Devoted to understanding the basics and fundamentals of investing

Last week I went over a typical business cycle.  I related how different asset classes may be affected by the liquidity provided by the Fed and by the stage of the business cycle.  I promised to look at business cycles from different points of view.  Today I will give an alternative view.

Bridgewater Associates is an Investment Manager.  They manage money for institutional investors.  I believe they are very bright people and they have systematized their investment philosophy.  I will be discussing some ideas they made me aware of a few years ago.  I will only discuss details that Bridgewater has discussed in public conferences.  Find Bridgewater at www.bwater.com.

Bridgewater has simplified the business cycle.  They posit that the cycle can be modeled with two inputs, growth and inflation.  Each input is either rising or falling.  This gives you four possible scenarios; Rising Growth, Falling Growth, Rising Inflation, Falling Inflation. 
Each of the four scenarios have assets classes that do better and asset classes that do worse when those conditions prevail. 

Rising Growth
Equities
Commodities
Emerging Market Debt Spreads

Rising Inflation
Inflation Linked Notes
Commodities
Emerging Market Debt Spreads

Falling Growth
Nominal Bonds
Inflation Linked Bonds

Falling Inflation
Equities
Nominal Bonds

Using this model, Bridgewater has constructed portfolios that should do well no matter where you are in the business cycle.  They have 15 years of out performance to prove it.

How would you construct a portfolio to take advantage of the business cycle?