Just as predicted here two weeks ago, Donald Trump won the presidency. The only reason for this is that Hillary Clinton’s supporters never liked her, so they didn’t bother going to a voting booth. It takes time and emotional energy to do that, energy that is not inspired by Hillary Clinton. You have to actually sort of like the person you’re voting for, rather than hate the person you’re voting against more than you hate the person you reluctantly cast a vote for, in order to drive somewhere (if you even have a car), find parking, and stand in line with people you don’t know while missing work in order to cast a vote that barely counts. All for Hillary Clinton? Give me a break. You may answer on the phone that you’re voting for her in the polls, but come that day, it’s just too much of a hassle. So Trump won, because his followers are actually excited about him, nevermind the reasons. They showed up. Hers didn’t. That’s it.
So now what? Here is what I think will happen over the next 4 years, and possibly as quickly as the next two. First, there will be one more US stock market boom. Just one more, and it will be a big grand finale. Lots of things happened in the markets the day Trump was elected, but only one of those things was not immediately reversed. Stocks dumped then pumped. Gold pumped, then dumped. But bond yields skyrocketed and kept on doing so. Bond prices have been collapsing for 6 straight days with no bounce, especially on the long side of the curve. The global bond bubble may finally have started to pop.
Initially, this will mean a steepening yield curve. Banks will be able to loan out more money at bigger profits by borrowing short, lending long, and profiting on the spread. There are still $2 trillion left in excess reserves that can be loaned out. Dollar supply growth needs to be watched like a hawk the next few months. It typically starts to slow around February, with a big drop in April and a trough around August. If it does not follow this pattern and instead stays steady or even grows, we’re headed for overheated stock prices and fast climbing inflation, which will bring yields even higher. So now is not the time to buy highly leveraged stocks of any kind, even for short term gains. I wouldn’t even look at them so as not to be tempted if they do go higher any given day.
Trump will be good for moderately to low leveraged casino stocks. Stick with MGM (debt is moderately high so watch carefully) and small to mid-cap gaming stocks like Century Casinos (CNTY), Empire Resorts (NYNY), and a high dividend REIT like Gaming and Leisure Properties Inc. (GLPI). GLPI also has moderately high debt but it’s not extreme. It needs to be watched carefully as well.
Trump’s protectionist policies will drag the US into a trade war with China, and Beijing will take it out on US-based Macau casinos like Las Vegas Sands and Wynn and others. Stay far away from those now. Native Macau stocks may do marginally better, or simply not get clobbered as badly. Beijing has already threatened Apple if Trump imposes a 45% tariff on Chinese imports. The Chinese government may find it especially pleasing to hit Trump by vindictively making US-based Macau casinos the front line of this war, to proverbially kick Trump in his gambling-roots groin just for the fun of it.
Some Hong Kong hedge funds are recommending Macau as a buy here on the strength of the mass market. John Ho of Janchor Partners in Hong Kong reportedly said the following yesterday, according to AFR:
“Mr Ho said there are about 300 million Chinese that are wealthy enough to visit Macau, of which only 25 million have visited the former Portuguese colony – implying a large population of untapped punters looking for a good time.”
Just like haters gonna hate, trend-followers gonna follow, without thinking about why trends can and do reverse. The middle class is rising in China because of trade and relatively increasing liberty in China, certainly since the days of Mao. A trade war will reverse all of that, and quickly.
In two months’ time we will have someone in the White House who has vowed to crush foreign competition and protect American businesses at the expense of American consumers, who will have to pay much higher prices or the things they buy. It has been his central pillar for decades, as rotten of a pillar as it is, and not just this presidential run. Why would anyone buy foreign companies when the head of the most powerful army on the face of the Earth, with almost unlimited power to use it however he sees fit without asking permission to do anything, has vowed to pad American companies and hurt foreign ones?
US stocks will keep running until inflation becomes obvious. Hold on to them until inflation reaches 4% or so, which could happen as soon as the middle of next year. Then start scaling out as stagflation starts to set in. Trump’s tariff war will lower the supply of foreign goods and services, lowering the overall supply and raising prices even further as the money supply soars. Interest rates will keep rising and casinos and all companies with high leverage will start to fall underwater. But until then we have a few months of gains in Las Vegas and small caps.
Starting in January when Donald J. Trump is inaugurated as the 45th President of the United States of America (yup, it’s real), depending on where Macau is sitting at the time, may be a good time to establish short positions. Hang on to your hats folks. Things are about to get ugly.
Model Portfolio Update
Establishing 5% positions in CNTY, NYNY, and GLPI each. Adding a 5% MGM position.
