News for hackers. Stuff that matters.

A comment on U.S. Inflation Accelerates to 40-Year High. Parent comment

Re:U.S. Inflation Accelerates to 40-Year High by dcolkitt on Thursday February 10, 2022 @12:07PM (#30289210)
> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value.

This is only true for cash flows discounted by the risk-free rate. The discount rate of risk assets comes from the risk-free rate with a risk premium added on top (probably 6% or so today for the average blue chip equity).

[ Parent | on HN ]
Re:U.S. Inflation Accelerates to 40-Year High by RC_ITR on Thursday February 10, 2022 @12:26PM (#30289520)
Yeah, I mean, talk to any stock-picking hedge fund and ask them how much the 10Y treasury yield factors into their discount rate (I'd say not a single one would say it does at all).

Classic HN 'Confidence = knowledge' comment.

[ Parent | on HN ]
Re:U.S. Inflation Accelerates to 40-Year High by recursivedoubts on Thursday February 10, 2022 @12:49PM (#30289888)
i know my gp comment reads w/ a lot of confidence, but I really have no idea what's going to happen

I do believe that even stocks, in the long run, will be discounted against a general opportunity cost and that really low interest rates make small movements really significant in that regard

we'll see

[ Parent | on HN ]
Re:U.S. Inflation Accelerates to 40-Year High by RC_ITR on Thursday February 10, 2022 @02:31PM (#30291260)
The part you're missing is the 'Equity Risk Premium' which historically has behaved independently of the risk-free rate.

https://learn.robinhood.com/articles/5FDKWbZjnNFHfEPYRNhLtE/...

[ Parent | on HN ]