Oct 31, 2026 · 1h 6m
Trend following tests the 60/40 portfolio’s resilience
SI424: Can Your Portfolio Survive the AI Hangover? ft. Alan Dunne
As inflation, supply shocks, and debt risks can push stocks and bonds lower together, the episode examines how portfolios can adapt without forecasting the next crisis.
- 1Bond-equity diversification can weaken when macroeconomic regimes shift, leaving traditional portfolios exposed to simultaneous losses.
- 2Trend following offers adaptive diversification by responding to sustained market moves rather than predicting which crisis comes next.
- 3Resilience should be judged by long-term compounding and drawdown control, not by outperforming equities in every rally.
Don't miss
Alan Dunne reframes portfolio resilience as a long-term compounding problem rather than a promise of immediate protection whenever equities fall.
The brief
Alan Dunne and Niels Kaastrup-Larsen begin with seasonal trend-following patterns before turning to credit markets, European politics, Japan, and a mixed October for systematic strategies.
The central risk is a regime in which inflation, energy shocks, adverse supply conditions, or debt stress drive stocks and bonds lower together.
Discussing the Pukini report by Dario Perkins, they question whether AI optimism is obscuring longer-term economic disruption and changing assumptions about growth and policy.
Alan argues that trend following can diversify portfolios without requiring investors to identify the next crisis, while accepting periods of underperformance against equities.
The episode’s sharpest challenge is definitional: investors want immediate protection, but resilience may be better measured through reduced drawdowns and stronger compounding over time.
What was said on this episode
34 statements · 13 positive · 16 negative · 1 mixed · 4 neutral
Arini Capital is down approximately 22–25% year-to-date.
“the same fund is now down something like 22 or 25% on the year”
Listen at 2:56
Arini Capital aggressively bought lower-rated, lower-quality credit securities.
“This manager had been quite an aggressive buyer of maybe the lower rated, lower quality names.”
Listen at 3:46
Arini Capital’s withdrawal of credit demand creates broader high-yield market concerns.
“with that bid stepping away, there are kind of more systemic concerns”
Listen at 3:52
European bond markets, especially French bonds, are under pressure.
“European bond markets under pressure and French bond markets in particular”
Listen at 7:15
Christine Lagarde’s successor will likely be chosen through political compromise.
“it'll be some kind of political compromise”
Listen at 8:19
Anthropic’s founders retain 50.1% of voting power.
“the founders keep 50.1% of the voting power”
Listen at 9:41
Anthropic is reportedly seeking a valuation of $1.5–2 trillion.
“at a valuation of one and a half to two trillion dollars for philanthropics”
Listen at 9:53
Historically, divided government has generally benefited equity markets.
“kind of split. you know, government is generally seen as a positive for equity markets”
Listen at 17:19
Historically, divided government has generally benefited equity markets
“split. you know, government is generally seen as a positive for equity markets.”
Listen at 17:20
The Federal Reserve may take policy actions less frequently.
“maybe we should expect, you know, less frequent actions from the Fed”
Listen at 21:46
Less frequent Federal Reserve actions could be larger in magnitude.
“the actions will be of greater magnitude”
Listen at 21:52
Kevin Warsh’s Federal Reserve has made only a minor 25-basis-point adjustment.
“Kevin Warsh is coming in in May and they've, you know, made one. minor adjustment of 25 basis points”
Listen at 23:16
Alan doubts the Fed’s “new monetary medicine” represents substantial change
“I'm not convinced about that.”
Listen at 23:57
The Federal Reserve needs concrete action to build credibility.
“action is required if you really want to build credibility”
Listen at 24:21
Higher yields could constrain the AI investment boom
“the higher yields could be a kind of a curtailing factor for the boom”
Listen at 30:23
A 10% stock-market decline would materially reduce consumption.
“every 10% fall in the stock market would have a very meaningful impact on consumption”
Listen at 31:38
An AI investment unwind could cause a severe downturn and substantially increase debt levels
“if this kind of scenario, you know, played out and we had this unwind, that we could see a more severe downturn that could significantly push up debt levels again”
Listen at 32:24
An AI investment unwind could cause a severe downturn and substantially increase debt levels.
“we could see a more severe downturn that could significantly push up debt levels again”
Listen at 32:32
Bond-equity correlation was negative for decades but has turned positive this decade.
“It was negative for many decades, you know, the 20s, the 2000s, 2010s, maybe the 90s as well. It's now shifted to positive since this decade.”
Listen at 35:53
Negative bond-equity correlation alone does not adequately prepare a portfolio.
“negative correlation by itself isn't enough to prepare a portfolio”
Listen at 41:53
Investors should construct portfolios for multiple economic scenarios.
“You have to build and think about the allocations. for multiple scenarios.”
Listen at 43:01
Portfolio resilience requires diversification across assets and economic scenarios.
“not relying on one or two assets, but being more diversified and also thinking about multiple economic scenarios”
Listen at 43:37
Adverse supply shocks can hurt bonds and equities simultaneously
“The types of scenarios that impact bonds and equities adversely at the same time are typically adverse supply shocks.”
Listen at 46:28
Extreme oil-price increases and debt crises can hurt bonds and equities simultaneously.
“an extreme run-up in oil prices is one thing. Obviously, a debt crisis is another one”
Listen at 46:46
Investors must account for a broader range of risks in portfolio construction.
“there's much greater variety of risks that that investors have to account for i think in portfolio construction”
Listen at 48:32
Investors should consider commodities and precious metals as portfolio diversifiers.
“having exposure to commodities makes sense. Precious metals, I think there's a case for it.”
Listen at 50:54
Portfolio resilience requires balancing growth, diversification, and adaptive strategies
“it's balancing growth with diversification with adaptiveness as well”
Listen at 51:22
Adding private equity may increase equity risk rather than portfolio diversification or resilience.
“if you add in private equity, then obviously, That's not giving you diversification. It's not going to, it's probably not going to improve resilience.”
Listen at 55:59
Adding private equity to equity exposure likely does not improve diversification or resilience
“private equity, then obviously, That's not giving you diversification. It's not going to, it's probably not going to improve resilience.”
Listen at 56:00
Portfolio diversification should be measured by independent sources of return, not asset count.
“what you really need to do is calculate the number of independent bets you have in your portfolio”
Listen at 57:51
More independent return sources increase statistical portfolio diversification
“the more independent, unique sources of return you have, the more statistically diversified the portfolio is”
Listen at 57:57
Inflation protection is a component of portfolio resilience
“I think inflation protection is another thing.”
Listen at 58:12
More resilient portfolios can reduce tail losses and improve long-term compounding.
“a more resilient portfolio can mitigate those tails and compound them at a higher rate over time”
Listen at 1:01:08
Balanced, diversified portfolios may deliver smoother returns and higher returns at equal risk.
“more resilient portfolios are more balanced diversified portfolios can deliver a more um uh smoother ride and and probably even a higher return for the same level of risk”
Listen at 1:01:47
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Weekly email
State of the Pod, every Monday
The week's most-discussed names and stories from podcasts, with the moments behind them. Free, five minutes, unsubscribe in one click.