You can count Sam Zell among those who think the rally in equities has become detached from reality.
You might recall that back in November, Zell told Goldman that maybe Amazon and other tech titans are getting too big, too fast. Here’s what he said in an interview with the bank’s Allison Nathan:
I can’t explain the valuation of the big tech companies, and can’t believe that we won’t see a significant correction there. For example, in order to justify the multiple that Amazon trades at today, the company would have to be worth 25% of the US economy five years from now. This situation is no different from the one in 1997, when I pointed out that Cisco’s multiple would only be justifiable if the company represented 25% of the US economy five years later.
Obviously, that didn’t happen, and I don’t think it’s going to happen with today’s big tech companies, either. I’m also generally concerned about the size, scale, and influence of these companies, which I think is out of hand and dangerous to our overall society. Absolute power corrupts absolutely, and these companies are being set up to do exactly that.
We would generally agree with the sentiment, although we did suggest at the time that maybe Sam is just salty vis-a-vis the Bezos world domination push.
On Tuesday, in an interview with CNBC, Zell said that in his mind, the rally is too dependent on tech and other highflyers, a state of affairs he says masks the comparatively meager returns of “average companies.”
For context, here are the numbers on FAAMG’s contribution to 2017 benchmark returns:
And as you’re aware, hedge funds have piled into the same names in an effort to avoid falling behind as the passive mania – leveraged as it is to the run up in tech – continues unabated and becomes a self-fulfilling prophecy akin to the “perpetual motion machine” described last summer by Howard Marks.
Anyway, back to Sam who wheezed his way through an appearance with Joe Kernen (and his hair) this morning on the way to musing about everything from the economy to FANG to (of course) real estate. Here’s the clip:
So you can take that for what it’s worth and while “what it’s worth” may not be much, Sam has called at least one top before so you know, there’s that.
It’s as much about the dollar collapse a much as rising stocks, as US stocks aren’t rising much in terms of numerous other currencies. Also stocks’ “irrational exuberance” can be a manifestation of the slowly emerging sovereign debt crisis, gradually rendering bonds the last place that institutional order flow wishes to park. And they can’t really go all in commodities or hard assets due to size or mandate limitations.