Sea Change
The Memo by Howard Marks
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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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