If you're holding a 60/40 portfolio right now — 60% stocks, 40% bonds — I need to show you something.

In 2022, US stocks fell 19%. That was painful but expected. What wasn't expected was that long-term government bonds fell 28% in the same year. At the same time. Together.

The entire logic of a 60/40 portfolio is that stocks and bonds move in less correlated directions. When stocks fall, bonds fall less or rise. That's the idea. That's what makes the 40% in bonds worth holding.

In 2022, that deal broke.

And here's what I've been thinking about ever since: that wasn't a one-off. I've found five other times in the last 100 years when the same thing happened. And the conditions that caused all five of them look a lot like where we are right now.

When you hold a 60/40 portfolio, you are making one big bet: that stocks and bonds will continue to move in opposite directions or are very lowly correlated in crashes.

Here's why that bet usually works. When the economy slows down, investors get scared. They sell stocks and buy bonds. Bond prices go up, yields go down. Central banks cut rates, which pushes bond prices even higher. If stocks are falling 30%, bonds might be rising 10–15%. Not great — but enough to prevent catastrophe.

This is the deflationary recession. Growth slows. Prices fall or stay flat. The bond side does its job.

But there's a second type of contraction. One where this logic breaks down completely.

Dalio calls it the inflationary deleveraging.

When a country has taken on too much debt, the government faces a choice: default and accept the pain, or print money. Almost every government, when pushed to that moment, chooses to print.

When they print, more money chases the same goods. Prices rise. Inflation accelerates. And here's the critical point: bond investors start losing money in real terms. The interest rate stays fixed, but every year inflation eats away at its purchasing power.

So you have a scenario where stocks are falling because growth is collapsing — and bonds are also falling because inflation is destroying their real value. Both pillars of the 60/40 get hit at the same time.

The negative correlation you were counting on doesn't just weaken. It reverses.

The 1940s — Wartime Inflation: The Fed held rates artificially low while inflation surged to double digits. US bonds delivered approximately -5% per year in real terms. Stocks barely kept pace with inflation. A 60/40 investor lost purchasing power for an entire decade.

The 1970s — Stagflation: Growth collapsed after the 1973 oil crisis. Inflation simultaneously hit double digits. Between 1970 and 1980, US stocks delivered approximately -2% per year in real terms. Bonds also delivered negative real returns. Ten years of wealth destruction.

Germany 1920–1923 — Hyperinflation: The Weimar Republic printed money to manage war reparations. Hyperinflation made bonds worthless in months. The investors who survived held gold, foreign currency, and real assets.

UK 1901–1921: Dalio's research documents a 46% real loss on a 60/40 portfolio over two decades. WWI financing followed by the 1920–21 depression created conditions where both stocks and bonds failed simultaneously in real terms.

France 1961–1981: A 48% real loss on 60/40 over 20 years. The inflationary 1960–70s and currency weakness destroyed purchasing power across French financial assets simultaneously.

2022 — The Warning Shot: Fastest bond drawdown in 200 years of US financial history when inflation was high and interest rates were spiked (worst scenario for bonds). Stocks fell 19%, bonds fell 28%. Stock-bond correlation turned sharply positive. A warning shot of what happens when inflation and rate rises hit simultaneously.

The common thread: major debt load, government chooses monetary expansion, inflation rises even as growth falls.

Now look at our current situation. When I pulled Smart X Terminal this week, one number confirmed everything. Total US non-financial debt to GDP is running at approximately 338% of GDP. The government is adding roughly $2 trillion to the deficit annually. Interest payments consume over 15% of government revenue. The Fed has already demonstrated in 2020–21 it will print to support the system.

The paid section covers the specific Terminal macro reading that confirms inflationary deleveraging conditions are forming, the exact stocks scoring highest on Safety right now (and the most exposed danger stocks named by ticker), the three categories Dalio identifies as real-return preservers, and what Ace currently holds in place of the 60/40 allocation.

Want the tool I use to run this screen every week? Smart X Terminal →