Inflated Assets

"Daddy, I forget, which hotel has the best swimming pool?"
your editor’s 6-year old son wanted to know. "The one here
in Colorado or the one in Las Vegas?"

"The one in Las Vegas," I replied. "That’s the one with the
huge wave pool."

"Oooo…Cooool! How many days are we going to be there?"

"Just one," I reminded him.

"Oh, darn," he said, as he ran across the pool deck to take
another trip down the waterslide. Such are the delights and
disappointments of childhood travel.

Your editor and his three kids spent a few days at the
Broadmoor Hotel in Colorado Springs, much of it by the
hotel’s picturesque infinity pool (and somewhat less
picturesque water slides). Then, yesterday, the four of us
departed the alpine serenity of the Broadmoor for the gaudy
glitz of the Mandalay Bay Hotel in Las Vegas. Among its
many over-the-top diversions, the Mandalay Bay features a
wave pool, a "lazy river" and five other pools of various

After spending a few days at both of these upscale hotels,
two distinct phenomena become immediately apparent:

1) Large breasts are in a bull market.
2) The luxury hotel industry is faring quite well.

The poolside patrons of the Broadmoor provided ample – very
ample – evidence of the national breast-augmentation craze.
But the overly tanned and tattooed crowd at the Mandalay
Bay provided irrefutable proof. Whenever God himself
neglects to endow a woman with sufficiently large breasts,
surgeons stand at the ready to correct this divine

While relaxing in a Jacuzzi at the Mandalay Bay, your
editor observed two 40-something females engage in a kind
of impromptu soft porn. The first woman snapped an up-close
digital photo of her friend – a photo that, evidently, did
not fail to capture the friend’s medically enhanced
cleavage.  Immediately after taking the photo, the two
friends huddled around the camera to have a look. The
second woman gasped with delight as she whispered loudly
enough for me to hear, "Wow! I can’t believe they look that

The first woman, still holding the camera, turned it
around, pointed the lens toward her own cleavage and
snapped off a photo. The two friends huddled around the
camera for a second time to gawk at the photos of their
enhanced breasts…There were still admiring and comparing
their personal assets like proud parents when I quit the
scene a couple of minutes later…No doubt about it, large
breast have entered a secular bull market.

Item two: The hotel industry appears to be booming. Over
the last couple of years in particular, your editor has
observed the unmistakable signs of a lodging-industry boom:
Sold-out hotels and sharply rising room rates.

Immediately after 9/11, 5-star hotels routinely charged 2-
and 3-star rates…and still the room went begging. But
plush accommodations go begging no more. The overall
occupancy rate among US hotels increased in 2004 to 61.3%,
as room rates also increased. Luxury hotels posted the
biggest gains of any segment. Manhattan’s pricey hotels
fully reflect the trend. At 83.2%, overall occupancy rates
reached close to the historical peak achieved in 2000 (at
83.7%). The revenue per available room (RevPar) among
luxury hotels in Manhattan shot up a stunning 22% in 2004.

Unfortunately, the rising room rates have made it
increasingly difficult for 3-star travelers like myself to
continue hobnobbing with the hoi polloi. But my personal
loss is the upscale hotel industry’s gain. As occupancy and
room rates have soared, so have the shares of all major
hotel companies.

Not surprisingly, many hotel industry insiders expect the
good times to continue for many more years…if not
forever. (We beg to differ). Even though the value of New
York hotel properties has been soaring for more than a
decade, HVS International, a global hospitality consulting
firm, "forecasts that the rise in hotel values in New York
City will accelerate during the next several years,
surpassing the 2000 level by 2005."

Meanwhile, throughout the rest of the US,
PricewaterhouseCoopers forecasts positive occupancy growth
through 2007 and record high room rates. Hotel investors
seem to believe them.

U.S. hotel room construction starts in 2005 (the number of
hotel rooms beginning construction) will soar more than
20%, the largest increase since 1997. Once again, high-end
hotels are leading the advance. Even though the highest
price segments – luxury, upper upscale and upscale –
represent less than one quarter the current hotel supply,
according to Smith Travel Research, these sectors represent
more than 30% of the new construction.

As a not-quite-luxury traveler, your editor mourns the loss
of his cheap accommodations. But he does not doubt that the
lodging industry will miscalculate future demand once
again, and build one or two hotels too many. In the event,
5-star rooms might once again become available at 3-star
prices, for a while at least.

As an investor, therefore, your editor would steer clear of
most lodging stocks. The bull market in breast augmentation
shows no sign of exhaustion. But the bull market in upscale
lodging looks ready to drop a cup size or two.

And the Markets…



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