While the broader tech space is breaking down, infatuation with social media companies is running rampant, from Wall Street to Main Street. Most of the major networking companies -- Facebook, Twitter, LinkedIn among them -- remain privately held. But speculation over the social media phenomena has valuations soaring, and it's fueling investments before the companies even go public. See more on this in last month's interview with SecondMarket CEO Barry Silbert.
Top market economist, President of River Twice Research and Time Magazine columnist Zachary Karabell stopped by Breakout to discuss the social media phenomonenon. He's not questioning Facebook's $75 Billion valuation or Groupon's $25 Billion price tag. In the video clip, Karabell goes beyond the numbers and discusses the larger impact on our economy and overall prosperity, and whether it's necessary to follow the money into this trend.
Karabell is "a little wary" of the fast-moving craze and doesn't mind if he's missing the earliest investment opportunities. Right now, not every American is online and networking; it's more for those who are "doing well currently, people with a college degree, people with the money to afford broadband and Apple iPhone 5," Karabell says. He points to the Pew Research Center's study, which shows that a large percentage of unemployed Americans do not have access to social media tools.
While Karabell says "it's hard to ignore the momentum of investing in these things," he would much rather invest in infrastructure technology plays. He's not putting his money in Cisco (CSCO) but rather the businesses that Cisco is addressing, such as the virtual space and cloud computing companies. And like any savvy investor, he recommends a good pair trade like going short U.S. Airways (LCC), long Polycom (PLCM).