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Fed ‘LOLables’: Nomura’s McElligott On When Rising Real Rates Will Become A Problem
When it comes to client inquiries, Nomura's Charlie McElligott hears the following more than any oth
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If higher rates are accompanied with higher expected growth, it is neutral for valuations. Both r and g increase, so denominator r – g is unchanged.
If a stock already has very high expected growth, so high that expectations can’t really go higher, that’s a problem. ZM etc.
This is the story line that I am glad you have your finger on the pulse.
Thanks Mr H
counter-cyclical, pro-growth fiscal stimulus? makes it sound like everything is OK and now were ready to press the economy a bit and hope it doesnt “overheat”. laughable idea when you look at aggregate spending and income the past few months….view it through the lens of 25% refuse to vaccinate and and a lower than necessary mask compliance and the usual “hope for growth in th 2H”. the massive fiscal stimulus is more like trying to fill the bathtubwhle the drain plug is missing. get the u6 rate under 9% alongside this level of stimulus and we’ll talk inflation, imho
sympathize with jyl above. higher real rates with higher breakevens not a concern, higher real rates with falling breakevens (the real driver/story in late 2018) would be problematic. not sure why Muir using 2y TIPS, pretty technical market…5y5y or 10y breakevens more relevant i think.
if i could post a chart here i would show you spx forward p/e vs 5y5y breakeven minus 10yr real yield and the story would be clear