Deep Store

Total US corporate equity outstanding (FRED `NCBEILQ027S` — the Z.1 Flow of Funds "Nonfinancial Corporate Business; Corporate Equities; Liability, Level") divided by nominal GDP, expressed as a percentage. Quarterly, with full history back to 1945. Warren Buffett called this in a 2001 *Fortune* piece "probably the best single measure of where valuations stand at any given moment" — and the Z.1 series is exactly what he used.

Why it matters: It's macro-level valuation — not P/E for any particular cycle, but "how big is the entire stock market relative to the entire economy?". The intuition: corporate profits ultimately depend on GDP, so when market cap runs structurally above GDP, the market is pricing in a permanent rise in profits-as-share-of-GDP. That can persist (it has, since 2010) but it's a real signal of stretched valuation. Most ubiquitous "macro overvaluation" tile in financial media.

How to read it: Long-run average is roughly 75-100%. Below 70% is historically cheap (only seen during major bear markets — 1980s, 2008-2009). Above 150% is elevated; above 200% is historically extreme (only the late-1990s tech mania and the post-2020 era have crossed this line). Compare with CAPE — both metrics agree that the post-2020 period is one of the most expensive in history; Buffett Indicator says it more bluntly than ratio-based measures.

Caveats: The "appropriate" level has drifted over decades because (a) US corporate profits have grown faster than GDP since the 1980s due to globalization/margin expansion, (b) the index now includes companies whose revenues are global while GDP is just US, and (c) low rates mechanically support higher valuations. So readings have to be interpreted relative to their own regime. A Buffett Indicator of 150% in 2025 is not the same warning level as 150% in 2000 — but the *direction* of change still matters.