Macro Liquidity Compass

liquidity dial expanding (3m change z +0.24, gross 67%, 86th pct of its history); stress calm

haven leg should lean gold / cash — stock-bond hedge is IMPAIRED (realised corr +0.55, since 2021-01)

How the three readings work

Liquidity dial — the primary setting

Tracks the three-month trend in U.S. net liquidity. Expanding liquidity pushes the gross-exposure dial up; draining liquidity pulls it down. This is the one axis with a robust historical track record, so it does most of the work.

Stress veto — the fast brake

A weekly funding-stress composite that can trim exposure further when markets seize up. It only reduces risk, never adds it, and refreshes weekly so it acts while the stress is still current.

Haven regime — which shock absorber

Looks at whether stocks and bonds are moving together or apart. When they move together (bonds stop hedging), the defensive ballast leans toward gold and cash instead of Treasuries. This decides what the safe sleeve holds, not how much risk to carry.

Gross exposure set by the net-liquidity dial each month. Higher = looser liquidity, lower = draining. The weekly stress veto can trim further in real time.

Choosing a tier

All three tiers apply the same liquidity dial and stress veto — they differ only in the book underneath. Pick the one whose worst-case drawdown you could actually sit through.

Balancedflagship

Equal-weight across 9 asset-class sleeves, scaled by the liquidity dial + stress veto.

Defensive

Causal inverse-volatility risk-parity sleeves — the lowest-drawdown book.

Growth

Equity-cluster tilt (70% to four equity sleeves) — the higher-return, higher-drawdown book.

How to read the numbers

CAGR

— compound annual growth rate — the smoothed yearly return over the test.

Sharpe

— return per unit of total volatility; higher is steadier for the return earned.

Sortino

— like Sharpe but penalises only downside volatility, not upside swings.

Max DD

— the deepest peak-to-trough loss endured — the pain you'd have had to sit through.

Ret/DD

— return earned per unit of worst drawdown — the compass's headline efficiency measure.

Methodology & honest limits

No tier earns a risk-adjusted abnormal return over the passive blend; the compass earns its place on drawdown EFFICIENCY (return per unit of drawdown), not on excess Sharpe. Reported in full for honesty.

Tested over 208 months (2009-02–2026-05) on point-in-time data, so every reading uses only what was knowable at the time. The compass is graded against passive blends through a battery of overfitting checks; the result above is reported as-is, edge and absence of edge alike.

Frequently asked

What is the Macro Liquidity Compass?

It is a descriptive monitor that reads two slow-moving forces in the U.S. financial system — how much liquidity the banking system is supplying, and how much stress is showing up in funding markets — and translates them into a single gross-exposure setting: how much of a diversified portfolio should be at risk versus held back. It is built to manage drawdowns through full cycles, not to time individual trades.

What is 'net liquidity' and why does it matter?

Net liquidity is the cash the Federal Reserve's balance sheet leaves available to the financial system — broadly the Fed's assets minus the Treasury's cash account and reverse-repo balances. When it expands, risk assets have historically faced an easier backdrop; when it drains, drawdowns have tended to be deeper. The compass reads the trend in this quantity, not its level.

What does the stress veto do?

Separately from the slow liquidity trend, the compass watches a weekly funding-stress composite (credit spreads, volatility, and financial-conditions indexes). When stress spikes, the veto trims gross exposure further, on top of whatever the liquidity dial says. It only ever reduces risk — it never adds leverage — and its edge depends on staying fresh, which is why the input refreshes weekly.

What is the difference between the Defensive, Balanced, and Growth tiers?

All three apply the same liquidity dial and stress veto; they differ only in the underlying book. Defensive is a risk-parity mix weighted toward stability. Balanced is an equal-weight spread across nine asset-class sleeves and is the flagship. Growth tilts toward equities for more upside and a deeper expected drawdown. Pick the tier whose drawdown you can sit through.

Does the compass beat the market?

No — and it does not claim to. Across the backtest it does not produce a risk-adjusted abnormal return over a passive blend. What it does is manage drawdowns: it earns its place on return-per-unit-of-drawdown (efficiency), not on excess Sharpe. We report that openly rather than dress it up.

Is this investment advice?

No. MacroRadar is a descriptive monitor of historical economic and market indicators. Nothing here is a forecast, a trading signal, or personalised advice. Backtested results are historical and do not guarantee future outcomes.

How often does it update?

The liquidity dial reads monthly on the rebalance grid; the stress veto refreshes weekly so it can act while stress is still current. The live present-state read on this page updates as new data lands.