For many in the West, the Iranian regime represents the worst that authoritarian terrorist states have to offer. At the same time, market participants remain fairly convinced that the ongoing conflict to dislodge the regime will be over relatively quickly.  We would be cautious drawing such a conclusion in the absence of tangible evidence to support it.  The Shi’a Islamic tradition – different than the Judeo-Christian and even the Sunni Islamic traditions – is rooted in narratives of sacrifice, resistance, and martyrdom. The Iran-Iraq war lasted approximately eight years. Moreover, Iran has navigated a total of four leadership changes in the last 100 years, including: one by foreign intervention (1941), one through revolution (1979) and none since 1989 (which was the most peaceful). Consider also, in the last 249 years the U.S. has been engaged in combat operations against foreign adversaries in 175 of them – including each of the last 80. In the absence of – one dares to say – a more Western “friendly” successor government, the loose, though increasingly conflict-aligned, “Abraham Alliance” may have a longer engagement at hand than originally war gamed.

Investors’ natural reaction function to military escalation, particularly in the Gulf region, invites defensive investment rotation; we would expect those seeking safe harbor to default to muscle memory, at least in the short-term. But given the frequency with which investors turn to the “safe-haven playbook” it is important, as Strategas chief markets strategist Chris Verrone has noted, be on the lookout for those assets that are acting differently than expected. How transient or entrenched safe haven positioning proves to be will largely be informed by how events in the Gulf unfold. Before the U.S.-Israeli action, the underpinnings of the economy appeared stable. Earnings are resilient. AI investment is robust. mega-cap balance sheets remain formidable. Credit spreads, while showing early signs of stress, we’re not in crisis territory (though private credit is undoubtably closer to a flock than a solitary coal mine rover). Cyclical strength should provide some ballast. For how long?

While handicapping military outcomes is decidedly outside our ability – and as we pray for those involved and those affected – we are struck by how quickly the pace of “De-Globalization,” the deterioration of long-held, long-relied upon geopolitical, economic, and social operating conventions has ushered in the era of “Polyfragility,” an environment in which multiple, perhaps individually manageable vulnerabilities become interdependent and self-reinforcing, amplifying instability and increasing systemic sensitivity. By our lights this requires a new – and evolving – playbook.

For long-term investors, managing portfolio allocation should not require overreacting to short-term developments but rather offer an opportunity to course correct one’s strategic scaffolding.  In this regard, looking through the near-term and cyclical implications of the war, structural pressures are compounding; individually manageable forces – fiscal expansion, expansive nationalism, industrial rivalry, capital concentration, energy volatility, and settlement infrastructure – now interact in ways that amplify one another’s weakness. The system is more sensitive to shock. Stabilizing the system requires intervention and each intervention carries second-order effects. The operating regime is shifting. Trust in the system is not collapsing vertically; it is redistributing laterally.

Since the Financial Crisis, liquidity and platform economics have reshaped asset markets. Perpetually low rates and quantitative easing amplified duration. Scalable, low marginal-cost business models captured an outsized share of capital. Mega-Cap operators became quasi-sovereign entities, accumulating balance-sheet strength that rival nation-states, setting the stage for the emergence of a military-technology complex with greater reach into capital markets and influence on society that the military-industrial version preceding it ever did. The result is a stratified capital hierarchy: Mega-Cap operators – particularly A.I. hyperscalers and adjacent agentic solution providers – dominate earnings and liquidity. The broader Index benefits from proximity though Small and Mid-Cap operators face financing risk given the choppiness of capital markets, a greater reliance on commercial bank credit and the stigma public companies wear with private capital leverage. Private market businesses, in turn, funded through non-bank equity and credit are a desert in which few will thrive, some will survive, others will consolidate, and most will fail. At the bottom of the stack, Main Street absorbs inflation without capital-market insulation.

Monetary policy stabilizes the top of the stack first. Lower tiers experience the cost of transition directly. This concentration intensifies political pressure, which feeds fiscal expansion, reinforcing monetary elasticity, which further inflates asset prices. “Polyfragility” (a word – to be honest – we made up to make the point) appears not from weakness at the center, but from stress in the interactions between the tiers. So, from the bottom up, this is clear at the household level in the growth gap between high and lower wage income cohorts as well as the yawning spread between high-skill Tech & Heath Care job creation vs. no-to-low job growth among lower skill workers and the non-Tech & Health Care sectors of the economy. Up a rung, the travails of private credit are becoming increasingly clear.

Parallel to financial concentration is a reordering of convention in the physical economy. This is perhaps the more useful lens through which to see how Polyfragility impacts De-Globalization and how the foundation of a new geo-political and economic operating system will ultimately be laid. This process and its investment implications have been an important theme in our strategy work and Macro Thematic Opportunities portfolio. Energy, minerals, agricultural capacity, and refining infrastructure now carry strategic weight. If money settles against something real, then control of physical throughput becomes settlement leverage. Case in point has been global central banks accumulation of Gold in the years since the U.S./EU confiscation of Russian currency reserves in Mar’22.  This is not just rebellion against the Dollar. It is diversification toward neutral collateral.

