The scarcity argument eating itself is the part worth sitting with, the bottleneck that justifies the multiple is inflationary, the inflation pressures the discount rate and the discount rate compresses the NPV of the cash flows the multiple was pricing.
Duration is a property of the price you paid, not the quality of what you bought. Best semiconductor company on earth still carries 20 years of rate sensitivity at 35x. The fundamentals and the math are answering different questions simultaneously.
Although hard to quantify, financial repression seems a high likelihood given this admin and how much the economy is tied to the stock market.
Of course, sequencing matters. Does YCC only appear after a significant drop in the stock market? Or is it already being considered as a preventative measure.
Love it, 100% agree, higher yields and bond vol additionally hurts equities more short term through collateral/leverage chain (for example multi strats ability to lever up)
Thank you Campbell. One of the best write ups ever!
Great post, no one learns anything from 2021-2022 is the lesson!
For too long people haven’t been watching credit, equities can keep getting drunk off narratives but credit will force people to sober up…
Smartest guys in the room are the bond guys…
Always have been. Equity tells you a story, rates tell you the price of believing it.
Awesome; how do you tell a story according to BP?!
For an article about the risks in AI investment it really reads like AI
The scarcity argument eating itself is the part worth sitting with, the bottleneck that justifies the multiple is inflationary, the inflation pressures the discount rate and the discount rate compresses the NPV of the cash flows the multiple was pricing.
Duration is a property of the price you paid, not the quality of what you bought. Best semiconductor company on earth still carries 20 years of rate sensitivity at 35x. The fundamentals and the math are answering different questions simultaneously.
Although hard to quantify, financial repression seems a high likelihood given this admin and how much the economy is tied to the stock market.
Of course, sequencing matters. Does YCC only appear after a significant drop in the stock market? Or is it already being considered as a preventative measure.
Love it, 100% agree, higher yields and bond vol additionally hurts equities more short term through collateral/leverage chain (for example multi strats ability to lever up)
Kudos.
Great piece, resonates with what Currie has been saying in some interviews recently
I don't get it, a stock may be 40 PE today but with 40%/y EPS growth it will be at 20x in 2 years, so is the duration really 40 years in that case?