Case Study
The Global Financial Crisis
Between 2007 and 2009, global equity markets fell 50%+, credit markets froze, and the 60/40 portfolio lost a third of its value. In backtested analysis, RegimeR would have preserved an average of 34.8pp of portfolio value across four regions.
The credit cascade
The GFC was a credit-driven contraction — the archetype of what RegimeR classifies as a Contraction regime. Subprime mortgage defaults triggered a cascade through securitised credit, bank balance sheets, and ultimately the real economy. The S&P 500 fell 55% peak-to-trough. The FTSE 100 fell 48%. The DAX fell 54%. The ASX 200 fell 54%.
The 60/40 portfolio provided partial protection — bonds rallied as central banks cut rates — but not enough to prevent catastrophic drawdowns for institutional investors with fiduciary obligations.
Four regions, one crisis, consistent protection
The GFC hit every region but with different timing and severity. UK banks (Northern Rock, RBS, HBOS) showed stress months before the US peak. Australian resource stocks amplified the equity drawdown. German banks had significant exposure through structured products. In backtested validation, RegimeR detected the regime shift in each region.
| Region | Period | 60/40 | RegimeR | Preserved | Ratio |
|---|---|---|---|---|---|
| US | Oct 2007 – Mar 2009 | -22.6% | +16.1% | +35.8pp | 13.5:1 |
| AU | Jan 2008 – Mar 2009 | -25.2% | +12.1% | +31.4pp | 6.4:1 |
| DE | Jan 2008 – Mar 2009 | -31.8% | +7.0% | +35.5pp | 11.6:1 |
| GB | Sep 2007 – Mar 2009 | -29.1% | +10.4% | +36.6pp | 13.3:1 |
The US and GB produced the strongest preservation ratios (13.5:1 and 13.3:1) — the markets where the credit cascade ran deepest.
The key insight
In backtested analysis, RegimeR would have detected the regime shift through rising high-yield spreads, contracting leading indicators, and yield curve inversion — reclassifying as credit stress broadened across regions. Lead time ranged from 1 month (US) to 13 months (GB, where Northern Rock signalled stress early).