> People can see this easily in the case of bonds, whose value is normally affected only by interest rates. In [other cases], other very important variables are almost always at work, and that means the effect of interest rate changes is usually obscured.
In the case of bonds, it is just a mathematical identity, since the the interest rate can be nothing other than a relation between the face value and current price.
In all the non-tautological cases, Buffet admits that the effect is "obscured". Which is to say that it is just another reasonable sounding humanities-theory that is difficult to check empirically.
I guess it might be difficult to get numbers on how many people are playing the stock market and by how much, but you might be able to get that data from individual brokerages or looking at the number of brokerages and hedge-funds and checking their publicly filed financial reports.
we can consider 'value' but also recognize that actual market price is another thing. real estate prices can continue to go up and at times actually have gone up in environments where interest rates were rising.
as Buffet points out, there are additional important variables.
That's not true for at least the last two asset bubbles. Interest rates were 4-5% leading up to '07 housing bubble and 5-6% leading up to '00 stock market bubble. Inflation was mostly higher than now, in the 2-4% range.
As Warren Buffett explains:
"[Interest rates] act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull. That's because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from government securities. So if the government rate rises, the prices of all other investments must adjust downward, to a level that brings their expected rates of return into line. Conversely, if government interest rates fall, the move pushes the prices of all other investments upward. The basic proposition is this: What an investor should pay today for a dollar to be received tomorrow can only be determined by first looking at the risk-free interest rate.
Consequently, every time the risk-free rate moves by one basis point--by 0.01%--the value of every investment in the country changes. People can see this easily in the case of bonds, whose value is normally affected only by interest rates. In the case of equities or real estate or farms or whatever, other very important variables are almost always at work, and that means the effect of interest rate changes is usually obscured. Nonetheless, the effect--like the invisible pull of gravity--is constantly there."
Source: "Mr. Buffett on the Stock Market," November 22, 1999 -- http://archive.fortune.com/magazines/fortune/fortune_archive...