Special Guests: Sir Martin Sorrell - WPP Group CEO

CAVUTO: What do you make of the overall economic environment, in which these guys reside? Technology and valuations --

SORRELL: Well, technology actually is leading a lot of the activities. One of the areas that recovered sharply in 2009 after the Lehman weekend was --.

CAVUTO: But these evaluations are off the charts. Do you find that they're justified?

SORRELL: I thought these valuations were off the charts 12 months ago. I've been proven to be yet again wrong.

CAVUTO: You could be just early and right?

SORRELL: No. I think we're seeing a lot of speculative excess in some parts. For example, I was in Brazil a couple weeks ago. And I think we are seeing some speculative froth. Brazil will continue to grow very significantly. It is one the BRICs, one of the major faster growing markets. Just like Russia, India and China, it is a pivotal market for us now and in the future.

Having said that, you are going to get cyclical swings around that. I think the real in that particular case has been extremely strong. That has driven the speculative thrust as well. You're seeing in the Internet area, in the high tech area, in our own industry in the United States, excessive valuations, in my view.

But again, what do I know?.

CAVUTO: That's why I want to hone in on that, if you don't mind, Sir Martin. When a Microsoft comes and pays more than eight million dollars for Skype.

SORRELL: Ten times revenue.

CAVUTO: OK. And I see a Facebook valued -- relationship notwithstanding -- that it is 70 plus billion.

SORRELL: Well, we've seen Facebook's value go from a muted 50 to 65.

CAVUTO: You can't tell me -- you can't tell me that Facebook is worth 70 billion dollars?

SORRELL: Well, I don't know. I mean, it's -- ultimately, Neil, it will be dependent on what -- if it gets floated --

CAVUTO: If people pay it, if people pay it. Doesn't it feel like Earth Web to you, like the late '90s?

SORRELL: If you went back to Google -- remember Google did their IPO and they did it on the bidding system. You remember? It was underwater. You remember? And people like Bill Miller and Legg Mason came in after the IPO and did extremely well. So it's very difficult to come to a view of this. It did look as though eBay's purchase of Skype looked wrong. It now looks very right. We have to see.

CAVUTO: But Microsoft looks like a genius now not getting Yahoo!, right? It is roughly a third of its value at the time.

SORRELL: Well, it picked off the part of Yahoo! that in the end probably made sense. And Bing has been launched and has actually been very successful since it's been launched.

CAVUTO: So I'm just interested because you're a pretty good reader.

SORRELL: I'm not a very good reader.

CAVUTO: You don't build a firm like yours on a luck.

SORRELL: We make mistakes.

CAVUTO: But -- but I'm worried. Allay me of my --

SORRELL: About speculative excess?

CAVUTO: The speculative excess. The way that we are attaching values to entities in some cases that barely have any earnings at all. In the case of Skype, just now getting earnings.

SORRELL: We saw -- we saw AOL buying "Huffington Post".

CAVUTO: You're quite right.

SORRELL: Ten times revenue.

CAVUTO: You're feeding my argument.

SORRELL: I think there is an argument. There is certainly a lot of money about. There is certainly a lot of liquidity about. There is certainly some areas -- and in our own industry, I can see some of the things you're talking about in relation to the Internet in America and Brazil, a little bit in China, but not that much. But those are the areas -- those would be the three geographic and functional areas I would --.

CAVUTO: Not the United States?

SORRELL: The United States Internet, but not the United States generally.

CAVUTO: Really?

SORRELL: No, in terms of investment. I'm talking about --.

CAVUTO: So the highers for you, China, Brazil, Latin America in general?

SORRELL: Well, the three strategic areas which are highlights for us are the new markets. That's the BRICs and next eleven. Knock out Iran because we can't include that in the next -- so it's next M. What the economist calls the Civits (ph), Colombia, Indonesia, Vietnam, Egypt, Turkey -- even Egypt now, Turkey and South Africa.

CAVUTO: Egypt now?

SORRELL: Yes. I think -- well, there is a view in relation to the Middle East that there will be short-term turbulence but long term increased growth. I was down in the Business Council in Washington. And we had a session on the Arab Spring and what the implications are. And despite the significant uncertainty, I think the general view -- not a view maybe that I would share -- the general view is that in the long term, that the collapse of some of these regimes will lead to greater economic progress.

CAVUTO: But they keep collapsing. Look at Syria is in this. Yemen is in this. Libya who knows. Egypt still doesn't have a government.

SORRELL: I agree that there is lot of uncertainty. I think it probably increases the risk. And therefore it is a negative in terms of the risk/reward ratio in relation to the Middle East. But having said that, there are a lot of people that believe that these political changes, in the longer run, will result in higher growth rates. So I would say on balance people were more optimistic, paradoxically, than maybe I would have been or, indeed, you, by your questions, are implying that you are.

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