Friday, January 27, 2017

Inflation and valuation

There is a great article in the WSJ about inflation and valuation. The bottom line is:
- Reflation supports corporate earnings despite higher wages since those wages are spent,
- but it negatively impacts multiples through increase in discount rate, that can offset higher profits.
- "If it gets near 4% FED's really behind the curve" to cool down the economy that doesn't help corporate profits.

This chart illustrates the historic relationship.  

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