Random Thoughts: Old Media and the New World Investing Order

By Todd Harrison  AUG 07, 2013 12:43 PM

The Washington Post and the New York Times write a new chapter.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

What was Jeff Bezos thinking?  The Graham family?  How about the folks overseeing The Grey Lady?  Across the board, it’s safe to say their eyes were cast toward the future—and inevitably, the bottom line. 

The Washington Post Company (NYSE:WPO) sold its flagship newspaper to the Amazon (NASDAQ:AMZN) founder and CEO a few days after The New York Times Company (NYSE:NYT) sold the Boston Globe for $70 million (it bought the paper in 1993 for $1.1 billion; that’s a 94% loss during the last decade).
Who was it that said that the Internet was the most deflationary invention of all time?
The Internet is a beautiful thing if, for instance, you like pens; you can buy any pen you want from anywhere in the world for the cheapest possible price, down to a fraction of a penny. That's terrific if you’re a pen-toting consumer; it’s not so hot, however if you manufacture pens for a living.
Consistent with one of our more popular articles from a few years back, The Upside of Anger, there are two sides to this trade. For each and every media move mentioned above, there are the proverbial phoenixes that arose from the scorched earth.
You say WaPo or the Globe, I’ll say Tumblr or Instagram—or perhaps even Facebook (NASDAQ:FB), LinkedIn (NYSE:LNKD), or Yelp (NYSE:YELP)—stepping in to create jobs and yes, wealth for those who had the foresight to get on board.  It is a changing of the guard, of sorts; it's a digital printing press that will save a lot of trees and crunch a lot of margins.
If you listen closely to policymakers from the Federal Reserve, they’re very careful not to use the dreaded “D” wordThey prefer to say “disinflation,” which is the essence of semantics and poses the question, why?  To quote a very smart person we call Mr. Practical: “Deflation in a fractional reserve banking system means that they have, for all intents and purposes, lost control of the economy. It is an admission of defeat, albeit one that may be unavoidable."

Therein lies the rub, and in my view, one of the fundamental reasons why the federal government is having so much trouble reflating the economy—not the stock market mind you, the economy. Pricing pressures exist at every level of consumption, and given stagnant wage and employment growth, those pennies very much matter to consumers.
But wait, there's more. Stateside goods, services, and commodities are denominated in US dollars.  Foreign holders of dollar-denominated assets have been getting hit from both sides for a long time, stirring seeds of discontent that are decades deep. A few years ago we touched on this, with the meat of the column written by an extremely astute and prescient gentleman in 2004.

Case in point, the dollar index (DXY) has lost almost one-third of its value since 2002. One-third—it's a staggering loss, and the story remained untold for much of the decline.  When I discussed it in real time, the responses were uniform: “I get paid in dollars and I spend dollars; why would I care?”  The answer is that you wouldn’t, unless you travel abroad; for those who live abroad—like overseas sovereign governments—it very much matters and its cumulative.
To use a random example, the S&P (INDEXSP:.INX) is up 45% since 2002 (thanks largely to the policies in place the last five years); if a foreign holder bought the S&P in 2002, they would realize a return of 12% (using the DXY as a proxy for that buyer, 45% gain in the S&P minus a 33% decline in the measuring stick).  Multiply that by trillions of dollars and you start to understand why the USA isn’t as well-regarded as it once was, and perhaps why social mood is devolving.
This article isn't as much about the media landscape as it is about what many investors now view as the new world investing order, one where the Greenspan Put has been replaced by the Bernanke Call.  While the Fed is large and in charge, one of the oldest axioms is that "nobody is bigger than the market."
Sooner or later, we'll find out if that, too, has changed.
Random Thoughts:

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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