In putting together the upcoming newsletter (free on the site) – I thought I’d share the graphic below released by the FOMC following the last meeting. While “Rates low thru ’14? was the gist of the headline – over 1/3 of the participants see ’15 and beyond as appropriate. The implications are severe from multiple fronts - a few to think about:
- While the case can be made for multiple expansion and the relative valuation of Equities to Fixed Income – there is going to be serious pressure in liability-sensitive corporate America.
- For the long the Index crowd, what happens to equity valuations if higher discount rates are thrown in your DCF model?
- How many greeters can Walmart hire if the baby boomers are forced to work thru retirement based on the fact that they can’t live off the income from their nest egg? Grandma and Grandpa are moving in folks.
- The same baby boomers chasing yield in equities can’t recover from another ’08 – yet they’re being set up for disappointment once again.
We’re in a Balance Sheet Recession, no question about it, and while goons pushing investment products have forward looking views of 3 weeks – lower yields and lower equity multiples are ahead.
Happy Friday… I guess
