So long Hong Kong, and the Macau Apocalypse Trade

These are dark times. It’s been over 6 years since I began writing for CalvinAyre. I have to say, it has been fantastic, and I couldn’t be more thankful to the staff for the freedom they have given me to speak my own voice. As I look at the world crumbling in fear, distrust, mutual recriminations and accusations; as I see trade barriers rise up higher and higher and the cloud of war get thicker; as I see reason fly out the window amid wild racial tensions and censorship intensify as more and more are afraid to speak their minds amid the gathering force of mobs; it’s sites like these that stand for economic liberty that give me hope that there are still people to talk to in this world. I know there always will be, and that keeps me from losing my mind.

True, gambling proper is not my passion. I don’t play poker, I don’t visit casinos, I don’t stake money on games of chance, and I’ve never been to Macau. But in a way, I gamble for a living. I am an economic forecaster, and I stake my own money on my own view of the world. At least in that way I know the thrill of gambling. The only difference is that instead of betting on a game, I bet on reality. I’ve always imagined in the childish part of my mind that when I ultimately win, I would have happiness and security. But now that it is actually happening and I see the world tearing itself apart, mostly what I feel is sadness. A bit of relief that at least I saw it coming, but mostly sadness. In the center of that sadness is a kernel of optimism and hope that will never be extinguished, but right now it’s hard to drill down deep enough to really feel it.

True, I did not see the trigger. I thought the coronavirus hype would blow over. I was wrong. It hasn’t. Now I smell the end game. I believe it’s just around the corner.

The very first article I wrote for this site was dated March 3, 2014. The title was The China Bubble. In it I laid out the end game, namely that Macau stocks are toast and wouldn’t survive the relentless rise in interest rates that was inevitably coming. I linked to a Bloomberg report that the People’s Bank of China was no longer interested in financing U.S. government deficits by increasing their holdings of U.S. debt. Indeed, Chinese holdings of U.S. debt securities topped out 3 months later, in June 2014.

And still, that was 6 years ago and interest rates have not risen. In fact, for governments, even and especially bankrupt ones, they’ve fallen below zero in real terms, in many cases even nominal terms. Even in Greece, the most bankrupt of bankrupt states, you can loan money to the government for 10 years for the privilege of a return below the rate of inflation. This is considered normal. And yet, despite all the new money printed to accomplish these crazy distortions, the all time high in Macau stocks was hit exactly three days after publication of my first article on Macau’s inevitable fall. The VanEck Vectors Gaming ETF (BJK) topped out at $56.26 on March 6, 2014. It hasn’t been back since. 

The long term technicals since then look dismal. We’ve seen lower lows and lower highs ever since, and the slope for highs is headed down. It looks like we just had another high on June 1. Fundamentally, the situation is deteriorating very quickly. The relationship between the two biggest economies the world has ever seen, the United States and China, is falling apart at the seams. Beijing has passed legislation that will effectively destroy Hong Kong’s semi-autonomous status, and the U.S. has responded by revoking Hong Kong’s special trade status. Trade between China and the U.S. will now proceed to plummet, cutting off the lifeblood of the mainland Chinese VIPs, and from there it will trickle down to gut-punch the mass market as well.

It is only going to get worse as the U.S. continues to fall apart in a meth-fueled orgy of money printing that just will not stop, or even slow down for a second. Soon, all foreigners will cease financing Americans sitting at home watching Netflix paid for with government checks. China will very soon sense the danger of holding any more U.S. debt and dump its Treasury holdings as they will literally have no other choice. The counterargument is that it is not in China’s interest to sell U.S. treasuries and bankrupt the U.S. But what if the alternative is that their debt holdings fall to zero? In the end reality always wins. This simply cannot continue much longer. Interest rates around the world will skyrocket, and U.S. casinos operating in Macau may not survive at all, as they will be under both political and economic attack.

And so I hate to say this, but it’s time to go in for the kill. My bet is that by 2022 interest rates will have skyrocketed and the China bubble I wrote about over 6 years ago will have finally popped for good. Macau is going down. Could I be wrong on timing? Yes. Of course I could. But there is no need to stake a lot of money on these bets. If you’re an avid gambler you understand position size and to never be irresponsible.

Here are the bets. Before you take any of these, make sure you have enough hard money in gold and silver for safety, and some amount of Bitcoin SV (BSV) for speculation. That’s because even if I’m right about these bets, the dollars they are denominated in may not be worth much in the end anyway. Also, these are speculative, and should not exceed 2% of total portfolio value.

  1. Las Vegas Sands (LVS) falls below $20 by January 21, 2022. Puts are going for $1.65.
  2. Wynn (WYNN) falls below $20 by January 21, 2022. Puts are going for $2.14.
  3. Melco (MLCO) falls below $5 by January 21, 2022. Puts are going for $0.40.

My specialty though is not gaming. It’s the gold market. That’s what I understand the best. In preparation for the end game and in the interest of preserving and adding to the real wealth of my followers, I have launched a subscription-based investment service called The End Game Investor. There I give a daily commentary on precious metals markets, central banks and the economy, with two model portfolios, one conservative and one aggressive, so you can see what I’m doing and when. I hope to see you there.

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