OPINION: As interest rates rise from the lowest level in human history, bankers warn that we’ve likely reached peak asset valuation for a generation. “Interest rates will never be so low again.”
“Don’t it always seem to go that you don’t know what you’ve got ’til it’s gone,” sang Joni Mitchell back in the 1970s.
Some are warning we should brace for further share price declines as corporate profits are squeezed by higher fuel and labour costs, and as companies are forced to pay a higher interest rate on their borrowings. Even more worrying is the fact that many crypto investors took out loans, using their crypto as security. As the value of this security falls, they now face the risk of margin calls, where they either have to top up the value of their security, or risk being sold up.. Private equity firms might like to pretend they’ve escaped widespread write-downs in asset values.
According to the leading banker, however, rising interest rates aren’t the only reason we’ve likely reached peak asset valuation for at least a generation.The push towards globalisation over the past three decades is now slowing, or even reversing, as a result of the intense supply disruptions during the pandemic and Russia’s invasion of Ukraine.
That means profit margins will come under pressure, as labour’s share of GDP rises. This makes it likely that the ratio of corporate profits to GDP will decline from elevated levels.
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