5 ms·

There are two issues that are causing this: (1) Sarbanes-Oxley has made life harder for public companies, so companies are waiting longer, getting bigger, and

by csense 11y ago

There are two issues that are causing this: (1) Sarbanes-Oxley has made life harder for public companies, so companies are waiting longer, getting bigger, and giving more of their returns to pre-IPO investors. (2) QE means there's a lot of money trying to chase returns, leading to asset bubbles and volatility as investors bid against each other.

jeanduluoz 11y ago
Absolutely agreed on (2). However, to follow that up, that should be leading to bubbles in both private and public equities (which it has). Ultimately, QE does nothing to stimulate the economy, only artificially pumping assets we use as metrics for the economy. Ultimately information will be passed through prices as institutional traders start to agree that fundamental values are lower, and more QE will start to actually damage equities, rather than pumping them as we've seen. So cheaper credit affects private and public equities equally. But that's not what we're seeing here - public equities are at lower valuations than private. I believe that is because PE is substantially less sophisticated relative to public markets. There is no way to short assets, holding periods are 3-7 years, and the method of transaction is cumbersome and antiquated. Compared to public markets, PE has more information asymmetry, less efficiency, lower liquidity, fewer participants, and no easy way of ratcheting down valuations until the next sale. So QE has pumped up PE even more than public equities, and we see that as privately valued firms struggle after going public.
- tostitos1979 11y ago
  I am genuinely worried if assets such as real-estate will deflate once we get to normal interest rates (which I suppose will happen around the time I die). As someone who is house poor, I can see an asset that is bubbilicious but I feel I have no choice but accept the distortion of the market.

by csense 11y ago

jeanduluoz 11y ago

Absolutely agreed on (2). However, to follow that up, that should be leading to bubbles in both private and public equities (which it has). Ultimately, QE does nothing to stimulate the economy, only artificially pumping assets we use as metrics for the economy. Ultimately information will be passed through prices as institutional traders start to agree that fundamental values are lower, and more QE will start to actually damage equities, rather than pumping them as we've seen. So cheaper credit affects private and public equities equally. But that's not what we're seeing here - public equities are at lower valuations than private. I believe that is because PE is substantially less sophisticated relative to public markets. There is no way to short assets, holding periods are 3-7 years, and the method of transaction is cumbersome and antiquated. Compared to public markets, PE has more information asymmetry, less efficiency, lower liquidity, fewer participants, and no easy way of ratcheting down valuations until the next sale. So QE has pumped up PE even more than public equities, and we see that as privately valued firms struggle after going public.

tostitos1979 11y ago
I am genuinely worried if assets such as real-estate will deflate once we get to normal interest rates (which I suppose will happen around the time I die). As someone who is house poor, I can see an asset that is bubbilicious but I feel I have no choice but accept the distortion of the market.