YouSaid · the spoken record

Mark M. Zandi

lines on the record: 31
first: 2018-08-07
most recent: 2018-08-07
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Well, I mean, of course, there's a danger that one thinks that they can provide everything at all times. But I think the reality is that growth is relatively scarce still, and the dispersion of valuations in stock markets today is not that big. In other words, you're not paying significant differences for different types of companies across the varying industries. And that, again, suggests that if you're not paying so much for a company that's reinvesting a lot, and growing, it still makes sense even in an environment perhaps where growth may be slower or interest rates may be higher. It's less of a macro driven industry. And I think that's one of the appeals to many investors currently.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's been interesting in a way because after I mentioned earlier, several years of relatively weak global economic growth in the aftermath of the financial crisis and people paying for genuine growth companies because it was quite scarce, in 2017 we had a very synchronized global economic recovery. Suddenly economic growth and profit growth didn't look scarce. Across all industries. Across all industries and across most countries. And that did benefit a lot more economically sensitive companies, more cyclical ones, as we often would refer to them. But it didn't actually really damage the pure growth companies either. And even more recently since the start of this year, equity markets have derated among fears of slowing growth and trade wars and other things. We have seen a bit of a shift towards more defensive leadership in stock markets, but again, technology is generally helpful.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“The reality, and new jobs, new innovations, new ways of doing things have come along. And it is interesting right now that we live in a period of massive technological change. People are worried and threatened by it, and we have record low unemployment, for example, in the US and many other places too. So I think there is some resistance to the ever greater march of technology and how that can affect the human experience and the jobs market. But actually, I think history would suggest one should be quite positive about that.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“There is some possibility that we're moving into a period where consumers have seen everything of technology innovation as being positive to one where they see it as something of a threat and that's where you get the crossover to technology threatening people's jobs, not just providing a consumer experience. And so I think we're seeing some pushback to ever greater application of technology. But again, that is not unique historically. We've seen that happening many times in the past through history. We talked in our report about the impact, for example, even of the development of the printing press in the 15th century and then similar things happened in the Industrial Revolution as well, where traditional jobs were dispelled because of technological innovations, machines taking them over. The positive news from history is that the fears about technology replacing people have always been greater than”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“And that's a really interesting point because you're right. A lot of the innovations that we started to see in the 1990s bore fruit in a way that became very transformative to the sort of consumer experience. Like I said, everything from smartphones, as you say, to being able to order things through apps, gaming and many other things like that.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think it's interesting to note that, of course, after that crash, technology was not a very popular sector. People kind of shunned it for a while because it had seen such a significant deflation in terms of price. And people became quite sort of cynical about the ability and skeptical about the ability of technology companies really to achieve the promises that people had bought into in previous years. I don't think at the time many people would have anticipated the speed of innovation and developments that we've had since then. Everything from communications technology, think about things like smartphones to companies that are utilizing technology to disrupt other industries. All of these things at the time were not broadly imagined. And I think that's why it's quite exciting thinking about the future and the many different areas in which technology can be applied to generate both growth but also”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“That's true, and remember those companies that are effectively making revenues through advertising, and for the most part, the companies that will be shifting out of this technology sector in these new definitions into communication services. So I think it is interesting in a way to think about the difference between pure technology companies that are generating new innovations. And those that are using technology to disrupt often very traditional industries, whether it be retail industry, for example, or the media industry or advertising industry, and many others. In recent years, it's really the disruption of other traditional industries by companies that are utilizing technological models that have seen the tremendous growth. And that may slow down as that disruption becomes more mature.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, as you say, the interesting thing about technology in its current form is that it can be very scalable, and that's true in terms of marketplaces where you get lots of other companies spawned or utilizing a marketplace, and that becomes extremely leverageable business model. But the limits really, as with all companies, are ultimately pricing power and competition. So what we see as the most dominant companies today might find that new innovators come along and find better ways of doing the things that these companies are doing now or different angles to that. So I think the limit really is just the speed of innovation and the competition and what that does to pricing.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Very much so. I think that's right. So there will be new things, I think, that will come along that will change the key focus of technology. It could be in anything from robotics or driverless cars, cybersecurity and other things that perhaps we can't now really imagine. But I think technology has always been an area where you've seen innovations and changes and where that's had a very important impact on the way that the economy has evolved and changed shape. I think it will continue to be an area of dominance where you're going to get a lot of growth. The question really is whether valuations get to a point where they overstate the likely return that you get from that. And at this stage, that doesn't really seem to be the case. So I would say that technology is still going to be a crucial focus for investors. And I suspect we'll find lots of new areas of technology.