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.

## calculating recursion for 4517 datapoints
Log SP500 to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2008-06-19 -7.221409 1.510369 0.7887712
2008-06-20 2022-06-10 -21.031118 2.916845 0.9692090
2022-06-13 2022-08-24 -22.694735 3.039205 0.8632662 

## calculating recursion for 4517 datapoints
Log SP500 to Log NGDP 7 Years Forward
Start_Segment End_Segment Intercept Slope r2 Segment_Length
2008-06-19 2022-06-13 -21.009271 2.914613 0.9689537 3509
2004-09-20 2008-01-16 -9.876491 1.789934 0.8942766 851
2008-01-16 2008-06-19 -16.864665 2.506785 0.2255396 104
2022-06-13 2022-08-24 -22.694735 3.039205 0.8632662 52 

## calculating recursion for 4517 datapoints
Log R2000 to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2007-12-31 -13.54510 2.111041 0.8698990
2008-01-02 2022-01-14 -19.46970 2.700056 0.9312858
2022-01-18 2022-07-18 30.37365 -2.250632 0.7901017
2022-07-19 2022-08-24 -34.85880 4.155931 0.6903685 

## calculating recursion for 4517 datapoints
Log W5000 to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2008-01-16 -9.351447 1.976583 0.9159041
2008-01-16 2008-06-26 -16.840439 2.745007 0.2395928
2008-06-26 2022-03-21 -18.998155 2.948728 0.9667128
2022-03-21 2022-07-01 44.386369 -3.326063 0.8388865 

## calculating recursion for 4517 datapoints
Log AAPL to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2012-12-05 -115.79770 12.231355 0.9596838
2012-12-05 2020-01-10 -46.84525 5.095890 0.9214277
2020-01-10 2022-08-24 -24.10240 2.880636 0.7745907 

## calculating recursion for 4517 datapoints
Log BRK to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2004-10-20 53.39350 -5.229508 0.8382162
2004-10-20 2005-03-15 -36.11973 4.250173 0.8183007
2005-03-15 2022-06-14 -23.31650 2.876320 0.9652210
2022-06-14 2022-08-24 -19.04125 2.422268 0.7983284 

## calculating recursion for 4517 datapoints
Log AMZN to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2007-04-24 4.021001 -0.3553787 0.0129248
2007-04-24 2020-02-11 -76.660467 8.1459125 0.9678069
2020-02-11 2020-12-31 -40.576358 4.5731879 0.8679322
2020-12-31 2022-08-24 23.099026 -1.7899724 0.4647428 

## calculating recursion for 2590 datapoints
Log META to Log NGDP
Start_Segment End_Segment Intercept Slope r2 Segment_Length
2008-12-02 2014-06-16 -34.58960 4.006361 0.7697205 2022 days
2004-09-20 2008-12-02 -115.44244 12.224613 0.9263325 1534 days
2014-06-16 2015-01-07 34.03179 -2.834723 0.7000617 205 days 

## calculating recursion for 4517 datapoints
Log MSFT to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2013-04-23 -7.598252 1.105021 0.3080927
2013-04-23 2020-01-16 -59.125313 6.410012 0.9818602
2020-01-16 2022-01-13 -27.663675 3.308035 0.9436313
2022-01-13 2022-08-24 16.685797 -1.089073 0.3613582 

## calculating recursion for 4517 datapoints
Log BA to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2008-03-03 -36.51345 4.249318 0.9164111
2008-03-03 2020-06-12 -50.96933 5.692522 0.9457851
2020-06-12 2020-11-13 49.12288 -4.411164 0.3853453
2020-11-13 2022-08-24 29.63652 -2.412877 0.5952961 

## calculating recursion for 4517 datapoints
Log JPM to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2005-10-21 19.19486 -1.696674 0.6987845
2005-10-21 2007-07-20 -40.10376 4.555876 0.9094723
2007-07-20 2022-02-28 -33.15361 3.788921 0.9378176
2022-02-28 2022-08-24 21.58779 -1.651606 0.6129854 

## calculating recursion for 4517 datapoints
Log BAC to Log NGDP
Start_Segment End_Segment Intercept Slope r2
2004-09-20 2007-11-01 -14.17346 1.860013 0.7501994
2007-11-01 2008-06-04 93.27534 -9.354987 0.5085917
2008-06-04 2008-07-15 -1142.25253 119.182942 0.9307916
2008-07-15 2008-07-17 9899.49589 -1030.162975 0.9937215
2008-07-17 2008-10-06 76.13278 -7.593670 0.2308734
2008-10-06 2022-08-24 -26.75904 3.008823 0.7329500