You know what's driving me crazy? The endless chatter about how dangerous stocks are and how hopelessly overvalued they are "at this point in the cycle."
I put quotes around that phrase because when people say it, I think they are trying hard to put stocks in some sort of inning or quarter or any other timeframe that resonates as well as the obvious meaning, which is something like: "we haven't had a recession yet, but we are about to, and stocks are really rich, given that's about to happen."
Why are these conversations so painful?
Because I can just hear myself advising some rich family what to do with its wealth, and I would have to go heavily toward stocks, because there are so many bubbles out there and the stock market isn't one of them.
Last night, I had Udi Mokady on, the CEO of CyberArk Software, an Israeli company that does its best to lock down organizations from the inside. There are people in any organization that have the passwords to everything; the hackers know this, and are always trying to find those people as a way to get in to everything.
When they do get in, they want money. But they only accept, for the most part, Bitcoin for their ransom -- and people pay it. They pay it all over the world. At the same time, there are failing regimes all over the place, from Venezuela to Zimbabwe and, some would say, Brazil. The rich people there know to buy Bitcoin.
So you have this currency that is bid up to $8000 by those anxious to get money out without detection or be paid without detection. You mean to tell me that's not a bubble? You think that's a safe place, a reasonable approximation of value?
Last night in a profile of Intuitive Surgical (ISRG) we talked about the $450 million paid for a da Vinci painting. Talk about too much money chasing too few goods. This one was either a ridiculous outlier, or the new benchmark of wealth in the world. Either way, it is not something that generates income, and it may not even be real. Is that not the definition of overvalued?
In New York, the rents for commercial real estate have gone up to the point that almost no business can afford to pay the rent except one with national tentacles. The residential values of homes in Manhattan are such that even the richest people trying to sock away wealth from countries like Russia or China have been blown out by them.
At the same time, the people who own these properties have paid off their mortgages and can afford to sit with the properties forever. Does that make real estate in New York a good investment? Sure, there are other towns that are less expensive, but San Francisco makes New York look cheap.
In fact, as someone who spends a huge amount of time dabbling in real estate all over the place, I am in shock at the lengths you have to go to find anything of real value that hasn't been bid up -- and when you do find it, the location is so difficult to get to, it's not worth it.
How about bonds? The most overvalued portion of the market might be the junk portion, because you get such a low yield for a huge amount of risk. But then there's the dilemma of Treasuries and sovereigns, where there is little hope of beating inflation. Don't even look at CDs, which really haven't gone up much at all despite the rate hikes.
And then there are stocks. I had felt that there were only three stocks in this market that couldn't be measured by traditional boundaries: Netflix (NFLX) , Amazon (AMZN) and Tesla (TSLA) . But Netflix, according to John Malone from Liberty Media (FWONA) , has won the international entertainment distribution channel, which is a heck of a lot better than the domestic, which is now heavily regulated.
With the evolution of the Data Center, I now regard Amazon as a retailer with an incredibly undervalued tech asset, Amazon Web Services. Tesla remains a free association situation on which anybody can put any value. But in the last six months, we have gone from having three overvalued stocks on fundamentals to having one. Can you name another asset class where there is only one overvalued strain or item in it?
Stocks are the only portion of the panoply that actually make sense to me on valuation. As long as everything else is totally nutty, I don't care where we are in the cycle. I care where we are in the supermarket of investing -- and right now, we are the only aisle with any deep value.