Mike Reed Sets Goals for New Gannett

It's not really roses. A profit is better than a loss, so that is good. And it means they were managing expenses better than expected. And they beat expectations. But circulation revenue still dropped year over year; the growth in digital subscriptions isn't doing enough to offset the decline in print revenue. I still think you need to put it in perspective. It's a company with more than a billion and a quarter dollars of debt that has the potential to cripple the company. And it's trying to remake its business. Given the numbers, you'd have to ask if most of those new digital subscriptions were heavily discounted to try to build the numbers up, and if that is the case, what happens when they try to raise the price on people?

 

Re: Their debt. It's some of the junkiest of junk bonds. But the Federal Reserve destroyed the debt markets to suppress yields. ... and one of the things going on right now is that junk bonds have been a speculative mania, the way a lot of things have been because of the Fed and it's asset purchases and artificially low interest rates.

Junk bonds are debt securities for distressed companies. In order to induce people to lend to those companies, they offer high yields to mitigate the risk -- of the company defaulting and not paying back their loans. In an unmanipulated market, the bonds would be cheap and have trouble finding buyers. And the yields, which have an inverse relationship to the bond price, would be high. And Gannett's interest payments would be way higher than they are in this environment.

Because of the Fed. ... for the first time in history, junk bonds (forget investment grade bonds, which have had real negative yields) are now trading below the inflation rate as measured by the consumer price index. It's so batshit crazy that it's a bit beyond comprehension, but this is the world we have created. Gannetts bonds, yielding 4 to 5 percent suggest there is little risk. ... well, they would be if there was an actual free market with price discovery determining prices.The effect for Gannett is that even though it is paying millions of dollars of interest, it is paying way less in interest (and can manage it) than it would be in a market where the Fed wasn't creating all of that artificiality to keep a lot of struggling companies from drowning (survival of the unfittest in a lot of cases).

These conditions are so artificial and so destructive economically, that they can not go on forever. Either the Fed is going to have to extract itself from the mess it has made (and yields will spike), or the market is going to reassert itself at some point (likely due to a debt crisis) and do it for them. When that happens, the gift of low interest payouts will go away for companies like Gannett. And it's debt load is huge, meaning that with its current operations, it would not be able to service its existing debt.