Wednesday, October 15, 2014

The Correction Is Here, US Media will Benefit from Enhanced Consumer Spending as Oil Price Declines Put Money Into Consumers Pockets.

US Trust saying that EU central banks and ECB will reverse course and expand monetary policy. Also marginal fiscal stimulus-trend of deflation in EU will end.

More important to US economy is the appearance of excess supply in the energy market. The rapid break-down in energy prices is positive because it will put more money into consumer’s pockets-it's basically a tax cut. The question is, will consumers spend the windfall at the historical marginal split of 70% increased consumer and 30% increased savings? If they do, then the economy will expand, and unemployment decline. How does sector allocation change? Presumably, the sectors which are sensitive to energy, autos, airlines and farm equipment and machinery should do well but what about utilities and railroads, where lower fuels costs might be offset by lower demand for oil transport?

Ok, what about media? Clearly, ad supported media should show positive benefits from increased consumer spending. We own Comcast Corp for NBC and its other ad-supported networks. This fits historical patterns, but technical change will disrupt direct pay sectors-like Over The Top services and or cable-even more rapidly. We own cable company shares and shares in wireless companies as an agnostic plays on the shift from fixed entertainment systems to mobile based services. We own them both domestically and internationally and see further penetration and increases in data usage as powerful secular driving forces in these sectors worldwide.

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