Rarely do short and long-term considerations diverge so sharply. In the foreground, the cyclical picture is constructive. Earnings and interest rates – the building blocks of risk asset prices – support a global economy emerging from a late-2025 “soft patch” with more than a little pep in its step. Late-cycle phases often persist longer than expected, and this one is delivering. Earnings revisions are moving higher globally. Margins remain firm. Capital expenditure tied to AI, electrification, and infrastructure is resilient. Payroll growth is solid. Credit spreads are back to the tights. Equity leadership is broadening beyond the hyperscalers to include small-caps, select emerging markets, and less cyclical sectors. Markets are comfortable with both narratives – “good news is good news” and “bad news is good news.” Fiscal policy remains unusually expansive for a non-recessionary backdrop. The optimism is warranted. The growth story is real. But it is not the whole story.

Step back and the longer lens reveals structural tension. A set of manageable fragilities – persistent fiscal expansion, geopolitical fragmentation, and concentrated funding dynamics – have become intertwined. The tools to contain stress still exist, but they are less potent than they once were. The issue is not imminent crisis; it is cumulative strain. We have entered the Era of Polyfragility.

The U.S. Dollar sits at the center of that strain. This is not a forecast of hyperinflation or reserve collapse. It is an observation that too much structural responsibility rests on a single currency in a world where long-standing geopolitical, social, and economic conventions are fraying. The Dollar remains the unit of account and (via Treasuries) the dominant form of collateral. The Yen remains the funding currency. This architecture works when trade is frictionless and institutions are unquestioned.

Credibility, however, rests on collateral. And collateral functions only when markets believe there is a non-negotiable reference value at the base of the stack. That is why Gold strengthens even when conventional stress gauges remain subdued. It is not reacting to panic; it is pricing burden. Gold rises when policy, institutions, and settlement systems are asked to carry more than investors can comfortably underwrite. It is the non-discretionary asset that marks the moment credibility becomes a variable.

At the same time, an unsettled industrial regime is emerging. One axis emphasizes physical capacity – industrial depth, supply chains, and infrastructure redundancy. The other emphasizes digital scale – compute, semiconductors, and data infrastructure. The West dominates the financial architecture underpinning the former. The East has built meaningful scale in the latter. Each seeks advantage in the other’s domain. Financial abstraction, however, cannot permanently outrun material capacity. There are binding constraints.

Rebuilding industrial depth, funding technological leadership, and sustaining defense commitments require trillions in incremental spending. Foreign sponsorship of U.S. debt is less dependable than in prior decades. The marginal balance sheet is increasingly domestic. Strategic necessity collides with fiscal constraint. There are few politically viable solutions; we doubt contraction or austerity will be among them. This, the Dollar will not be abandoned but it will need help. When trillions in new issuance are absorbed – directly or indirectly – currency elasticity becomes the funding mechanism for survival. Liquidity created at that scale does not remain abstract. It reprices assets. It migrates toward what is scarce, durable, and outside discretion. This is not an inflation scare; it is a debt reality. If rebuilding is non-negotiable and austerity is untenable, elasticity funds the gap – and hard assets adjust accordingly.

The Dollar has become the balancing mechanism for trade fragmentation, fiscal expansion, geopolitical tension, and funding leverage. Its strength reflects necessity as much as superiority. Gold’s behavior reflects incremental redistribution of confidence, not collapse. Confidence is not evaporating; it is being reallocated.

We have gradually increased exposure to Gold and extended precious and industrial metals within the Alternatives sleeve of our tactical portfolios. In November, we migrated to a 60/30/10 benchmark across equities, fixed income, and alternatives. While some recommend materially larger commodity allocations, we prefer incremental benchmark evolution given the structural impact on portfolios and the volatility inherent in metals markets. Recent corrections in Gold and Silver underscore the point. Paper pricing can be volatile, particularly when exchanges raise margin requirements and leveraged participants are forced to liquidate. Underlying physical demand and structural supply constraints remain intact. Patience and discretion are required.

De-Globalization reinforces the pressure. Trade continues, but rules are less uniform. Supply chains are strategic. Payment systems are political. Access matters as much as price. Redundancy replaces optimization. Political risk becomes embedded in capital allocation. The Dollar, as the system’s anchor, absorbs more complexity even as the system supporting it grows less cohesive.

Funding mechanics amplify the tension. For decades, ultra-low Japanese rates supplied inexpensive capital that flowed into Dollar assets, suppressing yields and reinforcing demand for Treasuries. As Japan normalizes policy, that support becomes less automatic. Carry trades unwind episodically, not smoothly. Exchange rates increasingly reflect funding stress, reserve diversification, and collateral preferences rather than simple rate differentials. As foreign investors repatriate capital or diversify reserves, the Dollar adjusts – not as a sign of failure, but as a function of reduced exclusivity.

Policymakers will not permit disorder in the Treasury market. Liquidity tools, swap lines, and balance-sheet adjustments remain available. These mechanisms can stabilize near-term stress. They cannot reverse the structural emergence of a new industrial era.

We remain measured. Investors are wise to participate in the cyclical expansion but recognize the structural recalibration underway. Maintain exposure to U.S. equities, emphasizing sectors aligned with supply-side investment and pricing power – defense, infrastructure, industrial capacity, and modernization themes. We have increased active share in our allocation portfolios by arranging time horizons using Strategas’ three exchanged traded funds: the Strategas Macro Thematic Opportunities Treat Fund (SAMT) over the intermediate-term, i.e., the macro sweet; the Strategas Macro Momentum Fund (SAMM) for shorter-term opportunities; and, the Strategas Global Policy Opportunities portfolio (SAGP) with its lens on super-cyclical policy-driven considerations.  On top of it we’ve layered Gold as structural collateral rather than a tactical hedge. We advise being selective with duration; foreign sponsorship of deficits cannot be assumed perpetual and value liquidity as optionality in a regime where political risk is first-order. Cyclical strength and structural fragility can coexist. Investing in the Era of Polyfragility requires a playbook that respects both.

Nicholas Bohnsack