Just recently, I sent to you some graphs which cause me concern, as they seem to associate government injections of liquidity into the U.S. economy with rising fortunes for the very well-to-do.
Last Saturday, Andy Kessler in the Wall Street Journal documented something similar – associating very high nominal stock prices with the Federal Reserve’s monetary manipulations.
Joby Aviation, which plans to begin an electric air taxi service in 2024, is worth more than Lufthansa, EasyJet or JetBlue. Does that seem right? In this market, why not? Heck, earlier this year, Tesla was worth more than the next nine car manufacturers combined, though now only the next six. Beyond Meat, made with pea protein, is worth more than the entire market for peas eaten globally—like the bumper sticker says: Imagine whirled peas. Do fundamentals even matter?
I can go on. Used-car sales platform Carvana is worth more than Volvo, Honda, Ford or Hyundai. Airbnb is worth more than Marriott and Hilton combined. Crypto-exchange Coinbase is worth more than the Nasdaq. I live at the intersection of innovation and disruption, but when companies are worth more than any possible reality, watch out.
AMC Entertainment’s stock was scraping $2 at the end of 2020. It is now $50 thanks in part to Robinhood speculators and the company has smartly raised cash. But what about fundamentals? Theaters are still sparse and Disney and others are willingly putting blockbusters directly onto their streaming services—ask Scarlett Johansson about Black Widow’s ticket sales. Theaters are the new roller rinks.
Venture capital is cuckoo. After investing $120 billion in the 2000 dot-com frenzy and just $16 billion in 2002, U.S. venture capital invested $130 billion in 2020 and then $140 billion in the first half of 2021. Startups these days raise money as “the Uber of gardening” or “Space as a Service.” Oh wait, the latter was WeWork’s pitch, whose founder Adam Neumann declared in 2017, “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”
And check this out: In June, an Italian artist auctioned an invisible statue for $18,000—in reality it was an empty box the artist claimed was a “space full of energy.” WeWork energy? Yeah, maybe fundamentals are a quaint relic of a bygone era.
The Federal Reserve deserves most of the blame. Near-zero interest rates means the market has no true north to help compare stock valuations with reality. We are navigating turbulent seas with a spinning compass.