bubble

Brad De Long delong at econ.Berkeley.EDU
Sun Mar 12 12:49:35 PST 2000



> >Rakesh Bhandari wrote:
>>>Aren't
>>>they the ones getting hit hard by Greenspan's rate hikes that hurt Old
>>>Economy companies?
>>I don't get this. Why should rate hikes hurt Procter & Gamble? The
>>entities most vulnerable to rate hikes are preposterously valued
>>stocks of profitless companies. And without the endless stream of IPO
>>cash, where will most of these net firms be?
> >Doug

If it's any consolation, I don't get it either. The first principle of finance is that the longer the duration of an asset the more sensitive its price is to interest rate changes. And "growth" companies without current profits are very long-duration assets indeed...

Brad DeLong



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