In his latest interview on The Rules of Investing Podcast, Jeremy Grantham discusses the 1970s high inflation period and the link between value and rates. Here’s an excerpt from the interview:
Grantham: There should be. Arithmetically or mathematically. The higher the rate, the more the dividend counts. And the lower the rate, the more the growth counts. In an era where rates drop lower and lower two things happen. There’s a bigger and bigger premium for high quality, part of the discount rate structure, and there’s a bigger and bigger premium for growth, and value underperforms.
Then when interest rates rise it floats. So since interest rates were rising, and not only were they rising but they were from time to time very high indeed… dividends really mattered and value was king.
So that is what should happen and that is actually what did happen. And you could say the same in reverse. Following the mid 90s as the rates seriously were administered by the Fed, driven lower and lower, and by global circumstances too. The growth stocks kicked ass. Our ass!
You can listen to the entire interview here:
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