Strategic Risk Assessment

What does the Strategic Layer measure?

The strategic layer monitors 5 macro dimensions on a weekly cycle. Each dimension scores 0–10, then a weighted average produces the overall strategic risk score:

• Recession Risk (30%)Recession RiskMonitors unemployment claims velocity (YoY change), prediction market expectations, ISM PMI regime crosses, and dual yield curve inversions. The heaviest weight because recessions cause the deepest drawdowns.Learn more → — Unemployment claims velocity, Kalshi recession probability, ISM PMI regime crosses, dual yield curve inversions.
• Credit Stress (25%)Credit StressHigh-yield spread velocity (70% weight) + level (30%), investment-grade BBB spreads, TED spread. Credit markets are the best leading indicator of financial stress.Learn more → — HY spread velocity (70%) + level (30%), BBB spreads, TED spread. Credit leads equities.
• Valuation Extremes (20%)Valuation ExtremesCAPE ratio (Shiller P/E), Buffett indicator (Market Cap / GDP), forward P/E. High valuations don't cause crashes but amplify them — further to fall.Learn more → — CAPE ratio, Buffett indicator, forward P/E. High valuations amplify drawdowns.
• Liquidity Conditions (15%)Liquidity ConditionsFed funds rate of change, M2 velocity, dollar liquidity stress. "Don't fight the Fed" — tightening conditions starve risk assets of fuel.Learn more → — Fed funds rate changes, M2 velocity, dollar liquidity. Tighter conditions stress risk assets.
• Positioning & Speculation (10%)Positioning & SpeculationCFTC futures positioning in S&P 500, Treasury, and VIX contracts. Extreme positioning is a contrarian signal — crowded trades unwind violently.Learn more → — CFTC S&P / Treasury / VIX futures positioning. Extreme crowding = contrarian signal.

How is the score calculated?

Each dimension scores 0–10 based on historical thresholds, emphasizing rate of change over absolute values for leading signals. The composite is a weighted average. Example:

Recession:    3.5 × 0.30 = 1.05
Credit:       6.0 × 0.25 = 1.50
Valuation:    4.0 × 0.20 = 0.80
Liquidity:    2.0 × 0.15 = 0.30
Positioning:  1.0 × 0.10 = 0.10
                           -----
Strategic Risk:            3.75 (GREEN)
            

Strategic Alert Tiers

• GREEN Score < 6.5 — Normal macro conditions. No action needed.
• YELLOW Score 6.5–7.9 — Elevated macro risk. Review portfolio, consider building cash.
• RED Score ≥ 8.0 — Severe macro stress. Major defensive positioning warranted.

Special Triggers & Overrides

Beyond the composite score, the system watches for specific patterns:

• TRIGGER Risk rising >1.0 point in 4 weeks (momentum alert)
• TRIGGER 2+ dimensions ≥ 8.0 simultaneously (broad stress)
• OVERRIDE Liquidity ≥ 8.5 forces YELLOW even if overall is GREEN
• Valuation Warning: CAPE >30 AND Buffett >120% (historically precedes crashes)
• Double Inversion: Yield curve inverted + HY spreads >500 bps (severe recession risk)
• Dollar Liquidity Stress: Dollar up >5% in 3 months + Fed swap lines active

How does it integrate with Aegis?

The strategic layer is the confirmation signal. It updates weekly and assesses whether the macro regime supports a defensive posture. The tactical layer (daily) provides fast triggers; the strategic layer validates them. An alert fires when tactical ≥ 5.0 or strategic ≥ 6.5. When both layers agree, conviction is highest.