In this instance, with this fast of a move in long-term yields, yes I do.
Must be nice to have theories with no real world proof required. Ever considered being a journalist instead? Or the related profession of fiction writer.
Ha not everything is random. Certain changes in the macro environment versus expectations affect equity values. And not all equity values hinge on the same variables. One other piece Iāll add- itās not just the speed of the increase, but the speed of the increase versus expectations. No one expected long term rates to rise that fast. If they level out, Iām betting high valuation tech stocks will rebound quickly.
At the end of the day, all that matters in finance is cash flows. If interest rates drop to near 0 and expectations are that they will remain there, of course valuations will be high as the discount rate is also low. But all youāre doing is paying up for the same stream of cash flows as before. When interest rates unexpectedly spike, that same stream of cash flows is suddenly worth less. The PV (based on consensus discount rate) of currently expected cash flows is your cost basis. At the root, equity returns are derived from a delta in cash flows from consensus expectations (+ or -), and the discount rate you earn over the life of the investment thatās imbedded in the PV.
You can call this academic theory all you want, but everything else feeds into these inputs to drive equity returns.
Letās bet on it. If tech stocks rebound and yields still tick higher, you owe me a dollar.
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Itās all what happens versus expectations. If they spike higher to say 2% (the 10yr) in the next week and tech takes off to the upside, I will eat my sock.
Now we have a testable prediction!
Just giving you a hard time. But you may be over estimating the ability to understand short term changes in stocks. We all bring our story and then find the data to prove our story. My point with the jokes is just to introduce a little humility 
In general, I follow the quant crowd. They tend to have explicit assumptions and evidence to support it. And unfortunately I havenāt seen any of them find support for the consensus view of rates and valuation impacts when it is investigated rigorously, controlling for the relevant variables the best we can. But of course, they bring their prior stories to the analysis too. The interesting thing in this case, is most expect to find the story you are using. Which makes it very interesting evidence, to me at least updating my posterior accordingly
agree with isthereany. all investing is dcf, but issue is its all based on assumptions and opinions. and you know what they say about opinionsā¦ opinions are like ā ā ā ā ā ā ā everyone has one and they all stink.
read this excerpt form buffett and munger where buffett poitned it outā¦ munger did counter that the worst mistakes had detailed analysis built on wrong premise. so even if theoretically investing is all dcf, in actuality, many mistakes are derived from it due to wrong assumptuons. enjoy:
What do you think of discounted cash flow (DCF) models?
Buffett: All investing is laying out cash now to get some more back in the future. The concept of āa bird in the handā came from Aesop in about 600 BC. He knew a lot, but not that [he lived in] 600 BC. He couldnāt know everything. [laughter] The question is, how many birds are in the bush? What is the discount rate? How confident are you that youāll get [the bird]? Et cetera. Thatās what we do. If you need to use a computer or calculator to figure it out, you shouldnāt [buy the investment]. Those types of [situations] fall into the ātoo-hardā bucket. It should be obvious. It should shout at you, without all the spreadsheets. We see something better.
Munger: Some of the worst business decisions Iāve seen came with detailed analysis. The higher math was false precision. They do that in business schools, because theyāve got to do something.
absolutely high rates matter as a function of dcfing. at the end of the day. the higher risk free rates are, the higher i am likely to invest in risk free ā ā ā ā . im not the type of guy that goes all in all the way. i like to take my time like usher, and take it slow.
Thatās it Nerdy, Iām getting the book outā¦
hes right tho. the spread between spy yield and 10 year is negativeā¦money managers shifting funds around
the brobible?
Do you need any more evidence you are wrong than nerdy agreeing with you? I mean Cmon, thatās way more convincing than a scatter plot
I got a question for you - and you have to answer without looking up the past - trust me, my boy @rawraw gonna know if you cheat, and then you can bet your bottom dollar Iām coming for that CFAā¦ Soā¦
The year is 2006 (I think) and hurricane Katrina just wiped out 75% of our offshore oil production.
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What happened to oil prices?
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You have a million dollar futures account - and Iām the devil - I offer you the chance to either short or long 1 million worth of 1 month oil futures, you canāt close the trade until expiration. What would you do? Assume youāre making the trade the very second before the 75% oil production headline hits all of our BSD BBG terminals. You know what the future headlines say because Iām the devil and Iām allowing you to see the futureā¦
edit: apologies, katrina hit land August of 2005 actually. Still though, answer my question.
Thank you for the question. Itās an important one. When I was a boy in Bulgariaā¦
Yeah, I hear you on that. I used to think markets were rational tooā¦ and then my mom got a job.
hahaha my man
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āTen year yields jump to highest levels in over a yearā
Nasdaq only down 50 bps.
See?
ā¦ all that matters is what happens versus expectations. The sharp rise recently was unexpected, and repriced some high flying names. Nothing extraordinary, surprised itās causing so much controversy here.
Itās weird rates continued to go up but my growth names went up too. Think their DCF model has a formula error?
I guess I havenāt been clear- itās all what happens vs. expectations. My point is that the spike in long term yields was unexpected, therefore stocks with a large percentage of their cash flows far down the road took a big hit. A slow grind higher in yields may be priced in at this point. Also, at the risk of stating the obvious- interest rates arenāt the only thing that affect equity values. In a vacuum, all else equal, what Iāve said is 100% true. But other forces can outweigh a rise in yields of course. For the recent spike in yields, I believe that was the driving force of the sell off as nothing else significant macro-wise changed.