BRIEF NOTE :

A note on timing: I’ve been working on this post for a couple of weeks. The section on Middle East escalation and the Strait of Hormuz was written as a stress-test exercise against a hypothetical scenario. As of publication, that scenario is no longer entirely hypothetical — events in the region are moving quickly.

Portfolio Adjustments Ahead of Recent Event

Given the rhetoric coming out of Washington and Jerusalem, the build-up of our Navy in the Persian Gulf, and the failure of negotiations, I grew very concerned that at attack was forthcoming.  I made  a number of changes to client portfolios ahead of the start of the current conflict as well as in the early hours after it started:  exposure increased to energy companies, metals companies, agriculture companies, and industrials – we were already maxed out on defense companies;   exposure reduced  to highly valued technology companies and other over-valued stocks, booking gains ahead of any market pullback;  some underperforming software companies were eliminated – longer term we will want to own them, but in recent months they have come under pressure due to the fear that AI Agents could perform their functions at the corporate level and that their earnings would suffer.

Although the specific Black Swan was World War III coming out of the Middle East, in no way am I saying that we are now in World War III.  Rather, I’m publishing the analysis as written because the framework doesn’t change based on whether a crisis is theoretical or live. If anything, the timing is a reminder of why we structure portfolios to manage risks before we need them, not after.

Why Black Swans Matter More Than Ever

This Stuff Matters

If you’ve been following this blog, you know that managing downside risk isn’t an afterthought around here — it’s woven into how we think about every portfolio decision. A while back I wrote a piece on the role of leverage in stock market tops. The core thesis was simple and not comforting: leverage near record highs — leveraged funds approaching $100 billion with fewer bets against the market than ever — is historically the kind of fuel that doesn’t just accelerate gains but amplifies crashes in ways that can permanently impair wealth. The dot-com busttook the Nasdaq down nearly 80%. Lehman Brothers was running 30-to-40-to-1 leverage ratios when 2008 hit. Both events looked manageable right up until they weren’t.

More recently I wrote about the sovereign debt picture and what a real crisis looks like from the inside. The point wasn’t to predict a collapse — it was to give readers a framework for watching the right signals. As I wrote there, a debt crisis doesn’t begin when some magic debt-to-GDP number gets crossed. It begins when financing conditions change: when markets start demanding meaningfully higher yields to buy our bonds, when inflation expectations get wobbly, when the routine of rolling over Treasury debt starts feeling less automatic. The framework is: watch for stress signals and build accordingly.

The Real Cost of Ignoring Tail Risks

This post is the natural next step. Both of those threads — leverage-driven market fragility and sovereign debt trajectory — point toward the same question: what happens to a portfolio built for growth if one of the genuinely bad scenarios actually arrives? Not a garden-variety recession. Something worse. I think walking through that honestly is part of the job.

Most of the investment world is optimized for what’s probable. Normal recessions. Fed rate cycles. Earnings misses. The 10–20% pullbacks that are uncomfortable but don’t permanently impair wealth. I spend time on those too.

But the events that actually destroy wealth — permanently — are the ones that get dismissed until they happen. Black swans, as Nassim Taleb labeled them: low-probability, high-impact events that look obvious in hindsight and catastrophic in the moment. I want to walk through three of them in detail. Not because either is my base case, but because building portfolios without stress-testing them against the scenarios that could cut account values in half is, frankly, negligent.

A 10% correction is uncomfortable. A 50% drawdown in the wrong names is something else entirely — especially if you’re retired or within five years of it.

Because of this, I’ve been working on and finished a financial model that stress tests various black swan scenarios in order to improve the risk management aspect of our portfolio management activities.  Our clients pay us to do our best on their behalf, so this bit of extra effort is one of the things they get with us that other investment managers do not provide.

Ranking Black Swan Risks: From Credible to Outlandish

The Black Swan Menu: From Plausible to “Please Take Off the Tinfoil”

Before I get into the three scenarios I’ve stress-tested in detail, it’s worth laying out the full list we worked through. There are a lot of things that could go badly wrong in the world. Not all of them deserve the same analytical attention — some are genuinely worth building around, some are worth monitoring from a distance, and some are the kind of thing you find on a message board at 2 a.m.

Here’s how I’d roughly rank them, from most to least likely to actually matter to a portfolio:

Tier 1: Keep-Me-Up-at-Night Events

(Credible, Buildable, Already Influencing Portfolios)

These are the scenarios I take seriously enough to actually position around. History has examples of all of them. Some are happening in slow motion right now while some could happen at any moment.

China invades Taiwan — The single most dangerous scenario for our AI/semiconductor-heavy portfolios. Taiwan Semiconductor Company (TSMC) fabricates roughly 90% of the world’s most advanced chips. A shooting war or serious blockade disrupts global computing for years, not months. We deep-dive this one below.

World War III — NATO/Russia escalation from Ukraine — The Russia-Ukraine war is already the largest conventional land conflict in Europe since 1945. A NATO Article 5 trigger — a Russian strike that kills NATO soldiers or hits alliance territory — transforms a proxy conflict into a direct superpower confrontation overnight. The result is an immediate flight to safety, a defense spending surge across every NATO member, and an energy price spike that dwarfs 2022. Our portfolio carries meaningful exposure to the beneficiary side of this scenario through defense names and energy producers. The risk is that it goes nuclear, at which point all portfolio assumptions become irrelevant.

World War III — Middle East escalation — An Israeli strike on Iranian nuclear facilities, or an Iranian miscalculation that pulls the US in directly, creates an escalation ladder with no clear stopping point. Unlike a Taiwan conflict, this is primarily a demand and confidence shock rather than a supply destruction event — semiconductor supply chains survive, but oil prices spike, defense budgets expand globally, and risk-off selling hits equities broadly. The wildcard is the Strait of Hormuz: roughly 20% of the world’s oil transits that chokepoint. A closure, even temporary, produces an energy price shock with immediate global recession implications.

U.S. sovereign debt/dollar crisis — Not a default in the traditional sense — the U.S. can always print dollars. The risk is a confidence crisis: foreign holders reduce Treasury exposure, auction demand weakens, the 10-year yield drifts toward 6–7%, and a self-reinforcing cycle takes hold. We’re already spending over $1 trillion per year in interest. This one gets its own deep dive below too.

Major pandemic — worse than COVID — COVID demonstrated that a genuine shutdown scenario is not hypothetical. A novel, highly lethal pathogen with longer incubation would be materially worse. The economic disruption from COVID alone was enough to move markets 35% in weeks. Healthcare, digital infrastructure, and essential goods hold up; travel, energy, and discretionary consumer names get crushed.

Cyberattack on critical financial infrastructure — A coordinated attack on major exchanges, payment systems, or central bank clearing could freeze global markets for days or weeks. Unlike physical attacks, cyber events scale instantly and can hit multiple systems simultaneously. The 2016 Bangladesh Bank heist — where attackers stole $81 million by compromising SWIFT interbank messaging — was a proof of concept for what a larger, coordinated strike could do. A sophisticated state-sponsored attack targeting clearing infrastructure during an already-stressed market environment is, in my view, underpriced as a systemic risk.

Collapse of a major oil-producing nation — A regime change or succession crisis in Saudi Arabia or Iran that disrupts production would spike oil prices overnight and hit every energy-intensive sector of the global economy. We saw a preview of this dynamic with the 1973 OPEC embargo.

AI bubble bursting — We’re deep in AI conviction and deliberately so. But the history of transformative technologies — railroads in the 1800s, the dot-com era, the mobile revolution — includes extended periods where valuations dramatically outran near-term reality. A sentiment reversal in AI/semiconductor names would hit the current portfolio hard without the real-asset counterweight we’ve been building.

