A high reading says the market appears unusually vulnerable to disappointment. It does not say a fall begins tomorrow. The greatest excesses can persist—and even intensify—before they resolve.
No single measure is allowed to tell the whole story. The score combines market pricing, borrowing, participation, concentration, speculative behaviour and external shock risk.
Measures how much investors are paying for each dollar of sustainable company earnings. Expensive markets are less forgiving when expectations change.
Tracks how much of the system is built with borrowed money. Leverage magnifies gains on the way up—and can force selling on the way down.
Compares corporate prosperity with workers’ share of economic output. A large gap can leave growth increasingly dependent on borrowing and asset prices.
Shows how much household financial wealth is already committed to shares. Heavy exposure leaves less fresh buying power and increases sensitivity to falling prices.
Compares the value of equities with available money and economic output. It asks how many dollars of financial claims rest on each dollar of liquidity and production.
Measures how much of the index depends on a small number of companies. Narrow leadership can make a broad market appear healthier than it is.
Looks beneath the index for industries combining exceptional gains, accelerating prices and rapidly increasing volatility—the classic anatomy of fragile speculation.
Tracks wars, military threats, terrorism and severe international tension. It is an external shock multiplier—not a stand-alone market timing signal.
On pages 32–33 of my second book, Chaos Awaits, I present illustrative modelling in which retirement savings finished roughly 400–800% higher—not by outperforming during bull markets, but by avoiding the worst damage of bear markets. These are modelled scenarios, not historical returns or a forecast. The underlying idea sits at the heart of our investment philosophy.
A black swan is rare, difficult to predict and highly consequential. Markets rarely collapse because investors calmly agree they have been overpaying. More often, a major event abruptly replaces late-cycle confidence with fear. The event may not create the fragility; it exposes fragility that was already there.
A severe biological incident or nuclear exchange could cause catastrophic loss of life, disrupt trade and supply chains, and trigger a rapid global repricing. Neither its timing nor probability can be responsibly forecast.
A major compromise of payments, exchanges, utilities or other critical infrastructure—or an uncontrolled automated action—could damage confidence faster than institutions can respond. The financial system’s technological interdependence makes operational resilience essential.
An existing conflict could widen, involve a major power, disrupt energy or shipping routes, or reach US territory. In a highly valued and leveraged market, the financial impact could be much larger than the initial event suggests.
Technology valuations rely heavily on ambitious future earnings. If enough bellwether companies disappoint, analysts could cut forecasts together, compressing multiples across a concentrated index—as occurred during the technology unwind of 2000–02.
Heavy government borrowing, short-term funding and leveraged bond trades can turn an ordinary yield move into forced selling. Stress in government bonds or repo markets could quickly transmit into funding, credit and equity markets.
Opaque valuations, weaker borrowers and refinancing pressure could produce clustered defaults or redemption stress. The first losses may be contained; the danger is transmission through insurers, banks, funds and confidence.
Or the black swan could be something genuinely unimaginable.
We will not claim to know which unexpected event will occur, or assign it a metric or probability. We will simply accept that it can. Shocks can matter at any point in a cycle, but richly valued, leveraged and concentrated late-stage markets have less room to absorb them. That is why we believe a cautious stance is warranted in the current era.
Context, qualifications & public sources →The Meridian is designed to make disagreement visible. High structural pressure and a still-rising market can both be true at once.
See the customer definition, crash rationale, current reading, formula, public source links, limitations and historical exceptions for all eight metrics.