I think it's because the Fed's past easy-money policies (QE). The idea of QE is that the Fed puts a ton of cash into the market in order to encourage investment. However investment pushes asset valuations higher. Once asset valuations are high enough, people stop investing because the fundamentals don't support the valuations.
The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet.
I think the "big thing" they're waiting for is for the investment market to become less competitive. One way it becomes less competitive is with investors exiting the market (because they have things to spend their cash on, like bonds), another way it becomes less competitive is with more startups to invest in.
So by this analysis, the next couple years will be a great time to own equity/options in a startup -- those balance sheets are just waiting for the right opportunity to make an acquisition.
>The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet.
Do you understand the relationship between interest rates and inflation?
My understanding is that if Fed holds IR on bonds low, money exits bonds and goes into the market, causing inflationary effect (more money chasing same amount of goods). If Fed increases IR, money exits the market and goes into bonds, causing deflationary effect (less money chasing same amount of goods).
The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet.
I think the "big thing" they're waiting for is for the investment market to become less competitive. One way it becomes less competitive is with investors exiting the market (because they have things to spend their cash on, like bonds), another way it becomes less competitive is with more startups to invest in.
So by this analysis, the next couple years will be a great time to own equity/options in a startup -- those balance sheets are just waiting for the right opportunity to make an acquisition.