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.


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

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

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

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 NGDP.

The current dollars instantaneous NGDP, 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 and highest r^2 segment between NGDP7 forward level(x) to the broadest index the Wilshire 5000.

## calculating recursion for 4509 datapoints
Log Wilshire 5000 to Log NGDP Level in 7 Years, Segment Highest R^2
Start_Segment End_Segment Intercept Slope r2 Segment Length
2012-01-18 2020-04-09 -5.67144 1.580046 0.8917303 2073