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Will Denyer

US Economist
Will earned a degree in business and economics at the University of Oklahoma, supplemented by extracurricular education from the Mises Institute. He worked temporarily with our research team in 2005. We decided it was a good fit, so in 2007 he moved to Hong Kong to join our team. Will is now our lead analyst on the US economy. Will speaks English (including the occasional "y'all" in conversation), and is a struggling student of Chinese.

Will writes on a range of topics, but his current area of focus is the relationship between corporate profitability and interest rates (a la Knut Wicksell). He utilizes this framework to monitor the business cycle and provide portfolio construction recommendations. By request, some of Will’s charts on this subject are provided below, with the data updated daily.

For Will's article archive click here.


The natural upper limit for interest rates is the expected rate of return on invested capital. This simple observation was made by the Swedish economist Knut Wicksell in his 1898 classic Interest & Prices.  If entrepreneurs expect to generate a return of 5%, they are not likely to borrow at 7%. Thus, when the market rate of interest appears to be breaching its “upper limit” (our best estimate of the prevailing rate of ROIC), it makes sense to shift out of equities and into fixed income.

As interest rates rise relative to ROIC, lending becomes relatively more attractive and owning equity less so. Moreover, such circumstances call for caution. Credit growth can be expected to decline. Projects that appeared economical at lower interest rates may prove unsustainable. Asset price corrections and recession become increasingly probable. Under such circumstances, one should consider shifting out of equity into either corporate debt (which now offers relatively better yield,  and is senior to equity) and/or even lower-risk Treasury bonds, bills or cash.

On the flipside, when the cost of capital is well below the return on capital it makes sense to overweight equities.

Secondarily, marginal changes in our “Wicksellian spread” between the return on capital and its cost may call for adjusting risk exposure on the margin. We should be more sensitive to marginal changes the longer an unusually wide Wicksellian spread has persisted—as one can expect the system to have grown more vulnerable under its influence. My current method of balancing these considerations is displayed in the charts below, updated daily.

Our estimate of the real rate of ROIC is derived from national accounts data. It aims to strip out what Ludwig von Mises called “apparent profits”—those gains resulting from inflation which should not be distributed as they are required to replenish spent inventories or capital equipment at (newly) higher prices.  Our proxy for the cost of capital is the average yield on the BofML US corporate master index, deflated by inflation expectations from the Philadelphia Fed survey of professional forecasters. Further description of the model is available in Turning 90% Bullish, and on request.


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