Our approach to reading the macro cycle. Each pillar captures a distinct dimension of the economy. Together they feed a layered risk architecture that guides allocation decisions, combining quantitative rigor with experienced judgment.
The 12 pillars are organized into three engines, each capturing a distinct dimension of macro risk. When the engines agree, conviction rises. When they diverge, we dig deeper. The framework provides structure. Interpretation requires judgment.
The MRI synthesizes all 12 pillars into a regime indicator, classifying the environment from Low Risk through Crisis. The framework provides the signal. Judgment, pattern recognition, and experience determine how we act on it.
The real economy. These seven pillars track the fundamental drivers of economic activity: labor markets, inflation, growth, housing, consumers, business investment, and trade.
The labor market is the economy's truth serum. We track flows, not stocks. Quits reveal worker confidence before unemployment rises. Temp help leads payrolls. Hours lead headcount. The signals are there if you know where to look.
Inflation isn't one thing. We decompose it into goods, services, shelter, and energy. Each has different drivers, different lags, and different policy implications. Shelter lags reality by 12-18 months.
GDP is backward-looking. We focus on the second derivative: is growth accelerating or decelerating? PMIs, industrial production, and real-time nowcasts tell us where we're headed, not where we've been.
Housing is the most rate-sensitive sector. The current market is frozen: existing homeowners locked in at 3% won't sell, while new buyers face 7% rates. This creates a supply-demand imbalance that defies normal cycles.
The consumer is 68% of GDP but a lagging indicator. By the time consumer spending rolls over, the recession has already started. We watch credit conditions, savings rates, and confidence as leading signals.
Business investment is a forward commitment. Capex decisions made today reflect expectations about demand 12-24 months out. When businesses pull back on investment, they're telling you something about the future.
Global trade flows reveal demand that domestic data misses. The dollar is the transmission mechanism: a strong dollar tightens global financial conditions, while tariffs create inflationary pass-through with variable lags.
The plumbing. These three pillars track the flow of money through the financial system: government fiscal dynamics, credit conditions, and Fed liquidity operations.
Fiscal dominance is the defining macro theme of this decade. $36T in debt, $1T+ annual deficits, and a maturity wall that requires constant refinancing. Treasury supply is no longer a background variable.
Credit spreads are forward-looking but can be wrong. We cross-reference credit conditions against labor market health. When spreads are tight but labor is deteriorating, credit is mispricing risk. That gap is where opportunity lives.
The Fed's balance sheet mechanics matter more than the policy rate. Reserves, the RRP facility, and repo market dynamics determine whether liquidity is abundant or scarce. When the buffer is gone, volatility arrives.
Price action and positioning. These two pillars track market internals, breadth, momentum, and sentiment. They tell us how participants are positioned and whether price action confirms or diverges from fundamentals.
Price can lie, but breadth cannot. When indices make new highs but fewer stocks participate, that's distribution. We track whether the rally has broad participation or is narrowing to a few names. Generals without soldiers don't hold territory.
Sentiment is only useful at extremes. We track surveys, positioning data, and options flow to identify capitulation and euphoria. Combining sentiment with market structure helps spot blow-off tops and washout lows. The crowd is wrong at the moments that matter most.