Media Updates, page-4521

Arms well there are a lot of things in Macquarie's valuation that are questionable. They are clearly shorting.
Firstly the market may not take their lead for a turn from the US, they may take it from the passing of the peak in European rates and extrapolate how much time is left until the US is likely to reach its peak. Moreover I believe analysing this according to peak cases is not a complete scenario, the rate at which the cases are growing, whether existing drugs can quickly eliminate the virus (such as the trials in Queensland proceeding now) the ratio of deaths to cases will all bear on the markets response so the peak is total ovesimplification of what may happen. First cross.
Secondly the equity risk premium means they effectively add that to the normal discount rate in their stock models and given in a zero interest rate environment the discount rate should approach the real rate only then they are saying the equity premium should be at least two times and maybe more of the current discount rate. That reduces valuations by a factor of two times what they would be without it. No justification just a bald statement.
So second cross. A reasonable equity risk premium might be a 50% increase in the discount rate not two times on top of normal discount rates.
Moreover GFC fall in earnings was for a much longer period that Trump has stated here much longer than 2 quarters so there is an uneven relationship between the duration of this downturn and the GFC. Consequently their estimate of earnings compression duration is much much longer than is likely to eventuate. Third cross.