Bilateral trade agreements and alternative settlement mechanisms reduce reliance on singular clearing pathways; the global system is not fragmenting, it’s pluralizing. The U.S. Dollar will certainly catch a bid in the shadow of war. It remains dominant but exclusivity continues to erode at the margin. A layered collateral architecture is emerging: U.S. Treasuries for liquidity and Gold as neutral collateral. We anticipate the continued outgrowth of non-Dollar settlement to preserve sovereignty – perhaps to include Bitcoin (BTC) or Ripple (XRP) as non-Eurodollar/SWIFT alternatives, coupled with increased use of a broader list of Commodities for leverage. In simplest form, we have asked the fractional reserve system to do too much so the participants are seeking multiple anchors to share the load. This has happened before…

For those taking a longer view of portfolio construction as these pressures accumulate, we would watch key channels.

1. Energy & Inflation – Elevated oil prices force markets to reconsider inflation expectations. If energy remains high, expectations for aggressive rate cuts become untenable. Real yields adjust upward and the flexibility fiscal and monetary policymakers covet begins to narrow. Higher discount rates can destabilize duration-sensitive assets; coupled with the normalization of rates already in evidence on the long-end of the sovereign curve (see Japan) and the cumulative effect, in the absence of self-reinforcing drivers of growth can trigger a self-reinforcing wage-price spiral.

2. The Dollar – Positioning in the Dollar has decreased but when shocks hit because America’s principal exports are safety and liquidity (though the former has been likely viewed with increasing suspicion) capital will naturally seek safety where it best treated. A sharp Dollar rally, however, tightens global financial conditions. Emerging markets can experience capital outflows and Dollar-denominated liabilities reprice leading to liquidity contraction and spread widening

3. Multiple Compression – As Jason Trennert has noted in previous strategy pieces, the A.I. “trade” is structurally long-duration. The hyperscalers’ valuations almost demand suppressed real yields and abundant liquidity. If inflation expectations rise and discount rates adjust upward the issue is not AI profitability, it is the present value of future cash flows in a business model with an already spurious relationship between investment and return. When the most concentrated and over-owned segment of the market faces multiple compression, passive flows amplify volatility.

Military engagement in the Gulf is only the latest example of how much capital the U.S., its Western allies and geo-political adversaries will need to continue to allocate to re-industrialization, defense commitments, and technological competition. While this presents as both a problem and opportunity of necessity hastening the emergence of the Military-Technology Complex.  The problem – at both the federal and industry level – is that the revenue assumptions embedded in the financial projections qualifying the spend are upside down. When revenue softens (or is non-existent) and expenditures expand, borrowing requirements rise. With structural deficits already elevated, marginal changes compound issuance.

The central question for portfolio construction is how to preserve and compound real purchasing power in a regime where safety, liquidity, scarcity, and sovereignty are repriced simultaneously.

As we wrote in our February Insight, “Paper Promises vs. Physical Limits,” we would continue to favor strategic equity exposure. As readers know, through a macro lens we focus investment outcomes on the thematic horizon.  At the moment, four themes in addition to “De-Globalization,” discussed above, are constituent in our Macro Thematic Opportunities portfolio: “Cash Flow Aristocrats,” “Artificial Intelligence,” the “Industrial Power Renaissance,” and the “2026 Consumption Wave.” Against a 60/30/10 stocks/bonds/alternatives benchmark we are Neutral Equities favoring shares aligned with sovereign resilience, defense modernization, cybersecurity, energy infrastructure, and advanced manufacturing.

Source: Strategas Securities 3/16/2026

Dispersion increases in polyfragile environments. Businesses aligned with supply chain resilience and strategic throughput may outperform. Those dependent on cheap leverage and global optimization may face margin compression. Investment Grade spreads have widened to levels last seen around First Brands’ failure. Signs of stress in the private credit patch are worrisome. At the same time, broader economic conditions through credit lens look almost early-cycle. Cyclical sectors like Housing, Manufacturing, and Freight have experienced contraction and appear poised for reacceleration. Can the global economy hold on? We remain Neutral Fixed Income & Cash (30% vs. our adjusted 30% benchmark), favoring shorter maturities and selected credit positioning. 

As we discussed above, in the Alternative sleeve we believe hard assets function less as tactical hedges and more as structural ballast against the ongoing process of De-Globalization. Selective exposure to Gold and precious metals, energy infrastructure, industrial commodities, and productive land provides diversification against fiscal expansion and settlement pluralization. We view it as prudent for long-term investors to establish a beach head, as we have in our Asset Allocation portfolios, but to remain strategic in building that position over time. Heightened volatility, as evidenced in yesterday’s precious metals session, is a byproduct of polyfragility, though it creates opportunity for disciplined capital. Polyfragility does not imply disorder. It implies that safety, scarcity, liquidity, and sovereignty are being repriced at the same time. For allocators, the task is not to predict crisis. It is to recognize that the system’s center of gravity is shifting – and to position capital accordingly.

Nicholas Bohnsack