Sea Change
The Memo by Howard Marks
The Effects of Declining Interest Rates on Asset Values
As interest rates fall, valuation parameters such as PE ratios and enterprise values rise. By lifting asset prices, they create a wealth effect that makes people more willing to spend. Think about a buyer who employs leverage in a declining rate environment. He analyzes a company, concludes that he can make 10% a year on it, and decides to buy it.
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