rate hikes that are currently priced into financial  conditions "are in the ballpark of what is ultimately needed to restore balance to the labor market and cool wage and price pressures. We therefore expect that the recent tightening in financial conditions will persist, in part because we think the Fed will deliver on what is priced."

That said, not even Goldman is confident that a slowdown won't push the economy into recession, and cautions that job openings remains "extremely high (+4.5mn vs. pre-pandemic level; right chart, Exhibit 1) and less likely to moderate on their own. And the jobs-workers gap probably cannot meaningfully narrow without a moderation in job openings, and wage growth probably cannot settle back to a sustainable level while the jobs-workers gap remains very elevated. Therefore, the main challenge for the FOMC as it attempts to lower inflation is to convince companies to shelve some of their expansion plans and close enough job openings to restore balance to the labor market, a view Chair Powell endorsed at the May FOMC press conference."

It's not just GDP that will get hit: the labor market will too. As the bank concludes in its downward revision, while the slowdown in growth should help lower job openings, "it is also likely to raise the unemployment rate a bit, particularly since the job openings rate
typically only falls when unemployment spikes in recessions." Of course, Goldman remains optimistic "that a sharp rise in the unemployment rate can be avoided, especially since typically the job openings rate declines more and the unemployment rate increases less when the job openings rate is very elevated, like it is today."

Although we continue to expect that momentum in job gains will push then unemployment rate to a low of 3.4% in the next few months, we now expect that the unemployment rate will subsequently rise back to 3.5% at end-2022, and rise further to 3.7% at end-2023.

And since Goldman has been always wrong in its economic forecasts in the past year (just see the bank's horrific CPI predictions) here is our translation of the above: expect the labor market to soon enter freefall, one which will force the Fed to not only reverse its tightening and QT plans, but to go straight from rate cuts to NIRP and back to QE again.

And just to confirm that a recession is now inevitable (as is the obvious Fed response) none other than the former boss of both Kostin and Hatzius, former Goldman CEO Lloyd Blankfein, spoke on CBS’s “Face the Nation” on Sunday, and urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”  

“If I were running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it.” A recession is “not baked in the cake” and there’s a “narrow path” to avoid it, said the CEO who lost his job after infamously enabling Obama golfing buddy, former Malaysia PM Najib Razak, to loot billions from 1MDB.

Blankfein noted that while some of the inflation “will go away” as supply chains unsnarl and Covid-19 lockdowns in China ease, “some of these things are a little bit stickier, like energy prices.”

“How comfortable are we now to rely on those supply chains that are not within the borders of the United States and we can’t control?” Blankfein said. “Do we feel good about getting all our semiconductors from Taiwan, which is again, an object of China.”

Bottom line: the question is not if but when the next recession hits, and not if but when the Fed responds with aggressive rates cuts and QE.

The full Goldman notes are available to professional subs in the usual place.

Tyler Durden Sun, 05/15/2022 - 20:10

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Gold Prices Reflect A Shift In Paradigm, Part 2

Gold Prices Reflect A Shift In Paradigm, Part 2

Authored by Alasdair Macleod via,

In the first part of this report, we highlighted…



Gold Prices Reflect A Shift In Paradigm, Part 2

Authored by Alasdair Macleod via,

In the first part of this report, we highlighted that observed gold prices have significantly detached from our model-predicted prices. While this has happened in the past, prices always converged eventually. However, the delta between the observed and the model predicted price has now reached a record high of around $400/ozt. We thus ask ourselves whether it is reasonable to expect that model-predicted and observed prices will converge again in the future, or, whether we witness a shift in paradigm and the model no longer works. 

In our view, the only reason for gold prices to sustainably detach from the underlying variables in our gold price model is if central banks (particularly the Fed) lose control over the monetary environment. Thus, it seems that the gold market is now pricing in a significant risk that the Fed can’t get inflation back under control. As we highlighted in Part I of this report (Gold prices reflect a shift in paradigm – Part I, 15 March, 2023), this is happening in the most unlikely of all environments. The Fed has aggressively hiked rates at the fastest pace in over 50 years and it is signaling to the market that it will do whatever it takes to get inflation under control. So why is the gold market still concerned about inflation?

The issue is that so far, it has been easy for the Fed to raise rates sharply to combat inflation. Despite the sharp move in the Fed Funds rate, one may get the impression that nothing has happened yet that would jeopardize the Fed’s ability to raise rates even higher. For starters, the unemployment rate remains stubbornly low (see Exhibit 8). 

