What a day yesterday. The Dow was down over 1,000 points before a buyer the size of the Incredible Hulk came in and bought everything 3 times over. As I write this the Dow is down 270, up about 800 points from its lows. Who knows where it will be by the time I finish. The Market Vectors Gaming ETF is down nearly 4%. Its top four holdings are Las Vegas Sands, Galaxy, Sands China, MGM and Wynn. It is essentially a proxy for owning Macau.
It can be tempting to look for a bottom here, but the – for lack of a better word – insane bounce yesterday morning off of a nearly 1100 point dump looks so unnatural that I doubt it was free market action. It smells like the Plunge Protection Team to me, and whenever they get involved, things get worse quickly. Short term, I see one of two possibilities. Either China crashes again tomorrow, bringing down the rest of the world again but without a big bounce, or China stabilizes and global stocks get a nice bounce for a few days. Then, at some point in the next week or two, China will crash again and what we saw today will repeat itself, but without the 900 point bounce out of the gate.
The reason China is crashing, again, is that its incredible money printing schemes are coming to an end. And when I say incredible, I really mean insane, but I just didn’t want to use that word twice in one article. Since January 1996, the Yuan supply has increased by a factor of 23. The Federal Reserve has “only” increased the money supply about a factor of 1.9 over the same time period, and look at the booms and busts it caused in the US when the printing temporarily slowed in 2008. We ain’t seen nothin’ yet in the People’s Republic. How do we know the money printing is over, at least for now? Because the People’s Bank of China balance sheet has been shrinking since February.
Unfortunately, there are no bona fide defensive stocks in the gaming sector like there are in other sectors. Even the most defensive gaming stock doesn’t get close to the capital preservation objectives of, say, AT&T or McDonald’s. But there are relatively defensive stocks that can be played, so if you are reserving a portion of your portfolio for the gambling sector, the three best that come to mind are 888 Holdings, Paddy Power, and surprisingly Las Vegas Sands, though not for the same reasons as the other two.