Random Thoughts: Old Media and the New World Investing Order
The Washington Post and the New York Times write a new chapter.
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" word. They 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.
The stock market should not be based on whether or not Big Ben's lip quivers or tapering takes place in September or December. It is a multilinear dynamic in constant flux and prone to human emotion (not as much as it once was, mind you, but 30% of average trading volume is still driven by human beings).
Monday was the slowest non-holiday session of the year; yesterday, it was so quiet that you could almost hear a bonus drop. With tail risk off the table (in the eyes of most folks), the collective sigh you hear is the bulls begrudgingly allowing for a "healthy" pullback. They may be right-this may be 1999 or 2003-but the risk sword swings both ways, or at least it used to when markets traded free.
- The other day on our real-time Buzz & Banter (click here for a free two-week trial), we spoke about the VXO (INDEXCBOE:VXO) trading near long-term support. The angst-o-meter is up 24% in the last two days, albeit far below levels we've seen in the past. I would caution, however, that this could slither sideways for a long time, as it did from 2004-2006.
- S&P 1685 is the uptrend that has more or less held since before last Thanksgiving. We're there now; while it's not absolute (what is?), it's a piece of our ever-changing jigsaw and should be respected as such.
Interestingly, our overseas banking proxies-Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS)-are the only green beans in the red sea that is today's price action in the financials. That's a mirror image of the scrimmage we saw last week.
In hindsight, I may have been emotional in leaving on some snake eyes to the downside (December SPY (NYSEARCA:SPY) puts), and as we know, emotion is the enemy when trading. It happens to the best of us, I suppose; are you gonna tell me Bill Ackman isn't emotionally connected to his Herbalife (NYSE:HLF) short? And how many people are leaning against his billion-dollar cover, if and when?
Breadth is 3:1 negative, which is why you see that odd color on your screens.
Japan was down 4% last night; to put that in perspective, if the S&P followed suit, it would close at 1630 today. I know, just saying.
- OK, I'm tardy-which is weird, because I don't feel tardy-so lemme get this to you. Good luck today!
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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 firstname.lastname@example.org.
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