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After 2009, long term risk free rates continued their secular decline which culminated in March 2020 at an all time low of 0.54% for the 10 year Treasury yield.

After 2009, long term risk free rates continued their secular decline which culminated in March 2020 at an all time low of 0.54% for the 10 year Treasury yield. This was a major factor in the tech story. Rather than valuation being focused on current profits, as is the case for most industrial stocks, valuation for tech is based on expectations of future profits, i.e. growth. When long term interest rates are very low, these future cash flows are not discounted very much. Therefore, good growth numbers for tech in a low interest rate environment resulted in face-melting performance as all of that expected future profit is basically just assigned to the current value of the equity. That era is clearly ending. Long term interest rates hit the all time low and are rebounding in a way that is very distinct from 2009. I would not be surprised if tech stocks fundamentally reprice and never completely recover. Zoom out here: https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS10

Bubble_Pop_22 4y ago
interest rates follow inflation, it's too early to tell if inflation will go back being 4-7% like it was in the 1980s. The Fed for sure wants it at 2%, not 2.5% , not 1.7%...
- nwiswell 4y ago
  What do you mean "too early"? Core inflation has been above 6% since January. The headline number is even higher. The Fed will be raising rates. The question is how far they have to go before inflation subsides, but it is monumentally obvious that long-term interest rates have to lift off. The days of zero-interest overnight rates are over. https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU
  - nostrademons 4y ago
    The Fed needs to raise rates to about 13% to get inflation under control, assuming current inflation of 8%, a 2% inflation target, and that we're already at full output. https://en.wikipedia.org/wiki/Taylor_rule https://en.wikipedia.org/wiki/Taylor_rule Problem is that it's very likely that the Fed can't raise rates to 13% without very serious negative consequences like the government defaulting and the people revolting. My prediction is that they get to 3-4%, the economy breaks, and then they flinch and drop to 0 again. Meanwhile, inflation will continue to accelerate, as real interest rates remain negative. When the currency has depreciated by a factor of 5 or so, total debt levels will become manageable again, and then we might see the Fed persistently raise rates to 20-25% and choke off the inflation. At 20% inflation, it'll take about 9 years to get there, at 8% more than 20 years. If inflation gets to 20% it's very likely to get past 20%, though.
- tbirdny 4y ago
  And if yields rise enough, a lot of money will leave the stock market. TINA will be over.

Bubble_Pop_22 4y ago

interest rates follow inflation, it's too early to tell if inflation will go back being 4-7% like it was in the 1980s. The Fed for sure wants it at 2%, not 2.5% , not 1.7%...

nwiswell 4y ago
What do you mean "too early"? Core inflation has been above 6% since January. The headline number is even higher. The Fed will be raising rates. The question is how far they have to go before inflation subsides, but it is monumentally obvious that long-term interest rates have to lift off. The days of zero-interest overnight rates are over. https://fred.stlouisfed.org/graph/?g=rocU https://fred.stlouisfed.org/graph/?g=rocU
- nostrademons 4y ago
  The Fed needs to raise rates to about 13% to get inflation under control, assuming current inflation of 8%, a 2% inflation target, and that we're already at full output. https://en.wikipedia.org/wiki/Taylor_rule https://en.wikipedia.org/wiki/Taylor_rule Problem is that it's very likely that the Fed can't raise rates to 13% without very serious negative consequences like the government defaulting and the people revolting. My prediction is that they get to 3-4%, the economy breaks, and then they flinch and drop to 0 again. Meanwhile, inflation will continue to accelerate, as real interest rates remain negative. When the currency has depreciated by a factor of 5 or so, total debt levels will become manageable again, and then we might see the Fed persistently raise rates to 20-25% and choke off the inflation. At 20% inflation, it'll take about 9 years to get there, at 8% more than 20 years. If inflation gets to 20% it's very likely to get past 20%, though.
tbirdny 4y ago
And if yields rise enough, a lot of money will leave the stock market. TINA will be over.