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CPgLI indicator (bars below chart)
provides assessment of the strength
of USA profits growth;
S&P 500 index follows profits trend
at major turning points

CPgLI strategies outperformed market

Actual independently audited performance

Our Presentations
Allocation Switch CPgLI 10-year Track Record
CPgLI introduction
CPgLI - GB Capital presentation
Macro Trends
New Funds Management Products
Dynamic Asset Allocation for Financial Planners

Our Papers
The Indicators of Stock Market Macro Turning Points During Global Financial Crisis - Application to Dynamic Asset Allocation Investment Strategy Using Index and Exchange Traded Funds

A Concept of Multiple-Entity Accounting for Capital Distribution

Our Articles

Bijak's Macroeconomic Digest
in Australian Hedge
2011 12
2012 02
2012 03
2012 04
2012 09
2012 11
2012 12
2013 02
2013 03 04
2013 06 07
2013 08

2013 11
2014 02
2014 05

in Seeking Alpha
Reduce Drawdown By Allocation Switch- A Portfolio Review Tool
The Global Fiscal And Monetary Policy Shift Moves Markets

The Indicators Of Stock Market Macro Turning Points During The Global Financial Crisis

Bullish Case For Europe: Joint Euro Bonds
ECB Needs To Rescue German And French Banks More Than European Periphery
The 2010, 2011, 2012 Corrections Were P/E Multiple Related; Earnings Were Sound
When 'I Don't Know' Is The Right Forecast: U.S. Equities
Is it Time To Borrow Again? - The Cycle Lives On

Emerging Markets At Risk

in Savvy Investor
Reduce Drawdown by Allocation Switch - A Portfolio Review Tool

The Indicators of Stock Market Macro Turning Points During Global Financial Crisis
A Concept of Multiple-Entity Accounting for Capital Distribution

in Cuffelinks
Reduce drawdowns by using Allocation Switch

in Advisor Perspectives
list of articles


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Why we do it - Our Beliefs

› We believe it is impossible to consistently predict the stock market.

› The market is cyclical and prone to big falls, due to fluctuating macroeconomic forces.

› Asset allocation largely determines risk & return of a portfolio.

› Investors should try to avoid the painful falls by proactive management of the allocation to equities.

› The exact timing of market falls is not possible to predict so proactive risk management solutions can instead focus on:

1. Identifying macroeconomic conditions associated with periods when the market is more likely to decline rapidly,

2. Identifying early signs or leading indicators of these dangerous periods that will give investors an early warning to reduce exposure to equities and switch to a more defensive strategic asset allocation.

How We Do It

We established that the USA stock market follows changes in the Corporate Profits when assessed across the entire economy (so called NIPA Profits). The US stock market and aggregate Corporate Profits were more than 90% correlated over the past 70+ years.

Majority of the big market falls, indicated by a larger drawdown, occurred during the weaker profits growth periods. The drawdown is a decline from a prior historical peak and is depicted in red on the chart below.

By contrast, periods of stronger profits growth were typically associated with a rising US stock market and smaller drawdowns.

We concluded, that weaker profits growth could be used as the early sign or leading indicator of the more dangerous or weaker market periods when the falls are more likely to occur.

What We Do

We developed a quarterly indicator of a relative strength of Corporate Profits growth. It is not trying to do the impossible and forecast the profits value at a point in time. It only judges the profits growth strength over the period at one of the broad four degrees of strength: Weak, Slow, Upward, Upward Strongly. We labelled the indicator the Corporate Profits Growth Leading Indicator (CPgLI).

We also developed an asset re-allocation tool called ‘Allocation Switch’, based on the CPgLI indicator. The macro tool provides investors with quarterly recommendations as to when to reduce allocation to equities and when to switch to a defensive strategic asset allocation. It helps to avoid exposure to the stock market during periods when profits growth is weak and rapid declines are more likely.

The methodology aims to reduce drawdown and to protect a portfolio’s value.

The indicator can give wrong signals. It is not foolproof and cannot be solely relied upon for risk management. Investment risk cannot be entirely eliminated.


The proprietary Corporate Profits Growth Leading Indicator (CPgLI) provides a quarterly outlook for the USA NIPA Profits growth.

The CPgLI indicator aims to provide advance signals of the most lucrative periods of the stock market when profits grow strongly and market follows the trend. Historically, these were the best times to be overweight/net long and leveraged in equities.

More importantly, the CPgLI indicator aims to reduce investment risk by identifying periods of weaker profits growth associated with below average and volatile stock market returns. Historically, such times required reduction of exposure to equities and avoiding leverage.

See our most popular tool: Allocation Switch

The National Income and Product Account (NIPA) Corporate Profits ( are closely aligned with the aggregate earnings of the S&P 500 index companies (see a comparison here), hence our NIPA Profits Outlook can be directly applied to indicate major macro turning points in the S&P 500 earnings.

Both, NIPA profits and S&P 500 earnings, strongly correlate at the major macro turning points to the S&P 500 USA stock market index and other broad U.S. market indices including Dow Jones, Russell 3000, Wilshire 5000, MSCI USA Index and NYSE Composite.

Global Applications

The CPgLI Outlook is also applicable to some degree, at the extreme macro turning points, to global indices that tend to be then synchronized with the USA such as S&P Global 100 and MSCI All Countries World Index.

