> However, it's important to note that the Fed's regime of low interest rates is temporary and everyone knows this. The general consensus just a few short mont

> However, it's important to note that the Fed's regime of low interest rates is temporary and everyone knows this. The general consensus just a few short months ago was that the Fed would start tapering in September. It did not happen. There are credible observers and market participants who not only believe that tapering is not coming any time soon but that the Fed's asset purchases will actually increase. I don't necessarily agree, but I do believe that the Fed has positioned itself between a rock and a hard place, so I personally wouldn't make too many assumptions about timing and magnitude of increases or decreases in asset purchases. > So yes, the market will discount investments that pay off in 1-2 years at a low interest rate. But since the low interest rates aren't expected to last, we shouldn't expect huge price increases for stocks whose investments will pay off in 5-10 years. You make the mistake of assuming that investors are entirely rational. The empirical evidence clearly demonstrates that this is not the case. You should also consider that many (and perhaps the majority) of the participants in a good number of markets aren't really "investors" as most people define the term. John Williams, the President of the SF Fed, recently addressed asset price bubbles in a presentation[1]. It is well worth a read, and I would point you to the following: "For monetary policy, one implication of theories with endogenous asset price bubbles is that the time horizon over which policy affects the economy may be longer than typically thought. In particular, the policy response to cyclical movements in economic activity and inflation may have effects on investor beliefs and the behavior of asset prices that reach well into the future." [1] http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/Bubbles-Tomorrow-and-Bubbles-Yesterday-but-Never-Bubbles-Today.pdf http://www.frbsf.org/our-district/press/presidents-speeches/...