To: JZGalt who wrote (2682 ) 7/6/1999 12:31:00 PM From: Chuzzlewit Read Replies (1) | Respond to
Dave,how do you justify a p/e of < 30 for these stocks last year when interest rates were 4.75% and now p/e's > 50 when interest rates are hovering around 6%? In other words, the outcome of the projection for a stock with interest rates at 1% is almost twice that of interest rates at 2%. Now if you think about it, isn't that just a bit silly? One final point. Stocks in general have outperformed in periods of inflation in the 1970's when they had pricing power and when the make up a significant part of the indexes. do have pricing power during inflationary periods, although there tends to be a lag between the onset of inflation and the manifestation of pricing power.Getting back to the impact of interest rates, typically I subtract the real interest rate (interest rate - inflation) from the projected growth number before calculating a PEG based on forward 12 month eps.