Widespread failure of major banks or shadow banking system — Contagion from hidden leverage in non-bank entities — hedge funds, private credit, derivatives counterparties — played a central role in 2008. The shadow banking system is larger now. An unexpected credit event that freezes interbank lending has always been the most dangerous kind of financial crisis because it’s invisible until it isn’t.

Extreme energy crisis from AI demand overwhelming grids — AI data centers consume extraordinary amounts of power. Multiple credible analyses project that data center electricity demand will double or triple by 2030. If grid buildout fails to keep pace — especially in regions dependent on intermittent renewables — we could see extended blackouts across major economies, directly impairing the AI infrastructure we’re invested in.

Political upheaval or constitutional crisis in a major economy — U.S. internal civil unrest serious enough to disrupt capital markets, or an abrupt regime change in China that reshapes trade policy, belongs on any credible risk list. Markets price political stability as a given until it isn’t.

Tier 2: Real Scenarios Worth Monitoring

(Less Immediate, But Not Dismissible)

These are plausible enough that they show up in institutional risk frameworks, but they’re either slower-moving, geographically contained, or have enough lead time to respond to if you’re watching the right indicators.

Rapid de-dollarization / reserve currency collapse — The dollar’s reserve currency status is the foundation of U.S. borrowing capacity. China, Russia, and a growing list of emerging markets have been quietly reducing dollar exposure and adding gold. This is a slow bleed, not a sudden event — but there’s a threshold where it accelerates.

China achieving dominance in AI/semiconductors — If China closes the gap in advanced chip fabrication — or leapfrogs with a breakthrough architecture — the geopolitical and valuation implications for Western tech are significant. This is partly why CHIPS Act investment matters and partly why we’ve diversified semiconductor exposure away from pure Taiwan dependence.

NATO fracture / major alliance dissolution — A U.S. exit from NATO or a serious fracturing of Western security cooperation would destabilize European markets and accelerate re-armament spending across the continent. European defense stocks would benefit enormously; European equity broadly would not.

Global food and water security crisis — Simultaneous crop failures across multiple major growing regions — driven by climate extremes, conflict, or geopolitical blockades — is a scenario the agricultural commodity and fertilizer names in our portfolio are positioned to benefit from. This is a slower-developing but high-severity risk, especially in a world already running thin on grain reserves.

AGI causing mass unemployment — Artificial general intelligence that automates large swaths of knowledge work overnight is further out than the headlines suggest, but not infinitely far. The economic disruption from that kind of labor displacement — happening faster than social safety nets can adapt — is genuinely hard to model. Our AI conviction is a bet it creates more than it destroys. That could be wrong.

Nuclear incident or accident — With our significant nuclear energy exposure — Cameco (CCJ), LEU, Constellation Energy (CEG), Vistra (VST), BWX Technologies (BWXT) — this one cuts both ways. A major reactor meltdown or limited nuclear exchange would devastate public sentiment toward nuclear power globally, even if modern reactor designs are fundamentally safer than Chernobyl or Fukushima. Conversely, a limited incident that accelerates hardened military demand for distributed nuclear power could be a net positive for our names.

Flash crash amplified by AI trading systems — Interconnected algorithmic trading systems already caused the 2010 Flash Crash and the 2020 Treasury market dysfunction. As AI takes more control over order flow and risk management simultaneously, a correlated error could cascade faster than any circuit breaker is designed to handle. Recovery from previous flash crashes has been quick. One that hits during an already-stressed market might not be.

Tier 3: I’ll Monitor It From a Safe Distance

(No actions needed yet)

These scenarios have enough grounding in real mechanics that they’re worth a sentence or two. They’re not on the portfolio construction shortlist, but they’re not purely fictional either.

Supervolcano eruption or asteroid impact — A Yellowstone-scale eruption would inject enough sulfur dioxide into the stratosphere to drop global temperatures by 5–15°C for years, collapse agriculture across the Northern Hemisphere, and trigger humanitarian crises that make every financial crisis in recorded history look manageable by comparison.

An asteroid impact of any meaningful scale is in the same category. These are not scenarios you hedge with a portfolio rebalancing.

If Yellowstone goes, the conversation we’re having right now — about semiconductor concentration and gold royalty companies — will seem quaint. We own some real assets and precious metals that would theoretically hold value in the early stages of a supply shock, but I’ll be direct: beyond that, the preparation that matters is food, water, and geography, not financial instruments. I include this tier mainly to establish that there is a category of risk where investment management isn’t the right frame.

Bail-in mechanisms under Dodd-Frank — This one actually has a real regulatory basis. The Dodd-Frank Act does include provisions that could theoretically allow insolvent banks to convert unsecured creditor claims — including some depositor accounts above FDIC limits — into equity. The probability is very low given political reality, but it’s not zero.

Central bank digital currencies as financial surveillance tools — The CBDC debate is real and the surveillance implications are real. Whether it rises to a market-moving event is a different question. This is more a political and civil liberties concern than a portfolio construction one — though a serious policy shift toward programmable money with restrictions would accelerate flows into hard assets and crypto.

Tier 4: The (Mostly) Tinfoil Hat Category

(No action anticipated ever)

I’m including this tier because during the research and brainstorming phase of writing this, they ended up on our master list and because a meaningful portion of the investing public genuinely believes some version of these narratives. I’m not dismissing the anxiety behind them — the financial system is opaque, the concentration of wealth is real, and institutions have absolutely done things they shouldn’t have. But most of these scenarios as stated cross from “systemic risk” into something else.

• The Great Reset as a coordinated plot by global elites to impose totalitarian world government.
• The Illuminati rigging equity markets.
• The 2008 financial crisis deliberately engineered by Wall Street to consolidate power.
• Western institutions suppressing gold and silver prices to protect fiat systems.
• A deliberate U.S. dollar collapse orchestrated by leaders to let politician and their donors buy the dip.
• BlackRock and Vanguard manipulating stock prices through asset control.
• Skynet.

If any of these turn out to be true, the investment implications are also beyond the scope of a portfolio rebalancing discussion. We would be in a different kind of problem. Some of the legitimate concerns embedded in these narratives — opacity in financial institutions, excessive leverage, the real risks of rehypothecation in paper gold markets, the surveillance implications of programmable money — are worth taking seriously on their own merits. The conspiratorial framing around them is where I get off the train.

The actual risk of paper gold markets and physical delivery stress, for example, is a real issue I’ve written about before — it’s one reason we’ve moved client gold exposure toward allocated structures and royalty companies rather than unallocated paper positions. That’s genuine risk management, not conspiracy theory. The difference is that the mechanics are traceable, documented, and don’t require a secret cabal to explain.

The three scenarios I stress-test in detail below — China Invading Taiwan, a U.S. Sovereign Debt/Dollar Crisis, and World War III coming from the Middle East — are the ones I selected from this full list because they sit at the intersection of high portfolio impact, genuine plausibility, and meaningful ability to position around them before they arrive. The others are either slower-moving, more geographically contained, more speculative, or require a different kind of preparation than I can offer.  But before we continue, one item needs a bit deeper discussion.

A Note on 9/11

I want to handle this one separately, because it deserves more respect than a one-line dismissal. September 11 was the defining tragedy of a generation. Over 3,000 people were killed immediately or in following years from their injuries. The grief, the anger, and the need to understand what really happened — and whether it could have been prevented — are completely legitimate human responses. Anyone who still has questions about the full story is not stupid or unhinged. Some of those questions have never been fully answered.

I initially included “the 9/11 attacks were orchestrated by the U.S. government” in this tier because the full MIHOP (see the Addendum below for more) version — that government actors planned and executed the murder of over 3,000 Americans — requires a conspiracy of a scale I can’t comprehend with no real evidence in 24 years. That specific version I still can’t build an investment thesis around. But I don’t want to leave it there, because the reality is more complicated than a simple debunking.

