Sam is right in saying that equity deals are more like debt. But the reason for this to happen is because the interest rate have been held at 0 for a very long time, and in an economy that has recovered well.
Because of the low interest rate in a healthy economy, every investor would be ill-advised to invest their money in safe low-yielding instruments such as treasury bonds. That is why we have seen a dramatic shift of capital from the traditionally safe rates market to higher yielding sectors, such as tech and real estate.
That is especially true since there are enough tech companies to pool investment together in somewhat diversified portfolios, which give a false impression of safety (remember the CDOs?).
The BIG question is what is going to happen when the Fed hikes the rates in the course of next year. And what will happen when the US passes a law to increase taxes on marginal gains.
It is likely that there will be a significant drain of money from the tech sector, and when the money starts to withdraw, it tends to do so in a pretty unorganised manner.
We may not be in a bubble that will burst. But we may very well be at the high point of a market cycle. The problem is not the high valuations, it is the high appetite for risky investment.
Because of the low interest rate in a healthy economy, every investor would be ill-advised to invest their money in safe low-yielding instruments such as treasury bonds. That is why we have seen a dramatic shift of capital from the traditionally safe rates market to higher yielding sectors, such as tech and real estate.
That is especially true since there are enough tech companies to pool investment together in somewhat diversified portfolios, which give a false impression of safety (remember the CDOs?).
The BIG question is what is going to happen when the Fed hikes the rates in the course of next year. And what will happen when the US passes a law to increase taxes on marginal gains.
It is likely that there will be a significant drain of money from the tech sector, and when the money starts to withdraw, it tends to do so in a pretty unorganised manner.
We may not be in a bubble that will burst. But we may very well be at the high point of a market cycle. The problem is not the high valuations, it is the high appetite for risky investment.