Heading to Macau, Thoughts on the Slowdown

I am heading to Macau to check the place out, and to take a look at couple of casinos listed on the Hong Kong Stock Exchange which I found compelling at first glance.

Everyone’s focusing on the headline news right now in China, and Macau hasn’t received that much attention with the crazy gyrations in the stock market. But for those keeping an eye on the situation on the ground, its not been easy days as the Government clamped down on corruption.

I think its all too easy to write off Macau now, but as the saying goes, within crisis lies opportunity. Howard Marks had a great saying:

“Rule No. 1: Most things will prove to be cyclical. – Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.”

Bloomberg has a great piece out yesterday which describes the situation that you can check out here.

Macau is at a critical juncture in its history now, transitioning to a more family friendly destination, and with a bigger focus on the mass market. Have we seen this before? Looking back in history, Las Vegas has faced similar circumstances, and has had to reinvent itself multiple times to stay relevant. Macau likewise has to do the same.

At the back of this however, are some positive points. China’s middle class is growing, and their taste of travel will be a big tailwind for the years to come. As an investor, I probably err on the side of being overcautious.

But that’s one thing I wouldn’t bet against – the desire of people no matter their circumstances to better their lives, to become richer, and to experience a great variety of things. Over the long run, betting against humanity has always been a bad idea.

Are there pre-existing problems within the Chinese economy (and the stock market if thats what you’re following). Yes! But people often forget that the US has been through 47 recessions (and one great depression) in the last 200 or so years. And they seem to have done just fine.

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What I am trying to get at is that its probably more worthwhile to take a more nuanced view of whats happening. I love what Howard Marks said about cycles, simply because there’s nothing more dependable in the financial markets than the pendulum swinging between greed and fear. The pendulum now has swung solidly towards fear in Macau.

The key as always is valuation and finding the right business to invest in. More on that in the next post!

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