random stuff

I hope everyone is at least coping with the current emergency situation.

closing financial markets?

What little history there is–and as far as I can see, n one in the media knows this–says this is a very bad idea.

In the worldwide stock market collapse of 1987, there were several minor markets–Spain, Thailand, Mexico–that worked under a commodity trading model, with daily maximum up and down movements for individual issues of, say, 5%.  In the early going, such markets were typically limit down, no trade all day.  This meant that every day your stock was worth 5% less but you had no chance to sell.  These markets felt the deepest panic, fell the most and stayed down the longest–beginning to recover only after the daily trading limits were removed.

There have been two larger Asian markets, Singapore and Hong Kong, which each have had to close down for several days due to widespread fraud–the 1985 Pan Electric stock futures scandal in Singapore and the insolvency of the then-inbred Hong Kong brokerage community caught with huge long derivative positions during 1987.

Then there’s the US after 9/11.  But the issue here was that the financial industry’s record keeping apparatus was all housed in and around the World Trade Center.  Yes, there were backup systems   …but if the main system was on the 10th floor of one of the twin towers, the backup was on, say, the 15th floor, or in the other tower.  The major brokers were prepared for computer malfunction but not for disaster.

The dilemma for a mutual fund:  when the official record keeping system was destroyed, the dispute resolving and insurance scheme that protected a transaction against a rogue counterparty reneging was lost as well.  Therefore, when a fund set its net asset value at the end of the trading day and bought/sold its own shares at that price, it no longer had an ironclad guarantee that the price was correct.  Fund executives weren’t willing to take the financial risk of compensating buyers and sellers who might be transacting at the wrong price.  Wall Street closed up until it could get its systems back in order.

Anyway, history argues that however ugly it gets, shutting down trading just makes things worse.

world’s worst coronavirus response?

I think it has to be Italy.  According to the Financial Times today, however, Xi Jinping has rallied past Donald Trump by, among other things, rushing medical aid to Italy.  This leaves the US in the odd position of functioning less well than anyplace else in the major leagues.


4 responses

    • Who knows what the right price is in loony times like these. There’s also the impending risk of what the terms will be for license renewal in 2022.

      Conceptually I think the bullish case is unchanged, though. Half the earnings of the casino companies in Las Vegas come from lodging, food and entertainment, but these businesses are in their infancy in Macau; the overall gambling market there is still growing; the government wants SJM to have less market share. On the other hand, the first half of 2020 is going to be ugly.

      Sands China is, to my mind, an inferior company to Wynn Macau but has better exposure to non-VIP gamblers, where there will likely be more growth. Galaxy Entertainment, which I own the most of (I own smaller amounts of the other two) is kind of middle-of-the-road. Of the three (I’m not a fan of MGM or SJM–google the Ho family) Galaxy is the only one where I imagine a Japanese gaming license would be held, as/when casinos get the ok there. That would be a plus, I think.

      I’m sitting on my hands, although I sold all the Wynn Resorts I had a while ago. I’m not a strongly risk-averse person and you may have different preferences from me. If I owned nothing and if I had idle cash I’d at least be starting a position. My biggest worry about what’s happening in the markets now is that we may not be seeing humans losing emotional control but just AI running amok. The difference is the first would stop after a while. The second may not.

  1. thanks, my thoughts are people are going to gamble like crazy once this is over, but then Macau and/or Wynn may not be the place to do it.

  2. As for gambling stocks, my thought would be to avoid the Philippines and S Korea. I think Australia is problematic, too, because of the operators. I have no strong thoughts about Resorts World in Singapore. What’s left is Macau, Las Vegas and US regional casino companies. All of these have warts, I think, so I’m not sure what’s best. Personally I only own Macau right now.
    As an analyst, what I’ve always liked about casinos is that their profits tend to be a function of the floor space they control and GDP growth in the areas they operate in. Absent new market entrants, everything else is noise.

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