Hedgeye's Macro Model―Growth, Inflation, Policy Model

"In The Arena" with Darius Dale & Daryl Jones (YouTube link)

Hedgeye's GIP model (i.e. Growth, Inflation, Policy Model) is a regime-based sort of framework. Both Dallio's Reserch and Hedgeye findings have proven that the two most important factors for investors to track the future financial market returns is the the rates of change in:

• Growh 
• Inflation.

as policymakers typically respond to subsequent levels on a lag.

From the rate changes, you get four possible outcomes, each of which is assigned a “quadrant” in their Growth, Inflation, Policy (GIP) model and the typical government response as a result (neutral, hawkish, in-a-box or dovish):

• QUAD 1
• Growth accelerating, Inflation slowing 
• Monetary policy bias: Neutral
• Market Narrative: Goldilocks
• Normally, you see
• Really positive for both equity and credit data across all sectors of the U.S. economy
• The best quadrant for equity return
• QUAD 2
• Growth accelerating, Inflation accelerating
• Monetary policy bias: Hawkish
• Market Narrative: Reflation
• Normally, you see
• Economy is overheating
• Bond yield rising
• 2nd best quadrant for equity return
• QUAD 3
• Growth slowing, Inflation accelerating 
• Monetary policy bias: Neutral
• Market Narrative: Stagnation-to-Stagflation
• Normally, you see
• Late-cycle expansion
• Stock-picker's & credit-picker's market
• QUAD 4
• Growth slowing, Inflation slowing 
• Monetary policy bias: Dovish
• Market Narrative: Deflation
• Normally, you see
• Quite negative for both equities and credit
• Unless you invest in safe-haven asserts such as treasury bond, gold, and dollar

Senior Macro analyst Darius Dale at Hedgeye explains how their GIP Model can help investors proactively prepare their portfolios for “bouts of volatility,” recession and more.

Here’s a key excerpt.^[2]

“If we can use our forecasting tools to sidestep bouts of volatility in particular asset classes, we can grow the net asset value of our portfolios in a much more risk reduced manner…What you see heading into a recession is that cycles tend to peak out in Quad 3… Then you slow into Quad 4 and that persistency of Quad 4, Quad 4 after Quad 4, is how recessions occur…We don't necessarily care about calling recessions because again, if we're set up for the asset allocations that history would suggest you should be in for Quad 4 and Quad 3 as well, then you don't necessarily have to make the recession call because you're already in the right types of assets that do well.”

References

1. Growth, Inflation, Policy (GIP) Model
2. "In The Arena" with Darius Dale & Daryl Jones
3. Hedgeye's "Trade,Trend,Tail Process"
• "Trade" is a duration of 3 weeks or less
• "Trend" is a duration of 3 months or more
• "Tail" is a duration of 3 years or less
4. The World's Top Experts On Money & The Markets
• Jim Grant, Lacy Hunt, Luke Gromen, James Rickards, Danielle DiMartino Booth, Brent Johnson, Lance Roberts, Tavi Costa, Rick Rule