Macau breaks in half

The latest numbers out of the world capital of gambling show that gaming revenue has been cut in half.

Year over year Macau gaming revenue for February is down 49%. Revenue from retail players fell 35% while VIP revenue fell 57%.

All of this happened during China's massive Lunar New Year holiday too, which means that mainland Chinese didn't head for pleasure as companies and analysts had hoped.

This all-out free fall has been going on since last summer and it's had a massive impact. Last year, Macau's gaming revenue contracted for the first time since western companies started doing business on the island back in 2002.

At first Wall Street thought the carnage would end. Analysts made all kinds of excuses - a smoking ban, cyclical weakness in the Chinese economy. They figured this would be like the softness they witnessed in years past, when Macau bounced back with a V shaped recovery.

But that's not the case here.

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.

Weakness in the Chinese economy isn't helping either. The country is cooling as the government tries to rebalance the economy from one dependent on foreign investment to one dependent on domestic spending. As foreign money dries up, the economists are keeping their eyes on rising debt and deflation.

What they're seeing isn't very promising. Cash is tight, which is why the People's Bank of China cut interest rates this weekend.

So the pain will continue for everyone.

What's more, about $19 billion worth of new casinos are supposed to open in Macau over the next year - MGM, Wynn and Galaxy all have big projects scheduled for completion during that time. This isn't an 'if you build it they will come situation,' so Wall Street analysts are scrambling to revise their estimates down.

"Expect March growth of -35% versus our currently modeled estimate of -26%," wrote Wells Fargo's Cameron McKnight in a note. "We see downside risk to our Q1 estimates which are now inline to 4% below consensus... a mid-20% decline in market revenue growth is possible versus our current -12% modeled estimate and consensus of negative high-single digits. Given this, we believe there could be additional downside to estimates and share prices from here, but we believe more detail is needed before extrapolating the latest data point for the year."

One detail that could be helpful is the government's own GDP growth projection, which is set to come out this week. Analysts are expecting a growth target of 7%. Anything lower than that could signal that the government is pretty concerned.