The documented record shows that the government did withhold information, did mislead investigators, and did leave legitimate questions unanswered for years. The CIA withheld information from the FBI about two of the hijackers before 9/11. NORAD admitted it misled the 9/11 Commission in early testimony. The “28 pages” detailing Saudi government contacts with hijackers were classified for 15 years. The steel from the building designated as WTC 7 was largely destroyed by the government before formal investigation began. Those are not conspiracy theories — they are documented facts that reasonable people are entitled to be troubled by.

I’ve added an Addendum at the end of this post that walks through the main claims — the Twin Tower collapses, WTC 7, the Pentagon, the stand-down argument, and the thermite evidence — along with what the official record from government and non-government investigations says in response, and where the genuine gaps remain. I’d encourage anyone with questions to read it and make up their own mind. My goal isn’t to tell anyone what to think. It’s to lay out what the research actually shows.  And, its in an Addendum as it has no bearing on the investment management aspects of this post.

The Portfolio We’re Working With

Our managed client portfolios are heavily weighted toward innovation and growth. Across the portfolio the strategy, the rough shape looks like this: AI/digital/cloud/cybersecurity at 35–40% of total capital, healthcare innovation at 12–15%, nuclear and clean energy infrastructure at 8–10%, real assets and inflation defense (energy, industrial metals, commodities) at 15–20%, defense and national security at around 7.5%, and smaller positions in financials, staples, and consumer names.

The names you’d expect in each category: NVIDIA (NVDA), Taiwan Semiconductor (TSM), Broadcom (AVGO), Microsoft (MSFT), Alphabet (GOOGL), Meta (META), Amazon (AMZN), Eli Lilly (LLY), Intuitive Surgical (ISRG), Cameco (CCJ), EOG Resources (EOG), Royal Gold (RGLD), AeroVironment (AVAV), JPMorgan Chase (JPM), Costco (COST), and several dozen more across both sleeves.

What This Means

For context on what 35–40% in AI/digital actually means in practice: it’s not as extreme as it might sound if you’ve been benchmarking against a traditional balanced portfolio. The S&P 500 itself has become a heavily tech-concentrated index. Information Technology alone now accounts for roughly 30–35% of the S&P 500 by market cap — and that’s before you add Communication Services (about 9–10%, which includes Alphabet and Meta) and the tech-heavy portion of Consumer Discretionary Tech (Amazon, Shopify). Add those in and the index is arguably 45–50% weighted toward tech-adjacent names. NVIDIA alone now makes up roughly 8% of the entire index.

So when I say our portfolios carry 35–40% in the AI/digital bucket, it’s not wildly out of step with what a passive S&P 500 index fund already hands you. In fact when you include the Communication Services and Consumer Discretionary Tech it is actually a bit more conservative allocation than the broader index.

The difference is that our allocation is deliberate, and unlike the index, we’ve built the hard-asset counterweight alongside it rather than just riding the concentration passively. The S&P 500 has no defense sleeve, no gold royalty position, no rare earths, no agriculture, and no uranium exposure. That’s the gap we’re filling to diversify the portfolio and to hedge against the black swans.  Let’s look at three of those black swans more in depth.

Black Swan #1: China Invades Taiwan

Why This Is Portfolio Ground Zero

Taiwan isn’t just a geopolitical flashpoint. It is the single most important chokepoint in the global semiconductor supply chain. TSMC fabricates roughly 90% of the world’s most advanced chips — NVIDIA’s AI GPUs, Apple’s processors, Broadcom’s networking silicon, AMD’s data center chips. All of it runs through fabs in Taiwan. A shooting war or serious naval blockade doesn’t just disrupt a supply chain. It effectively shuts down the bleeding edge of global computing for years. The CHIPS Act is building toward domestic capacity, but U.S. and European fabs won’t reach meaningful advanced-node scale until the late 2020s at the earliest.

Our portfolios currently have roughly 16% of total assets in names sitting directly in that blast radius — TSM itself, NVIDIA, Broadcom, Lam Research (LRCX), KLA (KLAC), and others tied to the Taiwan manufacturing ecosystem. That’s a real concentration risk that deserves an honest accounting so that action can be taken if we see signs of this happening.

A Key Concept

For context — and this is worth understanding — the S&P 500 currently has NVIDIA at 7.51% of the index, Broadcom at 2.53%, Lam Research at 0.49%, and KLA at 0.31%. That’s already roughly 11% of a passive index fund sitting in the same blast radius, with zero acknowledgment of the Taiwan risk embedded in those positions. And that’s before you account for Apple (6.31% of the index) and Microsoft (4.61%), both of which depend almost entirely on TSMC fabs to manufacture their most advanced chips.

Then there’s this: Taiwan Semiconductor itself isn’t even in the S&P 500. It’s a foreign-domiciled company trading as an ADR, so it gets excluded from the index entirely — meaning passive investors get all the Taiwan concentration risk through the American companies that depend on TSMC, without the foundry itself ever showing up in their portfolio report. Our 16% is higher than the index’s pure semiconductor weight, yes. But unlike the index, we named the risk, sized it deliberately, and built a counterweight alongside it.

Running the Numbers

Before we get to the table below, the return assumptions deserve a real explanation — not just numbers pulled from thin air. The –70% estimate for semiconductors is actually the conservative case. During the dot-com bust, the Philadelphia Semiconductor Index (SOX) fell roughly 80% from peak to trough between 2000 and 2002. That was a demand and valuation collapse.

A Taiwan conflict is a supply destruction event — you’re not talking about softening chip orders, you’re talking about the physical elimination of the manufacturing capacity that produces 90% of the world’s most advanced chips. The companies in our portfolio that depend on TSMC fabs don’t have a backup plan. Neither does anyone else that relies on them for chips.

The –45% assumption for other AI/digital names (hyperscalers, software, cloud) reflects that they survive the conflict but lose their primary growth engine for years. The +60% for defense is anchored to the Ukraine war analog — Lockheed Martin (LMT) was up roughly 37% in 2022 while the broader S&P 500 fell 18%. Taiwan is a larger, more existential conflict for NATO and its partners, so the defense spending reaction would be meaningfully bigger and faster.

Energy and metals at +35% follows the same Ukraine playbook — energy stocks surged over 60% in 2022 as commodity supply chains fractured. Precious metals at +25% is the modest end of the historical range for crisis-driven safe-haven flows.

The –55% for financials and –50% for cyclicals draws from 2008 — during the financial crisis, major bank stocks fell 60–80% and consumer cyclicals weren’t far behind. A Taiwan conflict brings sanctions, FX disruption, trade finance freeze, and global recession simultaneously.

Healthcare at –30% and staples at –20% reflect risk-off selling and supply chain stress, partially offset by defensive demand.

The other thing worth explaining: why 15% as the max-drawdown target? This is not arbitrary. The math of loss recovery is deeply asymmetric. A 15% portfolio loss requires a 17.6% gain just to get back to even. A 26% loss — what the unhedged portfolio takes in the Taiwan scenario — requires a 35% gain to recover. That’s two to three years of strong returns just to dig out of the hole, assuming markets cooperate.

For clients in or near retirement who are drawing from the portfolio, a 26% drawdown isn’t just painful — it can be permanently impairing. Forced selling at the bottom locks in losses that compounding can never recover. We set 15% as the outer boundary of an acceptable crisis scenario because it’s the rough line between a painful correction and a wealth-destroying event. Beyond that threshold, the recovery math starts working against you in a serious way.

What Breaks — and What Doesn’t

In a severe, protracted Taiwan conflict, global equities would likely fall 35–60% peak-to-trough. The semiconductor and AI hardware names would see drawdowns in the 60–80% range.

