STOCKS’ PURSUIT OF HAPPINESS: IGNORE EVERYTHING, EVEN THE BASIC LAWS OF FINANCIAL GRAVITY - JustDario

STOCKS’ PURSUIT OF HAPPINESS: IGNORE EVERYTHING, EVEN THE BASIC LAWS OF FINANCIAL GRAVITY - JustDario: The discounted cash flow (DCF) valuation model is a fundamental tool used in finance to estimate the intrinsic value of a company based on its expected future cash flows. It is based on the “time value of money” — the basic law of finance (a dollar received in the future...

 

 The discounted cash flow (DCF) valuation model is a fundamental tool used in finance to estimate the intrinsic value of a company based on its expected future cash flows. It is based on the “time value of money” — the basic law of finance (a dollar received in the future is worth less than a dollar received today). Now, when interest rates rise, the discount rate used in the DCF calculation increases, which in turn lowers the present value of future cash flows, potentially decreasing the overall valuation of the company. Conversely, when interest rates decrease, the discount rate decreases, leading to a higher present value of future cash flows and potentially increasing the company’s valuation, right? Well, apparently in the past 3 months, the rules have changed and this is not true anymore…

 

 As if what I described so far was not enough, stocks are also ignoring the loudest warning you can find in a macro environment: gold and rates rising at the same time. What does this mean? Risk of monetary debasement (in-depth analysis: AFTER #BITCOIN DID IT, NOW #GOLD IS SOUNDING THE ALARM).

 

 I keep hearing people talking about stocks’ melt-up here and there. Yes, it can happen if central banks do not stop printing money as if there is no tomorrow and monetizing the government’s drunken sailors’ out-of-control spending. However, I am not really sure that such a bullish scenario for your finances is a good thing, as the chart below shows.

 

 Furthermore, if this type of scenario starts becoming realistic, would you expect the US Government to choose to keep the illusion of a booming stock market while losing its very lucrative and powerful role as the world’s reserve currency? I hardly think so, although nowadays nothing would surprise me anymore, considering the level of madness we are experiencing.

 

 

STOCKS’ PURSUIT OF HAPPINESS: IGNORE EVERYTHING, EVEN THE #BASIC #LAWS OF #FINANCIAL #GRAVITY - JustDario https://t.co/Q1l47Ay6CL #WEIMARREPUBLIC

I am not really sure that such a bullish scenario for your finances is a good thing, as the chart below shows@DarioCpx pic.twitter.com/IvzlT3Dcu8

— Guillermo Ruiz Zapatero (@ruiz_zapatero) April 9, 2024