Newspaper Bailout: Propping Up Another Failed Industry
With the current movement towards making a government intervention to prop up the newspaper industry, there are two major issues that come to mind:
-If newspapers are reliant on the government for funding, how objective can they be?
-The "free market" has decided that newspapers are a dud, and people have voted with their mouse clicks for other content. Trying to maintain something just to maintain it is poor policy, but the usual first instinct for our government.
I will forgo the independence and objectivity discussion. That one is clear and cannot be denied by any rational thinker. Instead I would like to focus on the "why" of supporting the newspaper industry.
Ilargi of The Automatic Earth offers his usual insight that is a must read. Small excerpt:
President Obama thinks he can help: he considers bailing out newspapers, ostensibly to promote journalistic notions such as truth-finding:
"I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding,"
But that of course is the horse a mile and a half behind the cart. And in left field to boot. The reason the blogosphere has gained so much attention is that "serious fact-checking" is a long forgotten part of American journalism. And -financial- government involvement in the news industry, whatever else it may indeed accomplish, is not exactly the most obvious way to get a reporter to go digging in that same government's dirt. What Obama complains about in the blogosphere, that it's all about opinions, doesn't describe that sphere, it describes the news industry that is no longer able to deliver any shrapnel of news without having first run it through the opinion wringer of its editors and ownership.
I could not agree more.
In a related note, I wrote about the time in history that the metal aluminum became easy to make and how the aluminum industry could have lobbied for a perpetual bailout from that day on:
Where Was Aluminum's' Bailout?
By now we are tired of hearing that home prices need to be supported, stock prices need to rebound, and that baseball cards are actually very undervalued. The mania to get asset prices up is running full throttle. Historically this was not always the case. Take the poor metal aluminum.
Clusterstock Hates Gold
The site Clusterstock is a daily multi stop for me. I enjoy the various topics they cover, and they inject a bit of fun into matters financial. That said, they seem to have two writers that are determined to write at least one article a day about how gold is "worthless".
From Tuesday, Gold Demand Is All Speculative, Joe Weisenthal argues that almost ALL interest in gold right now is driven by speculative bets:
Earlier we noted a worrisome sign for bulls: On-net, all speculation is on the long side. There are virtually no portfolio managers willing to go against gold.
While Joe leaves out the enormous concentrated short positions in both gold and silver by the big banks, he is harping on another theme he and Vincent Fernando like to champion "Gold is only worth what someone will pay for it". I mean that is just ground breaking right?
While Economic Disconnect is 100% sure that frenzy buying of stocks like AIG, FNM, and C are all solid fundamental plays, the notion that gold is different from any other financial instrument in that it is only worth what a buyer will pay is silly. Mr. Fernando has stated that companies can always have value for their stocks based on cash flow or other metrics. Well Mr. Fernando, you show me 10 stocks on the S&P 500 that are trading at cash flow and I will be very surprised say the least.
Economic Disconnect is a big fan of the metals (I hold various positions in gold and silver) but of course any investment carries the risk of valuation "re-adjustment" up or down. To pretend that BAC stock is somehow different in risk than gold is not quite correct in my eyes.
Corrupted Data Sets
I have been reading Calculated Risk for over 4 years now. The quality of the site is unmatched and the insight offered is top notch. As of late I have noticed something of a change over there (maybe you have too?) where the author has been ignoring key aspects of government policy and looking only at data as if the data itself exists in a vacuum. Now I am not going to pick on CR here, I really cannot fault his logic in the post in question, but I can argue that the omission of serious factors colors the data.
So what am I talking about? From September 17th CR writes:
The Impact on Mortgage Rates of the Fed Buying MBS
There are some charts worth a look. His summary:
I think the impact on mortgage rates from the Treasury purchases is minor. This suggests to me that mortgage rates will rise by about 35 bps, relative to the Ten Year yield, when the Fed stops buying MBS.
How is that for a whopper? "
I spent 1.3 Trillion on MBS and all I got was a 35bps rate reduction" does not quite fit on a T-shirt.
To be fair here, CR notes that the relative spread of mortgage rates to the Ten year yield will be only a 35bps difference, so in that he is surely correct.
But where is the notation about the government owning fully 80% (or more) of the mortgage market? With a taxpayer backstop rates are low, but what would rates be if banks had to lend themselves for residential real estate? I think it would not matter what the 10 year was at if left up to them.
And this makes me think about financial reporting in this era of bailouts, giveaways, and backstops. One cannot simply say "car sales went way up in August, maybe the consumer is returning" because you need to qualify it with the Cash for Clunkers program. Maybe home sales are going up, but that includes the $8k giveaway as a tempter. Anything real estate related is tainted by record government intervention on rates, final backstop of mortgages, and banking support to mask real losses. Even inventory is an unknown, as shadow inventory looms large.
To close, I would just state that most data sets that have been in use are no longer useful on a comparison basis. There is simply too much at work to influence them to pretend they provide the same look as they once did.