Perspectives

In Part 6 of the Cost of Capital series, we discuss one of the main drivers behind current (and likely future) elevated inflation levels: the cost of labor.

In Part 5 of the Cost of Capital series, we posit that the days of Quantitative Easing and easy money are coming to an end and that the US has reached a turning point on inflation and interest rates. We believe this development will pressure equity valuations and drive widening credit spreads.

In Part 4 of our Cost of Capital series, we take a closer look at the dichotomy between inflation and interest rates. We discuss how easy monetary policy and a “cash is trash” mindset have resulted in a decade of declining credit and equity risk premia. A return to reality in the relationship between inflation and interest rates could have a negative effect on asset valuations.

Part 3 in our Cost of Capital series considers potential monetary and fiscal policies to combat rising inflation and the inequality created by a decade of quantitative easing. The effect on the cost of capital of these policies and the implications for asset prices (both equity and fixed income) will likely be painful for investors.

Part 2 in our Cost of Capital series examines the implications of rising inflation on the cost of capital, including an historic look at equity performance in the 1960s and 1970s. This was a period when high inflation increased the cost of capital and equity returns languished despite improving corporate profitability.

In the first in a series on the cost of capital, Gordian employees discuss the impact US monetary and fiscal policy has had on interest rates and asset prices. We then lay the ground work for how these actions may affect future (i) government policies, (ii) asset valuations and (iii) investment decisions.