Why does the current stock market look like the Fyre Festival: Wall Street expert

Over the last 10 years, the US stock market has more than quadrupled.

After experiencing the worst economic downturn since the Great Depression ten years ago, US equities regained record highs and regained their prestige.

In order to ensure that the turmoil can not happen again, new laws and regulations have been put in place, supplanting the old doctrines that have weakened the system. And, in the depths of danger, a new, robust economy was born.

But an expert on Wall Street thinks this new economy looks like a house of cards and not the solid bulwark that the consensus seems to believe.

Vincent Deluard, Director of Global Macro Strategy at INTL FCStone, is not afraid to share his thoughts on an economy that he sees less and less portray reality every day that passes. The genesis of his thinking comes from the very institutions that helped save the world from an economic disaster: central banks.

More than a decade of easy gains in the financial system have hit corporate debt levels by far, reaching unprecedented levels. This, in turn, broke old economic concepts previously considered resolved.

Now, Deluard is sounding the alarm on the effects and unintended consequences of the "simulation of the economy" – and relations, according to him, began to deteriorate around 2016.

"Companies whose value is neither based on physical assets nor on labor become more desirable: assets that do not present financial statements, such as the brand name, access to customer data or a base of captive users are the drivers of value at the time of free capital, "he wrote in a recent note to customers.

Deluard says that the proliferation of these trends has led to a situation where previously reliable valuation metrics have been rendered irrelevant.

The chart below shows Deluard's (black line) intangible portfolio – a strategy that overweight equities that offer patents, trademarks and intangible assets – and is starting to outperform its organic portfolio (green line), an overweight strategy shares offering the most tangible assets per dollar invested.

The intangible portfolio begins to outperform the material portfolio in 2016 – a phenomenon that continues today.

DELUARD

"Possession of tangible capital is no longer an advantage when capital is free," Deluard said. "The best performing stocks are insignificant companies with no tangible capital and few workers."

"Payment networks are more valuable than bank branches, physical stores can not compete with online markets, franchises are worth more than restaurants."

As if Deluard's dissatisfaction was unclear, he titled his report "The Fyre Festival Stock Market", evoking the infamous and ill-planned disaster of a music festival. And at the heart of his argument is the ubiquitous capital described above.

"The distinction between tangible enterprises whose value comes from workers and capital and those which have moved away from physical realities is as follows: summa divisio it will dominate equity returns over the next decade, "he said.

A combination of state-of-the-art technology and cost-free access to capital has eliminated barriers to entry, leaving past, powerful, traditional businesses to adapt or disappear. And the sharing economy – controlled by the companies, described as "immaterial" by Deluard – dominates the landscape.

Here are some examples:

• Airbnb, which has no property, is currently worth more than the Hilton group.
• Facebook, which has no content, is one of the most valuable advertising platforms in the world.
• Uber and Lyft, who do not own a single vehicle, are the most valuable taxi companies in the world.
• Tesla, which is worth more than Ford, employs less than a quarter of its employees.

All of these companies can outperform their predecessors because of the distorted landscape caused by free capital. It's almost a handicap to own a physical space and workers now.

And because of traditional valuation measures made useless by this new phenomenon, investors are now facing one of the most paradoxical landscapes in history.