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The Newspaper Indicator


In emerging economies, circulation provides growth clues.

A few weeks ago I shared 16 headlines from The New York Times that were nothing short of disastrous. When negative sentiment reaches such saturation, who's left to sell stock? I used this analysis as a guidepost to ask "what could possibly go right in the stock market?"

When being a contrarian becomes too popular and being a technician becomes fundamental, I look for what's still not clear. I wonder if the long term time frame hasn't quietly become the uncrowded trade. Seen any good stories on relentless progress and rising standards of living lately?

Are We Even Looking in the Right Newspapers?

There's a missing headline I'd like to share that I couldn't find in the business section of my local newspaper. Its just two pages in length, one fold, nothing in the middle. No wonder there is not good news on the economy, where would they put it - next to the 12 pages of used cars?

Along with five or six million of my closest friends I call Houston home. This is no small Texas farming town. The economy here is about the fifth largest in the United States and larger than many nations. Yet for many years we've been a one paper town. Costs are up and circulations in most areas of the country are down - not a great mix for profits. By almost any measure Houston is actually among, if not the, healthiest economies in the country. But its newspaper's circulation is still down 0.13%.

We all know consumers now prefer getting news online. Naturally advertisers will redirect their attention even before cutting back spending into a slowing economy. Consider these recent circulation numbers:

  • New York Times: -4.51%
  • Washington Post: -3.2%
  • Boston Globe: -6.6%
  • Chicago Tribune: -2.9%
  • San Francisco Chronicle: -2.9%
  • Denver Post: -10%
  • Dallas Morning News: -7.7
  • Detroit Free Press: -2.61%
  • Atlanta Journal-Constitution: -9.1%
  • St. Louis Post-Dispatch: -4.2%
  • San Diego Union-Tribune -8.5%.

So, just how bad is the global newsprint business? I took an informal poll of a few writers who should have good guesses about this unquestionably difficult time. We know some countries have Internet penetration much greater than the U.S., which is an additional handicap for predicting the newsprint slowdown. The answers to my poll ranged all over the board but each shared one understandable thing in common - a minus sign.

This business is among the most basic to the debate over how important the U.S. economy is to the rest of the world. The answer to this question seems to be the only point of agreement in the stock market these days. But I read it differently.

The Next Soap Opera

It turns out global demand for newsprint actually rose 2.4% year-over-year to just over three million metric tons - the highest growth since 2001.

To pull a page from our trading diary that we learned the hard way (several times), I'd share that: "It ain't what you know that will hurt, it's what you know that just ain't so."

I've spent more time analyzing the weight of newspaper pulp than the headlines on the pages. I like to measure this as a key ingredient of an idea we call "The Next Soap Opera." We've been working on this data for years in anticipation of what we believed was just down the road for a remarkable trade. As an ancient Chinese proverb reminds us, "To know what lies ahead, ask those coming back." So we rewound the tape and watch the soap opera of American consumption since 1950.

The bullish outlook on the overseas Industrial Revolution Part II is squaring off against rabidly bearish convictions of slowdowns abroad. While we agree with some of both arguments, the debate itself distracts attention from a more subtle but far more planet shaking revolution: the new crop of consumers in these developing countries.

Even that positive 2.4% global newsprint growth is misleading since the U.S. and Western Europe were down sharply. Asia and Latin America saw demand for newsprint grow 12% and 26% respectively, which is staggering. We're not talking about speculation on currencies or crude here, mortgages or margin calls, bulks shippers or bond bidders.

We're talking about something much more basic, longer lasting and yet curiously almost completely ignored in our own newspapers. Consumers in these two regions want to read 111,000 tons more newsprint than they did just last year.

Hundreds of millions of consumers around the world have been working relentlessly to spend their first discretionary dollar, while a growing number of Americans wait restfully for a government rebate check after losing a credit line to spend their last. The notion that emerging economies can't grow at recent high rates without the U.S. consumer is dead on - but shortsighted.

Wall Street's greatest concern offers one of the best clues for the potential of emerging consumers: leverage. American consumers have too much. Millions in other countries have none at all.

Fears for emerging economies making stuff for the slowing U.S economy are warranted. But this is ultimately the wrong question. Many economies around the world are thriving with newspapers delivered to consumers yet to obtain their first mortgage.

Some folks argue emerging economies may stop emerging altogether. I agree - they have already emerged. The trade is not debating how much certain countries rely on the U.S. consumer, but rather in finding which ones are creating their own demand. Newsprint stained fingers offer a good clue of where to look.
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