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Guess what, interest rates going down means future cash flows go up! If your cost of capital is lower, your return on investment is: (A) Higher (B) Higher (C)

Guess what, interest rates going down means future cash flows go up! If your cost of capital is lower, your return on investment is: (A) Higher (B) Higher (C) Higher Which one is it, A B or C?

lumost 6y ago
This implies that the interest rate reduction counter-balances the reduction in future cash flows. In an economy with 15-20% unemployment and entire industries on the brink of destruction ( airlines/travel ) this is not a given. If the 5-10 year revenue projections of air-travel are 1/5th of the pre-covid economy, then a small change to cost of capital won't allow you to continue investing as if nothing happened. The risk inherent to Google's bottom line from long-term structural unemployment and lower ad-revenue should outweigh even a 0% cost of capital.
- ozi 6y ago
  FWIW I travelled from LAX to SFO yesterday. Both were much busier than they had been just a few weeks ago. I'm long DAL based on what I saw yesterday.
  - MiroF 6y ago
    I've been aggressively long JETS since the crash, that investment has performed wonderfully.
lubujackson 6y ago
Don't forget how ridiculously over-leveraged almost every big company already is. They are saddled with huge debt and many are struggling to pay the interest on the debt, let alone the principal. So the Fed can force rates to nothing so companies can get more debt to pay down their existing debt, but the point where they are actually profitable gets further and further away. Meanwhile, they get more and more vulnerable to even the slightest increase in rates. Everyone can close their eyes and keep driving faster off this cliff for a while, but best case is we become Japan with 100 year mortgages and a market that is flat for the next 30 years because it is half owned by the government. The real problem is the companies that hit the wall first and go bankrupt suddenly, I think Dave and Busters just announced and October is whispered to be full of incoming bankruptcies. Confidence in stocks won't hold when companies keep randomly dropping 20% in a day. TINA doesn't consider "not losing money" is a very reasonable alternative that people will eventually realize.

Guess what, interest rates going down means future cash flows go up! If your cost of capital is lower, your return on investment is: (A) Higher (B) Higher (C) Higher Which one is it, A B or C?

lumost 6y ago

This implies that the interest rate reduction counter-balances the reduction in future cash flows. In an economy with 15-20% unemployment and entire industries on the brink of destruction ( airlines/travel ) this is not a given. If the 5-10 year revenue projections of air-travel are 1/5th of the pre-covid economy, then a small change to cost of capital won't allow you to continue investing as if nothing happened. The risk inherent to Google's bottom line from long-term structural unemployment and lower ad-revenue should outweigh even a 0% cost of capital.

ozi 6y ago
FWIW I travelled from LAX to SFO yesterday. Both were much busier than they had been just a few weeks ago. I'm long DAL based on what I saw yesterday.
- MiroF 6y ago
  I've been aggressively long JETS since the crash, that investment has performed wonderfully.

lubujackson 6y ago

Don't forget how ridiculously over-leveraged almost every big company already is. They are saddled with huge debt and many are struggling to pay the interest on the debt, let alone the principal. So the Fed can force rates to nothing so companies can get more debt to pay down their existing debt, but the point where they are actually profitable gets further and further away. Meanwhile, they get more and more vulnerable to even the slightest increase in rates. Everyone can close their eyes and keep driving faster off this cliff for a while, but best case is we become Japan with 100 year mortgages and a market that is flat for the next 30 years because it is half owned by the government. The real problem is the companies that hit the wall first and go bankrupt suddenly, I think Dave and Busters just announced and October is whispered to be full of incoming bankruptcies. Confidence in stocks won't hold when companies keep randomly dropping 20% in a day. TINA doesn't consider "not losing money" is a very reasonable alternative that people will eventually realize.