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The blue line is a valuation calculated from what the underlying physical economy is doing.  Inputs like productivity, population, inflation target, profit share to wages vs capital etc. Not specifically cash rate – that is more driven by the underlying economy.

I’d rather stick a hot needle in my eye than try to explain it in detail on a forum and I reckon you’d rather do the same than read about it, so hope the above suffices.

What’s important about it for me, is not that it’s an absolute “truth” about the value  of the market(all valuations are personal), but it gives me a centre in the universe or a context if you like, independent of price and sentiment to evaluate things.

From this grounding I can more effectively evaluate price and all the other noise that sentiment creates through (social)media etc which offers up endless conflicting opinions on this and that.

For a long term approach I find it much more tranquil and financially rewarding to know roughly where we stand using data from the underlying economy to determine value and evaluate the noise from that position than the reverse of having to try and determine value and when to take on risk by analysing all the noise and conflicting sentiment.