{"id":27842,"date":"2012-03-01T06:00:01","date_gmt":"2012-03-01T11:00:01","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/01\/betting-on-japans-legalization-of-gambling\/"},"modified":"2012-03-01T06:00:01","modified_gmt":"2012-03-01T11:00:01","slug":"betting-on-japans-legalization-of-gambling","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/01\/betting-on-japans-legalization-of-gambling\/","title":{"rendered":"Betting on Japan\u2019s Legalization of Gambling"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>All around the world, same song.\u00a0\u00a0 And by \u201csong,\u201d I of course mean \u201ceconomic motivators.\u201d\u00a0 It seems that every country in the world faces the same problems (yawning budget deficits) and is looking to the same solutions (raising revenues through unconventional means).<\/p>\n

As a case in point, consider this recent headline from the Wall Street Journal:\u00a0 \u201cJapan Is Pressured to Legalize Gambling<\/a>\u201d<\/strong><\/p>\n

Tired of seeing their citizens leave their yen on the gaming tables of foreign casinos, the Japanese government is strongly considering making a bet of its own by legalizing gambling.\u00a0 \u00a0Any moral qualms aside, it makes sense.\u00a0 Japan is the most highly-indebted developed country in the world, and its budget deficits routinely top 8% of GDP.\u00a0 Closing the gap through tax hikes or spending cuts risks weakening an economy that is perpetually on the cusp of recession; better to raise revenues by less conventional means.<\/p>\n

\"\"<\/a>It\u2019s not uncommon for countries to legalize certain vices during hard economic times.\u00a0 America\u2019s Prohibition of alcohol lasted throughout the Roaring 20s, but it barely survived three years into the Great Depression.\u00a0 \u00a0With the U.S. government running budget deficits among the highest in the world and with anti-government sentiment bubbling over from both the left and right, it\u2019s fair to wonder whether legalization of \u201csoft\u201d drugs like marijuana may be in the cards before we finally pull out of the current Great Recession.<\/p>\n

The economics are straightforward enough; prohibition and enforcement of vice laws are a governmental expense, whereas legalization and taxation of vices are a source of revenue.\u00a0\u00a0\u00a0 (For the history buffs out there, it is no coincidence that the Progressive movement favored both the Federal income tax and the prohibition of alcohol; the income tax was a necessary evil to plug the holes left from vice taxes that would never be collected again.\u00a0 Once the income tax was in place, booze taxes became expendable.)<\/em><\/p>\n

Japan\u2019s change of heart regarding gambling is little different from those of many American states, particularly in the South.\u00a0 Watching the gambling and tourism windfalls going to Las Vegas and Atlantic City, riverboat and offshore casinos became a way to keep some of those touristic dollars from leaving the state.\u00a0 Likewise, Japan has seen its citizens fly to Las Vegas for decades and to Singapore and Macau in more recent years.<\/p>\n

Let\u2019s take a look at some of the companies likely to benefit from legalization in Japan.<\/p>\n

The Wall Street Journal mentions Las Vegas Sands (NYSE: $<\/span>LVS<\/a>)<\/strong> and Wynn Resorts (Nasdaq: $<\/span>WYNN<\/a>),<\/strong> both obvious winners as two of the largest casino operators in the world.<\/p>\n

Another route might be to buy what the casinos themselves are buying.\u00a0 Consider International Game Technology C (NYSE: $<\/span>IGT<\/a><\/strong>), a major manufacturer of gaming equipment and supplies, or Bally Technologies Inc. Common (NYSE: $<\/span>BYI<\/a>), <\/strong>which designs the equipment and systems need to properly run a casino.\u00a0 A surge in casino building in Japan should be quite good for business.<\/p>\n

Should You Buy Casino Stocks?<\/p>\n

A more fundamental question would be \u201cshould you consider casino stocks at all.\u201d\u00a0 <\/em><\/strong>The Sizemore Investment Letter has been bullish on vice investments for years (see vice investing<\/a><\/strong>), but we\u2019ve chosen to focus on tobacco and alcohol stocks; casino stocks have been conspicuously absent.<\/p>\n

There is a reason for this.\u00a0 One of the biggest benefits of a good sin stock is the predictability of its revenues.<\/strong>\u00a0 People are not likely to materially cut back their drinking and smoking during a recession.\u00a0 They\u00a0 might, however, decide to cut out that expensive trip to Las Vegas.\u00a0 The gambling industry as represented by most casino stocks is cyclical and at the mercy of tourism and real estate trends.\u00a0 And worse, as gambling establishments proliferate, another one of the casino\u2019s traditional benefits as a vice investment is being watered down; the regulatory restraints that keep competitors at bay.\u00a0 Add to that the propensity of many casino companies to be saddled with high debts, and you have a recipe for a volatile, risky investment.<\/p>\n

If the global economy continues to recover, gaming stocks will likely have a phenomenal run.\u00a0 But given the risky nature of the sector, more conservative investors might want to find their vices elsewhere.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter All around the world, same song.\u00a0\u00a0 And by \u201csong,\u201d I of course mean \u201ceconomic motivators.\u201d\u00a0 It seems that every country in the world faces the same problems (yawning budget deficits) and is looking to the same solutions (raising revenues through unconventional means). As a case in point, consider this recent headline … <\/p>\n

Continue reading “Betting on Japan\u2019s Legalization of Gambling”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-27842","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27842","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=27842"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/27842\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=27842"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=27842"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=27842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}