The counterintuitive part: the same scenario that’s brutal for semis is actually positive for a significant portion of the rest of the portfolio. Defense spending would surge globally under re-armament pressure. Our positions in AeroVironment (AVAV), Kratos Defense (KTOS), Elbit Systems (ESLT), GE Aerospace (GE), HEICO (HEI), and BWX Technologies (BWXT) become direct beneficiaries. Energy and industrial metals spike on supply disruption and re-armament demand. Uranium and nuclear infrastructure names benefit as governments scramble for reliable baseload power. Gold and precious metals miners see classic flight-to-safety buying.

The cyclicals, consumer names, and U.S. financial plumbing take the hardest hits outside of semis. Banks, insurers, and payment rails face funding stress, sanctions exposure, and FX disruption.

Using those assumptions for each bucket in a severe Taiwan conflict, here’s what each portfolio configuration produces:

By The Numbers

Portfolio Version	Semis %	Defense %	Real Assets %	Gold/Silver %	Financials %	Taiwan War Est. Drawdown
Original (unhedged)	16%	7.5%	13%	3%	9%	–26%
Hedged for Taiwan	12%	10.5%	17%	5%	6%	–17%
15% max-drawdown Taiwan target	10%	12%	19%	6%	4%	–12.5%
15% max-drawdown debt target	8.5%	12%	23%	9%	2.5%	–6.8%

Every percentage point of that difference is real money that doesn’t get permanently destroyed. Going from a –26% to a –12.5% hit in the same Taiwan war scenario — on a $1 million portfolio, that’s $135,000 of wealth preservation.

The Plan

China invading Taiwan will not be a surprise.  There will be satellite images of ship and troop movement.  There will be political bluster.  Taiwanese stocks will move lower – likely substantially lower.  We will have plenty of warning to reposition portfolios to aim for that 15% max drawdown portfolio allocation.

Taking Action

When we see it, we will begin reducing concentration in the pure Taiwan-chokepoint names — primarily TSM and the most Asia-dependent semiconductor equipment positions. We will redeploy into large defense primes (Lockheed Martin/LMT, Northrop Grumman/NOC, RTX, General Dynamics/GD) to complement our existing defense positions. We will add industrial metals diversified away from Asia — BHP Group (BHP), Freeport-McMoRan (FCX), Teck Resources (TECK) — and built out the precious metals sleeve with top tier producers alongside our existing Royal Gold (RGLD) and Pan American Silver (PAAS). These are equity positions with their own long-run risk premia. They just also happen to be positioned correctly if Taiwan blows up.

Black Swan #2: U.S. Sovereign Debt / Dollar Crisis

This Isn’t About Missing a Payment

A sovereign debt/dollar crisis is a confidence crisis — and those are harder to see coming than a missed payment. It looks like: foreign central banks start reducing their Treasury holdings. Auction demand weakens. The 10-year Treasury yield drifts toward 6–7% as investors demand more compensation for a currency and fiscal trajectory they trust less. A self-reinforcing cycle takes hold — higher borrowing costs worsen deficits, which pressure yields higher, which worsens deficits further.

We’re already spending over $1 trillion per year in interest on the national debt — more than the entire defense budget. The Congressional Budget Office projects that number rising to $1.6 trillion by 2034 at current rates. With the Social Security Trust Fund projected to hit zero around 2033–2034 and Medicare spending growing at roughly 7.5% per year through the 2030s, the borrowing pressure only accelerates from there. I wrote a detailed post on the mechanics here. The short version: we’re not in crisis now, but the trajectory is worth building around before it matters.

Running the Numbers

The debt/dollar crisis scenario runs on different mechanics than Taiwan, and the assumptions reflect that. Where Taiwan is a supply destruction event, a debt/dollar crisis is a confidence evaporation event. It starts quietly — foreign buyers get cautious on Treasuries, auction demand softens, yields drift higher — and then it accelerates in ways that are hard to stop. The return assumptions deserve the same honest explanation I gave the Taiwan numbers.

Semis at –60% reflects the 2008 financial crisis playbook, not the dot-com bust. The SOX index fell roughly 55–60% during the 2008 crash — a credit and liquidity crisis, not a tech-specific collapse. A US debt crisis triggers the same mechanisms: credit tightens globally, capital spending freezes, and chip demand falls sharply. It’s a softer hit than Taiwan precisely because Taiwan destroys physical manufacturing capacity. A debt crisis destroys demand and financing, but the fabs still exist.

The AI/digital bucket at –45% is almost entirely a discount-rate repricing story. High-multiple growth stocks are essentially long-duration bonds — when rates rise sharply, their present value collapses even if the underlying business is fine. In 2022, a relatively mild rate-hiking cycle sent the Nasdaq down roughly 33% and some high-multiple tech names down 60–80%. A genuine debt crisis with sustained 6–7% Treasury yields would compress multiples far more severely. The hyperscalers and cloud platforms are better-positioned than pure-play high-multiple software, but they don’t escape the repricing.

Defense at –15% is the counter-intuitive one. In the Taiwan scenario, defense surges because governments are spending on weapons. In a fiscal crisis of the US government itself, defense is a budget line item under pressure. The Budget Control Act of 2011 and the sequestration that followed showed exactly how this plays out — defense spending gets cut when the fiscal situation deteriorates. Our defense names don’t collapse because they have multi-year contract backlogs and cost-plus pricing, but they face a headwind. The –15% reflects that partial buffer — they fall less than the broad market but they’re not immune.

Real assets at +25% and precious metals at +40% are anchored to two different historical episodes. For energy and industrial metals, the 2022 analog is the relevant one — energy stocks surged over 60% in 2022 as commodity supply chains fractured and the dollar strengthened. In a dollar weakness scenario, commodity producers get a double tailwind: higher commodity prices and a weaker currency translating into higher revenues. For precious metals, the analog goes further back. Gold rallied roughly 25% during the 2008 crisis as the Fed went to zero and money printing began. And from 1971 to 1980, as the dollar was untethered from gold and inflation ran hot, gold went from $35 to $850 an ounce — a roughly 2,300% move over the decade. The +40% assumption for a serious but contained debt crisis is actually conservative by historical standards. Our gold royalty positions and gold miners give us leveraged exposure to that move without the operational risk of running physical mines.

Financials at –65% is, in some ways, the most important assumption in the debt scenario — and it’s arguably still too conservative. In 2008, when the government was the functioning backstop, major US bank stocks fell 70–80%. Citigroup alone fell over 90% from peak to trough. That crisis ended because the Treasury and Fed intervened massively. In a US sovereign debt crisis, the backstop itself is the entity under stress. Banks hold US Treasuries as their “risk-free” reserve assets — if those assets start declining in value simultaneously with funding stress and deposit outflows, the losses are compounding rather than linear. The European sovereign debt crisis gave us a preview: Greek banks were essentially wiped out because their sovereign bond holdings and their government guarantees collapsed at the same time.

Healthcare at –25% and staples at –20% reflect two pressures: forced selling in a deleveraging environment hits everything, and margin compression from cost inflation hurts businesses whose pricing power is constrained. Healthcare has an added vulnerability in a fiscal crisis — the US government is Medicare and Medicaid’s biggest customer, and fiscal stress means those reimbursement rates become a political target. Consumer cyclicals at –50% reflects a straightforward deep recession: consumer spending falls, businesses with debt face refinancing at punishing rates, and the combination produces the kind of earnings collapse we saw in 2008–09 when the S&P 500 itself lost 57% from peak to trough.

Who Gets Hurt, Who Benefits

The most vulnerable names are the ones most tightly coupled to the U.S. financial system — JPMorgan (JPM), Berkshire Hathaway (BRK.B), Visa (V), Mastercard (MA). In our stress model, the financial plumbing bucket takes a –65% hit. High-multiple growth names get crushed by the discount-rate repricing. Semis and equipment also fall hard (–60%) as global demand contracts and financing costs surge.

