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> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. This is only true for cash flo
by dcolkitt 5y ago
> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value.
This is only true for cash flows discounted by the risk-free rate. The discount rate of risk assets comes from the risk-free rate with a risk premium added on top (probably 6% or so today for the average blue chip equity).
- RC_ITR 5y agoYeah, I mean, talk to any stock-picking hedge fund and ask them how much the 10Y treasury yield factors into their discount rate (I'd say not a single one would say it does at all). Classic HN 'Confidence = knowledge' comment.
- recursivedoubts 5y agoi know my gp comment reads w/ a lot of confidence, but I really have no idea what's going to happen I do believe that even stocks, in the long run, will be discounted against a general opportunity cost and that really low interest rates make small movements really significant in that regard we'll see
- RC_ITR 5y agoThe part you're missing is the 'Equity Risk Premium' which historically has behaved independently of the risk-free rate. https://learn.robinhood.com/articles/5FDKWbZjnNFHfEPYRNhLtE/what-is-equity-risk-premium/ https://learn.robinhood.com/articles/5FDKWbZjnNFHfEPYRNhLtE/...