FAST FIVE: The Last Time Albert Edwards Saw "Nonsense" Like This Was 2008: This Is How It Ended
This, of course, is taking the Fed model to its ludicrous extreme, one where negative rates would in theory at least, presuppose infinite stock prices.
Putting it together, Edwards says that we have now reached a permanent market and profit divergence, where the FAANGs specifically, and IT and growth stocks generally, have continued to outperform the market, taking PE valuations to extremes not seen for many a year; which makes sense: after all it is the small, soon to be insolvent “value” companies that trade at a depressed multiples, and as they fail and are removed from the S&P, multiples will only rise.
In a world where just the 5 tech megacaps survive (enabling market multiples to approach 30x) and where most small and medium business have collapsed, who will need, or pay for advertising.
Albert concludes by expanding on this topic of super concentration, and using a concept spawned by Gerard Minack, author of the Downunder Daily, namely adding Microsoft to the FAANGs (calling Google by its correct name Alphabet) to form the FAAANMs (Facebook, Apple, Alphabet, Amazon, Netflix & Microsoft), Gerard and Edwards highlight that the massive outperformance of the S&P versus the MSCI rest of the world (RoW) is almost entirely attributable to the FAAANM, top 6 stocks.
History suggests there is no justification for this and it is part of the bubble of belief driven by Fed liquidity.