Is Occupy Silicon Valley coming?
Could the run-up in tech stocks and the wealth it’s creating spark a backlash against the industry, similar to the one against banks?
In a new report, “Occupy Silicon Valley,” Michael Hartnett, chief investment strategist with Bank of America Merrill Lynch, says it could.
By certain measures, tech stocks “look pretty spicily valued,” Harnett said in an interview. He noted that the market values of tech giants already surpass the gross domestic product of some major U.S. cities. “Google is bigger than Chicago, Amazon is bigger than Washington,” he wrote.
He added that Google and Apple combined are worth more than the combined market value of Japanese and eurozone financial companies. The Nasdaq Internet Index, which he calls the “belly of the beast,” is up 25.6 percent this year versus about 7 percent for the Standard & Poor’s 500 index.
If this continues, “it could ultimately lead to populist calls for redistribution of the increasingly concentrated
wealth of Silicon Valley as the gap between tech capital and human capital grows ever wider,” he wrote.
In the Bay Area, where tech stocks are currency, there are already signs of this happening — though not as many as you might expect. The Google-bus blockades, which were more about economic dislocation than corporate shuttles using public bus stops for free, have largely died down.
Protests against Uber’s plans for huge offices in Oakland receded after the company scaled back and activists turned their attention to the company’s employment policies, use of customer data and its CEO’s ties to President Trump.
One trend that shows no signs of slowing is the spread of rent control throughout the Bay Area. It reflects growing tensions between people in the technology world who can afford to pay sky-high rents and those who cannot. Voters in Mountain View (Google’s headquarters) and Richmond approved rent-and eviction-control measures in November. Santa Rosa will vote on them in June. San Jose’s City Council voted last month to implement eviction controls, and Pacifica’s council approved a temporary rent- and eviction-control ordinance that will take effect Wednesday.
“Investors are still pretty positive on technology,” Hartnett said.
If this continues, and Hartnett thinks it will, it could produce “policy responses” in the form of higher interest rates and a search for ways to redistribute tech wealth. “When the government is short of revenue, they will look at places that have a lot of revenue. We know where a lot of that is right now.”
For now, Hartnett is recommending that investors pursue a “barbell” approach. On one end, they should buy tech stocks because they are likely to continue going up. At the other end, they should invest in stocks that likely would go up if those policy responses ended the tech frenzy. That would be out-of-favor sectors such as gold, natural resources and banks.