How do interest rates impact asset valuations?

8 bps = .8% ->  Invert 1/0.008 = 125.0 vs 15 - 18x PE for Equities

1982 -> 1 /.15 = 6.6667

“If the risk-free rate is lower, everything else being equal, that makes the same cash flows in the future worth more today,” says Robert Litterman, a founding partner at Kepos Capital, a New York-based asset manager that runs about $2.5 billion in hedge funds.

Divide expected cash flows by a risk-free rate of 2% — or 0.2% — instead of 4%, and you will get a significantly higher intrinsic value, unless you assume the stock has become riskier.

Mathematically, dividing by a smaller number produces a bigger result.

Source: The Wall Street Journal

http://blogs.wsj.com/moneybeat/2016/06/17/everything-is-more-expensive-than-it-looks/