Learn about the Macro environment

Everything you wanted to know about the macro metrics

The Legends Table always roots its analysis in the macro environment, and there are a handful of metrics that are routinely used to get a feel for the macro regime. This article is an attempt to simply the understanding of those metrics. If you already know this, kudos to you!. If this is the first time you are hearing about it, I hope you take away something from this article. All the numbers are current at publish time.

1. Fed Funds Rate — 3.64%
Interest rate banks charge each other for overnight loans. The Federal Reserve sets this rate. This is the foundation for all other interest rates in the economy. When the Fed raises it, borrowing gets more expensive everywhere — mortgages, credit cards, business loans.
   What 3.64% means: The Fed is applying moderate pressure to slow down the economy. Not emergency brakes, but definitely tapping the brake pedal. High enough to make people think twice about borrowing.

2. 10-Year Treasury — 4.39%
   The interest rate the U.S. government pays when it borrows money for 10 years. This is the benchmark “risk-free” rate. Every other investment gets compared to this.
   What 4.39% means: The government is offering a decent return with no risk. This makes stocks and corporate bonds work harder to justify their higher risk.

3. 2-Year Treasury — 3.90%
   Same as the 10-year, but the government only borrows your money for 2 years. This reflects where investors think interest rates are headed in the short term.
   What 3.90% means: It’s lower than the 10-year, which is normal. But the gap tells us investors expect rates to come down eventually — either the Fed will cut rates or the economy will slow down.

4. Yield Curve — +0.49%

   The difference between long-term rates (10-year) and short-term rates (2-year). When long-term rates are higher than short-term rates, that’s “normal.” When it flips upside down, it’s historically predicted recessions.
   What +0.49% means: We’re back to normal after being inverted. That’s good news — the immediate recession warning has lifted.

5. Real Yield (TIPS)— 2.01%
   What you earn on government bonds after subtracting inflation. This tells you if you’re actually getting richer or just keeping up with rising prices.
   What 2.01% means: You can get 2% real wealth growth with zero risk. That’s actually quite attractive and makes risky investments harder to justify.

6. HY Credit Spread — 3.19%
   How much extra interest do risky companies pay compared to the government? When companies might go bankrupt, investors demand higher interest rates. The spread shows how worried people are about defaults.
   What 3.19% means: Risky companies only pay 3.19% more than the government. That’s a pretty small premium for bankruptcy risk — it suggests people aren’t very worried about companies failing.

7. IG Credit Spread — 0.87%
   How much extra interest do good, stable companies pay compared to the government? Even good companies are riskier than the government, so they should pay something extra.
   What 0.87% means: Good companies pay less than 1% more than the government. That’s extremely low — people are treating corporate debt almost like government debt.

8. Shiller CAPE — 38.9x
   How much investors are paying for stocks compared to companies’ average earnings over the last 10 years. It smooths out short-term earnings swings to show if stocks are cheap or expensive historically.
   What 38.9x means: We’re paying 39 times average earnings. We’ve only been this expensive 1% of the time in history. Usually, it doesn’t end well.

9. VIX — 26.95
   A measure of how much investors are willing to pay for insurance against stock market drops. When people are calm, it’s around 15. When they’re panicked, it spikes to 40-80.
   What 26.95 means: People are nervous enough to pay for protection, but they’re not panicked yet.

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What should an investor do?

The Trade-Off is Clear: You can get 4.39% guaranteed from the government for 10 years, or 2% real return after inflation. That’s your baseline. Any stock, bond, or investment you’re considering needs to beat that by enough to justify the extra risk. Most aren’t clearing that bar right now.

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What This Means for Your Money:

If you’re conservative, 10-year Treasuries at 4.39% is a legitimately attractive return with zero risk.

If you own stocks: This environment historically doesn’t end well for broad market investors. CAPE at 39x has only happened 1% of the time in history. The last time this happened (1999-2000), it led to significant and prolonged correction. Consider taking some profits, especially in expensive growth names.

If you’re looking to buy stocks, wait for better prices or be extremely selective. You need companies earning 6-7% owner earnings yields just to justify the risk over Treasuries. Most quality companies aren’t even close to that right now.

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What to Watch: When the VIX jumps above 30, or credit spreads start widening dramatically, or the 10-year Treasury yield moves sharply in either direction — that’s when this fragile setup breaks. Small triggers, big moves.

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Bottom Line: This is an environment to be defensive, not aggressive. Take the guaranteed returns where you can get them, be very picky about risk assets, and keep some dry powder for when prices get more reasonable. The math simply doesn’t support chasing returns in expensive assets when safe assets pay this well.