John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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Chip McVickar

To: John Pitera who wrote (18326)	7/14/2016 12:47:30 PM
From: The Ox	1 Recommendation of 33421

In a future environment where interest rates rise substantially..... as they did in the 1970's bond prices will decline in price and the price multiple on equity and indeed all investment will contract. The hurdle rate at which a new plant or business is viable goes higher. I think that the longer we are in the cycle of steadily climbing interest rates, you are correct that the "hurdle rate" rises. So, over time, yes, more than likely we'll see some reduction or contraction in the rate at which new investments are being sought out. At the beginning of this cycle, I think we have a different proposition. Because "stagnant money" was outperforming, more money is being directed into stagnation. As this cycle starts to reverse, at least initially, we have a fertile environment for new investments. Those who have struck first and who've "put money to work" are seeing the benefit of the currently low interest rate environment. They have been able to build relatively cheaply, when too many others are still looking at stagnation as being "more profitable".

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