"… and were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter."

— Thomas Jefferson (1787)

 

The internet has introduced a brave new world for consumers worldwide, but it has also created enormous challenges for local journalism. Whether or not your local newspaper survives in the years ahead is up to you.

 

We are in the third decade of a continuing collapse in print media. Suffice it to say that without outside help, thousands of communities will end up with no access to local news. This is happening at a time when threats such as climate change, health emergencies, and political turmoil will make local news vitally appointment to all of us. 

 

Two areas, advertising and subscriptions, have traditionally provided the lion's share of sales and profits for newspapers. Both have suffered from the internet incursion by internet giants such as Google and Facebook. Social media now controls more than 75 percent of locally focused digital advertising revenue. The lion's share of those revenues is lost forever to print newspapers.

 

Fundamentally, digital advertising offers a greater reach to consumers at substantially lower costs. How low? As far back as 2015, the cost to advertisers to reach 400,000 readers on Google Search was $16 versus the Los Angeles Times print costs of $40,000, according to a white paper on local journalism by the U.S. Senate's Committee on Commerce, Science, and Transportation.

 

To make matters worse, dominant internet players aggregate local news content and data for their own sites, while forcing local newspapers to accept little-to-no compensation for their journalism output and intellectual property. If an individual newspapers squawks, they will soon find themselves cut off from what little revenue stream they can eke out from these giants.

 

In response, print journalism has scrambled to develop and enhance their own digital versions of the local newspaper with some success. But sadly, it will take years to fully grow that side of the business. In the meantime, how to survive is the burning question for print media.

 

Newspapers across the country have turned to the non-profit arena for help. The logic is unmistakable: newspapers contribute to the public good. Without them, American democracy may not survive, so receiving support from foundations, donors, and the community at large makes a lot of sense. However, tapping the non-profit market for funds is a stop-gap measure at best.

 

It will require years to transition the traditional newspaper business model over to the digital arena. At the same time, the product side of the local news business will require even more investment. Advertising will likely become less of the revenue pie, which leaves new subscribers to carry the load.

 

Berkshire Eagle Publisher Fred Rutberg sees non-profit activity "as a potential way to get from point A to point B." 

 

As for The Berkshire Eagle, "the challenge will be leveraging our strong base of print subscriptions, while increasing our digital subscriptions, when a whole generation of potential readers are accustomed to getting their news for free through the internet," Rutberg explained.

 

That may not prove to be as difficult as it sounds. I believe the impact of climate change on local conditions will create more demand for unbiased, in-depth local news. Fox News or CNN, for example, are not going to cover flooded bridge outings or down electric lines on your local commute, or if brown drinking and bathing water presents a hazard to your town's health and welfare. (Editor's note: Such as iBerkshires' local coverage of Hurricane Irene.)

 

In summary, whether you are an individual reader, a business, or a non-profit entity, there are actionable avenues you can take right now to ensure the health of newspapers and your own well-being on the local level.

 

If you don't subscribe to your local newspaper, do so this week. Consider the money and investment in your own streaming service that will provide you unbiased, accurate and valuable information in the uncertain times ahead.

 

Advertise, advertise, and then advertise some more, if you are a business that depends on the local community for everything from customers to schools, to health care, and more. Finally, those who are considering donations to address critical issues, or are a local or national non-profit entity, get involved, establish links with your local paper, and provide the relief they need. Time is of the essence.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

This week, investors are once again thinking that the Federal Reserve Bank will soon be pivoting away from its hawkish interest rate hikes. It is the same old song of misplaced optimism that has fueled the last few bear market rallies. Enjoy this one while it lasts.

 

Last week, I advised investors that the S&P 500 Index decline to the 3,550 level and then reverse higher. "I will use that behavior to purchase stocks. If we continue higher, buy some more," I said.

 

I was off by a mere 20 points (the S&P 500 hit 3,570 last Friday). On Monday, stocks soared with all the indexes climbing almost 6% in an epic "V" shaped bounce. As I said in my last column, "Bear market rallies, of which we have had several this year, can be powerful. The October-into-November time period could be an ideal time where we could see another such relief rally. 

 

Driving markets higher is another spin on Fed easing. This time traders are betting that the U.S. jobs market is starting to weaken, pointing to the number of job openings in August, which declined by more than one million, according to the Job Openings and Labor Turnover survey (JOLTS) data. Friday’s jobs data dampened some of that euphoria.

 

Non-farm payrolls data for September 2022 came in at a 263,000 increase, which was a bit higher than the 255,000 jobs expected, while the unemployment rate dropped to 3.5 percent versus 3.7 percent expected. Average hourly earnings were up 0.3 percent, in line with forecasts. Although the results were statistically insignificant, it gave traders an excuse to take profits from the week’s healthy gains.

 

Another key barometer, the Institute for Supply Management's (ISM) manufacturing survey fell to a 28-month low in September as high interest rates and inflation dented growth. To the markets, bad economic news is good news for stocks.

 

The thinking is that the race to raise rates by central banks worldwide (the U.S. included) has been overdone. The decline in growth of global economies is happening far faster than anyone expected and if that's true, a pivot by the Fed will come sooner than expected.

 

The bulls are already pointing to the U.K.'s rate shock, which forced the British central bank to support the markets and trouble at Credit Suisse, a major European bank, that is worrying European regulators. Over in Australia, their central bank hiked interest rates less than expected.

