Offsetting all the concerns are very low valuations on companies like Penn National Gaming and Pinnacle Entertainment, a distinct lack of interest in Isle of Capri Casinos, and a question of how to value companies like Boyd Gaming and Ameristar Casinos. Retail investors have completely abandoned the microcap names like Full House Resorts, Nevada Gold & Casinos and Lakes Entertainment as the hedge funds don’t even want to look at a stock that isn’t trading at least 200,000 shares a day.

Las Vegas has moved from hope for a recovery, to the recovery is underway and is entering 2012 with the reality that we are recovered and now we need to maintain this momentum. With only Caesars Entertainment adding hotel capacity in 2012, we should remain strong in the first half of the year while the second half will have tougher comparisons and uncertainty as we head into the Presidential Election.

We are entering 2012 with the highest levels of global uncertainty and that has paralyzed economies and financial markets since early summer. This type of environment is one where investors should seek safety in cash rich, cash producing companies. With so much uncertainty over the economy and income tax situation, we believe more companies will begin to distribute more of this cash ahead of a potential increase in dividend tax rates, at least in companies with high insider ownership.

We believe there are three ways to categorize gaming stocks for the coming year. The first is growth and that is the smallest part of the group given the lack of clear identifiable opportunities currently. The second is cash rich/cash flow and the third is just plain low valuation. Obviously given the year we just had the last category is quite populated.

We continue to believe that the best growth opportunities are in Asia and other international markets and that the US market is saturated. Given the budget issues and economic situation more and more states are looking to find ways to raise capital and gaming will continue to be looked at as a golden goose with ignorant politicians looking at statistics from 10 years ago and opponents continuing to find ways to delay or stop expansion in its tracks. The Northeastern portion of the US is the most saturated but the opening of the Rivers in Illinois shows that expansion in the Midwest makes little sense. While a handful of states will pass casino legislation or expansion, despite the obvious, we also feel more states will consider a quicker fix by allowing VLTs or slot routes.

All this sounds like a great environment for suppliers and it is but this outlook has been here for a couple of years but regulatory and political delays have coupled with a continued sluggish replacement cycle to keep investors on the sidelines. We believe that by the second half of calendar 2012, investors will react to better visibility by slot companies regarding VLT installations in Canada, Illinois, Italy and Ohio along with the timeline for openings of casinos in Ohio, Kansas, Missouri, Massachusetts, Atlantic City and Pennsylvania. As for Internet gaming, unless Caesars Entertainment is successful with its IPO, it will continue to be a big distraction for casino companies and a long term opportunity, but short term waste of time and effort for most of the suppliers.

In 2011 it was very difficult to stick with fundamentals as a reason to invest given a very emotional and erratic global stock market. It has become clear that the activity in Asia, mainly Macau given the news flow, dominates the actions of gaming stock investors in the United States. Making that situation even more dangerous is that Hong Kong investors determine the valuations and trends in the stock prices of the US Macau subsidiaries and to put it politely, they are completely clueless about the gaming industry. Last year we reminded you to take what you hear out of Asia with a grain of salt and to use common sense when accessing the news and volatility it creates. Even though the perception of Macau and actions of Hong Kong gaming investors and analysts were a good part of the reasoning behind where gaming stocks ended the year, we remind everyone that this works both ways and that around the time of the opening of Galaxy Macau and the MGM China IPO, gaming stocks were valued at their highs because of the extremely high, and unsustainable, valuations that Hong Kong investors had assigned the group. Being able to identify when the imbalances occur, both high and low, will be even more important going forward.