Stop the Presses: Newspaper Security Has Promise

Since then, the sector has continued to deteriorate with large names such as Gannett (GCI) and McClatchy (MNI) both down sharply. McClatchy, which owns 30 daily newspapers including the Miami Herald, the Fort Worth Star-Telegram, and the Charlotte Observer, now trades lower than it did in 1988.

The publicly traded newspaper publishing sector, everything from tiny American Community Newspapers (ANE) to the mammoth E.W. Scripps (SSP), is only worth about $24 billion dollars, putting the entire industry at just over 10% of the value of Google (GOOG), which uses vast amounts of their content anyway.

One of the largest newspaper companies is no longer publicly traded. Tribune, which owns assets ranging from the flagship newspaper to the Chicago Cubs to WGN-TV, was taken private in an $8.2 billion April buyout by Chicago real-estate titan Sam Zell. Known as the "Grave Dancer" for an uncanny ability to buy assets on the cheap, Zell promptly installed himself as chairman and began an aggressive effort to improve performance.

Yet this past week analysts began suggesting the highly leveraged company could be in danger of defaulting on billions of dollars in debt, despite Zell's numerous asset sales and cost cutting. Industry trends, both circulation and advertising, continue to weaken as the company faces $4 billion in debt and interest payments due by the end of 2009.

Still, Zell's ability to confound the skeptics can't be overstated. And those wishing to bet on his chances of turning the company around might consider a Hail Mary pass on Saturns Tribune (HJS), a Tribune trust-preferred security trading on the NYSE. As you might imagine, it has plummeted, trading down to a recent $4.58 (par is $25) and sporting a near 38% yield. The next interest payment — if it actually is paid — is due on Nov. 15.

The security matures in 2096, meaning that, although the note can be sold at any time, you are essentially buying an 88-year bond of a company in an industry that is priced as if it won't last that many months. Interested investors should carefully review the security's prospectus.

This is an investment that seems to be priced on death's door. Indeed, for HJS to reclaim the $18 it traded at less than six months ago, it will need to climb nearly 300%. Over a storied career, Zell has made billions in just such opportunities, but it's hard to tell at this point as to whether he's in the midst of dancing on a grave or digging one.

Sen. Joe Lieberman, the Independent from Connecticut, and Sen. Susan Collins, a Maine Republican, have introduced legislation further regulating the commodities futures markets, including prohibiting large investors with more than $500 million in assets from investing in agricultural and energy commodities and directing the CFTC to establish limits on the share of the commodity market held by financial investors.

If the Senators believe it is "excessive" speculation in the futures markets that has artificially pumped up prices, then I'm curious as to how they might explain a roughly 85% year-to-date run-up in rice prices, despite a domestic futures market which, according to the Chicago Board of Trade, sees an average volume of just 174 contracts a day.

Would curbing speculation in rice futures have prevented that gain as well? If angry constituents put rice into their gas tanks instead of RBOB, they'd try and make the case.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.