A long story about Macau and the enormous increase of outbound travellers from China. After liberalising gambling in Macau, monthly visitors grew from 40,000 in the mid-1990s to 2.5 million visitors. Even though Stanley Ho lost his gambling monopoly, he has done extremely well due to this 60-fold increase.
Also mentioned is Sheldon Adelson from the Sands company, who saw his company's share price drop from US$ 139 to US$ 1.29; it is now back to about US$ 60, quite a rollercoaster ride.
If readers are optimistic about China's growth story, then Macau should be a beneficiary of that, and thus is Faber moderately positive in the long-term about companies with exposure to Macau's casino's. Faber cautions though about the property bubble (both residential and commercial) in China and its weakening economy.
Faber then moves on to the "other casino", the financial markets, especially related to the Fed, which does not feature high in Faber's opinion, to put it mildly.
Important is the following observation:
"More policymakers and economists are coming to realize that the Fed's unconventional monetary policy is not working. Yet there is also a sense that unwinding is too costly right now and can't be reversed" and ".... the probability that we have embarked on permanent asset purchases by the Fed is very high".
He continues to argue that the Fed has lost control over the bond market, with the 10-year yield rising from about 1.5% to almost 3.0%.
Investors should reduce equity holdings, the US economy will weaken.
Faber still likes industrial commodities and mining companies like:
- Newmont Mining Company: NEM
- Freeport-McMoRan Copper & Gold Inc: FCX
- Barrick Gold Corporation: ABX (featured a few times in this blog)
Emerging markets like Thailand, Indonesia and the Philippines look vulnerable.
Finally, he mentions:
"I would be extremely risk averse for now. I am not concerned about stocks declining 20% or more. (In my opinion, this is almost a certainty.)".
He is concerned about the direction of the Western politics and how badly the geopolitical climate has deteriorated. Xi Jinping, President of China, will not be pushed around by anyone, least of all by Obama.