Biotech Values

[10nisman]

The rate is what it is. If someone thinks it will pop in the future, then the right combo is long MRK (or the blue chip of your choice) and short the long bond.

Why go long equity if interest rates are going to pop? Just short longer dated bonds.

Be interesting to see that over time - I suspect that there has not been a bubble when that delta is positive.

That likely is true however when was the last time the world has had this much money printing and asset buying by major industrialized countries throughout the world that are clearly skewing that delta? The equity risk premium and terminal values are overstated with one-time/non-recurring/skewed risk-free rates and thus equity valuations appear much cheaper than they are. I'm not saying we're in a equity bubble however valuations are getting extended for an economy with very little top line growth and the largest economy in the world (Europe) hasn't solved anything.

IMHO, this will end ugly however we likely have much further to run before that. Interest rates have to move higher and rather substantially over the next 12-36 months, otherwise, we will be in a world of hurt.