You seem to be ignoring supply and demand for the assets themselves irrespective of the asset's value or earning potential. Low interest rates increases demand for asset types like property and equities.
> Low interest rates increases demand for asset types like property and equities.
Interest rates have been low for over ten years.
Interest rates were at de facto 0% in 2015 (and still close to it for 2016) while Apple had a sub 10 PE and Microsoft was around a 15-16 PE. Now they have multiples in the mid 30s despite slow growth. The S&P 500 PE is about 40-50% higher than in 2014-2015, with a worse economic situation.
The Eurozone and Japan have had negative real rates across many years in the past without the type of stock market valuations the US is seeing now. One doesn't guarantee the other.
It's obvious this all comes apart at some point. Interest rates at 0% won't prevent that. There's nothing that stops the market from going back to 2014-2015 style valuations. Companies like Snowflake aren't going to be worth $70 billion (~140 times sales) on the backside of this insanity.
Quick, someone dig up the remains of DrKoop.com and do an IPO. Maybe they can be reincarnated as a telemedicine EV maker that sells hydrogen powered big data machine learning HTML5 supercomputer cloudlets that drift downhill via gravity, producing perpetual energy. Or maybe they can just analyze logs and lose a lot of money for a cool $10 billion valuation.
What we have going on now is primarily mania, not low interest rates. The economy in 2015 was healthier than the economy is today, multiples were nowhere near this, and rates were on the floor for many years at that point. So how about we just reset valuations back to when interest rates were close to 0% in 2015, what will that do to the market? It'll crash it big time, that's what.
It's certainly possible that valuations will remain elevated due to forever low rates. That doesn't mean the mania part of it will sustain, that is likely to be temporary. The public market mania is now so far beyond what was previously going on in the private market, companies have collectively switched modes and are rushing for the exits (Snowflake's recent public valuation was six times the private valuation they were fetching in February). WeWork in hindsight should have waited a year to try to IPO, this market would bid them up.
Certainly. But in the end, they are buying stocks in the belief that the price will go up, while the underlying asset, the cash flows, do not seem likely to do so for some time, and not to the extent that the stock prices require. That's pure speculation.
Interest rates have been low for over ten years.
Interest rates were at de facto 0% in 2015 (and still close to it for 2016) while Apple had a sub 10 PE and Microsoft was around a 15-16 PE. Now they have multiples in the mid 30s despite slow growth. The S&P 500 PE is about 40-50% higher than in 2014-2015, with a worse economic situation.
The Eurozone and Japan have had negative real rates across many years in the past without the type of stock market valuations the US is seeing now. One doesn't guarantee the other.
It's obvious this all comes apart at some point. Interest rates at 0% won't prevent that. There's nothing that stops the market from going back to 2014-2015 style valuations. Companies like Snowflake aren't going to be worth $70 billion (~140 times sales) on the backside of this insanity.
Quick, someone dig up the remains of DrKoop.com and do an IPO. Maybe they can be reincarnated as a telemedicine EV maker that sells hydrogen powered big data machine learning HTML5 supercomputer cloudlets that drift downhill via gravity, producing perpetual energy. Or maybe they can just analyze logs and lose a lot of money for a cool $10 billion valuation.
What we have going on now is primarily mania, not low interest rates. The economy in 2015 was healthier than the economy is today, multiples were nowhere near this, and rates were on the floor for many years at that point. So how about we just reset valuations back to when interest rates were close to 0% in 2015, what will that do to the market? It'll crash it big time, that's what.
It's certainly possible that valuations will remain elevated due to forever low rates. That doesn't mean the mania part of it will sustain, that is likely to be temporary. The public market mania is now so far beyond what was previously going on in the private market, companies have collectively switched modes and are rushing for the exits (Snowflake's recent public valuation was six times the private valuation they were fetching in February). WeWork in hindsight should have waited a year to try to IPO, this market would bid them up.