The Cap Nord method: reading the markets without predicting them

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What an asset responds to

The right starting question isn't "which asset to buy," but what does each asset respond to? Before looking at a price, we wanted to understand what moves it.

To do that, we went through the great economic theories one by one, and kept the ones that held under test.

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Stocks are unpredictable

The first result is disarmingly plain: nothing reliably anticipates stocks. Not the business cycle, not rates, not some miracle indicator. The only honest thing to say is this: when it rises, it rises; when it falls, it falls. The intuition is far from new — Charles Dow put it more than a century ago: a trend continues until it turns.

So we gave up guessing. Instead, we follow the trend: Faber (Meb Faber, an American fund manager and researcher) only quantifies it. We compare today's price to its average over the last ten months — above, the market is carried; below, it's broken, and we step aside. One reading a month, one fixed rule, no bet on tomorrow.

We don't invent a signal. We connect one that's already documented.

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Macro is explained by the real rate

Where stocks resist explanation, macro lets itself be read — above all through the real rate.

Two ideas are enough to grasp it:

• Wicksell (Swedish economist): when the rate actually charged drifts from the "natural" rate (the one that would balance the economy), money becomes too dear or too cheap. That gap is the signal — and it's what tips gold to one side and financial assets (stocks, bonds) to the other.
• Barsky-Summers: gold pays no interest. Holding it therefore "costs" more the higher real rates are — you give up what parked money would have earned. Hence the tilt: when the real rate falls, gold tends to become attractive; when it rises, gold tends to suffer.

What's left is to cut time into regimes — periods where the economy runs a certain way (for example: low, durable real rates). We spot a change of regime when these signals flip — the real rate or the trend turning direction. Another, more technical method (the "regime switching" of economist James Hamilton) serves only to check that we're cutting in the right place. We didn't force a ready-made grid onto the data: this segmentation was kept because it held under test, not decreed in advance.

The same Hamilton showed that energy shocks often precede recessions. That link, we only validate halfway: energy flags some crashes, not all. That's enough to keep a small energy guardrail — useful when an energy shock precedes the break — not enough to make it a decision axis.

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Return, but not at any price

The goal isn't the biggest number. It's the best possible real return — without taking on volatility (the size of the rises and falls) or losses you can't live with.

Having €10,000 on Monday and €100 on Friday is unlivable. And it's not just about nerves: you may need your savings on any given day of your life — a home, a child, retirement. A portfolio that collapses the day you draw on it is worth nothing, even if it "performs" on paper.

Not losing comes before performance.

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Protect first

The direct consequence: before chasing return, we cut structural risk. We narrow the playing field to the least fragile situations, through two gates:

• The rule of law. We admit only countries that honor their contracts — measured by the World Bank's rule-of-law indicator. Institutional fragility has historically had a price, especially in a crisis.
• Borio — the credit cycle. We screen out countries in credit excess (too much debt piled up too fast), an early warning of financial breakage.

We didn't set them down on a whiteboard: we confronted them with the history of crises. The question, each time: did the signal see the break coming? Not just in 2008 — but episodes like the Spanish and Irish credit booms, the Scandinavian crisis, or Japan in the 1990s. And without ever tuning the thresholds to fit those crises: they stay conventions (for example the alert threshold of the Bank for International Settlements).

Two risk filters, never return: they don't say where things will rise, they screen out where things can break.

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Macro explains, it doesn't predict

Because it's always late. Macro figures are published and revised with a quarter, sometimes a year, of lag. To forecast markets from macro, you'd first have to forecast macro itself — and no one has a crystal ball.

We know yesterday and today. Tomorrow stays a mystery.

Macro lights up the past. It says nothing about the future.

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Read the present, don't forecast the future

By flipping the problem. Rather than waiting on a lagging macro, we characterize the regime of the moment by its symptoms — and the symptoms are real-time.

We read the price of gold (the thermometer of the real rate), stocks (through ETFs, those listed baskets that track a whole market, like the CAC 40), the 10-year government bond — the "10Y" — and the income it pays while you wait (its "carry"). From those prices, we deduce the current regime.

One last point: we read in gold, but count in dollars. Reading "in gold" means measuring prices in quantities of gold rather than in euros or dollars: gold is neutral toward currencies (the exchange-rate effect cancels out), which lets you compare markets without getting caught by a weakening currency. That said, gold isn't stable — when it takes off itself, as in 2015–2025, this reading has a blind spot. But we count the result in dollars, the currency where the investor actually gains — or loses. (We unpack this double reading in Comparing a currency in USD or in gold.)

It's the exact opposite of a forecast. We don't predict macro: we read it in the prices.

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What the method does not do

No forecast, no bet on the next move. No personalized recommendation, no promise of performance. No setting retouched after the fact to fit the past.

The rules — the ten-month window, the filter thresholds — are fixed and conventional: chosen because they're robust, not finely tuned.

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Takeaways

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Go further

• The Cap Nord Manifesto — why enduring beats being right.
• Volatility is not risk — why losses count more than the jolts.
• Why a moving average can mislead — the limits of the trend signal.
• Comparing a currency in USD or in gold — reading in gold, the neutral base.

Explore the macro regime map

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