We’re not there yet, but we’re getting there. A bottom in Macau could come in the next few months. We can take follow the broader Chinese indexes for clues. Once China bottoms, Macau will probably bottom with it, if not on the same day, then probably very close together.

If we take a look conceptually at what has happened in Macau, it has basically been a legislative liquidity drainage as opposed to one dictated by monetary policy from above. Corruption crackdowns, capital controls, money laundering investigations and the like, these are all legislative or executive methods of accomplishing the same thing that Central Bank monetary policy accomplishes with the printing press and the vacuum. While the People’s Bank of China can accomplish it at the source by controlling money flows, the government can only accomplish it by sticking itself in between business exchanges and trying to stop the flow of money once it’s already out of the hands of the PBOC. In the end, what matters is money supply. Whether it’s being choked off by anti-corruption police or by the PBOC doesn’t matter.

For too long the PBOC has been schizophrenic on its monetary policy. It has not committed to print or to drain, but has essentially been doing both for about 2 years now. The Wall Street Journal documents the latest confused moves, when last week the Central Bank drained funds from banks by selling debt in order to prevent excess cash from flooding stocks, and then yesterday moved to lower interest rates when they suddenly discovered (amazingly) that stocks were crashing.

It seems too late now to stop the decline. There will be major up days and major down days, but the trend from here is more likely down. Macau will be taken down further with it.