Every number in the weekly card is a transparent weighted average — no black box. Here's the exact arithmetic behind the two most-asked-about scores: this week's conviction of +0.03 and the monetary read of −0.74.
Conviction blends the six cycles into one number. Each cycle is expressed on a −1…+1 scale (+ bullish, − bearish), multiplied by its weight, summed, then divided by the total weight.
| Cycle | value | weight | weight × value |
|---|---|---|---|
| Liquidity 13-wk momentum, risk-off | −1.00 | 0.40 | −0.400 |
| Growth momentum, capped at ±1 | +1.00 | 0.35 | +0.350 |
| Disinflation −(inflation state), cooling | +1.00 | 0.25 | +0.250 |
| Monetary Fed path, tight (see below) | −0.74 | 0.14 | −0.103 |
| Positioning crowded / complacent | −0.61 | 0.10 | −0.061 |
| Totals | 1.24 | +0.036 |
The story in one line: the tailwinds — growth (+1.00), disinflation (+1.00) — argue to lean in, but the headwinds — liquidity (−1.00), monetary (−0.74), positioning (−0.61) — drag it back to essentially neutral (+0.03). That balance is the whole point: no single cycle gets to run the book.
Why 1.24? It's just the sum of the weights (0.40 + 0.35 + 0.25 + 0.14 + 0.10). Dividing by it keeps the score inside −1…+1. The first three weights were built to total 1.0; monetary and positioning were added later as caution overlays (+0.24), so the divisor became 1.24 — forced by the weights, not chosen.
The monetary cycle reads the Fed's path straight from market prices. Each of three rate signals is standardized into a z-score (how far it sits from its own ~10-year history), given a sign, and weighted.
| Signal | reading | z-score | sign | wt | sign × wt × z |
|---|---|---|---|---|---|
| 2-yr rate path DGS2, 6-mo change | 4.19%+0.81pt / 6mo | +0.82 | −1 | 1.0 | −0.821 |
| SOFR overnight policy, 6-mo change | 3.64%−0.04pt / 6mo | −0.15 | −1 | 0.6 | +0.087 |
| Real policy rate DFII10, level | 2.34%level | +1.49 | −1 | 0.6 | −0.892 |
| Totals | 2.2 | −1.626 |
What each piece says: the 2-year yield jumped +0.81% in six months (now 4.19%) — the market pricing the Fed higher tightening. The real yield sits at 2.34% (+1.5 SD above normal) — money is genuinely expensive restrictive. SOFR barely moved (−0.04%) — the current rate is steady ≈ neutral. Rising forward path + high real rates = the textbook "higher-for-longer."
Why 2.2? Same rule — the sum of the weights (1.0 + 0.6 + 0.6). And every signal uses sign = −1, encoding one convention: rates going up = tightening = negative; rates going down = easing = positive.
The weights themselves (liquidity 0.40, growth 0.35, …) are deliberate judgment — liquidity leads, so it counts most; monetary and positioning are caution overlays, so they count less. They were not optimized on the data to flatter a backtest; that would be curve-fitting. Only the decision to add the two overlays was validated out-of-era.