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“I think it has much lower risk of things like regulation coming through and it probably will be faster moving. You'll get newer companies innovating and coming into that sector in time. It technically will potentially have some impact, for example, on positioning and things like passive funds and ETFs that follow the technology sector because obviously they'll have to sell some companies that will shift out of that particular definition.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, it is interesting because the classification changes which will affect the S&P but also globally effectively take out social media companies and put them in a new sector called communication services and these will basically be alongside traditional media companies, telecoms and others whereas the technology sector as it will laterally be defined will be more pure technology as we might think about it. technology innovators rather than companies that are utilizing them for the purposes of media or disrupting other industries one interesting aspect of this I suppose is that the threat of regulation is mainly going to be in the companies that are shifting into the communication services sector which already has companies which are under regulation so the technology sector the pure technology sector that will”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Of the sector that's been the dominant driver. Why this is complex, a lot of it, I think, comes down to where the financing is. And you get great concentration benefit. Silicon Valley is unique. There's a lot of financing and private equity and other capital sources around that and great universities too. So it isn't the case that there's no innovations elsewhere. But of course lots of innovations that develop elsewhere end up in later stage developed or even moving into the stock market in the US.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“That's a really interesting question, and you're right, they are extremely dominant, particularly the US, but also there's been development of very large internet and technology companies in China too, and China is spending much more on R&D in technology than most other parts of the world. In terms of market capitalization, That's pretty much true in China now as well. If you look at European stock market, only 5% is represented in the technology sector. So there's a very big difference region by region. That's one of the reasons, interestingly, why, for example, Europe as a stock market is underperformed, the US for much of the last decade. It's just had less”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Decades And actually, the dominance that we're seeing at the moment in terms of both the sectors and the stocks is not unique. Like I said, if you go back to some of the biggest stocks in history, whether it be General Motors in the mid-50s, single company, 10% of the market, IBM 8% in the mid-1970s, Exxon in the early 1990s was also about as big, for example, as Apple is today being the biggest stock in the US market. So it's not unprecedented.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Grew hugely and really were the backbone of the development of the economy here in the US and indeed in other places like Europe too. As railroads were overtaken by electrification and the growth of oil from coal, we got massive dominance of oil stocks which became the biggest sector really from the sort of 1910 through to the mid-70s where we briefly saw some technology companies, mainframes for example, becoming quite dominant. And then for the briefest period actually interestingly just before the recent financial crisis 10 years ago we got banks being the biggest sector again. That didn't last of course because they were really at the epicenter of excess leverage and the crisis that we then saw since the financial crisis has basically ended. Again we've seen technology taking over as the main”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“One of the things that we looked at in our report was to try and understand how industry has become dominant in the stock market. So we took data going back to the 1800s in the US where we have a decent available history. And again, it's interesting the biggest sector has very much reflected the way that the economy has changed over time. And what's really been the dominant driver of the economy. So if you go back to the 1800s to 1850s, it was really financed and real estate development companies and banks that were the biggest sector and for a long time they had 30 or 40 percent of the share of the whole stock market. Of course, it was a much less mature stock market then. From the mid-1800s through to the early 1900s, transport stocks became dominant really railroads. Railroads”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Technology revolution as we're seeing it expressed in the stock market since the financial crisis is that these companies have been very successful, they've been very dominant in terms of returns, but they've also been extraordinarily successful in terms of their earnings power and their valuations have not become that extreme.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Indeed, almost infinite, and there are other periods that we can compare two as well. One of the other ones that we focused on in the report was the so-called nifty 50 period, which was really described in an era in the mid to late 1960s and early 1970s, where roughly 50 US companies became extremely dominant in the market, largely emerging global multinationals. And they did actually have strong earnings power and growth rates, but their average multiples again then were much higher than we're seeing in technology companies today. The five biggest of those fifty company companies averaged four Ps of around 35 times, but many of the 50 companies again were in multiples of 60, 70 or 80 times, so much more expensive again than we're seeing currently. So I think the thing that's really set apart”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Which is actually in the internet retail sector in the current classifications which has very, very high multiples, much higher than that about 80. But if you compare, for example, the biggest five technology companies during the late 1990s, they had an average P multiple of around 55 times. And of course many of the technology and emerging internet companies at the time had p multiples significantly higher than that.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“And the earnings were not there. So, this was really the promise or the hope of potential earnings in the future. In a way, investors were right at the time. They were very exciting, new innovations and technologies which were emerging, which people assumed would be revolutionary. And they were right that they were revolutionary. They just at the time attached an unrealistic valuation to the potential payoff. And also, it was true at the time that many of these new companies that were emerging in these areas of developing technologies were not the ones that ultimately had the breakthrough application that really made them dominant. So, you know, if we look again just as an example at these top five technology companies in the US today, they have an average PE multiple of around about 25 times, but that includes companies like Amazon.