Big economic and political news is coming out of the woodwork this week. Let’s try to digest it all as we move around the world.
First and foremost, the wooly mammoth in the room. The trade war between the US and China has finally erupted in a blaze of tariffs after months of annoying tweets from Donald Trump about how everything was going so well. The two most powerful governments in the world are now fighting each other openly over how much they can economically strangle their own populations. Trump has gone full Mad King, riding his tariff dragon through the streets of America and burning every Chinese import he can find. Unlike Game of Thrones though, the writing isn’t as bad. It at least makes sense with Trump’s character development over many years as a bloviating economic ignoramus and was somewhat predictable. It’s not like Danaerys Targaryen just suddenly burning a bunch of innocent peasants totally out of the blue for absolutely no conceivable reason whatsoever. Maybe she was trying to thin out their numbers so they don’t starve.
US-owned casinos in Macau are now in an especially precarious situation. If China runs out of US products to tariff, Xi Jinping could start considering other, more incendiary moves. He could conceivably go after US companies in China directly on the pretext of some regulatory violation and deny that it is at all connected to the trade war for diplomatic cover. China is unlikely to announce a move like this if it is indeed considering it, just like it did not announce its arrest of Crown senior executives two years ago. Xi could do any number of things, as he has near absolute power in China. Special taxes, special restrictions, negative points for any Chinese who gamble at Wynn or Las Vegas Sands as opposed to Galaxy, making use of its shiny new mega-creepy social credit scheme. The possibilities are endless when you’re the ruler of a one-party system looking to lash out. Xi could easily just dump Treasuries en masse and impoverish the US if he really wanted to.
Since April 9th when I advised scaling out of Macau stocks, they are down 6%, though still up about 2% from the original January long call. If you’re still holding any Macau shares, now’s the time to sell the rest of it, whether US-owned or not. The megarich VIPs that are the lifeblood of most Macau casinos feed off the crony trade structure between the US and China, and their numbers will diminish in proportion to how bad the trade war gets. It’s just that US-owned and listed casinos in Macau are in double trouble. Las Vegas Sands perhaps particularly so if Sheldon Adelson is targeted because he is a major Trump ally and financier. That’s a long shot, but it’s not completely out of the question.