Veteran media fund manager Hal Vogel worries about stock market collapse

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Veteran media-fund manager Hal Vogel has watched, warily, as media and entertainment stocks have mounted a spectacular run-up in the past year, with an average gain of 42% among big conglomerates Time Warner Inc., CBS Corp., Walt Disney Co., Comcast Corp., News Corp. and Viacom Inc.

He’s staying on the sidelines, because he’s convinced that a stock market crash is coming. He’s seen the signs in the past, and there are too  many to ignore now.

“Look, there are some that may go a bit higher,” Vogel, the chief executive of Vogel Capital Management, said in an interview with Over Most Of These Stations. “I don’t know when the market’s going to turn. The media stocks have done very well, but when the market turns, advertising and media stocks have always been very sensitive to spending and the GDP and all of that. Even if they’re strong for the rest of ’13, there’s the question of 2014. And in ’14, I’m not sure things are going to be good.”

Vogel is concerned that the Federal Reserve has set the U.S. on a collision course by slashing interest rates to nothing.

“Interest rates don’t belong at zero, and that hurts the retirees and people on fixed incomes. The pension plans cannot get a return on bonds anymore; when they invest in bonds they assume they’re going to get 7-8% return, and they’re getting 0.5%. So a lot of retirees are not going to be getting their money, and it’s basically bankrupting the whole society. There is no real price in the market. It’s all being manipulated by the Fed. What they’re doing is forcing people into the riskier part of investment, which is the stock market.

“This is a catastrophe that’s being set up right now. The Fed says, ‘We want household wealth to go up, so we’re forcing you to take more risk. And so we want you to buy stocks, we want you to buy houses, we want you to do this and that and help employment … and they’re forcing you out on a limb (the stock market). And while you’re out on that limb, there’s a little beaver that’s chewing on that limb. When the interest rate finally turns, it breaks the limb off the tree, and takes everybody with it. It’ll be like 2007 and 2008 all over again, only worse.”

Canary in a Coal Mine

“I don’t know when — I’ve been wrong about the timing — maybe it’s a little too early. But when it happens, media stocks will not be immune,” Vogel said. “The canary in the coal mine is that the 10-year Treasury note is rising, and the Fed can’t control that very well. Your 401k when to 201k in 2008? It’ll be 101k by the time this is done.”

Vogel thinks the economy has already had a greater impact than the industry will acknowledge on the most reliable part of the entertainment ecosystem — cable-television subscriptions.

“I believe [cord cutting] is more widespread than they think. Now, it’s hard to separate the basic macro factors; for example, the recession led to a housing collapse, and that pulled down lots of cable subscriptions …

“[Time Warner Cable CEO Glenn] Britt is right. A lot of these packages are not affordable. It has reached a point where the sports rights are driving the costs for consumers, and I don’t think that’s right. There are people who are very devoted to sports, and can’t live without them, but there are a lot of other people who say, why should I pay an extra $5-$10 a month to subsidize ESPN for somebody else?

“So I think lower-priced packages are coming. The last thing people in cable want to do is cut prices, because they’re accustomed to raising prices 3-5% a year, come what may. They don’t care. This is their birthright, to raise the price. And I believe that things are quite bearish for the economy, so you’re going to see more pressure to cut prices, especially if the price of gas continues to go up. I doubt that it will go to  $4.50 a gallon, but should it happen because of an international event or economic event, people are going to cut back somewhere else.

“And, you’ve got a real technological shift going on, and pressure from that technology will increase,” he said, referring to so-called “over the top” providers of video services via broadband, such as Netflix and Amazon Prime.

At the same time, Vogel notes that TV Everywhere has not gone “as quickly or as smoothly” as the industry would have preferred. “It’s going to be a tough sell,” he said, given the other factors in play.

— David B. Wilkerson