You have that backward cheif,...... rates topped out the week of Oct 12 of 1981 at 14.59 on the 30 year US
Treasury bond and 16% on the US Treasury 10 year note .
Henry Kaufman of Solomon.... (Solomon ran the bond market then and created the Mortgage backed security)
which lead to a massive expansion of debt instrument trading and securitization of mortgages and then
numerous other debt of all type that could be turned into a sell-able security and sold to Pension funds,
insurance companies, Reinsurance companies, endowment funds, sovereign wealth funds, Private Equity,
Hedge funds, high Net worth individuals, Major Investment banks and ultimately the general public.
anyway Henry Kaufman, chief economist of Solomon Brothers came out with a very major position white
paper in August of 1982 says that the tide had turned in interest rates and they were now in a long term
downtrend...... 60 % of the entire price appreciation in the SPX from 1981-82 to 2007 can be attributed to PE
multiple expansion as rates went from 14.6% on the 30 year, 16 + on the 10 year treasury and a Fed Funds
rate that was 19.5% in late 1980..... TBills were up to near 20% , home mortgages were up near 20% at
the peak back in 1981. We had friends who moved to Houston and paid that kind of rate on their mortgage.
(20 % of the price appreciation of stocks over the entire secular bull market were due to stock buy backs,
and the final 20% was organic actual growth of earnings.)
John
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