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Dear readers,

Technology stocks have been hit hard lately. There are a number of reasons for this, and I will here primarily focus on the interest rate argument. The turnaround in interest rates is here, the US Federal Reserve is now making steam. In the wake of the Ukraine war, inflation has risen to unprecedented heights. Even ECB representatives now realize that it is no longer only possible to speak, but also to act. Key interest rates are rising and interest rates in the capital markets have already risen sharply.

But what is the problem with higher interest rates, especially for technology stocks?

An important argument is the following: With highly valued technology stocks, the future is traded even more than with stocks in general, ie future cash flows. If interest rates are extremely low or even zero, future cash flows are hardly worth less than today’s. You could under one DCF (Discounted Cash Flow) analysis, from an extreme point of view, simply add up all future (of course estimated!) cash flows to arrive at the present value and thus the fair share price, provided you would be in a perpetual zero interest rate situation. In the case of interest, on the other hand, future income must be discounted. And the higher this “discount rate”, the lower the cash value.

So if a company is currently earning little, but expects high earnings in 10 years, then this future earnings, calculated to date, will be worth much less from an analytical point of view if interest rates rise markedly. (I use the terms cash flow and revenue interchangeably in this context, which is actually incorrect).

This is one of the reasons equities are interest rate sensitive and it is a very condensed view because it hides other things (for example, higher inflation means that higher future earnings are likely).

Of course, it is also the case that bonds, which finally provide a significant return, become a remarkable investment alternative to becoming equities. searchword “Pension P / E”. A bond with a 5% return corresponds to a bond P / E of 20, but with a 1% return this P / E is 100. From this point of view, with 100 bonds there is no competition for shares, but with 20 they are. This change also hits stocks with high valuations particularly hard.

My colleague Sascha Huber, who knows the tech scene very well, looked at the latest quarterly figures from tech companies. You should definitely check his out Get a taste of the “THANK YOU” premium servicein order not to miss the next access options.

Sascha’s second topic next to tech stocks is cryptocurrencies. In this issue, we briefly explain what lies behind the “NFT” hype.

Here I can even contribute a little anecdote. In the fall of 2021, I ordered a new sneaker, “Seed One”. Part of the concept was that any buyer of these sneakers would get an NFT. The price was 200 euros, so from my point of view one could not do too much wrong.

Funnily enough, I still have not received the shoe, but I got the NFT.

Being very technically savvy, setting up the Open Sea account (Open Sea is the largest NFT marketplace at the moment) and receiving the NFT “drop” was feasible, if not entirely trivial. I already had the MetaMask crypto wallet, so I had to buy some more “Matic” tokens because the Ethereum-based polygon side chain was used.

Just to give you an idea of ​​what we’re talking about here, here find the NFT that I “got” as a gift.

In a nutshell: For 0.25 Ether (about $ 700) I was able to sell this flower picture again, which did not really blow me away in terms of its beauty. Although it’s not entirely fair, for the days when you could just sell image files as NFTs are almost over. In this case, for example, the NFT includes the right to receive preferential treatment for future sneaker collections. But now the company might have to send me the shoes I ordered first.

Daniel Kuehn

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