The cause of the fall in oil prices: I call it the “baccarat theory”And, the bad news continues:

It’s no joke. And not only has it affected oil prices but all of the turmoil on the world markets, starting with China, of course. Let me explain the theory in a nutshell, then expound on it a bit.

chart 1st dip

One early sign of trouble was around 1/17/2014. Wynn Resorts stock shows it best, here, and can suggest that China’s obsession with gambling is more than just a passing fancy. As a matter of fact, I think it has been to driving force behind China’s recent growth, stock market explosion, and recent collapse. The real question is, how will it all shake out. Let’s take a closer look.

As this chart seems to suggest, something happen on or around the 17th of January, last year. A search of headlines shows some of the following (with links):

Li Gang tapped to head mainland Liaison Office, January 9th 2014 

“The Liaison Office functions as a shadow authority in the two Special Administrative Regions, conveying the central government’s policy instructions to the local administrations. It is bitterly resented by many in Hong Kong, who see it as meddling in local affairs and stifling democratic reform, but is less controversial in Macau.”

Beckham has lent his name to Venetian Macau – the world’s largest casino
It is located in Macau, a special administrative region of China
Sources say he’s been brought in to ‘clean up image’ of gambling mecca
Beckham has guarded himself by promoting ‘dining’ rather than gambling

Until recently, Macau had close links to North Korea with weekly direct flights, providing corrupt officials with a quick route to casinos.”

By Simon Parry

Published: 17:35 EST, 18 January 2014 | Updated: 06:50 EST, 19 January 2014

Steven Stradbrooke
China investigates bombing of gambling den that killed 15
January 15, 2014

“Authorities in China have detained eight individuals in connection with the apparently deliberate bombing of an illegal gambling den in Guizhou province on Monday afternoon.”

Jan 15, 2014
No more free tours for Chinese: Macau can feel it

“China put up restrictions on free sightseeing tours and it shows in China’s gambling territory Macau in form of sold travel packages. Macau had fewer visitors on package tours in November, official data show, as the mainland’s restrictions on free tours took effect.”

chart 2nd dip

It became quite clear, by this point, that something was changing drastically, as can be seen by these headlines:

China Corruption Crackdown Deals Macau a Rough Hand
Gambling revenue in Asia’s casino hub sank 49% in February
By Kate O’Keeffe/Wall Street Journal
kathryn.okeeffe@wsj.com
Updated March 3, 2015 9:31 p.m. ET

“The drop to 19.54 billion patacas ($2.45 billion) marks the ninth-straight month of shrinking revenue in the Chinese territory. February’s slide eclipsed a previous record drop in December, when it declined 30%.”

China’s corruption crackdown is putting gambling revenue in a free fall
AFP
Mar. 3, 2015, 6:24 AM 1,922

“With all the current policies from China and the changing sentiment in Macau, we were not expecting the main driver for revenue to improve,” Simsen International Financial Group associate director Jackson Wong told AFP.

South China Morning Post
Worst yet to come for Macau casinos, says analyst who predicted stock drop
PUBLISHED : Monday, 09 March, 2015, 6:00am
UPDATED : Friday, 17 April, 2015, 4:01pm

“Gaming revenue will keep sliding through mid-year and dividends will get cut as the cost of new capacity eats into free-cash flow, leaving share valuations too expensive, said Jamie Zhou, an analyst at Macquarie Securities in Hong Kong. Zhou was one of just two analysts tracked by Bloomberg with sell ratings on Sands China and Galaxy Entertainment Group when he started covering the shares in December.”

Macau Bleeds, Warns About Chinese Economy
by Wolf Richter • March 3, 2015

“Macau, the only place in China where folks can go and legally gamble away their money, and one of the most convenient places where they can illegally siphon money out of China and send it to destinations beyond the reach of the government – is it on the way to ruin?”

BUSINESS INSIDER – Australia
Macau breaks in half
Linette Lopez Mar 4 2015, 2:00 AM

“Chinese President Xi Jinping’s national corruption drive isn’t just hitting the rich, it’s hitting retail gamblers too. He’s made it clear that he doesn’t like mainlanders gambling. Period. To curb that, the government has promised to cut down on advertisements — sometimes in the form of annoying text messages — promoting Macau casinos. Visa restrictions will tighten, according to analysts, and even retail gamblers will have their money tracked as officials monitor UnionPay, the only domestic bank card in mainland China.”

As you can see from this 5 year chart, we are still in a bit of a free-fall. Much of the gambling money is now moving to other areas like Vietnam, and Cambodia. So, watch for those economies to start to boom and hopefully pick up the slack where Macau left off. But, this may take a while.

chart 5 years

Anyway, as you can see, the crackdown has had a major impact. There are many interesting nuances, here, that could be analyzed to death. However, the key points are:

  • The crack down is what started the collapse of the the Chinese stock market
  • The collapse of the Shanghai Stock Exchange is what started the big slowdown in China
  • The big slowdown in China is what caused oil to collapse.

There you have it. The end of massive baccarat playing (the number one game in Macau) started a domino affect, of sorts. What it could also tell you is that the whole world economy is based on gambling…also considered a sickness by many. (Basically, obsession.) Also, if you really want to know what is going to affect oil prices or energy, in general, you need to follow the ticker WYNN.

FPI607300317AR_b

Photo by CHITOSE SUZUKI | Associated Press

And it just keeps getting worse, with no end in sight, with this latest news:

Wynn Resorts Takes Hit After Possible $285 Million Junket Theft In Macau
Police Investigating Alleged Employee Theft Inside Casino
by Brian Pempus | Published: Sep 14, 2015 | E-mail Author / Card Player Magazine

“A junket operator in Macau was the victim of employee theft of up to $258 million, according to a report from Bloomberg, and the liquidity squeeze is having some unfortunate effects on casino gambling there, with Wynn Resorts apparently taking the brunt of it.”

Advertisements

About Scott

Live next to Chevron refinery. Lots of petroleum consultants in the area. I am interested in learning more about the industry. Also, interested in finance, business, and investing in world markets.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s