Albert Edwards: FAAMG Stocks Are ‘Nonsense On Stilts. Embrace The Coming Crash.’
"I have a high conviction that before the end of this year the FAANGs will be unravelling, as the structural arguments supporting these bubbles turn to cyclical sand", Albert Edwards writes, kicking off a doozy of a new note called "FAANG bubble is nonsense on stilts. Embrace the coming crash".
I often speak of "vintage Edwards" when describing particularly colorful passages from Albert's notes. That description applies to the entirety of his latest, which is a tour de force in bearish bubble-b
I think that’s the key – Sales and earnings. How well does Tech/the 5 leaders do?
TBH, I expected FB and GOOG to suffer somewhat as ad/marketing is a well known casualty of tough times. Apparently, cies cut their budgets but kept moving the ad evermore online for a very modest impact.
AMZN, NFLX and others (ZM etc.) outright profited.
Even in a crisis, you can make the point that many tech stocks (MSFT, WORK, DBX etc) would benefit as they are cost-cutting tools.
At this point, I want more than vague impressions and “it must be so coz I wish it so” that these are masquerading as growth stocks before accepting the thesis.
And, for the record, I was suspicious of decoupling in 2008. EMs were selling mostly to DMs. No way DMs imploding was not going to destroy EMs. So I’m no perma bull.
But here, yeah, I’m not buying that Tech is overhyped. Overpriced? Well, we’ll see but I don’t think a lack of growth is going to be their downfall…
Of course it will be. Do the math. If the FAANG stocks keep up their growth rates they won’t be just 20% of the S&P, they will be bigger than GDP growing at 2% in less than a generation. That can’t happen so those FAANG growth rates will come down whether anyone likes it or not.
I think there are two other factors that contribute to the invincible rally:
35% of the country is MAGA faith based and doesn’t care about data.
There are a growing number of Elliot Wave cultists believing that the S&P is going to 4000 before it crashes. Avi Gilburt has 50k followers on seekingalpha and I believe the paid subscriber number is close to that. First it was going to 3200, then 4000, now I guess it may even go to 6000….
I’m not saying they’re going to grow 20 or 30% for 25 years in a row… But let’s take AMZN. It’s close to 50% of e-commerce. Wow. Saturation! Except… e-commerce is still below 10% of retail or thereabout…
NFLX has less than 200M customers. I think there’s more than a billion cable users worldwide…
Etc.
Eventually, no doubt they’ll saturate their markets but their TAM is gigantic and, to top that off, they keep expanding in adjacent markets. Say, GOOG gets Waymo to work. Or something looking a bit more like AGI than Alexa or Siri… The potential is enormous even if, yes, it’s limited… eventually.
Whether the Fed is politically embarrassed or not is up to others. The Beige Book, which no one seems to have read (and certainly not today’s equity buyers), seems all too aware of what is going on on Main St. The Fed can only use the tools they have to accomplish its goals. Congress and POTUS could do much more to address the undesirable/unintended consequences of Fed policy such as the concentration of wealth. It’s on the government to be the government and to stop expecting the Fed to be the government as it can only be an ersatz one at best.
I am “safer at home” with a man who is COO of a real estate portfolio ( office, retail, industrial, apartments, home building).
Total disaster…. the real estate market, not us!
Tenants, even public companies who just completed massive debt issuances, are demanding lower rents, small retail tenants are moving out, apartment renters refusing to pay. Office tenants are now asking to modify lease and reduce space and rent per square foot. Local real estate tax authorities are increasing real estate taxes. All lines of credit just about completely drawn down.
Banks concessions are to allow interest only for 3 months, only. Massive amounts of equity will be required to fix this.
I predict this blows up in July, 2020.
And when PPP and supplemental unemployment ends landlords may feel even more pain –so sorry for yours. The Fed can buy the bonds, but it cannot service the debt. What happens after they write it all down? It seems to me to be nothing transfer payments to bondholders not a way to revive the economy. Hard for bankrupt firms to obtain credit no matter how easy the terms. This seems to have been forgotten.
The Fed can most certainly service the debt, as the Heisenberg post of June 10, on MMT, explains.
Our office landlord came in and thanked us for paying the rent on time. That never happened before.
The value of commercial real estate just took a massive hit- but not many are talking about the impact of the US economy on this $17T (estimate) real estate market.
The owners know this, the commercial real estate brokers know this and the banks have to be terrified of how much real estate will be given to them ( in lieu of getting repaid outstanding loans that are collateralized by mortgages).
Two areas of banking that will be hiring as a result of this- the REO departments (Real Estate owned) and the “workouts” departments.
A plague on them: their unfettered greed has been killing our commercial districts — urban, suburban, and rural — for years. I hope they all go broke.
“Their unfettered greed has been killing… commercial districts – urban, suburban and rural”.
Are you referring to the banks (which under the post-GFC Dodd Frank regulation have been relatively constrained on providing construction loans) or are you referring to Amazon, Walmart.com, eBay, Wayfair, etc. (all that convenience and lower cost has sucked the life out of all sorts of urban and suburban retail)?
Parts of the FAAANM business are certainly cyclical and will suffer if the market ever couples with reality again, but even then I would rather be in these and other tech companies than in banks and most industrials, if we really crash (if Jerome allows such a sin to happen), out of the ashes of despair and depression will rise the usual suspects, Amazon will buy the USA and become Amazonia, Bezos will be crowned supreme ruler with live broadcasts on YouTube and Instagram, those too bored to care will tune instead to Tiger King season 3 on Netflix or face time their quarantined friends with their iPhones.