The Daily Prophet: Media Massacre, Long Bonds and Cash-Out Refis

Connecting the dots in global markets.

Investors who were betting that the media industry had its advertising issues in check received a big shock today. The Bloomberg Americas Media Index fell the most since June, plunging 2.53 percent, after Time Warner Inc.’s Turner cable division reported a 2 percent drop in advertising revenue last quarter in spite of the seasonal boost from basketball games.

The knock-on effect was brutal: Shares of Walt Disney, 21st Century Fox, CBS, Viacom and Discovery Communications Inc. all plummeted, weighing in the broader market for equities. Time Warner is the first of the big media companies to report first-quarter results, and investors are worried that the other companies will say much the same thing. Before today, media stocks were among the market's darlings, gaining about 19 percent from the U.S. elections through Tuesday, compared with the 12 percent gain for the S&P 500 Index.  

Television ratings have been dropping, even for some live events like sports, as the web gives viewers more choices for entertainment, from streaming video on Netflix to snippets on Snapchat, according to Bloomberg News's Gerry Smith. In addition to losing ad revenue, Time Warner’s cable subscribers continued to fall last quarter as some cable customers cut the cord.

It's been a tough week or so for 30-year Treasury bonds. The securities have underperformed the broader market as Treasury Secretary Steven Mnuchin talked up the possibility of the U.S. issuing ultra-long term bonds to take advantage of borrowing cost that remain close to record lows. After all, more supply generally equals lower prices. Today, owners of the so-called long bond won a bit of a reprieve, even though the U.S. Treasury said today is actively studying the “costs and benefits” of ultra-long bonds. That's because the Treasury Borrowing Advisory Committee, the group that advises the government on its best ways to borrow and whose members include representatives from the biggest dealers and investors, told the Treasury that it doesn’t see evidence of “notably strong or sustainable demand” for bonds with maturities more than 30 years. It's hard to see the Treasury issuing such bonds if it doesn't have the TBAC's stamp of approval.

Sterling has been on a pretty remarkable run this year, with the Bloomberg British Pound Index rising 5.63 percent from its low in mid-January through Tuesday. Now, it looks like things could get a bit bumpy. The currency weakened against most of its Group of 10 peers after U.K. Prime Minister Theresa May said that “some in Brussels” do not want Brexit talks to succeed and that there were attempts to deliberately influence the results of the June 8 snap elections in Britain, according to Bloomberg News's Anooja Debnath. Earlier, the Times reported that May has been told she will be prevented from joining discussions at future European Union heads of state meetings. Brexit Secretary David Davis threatened to walk away from the bloc without a deal if provoked, while flatly rejecting a reported exit bill of as much as 100 billion euros ($109 billion). “I am quite negative on the pound,” said Richard Falkenhall, a strategist at SEB AB in Stockholm. “There are several parts in the negotiations which to me seem very tricky to find solutions on."

Cattle futures extended a surge to a record and wholesale beef jumped to a 13-month high after a weekend blizzard hammered the Midwest, and a Kansas livestock group estimated the snowstorm may have killed thousands of animals, signaling tightening meat supplies, according to Bloomberg News's Jeff Wilson and Jen Skerritt. More than half of U.S. feedlots are located in the region hit by the massive storm that dumped more than 12 inches (30 centimeters) of snow, blanketing an area from the Texas Panhandle to Nebraska, said Lee Reeve, principal at Reeve Cattle Co. Kansas. A feedlot with 80,000 head of cattle north of Garden City, Kansas lost more than 1,000 animals. Cash cattle prices had seen big gains even before the storm, surging 40 percent since the middle of October as domestic and global beef demand rose. Trump declared success last month in gaining greater access to China for U.S. beef suppliers after meetings with President Xi Jinping, and Brazil’s beef exports may trail previous expectations after a probe into tainted meat last month led to temporary import bans by several countries.

With about one-in-four of the nation’s roughly 44 million student debtors either in default or struggling to stay current, and subprime borrowers falling behind on their car loan payments at the highest rate since the financial crisis, no wonder there's a lot of concern about the health of the U.S. consumer these days. In what may be further evidence that Americans are feeling a bit strapped for cash these days, Freddie Mac said today that 45 percent of all mortgage refinancings in the fourth quarter resulted in new loan balances that were at least 5 percent higher than the original amount. That's the most since 2008, when the financial crisis hit. While such cash-out refinancings are still a long way away from the peak of close to 90 percent in 2006, the trend is worth keeping an eye on, especially if those middle-class tax cuts promised by the Trump administration don't come soon.

One of the great mysteries in economics has been the decline in productivity, calculated by dividing what a nation produces by the labor it took to provide those goods and services. What’s confounding economists is why productivity growth has slowed not just in the U.S., but in many countries, even as other economic gauges have improved. U.S. productivity gains were halved in the last decade compared with their average from World War II through 2006, according to Bloomberg News's Sho Chandra. The explanations range from a mismatch between jobs and skills to fewer innovations to aging populations to even measurement problems. On Thursday the government releases its preliminary estimate of productivity in the first quarter and the median estimate among economists surveyed by Bloomberg News is for a 0.1 percent decline.

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