Rising Public Debt Is A Threat To Casinos
Casino Indicators And Recent Trends That Investors Should Watch (Part 18 of 18)
US public debt
In the US, public debt is the amount owed in terms of outstanding Treasury securities. Treasury securities are issued by the federal government. Public debt grew from $17.8 trillion in September 2014 to $17.9 trillion in October 2014.
Debt-to-GDP ratio
The debt-to-GDP (gross domestic product) ratio shows how much a country owes relative to its earning capacity. The ratio is useful for investors. It indicates a country’s ability to pay back its debt.
The US has the largest debt burden in the world. The US debt-to-GDP ratio also increased from 101.6% in September 2014 to 102.3% in October 2014. Japan is the fourth largest economy in the world in terms of GDP. Japan has the highest debt-to-GDP ratio of 227%. It has a debt exposure of ~$13.4 trillion. However, in absolute terms, the US public debt is rapidly approaching $18 trillion.
US public debt is affecting casinos
The increase in US public debt, beyond a certain point, threatens the nation’s economic growth. The country would have to increase taxes and cut spending to service the debt’s interest costs. An increase in taxes would decrease personal disposable income. As a result, casinos would experience fewer visitors.
Due to the fixed-cost nature of the business, casinos companies—including Las Vegas Sands (LVS), Wynn Resorts (WYNN), MGM Resorts (MGM), and Caesars Entertainment (CZR)—would make less profits with increased taxes. This would have a negative impact on the companies’ share price. It would also be negative for ETFs—like the Market Vectors Gaming ETF (BJK). BJK invests in these casino companies.
To learn more about the industry, visit the Market Realist Casinos and Gaming page.
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