Our Framework
A structured methodology for identifying where we sit in the macroeconomic cycle, what that implies for asset behavior, and how to position around it.
Most investors think about markets through the lens of single securities or sectors. Elysium does the opposite: identify the macro regime first, then derive asset-class positioning from it. The regime sets the risk-reward profile across the entire investable universe; getting the regime right beats getting individual stock picks right.
01 · Foundations
Regime Cycles
Elysium classifies macro states by growth and inflation momentum. Growth drives earnings, inflation drives policy response, and the interaction between the two produces four persistent regimes.
- Regime I: Expansion. Rising growth, contained inflation. Favors equities, credit, and cyclicals. Policy is accommodative or neutral.
- Regime II: Overheating. Strong growth, rising inflation. Real assets and commodities outperform. Central banks tighten.
- Regime III: Stagflation. Weak growth, persistent inflation. Defensive and inflation-hedge assets outperform.
- Regime IV: Contraction. Weak growth, falling inflation. Duration and high-quality bonds outperform.
02 · Signal Architecture
Macro Structure
Regime identification is signal-driven, not narrative-driven; data alignment always precedes interpretation.
Signals are evaluated across level, momentum, and diffusion.
- Labor market dynamics: participation, wage growth, initial claims, job-openings ratio.
- Credit conditions: IG/HY spreads, lending surveys, commercial lending growth.
- Inflation structure: CPI decomposition into goods, shelter, and services.
- Yield curve shape: 2s10s spread, 3m/10y spread, real yield curve.
- Fiscal impulse: deficit trajectory, structural balance, investment vs transfer composition.
Signals are scored independently and aggregated into a composite regime score. Weights are updated periodically to reflect cycle phase.
03 · Monetary & Liquidity Architecture
Policy Transmission Mechanism
Economic regimes drive earnings, while liquidity regimes drive valuations. Policy operates through price and quantity channels.
The central bank referenced is the source of policy impulse with policy decisions executed through the federal funds rate and balance sheet.
- Policy Rate: cost of capital and discount rate anchor.
- Balance Sheet: reserve supply and systemic liquidity.
Rate velocity can trigger regime transitions. Balance sheet direction determines liquidity persistence.
Policy Matrix
- Low Rates + Expanding Balance Sheet: liquidity supercycle.
- High Rates + Expanding Balance Sheet: crisis stabilization environment.
- Low Rates + Shrinking Balance Sheet: passive tightening.
- High Rates + Shrinking Balance Sheet: full monetary restriction.
The dominant valuation transmission mechanism is the real yield channel. Rising real yields compress duration-sensitive assets. Falling real yields support multiple expansion and risk appetite.
04 · Application
Allocation Philosophy
The framework isn't designed to forecast exact market levels; it's designed to identify asymmetric opportunities when positioning is inconsistent with macro regime signals.
Three horizons are considered simultaneously:
- Strategic (3–5 years): demographic, fiscal, geopolitical structure.
- Cyclical (6–18 months): regime-based tilts.
- Tactical (1–3 months): positioning, flows, sentiment structure.
- Early cycle → cyclicals, small caps, high beta.
- Late cycle → commodities, real assets, inflation hedges.
- Disinflation → long-duration growth assets.
- Restriction → quality, value, defensive positioning.
Tactical signals should not override well-supported cyclical positioning. Position sizing is a function of confidence and drawdown control.
05 · Principles
Core Beliefs
- Regime identification is highest value. Asset selection is secondary.
- Portfolios are often implicitly regime-concentrated. Make exposures explicit.
- Policy reaction functions are structured. Historical cycles provide probabilistic boundaries.
- Liquidity drives multiples. Earnings matter long term; liquidity matters short term.
- Rate of change matters more than level. Markets discount acceleration.
- Conviction must be translated into sizing. Avoid structural drawdowns.