Gaming markets are looking good across continents these days, but despite the good, and in some cases even euphoric numbers, cautious optimism is the play here. Chasing price is not a good idea right now. Strategy now calls for taking profits on double digit gains with a wait-and-see attitude. The reasons for this are different for each region, United States, Europe, and Macau. Let’s go through them.
The old adage “Sell in May and go away” makes a lot of sense, and I believe there is one main reason for it. The annual dollar supply drop almost always takes place in the last week of April, and I have previously speculated that this may have something to do with Tax Day, which sucks money out of banks and puts it into the US Treasury. The exact reason doesn’t really matter so long as it is predictable. The next Fed Money Stock Measures report is due on Thursday, and it will be a crucial one for the entire US stock market as we head into the summer months.
Not to wade too deeply into mathematical details here, the dollar supply stands at $13.628 trilliion as of the Fed’s last report. While it is uncertain how reliable the numbers from USdebtclock.org are (they claim to be real time sourced from the Fed but I can’t verify that), M2 is now $13.534 trillion according to the clock, which would be a drop of 0.7% from last week. If USdebtclock is accurate here, this would very bullish going into the summer. It would take a drop of at least 2% to cause any significant trouble for stocks.
A little bit of investigation does provide some evidence that USdebtclock may be accurate in real time, or at least close enough to accurate to base trades on. The site does allow for going back in time at the debt clock time machine. Cross-referencing the 2012 numbers at this time to the 2012 Fed data sheet for the first week of May, the clock shows a money supply of $9.89 trillion while the Fed release shows a similar number of $9.833, looking at the one-week average in the bottom right hand corner of table 2. Cross-referencing for 2008 also looks accurate, with the debt clock time machine at $7.755 trillion and the Fed at $7.771 trillion for the same time period. So unless the Fed numbers come in way below that of USdebtclock, we are in for a very bullish summer.
The numbers are reflected in MGM volumes as usual. MGM table games drop was up 2.2% (see page 2) from last year’s first quarter, with slot handle steady. Win percentage was up 1.5 points so it was a lucky quarter for MGM and gave their numbers a bit of a boost. Occupancy, another indication of volumes, was steady at 91%, but prices were up 8.6%. If prices go up and supply stays constant, that means demand is increasing. Nevada as a whole was up 7.5% by revenue year over year according to the Nevada Gaming Control Board. Barring any surprises next week, the trend can continue for now.
Bottom line, with US stocks, if the Fed reports the dollar supply at anywhere above $13.5 trillion on Thursday, then the US turns into a buy the dip play. Anything below $13.4 and it’s a sell. Anything in between, hold for another week or two and see how things develop.
Though it seems incredibly unlikely that Eurosceptic Marine Le Pen will win given that she is down by 20 points, all European stocks will be absolutely smashed if somehow she pulls off a victory. This could happen if Emanuel Macron’s supporters are too lazy to show up at the polls, or if some kind of scandal news is pulled out of hat involving Macron in the next few days. Even if Le Pen loses but comes within, say, 5 points or so, a result like this could still cause EU stocks to tank on the theory that Le Pen could finally win next time around and it becomes clear to all that the days of the European Union are truly numbered.
The bottom line in Europe though is a bit confusing. First, small positions now in strong gaming companies with a sizeable chunk of revenues within the EU proper (not UK) are an OK idea in the event that Macron wins by margins that most polls are predicting. I wouldn’t chase any huge rallies though. Just keep a small percentage of capital in the game to take advantage of the relief rally. However, if Macron wins but only by a slim margin, say single digits, there will likely be a pullback that you can use for a better entry into your favorite companies. That would be the time to add to existing positions that will be down or establish new ones.
If, however, by some miracle, Le Pen pulls off a win, European markets will tank for a longer period, hard to say how long. Le Pen will try to calm them down by saying she’s not in a rush to leave the EU. She has already said this. It may not work. If Le Pen wins, UK stocks with most of their business within the UK will be the ones to buy. Ladbrokes Coral, William Hill etc. will look attractive because they have less to do with the EU and suddenly Brexit will look like a genius move.
Macau stocks are surging. The Market Vectors Gaming ETF (BJK) is up 17.5% year to date. The best explanation as to why might have to do with the Chinese anti-graft regime harassing itself, which is always good for free enterprise. According to the China Digital Times, the Central Commission for Discipline Inspection is busy purging itself from corruption instead of annoying gamblers who want to move money to Macau.
I have a suspicion that the explosion in the price of bitcoin since March may have something to do with Macau’s current success. Bitcoin is a great way to move money cheaply, not least from mainland China to Macau. Buy some BTC in mainland China, sell it in Macau via a P2P network for cash, then go and gamble. With State authorities distracted with their own internal issues, now is a good time for Macau casinos. How long it will last depends on when Xi Jinping feels like cracking down again. Now though, it looks like Beijing and Macau are in some kind of temporary détente.
It is impossible to know when the next flare-up against Macau will be from Beijing, so I can’t give a bottom line here.