Publishing/Media Headed for Further Declines?

Please remember that when I discuss my thoughts on pending trades, I am usually in the midst of thinking through a potential set up.  I typically begin the process with a fundamental thought/premise:  “I think there’s a high likelihood that advertising growth is going to slow.”.  This may be based upon what I’m seeing (seems like I’m seeing more blank billboards than I’ve seen in a while…regional variable, but pieces keep fitting together), reading (reasonable research firms making logical cases for an ad slowdown) and doing (letting magazine and newspaper subscriptions expire…too much to read on the internet.).  This is a quick version, but you get the idea.  I do not read a Goldman research report and simply follow the herd off the cliff…for example.

Once I’m comfortable with the bigger picture idea, I then begin to think about individual stocks that would be impacted by this slowdown.  Advertising firms and publishing firms quickly come to my mind.  My initial reaction is to view publishing as the fatter group (more debt/fixed costs) and therefore probably the most difficult to do much about this trend until it’s too late.  The thing to be careful of in this case is that you sort of have old school companies that focus on print (newspapers and magazines) and new school that have built their business around digital media.  While the latter may feel the impact of this potential trend, I wouldn’t want to bet on it.  Again, I’m looking for a large loser.

Usually at this point, I’ve started to come across a few names that get the juices flowing.  If I can get 3-5 names that I feel fit what I’m looking for, I’ll use a very rudimentary look at the charts to see if I can whittle it down to one or two.  When I’m considering a shorter term trade like this, I almost exclusively look for stocks with good volume.  As I am running out of time and clearly need to get to work in order to support my share of this welfare state, I’ll cut to the chase:  Gannett Co., Inc. (symbol GCI).  Here are a few of the supporting data points:

• Cash flow has declined for 5 consecutive years
• Revenue has declined for 5 consecutive years
• Earnings Per Share has declined 13% over the last 5 years
• Although they have some digital exposure, they’re definitely old school
• Equity is taking a beating as a result of poor earnings over past 5 years (accounting gimmickry possibly making 2008 look worse than it was).
• Chart is UGLY
• News is negative.

While much of the above looks like it may be baked in (you know how the market is a discounting mechanism that factors these items in long before you and I even see them….blah, blah, blah), I simply think you’re going to see more of a slowdown than what we’ve seen to date.  This is leading me to believe that GCI’s current price/sh of $8.55 leaves it open to a move lower….possibly much lower.

As always, do your own homework, think for yourself and consider whether or not something this aggressive fits your risk tolerance.  At the end of the day, it’s one theme…one specific idea within that theme.  I have not made a related purchase on this yet, but may consider some 2012 puts.

TD

Friday Morning Articles

Always good to read something ridiculously off base to remind you to filter your media:

Money Creation and Limited Government

I mentioned Alpha Natural Resources disappointing announcement as a bit of a canary in the COAL mine yesterday, Marketwatch out with this today:

Copper, coal: crystal balls for the global economy

IF….IF Outlook Worsens…sooo intriguing, I can’t wait to figure out what happens next:

ECB Ready to Act Next Month If Outlook Worsens

Biggest Yield Surge in 16 Months Spurred by Real’s Tumble: Brazil Credit

This didn’t take long to straighten out, Uncle Mao & Co. aren’t feeling as charitable as earlier thought:

China, Japan Say Europe Must Fix Own Crisis

Spain’s Banking Mess

Fed Announcement Includes a Shocker

The Federal Reserve has pre-announced their latest quantitative easing program, titled:  Operation Corn Hole…an apparent reference to Chairman Bernanke’s favorite tailgating game.  In a statement released to an unnamed source at Z Koolaid just minutes ago, the Fed said it is prepared to flood the financial system with an additional 1.75 quadrillion in US currency.  Completely unexpected, was news of a name change for the world reserve currency.

