“V”on the Dow/S&P complete - are we missing something ? #Threads
Strength of USA I guess -
the fact that market now knows in forever times to come (ever ever) other than a planet destroying alien invasion - basically anything earthly devastating will be handled well by the Fed.
Strength of USA I guess -
the fact that market now knows in forever times to come (ever ever) other than a planet destroying alien invasion - basically anything earthly devastating will be handled well by the Fed.
The long term potential of USA is forever protected by the Fed’s influence-print money forever without affecting US dollar strength->the equity risk premium to compensate for uncertainty of earnings is lower -> equities just became a less riskier asset class than ever before
Since we now essentially have a fed blanket and us govt protection from any major permanent drawdown when u purchase equities (assume well diversified equity ETF) - its a no brainer that equity would deliver the best returns commensurate to risk hands down
So technically, equity risk premiums crashed and intt rates crashed as well that results in significantly lower discount rate (CAPM) in the DCF mechanism - so cash flows short term are affected but terminal values in dcf models are still unaffected even enhanced.
So with low intt rates & discounting factors maybe it can be justified that intrinsic values of co’s have actually gone up even though earnings have taken a hit in the short term but equity as an asset class is less riskier forever thanks to the fed’s implied role of saviour 🙌🏻
So is the market looking absolutely crazy high ? Ofcourse yes .. are there reasons for it to fall - yes there are many fundamental technical and rational reasons. But are there NO plausible reasons for it to rise - NO .
There are many reasons for the euphoric rally - including liquidity / economic revival / momentum / speculation/ but it is my best guess that inherently - “Equity” as an asset class at least US equities ( in this Trump admin at least) appears to be fundamentally much less riskier
Through historic action, US secured its long term growth-magical for US equities, but emerging mkts don’t have that luxury in this world order-they continue to face overwhelming economic & social crisis issues while still rising from time to time on promise of ever eluding growth
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