Musings on Markets
AUGUST 5, 2023
If you have been reading my posts, you know that I have an obsession with equity risk premiums, which I believe lie at the center of almost every substantive debate in markets and investing. That said, I don't blame you, if are confused not only about how I estimate this premium, but what it measures.
Musings on Markets
SEPTEMBER 27, 2022
In a third post on July 1, 2022 , I pointed to inflation as a key culprit in the retreat of risk capital, i.e., capital invested in the riskiest segments of every market, and presented evidence of the impact on risk premiums (bond default spreads and equity risk premiums) in markets.
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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).
Musings on Markets
MAY 6, 2022
There are three possible explanations for the divergence: Short term versus Long term : The consumer survey extracts an expectation of inflation in the near term, whereas the treasury markets are providing a longer term perspective, since I am using ten-year rates to derive the market-implied inflation.
Musings on Markets
JANUARY 17, 2024
To capture the market's mood, I back out the expected return (and equity risk premium) that investors are pricing in, through an implied equity risk premium: Put simply, the expected return is an internal rate of return derived from the pricing of stocks, and the expected cash flows from holding them, and is akin to a yield to maturity on bonds.
Musings on Markets
JANUARY 8, 2022
Most of the variables that I report are micro variables, relating to company choices on investing, financing and dividend policies, or to data that may be needed to value these companies. I extend my equity risk premium approach to cover other countries, using sovereign default spreads as my starting point, at this link.
Musings on Markets
JANUARY 21, 2023
The first is the dividends you receive, while you hold stocks, a cash flow stream that provides a measure of stability to investors who seek it. It too requires estimate for inputs, but the range of error is magnitudes smaller than with historical premiums. Actual Returns Your returns on equities come in one of two forms.
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