“Going forward”, the Chairman said from his Saugatuck, MI retreat, “the US currency will be known as Pac Mans”.  The name change is assumed by many to be a tribute to NFL party boy  and long time brah of Bernanke:  Adam “Pac Man” Jones.  It was Jones who many believe inspired Bernanke in February 2007 to begin his Quantitive Easing program (QE1) after “making it rain” at a Las Vegas gentleman’s club.  Jones allegedly dropped $14,000 in singles on the “entertainers” while they danced on stage…telling them he would show them how to “make it rain”.

Long time Bernanke friend, Saul Cudworth, remembers the impression Pac Man made upon the Fed Chairman.  “Oh yeah, he was blown away.  Ben just kept reflecting back to his own 2002 speech before the Economists Club in DC”.   It was this speech that came to define Bernanke and earned him the Helicopter Ben moniker, as he suggested dropping dollars out of a helicopter as a means to fight deflation.

Another key element of the announcement involves the pegging of the new Pac Man to a basket of currencies weighted evenly between what Bernanke refers to as the four horsemen of emerging markets currencies:  the Bulgarian Lev, the Tonga Pa’anga, the Bangladesh Taka and of course the Franc….the Djibouti Franc that is.  The actual peg range is yet to be determined, but people close to the Chairman have suggested that a Big Gulp from 7 Eleven will likely run 2 US Pac Mans, while a 2012 Hyundai Sonata is projected to run in the vicinity of 24,500 US Pac Mans.

Still unknown is the design of the new bill, leaving some to worry about the potential loss of respect from our global trading partners.

……………………………………………………………………………………………………………….

This story is a complete fabrication…aside from the Pac Man Jones incident and the helicopter speech.  This QE stuff has gotten so ridiculous that if I couldn’t make fun of it, I’d probably lose my mind.  Stay tuned for the actual announcement (2:15 pm eastern time), which is sure to be filled with magic and whimsy of its own.

TD

Entitled Youth in This Country Need More Than a Belt

I may not always be the best reader of tea leaves when it comes to patiently observing society.  While I think I see things early (to the point of putting up with ridiculous commentary until reality smacks the ostrich set), I have very little tolerance for what I see in the streets.  It is obviously so much deeper than appearance, but there is one visual that my friends and family know drives me to the edge….THE INABILITY TO PULL ONE’S PANTS UP.  I have loosy goosy friends who are much more accepting and tend to feel that what I’m seeing is simply the current version of self-expression by today’s youth.  I tell you what, the expression that I get from seeing a punk with his pants down to his crotch is:  “look at me; I’m stupid, lazy and going to bleed the system dry”.  I’ll acknowledge that this is a sweeping generality.  I’ll also point out that it has about a 75% accuracy.  I am not talking about kids just caught up in the “fashion”.  I’m talking about the kids with the scowl on their face that look like they’re sizing you up when you’re pumping gas next to them.  Without a welfare state to care for them, what will become of these tattoo-covered, flat hat wearing, low-crotch punks?

For the most part (again, I freely admit that this is a generality…that is unfortunately fairly accurate), you won’t see them going to med school, helping an old lady change a flat tire on the side of the road, or designing the next fuel cell.  I’m going to stop my rant short, as I have to go to work and subsequently pay taxes so that someone can stay home today and watch their DVR’d Jersey Shore episodes.

You need to think about this decay, along with early warnings from abroad and consider where we’re going.   To this end, the articles below are worth a read:

The U.K. Riots And The Coming Global Class War – Forbes

America’s debt woe is worse than Greece’s

Tuesday Morning Articles

Lots of tidbits this morning  on strains due to strong currencies:

Swiss Government Lowers Growth Forecasts for 2011, 2012 Amid Franc Surge

Yes, you read that headline correctly…a SOARING peso:

How to deal with a soaring peso

This article on Japan’s “initial” answer to the strong yen is worth a read.  Their bold action lies ahead…a move to devalue yen….read below (9-12-11 article:Check out the Yen.).

