2018 will be over in two weeks. For many that will bring a sigh of relief. It was a good year for legalization, and a bad year for regulation and taxes. The door was opened to legalized sports betting in the United States with the Supreme Court overturning the Professional and Amateur Sports Protection Act. Hemp farming was just legalized as well in the 2018 Farm Bill, albeit in an $867 billion spending embarrassment that also happens to keep the US-sponsored war on Yemen going, unfortunately.
In the United Kingdom, Fixed Odds Betting Terminals were rendered impotent, which will push some of the more dangerous aspects of the gambling industry underground into black markets, making them even more dangerous than before while also destroying shareholder value. Point of Consumption taxes were raised as well. Meanwhile, nobody figured out a way forward with Brexit at all, and with the vote pushed off to January, it looks increasingly likely that a Hard Brexit is inevitable. I wouldn’t bet on it though because front page politics is a staged show like professional wrestling, just more boring, but if a no deal Brexit does happen and UK equities crash, it would be a good upside trade opportunity for UK gaming stocks.
In Macau it looks like we have another wipeout in progress, already close to the magnitude of 2014 but without the serious revenue declines, yet. Gross gaming revenue hit October 2014 highs in October and have continued 8.5% higher in November, healthy numbers on paper but Macau stocks don’t seem to notice. Whether you want to believe Chinese government numbers is up to you, but long term charts suggest that whether they are true or embellished, the official Macau top line and stock prices do not correlate well. Macau gaming stocks move like stampedes in either direction and can never seem to calm down or consolidate. They are right near 52-week lows now and on the borderline of a 7-year-old pivot point (see red line below). Macau bounced slightly off this line last month but we’re testing it again. If we break through, and that looks likely, the next stop is about 23% down from here. Ironically, the BJK gaming ETF is sitting at the same levels that it was at when it was founded in 2008.
The accelerating trade war between the United States and China is behind this, and it only got worse as the months progressed. Don’t expect it to end until Donald Trump is replaced. The headlines about a trade truce don’t mean anything.