In order to invest successfully this year, what must be understood and accepted first and foremost is that the world is now in a state of flux for the foreseeable future. There is no going back to the way things were before and just resting there. The pandemic was a historical fault line. That line has been crossed, and there is no traveling back in time. In many obvious ways the world has changed for the worse, but in some key and important ways, believe it or not and whether we can actually see it yet or not, the world has changed for the better. Put in investment terms, the companies that accept this and are ready to change accordingly, they have the best chance of succeeding in the new era.
Take Macau. Morgan Stanley is not very positive, but Macau Secretary for Economy and Finance, Lei Wai Nong is forecasting a strong recovery. To put it dryly, it’s a disagreement between a crony megabank that supposedly is packed with stock picking experts, whose stock is still down 30% from a tech bubble that popped 21 years ago, and Macau’s local government cheerleader. Take your pick on who you are going to believe.
The good news is that the new era has forced Macau casinos to improve efficiency dramatically. Morgan Stanley has pointed out that operating expenses across Macau have dropped by 39% this year, and we can expect casinos to be miserly in stepping up spending again too quickly in a highly uncertain environment like this one. In other words, the competition between Macau casinos has changed from which can grow the fastest in a profligate environment full of junkets, to which can be the most efficiently run in a challenging one where the VIP sector is now a giant question mark.
We should now start to see analyst focus change subtly from cheering on and rewarding high growth numbers, to targeting conservative, responsible management with a clear plan to stay financially lean and healthy. Like a man who has just suffered a massive heart attack and had successful bypass and is now committing to a healthier diet, it’s going to take time, but it’s certainly the right long term direction.
In the short term, unfortunately the trading environment for Macau stocks is one where insiders and the politically connected have the clear advantage over anyone else. This is because the main factor that will influence Macau stocks in the short term is simply government policy. If Beijing decides to let Macau open up and loosen travel restrictions so people can actually go there and, like, gamble, then all Macau stocks will explode higher overnight. This is where insider tracking could come in quite useful, as I would expect a flurry of unusual buying activity in Macau in the lead-up to opening up again.
My guess is a massive jump on such an announcement will be short, followed by a pullback as the new numbers actually start to come in and investors see that the road to real recovery is still long. It could resemble the jump in U..S and U.K. gambling stocks when the Supreme Court struck down the Professional and Amateur Sports Protection Act, and then investors suddenly realized that regrowing an industry is not as simple as just repealing an unconstitutional Act of Congress.
Macau has a much better shot of recovering over the long term than the United States though, as it is becoming clearer and clearer that the U.S. is in the advanced stages of social and political decline and even disintegration. Don’t be fooled by seemingly positive news snippets about the legalization of online gaming in this or that U.S. state, such as New York Governor Andrew Cuomo’s recent friendly moves towards legalizing online gambling. Not that these developments aren’t positive – they are. But what must be realized is that they are coming from within the context of fiscal desperation, by State governments that are financial basket cases who have destroyed their local economies through lockdowns and are now experiencing a mass exodus by people voting with their feet and getting out. More people got up and left New York in 2020 than any other State, and I expect that trend to continue as the conditions in urban areas accelerate their decline.
Macau is now in a temporary decline that has a lot to do with needed restructuring in China’s trade and monetary relationship with the United States. It’s not going to be easy. Becoming the world’s leading economic power takes some getting used to before China will get the hang of it, and there are going to be real serious problems. The decline of the junkets and the VIP sector is just one small symptom of this restructuring, and so the investment environment in Macau will continue to be volatile in the medium term. If you want to put money into Macau at this point, the focus should be on specifically Chinese casinos like Galaxy and only long term with the intention of seeing the position through the upcoming tremors, and they are certainly coming. American casinos like Wynn or Las Vegas Sands are too dangerous for a long term hold as the relationship between the U.S. and China continues to break down.
All in all, the world has already changed irrevocably. There is no going back to the way things were. We are already on a new road out of the West and towards the East as economic power is now rapidly shifting. It will not be a straight path, and parts of the transition are going to be scary for many people on both sides of the equation. For those alive to see it though and observe from a safe vantage point on the outside, it is going to be a very dynamic time that most human beings never get to witness.
