Weekly gambling market review February 28

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The U.S. market is collapsing at an all time record pace, but that’s no surprise to anyone who reads this column. Regional casino stocks are getting particularly smushed as expected. Global stock markets are following apace across the board. Covid-19 is still spreading globally, and Macau stocks are finally starting to respond negatively as well.

weekly-gambling-market-review-february-28No-deal Brexit headlines are reappearing as Johnson threatens to walk away from talks in June, and British bookies are getting hammered. But Swedish gaming stocks that have already seen a serious decline like Betsson are holding up pretty well, having already been beaten down so badly. This week in the gaming markets, it’s starting to get wild, and this is far from over. We will begin in the United States, where it looks like something just hit a fan.

United States

We began last week’s market review with the following two sentences. “Stay out of the U.S. stock market. Momentum stocks are still climbing, which is almost embarrassing at this point.” Well, momentum up, momentum down. It’s a double-edged sword. Penn, Eldorado, Boyd all waaay down 20-30% this week. Momentum stocks in every sector are collapsing. The Nasdaq is falling faster than it ever has in the space of 8 trading days than at any time in its history. Is this finally the real deal? Have we begun the great unwind from 12 years of monetary splurging? Maybe. I’ll make a more definite call on that by June. Still unclear.

I’m sure President Donald Trump putting Vice President Mike Pence and U.S. Economy Cheerleader-In-Chief Larry Kudlow in charge of some wacky coronavirus task force was very confidence-instilling as California may be about to get infected. Rumor has it that Pence and Kudlow had a quick unit on epidemiology when they took Bio-101 in high school. Maybe. So they’re pretty much qualified to handle this.

Eldorado’s CEO, meanwhile, is busy trying to convince shareholders that acquiring a heavily indebted company on the eve of a major recession was a good idea. I beg to differ. Like a snake choking on a deer, it’s going to be very hard if not impossible for Eldorado to digest Caesars before its liabilities become too much to handle in the light of reduced cash flows.

While the sky is falling around it, Pennsylvania is busy pondering the completely asinine question of which games are games of skill and which are pure luck, as if this was actually a crucially important matter in the annals of human history. Which kinds of games exactly were passengers allowed to play on the deck of the Titanic? I’m sure this was a very important issue at the time. The silver lining is that markets being in freefall may actually spur these people to say it’s all skill, just so as not to kick business while the business cycle may already be turning. So there’s that.

Assuming the virus spreads in the U.S., the collapse will continue and worsen. If it doesn’t, we could see a relief rally. In the meantime, all eyes will be on the Federal Reserve to see how many skrillions it will print to keep everything inflated. That’s skrillions. With a skrill. On that note, 10Y U.S. Treasury yields have collapsed 16 basis points in just 13 hours since 1am this morning EST. That’s more than one basis point per hour. New all time record lows. They now yield 1.16% annual for ten years, while official inflation is now 2.3% or whatever it is. This is all completely normal, in the sense that it’s completely normal to be completely insane these days.

Europe and the United Kingdom

weekly-gambling-market-review-february-28-1I don’t think Italy is going to make it much longer. Italian production is shutting down with the coronavirus there, too. The Euro is about to get smashed in purchasing power terms, but that’s good timing because the Fed has a lot to print, too. Just like the coronavirus primarily kills those with preexisting medical conditions, it will primarily kill those economies with preexisting debt conditions, and boy does Italy have a bad case of that. This will have an outsized negative effect on IGT, which is down 24% since the broader selloff began.  The dividend yield is now above 7%, which should make you nervous. Stay away from it. IGT has for years been a survivor, not a thriver. If this worsens, survival will become increasingly difficult.

All U.K. stocks are moving down together and that should be expected. If we are really at the beginning of a new bear market in stocks, what we should start to see over time is the financially stronger companies like 888, Rank, and William Hill declining less over time, rallying more on bounces and falling less on selloffs. This is just the beginning so we’re not seeing that quite yet as there is just a general rush to liquidity, but over the next few months this is the pattern that should start to emerge.

Boris Johnson has threatened to walk away from talks with the European Union by June. He may as well, since he can now blame any decline on the virus instead of on Brexit. When the EU understands this, they’ll cave to him. If they don’t, they’ll cave anyway.

Macau

Macau stocks are just now starting to get hit. The BJK ETF, which is heavily weighted to Macau, looks to have been on a two-day delay on the selloff, which could mean it will be late in rebounding. Hold off on adding to small Macau positions for another few days. There could be a resurgence of infection rates which could bring them down even further. Macau could easily fall another 30% very quickly if supply chains start to break, which would mean it will take time before the structure of production is rebuilt. This will affect VIPs and the mass market together. Check back again if BJK falls below $30, the point where it bottomed in 2015.

Sweden

Betsson is doing pretty well, considering. It is down about 14% since February 20 but since bottoming we’re still up a good 20%. If we fall back down to SEK40, buy some more, but no need to add any more at this point. Depressed stocks like these with good fundamentals are the places to be when things get crazy. Hold on to Betsson and NetEnt, if you own any.