The flip side: energy producers — EOG Resources (EOG), Diamondback Energy (FANG), EQT (EQT) — benefit from commodity price inflation and dollar weakness. Industrial metals and gold miners reprice higher as hard assets gain against paper currency. Our precious metals sleeve — Royal Gold (RGLD), Agnico Eagle (AEM), Pan American Silver (PAAS), Franco-Nevada (FNV), and Newmont (NEM) — gives us meaningful leverage to gold prices without the operational headaches of running a mine. And global mega-cap platforms — Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta (META) — are relative survivors here because they earn globally and can reprice in whatever currency is strongest.

Using the same methodology for a serious, prolonged debt/dollar crisis (semis –60%, other AI/digital –45%, defense –15%, real assets +25%, precious metals +40%, healthcare –25%, staples –20%, financials –65%, cyclicals –50%):

By The Numbers

Portfolio Version	Semis %	Real Assets %	Gold/Silver %	Financials %	Debt Crisis Est. Drawdown
Original (unhedged)	16%	13%	3%	9%	–31.5%
Hedged for Taiwan & Debt	12%	17%	5%	6%	–24.9%
15% max-drawdown Taiwan	10%	19%	6%	4%	–21.4%
15% max-drawdown debt target	8.5%	23%	9%	2.5%	–15.6%

The Plan

The debt crisis version of this is harder to time than Taiwan. A military buildup in the Taiwan Strait shows up in satellite images. A sovereign debt crisis shows up in Treasury auction bid-to-cover ratios weakening, in TIC data showing foreign central banks quietly reducing their dollar reserve holdings, in the 10-year yield drifting toward 6–7% without an obvious fundamental driver, and in a dollar that’s weakening while gold is strengthening simultaneously.

These are slower less tangible signals. They can stall, reverse, and re-accelerate over months or even years. The European sovereign debt crisis unfolded over two years before Greece finally lost market access. We are not going to catch the exact top tick of the Treasury market. We don’t need to.

What we’re watching in real time: the 10-year Treasury yield as our primary signal, Treasury auction demand as the early warning, and the gold price as confirmation. When those three start moving together in the wrong direction — yields up, gold up, dollar down — that’s the debt crisis signal. I covered these specific indicators in detail in an earlier post on sovereign debt stress. The short version: the crisis “begins when financing conditions change,” not when some debt-to-GDP magic number gets crossed. By the time the mainstream financial media declares it a crisis, the repositioning window is mostly closed.

Taking Action

When we see the signal, the repositioning has two sides. On the sell side: the financial plumbing names come out first — JPMorgan (JPM), Visa (V), Mastercard (MA), and the broader financial sector exposure. These are the names most tightly coupled to US financial system functioning, and they get hurt fastest when confidence in the dollar and Treasury market erodes.

We also trim the highest-multiple AI/digital names where valuation is most sensitive to discount-rate repricing. The underlying growth in those businesses can be entirely real and still not matter — a 40x earnings multiple can compress to 20x when the risk-free rate doubles, producing a 50% drawdown with zero change in actual earnings or a change in the fundamental future of the company.

On the buy side: we expand the energy and real assets allocation — EOG Resources (EOG), Diamondback Energy (FANG), EQT (EQT) get additional capital as commodity producers with dollar-denominated revenues who benefit from both price inflation and currency weakness simultaneously.

We expand the precious metals exposure, leaning into the royalty and streaming names — Royal Gold (RGLD), Franco-Nevada (FNV), Agnico Eagle (AEM) — that give us leveraged exposure to gold without the operating cost risk of running physical mines.

Industrial metals and rare earths producers like Freeport-McMoRan (FCX), MP Materials (MP), and BHP Group (BHP) benefit from infrastructure demand and defense demand that continues globally regardless of US fiscal politics.

The global platform names — Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) — are relative survivors and stay in the portfolio: they earn globally and can reprice in whatever currency is strongest. We’re right-sizing around the risk, not abandoning the AI thesis.

The same close applies here as it does for Taiwan: these aren’t reluctant hedges we hold and hope to never need. Energy producers generate real cash flow. Gold royalty companies compound quietly through almost any macro environment. Industrial metals track long-run infrastructure demand that has nothing to do with US fiscal politics. Every name in the real-asset counterweight is worth owning for its own investment case. The debt crisis protection is the bonus, not the thesis.

Black Swan #3: Middle East Escalation / Strait of Hormuz

Why This Scenario Is Different From Taiwan

The Middle East escalation scenario doesn’t destroy the semiconductor supply chain. It doesn’t erode confidence in US Treasuries. What it does is strangle the energy supply chain — and it does it faster and more violently than either of the other two scenarios because the chokepoint is a 21-mile-wide waterway with no practical alternative.

The Strait of Hormuz carries roughly 20 million barrels of oil per day — approximately 20% of global petroleum liquids consumption. That’s not a rounding error. That’s one barrel in five consumed anywhere on earth transiting a single narrow passage between Iran and Oman. Saudi Arabia and the UAE have bypass pipeline infrastructure, but combined they could reroute only about 2.6 million barrels per day — roughly 13% of normal Strait throughput. The rest has no alternative route. An Israeli strike on Iranian nuclear facilities, or an Iranian miscalculation that draws the US in directly, creates the conditions for a partial or full closure. The escalation ladder has no obvious stopping rung.

This is primarily a demand and confidence shock, not a supply destruction event. Semiconductor fabs still exist. US Treasuries still trade. But oil prices spike, inflation surges globally, consumer spending collapses, and central banks face the worst possible combination: rising prices and a contracting economy at the same time. The 1973 analog is instructive — the 1973 OPEC oil embargo cut supply by roughly 7% and oil prices nearly quadrupled, from $2.90 to $11.65 per barrel. A Hormuz closure would remove 20% of global supply overnight with no comparable cartel mechanism to negotiate an end.

Running the Numbers

The return assumptions for this scenario run differently than Taiwan or the debt crisis, and the portfolio result is the one that will surprise most readers — so the assumptions deserve a careful walk-through.

Semis at –35% reflects a demand and recession shock, not physical supply destruction. The Philadelphia Semiconductor Index (SOX) fell roughly 45% in 2022 during a rate and uncertainty cycle with no actual supply disruption. A global recession triggered by an oil shock hits chip demand hard, but the fabs still exist and can restart. That’s why –35% lands between the 2022 analog and the Taiwan scenario — it’s a bad year, not a permanent capacity loss.

Defense at +50% is the most straightforward assumption in this entire post. The Ukraine war analog — a conflict the US was not directly involved in — sent Lockheed Martin up roughly 37% in 2022 while the S&P 500 fell 18%. Direct US military involvement in a Middle East conflict, with re-armament pressure across NATO and Gulf allies simultaneously, would produce a larger and faster defense spending surge. Every major defense prime, drone manufacturer, and missile systems provider becomes a direct budget priority.

Energy and real assets at +60% is anchored to the 2022 Ukraine analog — the XLE energy ETF surged over 60% that year as commodity supply chains fractured. A Hormuz disruption is a more acute supply shock than Ukraine, but US domestic energy production has grown substantially since 2022, which partially caps the upside for US-listed producers relative to global spot prices. Our EOG Resources (EOG), Diamondback Energy (FANG), and EQT (EQT) positions benefit from both the price inflation and the dollar dynamics.

Precious metals at +30% reflects a geopolitical premium on top of the standard crisis safe-haven bid. Gold tends to perform better in geopolitical shocks that involve inflation than in pure financial crises — this scenario carries both simultaneously.

Financials at –40% is meaningfully less severe than either the Taiwan (–55%) or debt crisis (–65%) scenarios. Banks get hit by recession, oil-shock-driven credit deterioration, and general risk-off selling — but this isn’t a sanctions/FX/solvency spiral, and the US government backstop is still functional. Think 2022 rather than 2008.

