Macro Research

Systematic Macro macro cycles regimes all-weather
Bottom Line

Macro research pending data load.

The economic machine framework decomposes markets into growth, inflation, credit, and liquidity regimes to identify cross-asset positioning.

--
Economic Machine
--
Debt Cycle Phase
--
Liquidity Regime
--
Risk Appetite
--
Diversification Score
Economic Machine: Cross-Asset Cumulative Returns (Indexed to 100)
Asset Name 1M Return 3M Return Corr to SPY RSI Regime Signal

Action Framework

A 2×2 decision matrix mapping the growth dimension against the inflation dimension to determine regime-appropriate positioning.

Growth Rising + Inflation Rising
Reflation / Overheating
Real assets outperform. Overweight commodities, TIPS, and equities with pricing power. Duration is a drag. Favor hard assets over financial assets.
Growth Rising + Inflation Falling
Goldilocks
The optimal environment for risk assets. Lean into duration and growth equities. Corporate bonds outperform Treasuries. Extend portfolio duration.
Growth Falling + Inflation Rising
Stagflation Risk
The most hostile regime for balanced portfolios. Gold, commodities, and cash. Reduce duration, avoid credit. Nothing works except real assets.
Growth Falling + Inflation Falling
Deflationary Deleveraging
Long duration bonds are the primary hedge. Quality equities and Treasuries. Reduce risk broadly. Central bank intervention becomes the key variable.

Overview

This analysis applies a systematic macro framework to decompose global markets into the fundamental drivers that move asset prices: real growth, inflation, credit conditions, and liquidity. Rather than forecasting any single variable, the approach reads the price signals that asset classes collectively emit about the state of the economic machine.

The economic machine operates through two overlapping cycles. The short-term debt cycle (5–8 years) drives business cycle fluctuations — credit expansion, overheating, tightening, and recession. The long-term debt cycle (50–75 years) governs the secular trajectory of debt-to-income ratios, interest rate floors, and the eventual need for deleveraging through restructuring, austerity, or monetization.

The all-weather decomposition recognizes that every asset class has an environmental bias. Equities thrive when growth exceeds expectations. Bonds thrive when inflation falls. Commodities thrive when inflation rises. Gold responds to real-rate expectations and monetary uncertainty. By mapping each asset to its environmental sensitivity, we can read market prices as a vote on the current and expected economic regime.

Asset Universe

  • Equities: SPY (S&P 500), QQQ (Nasdaq 100), IWM (Small Caps), EEM (Emerging Markets), VEA (Developed International)
  • Fixed Income: TLT (20Y+ Treasury), IEF (7–10Y Treasury), SHY (1–3Y Treasury), LQD (Inv Grade), HYG (High Yield), TIP (TIPS)
  • Real Assets: GLD (Gold), DBC (Commodities), VNQ (Real Estate)
  • Currency: UUP (US Dollar Index)

Strengths

  • Framework-driven rather than forecast-driven
  • Cross-asset signals provide confirmation across markets
  • Regime classification is directly actionable for allocation
  • Correlation matrix reveals diversification opportunities in real time

Limitations

  • ETF proxies introduce tracking error vs underlying exposures
  • Regime transitions are identified with a lag (not predictive)
  • Correlation is unstable and regime-dependent
  • No incorporation of positioning, flows, or sentiment data

How to Read This Analysis

  1. Start with the BLOT headline. The dynamic headline synthesizes the growth/inflation regime, risk appetite, and cross-asset behavior into a single macro assessment. This is the executive summary of what markets are collectively signaling.
  2. Check the metrics strip. The Economic Machine indicator classifies growth conditions. The Debt Cycle Phase signals where we are in the credit cycle. Liquidity Regime reflects dollar and credit conditions. Risk Appetite and Diversification Score measure the portfolio-level implications.
  3. Read the Economic Machine chart. Four asset classes (SPY, TLT, GLD, DBC) indexed to 100. When stocks and bonds move together, policy uncertainty dominates. When they diverge, growth is the primary driver. Commodities and gold rising together signals inflation expectations.
  4. Switch to Risk/Safety Rotation. The SPY/TLT ratio reveals which macro regime dominates positioning. Above the 50-day SMA is risk-on territory. Below is risk-off. The speed and direction of the cross signal regime transitions.
  5. Check the Correlation Matrix. Rolling 60-day correlations reveal how diversification is working in the current regime. High positive correlation across asset classes means traditional diversification is failing — a hallmark of liquidity-driven markets.
  6. Use the All-Weather Decomposition. Performance bars grouped by the environment each asset thrives in. If growth-rising assets dominate, the economy is expanding. If growth-falling assets lead, defensive positioning is warranted.
  7. Map to the Action Framework. Use the 2×2 growth/inflation matrix to determine the appropriate portfolio posture for the current regime.

Key Equations

Pearson Correlation (Rolling Window)

$$\rho_{xy} = \frac{\sum_{i=1}^{n}(x_i - \bar{x})(y_i - \bar{y})}{\sqrt{\sum_{i=1}^{n}(x_i - \bar{x})^2 \cdot \sum_{i=1}^{n}(y_i - \bar{y})^2}}$$

Computed over a rolling 60-day window for each pair of asset classes. Values range from −1 (perfect negative) to +1 (perfect positive).

RSI (14-Period)

$$\text{RSI} = 100 - \frac{100}{1 + \frac{\text{Avg Gain}_{14}}{\text{Avg Loss}_{14}}}$$

Relative Strength Index. Values above 70 suggest overbought conditions; below 30 suggests oversold.

Cumulative Return (Indexed)

$$V_t = 100 \times \prod_{i=1}^{t}(1 + r_i)$$

Starting value of 100. Each day multiplied by (1 + daily return). Used in the Economic Machine chart.

Risk Appetite Score

$$\text{RiskAppetite} = \text{clamp}\left(\frac{R_t^{\text{SPY/TLT}} - \text{SMA}_{50}(R^{\text{SPY/TLT}})}{\sigma_{50}(R^{\text{SPY/TLT}})} \times 25 + 50,\; 0,\; 100\right)$$

Z-score of the SPY/TLT ratio relative to its 50-day mean and standard deviation, rescaled to 0–100.

Diversification Score

$$\text{DivScore} = 100 \times \left(1 - \frac{1}{\binom{N}{2}} \sum_{i < j} |\rho_{ij}|\right)$$

One minus the average absolute pairwise correlation across all asset classes. Higher values indicate better diversification.

Regime Classification

Economic Machine: If 50-day SMA of (SPY+IWM) cumulative return is trending up and above (GLD+TLT), classify as "Growth." If trending down, "Contraction." Otherwise, "Slowdown."

Debt Cycle Phase: Derived from the credit spread (HYG−LQD cumulative return differential) and yield curve proxy (TLT−SHY). Tight spreads + steep curve = "Early." Tight spreads + flat curve = "Mid." Wide spreads + steep curve = "Late." Wide spreads + flat curve = "Deleveraging."

Liquidity Regime: Dollar strengthening (UUP trending up) with credit tightening (HYG underperforming) = "Tight." Dollar weakening with credit expanding = "Abundant." Mixed = "Neutral."