Gerstner predicts the ten-year treasury will settle in a three to four percent range, creating a highly investable period.
“I think we're going back to a period of three to four on the ten year, a highly investable period.”
Gerstner highlights the shift from zero rates to 8% mortgages as evidence of dramatic policy change.
“We've gone from effectively a 0% interest rate environment in ZERP, where corporations borrowed for free and consumers borrowed for free, to now we have 8% mortgages.”
Gerstner lists specific consumer borrowing costs: 10% car loans and 20% credit cards.
“We have 10% car loans. We have 20% credit cards. Student loans are about to kick in.”
Gerstner states a 1% change in interest rates causes 15-20% change in valuation multiples.
“the iron law of investing is interest rates. A 1% change in rates leads to a 15 or 20% change in a multiple.”
Gerstner calculates that 150 bps lower discount rates should add two to three turns to software multiples.
“If I reduce my discount rate on any growth software company by 150 bps over the next ten years, the multiple will go up by two to three turns, right?”