Exhibit 8: The US unemployment rate remains stubbornly low despite the sharp rate hikes

Source: FRED, Goldmoney Research

Equity and bond prices have sharply corrected in the early phases of the Fed’s rate hike cycle, but since then equity markets have partially recovered their losses. While equity prices are not the real economy, large downward corrections can impact the real economy nevertheless due to the wealth effect. When people become less wealthy, they spend less, which in turn has an effect on the economy. The impact of this reduction in wealth might also not be meaningful so far as the correction came from extremely inflated levels. The S&P 500, for example, has corrected almost 20% from its peak, but it is still 14% higher than the pre-pandemic highs in 2019 (see Exhibit 9).

Exhibit 9: Even though US equity prices have corrected sharply, they are still well above the pre-pandemic highs….

Source: S&P, Goldmoney Research

The real estate market has slowed down significantly, but so far prices haven’t crashed (see Exhibit 10), and even though there are a lot of early warning signs, the Fed historically had only become concerned when a crumbling housing market started to affect the banks. While we certainly saw turmoil in the banking sector over the last few days, it was not related to the mortgage business so far. 

Exhibit 10: …and home prices – despite the clear rollover – have not crashed yet

Source: S&P, Goldmoney Research

Hence, at first sight, it appears there is little reason for the gold market to price in a scenario where the Fed loses control over inflation. However, there are plenty of warning signs that things are about to change. In our view, the correction in the equity market is far from over. When the last two bubbles deflated, equities corrected a lot lower for longer (see Exhibit 11).

Exhibit 11: the last two bubbles saw much larger corrections in equity prices

Source: S&P, Goldmoney Research

This alone will start to put a strain on the disposable income of not just American consumers, but globally. We are seeing signs of this in all kinds of markets. For example, used car prices had skyrocketed until about a year ago on the back of supply chain issues combined with excess disposable income. But since the Fed started raising rates, used car prices have retreated somewhat (see Exhibit 12). Arguably this is good for people wanting to buy a car with cash, and it will also have a dampening effect on inflation numbers, but the reason for it is not that all the sudden a lot more cars are being produced, but that higher rates make it more expensive to finance cars, and thus demand is weakening. 

Exhibit 12: Manheim used car index

Source: Bloomberg, Goldmoney Research

Certain aspects of the housing market also show more signs of stress than the correction in real estate prices alone suggests. For example, lumber prices have completely crashed from their spectacular all-time highs and are now back to pre-pandemic levels (see Exhibit 13). 

Exhibit 13: Lumber prices have come back to earth

Source: Goldmoney Research

Similar to the development in the used car market, while this may be good for people trying to build a new home, it is indicative of the material slowdown in construction activity. This can be directly observed in housing data. New housing starts are 28% lower than in spring 2022 (See Exhibit 14). 

Exhibit 14: New Housing Start data shows a material slowdown in construction activity

Source: FRED, Goldmoney Research

Moreover, mortgage costs have exploded. A 10-year fixed mortgage went from 2.5% a year ago to 6.3% now (see Exhibit 15). This will undoubtedly dampen the appetite for home purchases and strain disposable income as previously fixed mortgages must be rolled over. Given current mortgage rates, it is surprising that the housing market has not yet corrected a lot more.

Exhibit 15: Mortgage rates have exploded over the past 12 months

Source:, Goldmoney Research

There is a myriad of other indicators, from crashing freight rates (see Exhibit 16) to layoffs in the trucking and technology sector as well as languishing oil prices despite record outages and inventories, that indicate that the Feds (and increasingly other central banks) ultra-hawkish policy is impacting the real economy, both domestic and globally. 

Exhibit 16: Freight rates had skyrocketed in the aftermath of the Covid19 Pandemic but are now back to normal

Source: Goldmoney Research

The result will be a period of global economic contraction. The Fed may view this decline in inflation as confirmation that their policies are working to fight inflation, even though it will only reflect a crashing economy. Importantly, once the recession kicks in, we will soon see rising unemployment. Once unemployment starts rising, the Fed will have to slow down its rate hikes and eventually stop. However, the underlying cause of inflation – over 8 trillion in asset buying by the Fed – will only have reversed a tiny bit by that point. This means that once the fed will have to make a decision, to either fight unemployment or inflation. 

We believe that the most likely explanation for the recent rally in gold prices against the underlying drivers of our model is that the market is increasingly pricing in that the Fed, once it is forced to stop hiking, will lose control over inflation. Faced with the choices of years of high unemployment and a crumbling economy or persistent high inflation, the gold market thinks the Fed will opt for the latter. This would mark a true paradigm shift, and from that point on, gold prices may start to price in prolonged high inflation (and our model may not be able to capture this properly).

