above 5%... means, much more work for me...

Value Investing with Sven Carlin, Ph.D.•Sep 15, 2026

Summary

Sven explains that the rise of the US 10-year Treasury yield to 5% marks a major shift from the era of declining interest rates that began in 1981. This risk-free rate serves as the global benchmark for price discovery, affecting inflation projections and fiscal sustainability. Sven notes that the US government's debt situation and continued high spending make it difficult for interest rates to decline, as the interest cost alone could soon reach $2 trillion annually, creating an unsustainable fiscal path.

Sven argues that the current market environment is distorted by an AI bubble, which Sven believe masks underlying economic weaknesses. Sven emphasizes that predicting the future is impossible, but the historical data suggests that long periods of real-term declines are common when starting from overvalued levels. Consequently, Sven advocates for the use of cost-effective hedging, such as S&P 500 put options, to manage risk rather than blindly following a 'buy and hold' strategy in an overvalued market.

S&P 500 (SPY): Sven argues that the index is currently inflated by an AI bubble and that adjusted earnings would be closer to 200 rather than 300. Sven predicts that a fair valuation for the S&P 500, based on a historical P/E ratio of 15, would be approximately 3,000 points. Sven recommends using put options to hedge against a possible 60% real-term decline over the coming decade.

LVMH (MC.PA): Sven discusses the stock's 6% to 7% free cash flow yield, noting that while this was attractive in a low-rate environment, it is less so when Treasuries offer 5%. Sven points out that the stock is already 46% below its recent peak due to rising rates. Sven suggests that if Treasury yields continue to climb toward 6%, LVMH and similar high-quality stocks will face further valuation compression.

McDonald's (MCD): Sven states that the current dividend yield of 2% to 3% for McDonald's is not competitive with a 5% Treasury yield. Sven argues that the stock price is struggling because the yield needs to rise to 4% or 5% to attract investors in the current environment. Sven notes that while the stock could boom if interest rates fall, it remains vulnerable as long as rates stay elevated.

Mentioned Stocks

SPY

Sentiment: SELLAction: RECOMMENDED

Reasoning: Sven labels the S&P 500 as an AI bubble with 'fake' earnings. Sven predicts a fair value of 3,000 based on historical P/E averages of 15 and normalized earnings of 200. Sven recommends hedging with put options to avoid a potential 60% real loss.

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MCD

Sentiment: SELL

Reasoning: Sven argues that McDonald's dividend yield of 2-3% is unattractive versus 5% Treasury yields. Sven believes the stock price must adjust until the yield reaches 4-5% to be competitive, unless interest rates decline.

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MC.PA

Sentiment: HOLD

Reasoning: Sven observes that LVMH's 6-7% free cash flow yield is no longer compelling compared to the 5% risk-free rate. Sven notes the stock is down 46% but warns that further interest rate increases will continue to pressure the valuation.

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