03-25-2021, 11:06 AM
A P/E of 15 representing a benchmark for value was formulated when the Federal funds rate was 6%. Even then, investors would traditionally pay 20 or more for "blue chips" or "aristocrats."
When interest rates crater 75% and stay near historical lows for more than a decade, asset competition comes into play. Money ends up invested somewhere. It tends to go where the largest potential returns are, which can re-set traditional valuations that were measured against the expectation of treasuries yielding 6%.
I'm not saying everyone should go out and load up their portfolios with junk-rated equities with no revenues to speak of, but TINA is a real phenomenon, and I am not too keen on fighting the Fed. I sold my SPY puts last year pretty damn quick after the Fed opened the money floodgates. There are absolutely zero signals from the Fed of a near-term tightening of monetary policy. All market-directed statements from Powell and Yellen signal exactly the opposite.
When interest rates crater 75% and stay near historical lows for more than a decade, asset competition comes into play. Money ends up invested somewhere. It tends to go where the largest potential returns are, which can re-set traditional valuations that were measured against the expectation of treasuries yielding 6%.
I'm not saying everyone should go out and load up their portfolios with junk-rated equities with no revenues to speak of, but TINA is a real phenomenon, and I am not too keen on fighting the Fed. I sold my SPY puts last year pretty damn quick after the Fed opened the money floodgates. There are absolutely zero signals from the Fed of a near-term tightening of monetary policy. All market-directed statements from Powell and Yellen signal exactly the opposite.