Tesla and other unicorn valuations are highly sensitive to changing interest rates
A quick primer on duration risk
In fixed-income parlance, “duration risk” is the risk associated with the sensitivity of the bond’s price to changes in interest rates. Owning a bond is a claim on future cashflows from the debtor: typically the investor receives regular payments — coupons — and the face value of bond when the debt expires — principal. The present value of these cashflows depends on the discount rate: the rate at which those cashflows in the future are valued in the present. When the debt is issued, the discount rate typically corresponds to the coupon rate.
This discount rate hinges on a several…
Wage growth has a non-linear relationship with recession risk and very strong wage gains are typically late-cycle
On news of a very “strong” labor report, market moves typically imply an expectation of less recession risk. This article will present evidence that that this view is misguided. The same phenomenon which causes the yield curve to invert might also cause late-cycle wage growth.
Higher wage growth does not necessarily mean lower recession risk
Most market commentary seems to assume a stable connection between strong wage growth and a strong economic prognosis. Strong wage growth is linked with increased business activity, more money spent by workers, and a “strong” economy. A CNBC article in May noted that “Another month of solid job growth…would also effectively put to rest concerns…
Max Frankel
Interested in the business cycle, trading, and macroeconomics.
