No More Free Money (The Year The Music Stopped)

No More Free Money (The Year The Music Stopped)

Money is no longer free. That simple fact, perhaps more than anything else, explains the tumultuous year it's been for equities, and particularly for growth stocks. This is a critical point. So critical, in fact, that Goldman's David Kostin opened with it in his year-ahead outlook for US equities called, aptly, "Paradise Lost." I'd be remiss not to note (immediately, given recent events) that the rising cost of real, government-backed money goes a long way towards explaining the demise of dub
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5 thoughts on “No More Free Money (The Year The Music Stopped)

  1. the WACC graphic = stellar. on par w/ 2000 WACC and increasing. Assume WACC rate of change / level outcomes are equally a drag / delay like FED rate increases. How much of this is included in either top down / bottom up SP growth assumptions in 2H 2023? – either capital plans or margin will pay (unless capital is free-like again).

  2. WACC from 4% to 6% cuts terminal value in a DCF model by one-half to two-thirds, more or less, and all other things equal. For uber-growth stocks, almost all of the valuation will be in the terminal value.

    Of course, WACC from 6% to 4% increases terminal valuation by 2X to 3X. So if you believe that we are headed for deflation, as Cathie Wood argues, then you might be bullish on uber-growth. That is, if you overlook the “all other things equal” part.

    At some point, we’ll do the cheap money -> soaring valuation thing again, and ARKK’s style will be back in favor. Most of ARKK’s current holdings won’t be – they’ll be wrinkly old has-beens, reminiscing about their go-go-growth days, and raising glasses of prune juice to their departed ilk (“remember COIN, now there was a comely growth story, we almost merged once”).

    1. I doubt we’ll see the cheap money and soaring valuation thing again. It would require so many variables that would not just need to be reversed. We’d have to go back in time to a different US and world economy. That is not happening.

      1. Longer term, the US can frack oil, minimum wage jobs are being automated, and regardless of which party is in control of the US government, they will want to run a deficit budget- in some varying combination of handouts and tax cuts.

        1. That is true, of course. I’m working for an oil company right now, so I am intimately aware of the most modern fracking tools and methods. And the political parties are what they are. But the variables you noted describe just a few bugs in the swarm of variables that all need to be active at the same time to restore the dream-like snapshot in time that was the US economy. In the coming year we’re going to be chomping at the bit to pull the wagon a lot more than in “the good ole days.”

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