The Stingy News Weekly: 07/09/2023
End of an era
"I show that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period's exceptional stock market performance. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-free rates alone accounts for all of the expansion in price-to-earnings multiples. I argue, however, that the boost to profits and valuations from ever-declining interest and corporate tax rates is unlikely to continue, indicating significantly lower profit growth and stock returns in the future." [Markets]
When will interest rates matter?
"There are all sorts of crazy things going on here when you consider how inverted the yield curve is, the speed of the rise in rates and the absolute level of yields that we haven't seen - at least on the short end of the curve - in decades. So when is it all going to matter?" [Economy]
Value of float
"So, reasonably or unreasonably, I am going to assume that 5% is the point Buffett won't go below for long term rates." [Buffett]
Alternative value metrics
"The researchers showed that these alternative value metrics indirectly exposed the profitability premium and a sector allocation closer to the U.S. market. For example, the hypothetical P/B portfolio had an allocation to the financial sector of 27%, more than twice as much as the U.S. market. On the other hand, the hypothetical portfolio formed on P/CF had a weighting to financials of 16% compared with the market's 13% weighting." [Value Investing]
The smart debt money
"Single B credit has lower returns than BB credit. Our long-standing opinion is that the incremental yield available from lower-rated credit is erased by higher default and down-grade losses. Perhaps the greatest innovation of private credit is that it is not rated. We suspect that if we could get aggregate credit stats for private credit, investors would be concerned by what they found." [Bonds]
No right way
"Every indexer makes judgment calls. Yes, there may be choices that are more sensible than others. But there's no one index-fund portfolio strategy that's right for everyone. Instead, the right portfolio is the one that works for you." [Indexing]
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