Macro Metrics on Investing

Creating a macro dashboard requires moving beyond simple price tracking to monitoring valuation, stress, and liquidity. Advanced macro trading relies on "relative value"—not just what the price is, but how it compares to historical norms, economic output, or other asset classes.

Here are the specific advanced metrics you should track for a professional-grade macro signals dashboard, categorized by asset class.

1. Equities (Valuation & Structural Health)

These metrics determine if the market is overpriced relative to the economy and corporate earnings power.

• The Buffett Indicator (Market Cap to GDP):
  • Formula: Total Market Value of all publicly traded stocks / GDP.
  • The Signal: A reading >100% historically suggests the market is becoming overvalued. Readings >180-200% (seen in 2021/2022) suggest extreme speculative froth.
• Shiller PE Ratio (CAPE):
  • Formula: Price divided by the average of ten years of earnings (adjusted for inflation).
  • The Signal: Filters out short-term earnings volatility. A high CAPE ratio implies lower returns over the next decade.
• Equity Risk Premium (ERP):
  • Formula: (Earnings Yield of S&P 500) minus (10-Year Treasury Yield).
  • The Signal: Tells you how much extra return you get for holding risky stocks over "risk-free" bonds. If this is near 0% (or negative), stocks are unattractive compared to bonds.
• Margin Debt to GDP:
  • The Signal: Measures the amount of borrowed money used to buy stocks. Rapid rises often precede major market tops (e.g., 2000, 2008).

2. Forex (Flows & Purchasing Power)

Currency moves are driven by capital flows, trade balances, and central bank policy divergence.

• Real Effective Exchange Rate (REER):
  • The Signal: The weighted average of a currency relative to an index or basket of other major currencies, adjusted for inflation. It tells you if a currency is actually "cheap" or "expensive" relative to its trading partners, filtering out noise.
• Terms of Trade (ToT):
  • Formula: (Index of Export Prices) / (Index of Import Prices).
  • The Signal: Critical for commodity currencies (AUD, CAD, NZD). If a country exports copper and copper prices rise, their Terms of Trade improve, usually bullish for their currency.
• 2-Year Yield Differentials:
  • The Signal: The difference between the 2-year government bond yield of two countries (e.g., US 2Y minus German 2Y). This is the single strongest predictor of short-term FX moves; money flows to the higher yield.
• CDS Spreads (Sovereign Credit Default Swaps):
  • The Signal: The cost to insure against a country defaulting. Essential for Emerging Markets (EM). If Brazil's CDS spreads spike, the BRL will likely crash regardless of other metrics.

3. Commodities (Physical Tightness & Economic Cycle)

Commodities are unique because they have a "cost of carry." The shape of the futures curve is often more important than the spot price.

• The Roll Yield (Backwardation vs. Contango):
  • The Signal: Compare the near-month futures contract price to a later-month contract.
    • Backwardation (Spot > Future): Indicates physical shortage/tightness. Bullish.
    • Contango (Spot < Future): Indicates oversupply. Bearish.
• Copper-to-Gold Ratio:
  • The Signal: Copper is industrial (growth); Gold is fear (protection).
    • Rising Ratio: Global economy is expanding (Risk On).
    • Falling Ratio: Global economy is contracting (Risk Off).
• Gold-to-Oil Ratio:
  • The Signal: Measures how many barrels of oil an ounce of gold can buy. Historical average is ~15-20.
    • > 25-30: Often signals a recession or crisis (oil demand collapses while gold rises).
• Crack Spreads:
  • The Signal: The difference between the price of crude oil and the petroleum products extracted from it (gasoline/diesel). It measures refinery margins. If spreads are rising, demand for the end product is healthy, which eventually supports crude oil.

4. Cross-Asset "Master Signals"

These affect all three categories above and should be the headline of your dashboard.

• Global Liquidity (Global M2):
  • Sum of money supply (M2) from the Fed, ECB, BOJ, and PBOC (converted to USD). Stocks and Gold rarely sustain a rally if Global Liquidity is contracting.
• High Yield Credit Spreads (HYG vs. Treasuries):
  • The difference in yield between "Junk Bonds" and Treasuries. This is the "canary in the coal mine." If spreads widen, credit conditions are tightening, and a stock market correction usually follows.
• The VIX Curve:
  • Don't just watch the VIX; watch the VIX Futures Curve. If short-term VIX is higher than long-term VIX (inversion), the market is in panic mode.

#Money