Musings on Markets
JANUARY 19, 2022
In a post at the start of 2021 , I argued that while stocks entered the year at elevated levels, especially on historic metrics (such as PE ratios), they were priced to deliver reasonable returns, relative to very low risk free rates (with the treasury bond rate at 0.93% at the start of 2021). The year that was.
ThomsonReuters
MAY 6, 2021
The Codification often provides guidance on how to select a discount rate for a particular area of accounting. The Codification may require the use of a risk-free rate in some places and a risk-adjusted rate in others. The risk premium may incorporate factors such as credit risk or market illiquidity.
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Musings on Markets
FEBRUARY 10, 2021
The answer, to me, seems to be obviously yes, though there are still some who argue otherwise, usually with the argument that country risk can be diversified away. In that post, I computed the equity risk premium for the S&P 500 at the start of 2021 to be 4.72%, using a forward-looking, dynamic measure. as mature markets.
Musings on Markets
JANUARY 27, 2022
Put simply, no central bank, no matter how powerful, can force market interest rates down, if inflation expectations stay low, or up, if investor are anticipating high inflation. Note that the decrease in default spreads, at least for the lower ratings, mirrors the drop in the implied equity risk premium during the course of 2021.
Musings on Markets
MAY 6, 2022
Inflation: The Full Story I wrote my first post on this blog in 2008, and inflation merited barely a mention until 2020, though it is an integral component of investing and valuation. In fact, the average inflation rate in the 2011-20 decade was the lowest of the seven decades that I cover in this chart.
Musings on Markets
MARCH 25, 2021
To understand the story and put it in context, I will go back more than a decade to the 2008 crisis, and note how in its aftermath, US treasury rates dropped and stayed low for the next decade. Coming in 2020, the ten-year T.Bond rate at 1.92% was already close to historic lows. for 2021 and inflation of 2.2%
Musings on Markets
JANUARY 30, 2023
The rise in rates transmitted to corporate bond market rates, with a concurrent rise in default spreads exacerbating the damage to investors. Thus, at least in the corporate bond market, the default spread(s) become the market price of risk or risk premium for debt markets.
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