Japan Ready to Take ‘Appropriate and Bold’ Action on Yen, Government Says

Nyaradi: Another way to buy gold

NASDAQ 2600

With our boy Helicopter holding court on Wednesday (the 21st), I’ve been thinking about a trade.  Expectations seem fairly high for QE3, leading one to wonder if another debacle of a plan by the Fed is already baked in.  If so, then we have the makings for a nice sell the news trade…possibly using the NASDAQ.  Ideally, the market holds steady or moves up today and Tuesday allowing for a better entry into QID, which theoretically provides 2X the inverse of the NASDAQ (for example…lots of different ways to play this).

This is still a thought in progress, but the backdrop along with the chart are definitely interesting.  Speaking of the chart, check out the 2600 level (currently at 2622) on the chart below:

I have already taken a position on QID and may simply let that stay on.  As always, this should NOT be taken as a recommendation…think for yourself and do your own homework.  If QE3 is beyond expectations, this idea would turn out bad.  It may be interesting to simply watch it unfold from the sidelines.

TD

This is the Next Global Savior?

Like much of the “financial news” today, this whole China to the Rescue stuff is completely ridiculous.  The initial look is very similar to that of our domestic Warren Buffett seal of approval (see earlier post:  Buffett’s Bank of America), wherein a white knight rides to the rescue, bringing a confidence boost to all involved.  Any potential Chinese investment would come with the same behind the scenes bells and whistles that Buffett is always able to negotiate.  The headlines are what drives the initial market reaction and that’s exactly what we see with this talk of China coming to the rescue.  Keep this in mind as you see future headlines appear on this topic:

• China’s foreign currency reserves ($3.2 trillion) are exploding, with reserve growth being surpassed only by the rate of currency debasement in the reserve itself.  This is less a vote of confidence in Europe as it is China trying to stem this to a degree.
• Countries like Greece are bleeding and there is no chance that a simple investment is going to change this.  They are in need of structural changes, not global gimmickry.
• China isn’t exactly the bedrock of financial soundness, with a fairly murky banking system of its own.

I’ve added a few worthy reads on this topic below:

More warnings on China’s debt

China Ties Aiding Europe to Its Own Trade Goals

 

It’s interesting that after a week in which it was nothing but smiles and rainbows with the market ramping no matter the news, this morning’s headlines are dominated with Eurozone worries and concerns about China (housing boom wilting along with debt fears of their own).

TD

Jon Stewart’s Solyndra Take…funny (8 minutes)

Scroll down slightly from top of Atlantic article and Click on video with picture of Obama inset.

Jon Stewart Thinks the Solyndra Mess Is a Big …

Interesting Forbes Article on Investing

A few good reminders on things you probably already knew along with some ideas you may not have considered:

Pearls Of Wisdom From The Warren Buffetts Next Door

 

Thinking About Real Estate?

This is an area of investment in which I’ve done nothing.  Having said that, I keep watching people make quick hits (less than a year), either as a side income or as their sole business.  Although the quick flips don’t seem to be as rampant, there still appears to be opportunities for those willing to takes singles versus swinging for the bleachers.  I see more volume with income investors getting into (or growing within) the rental market, but this doesn’t interest me in the least once you factor in quality of life.

In any event, TheStreet.com has a brief article highlighting the increased foreclosure activity in August and the potential for a logjam to sort of start moving through the system.  The obvious result is more inventory on the market…more supply=better prices (all other variables being equal).  Add to this some ridiculous rates and it seems like real estate may be worth considering as diversification to the world of electronic investments.

http://www.trulia.com is a site I recently ran across, check it out

Here’s TheStreet article:

Foreclosure Backlog Begins to Break: RealtyTrac

Keep in mind that the foreclosure activity highlighted in the article typically involves a 6 month redemption period.  Therefore, the actual increase in listings may not hit until early 2012.  Something to think about in the meantime.

TD