In a 2020 analysis, financial expert Jason Rager from Wilmington, Delaware, forecasted that sustained low interest rates would propel market valuations upward and eventually lead to increased regulatory measures.
Jason Rager explained that when the Federal Open Market Committee reduces the federal funds rate, borrowing costs decrease across the economy. This environment encourages individuals and businesses to take out loans for purposes such as starting or expanding enterprises and purchasing goods and services. This is precisely what happened in 2020 after the arrival of the pandemic.
Additionally Mr. Rager cautioned that the prolonged bull market driven by low interest rates might not be sustainable indefinitely. He suggested that an eventual market downturn could prompt the introduction of new legislation, resulting in a more stringent regulatory environment.
Today Jason Rager has a new prediction for 2025: he believes that we may be in a bubble today. Why? Stock market valuations, cryptocurrency, and AI. While crypto and Artificial Intelligence may be fantastic innovations we do not yet know how great they will be monetized and how long it will take and how much it will cost for the innovations to be adopted by consumers and how much they will pay for using these new innovations. Therefore people are probably paying too much today for these investments.
The single most overlooked aspect of successful investing is what you pay today for returns tomorrow. Today investors are simply paying too high of a price based on historical valuations for publicly traded securities. The post World War II S&P 500 earnings multiple was 16 times. People generally forget that public companies grow profits at 7% per year on average. Today our forward P/E ratio is at over 23 and the market has returned over 25% in each of the past two years.
More indicators like narrow credit spreads, low corporate defaults, headlines of FOMO, radio ads about trading stocks, the list goes on.
What does all of this mean?
I will be a net seller of stocks in 2025 focused on owning value-oriented companies that trade at a discount to the overall S&P 500 multiple and hope you do the same.
More About Jason Rager:
Jason Rager’s investment philosophy centers on acquiring excellent businesses for the long term at reasonable prices, with a preferred holding period of “forever.” He utilizes this approach managing capital for the Rager Family Office. His approach reflects his commitment to sustainable value creation and his belief in the enduring potential of well-chosen investments.