Healthcare at –15% and staples at –10% are the most defensive buckets here. An oil shock recession still triggers forced selling across the board, but these names hold up far better than in either of the other two scenarios.

The critical number — and I want to be direct about this — is what the stress test produces for the portfolio overall. This is the scenario our current positioning is most naturally hedged against. The energy, defense, and precious metals sleeve we’ve been building isn’t just a hedge against Taiwan and debt. It’s directly on the right side of a Middle East energy shock. Here’s what that looks like across each portfolio configuration:

By The Numbers

Portfolio Version	Semis %	Defense %	Real Assets %	Gold/Silver %	Financials %	Middle East War Est.
Original (unhedged)	16%	7.5%	13%	3%	9%	–6%
Hedged for Taiwan, Debt, & Middle East	12%	10.5%	17%	5%	6%	–0%
15% max TW drawdown	10%	12%	19%	6%	4%	+4%
15% max debt target	8.5%	12%	23%	9%	2.5%	+8.5%

Read that table carefully. The more hedged configurations don’t just limit the damage in a Middle East war — they make money. The fully hedged version produces an estimated +8.5% in the same scenario that cuts unhedged AI-heavy portfolios by 20–30%. That’s not because we’re speculating on war. It’s because energy producers, defense contractors, and gold royalty companies are businesses worth owning in any environment — and they happen to be the direct beneficiaries of the worst-case scenario in this asset class.

The Plan

Unlike Taiwan, there won’t be satellite images of a tank buildup giving us 30–60 days of clear warning. Unlike the debt crisis, there won’t be months of slowly drifting Treasury yields. Middle East escalation moves on a different timeline — it can go from tense to acute in days. But the signals are still readable if you know what to watch.

Taking Action

The first trigger is Iranian nuclear milestones. The International Atomic Energy Agency (IAEA) publishes regular reports on Iran’s uranium enrichment levels. When those reports show enrichment approaching weapons-grade — currently defined as 90% purity — the probability of an Israeli strike compresses toward certainty. Israel has stated openly and repeatedly that it will not allow Iran to cross that threshold. The clock is visible.

The second trigger is Israeli military mobilization. Reserve call-ups, public civil defense preparations, and changes in Israeli Air Force activity patterns are observable. These are not secret signals. When they move, the market moves ahead of any actual strike.

The third trigger is Hormuz rhetoric combined with Iranian Revolutionary Guard Corps (IRGC) naval activity. The IRGC has threatened to close the Strait of Hormuz in every major confrontation with the West since 2011. Most of the time it’s bluster. The signal to take seriously is when the rhetoric is accompanied by Iranian mine-laying exercises, deployment of fast attack boats to the strait’s chokepoints, or missile system repositioning to the disputed Gulf islands. The EIA and US Navy track these movements in near-real time.

When those three signals converge, the repositioning is straightforward. The energy and defense positions we already hold get additional capital — we add to EOG, FANG, and EQT as direct commodity price beneficiaries, and we add to the defense primes (Lockheed Martin/LMT, Northrop Grumman/NOC, RTX) that will see accelerated contract awards. We expand the precious metals sleeve as the inflation hedge activates. What we trim is consumer cyclicals and financials — the names most exposed to a global recession without an offsetting commodity tailwind.

The honest reality is that for our current portfolio construction, this is the black swan that requires the least repositioning. We are already substantially on the right side of it. The work we’ve done building the energy, defense, and metals sleeve to hedge Taiwan and the debt crisis gives us meaningful natural exposure to the one scenario where energy prices spike and defense budgets surge simultaneously. That’s not an accident — it’s the point of building a counterweight portfolio rather than a one-thesis bet.

The Cost of Hedging: Smaller Than You’d Think

Here’s the part that surprises most people. We’re not hedging with cash or put options — we’re hedging with equity positions that have their own long-run expected returns: defense contractors, energy producers, metals miners, and gold royalty companies. In a normal year, defense contractors collect multi-year government contracts, energy producers generate free cash flow, and gold royalty companies compound quietly — so we’re not sacrificing return to buy insurance, we’re earning return on the insurance itself.

Using long-run expected return assumptions per bucket — roughly 11.5% annualized for the Nasdaq/AI growth names (based on post-Great Financial Crisis NASDAQ performance of ~19–20% annualized from the March 2009 bottom through today, discounted for forward realism), 8% for defense, 7.5% for energy and metals, 6% for precious metals:

Hedging By The Numbers

Portfolio Version	Exp. Annual Return*	Taiwan War Hit	Debt Crisis Hit	ME War Hit
Original (unhedged)	~9.1%	–26%	–31.5%	–6%
Hedged for Taiwan, Debt, & ME	~8.9%	–17%	–24.9%	≈0%
15% max TW drawdown	~8.7%	–12.5%	–21.4%	+4%
15% max debt drawdown	~8.6%	–6.8%	–15.6%	+8.5%

Going from the unhedged portfolio to the fully hedged version costs approximately 0.5% per year in long-run expected return — from about 9.1% down to about 8.6%. In exchange, you cut the catastrophic tail from −31.5% to −15.6% in a severe debt/dollar crisis, from −26% to −6.8% in a Taiwan war, and you flip the Middle East scenario from a loss to a gain. Half a percentage point per year in exchange for transforming potential wealth-destroying events into manageable ones — while actually making money in one of those scenarios. That’s not a hedge. That’s a better portfolio.

The Scenario Tree: When Hedging Actually Raises Expected Returns

The question most people ask is: “Sure, the hedges protect me in a crisis — but don’t they drag down returns in normal years?” The answer depends entirely on how likely you think those crises are. With three distinct black swan scenarios now stress-tested, the probability math gets more interesting — especially because Middle East escalation is the one scenario where the hedged portfolios don’t just avoid losses, they make money.

Moderate Assumptions: 70% Normal / 5% Taiwan / 10% Debt Crisis / 15% Middle East

Take a relatively moderate scenario tree: 70% chance of a normal year, 5% chance of a Taiwan conflict, 10% chance of a serious U.S. debt/dollar stress event, and 15% chance of a Middle East escalation scenario. The Middle East probability sits higher than Taiwan because the signals are more proximate and the trigger mechanisms are more immediate. Run the probability-weighted expected return across all four portfolio configurations:

By The Numbers

Portfolio Version	Normal Yr	Taiwan Yr	Debt Yr	ME War Yr	Prob-Weighted Return (70/5/10/15)
Original (unhedged)	+9.1%	–26.4%	–31.5%	–6.0%	+1.00%
Hedged	+8.9%	–17.3%	–24.9%	≈0%	+2.87%
15% max TW drawdown	+8.7%	–12.6%	–21.4%	+4.0%	+3.92%
15% max debt target	+8.6%	–6.8%	–15.6%	+8.5%	+5.39%

Where do these numbers come from? The Normal Yr column is pulled directly from the expected return table — each portfolio’s weighted-average long-run annual return under normal conditions, using 11.5% annualized for the AI/growth bucket, 8% for defense, 7.5% for energy and metals, and 6% for gold miners and royalty names. The Taiwan Yr, Debt Yr, and ME War Yr columns are the stress-test outputs from each scenario’s “Running the Numbers” section, already explained in detail with historical anchors. The Prob-Weighted Return column is simple arithmetic: multiply each scenario’s return by its probability and sum them. For the unhedged portfolio: (0.70 × 9.1%) + (0.05 × −26.4%) + (0.10 × −31.5%) + (0.15 × −6.0%) = +1.00%. For the fully hedged version: (0.70 × 8.6%) + (0.05 × −6.8%) + (0.10 × −15.6%) + (0.15 × +8.5%) = +5.39%.

No modeling black box. Just multiplication.

