Maybe it takes a gamer to know a gamer. And it takes a casino genius to know when the casino is rigged against him, momentarily or not.
That's how I felt after reading the unbelievable treatise on gambling and gaming in the stock market that was all part of the usual clinic that one of my heroes, Steve Wynn, put on during his conference call last night.
As you might know, Wynn is the great casino entrepreneur of our generation, which means he not only knows the gaming business and the construction business, but he knows what games are played and how people try to get away with beating the house.
That's why his answer near the end of his pitch-perfect conference call just knocked me over. When asked by Joseph Greff, the JPMorgan analyst about why Wynn (WYNN) recently upped his buyback, Wynn gave this amazing answer:
"Well, we never know what the street is going to do with the funky trading. And we all feel that both as individuals and the company, that we should be prepared to take advantage of any real opportunity when it occurs. And my board feels that way, and so do I. So we just wanted to make sure that we are properly armed in case there was something strange that happened on Wall Street and the stock market dropped, or our stock went to a level that we thought was grossly oversold we would jump on it."
Wynn continued: "As long as the short players fool around for one dollar or two dollars, that's fine. But when shorts, the exchanges don't really enforce the rules of naked shorts, so I mean it's unconscionable manipulation of the stock that occurs. They open up every morning and the high frequency traders have a ball selling shares and then value buyers step in in the afternoon and they cover their shorts; I mean, it is regular casino activity."
That wasn't all: "The activity in the stock markets is, in my view, poorly regulated and irresponsibly policed, especially with regard to short sales. We see a lot of shorts because of China, because we are such a clear China play."
There are 100 million shares out there and 14 million of them are sold short. Wynn admits there's nothing he can do about that. He doesn't mind. He is willing to take the other side of the trade. He's bought about $100 million in stock, including huge chunks in the breakdown to the mid $50s -- mighty smart after this romp.
But I think he was simply taking advantage of what he perceives as total manipulation. As he put it about the heavy short position: "Although I can't do anything about it myself, I take advantage of it when it gets online, and I buy shares. I mean, it is fine when they drive the stock down for reasons that are irrelevant and completely disconnected from anything to do with our business operations."
But he does make a terrific point, that stock markets just aren't regulated well at all, certainly not as well as casinos, and it wrecks it for everyone: "so the stock markets got more volatile and more stupid as a gambling game than ever before."
He says he has "very little respect for the integrity of the trading on the exchange of most stocks, and I have particular disdain for the fact that the SEC has failed to deal with high frequency traders." He says these traders have unfair advantages when it comes to buy and sell orders.
That's why he says he uses the IEX created by Brad Katsuyama, the hero in Flash Boys, the book by Michael Lewis, so that the order can't be front run by these traders.
He then went on to talk about how he watched his stock be walked up on several thousand shares, as stock was obviously being taken ahead of a big order. "I mean every trade was a tick up. That's not the way it should operate in an honestly and intelligently run exchange."
I think Wynn's dead right. I see this activity all of the time in his stock. It is a play thing for the shorts and the high frequency traders. He's been able to take advantage of the shorts who he says helped drive it down, by getting great prices ahead of what turned out to be a bottom in Macau. But as for the day-to-day trading? It's ridiculous. None of us would play cards at a table where the guy ahead of us knows our cards.
Yet, that's' what's going on. Wynn knows it. But most CEOs don't. I guess it takes a gamer to know when the game's rigged, and Wynn knows it better than anyone.