Markets and everyday life - 35 minutes
Prices, Rates and Valuation
Prices diverge when they measure different objects, look across different time horizons and respond to different required returns.
The system in one line
See the connection before the detail.
- Consumer prices↓
- Interest rates↓
- Discounted value↓
- Asset prices↓
- Valuation multiples
What you will be able to see
You will be able to explain why CPI, asset prices, current profits and market valuations can move differently without treating every divergence as irrational.
The sequence
One Lever prepares the next.
- 01↓money - 5 min
What really causes inflation?
Begin by separating consumer-price triggers from the forces that make inflation broad and persistent.
Open this Lever - 02↓money - 5 min
Why does raising interest rates tend to reduce inflation?
Follow monetary policy through borrowing, saving, demand and delayed consumer-price effects.
Open this Lever - 03↓markets - 5 min
Why does a bond's price fall when interest rates rise?
Learn how a required return changes the present value of fixed future payments.
Open this Lever - 04↓markets - 6 min
Why can asset prices rise without much consumer inflation?
Use discounting and portfolio choice to separate asset repricing from the consumer basket.
Open this Lever - 05↓markets - 6 min
Why can stock valuations rise while company profits do not?
Apply the same framework to future corporate cash flows, risk premiums and valuation multiples.
Open this Lever - 06↓everyday life - 5 min
Why does raising interest rates affect mortgages?
Bring market rates back into the household contracts that transmit financial conditions.
Open this Lever - 07↓everyday life - 5 min
Why did housing become so expensive?
Finish with a market where discount rates, credit, supply constraints and consumption services interact.
Open this Lever