Under those scenario probabilities, the more hedged portfolios don’t just carry less risk — they have higher probability-weighted expected returns than the unhedged one. +5.39% versus +1.00%. Notice what’s driving the widening gap compared to the previous version: the Middle East scenario is additive for the hedged portfolio. Energy producers, defense names, and gold miners are on the right side of that scenario, which pulls the hedged expected return up while it pulls the unhedged expected return down.

Draconian Assumptions: 40% Normal / 10% Taiwan / 25% Debt Crisis / 25% Middle East

You can refer back to the prior sections to get the source for each of the scenario returns below.

By The Numbers

Portfolio Version	Prob-Weighted Expected Return (40/10/25/25)
Original (unhedged)	–8.38%
Hedged	–4.39%
15% max TW drawdown	–2.13%
15% max debt target	+0.98%

 

The draconian scenario tells the most important story in this entire post. Under a 60% combined crisis probability, all four portfolios have negative or near-zero expected returns — that’s how pessimistic a draconian scenario tree really is. But within that world, the gap between the unhedged portfolio (−8.38%) and the fully hedged version (+0.98%) is the difference between a portfolio that survives and one that gets cut nearly in half on an annualized expected basis. And notice, the fully hedged version actually crosses into positive territory even in the draconian case, because the 25% Middle East probability is working for it rather than against it. That’s not a coincidence. It’s the geometry of building a counterweight portfolio where the crisis hedges have their own positive expected returns.

The three-scenario framework also forces an honest answer to a question most investors avoid: if you genuinely believe the world is 60% likely to experience a serious financial or geopolitical crisis over your investment horizon, should you be running an unhedged tech heavy portfolio? The math says no, but it all depends on the timing of when you move away from the sector with real earnings growth to more cyclical or defensive areas whose earnings growth is more dependent on the economy.

The Bottom Line

I am not a pessimist. These portfolios are built to compound wealth across the AI revolution, the energy buildout, and the ongoing innovation cycle in healthcare — even after all the reweighting, we’re still sitting at roughly 26% in Technology and Communication names depending on the which of our strategies you have chosen. That’s a growth oriented portfolio. It just happens to be structured as a barbell with a serious defensive counterweight hedge against black swans.

The hedge sleeve — roughly 12% in defense, 9% in energy, 4% in agriculture, and 14% in metals/uranium/precious metals — isn’t a drag on long-run performance under realistic assumptions. It’s an upgrade. Defense contractors, energy producers, and gold royalty companies are businesses with their own competitive long-run returns. They just also happen to be positioned on the right side of the scenarios nobody wants to talk about.

If we see the signals that these black swans are likely becoming a reality, the plans discussed above will be implemented.  Until then, we will remained positioned for the most likely scenario that provides our clients with long term out-performance.

It’s not paranoia. And not complacency. Nor a hope and a prayer.  Rather, an honest accounting of what’s on the table — and a portfolio structured accordingly.

Stress Testing our Growth Portfolio Strategy

At the beginning of this post, I told you I have been working on a model to stress test portfolios for black swan crisis events.  I thought you might like to see the results of that stress test compared to how the S&P 500 would react.

First, here is a table that shows you the sector allocations of the S&P 500 to our hedged Growth Strategy portfolio based upon the changes I implemented prior to the invasion of Iran:

Sector weight comparison: S&P 500 vs Growth portfolio

Sector	S&P 500 %	Growth % (invested)	Over/Under vs S&P (Growth − S&P)
Information Technology	34.3%	18.8%	−15.5% (underweight)
Financials	13.1%	6.9%	−6.2%
Communication Services	10.5%	5.2%	−5.3%
Consumer Discretionary	10.1%	5.5%	−4.6%
Health Care	9.9%	7.5%	−2.4%
Industrials	8.1%	27.8%	+19.7% (big overweight)
Consumer Staples	4.9%	3.3%	−1.6%
Energy	2.9%	8.5%	+5.6%
Utilities	2.4%	3.0%	+0.6%
Real Estate	1.9%	0.0%	−1.9%
Materials	1.7%	13.7%	+12.0%

Note: The Materials bucket is mostly gold/silver/copper/rare earths/uranium/industrial metals, and a slice of other natural-resource names, which is why it’s so much larger than the S&P’s tiny materials weight.

Now, here is the output from the model for the Growth Strategy portfolio (allocated above) to the S&P 500 Index:

Growth Strategy portfolio vs S&P under 5 black-swan clusters

Scenario (1-yr style shock)	You (base)	S&P 500 (same shock template)	Who fares better?
1. Severe pandemic / demand shock	≈ −27%	≈ −34%	Growth Strategy (less cyclical & more hard assets than S&P)
2. Taiwan / great-power war	≈ −20%	≈ −43%	Growth Strategy  by a lot (Growth has metals + defense + energy)
3. Energy & commodity crisis	≈ +3%	≈ −10%	Growth Strategy  (Growth’s  energy, uranium & infra win)
4. Hard-money / high-inflation regime	≈ +1%	≈ −16%	Growth Strategy  (Growth owns hard assets, S&P is growth-heavy)
5. AI / tech bubble burst	≈ −23%	≈ −37%	Growth Strategy  (Growth is barbelled, S&P is more AI-tilted)

 Takeaway #1:

Under these particular black-swan scenarios, the current Growth Strategy  portfolio is consistently more resilient than the S&P 500, mainly because:

• Defensive exposure to hard assets (gold, silver, uranium, energy, infra, defense).
• The S&P is more concentrated (40% of the index vs 26% of the Growth Strategy portfolio) in the same AI/platform mega-caps that would be hit hardest in several of these scenarios.

Takeaway #2:

Active portfolio management using individual companies allows you to be more strategic and take targeted actions.  With an index like the S&P 500 (or even a typical mutual fund that are benchmarked closely to the S&P 500 Index), you inherit whatever exposures the index committee or fund manager has baked in:

• You must own lots of mega-cap AI/platform stocks at their current weights because they make up 40% of the S&P 500 Index.
• You must accept very small allocations to sectors/industries like metals, uranium, energy infrastructure, and defense because they are very small portions of the index.
• You must own sectors you may actively dislike (e.g., commercial real estate, certain banks, lower-quality cyclicals) simply because they are part of the index and the fund manager must include them to match the benchmark.

By contrast, in a portfolio of actively managed companies you’ve:

• Intentionally over-weighted specific themes (data-center power, uranium, LNG, pipelines, gold/silver miners, defense contractors) that directly hedge many black-swan risks we modeled yet are some of the fastest earnings growers in the market right now.
• Intentionally under-weighted or skipped others (REITs, big chunks of traditional financials, pure-play consumer cyclicals) that tend to get smashed in stress scenarios and that are not great earnings growers.
• Chosen specific tickers inside each theme – e.g., preferring LNG exporters, high-quality pipelines, and top-tier defense/AI names – instead of taking the good, the bad, and the ugly through a broadly managed fund.

That targeting is exactly why, when we shock both portfolios with the same extreme scenarios, the Growth Strategy portfolio behaves very differently from an index: it’s not just accepting the market’s default risk mix—we are engineering our own, in a way that’s almost impossible to replicate with a plain index fund or even a traditional style-box mutual fund.

The Aftermath

And, when the current market conditions change and move back to one that is earnings driven like we’ve had the past three years, we can easily reposition our clients portfolios to take advantage of that more normalized economic environment.

In Closing

Thanks for reading the blog!  Writing it is a lot of effort to research, organize, and put to paper.  If you’ve read this far, I appreciate it — this stuff matters, and an informed client is a better partner.

If you’re not currently a client and want to discuss how this kind of stress-tested, scenario-aware approach might apply to your situation, reach out to Joel Wallace at (217) 351-2870 or [email protected].

