Wall Street's walking into a Macau trap

We're starting to hear talk around Wall Street - people are saying the worst is over in Macau.

"With the central and Macau governments essentially putting a 'policy floor' on the industry revenue, we believe that the worst is over for both GGR [Gross Gaming Revenue] and share prices," Credit Suisse analysts wrote in a recent note.

"We expect gradual sequential revenue recovery into a seasonally stronger 2H."

Good luck with that, because a lot of the things holding Macau back - President Xi's anti-corruption drive, a sluggish Chinese economy, and oversupply - are still very real problems for the industry.

And those aren't even everything.

For about a year gaming revenue in the world's largest gambling center has completely collapsed. There's no other way to put it.

Last year, 16% of the junket companies that financed high rollers shut down. Chinese President Xi Jinping's anti-corruption drive scared away rich and middle class gamblers alike.

Two years ago it would have been unthinkable for the government to try to implement a smoking ban, cap the number of mainland visitors to the island, or arrest a member of casino scion Stanley Ho's family with 99 prostitutes in one of Stanley Ho's casinos.

But all of that has happened, and month after month since last summer gambling revenue has fallen between 30% and 50% from the same time the year before.

Credit Suisse, however, sees a silver lining. It believes that the government is going to start supporting the industry again instead of actively destroying it.

Of course, their note doesn't describe what the government's supportive policies are or could be, per se.

It just seems that the bank is optimistic about a recent relaxation of travel visas to the island.

Thing is, there's still tons of casino supply in Macau. Two massive multi-billion dollar casinos just opened in June. Plus, there are some nasty policies coming down the pipeline that will likely put off would-be gamblers.

For one thing, a smoking ban at casinos is working its way through Macau's legislature. According to reports, Macau's Secretary for Social Affairs and Culture Alexis Tam said on Thursday that the only way to get rid of second-hand smoke is to completely ban smoking. Proponents of the ban admit that it will hurt casino revenues, but again, they're still proponents. If the ban passes, it will go into effect in 2016.

Additionally, as Wells Fargo's Cameron McKnight wrote in a recent note, Xi's anti-corruption drive is ramping up again, not slowing down.

"The Central Commission for Discipline Inspection (CCDI) announced earlier this week that it has started its next round of corruption inspections," he wrote. "In this round, the CCDI is targeting 26 government bodies and state-owned companies, including the Ministry of Transport, the "People's Daily," and the National Railway Administration."

What that means is that if you work at a state-owned company, you might not want to advertise the fact that you're living it up at Macau's casinos.

Combine this with a weak economy and a sliding stock market hammering retail investors and you still have a perfect mix of reasons for gamblers to be cautious.

Then again, notorious former (if that's possible) Triad member Broken Tooth is back in town setting up his own VIP junket. So maybe he knows something we don't know.