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the obvious first period to compare this extraordinary ascent of technology with would be the 1990s. The last internet bubble, the technology bubble. And the technology bubble really became a bubble because valuations reach very extreme levels.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and one of the other interesting things that we found, rightly or wrongly, is that over the last 10 years, roughly, if you look at businesses which are capital light relative to those that are capital intensive, and you can think in a way of that being sort of new economy models versus old economy models, it's those that are capital light, that are utilizing less capital but are very scalable, employing technology, that have outperformed very considerably.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“By expansion of multiples, exactly. And if you look at the rest of the market, which has seen a lower return, a bigger proportion of that lower return has come from valuations expanding. So nearly 50% of the return.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Where you have seen bubbles develop. For example, if we look at the biggest five technology companies in the US where market capitalization concentration is very high, even now they are growing their sales roughly four times faster than the rest of the stock market. They're growing their margins at twice the rate. So they have got tremendous earnings power. And actually, if you look over the last 10 years, despite the fact that globally technology equities have gone up The rest of the world's equity markets roughly a hundred percent, of that three hundred fifty percent, over eighty five percent of it has been driven by earnings, just a small amount has been driven by valuations going up.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think there are, as I mentioned, great concentration benefits, and there's been first mover advantages in many areas of technology as well. And, of course, there are different types of technology. There's technology innovation, things like software companies or cybersecurity and things like that, robotics. And then there are other companies that have really used technology to disrupt other traditional industries. retail is an obvious one that comes to mind. We can think of any other industries too. And I think the opportunity for companies as new entrants in traditional industries to use technology platforms to disrupt is very high and the rewards for that, if you get it right, are extraordinarily powerful. But I do want to say that the earnings power of these sorts of companies is really what sets them apart from perhaps other periods that we've seen historically.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Four different countries. So there's no doubt that these companies have become absolutely huge. But what we were really trying to do in the report is to show that that size does not suggest that they're necessarily a bubble because their valuations are not so extreme and also their earnings power has been quite extraordinary. And we also try to show in the report that the sort of dominance of companies is not unique historically. We've seen various versions of this through history where new innovations have brought huge concentration and very large market capitalization amongst a few companies in different periods of time.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“Well, what we were trying to show here really was the enormous impact that these large companies have had and compare them really to other whole markets and whole economies. And for the purposes of this particular map, we use the five largest US technology companies, so Facebook, Amazon, Apple, Microsoft, and Alphabets, Google. And if you just look at those five companies, the valuation of them, the market capitalization, is equivalent to the annual GDP of Germany for example. It's bigger than all of the companies in the topics the Japanese stock market and considerably bigger than the 50 biggest stocks in the European market. One of the most impactful comparisons is with the three biggest of those companies which have a combined market capitalization of more than the entire annual GDP of the African continent which is 50%.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“So there is some history of companies which are the leading edge of technology at whichever time it's been that get huge market share, that eventually broken up or face some regulatory constraints. And I think understandably investors are looking at that as a potential headwind to what's been a tremendously successful run of returns in this sector.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“From history that that sort of concentration is not unique, in other waves of technology, you've had great dominance as well. Just to give you an example, in the late 1960s, Bell Telecom had reached 90% of households in the early 1980s, IBM, very dominant in mainframes, had over 60% market share then. If you go back to the 2000s, Microsoft had 97% market share. And in some of these examples in the past, you have seen threats of, and indeed actual breakup of companies, ones that people most focus on perhaps are the breakup of Standard Oil in 1911. Standard oil had more than 90% share of the global oil market before it was broken up. It was broken up into 34 different companies in 1911, and of course AT&T in the early 1980s was also broken up.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“They are concerned, I think there are two aspects of it. One of them, of course, is the relationship between technology and the broader issue of trade confrontations and trade wars, to some degree because of the dominance of US technology companies. There is some leverage for other countries to use technology as a way of retaliating against tariffs that the US administration may put on. That's one reason. But of course there's other reasons as well, which is that you've got huge concentration of technology companies globally. If you look at the top 20 technology companies globally, which have a market cap combined of about $6 trillion, just five of those make up 60% of the entire market capitalization and many of them have very dominant shares. If you look at Google, for example, it's got over 90% of market share in internet searches.”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT
“I think there are a number of things. I mean, firstly, we should say that growth is a factor has been outperforming significantly in equity markets for the whole period since the financial crisis, and technology is a big part of that. And I think one of the reasons is because actually it's been quite a weak economic recovery globally. And that's typically what you see after a deleveraging cycle in a banking sector. There's also been a very disjointed economic recovery because of the extent to which it moved initially from the US in 2008 and then to the European crisis in 2011 onwards. And then finally EM in 2015-16. So globally we had weak growth. We had weak profit growth and therefore investors have been prepared to pay up for genuine growth companies and technology has been the most important part of the equity market globally where you've seen tremendous”
2018-08-07 · Goldman Sachs Exchanges · Why Technology is Not a Bubble · IDENTIFIED FROM THE TRANSCRIPT