2020 Equity Risk Premium Risk-free Rate 
Musings on Markets
JANUARY 21, 2023
In 2022, we needed that reminder more than ever before, especially after markets came roaring back from the COVID drop in 2020 and 2021. We invest in equities expecting to earn more than we can make on risk free or guaranteed investments, but the risk in equities is that actual returns can deviate from expectations.
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.
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Musings on Markets
JANUARY 20, 2021
With equities, the metric that has been in use the longest is the PE ratio, modified in recent years to the CAPE, where earnings are normalized (by averaging over time) and sometimes adjusted for inflation. Note that nothing that I have said so far is premised on modern portfolio theory, or any academic view of risk premiums.
Musings on Markets
MARCH 25, 2021
The first quarter of 2021 has been, for the most part, a good time for equity markets, but there have been surprises. The first has been the steep rise in treasury rates in the last twelve weeks, as investors reassess expected economic growth over the rest of the year and worry about inflation. for 2021 and inflation of 2.2%
Musings on Markets
FEBRUARY 10, 2021
Cost of raising funds (capital) : Since the funds that are invested by a business come from equity investors and lenders, one way in which the hurdle rate is computed is by looking at how much it costs the investing company to raise those funds. But what if the company is looking at a project in Nigeria or Bangladesh? for Ford).
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
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.
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