Musings on Markets

JANUARY 31, 2024

In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital.

Equity 82

Equity Book Value Start-ups Corporate Finance 82

Musings on Markets

MAY 6, 2022

It is precisely because we have been spoiled by a decade of low and stable inflation that the inflation numbers in 2021 and 2022 came as such a surprise to economists, investors and even the Fed.

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

Musings on Markets

MAY 24, 2021

As we approach the mid point of 2021, financial markets, for the most part, have had a good year so far. The graph below contrasts the expected inflation rates from the Michigan survey with the expected inflation rate from the treasury markets. Louis estimates for inflation rates exceeding 2.5%

Treasury 55

Treasury Start-ups Risk Premium Price to Book 55

Musings on Markets

JANUARY 19, 2022

Leading into 2021, the big questions facing investors were about how quickly economies would recover from COVID, with the assumption that the virus would fade during the year, and the pressures that the resulting growth would put on inflation.

Risk Premium 99

Risk Premium Risk-free Rate Start-ups Equity 99

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%

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

Musings on Markets

JULY 25, 2023

Investors in Saudi Arabia are still exposed to significant risks from political upheaval or unrest, and may prefer a more comprehensive measure of country risk. In 2022, North America and Western Europe scored highest on the democracy index, and Middle East and Africa scored the lowest.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

JANUARY 28, 2025

It was an interesting year for interest rates in the United States, one in which we got more evidence on the limited power that central banks have to alter the trajectory of market interest rates. We started 2024 with the consensus wisdom that rates would drop during the year, driven by expectations of rate cuts from the Fed.

Banking 70

Banking Treasury Risk Premium Start-ups 70

Equidam

APRIL 22, 2025

10] , [23] , [2] Discount Rate: The rate used to discount future cash flows is typically the cost of equity, calculated via the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium. [23] 23] Risk-Free Rate: Tied to government bond yields (e.g.,

Discounted Cash Flow 64

Discounted Cash Flow Terminal Value Marketability EBITDA 64

Equidam

APRIL 22, 2025

2] Startups typically lack significant historical financial data, often operate with negative profits initially, rely heavily on private equity or venture capital rather than traditional bank loans, and face a much higher risk of failure. [1] This premium rises when perceived market risk increases. [27]

Discounted Cash Flow 52

Discounted Cash Flow Marketability Risk Premium Start-ups 52