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RE: Forget The P/E Ratio - This Is The New Ratio To Look At...
I agree that interest rates play a role but I think it's also for an additional reason. Lower interest means the cost of debt is cheaper for a corporation thus future projected earnings are higher (due to expected lower WACC). Therefore historic PE ratio could be higher on average because of higher expected future earnings. So therefore, as you pointed out there is increased demand for Stocks(instead of bonds/bank interest) to generate a return on the investor side, plus on the corporation side there is higher expected earnings thus higher valuations.
Very true.
That's why rising interest rates can be a disaster for these companies. Their debt will continue to grow as their payments on interest alone start to balloon. If their business doesn't actually start making real profits, they just keep digging a deeper hole as their cost of borrowing increases.