The crash of Silicon Valley Bank (SVB) a few days ago has created significant turmoil in financial markets. While the Fed jumped in and announced a new lending program that effectively bailed out the bank, it also led to a sharp change in market expectations for the Fed. Before the bailout, Fed fund futures implied that the market expected several more Fed hikes this year, and only a gradual easing thereafter. One week later and the market is now pricing in that the Fed will only hike until May, and then pivot and start cutting rates (see Exhibit 17). 

Exhibit 17: The crash and subsequent bailout of SBV led to a sharp reassessment of the Fed’s ability to raise rates

Source: Goldmoney Research

The gold market is still pricing in a much more dire outlook with higher and persistent long-term inflation Only time will tell whether this view is correct. In our opinion, it is quite forward-looking, and gold seems to be the only market that is that forward-looking at the moment. 10-year implied inflation in TIPS, for example, is at a laughably low 2.2%. For the model-predicted prices to match observed gold prices, 10-year implied inflation would have to be around 1.5% higher, at 3.75%. This doesn’t seem to be completely unfeasible. However, even if the gold market turns out to be ultimately correct, it will take a while until the rest of the market agrees with that view, and most likely there will be a period of sharply declining realized inflation in the meantime. That said, as equities look even more fragile in this scenario, and bonds and cash are unpopular asset classes during periods of high inflation, gold may simply be the only game in town until its time as the ultimate inflation hedge is coming. 

Tyler Durden Mon, 03/20/2023 - 05:00

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Rogoff Warns ‘Things Are Only Getting Harder For The Fed’

Rogoff Warns ‘Things Are Only Getting Harder For The Fed’

Authored by Kenneth Rogoff, op-ed via The Financial Times,

The Fed’s expansive…



Rogoff Warns 'Things Are Only Getting Harder For The Fed'

Authored by Kenneth Rogoff, op-ed via The Financial Times,

The Fed’s expansive actions to prevent the Silicon Valley Bank collapse from becoming systemic, followed by the Swiss National Bank’s massive lifeline to troubled Credit Suisse, left little doubt this week that financial leaders are determined to act decisively when fear starts to set in. Let us leave moral hazard for another day.

But even if risks of a 2023 financial Armageddon have been contained, not all the differences with 2008 are quite so reassuring.

Back then, inflation was a non-issue and deflation — falling prices — quickly became one. Today, core inflation in the US and Europe is still running hot, and one really has to strain the definition of “transitory” to argue that it is not a problem. Global debt, both public and private, has also skyrocketed. This would not be such an issue if forward looking, long-term real interest rates were to take a deep dive, as they did in the secular stagnation years prior to 2022.

Unfortunately, however, ultra-low borrowing rates are not something that can be counted on this time around.

First and foremost, I would argue that if one looks at long-term historical patterns in real interest rates (as Paul Schmelzing, Barbara Rossi and I have), major shocks — for example, the big drop after the 2008 financial crisis — tend to fade over time. There are also structural reasons: for one thing, global debt (public and private) exploded after 2008, partly as an endogenous response to the low rates, partly as a necessary response to the pandemic. Other factors that are pushing up long-term real rates include the massive costs of the green transition and the coming increase in defence expenditure around the world. The rise of populism will presumably help alleviate inequality, but higher taxes will lower trend growth even as higher spending adds to upwards pressure on rates.

What this means is that even after inflation abates, central banks may need to keep the general level of interest rates higher over the next decade than they did in the last one, just to keep inflation stable.

Another significant difference between now and post-2008 is the far weaker position of China. Beijing’s fiscal stimulus after the financial crisis played a key role in maintaining global demand, particularly for commodities but also for German manufacturing and European luxury goods. Much of it went into real estate and infrastructure, the country’s massive go-to growth sector.

Today, however, after years of building at breakneck speed, China is running into the same kinds of diminishing returns as Japan began to experience in the late 1980s (the famous “bridges to nowhere”) and the former Soviet Union saw in the late 1960s. Combine that with over-centralisation of decision-making, extraordinarily adverse demographics, and creeping deglobalisation, and it becomes clear that China will not be able to play such an outsized role in holding up global growth during the next global recession.

Last, but not least, the 2008 crisis came during a period of relative global peace, which is hardly the case now. The Russian war in Ukraine has been a continuing supply shock that accounts for a significant part of the inflation problem that central banks are now trying to deal with.

Looking back on the past two weeks of banking stress, we should be thankful that this did not happen sooner. With sharply rising central bank rates, and a troubled underlying economic backdrop, it is inevitable that there will be many business casualties and normally emerging market debtors as well. So far, several low-middle income countries have defaulted, but there are likely to be more to come. Surely there will be other problems besides tech, for example the commercial real estate sector in the US, which is hit by rising interest rates even as major city office occupancy remains only about 50 per cent. Of course the financial system, including lightly regulated “shadow banks,” must be housing some of the losses.

