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Don't you think that companies are just reacting to the fed/bank of england etc keeping rates at 300 year lows? https://www.bankofengland.co.uk/-/media/boe/fil

Don't you think that companies are just reacting to the fed/bank of england etc keeping rates at 300 year lows? https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy/baserate.xls?la=en&hash=EEB8729ABFFF4B947B85C328340AE5155A99AD0F https://www.bankofengland.co.uk/-/media/boe/files/monetary-p...

alexpetralia 6y ago
Yes, the simple fact is that an optimal capital structure in the current environment benefits heavily from debt because a lower cost of debt means a lower cost of capital.
QuesnayJr 6y ago
If central bank rates were too low, we would see inflation, but we don't. Rates are so low because savers want to save more than borrowers want to borrow. Corporations are just taking advantage of the large pool of savers that's already out there.
- freedaftimagine 6y ago
  Rising asset prices don't count as inflation to you?
  - mrep 6y ago
    Not OP, but I don't see any data suggesting that assets are inflating. For real estate, inflation adjusted price per square foot hasn't changed for most of the US [0] (west coast admittedly has ballooned but that's because their cities are built in valleys with a fixed amount of land and restrictive zoning causing a fixed amount of housing and thus bidding up home prices; not a problem for most of the country though). As for equities, Annualized S&P 500 Return (Dividends Reinvested) from 2005-2020 are 6.738% [1] versus 7.690% for 1990-2005 [1]. Or are you talking about another asset? [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/ [1]: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
- toomuchtodo 6y ago
  Central banks are creating trillions of dollars of fiat out of thin air to push down interest rates to their targets. While there is an enormous amount of capital chasing yield, contributing to yield compression, central bank monetary policy is the primary cause of zero or negative interest rate policy.
- amanaplanacanal 6y ago
  I suspect we have been saved from massive inflation mostly by Moore’s law. The prices for computing and telecom have been going down massively for the last few decades, and that has been enough to offset the higher prices for things like health care and education. When that comes to an end, so will our low inflation environment. Of course the other variable is that the world uses the dollar as their reserve currency. If that comes to an end all hell will break loose.

alexpetralia 6y ago

Yes, the simple fact is that an optimal capital structure in the current environment benefits heavily from debt because a lower cost of debt means a lower cost of capital.

QuesnayJr 6y ago

If central bank rates were too low, we would see inflation, but we don't. Rates are so low because savers want to save more than borrowers want to borrow. Corporations are just taking advantage of the large pool of savers that's already out there.

freedaftimagine 6y ago
Rising asset prices don't count as inflation to you?
- mrep 6y ago
  Not OP, but I don't see any data suggesting that assets are inflating. For real estate, inflation adjusted price per square foot hasn't changed for most of the US [0] (west coast admittedly has ballooned but that's because their cities are built in valleys with a fixed amount of land and restrictive zoning causing a fixed amount of housing and thus bidding up home prices; not a problem for most of the country though). As for equities, Annualized S&P 500 Return (Dividends Reinvested) from 2005-2020 are 6.738% [1] versus 7.690% for 1990-2005 [1]. Or are you talking about another asset? [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/ [1]: https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
toomuchtodo 6y ago
Central banks are creating trillions of dollars of fiat out of thin air to push down interest rates to their targets. While there is an enormous amount of capital chasing yield, contributing to yield compression, central bank monetary policy is the primary cause of zero or negative interest rate policy.
amanaplanacanal 6y ago
I suspect we have been saved from massive inflation mostly by Moore’s law. The prices for computing and telecom have been going down massively for the last few decades, and that has been enough to offset the higher prices for things like health care and education. When that comes to an end, so will our low inflation environment. Of course the other variable is that the world uses the dollar as their reserve currency. If that comes to an end all hell will break loose.