Markets were reminded this week how quickly conditions can change.

The Dow Jones Industrial Average has now turned negative for the year as markets begin to price in the possibility of a longer war in the Middle East than originally promised. Yet many Americans appear largely oblivious to the potential inflation risks ahead as gasoline prices have already risen nearly 20% in some states — the most painful inflationary jolt since 1982.

We believe inflation will remain problematic. Inflation has historically been negative for stocks, bonds, and real estate, while it has historically been very positive for gold and silver.

Our research into the top quintile of inflationary years in financial markets pointed to optimized gold allocations in portfolios approaching 100%, with little to no exposure to stocks or bonds. The point is not to suggest that investors should hold 100% gold allocations today, but rather to highlight that if we are entering a sustained inflationary period, U.S. advisory firms could hardly have their clients positioned worse.

When war erupts in a region that sits at the center of global oil supply, markets do not simply respond emotionally — they respond structurally. Energy prices rise, supply chains tighten, inflation expectations increase, and governments expand spending to finance war and respond to uncertainty.

While headlines this week were appropriately dominated by war, developments inside the financial system suggest markets may be far more fragile than many investors realize.

BlackRock, the largest asset manager in the world with roughly $14 trillion under management, recently revalued a loan investment from full value to zero in two consecutive investor updates. The sudden revaluation from full value to worthless highlights that many private credit valuations may be artificially rich.

Private credit — essentially loans made by investment funds rather than traditional banks and not traded on exchanges — has become one of the fastest-growing investment categories in recent years. It has been the darling of pensions and endowments. This sudden collapse suggests official default rates in private credit may be lower than the reality investors will eventually face.

Notably, this was the second time in two months that BlackRock reduced a loan from full value to zero in a matter of weeks. Investors requested approximately $2 billion in withdrawals from one of BlackRock’s lending funds but were limited to roughly half that amount.

Other large firms such as Blackstone and Blue Owl Credit have also restricted client withdrawals in recent months.

For the first time since the Great Financial Crisis, I will admit that this environment feels reminiscent to me of Lehman Brothers. I was a young employee at Lehman in 2008 when analysts, accountants, and attorneys all insisted the century-old firm — which had recently traded near $85 per share and held the Wall Street Journal’s top rankings in both equity and fixed-income research — would be fine.

Allow me to pass on a truth investors should take to heart: when you look across the spectrum from naïve optimism to extreme skepticism, it is usually the naïve who suffer the greatest losses while the cautious often sidestep the worst pain.

There was a tell-tale sign Lehman was about to collapse that I failed to appreciate at the time. For years the firm allowed employees to retain their stock if they left for competitors. But sometime around 2007–2008 Lehman suddenly changed its policy: if an employee left for another firm in finance, all employee stock would be forfeited. The firm effectively raised the drawbridge to prevent people from getting out.

I vowed never to miss that signal again.

This week’s news of restricted redemptions in private credit feels like a lightning strike across Wall Street. In my opinion, we may only be at the very beginning of a broader unwinding in that market. I sincerely hope I am wrong, but I am no longer willing to construct my portfolio based on hope — and my suggestion is that you consider doing the same.

Just as Federal Reserve Chair Bernanke incorrectly stated in 2008 that problems were “contained” within subprime mortgages, my expectation is that the stresses emerging in credit markets today may be only the beginning. If you are like me and have a significant portion of your career already behind you, simply hoping for the best may not be a prudent strategy.

Private equity faces similar challenges. Today more than 30,000 companies owned by private equity firms are reportedly waiting to be sold, but buyers are unwilling to pay the prices currently assigned to those assets. If private equity firms begin marking down those valuations appropriately, performance fees across the industry would fall significantly.

This raises an obvious question: why have so many firms been slow to adjust valuations? I believe most readers can draw their own conclusions.

Desperate for liquidity to pay investors and bonuses, private equity has increasingly relied on structures known as NAV loans — essentially borrowing against the value of companies they already own. While this can temporarily provide liquidity, it adds additional leverage to a system that is already heavily indebted and raises serious governance concerns.

Commercial real estate represents another major investment sector facing structural problems. More than $1 trillion in commercial real estate debt will mature this year at a time when interest rates remain elevated and property values and rental cash flows have declined.

Higher interest costs now render many projects insolvent. Developers extrapolated low interest rates indefinitely, and many properties can no longer cover their financing costs. Nearly three-quarters of these loans are held by regional banks.

The problem has become so widespread that banking regulators appear reluctant to enforce previous rules requiring properties unable to make interest payments to be marked as impaired. Strict enforcement of those standards could trigger broader insolvencies across the banking system.

Within commercial real estate, office properties have now reached record delinquency levels. Even high-quality assets in top-tier cities continue to default, as demonstrated by another major foreclosure this week in San Diego.

Multifamily housing — long promoted by Wall Street as a safe investment because “everyone needs a place to live” — is now showing rising delinquency rates as well, even in states like Texas with strong population growth.

Taken together, these developments support our view that many of the most heavily owned asset classes in the United States — equities, credit, and real estate — may be broadly overvalued following years of quantitative easing and lax enforcement of proper mark-to-market accounting.

In this environment, many investors are beginning to reconsider the role of assets that exist outside the financial system.

Physical gold has historically played that role. Unlike most financial assets, gold does not depend on the solvency of a borrower, the profitability of a company, or the policies of a central bank.

In fact, central banks themselves — the institutions that manage the world’s currencies — have been accumulating gold at the fastest pace in decades, suggesting that the most politically informed institutions in the world may be preparing for a significant shift in the financial system.

Gold remains one of the few major assets that is supply-constrained, globally recognized, and under-owned in modern portfolios.

If current trends continue, several developments may become clearer in the months ahead: the conflict in the Middle East may last longer than originally promised; disruptions in energy markets may contribute to higher inflation; private credit and private equity valuations may come under increasing pressure; public equity markets may contract; and real estate values may continue adjusting downward.

As these pressures build, more investors will likely begin asking a fundamental question:

What assets truly provide stability in an uncertain world?

That question has historically pointed investors back to physical gold held outside the financial system.

Reflecting some of this shift, Florida’s legislature passed a bill on Friday making gold and silver legal tender in the state beginning in 2027.

In conclusion, to our fellow patriots we want to encourage something that is as far from Wall Street thinking as possible.

If the United States becomes involved in conflict in the Middle East, the human cost will fall on our soldiers and their families. Many of our veterans already struggle with limited resources, and the possibility of further war should cause all of us to reflect seriously.

Do you believe there is a God? If so, He has been clear: our prayers and fasting can protect those we love.

Scripture shows peace ultimately comes not from politics but from repentance, prayer, and fasting.

Step up.

Join us in fasting twice each week for the protection of our responders and their families, a practice early Christians considered a normal obligation of believers. Do not let the enemy whisper that America is too far gone or that your personal effort is too small to matter.

The opposite is true. Individual acts of faith have shaped history many times before.

Our first responders and their families risk everything for the rest of us. We can support them not only materially but spiritually by praying and fasting for protection over them.

Fasting as early Christians practiced it — simply on bread and water with olive oil, or today with butter — is not meant to be incapacitating. As Christ said, His yoke is easy and His burden is light.

Our team gathers daily in prayer, asking God to protect our families, strengthen our nation, and guide us in wisdom. We invite you to join us.

God bless. And God bless America.

 *Past performance is not indicative of future results.