Quads: a Macro Method for Navigating the Economy
Understanding the Quads: How NEST Navigates the Economy for Smarter Investing
If you have been following NEST for a while, you have heard Sean talk about the Quads in monthly letters and the NEST Edge webinar.
But if you are not a professional financial advisor (and even if you are), the Quads can seem complicated.
At NEST, we focus on two key factors when forecasting market returns: growth and inflation. We track both across multiple durations based on their rate of change. This gives us the big picture needed to manage portfolios intelligently.
The Quads are central to how we make investment decisions. This post explains what they are, how we use them, and why it matters for you.
What Are the Quads?
The Quads are based on Hedgeye’s Growth, Inflation, Policy (GIP) Model.
They provide a framework for understanding market conditions by tracking the rate of change in growth and inflation.
There are four Quads, each determined by whether growth and inflation are accelerating or decelerating.
By understanding which Quad we are in, we can align our portfolios with the right asset classes at the right time.
This approach is much more adaptive and responsive than traditional Modern Portfolio Theory.
The Quads Explained: What to Invest in and Why
Quad 1: Goldilocks
Growth accelerating, Inflation slowing
A favorable environment for equities, credit, commodities, and foreign currencies.
Strong growth without runaway inflation.
Quad 2: Reflation
Growth accelerating, Inflation accelerating
Investment focus remains on equities, commodities, credit, and foreign currencies, but with heightened awareness of rising prices.
Quad 3: Stagflation
Growth slowing, Inflation accelerating
During stagflation, equities become less attractive. We favor gold and commodities. Stagflation creates a difficult environment, but gold and select commodities offer more stability.
Quad 4: Deflation
Growth slowing, Inflation slowing
The most challenging economic environment. We shift to safer assets such as gold, bonds, and the U.S. dollar.
How Do We Know Which Quad We Are In?
The economic data confirming which Quad we are in often comes with a lag.
However, by analyzing economic indicators and observing real-time behavior in the markets, we make informed projections.
This allows us to position our clients' investments strategically ahead of confirmed data.
Why NEST Uses the Quads Instead of Static Models
Most advisors stick to outdated portfolio theories that ignore macroeconomic changes. They ride through downturns hoping for long-term recoveries without adapting.
At NEST, we actively manage portfolios. We use real-time data to anticipate shifts and move into the best-positioned asset classes.
There is no such thing as a "bad" market. Only bad investment strategies.
Why This Matters for Your Financial Goals
Static models leave investors vulnerable to unnecessary losses.
At NEST, we focus on minimizing losses and maximizing growth by understanding and adjusting to economic conditions.
If you simply follow a fixed investment model, it is like driving toward a destination with outdated directions.
Our approach is more like using a constantly updated navigation system, steering you around obstacles quickly and efficiently.
The NEST Difference
We bring a unique combination of technical trading expertise and macroeconomic analysis.
We understand the fine details and the larger economic picture.
Most firms are not looking at rates of change in growth and inflation. We are.
Most firms are not adjusting portfolios based on real macroeconomic signals. We are.
That is what sets NEST apart.
Ready to Align Your Financial Strategy with the Economy?
If you want to avoid unnecessary risks, maximize opportunities, and work with experienced professionals who know how to adapt in any environment, let us help.
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DISCLAIMER:
We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and do not constitute financial planning or investment advice.
For personalized advice, please contact info@nestfinancial.net.