If it’s at all possible to pinpoint one thing that is of paramount importance to business, it is the freedom of movement. If people are not allowed to move around, global trade collapses and the global economy collapses with it. Following with what started as restrictions on capital flows, which are bad enough, we seem to be at the beginning of a major scourge of government crackdowns on the freedom of movement of people, and this will only exacerbate the monetary troubles currently plaguing the global economy. A clear trend is developing and investors would be well to take notice.
The assault on freedom of movement is centering, of course, on the gambling industry. The two biggest industries with the most government intrusion are arguably banking and gambling. Government control of banking leads to capital controls and restrictions. Government control of gambling is now leading to restrictions on movement emanating from that sector. Yesterday, November 28th, the government of the Philippines executed a major crackdown on online gambling, detaining over 1,200 Chinese nationals suspected of running an online gambling ring out of an old US airforce base. China is obviously upset at this, as only the Chinese government should be allowed to harass its own citizens. States tend to get territorial when other people bully the subjects that they normally bully.
This is just the latest manifestation in a wave of crackdowns sweeping the world, not necessarily because of, but definitely in the spirit of, the election of Donald Trump, himself not at all a fan of freedom of movement in any sense. If governments all over the world were not in such an insular xenophobic mood, they’d find a reason to look the other way. Artificial laws are only there to be used when whoever is in charge is in a particularly sour frame of mind.
The crackdown in the Philippines follows the recent Chinese crackdown on Crown Resorts executives, not related to the Philippines but indicative of the global trend here. Three have finally been formally arrested as of November 22. As for the rest, still in the dark. Two days later, China decided to confiscate the passports of 23 million people in its Xinjiang region for who knows what reason, showing clearly that the spirit of Mao is alive and well in the capricious authoritarian “Republic”. 11 million of these people are Muslim Uighurs, but you don’t normally hear about Uighurs bothering anyone or doing anything but quietly living their own lives. What a threat. It just shows that Beijing is getting antsy, not entirely unrelated to the collapse of the yuan, which just broke through long term support at .146 yuan to the dollar. We’re now in no man’s land with the yuan, from a technical perspective. Monetary disorder tends to breed xenophobia and hyper nationalism. A monetary catastrophe is what preceded World War II, and may I go out on a limb here and say that mankind has never fought a war without an economic catalyst to set it off.
And of course, the crown jewel of all these freedom of movement restrictions is Donald Trump’s plans for a giant wall on the Mexican border and the expulsion of millions of illegal immigrants regardless of whether or not they are criminals.
Practically speaking, investors should particularly avoid stocks that are dependent on the flow of people between countries whose governments are currently at odds with each other. A fight between China and the Philippines means get out of Melco Crown. Melco actually comes with two reasons to sell. Its relationship to Crown Resorts and the ongoing fight between China and Australia being one, and the Philippines and China at odds being number two. American companies operating in Macau could also be in trouble soon. Las Vegas Sands (LVS) and Wynn (WYNN) should continue to be avoided due to the danger of Chinese retribution. It can happen overnight and these stocks could tank just like Crown did when its staff was suddenly arrested without warning.
The only relatively safe stocks, besides long term fundamental holds, are right now in Las Vegas, at least until Trump decides to go through with his mass deportation schemes. So come late January it’s time for itchy trigger fingers on the sell button. Since adding small cap casino stocks Century Casinos (CNTY), Empire Resorts (NYNY), and gaming REIT Gaming and Leisure Properties (GLPI) to the model portfolio, Century is up 1.2%, Empire up 13%, and GLPI up 3%. MGM continues to chug higher with no major dips since bottoming in February. Looking at a yearly chart you wouldn’t even notice the elections happened, and we are still knocking on the door of 52 week highs. The stock is 21% higher since adding a 3% position back on August 30th before NFL kickoff. There is no reason to sell any of these stocks yet, as the road ahead looks relatively smooth for the next two months. After that, we will reassess.
The other relatively safe zone is Britain, where Brexit looks less likely every day now as the mega popular (ha ha not really) Tony Blair has kindly suggested another referendum just to make sure that nobody was joking when they voted back in June. He’s looking out for the regular folk, or whatever. 888 has stayed as steady as ever, as expected for a defensive stock. Continue to hold it. Come January/February if there is any evidence that Trump actually plans on spending a trillion dollars of China’s money rebuilding infrastructure, expelling 10 million immigrants, and building a giant wall, that would be the time to sell US stocks. Domestic American drug dealers though are going to make a killing as Trump will end up subsidizing home grown cocaine and heroin as the supply will be mostly cut off from South America.
That’s Trump for you, always looking out for subsidies for American businesses, even the drug trade. He’s making America great again.
