A short editorial showing the unique bonding of BRK to SP500 to AAPL. This explains much of the current market richness. Below note the rich-cheap of AAPL.


A proprietary process based on the Fisher Effect, where Fed Funds ~ Real GDP + Inflation, all instantaneous, is brought forward for 7 years. The Atlanta Fed “GDPNow” is used to have best efforts of current GDP annual change of current dollars, which is NGDP .

This in turn is applied to the last GDP current dollars level and then this is disaggregated to a daily GDP current dollars level. Using the Fisher Effect a forward annual change in GDP current dollars, NGDP, is derived and this then is applied to the last GDP current dollars levels to derive a 7 year forward GDP current dollars level, or NGDP level.

Equity price is then compared or charted against this value to determine both relative rich/cheap and outright rich/cheap.

A problem this market presents to “asset liability managers” (ALM) is that the usual negative correlation between risky equity and risk free notes, strips, and bonds is approaching 0, and at times has been positive.

For instance in the 2008 to 2009 crash in risk assets, in equity markets, Us Treasurys soared in price with long duration increasing in price by 50% to 60%. This had large ALM problems survive.

Now, as correlation approaches 0, there is no offset.

A Markowitz type portfolio construct will not provide offset from riskless fixed income to equity declines.

The “risk premium” for risk free is derived, the increase in yield required to extend duration - per year in basis points.

The risk premium has been from 0 to 30 basis points usually, but now is crushed towards 0.

The term premium is almost 0.

The annual change in NGDP priced into the market is derived for that change in 7 years.

This can be seen as the growth potential in the US economy.

The US economy has, according to a forward Fisher Effect logic, increased as the Federal Reserve actions have raised long term rates. This rise has more than offset the drop in the term premium towards 0.

The change in NGDP level implicit in 7 years is not small.

This is in accord with Neo Fisherian logic that rates forced to be chronically well below the desired expected GDP will drop NGDP annual change.

The “basis” of NGDP for 7 years is netting NGDP level in 7 years to current dollars GDP.

The basis is the implicit growth priced into the US economy.

The basis is given in both then current dollars and then in percentage of the current GDP.

The current dollars instantaneous GDP, the NGDP level expected in 7 years, and then the basis of that 7 year forward NGDP level is used to qualify equity values overtime.

R package “dpseg” is used to find the longest highest r^2 segment between NGDP7 forward level(x) to various equity levels, starting with the major indices.

## # A tibble: 1 × 5
##   start   end intercept slope    r2
##   <dbl> <dbl>     <dbl> <dbl> <dbl>
## 1  1834  3859     -7.14  1.72 0.921