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On the Ground in China's Gambling Capital

By Dr. Steve Sjuggerud
Friday, May 25, 2007

To get a sense of Macau, imagine transplanting Las Vegas onto a tropical isle... and mixing in 400 years of European history.

Then add in this fact: Tiny Macau is the only place in China where gambling is legal.

I've been to dozens of countries, and hundreds of cities. And I can tell you, there is nothing like Macau...

The dreams are on a scale never-before imagined. The outrageous Venetian Macau for instance (www.venetianmacao.com), which is being built now, will have 1 million square feet of shopping alone. That's twice the retail space as the already ridiculous Venetian in Las Vegas.

But the sheer number of shops at the Venetian misses the point... it's how over the top the place is that is indescribable. The image below is what the Cotai Strip will look like when the work is done. Can you guess which casino is imitating Venice?

This next picture is Macau's "other" strip, where the Wynn Macau (www.wynnmacau.com) is located (image from USATODAY). Once again, it's ridiculous:

While the Cotai Strip will mimic Vegas's Strip, keep in mind Macau is surrounded by water. The week before I got here, the Macau Open golf tournament was taking place at the golf course on the ocean.

So why is the scale so outrageous and ridiculous? A quote from the Venetian's website sums it up:

"According to the Pacific Asia Travel Association (PATA), Macao's tourist receipts are projected to rise from US$2.87 billion in 2003 to US$7.37 billion by 2010."

In short, the Chinese are coming...

It's easy to get here, and getting easier. The weather was bad, so I couldn't take the 16-minute helicopter "taxi." Instead, I took the hydrofoil ferry from Hong Kong, which gets you there in less than an hour. It runs every 15 minutes and costs less than US$20. I went over at 10:30 a.m. on a weekday. And the ferry (which seats 100 or more) was packed.

The Hong Kong traffic isn't what's important... the China traffic is. And the majority of China's airports are within a five-hour flight of Macau. Once off the airplane, you can be gambling within 20 minutes. Seriously! You can walk to the Cotai Strip from the International Airport.

I could go on. You get the idea... this place is over the top.

And it has the world's greatest tailwind... it's the only place in China where gambling is legal.

In the latest issue of Sjuggerud Confidential, I recommended a direct play on Macau's real estate market. Prices have been going absolutely crazy here. But since they started from a low base, they're still very cheap.

I may have another recommendation or two from this trip... I spent a few hours with another company that is very much a Macau play, and I may end up recommending it to Sjuggerud Confidential, readers.

Macau is a high-risk investment for foreigners like you and me. Everyone knows that it's booming, so it's hard to buy in at a discount even though things are still cheap by international standards. And the big question is, if and when China legalizes gambling, what happens to Macau?

It could happen. But Macau is off to such a head start (it surpassed Las Vegas in gambling revenues in 2006), I expect it will long remain the Vegas of the Far East, even if China happens to legalize gambling elsewhere. Just because you legalize gambling doesn't mean you'll get a Sands, Venetian, and Wynn overnight.

Other Asian locales are legalizing gambling now, too... Singapore dropped its ban in 2005, and casinos are expected to open in a few years. But again, between Macau's head start and its China tailwind, it'll be hard to knock it from the top spot.

Tiny Macau jumped from total obscurity to become the world's biggest gambling destination. It's just getting started. And the profits for investors could be absolutely incredible... I suggest you look into the opportunities before they get too expensive.

Good investing,

Steve





Market Notes


THE NEW WORLD AND ITS INFRASTRUCTURE BOOM

Courtesy of yesterday's Investor's Business Daily... the top-performing industries in the market right now:

Trucks & Parts Oil & Gas Equipment
Chemicals/Fertilizers Automobile Tires
Steel Producers Shipping
Energy Oil & Gas Refining

We see a clear theme running through this list of leaders... one that will last a long, long time: The world is experiencing a huge infrastructure boom. Here's why:

With China in the pole position, 3 billion Asians continue to leave the plows and pastures of the collectivist '70s behind... to join the market economy of the 21st century. These people want cars, furniture, Internet, and the rest of what they see on television.

Of course, immense amounts of new infrastructure is required to provide that life... steel, heavy trucks, refineries, power plants, pipelines, roads, and bridges. This is the driver of the huge gains being made in the likes of Cummins (engines), Foster Wheeler (energy infrastructure), and POSCO (steel).

Mao Tse-tung would be disappointed. Ayn Rand would be proud. She'd also probably buy a few infrastructure shares.



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