Bond & SPX Liquidity Model Updates

Where do we stand?

Last year, I presented two long-running bond allocation models, which have informed us when to hold bonds and when to fold them. Both models have a great track record, reaching back to the late 1980s and early 1990s, respectively. In 2022, they both successfully sidestepped the vicious bond sell-off and then re-engaged in bond markets only temporarily in 2023 before triggering a buy signal in early November 2023.

See the write-up from last year below.

Similarly, I presented a liquidity model in the Macroscope series, which took my thesis on relevant liquidity flows and integrated this concept into an allocation model for the SPX. Since 1962, this very simple model has beaten the index hands down while also doubling the Sharpe ratio by avoiding larger drawdowns.

I have updated the models with the most recent weekly data ending yesterday to see whether something has changed.

Let’s explore.