Equity Value Window
Fifth priority - attractive equity valuations
Real EY ≥ +3.0% → BUY equities (broad exposure)
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Key Insight
This signal identifies periods when equity valuations are attractive enough that long-term expected returns are high. The two levels distinguish between standard opportunities (Good Value) and rare, crisis-driven extremes (Extreme Value).
What This Means
- •Equities offer strong real earnings cushion
- •Valuations provide downside protection
- •Long-term equity ownership economically justified
- •Timing precision is less important; expectancy is high
Recommended Rotation (depends on bonds)
🟢 Good Value (Real EY ≥ +3.0%):
BUY Equities
Valuations attractive, but not distressed. Long-term real returns are favorable. Broad participation likely over time.
Example: Standard high-conviction BUY signal
🟢🟢 Extreme Value (Real EY ≥ +5.0%):
STRONG BUY Equities
Equity valuations severely compressed. Pessimism elevated; risk premia unusually wide. Long-term real returns historically exceptional.
Example: Rare, crisis-level opportunity (post-crash, forced selling, market resets)
Important: This is a permission signal, not a timing signal. It does not imply a sell when the condition ends. When Real EY falls below +3%, the system simply returns to normal. Negative equity signals are triggered only by separate conditions (e.g., Real EY < 0, System Stress, Equity Danger).
Historical Examples
- • 2009 (post-financial crisis - Extreme Value)
- • 1982 (end of stagflation - Extreme Value)
- • 2020 March (COVID panic - Extreme Value)
- • 2011 (European debt crisis - Good Value)