Another eventful week is in the books. Here’s what happened in gambling markets around the world this week.
United States
Another small piece of evidence came in today implying that, just maybe, we could be at or near the peak of this 12 year old boom. Nothing definitive yet, just something to pay attention to. The MGM economic indicator just blinked. Volumes at MGM are ebbing, led by a hard fall in table games drop of 14% on the Las Vegas Strip. Slots handle was still up 2%, but it did not make up for the loss in table games. Taken together, this was a 1.7% fall in combined table games drop and slot handle. Hotel occupancy was stable at 89%.
What does this mean? Not sure, but if we move over to a snapshot of the Nevada housing market, we can just make out some possible evidence of a top here as well. We will know much more in a quarter or two. The All-Transactions House Price Index for Nevada is now within 0.8% of its all time high hit in Q3 2006. The housing peak in Nevada as measured by this index hit two quarters before the national peak, which came in Q1 2007. The top in equities came 9 months later.
Something weird is going on in Nevada though, because the rental vacancy rate is also at an all time low. Meaning, supplies are extremely crimped, and still housing prices are struggling. Sequential gains in real estate prices this quarter were tied for the slowest pace since the housing recovery began in 2012. This could be read bullishly or bearishly. Bullish if you think the lack of supply will push prices higher and this is just a lull, or bearishly if you think that it’s a more fundamental sign that consumers are simply running out of money or the ability to borrow.
Things are still unclear in the U.S., but I think it’s time to start lightening positions a bit at least on the biggest gains. Penn for one looks out of control parabolic and some profits can definitely be taken there. Eldorado is also at an all time high. Time to lock in some of those gains as well if you have any.
This week in the hemorrhaging transfusion-hungry repo market, the Federal Reserve subsidized hedge funds to the tune of $268.315 billion, averaging about $38 billion a day just handed out to Wall Street trading firms. This is why the Nasdaq just keeps spiraling higher with no pause. It’s not going to end well. Penn and Eldorado have hitched along for the ride here. Take advantage and lighten the load.
United Kingdom
Some interesting castle intrigue at Number 10 Downing Street this week. Basically almost everyone in the cabinet got fired, along with Sajid Javid, Chancellor of the Exchequer. From what I can tell, this is a bad sign longer term, but could stimulate U.K. equities in the short run. No, that’s not a good thing. “Uncle Fester” Javid was a dedicated fiscal hawk who promised to balance the budget, and it seems that Dominic Cummings instead wants to spend more. This is quite disappointing, and points to the likelihood that Cummings is just a technocrat who thinks he can engineer success through spreading out taxpayer wealth in a “better way” rather than just giving it back. I have seen no concrete moves so far to stabilize the pound fundamentally, which suggests that Brexit will ultimately fail in its attempt to extricate the U.K. from an economic crisis that will have its epicenter in the Eurozone.
What this suggests is that investors should continue to stick with the conservative, responsible companies for the long haul. A Johnson/Cummings administration is looking more Keynesian than it once did, suggesting the borrow/spend merry-go-round will continue, digging profligate bookies into even more of a hole, while regulatory tyranny can continue apace.
On the plus side, William Hill’s new deal with CBS is exciting, but don’t get too hyped up about it short term. 888 is still skirting 52 week lows and its dividend is now 5%. Rank is up another 9% this week. 888 is about even. Take more profits from Rank positions and continue to slowly move capital over to 888 from Rank. Hill, Rank, and 888 should be the top holdings in a U.K. gaming portfolio for the foreseeable future.
Macau
Considering Beijing has never released an official tally of the roughly 45 million Chinese who starved to death during Mao’s Great Famine, the fact that Beijing’s numbers are a bit fudgy on the coronavirus this week should not come as a surprise at all. The official story is that anecdotal diagnoses based on symptoms without confirmed lab results are now being counted as confirmed coronavirus cases in Hebei Province, the home of Wuhan where the outbreak started. That pushed up the confirmed cases by an order of magnitude overnight. Don’t be surprised if a similar jump happens again next week, as Hebei is still the only province using the new criteria that includes anecdotal diagnoses as confirmed. Or so says Xi Jinping’s various assorted mouthpieces.
However, keep in mind that a new official count does not mean that infections magically increased. This is not quantum mechanics where observation is reality and it still looks as if infection rates are slowing overall. Keep a buying bias on Macau, but only scale in on heavy down days over the next two weeks with a plan to hold until around mid May. Don’t go above 5% total positions in Macau.
Scandinavia
NetEnt reported 10% growth in revenues and a new record for the quarter of SEK512 million. Still, the company is having a bad time in its home markets but is growing elsewhere, including in the U.S. This discount won’t last. It’s the same story with Betsson. Scandinavian markets are tanking due to new tough legislation on gambling safety and revenues are going down. However, deposits are up 10% for Betsson for the quarter and active players are up 3%. So players still want to use Betsson, meaning it’s still a good company. Players are just having a hard time actually playing, given the new laws in place. Make sure you have some kind of position in Betsson, and let dividend reinvestment add to it for you. Alternatively, you can use it as a very nice income play and eventually you’ll have capital growth as well.
