I thought rising rates at the moment would be a negative factor on stocks, just cause the normalization of rates would bring higher interest costs for businesses and a rebalancing towards the increasingly attractive bonds.
Umm, this is kinda big league…
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
Something like that would take a couple years before we could really feel it’s effects. I hope Trump gets it done though; economists have been touting infrastructure for a while now.
Hard to see how trillions in infrastructure investing could possibly be achieved without a meaningful rise in interest rates and very likely inflation. That’s not necessarily a bad thing (hyperinflation would be bad, but a more moderate inflation is ok) provided that it comes along with raised median real wages and didn’t reduce overall employment.
The effect on equities is hard to estimate off the top of one’s head. Interest rate rises are likely to push equities downward, and the duration of equities is a lot larger than most bonds. On the other hand, the spending and wage rises should boost earnings, so there is a positive pressure there.
My sense is that the interest rate effects would dominate in the short term, but after a correction, the earnings effects would kick in. But I’ve been wrong on this kind of stuff before so am open to other arguments if they seem sound.
I don’t think there is any reason to believe the market will adjust one estimate of the future (rates) without adjusting the estimate of growth in cash flows. So it really comes down to which has the larger impact in the formula.
Last I checked, the expected inflation as judged by treasury and tips was up. So part of the current stock performance since announcement includes a higher discount rate.
Also, I tend to agree with Damadoran analysis of drivers of discount rates. And I’m not so sure the rates will go extremely high unless growth also goes high (going back to the opposing variables). Just my two cents
Right. And even broader, punching anything they have said into a macro model, it just doesn’t make sense. The market seems to like how it *sounds*, even though we have no idea the full picture, how they plan on financing all the big league moves they keep talking.
One big problem – the target of growing global populist rage is income inequality. We believe that this US populist movement is going to result in even MORE profits being distributed to the asset holders?
This is my guess as well. The raising of interest rates along with the last lingering effects of the great recession may bring a short-term correction, but the normalization of rates is occurring due to a gradual resumption of good business conditions and not due to anti-inflationary measures. I don’t really see how this can be a negative over the medium term. It’s like the final litmus test for a greenlight on the economy. Sure inflation would probably increase, but maybe it wouldn’t be a problem for a number of years. Don’t forget that inflation is one of the indicators that is still underperforming. And the timing of this type of investment with the commodities super cycle bust might mean that over-inflation is even farther away.
After the FOMC meeting ends tomorrow, I’m thinking the market will spike. If they raise rates, it will spike. If they don’t, it will spike. It would probably spike if Yellen went into a coughing fit and keeled over in her seat. Nobody cares about the economy in this market today; except for purealpha of course.
^ Looking forward to the movie If the market crashes and Purealpha makes millions,
Alphie doesn’t care about anything because nothing cares for him. For instance, I heard his mother fed him with a slingshot.
#tragic
That looks about right, market is already going crazy today, as reported P/E now 26.2X, but nobody cares. There’s been years of made up economic and market numbers, it’s part of the disinformation or “post-truth” age in America.
I’m starting to wonder if this is the final mult-year push up to like 32X or whatever, before the collapse. There’s not just the normal business cycle (dotcom, subprime, fed bubble?), there’s also a larger macro-cycle going on here. For decades the S&P has been getting more expensive, even as the US to loses their grip on reality, and GDP growth heads to zero.
The bull market is getting old, it almost certainly pops during Trumps 8yrs. But the larger cycle correcting, that’s truly “the big one”.
Also, I keep entertaining this idea that Yellen does a double hike tomorrow. I mean this is the opportunity she has been dreaming of. She lowered rates and pumped up valuations, but that is a trap, how to raise rates and not crash the late-bull market? This is the perfect time, sneak a double hike in while the market is too blind to care. Then she has room to cut later when the recession comes. Right? Only thing is Trump might be offended, like she is trying to tank “his market”.
She also doesn’t want to tank the market before her term ends I think, which could mean slower rate hikes until her term is up then amageddon!
If some simple rifling is carved along the sides of a baby carrot, ive seen them go a quarter mile when shot out of a slingshot.
i see this as negative.
Pretty strong rally. Most earnings reports beating estimates + talks of tax cuts and deregulation.
reading the prophet today, this was interesting
It’s weird, who could possibly think this is a good time to get long America?
But there’s just so much fake money that has been created. If we get Trump tax cuts, that’s more fake money, to pump up corporate earnings, and bankrupt the USG further. P/E is 26X today, headed to 30X? None for me thanks!