–Mark

Disclaimer: This post is for informational purposes only and should not be considered investment advice. The views expressed are my own analysis and opinions. Every investor’s situation is different, and you should conduct your own due diligence before investing in anything. You should consult with a qualified financial professional, like ourselves, before making any investment decisions. Past performance does not guarantee future results.

 Addendum: The 9/11 Question

What the Research Actually Shows

I said in the main post that I’d handle this separately. It’s what I hope is an honest look at the five main claims that serious critics of the official narrative have raised, what the government and independent investigators concluded, and where genuine evidentiary gaps still exist. Read it and decide for yourself – I am not telling you what I believe, just giving you the data so you can decide for yourself what you believe.

The Two Camps

Critics of the official account generally fall into two groups. The first is called LIHOP — “Let It Happen On Purpose” — the view that key government officials had foreknowledge of the attacks and deliberately failed to act, either from negligence or intent. The second is MIHOP — “Made It Happen On Purpose” — that government actors planned and executed the attacks themselves. The LIHOP version has more mainstream adherents. The MIHOP version is the harder claim. A May 2006 Zogby poll found that 42% of Americans believed the government and the 9/11 Commission “concealed or refused to investigate critical evidence” contradicting the official account. That’s a striking number, even accounting for the range of suspicion it covers.

Claim 1: The Twin Towers Were Brought Down by Controlled Demolition

This is the most prominent structural argument. Believers point to eyewitness accounts of flashes and loud explosions before the towers fell, horizontal puffs of smoke visible during the collapse that they argue indicate detonating charges, and the speed of the collapses — approximately 11 seconds for the North Tower and 9 seconds for the South Tower — which they say approximates free-fall and is inconsistent with structural failure alone.

The National Institute of Standards and Technology (NIST) — the federal agency tasked by Congress to investigate the collapses — addressed the speed directly: the structure below the collapse initiation level offered minimal resistance to the falling mass, which explains the timing without requiring explosives. Video evidence showed the collapse progressing from the top downward, and NIST found no evidence of blast events below the impact and fire floors from any of the agencies on scene — not NIST, not the NYPD, not the Port Authority Police, not the FDNY.

On the smoke puffs: NIST concluded they were caused by air pressure from the decreasing volume of the falling building above, traveling down elevator shafts and exiting through open shaft doors on lower floors — a mechanical effect consistent with the observed pattern. NIST’s final conclusion: no corroborating evidence for controlled demolition using explosives, and no evidence of missiles.

Claim 2: WTC 7 Was a Controlled Demolition

This is the most persistent structural claim, and honestly the hardest one to fully dismiss emotionally, because World Trade Center Building 7 was not hit by a plane. It was a 47-story building located about 370 feet from the North Tower. It caught fire from debris when the North Tower collapsed, burned for nearly seven hours with no firefighting effort because the city water main had been broken, and collapsed at 5:20 p.m. Critics argue the collapse looks symmetrical and falls at near free-fall speed — both of which they say are signatures of controlled demolition, not fire.

NIST’s 2008 final report concluded that the fires weakened structural steel progressively over those seven hours. The 13th floor eventually failed, triggering a critical column failure, which cascaded into a global collapse. NIST explicitly considered and rejected the use of explosives and thermite. It also acknowledged that the collapse occurred “as a single unit” at free-fall acceleration — but maintained this was consistent with its progressive failure model once initiation occurred.

Here is a legitimate grievance worth acknowledging: the steel from WTC 7 was largely destroyed during search and rescue operations before formal investigation began. Bill Manning, editor-in-chief of Fire Engineering magazine — not a fringe publication — wrote an editorial calling the initial FEMA investigation a “half-baked farce” specifically because of this. Engineers around the country echoed his frustration. The destruction of structural evidence before investigation is a documented problem, not a conspiracy theory. NIST worked with what remained, but critics are not wrong to note that a more complete evidentiary record might have yielded a different concluison.

Claim 3: The Pentagon Was Hit by a Missile, Not a Plane

The argument here is that the hole in the Pentagon was too small for the wingspan of a Boeing 757 and that too little large debris was visible on the lawn. Members of the American Society of Civil Engineers concluded the impact damage was fully consistent with a Boeing 757 — the wings are not strong enough to cut through reinforced concrete, so only the fuselage and landing gear, which carry the most mass, penetrated the structure.

Security footage from three Pentagon cameras, along with numerous independent eyewitnesses on the ground, confirmed a large commercial airliner struck the building. Actual plane fragments are on display at the 9/11 Memorial Museum. This is the claim that has retreated the most among serious critics over the years.

Claim 4: Foreknowledge and the “Stand-Down” Order: Government Cover-Ups that Should Never Have Happened

This is the LIHOP version, and it’s the one with the most legitimate thread to pull. The core argument: NORAD (North American Aerospace Defense Command) should have intercepted the hijacked planes. Why didn’t it? The Popular Mechanics investigation — based on interviews with more than 70 experts in aviation, engineering, and the military — found that only one NORAD interception of a civilian aircraft over North America had occurred in the entire decade before 9/11: golfer Payne Stewart’s Learjet in 1999, and that took one hour and 19 minutes. Conspiracy theorists had previously cited that same case as proof NORAD could respond in 19 minutes, based on a misreading of the crash report.

Here is documented fact, not theory: NORAD gave false testimony to the 9/11 Commission in its early statements about the timeline of events on the morning of September 11. The Commission later confirmed this, and NORAD acknowledged it. The Commission concluded it was institutional embarrassment over catastrophic failure rather than evidence of orchestration. But the admission that a key military institution lied to the official investigation is not nothing. It is a real reason why people who want the full truth have never felt fully satisfied.

Also documented: the August 6, 2001 Presidential Daily Brief titled “Bin Ladin Determined to Strike in US” was delivered to President Bush. The CIA withheld information from the FBI about two of the hijackers — Nawaf al-Hazmi and Khalid al-Mihdhar — who had been in the U.S. for over a year before the attacks. The 9/11 Commission confirmed both of these. Again: documented failures, not fabrications.

Claim 5: Nano-Thermite Found in the Dust

In 2009, physicist Steven E. Jones and colleagues published a paper claiming to have found nano-thermite — an incendiary material used in some military applications — in dust samples collected from the WTC site. NIST’s response was that there was no verified chain of custody proving the samples actually came from the WTC. Jones invited NIST to conduct its own analysis using samples with a verified chain of custody. NIST declined to do so.

That non-response is one of the more cited grievances among technically serious critics of the official account. It does not prove anything. But when the government’s own technical agency declines a straightforward evidentiary test that could close a question, it’s reasonable for people to notice. NIST has maintained its findings without conducting that specific test, but no one knows why.

What the Evidence Shows

The full MIHOP theory — that the U.S. government orchestrated the murder of over 3,000 of its own citizens to justify military action in the Middle East — requires a conspiracy of extraordinary scale: pre-planting explosives in three occupied skyscrapers without detection, coordinating with or framing the hijackers, and suppressing every participant for 24 years without a single person talking.

But the record also clearly shows this: the government engaged in a cover-up on more than one instance. The CIA withheld information from the FBI. NORAD misled the 9/11 Commission. Evidence was destroyed before investigation. NIST refused a valid investigation. Twenty-eight pages of the original Joint Congressional Inquiry detailing Saudi government contacts with hijackers were classified for 15 years and only released in 2016. Those pages revealed that Saudi officials had been in contact with some of the hijackers — information that contradicted the official narrative for over a decade.

Summary

None of that proves the government orchestrated the attack. All of it proves that the full truth was withheld from American citizens, that institutional failures were covered up by the government, and that legitimate questions were left unanswered for years. That is the environment in which conspiracy theories harden — and in this case, it was created by the government’s own behavior after the fact. The people who are still asking questions deserve a straight answer to each of the failures and cover-ups otherwise the conspiracy theories will continue to live a life of their own.