Presentation overview 

In November 2021 the U.S. Fed dropped the word “transitory” from its description of high inflation, but we have indeed been transitioning to an environment where cash is no longer free.  Businesses and investors alike must adapt to this new investment regime  Warren Buffett discussed an environment where money wasn’t free in his annual letters in the late 1970’s and early 1980’s.  The key is owning companies that can grow by generating internally generated free cash flow.  Therefore, the winners of yesterday may not be the winners of tomorrow as high growth companies are challenged and value investing, long out of favour since the Global Financial Crisis, quickly gains new favour. Newton Portfolio Manager John Bailer discusses the unique investment environment of today, as the Old Economy attempts to set the New New Normal in a post-transitory world.

Learning outcomes

One.

Define the concept of free money and explain how persistently higher interest rates have ushered in a new economic regime in which all businesses will need to generate their own cash flows in order to grow. 

Two.

Explain how a decade of free money skewed valuations and leverage and why this will result in mean reversion of specific economic sectors. 

Three.

Summarise equity valuations in the US market and why they are important in the portfolio construction process.