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Strategies & Market Trends : The New Economy and its Winners
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To: 16yearcycle who wrote (540)5/24/2000 1:58:00 PM
From: Greater Fool  Read Replies (1) of 57684
 
There's a LOT that's been different about equity pricing over the last few years. I've heard a lot about "the old rules" not applying anymore.

Some time ago I posted that the markets, being not exactly rational, would have a heavily non linear response to interest rates. If the valuation were entirely rational, interest rates would have very predictable effects on valuation. As we've seen, they don't. Over a series of interest rate increases, we see no effect for a sustained period, then suddenly one rate increase destroys the markets. That's a non linear response. There's no reason to expect that the response to stable or decreasing rates will be linear.

I frankly think what will happen is that the markets will remain down until suddenly investor confidence returns. Unfortunately I have no idea what that trigger will be. I doubt that mere neutral or even positive words from the Fed will do the trick. I think a clear downward bias to interest rates will be needed to bring the rat back to the cheese.
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