75out of 100: how far we have moved into Stage Two
Stage One is the world most of us grew up in: steady careers, institutions you could count on, and a stock and bond portfolio that worked because bonds rose when stocks fell. Stage Two is what replaces it: governments living on debt, AI repricing work, a world splitting into blocs. Debt debases money, inflation drives markets, and stocks and bonds fall together. It confirms at 75.
Separation, inside the 70-80 trigger zone. The old rules are fraying, and bonds protect stocks less than they used to.
An estimate of the same score since 1900. Stage Two starts at 75.
Only the two world wars cleared 75. The 1970s ran hot on inflation but never crossed, because the government balance sheet was healthy. Today the debt load is at 1940s levels. Dashed: older data, partly set by judgment.
How this is counted
19 inputs across government debt, markets, AI and jobs, social cohesion and geopolitics, each ranked 0-100 against its own history. The score is 60% slow structural inputs (77 today) and 40% market inputs (71), averaged over the latest three months. 19 of 20 update live; the rest use their last known value.
The stage confirms only after two closed months above 75, so one hot month cannot flip it. The exact number is soft: weighted other reasonable ways, today's reading ranges from 60 to 86, which is why 70 to 80 is treated as a trigger zone.
The history is an estimate, not a strict backtest: the free long-run data is thin before 1970, so parts of the line are set by judgment. Ranked against only what was known at the time, the 1970s, mid-1980s and 1990 also cleared 75. Full methodology.
What it means for your portfolio
Right now bonds offset stocks less than they used to: over the last two years the two moved slightly together (correlation +0.13).
Stage One0-25
The old rules hold and bonds protect stocks. Run the usual 60/40.
Turbulence25-50
Cracks appear. Trim long bonds; hold a small gold position as part of the hedge, adding when its trend is up.
Separation · now50-75
The hedge is weakening. Swap long bonds for T-bills and TIPS; hold gold as part of the hedge, adding when its trend is up.
Stage Two75+, two months
Bonds no longer protect stocks. Keep fixed income to T-bills and TIPS; hold gold and real assets as the hedge, adding when their trend is up.
The point is the hedge, not a bet on a winner. A higher score has come before stocks and bonds moving together and before higher inflation, which is when long bonds stop protecting a portfolio. So the move is to replace what bonds used to do: T-bills don't lose when rates jump, TIPS rise with inflation, and gold behaves differently from both. Followed since 1926, this roughly tied a plain 60/40 over the century but held up far better when inflation hit: +1.6% a year after inflation in 1965-81 against -0.9%, and -0.1% against -2.5% in 2021-23. Think of it as insurance. Our gold and bitcoin ranges follow the stage.
What is driving it
The five inputs that, historically, came before stocks and bonds falling together or inflation rising. Each is ranked against its own history.
Interest outlays ÷ GDP3.2%HIGH
More Stage Two pressure than 99% of readings since 1940.
Geopolitical Risk index146HIGH
More Stage Two pressure than 97% of readings since 1985.
Interest ÷ tax receipts33.6%HIGH
More Stage Two pressure than 75% of readings since 1947.
24-mo stock-bond correlation+0.13ELEVATED
More Stage Two pressure than 50% of readings since 1966.
World trade ÷ GDPnear highsLOW
More Stage Two pressure than 2% of readings since 1970. Reads inverted: less of it means more pressure.
The other 14 inputs
These describe the shift (debt levels, jobs, trust, inequality) but have no tested link to markets, or too little history to test. They count in the score.
Labor share of incomenear record lowsHIGH
More Stage Two pressure than 100% of readings since 1947.
Top-1% wealth share32.5%HIGH
More Stage Two pressure than 100% of readings since 1989.
USD share of world reserves56.7%HIGH
More Stage Two pressure than 98% of readings since 1999.
Debt ÷ GDP121.2%HIGH
More Stage Two pressure than 97% of readings since 1966.
Recent-grad vs overall unemployment gap+2.6ppHIGH
More Stage Two pressure than 95% of readings since 1990.
Economic Policy UncertaintyEXTREMEHIGH
More Stage Two pressure than 95% of readings since 1985.
Confidence in institutions27%HIGH
More Stage Two pressure than 92% of readings since 1979. Reads inverted: less of it means more pressure.
Real-wage vs productivity wedgewideningHIGH
More Stage Two pressure than 77% of readings since 1948.
Partisan Conflict Index134HIGH
More Stage Two pressure than 76% of readings since 1981.
Bond ÷ equity realized-vol ratioelevatedELEVATED
More Stage Two pressure than 65% of readings since 1990.
10y term premium+0.94%ELEVATED
More Stage Two pressure than 60% of readings since 1990.
Gold vs real-yield divergenceLINKEDELEVATED
More Stage Two pressure than 52% of readings since 2003.
Military spending ÷ GDPrisingLOW
More Stage Two pressure than 44% of readings since 1949.
Foreign share of Treasuries23% of public debtLOW
More Stage Two pressure than 40% of readings since 2000.
Arguing against the thesis today: foreign share of treasuries, world trade ÷ gdp (inverted), military spending ÷ gdp.
Would it be permanent?
A high score can fall back, as it did after the 1970s. These three tripwires mark the point of no return. 0 of 3 have crossed, so the shift is still reversible.
10-year inflation expectationsNOT CROSSED
Markets price 2.4% inflation for the next decade (10-year breakeven, 2026-10-27). The tripwire is a monthly average above 3% for 6 straight months. Last full month (Sep 2026) averaged 2.35%. Honesty note: this one crossed in the 1970s and Volcker re-anchored it at brutal cost. One tripwire alone never locks the change in, which is why the threshold is 2 of 3.
Dollar share of world reservesNOT CROSSED
56.7%, -0.2pp over the last 4 quarters. It fell 0.5pp last quarter. The tripwire is a fall of 2pp or more in 4 quarters, an accelerating decline, not the slow drift. In 1941-46 this one crossed for sterling: the empire whose regime change was permanent was Britain's.
Repression enactedNOT CROSSED
Yield caps, forced domestic debt buying, capital controls, the 1941 signature, and the heavyweight tripwire: policy makes regime changes permanent in a way markets alone don't. A flagged event with its source shown, not a data series.
Has this happened before?
Three times pressure ran this high. Stories, not a test; the test is below.
1917-20 · World War I
Prices doubled, then a sharp bust; the old system held. Avoiding long bonds paid until the bust.
1941-46 · World War II
Yields were capped below inflation and the old order never came back. Long bonds lost real value for a decade.
1974-82 · The 1970s
Inflation without the debt load: the score ran hot but never crossed. Long Treasuries lost about half their real value 1966-82.
How far to trust it
Graded every month since 1910 on what followed over the next three years. About one independent observation per three years, so treat these as rough.
A higher score came before stocks and bonds moving together and before higher inflation, in both halves of the history.
The numbers
Rank correlation with the next three years: stocks and bonds moving together 0.51, inflation 0.58. Both had 90% ranges that exclude zero and held in each half of the history. Readings are scored as a reader would have seen them at the time.
Not investment advice: a backdrop for allocation, not trades.
Track record
1 monthly reading logged since 2026-10-10. Graded against nothing: one or two regime changes exist in history, so there is no hit rate to compute. Logged monthly. A structural barometer is judged against the record it keeps, not a hit rate.