Links to our quarterly CPgLI Outlooks and Special Situation Notes samples are on the left.

The 2007-2009 Global Financial Crisis was a true test of the CPgLI outlook performance

› In November 2007, CPgLI indicator issued strong SELL SIGNAL at the market TOP.

› In March 2009, CPgLI indicator correctly picked the BOTTOM of the market issuing strong BUY signal based on "Up strong" Outlook for V-shape recovery in corporate profits. 

› In May 2009 it correctly signaled beginning of the V-shape economic recovery.

› Then, for the next 4+ years in quarterly outlooks, the CPgLI indicator correctly indicated strongly growing profits and rising with it broad stock market.

› The indicator, however, did not predict the Lehman Brothers bank collapse in September 2008.

› The Special Situation Notes in April and May 2009 correctly signaled a sharp turnaround in the financial stocks.

› In November 2011 CPgLI Outlook predicted positive for stocks stabilization of the Eurozone.

Allocation Switch Users

Registered Investment Advisers can use the quarterly profits indicator, in combination with other risk management methods, to pro-actively adjust their clients’ asset allocation to broad USA equities or to switch strategic asset allocation from neutral base to defensive or growth options. The indicator is a practical top-down tool for periodic client portfolio reviews.

Dynamic Multi Asset Fund Managers can use the quarterly profits growth leading indicator, among other investment strategy tools, to decide on the S&P 500 index allocation and leverage.

Hedge Fund Managers can use the quarterly profits growth leading indicator as a top-down Macro Trend Filter for setting limits to net exposure to the S&P 500 index. The directional filter is best used to overwrite signals from trend following statistical models.

Proven Long Term Performance

The CPgLI Outlook provided advance signals of major turning points and trends in Corporate Profits growth.

The CPgLI indicator only signals the broad strength of the profits growth at four degrees: Weak, Slow, Up, Up Strong. It does forecast any future values.

Profits Growth outlook Growth actual %   CPgLI Outlook
7 years performance
4Q Up      
3Q Up 3.5  
2Q Up 1.1  
2012 1Q Up -2.7  
4Q Up 6.7  
3Q Up 1.6  
2Q Up 4.5  
2011 1Q Up strong -3.7  
4Q Up strong 2.3  
3Q Up strong 1.6  
2Q Up strong 3.0  
2010 1Q Up strong 10.5  
4Q Up strong 9.3  
3Q Up strong 10.1  
2Q Up strong 3.5   Profits Growth Outlook
2009 1Q Up strong 14.4    

Since 2006 an independent organization, has monitored and audited our CPgLI Dynamic Asset Allocation investment strategy in real time.

The investment strategy uses the proprietary CPgLI Outlook for equities asset allocation and leverage decisions after applying a degree of judgment by GB Capital Pty Ltd Dynamic Asset Allocation Consultants.

The CPgLI Dynamic Asset Allocation investment strategy outperformed the S&P 500 index

Return % CPgLI Dynamic Asset Allocation S&P500   CPgLI Dynamic Asset Allocation
7 years Returns
Total 7y 97.3 12.4    
Annual 7y 10.2 1.6    
2012 27.4 13.4  
2011 (15.5) 0.0  
2010 47.3 12.8  
2009 79.5 23.4  
2008 (24.8) (38.5)  
2007 (3.4) 3.5  
2006 (4.5) 11.7  
Sharp ratio 0.19 0  
Ulcer index 17.48 1.22  

Actual independently audited performance                        ...more

The CPgLI strategy fell less than market in 2008 and enhanced returns of rising market in 2009,10,12.

The CPgLI Global Macro investment strategy results

Return % CPgLI Global Macro S&P 500  

CPgLI Global Macro
4 years Returns

Total 4y 264.3 62.5    
Annual 4y 42.2 14.1    

2012 25.4 13.4  
2011 (12.4) 0.0  
2010 52.8 12.8  
2009 from May start 117.1 27.1  
Sharp ratio 0.55 0  
Ulcer index 0.35 0.22  

Actual independently audited performance                           ...more

Investment Decisions Tool for Dynamic Asset Allocation, Risk Reduction & Higher Returns

The CPgLI is a validated and proven tool for equities asset allocation and global macro strategies over the medium term.

The indicator aims to provide advance signals of the most lucrative periods of the stock market when corporate profits grow strongly and market follows the trend. Historically, these were the best times to be overweight and leveraged in equities.

The investment risk is reduced by limiting exposure to equities during the more volatile periods of a slower/weaker growth in profits. These are times to be underweight in equities and to avoid leverage.

This increased accuracy in profits growth outlook should provide a measurable improvement in investment returns for any multi asset diversified fund that invests in equities.

CPgLI enables New Product Development

The CPgLI outlook provides an opportunity to develop new investment products aiming to reduce risk and enhance returns.

Some examples of diversified fund opportunities are:

› enhanced traditional funds (conservative, balanced, growth, high growth)

› dynamic asset allocation

› capital guaranteed growth

› protected capital and flexible annuity

› leveraged

Click here for New Products presentation.

› CTA would enhance their core trend following and momentum strategies by adding the directional CPgLI Trend Filter for equities. CPgLI can be a foundation for new directional strategies supported by Stop Loss mechanism.

Our asset allocation consultants tailor the new products to our clients' investment philosophy and strategic investment parameters defined by investment boards and committees.

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