I think a bit of the disconnect here is the timeframes that each of us is contemplating.

Example:
He also says these "ever-declining" interest rates are unlikely to continue. Wrong again. The Fed just forecast not one but three rate cuts next year. So interest rates will decline next year.

Again, looking at the LONG TERM trend in interest rates - they were MUCH MUCH higher 20 years ago, and essentially zero very recently. This LONG term decline in interest rates is probably over (unless you think rates can go negative - which they kind of did). Are rates SLIGHTLY higher now? yes, will they be SLIGHTLY lower by the end of next year? Probably. But in general there is no opportunity for the kind of declines that we saw in the last 40 years.

The market can do almost anything in the short term - (which I define as 3 years or less) - but the basic formulas still hold

Equity Price = (Financial Metric) x (Financial Multiple)

1. Financial Metrics (Sales, Profits) are hard to grow faster than the economy is growing.
2. Financial Multiples seem high and a BIG tail wind (declining rates and tax rates) seems to be turning into a neutral benefit at best(*).

Thus Equity Prices seem at best to be constrained going forward.


(*) Tax rates absolutely could be cut even more, in fact they could go to zero I suppose - but I wouldn't bet on it.

tecmo
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