Economy Flashcards
5 drivers of inflation
- Global supply chain shocks
- Boomers will start to spend money
- Expensive regulation and environmental interests
- Retreat from globalization restrict capital
- Russian invasion of Ukraine
Why does a firm’s value drop with inflation
The firm’s value is based on future cash flows discounted back to the present. If the discount rate increases, the PV of future cash flows drops
What determines the discount rate
The return investors expect or the cost of borrowing money. When valuing stocks, it’s the risk free rate of return that could be earned instead of making the investment (e.g. 2 year T-bill)
Source of strength for high yeild bond market in 2022
Few defaults
Loose monetary policy and low interest rates
Limited number of matirities cominf due
Performance of high yeild bonds in 2022
Limited appreciation due to fact that ave bond price hovering above par. Still attractive relarive to investment grade because of high coupon and lower interest rate due to shorter dirations than investment counterparts (good in period of rising rates)
Whats attractive about commodity business in inflationary environmenr
Pricing power
Strong balance sheets
Dividends
Discuplined capital allocation
Where was growth in Commercial Real Estate (cre)
Multi family vs retail and commercial, hospitality. Growth driven by population and job growth
What instigated use of Fiat money
The Civil War had begun, and his government was forecasting $540 million in annual war spending — against a paltry $32 million in tax revenue. Creditors were becoming wary of lending the difference to a government whose very future was uncertain.
Legal Tender Act in February 1862
bringing fiat money to the U.S. Unlike other forms of federal debt, they would not pay interest nor have a maturity date. And unlike the banknotes in use at the time, they would not be issued by private banks expected to hold commensurate gold in their vault.
