You need a PLUS account to view this content. Try one month of PLUS for FREE.
Already have an account? log in
Kolanovic: Real Rate, Stock Valuation Disconnect ‘Increasingly Unsustainable’
It's a familiar refrain: The re-rating behind 2023's US equity rally is incongruous with elevated real rates.
I'm sympathetic to that line of reasoning. If there's a bear case I buy, it's that one. Real yields are (or usually are) kryptonite for stocks, and particularly for richly-valued stocks.
Given that, rapid valuation expansion in the face of relentlessly rising reals is counterintuitive to the point of being difficult to countenance. The simple figure below illustrates the point.
In A
The willingness of people to pay up for all kinds of things like cars, houses, delivery services, air fare and the list goes on and on might extend to a subset of stocks as well. we will only know after the fact how long this will continue.
What we might realize, like we have with many other things, that we were getting a “bargain” before and some items are settling on their new higher prices. As I have noted before about the high prices for everything in Vegas. I must now realize that the good old days are never coming back and people see value at the current prices and are willing to pay them. I remember when Def Lepard was a hot act in the mid eighties. Concert tickets for their shows in stadiums and arenas were about $50. in the early 90’s I saw them for free in a Walmart parking lot where they were playing a store opening. They and other acts just like them now play to small but still decent sized venues for $200-300 a pop. People see the value in this. can’t explain it but that’s the way it is.