Advanced economy governments are not all necessarily immune.

They may have long since “graduated” from sovereign debt crises, but not from partial default through surprise high inflation.

How should the Federal Reserve weigh all these issues in deciding on its rate policy next week?

After the banking tremors, it is certainly not going to forge ahead with a 50 basis point (half a per cent) increase as the European Central Bank did on Thursday, surprising markets. But then the ECB is playing catchup to the Fed.

If nothing else, the optics of once again bailing out the financial sector while tightening the screws on Main Street are not good. Yet, like the ECB, the Fed cannot lightly dismiss persistent core inflation over 5 per cent. Probably, it will opt for a 25 basis point increase if the banking sector seems calm again, but if there are still some jitters it could perfectly well say the direction of travel is still up, but it needs to take a pause.

It is far easier to hold off political pressures in an era where global interest rate and price pressures are pushing downwards. Not anymore. Those days are over and things are going to get harder for the Fed. The trade-offs it faces next week might only be the start.

Tyler Durden Sat, 03/18/2023 - 17:00

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MGM Shares Surprising Las Vegas Strip News

Two of the resort casino operator’s executives spoke at a recent event where they talked about Las Vegas’s covid comeback.



Two of the resort casino operator's executives spoke at a recent event where they talked about Las Vegas's covid comeback.

The Las Vegas Strip suffered during the covid pandemic when lights on the iconic 4.2-mile stretch of road literally went dark due to a government-mandated closure. Recovery, however, has been not exactly a straight line because the lingering impact of the pandemic has been a drag on some key business areas.

The two biggest players on the Strip -- Caesars Entertainment (CZR) - Get Free Report and MGM Resorts International (MGM) - Get Free Report -- have both had to make decisions without being able to use the past as a guide. In most years, for example, you could make a reasonable guess as to how many people might visit the city during a major convention based on how many attendees that show had the past year.

DON'T MISS: Las Vegas Strip Faces a New Post-Pandemic Reality

Covid, however, changed that equation. Some companies have realized that maybe they don't need to spend the money on exhibiting or attending shows while others may have employees reticent to be in crowded spaces.

In addition, some major events -- like CES in 2022 -- saw attendance plummet at the last minute due to a spike in covid numbers. Add in that international travelers and some more-vulnerable populations have continued to be wary of travel and it makes planning a challenge for Caesars and MGM.

All of this has led to low prices for tourists and business travelers -- especially those who booked far in advance. That has been slowly changing, especially for major non-business tourist events like March Madness, the NFL Draft, and November's Formula 1 race (a weekend where Caesars, MGM, and the other Strip operators may break pricing records).

Rising prices and a rebounding convention business don't mean the end of Las Vegas as a value destination for tourists, according to MGM COO Corey Sanders, who spoke at the recent J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas. 


MGM Expects a Convention Comeback (Just Not Yet)

Although Las Vegas has largely returned to normal after its covid disruptions, room rates at many Caesars and MGM properties remain below historic norms. That's at least partially because the convention business remained soft in 2022 and not having those huge blocks of rooms booked led to the casino operators generally keeping prices low.

That's expected to continue through 2023, according to Sanders, reported.

"With regards to convention, in particular with MGM, we’re going to be down a little bit this year. Some of it is strategic. We have made a decision that on weekends, we’ll put less convention business in our buildings,” he shared.

Fewer rooms booked for conventions generally means lower rates across the Strip.

Sanders said he expected 2023 to be a "decent" year for MGM's Strip convention business, but he believes that 2024 and 2025 will be stronger.

MGM Sees the Value of an Affordable Las Vegas

A convention business bounceback, however, does not mean an end to affordable Las Vegas Strip hotel rooms, according to MGM Senior Vice President Sarah Rogers, who joined Sanders onstage. She made it clear that MGM understands that the Las Vegas Strip must maintain its status as an affordable vacation destination.

“We still offer a relative value. That gap has tightened a little bit,” said Rogers. “Some of those drivers that have allowed us to sustain that are things like continued programming, improved product, and the suite offering that we have. So we’re comfortable that we still offer relative value.”

Sanders also pointed out that "much of the increase in traffic at Harry Reid International Airport in Las Vegas is attributable to economy carriers, meaning the travel costs to get to the U.S. casino hub are, broadly speaking, tolerable for a broad swath of customers,"'s Todd Shriber wrote. 


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