 

All of this has created a "buy loop" where bad economic data was signaling to the bulls that the terminal Fed funds rate (4.25 percent-4.50 percent) is as high as interest rates will go. That led to a declining dollar, stable-to-lower bond yields, and rising equities, as bears covered their shorts. I suspect this story could carry the markets higher into mid-November. However, don't expect markets to move straight up. Each economic data point (like the jobs report) will provide an excuse for traders to move markets up or down, but overall, the trend will be your friend. Dips should be opportunities to buy.

 

I favor beneficiaries of a declining dollar and lower bond yields to outperform in this kind of environment, focusing on precious metals, especially silver. Technology, communications services, consumer discretionary, financials, utilities and the Kathy Wood stocks will fill out my list.

 

Last week, silver soared 8 percent before profit taking set in. Oil was not far behind. However, make no mistake, this is simply another bear market rally. The Fed will continue to warn markets that their buy loop is a work of fiction. As one Fed head put it, "don't mistake market volatility for market instability." Markets will continue to ignore them.

 

At some point, sadly, investors are going to realize that bad economic news and slower growth truly are going to be bad news for the stock market. Then, the buy loop will become the doom loop, but that will require a few weeks to sink in.

 

In the meantime, I expect stocks to give back about half of last week's gains. I am looking at the S&P 500 Index falling back to around 3,650-3,675 (give or take), before again bouncing higher mid-week.

 

Local newspapers are dying. Try as they might, changes in American society, aided and abetted by the internet, have forced many of these institutions to the brink of insolvency. Their demise could impact you in ways that you might never have imagined.

 

The newspaper industry, as most readers are aware, has been in a steady decline for years. A loss of readership and advertising, both traditional sources of revenue for centuries, have migrated to other media, such as the digital arena. The pandemic and the resulting economic impact on the U.S. economy only worsened what was already a bad situation, at least from an economic viewpoint.

 

Penelope Muse Abernathy and Tim Franklin at Northwestern University's Medill School of Journalism, Media and Integrated Marketing Communication recently released a study called The State of Local News 2022. Here is what they found: Since 2005, more than 2,500 newspapers have closed around the nation, on average, 100 newspapers per year or two a week have shut their doors. As a result, the number of newspaper employees have declined by 60 percent and on-staff photographers fell by 80 percent. Today, there are only 7,000-plus newspapers still publishing in the U.S. More than 80 percent are weeklies located in small and rural areas of a nation with a circulation under 15,000.

 

Of the 3,143 counties in the U.S., 200 of them no longer have a newspaper. That may seem small, but the loss impacts 3.2 million people and counting. Two thousand counties no longer have a daily newspaper, and 1,630 counties get by with only one newspaper, usually published weekly. All together that amounts to 70 million people.

 

As a result, "news deserts” have cropped up throughout the country. These are blind spots among local communities, according to research by the University of North Carolina, that no longer have access (or diminished access) to news and information that many consider necessary to the survival of a grassroots democracy.

 

To make matters worse, thanks to mergers and acquisitions, the 25 largest publishers now control about one-third of all newspapers, including two-thirds of all daily newspapers. Today, the 10 largest newspaper owners control half the daily newspapers in the county.

 

The main loser within this trend has been local communities as the focus of these competing media sources concentrates on international and national news. The resources devoted to covering community news and events have shrunk dramatically. This gives rise to a growing number of ghost newspapers.

 

Ghost newspapers is a term used to describe the disappearance of important local coverage that was provided to the community in the past. Since community news has historically been the driver of newspaper readership, less coverage translates into less readership, which generates less revenues and a further decline in local news coverage. This is what one calls a vicious circle.

 

In 2005, newspaper revenues were more than $50 billion, according to The State of Local News 2022 study. Since then, revenues have declined to $20 billion.

 

I wish I could say this circle has been broken but it is getting worse. The decline in local spending in newspapers is predicted to continue to decline. BIA Advisory Services, a firm that tracks ad spending in local media, predicts by 2025, newspaper print ad sales will decline to $5 billion, a massive decline from revenues today.

 

Historically, local newspapers have been the prime, and sometimes only, source of credible and comprehensive news and vital information. It is why the First Amendment was included in the U.S. Constitution. The facts are that newspapers have affected the quality of life in thousands of small and mid-sized communities around the country for centuries.

 

Newspapers have been in the thick of public policy debates in every state, city, town and village in America. The stories, the extended coverage of issues, and their editorials have not only shaped, but have made history time and time again. Today, they are still doing that. From the beginning of the COVID-19 pandemic, if you are like me, the critical information I needed to safeguard and protect my family and friends was supplied by my local newspaper on a daily basis. It was a lifeline that no national news source could hope to furnish.

 

I believe climate change is a mounting danger that communities throughout the country will need to face. Frequent information on local weather conditions, road emergencies, hospitals, shelters and other critical alerts will become increasingly important. We need local newspapers today, now more than ever. Just look at what is happening in Florida today, or eastern Kentucky, or communities that depend on the Colorado River for survival to see where we are heading.

 

Local communities have a choice. The way I see it, unless something is done to save this industry, we are all in trouble. We need to figure out a way to preserve and resuscitate the local newspapers or face an increasingly unknown future without them.

 

The burning question is how? In my next column, I will examine what communities and local newspapers are doing today to not only stem the tide but reverse the direction of the newspaper industry and enhance their communities at the same time.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.