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 NGDI + Inflation, all instantaneous, is brought forward for 7 years. The Atlanta Fed “GDINow” is used to have best efforts of current NGDI annual change of current dollars, which is NGDI .
This in turn is applied to the last NGDI current dollars level and then this is disaggregated to a daily NGDI current dollars level. Using the Fisher Effect a forward annual change in NGDI current dollars, NGDI, is derived and this then is applied to the last NGDI current dollars levels to derive a 7 year forward NGDI current dollars level, or NGDI 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 NGDI 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 NGDI 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 NGDI will drop NGDI annual change.
The “basis” of NGDI for 7 years is netting NGDI level in 7 years to current dollars NGDI.
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 NGDI.
The current dollars instantaneous NGDI, the NGDI level expected in 7 years, and then the basis of that 7 year forward NGDI level is used to qualify equity values overtime.
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2008-06-25 | -7.926241 | 1.583799 | 0.7537708 |
2008-06-26 | 2022-06-10 | -19.600004 | 2.769075 | 0.9704345 |
2022-06-13 | 2022-08-29 | -20.830490 | 2.845917 | 0.8149383 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 | Segment_Length |
---|---|---|---|---|---|
2008-09-12 | 2021-11-02 | -20.844403 | 2.8962131 | 0.9771487 | 3297 |
2004-09-20 | 2008-06-26 | -7.899221 | 1.5809544 | 0.7520440 | 960 |
2021-11-02 | 2022-06-13 | 29.372929 | -2.0660651 | 0.7557133 | 154 |
2008-06-26 | 2008-09-12 | 6.883840 | 0.0271914 | 0.0000671 | 53 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2008-01-03 | -13.79802 | 2.136456 | 0.8545813 |
2008-01-04 | 2021-11-24 | -18.50294 | 2.600142 | 0.9389005 |
2021-11-26 | 2022-06-15 | 35.34490 | -2.730439 | 0.7710596 |
2022-06-16 | 2022-08-29 | -32.29078 | 3.889600 | 0.8384758 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2008-06-27 | -7.493479 | 1.780009 | 0.7969730 |
2008-06-27 | 2008-09-04 | 28.172636 | -1.950076 | 0.2453814 |
2008-09-04 | 2021-10-29 | -18.337824 | 2.879629 | 0.9728244 |
2021-10-29 | 2022-06-14 | 35.800438 | -2.471201 | 0.8078201 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2012-11-07 | -114.25582 | 12.071139 | 0.9386373 |
2012-11-07 | 2020-01-15 | -48.34028 | 5.243742 | 0.9334236 |
2020-01-15 | 2022-08-29 | -20.67990 | 2.534192 | 0.7888302 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2004-10-20 | 72.54458 | -7.258696 | 0.8330054 |
2004-10-20 | 2005-03-14 | -31.91102 | 3.805292 | 0.8305093 |
2005-03-14 | 2022-06-14 | -22.25185 | 2.765552 | 0.9619550 |
2022-06-14 | 2022-08-29 | -17.49076 | 2.261903 | 0.7523104 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2007-04-24 | 3.744929 | -0.3260598 | 0.0133550 |
2007-04-24 | 2020-04-06 | -73.671037 | 7.8381099 | 0.9632784 |
2020-04-06 | 2020-08-20 | -32.199191 | 3.7354638 | 0.9170572 |
2020-08-20 | 2022-08-29 | 16.065680 | -1.0914685 | 0.3538995 |
## calculating recursion for 2593 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 | Segment_Length |
---|---|---|---|---|---|
2009-02-26 | 2014-06-16 | -30.76465 | 3.618645 | 0.7622850 | 1936 days |
2004-09-20 | 2009-02-26 | -114.24693 | 12.089528 | 0.9294853 | 1620 days |
2014-06-16 | 2015-01-12 | 34.45359 | -2.865637 | 0.7089235 | 210 days |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2013-09-10 | -9.44195 | 1.297768 | 0.4184349 |
2013-09-10 | 2020-01-17 | -62.61290 | 6.757782 | 0.9824490 |
2020-01-17 | 2022-01-13 | -23.21522 | 2.858513 | 0.9238559 |
2022-01-13 | 2022-08-29 | 16.52115 | -1.068846 | 0.3597405 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2008-06-05 | -35.95339 | 4.187639 | 0.8854726 |
2008-06-05 | 2020-06-12 | -49.50134 | 5.539395 | 0.9441745 |
2020-06-12 | 2020-11-13 | 24.96927 | -1.987064 | 0.4645320 |
2020-11-13 | 2022-08-29 | 27.41759 | -2.186497 | 0.6079148 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2005-10-19 | 16.93423 | -1.457535 | 0.7162711 |
2005-10-19 | 2007-10-31 | -45.41441 | 5.105338 | 0.8416845 |
2007-10-31 | 2022-02-28 | -31.47279 | 3.614936 | 0.9292693 |
2022-02-28 | 2022-08-29 | 21.58411 | -1.645093 | 0.6098261 |
## calculating recursion for 4520 datapoints
Start_Segment | End_Segment | Intercept | Slope | r2 |
---|---|---|---|---|
2004-09-20 | 2007-02-12 | -13.3057 | 1.767529 | 0.6305078 |
2007-02-12 | 2008-08-12 | 290.2482 | -29.914121 | 0.7650155 |
2008-08-12 | 2008-10-06 | 129.1115 | -13.134696 | 0.4233490 |
2008-10-06 | 2022-08-29 | -24.8467 | 2.811924 | 0.7156605 |