On My Radar: Big Cycle Stage 6
February 20, 2026
By Steve Blumenthal
“A house divided against itself cannot stand.”
- Abraham Lincoln
In June 1858, Abraham Lincoln rose to speak in Springfield, Illinois, and delivered a warning that sounded less like politics and more like prophecy. The nation was fracturing over slavery, institutions were losing legitimacy, and trust between North and South was collapsing. Lincoln didn’t offer a policy proposal; he offered a diagnosis:
“A house divided against itself cannot stand.”
He did not predict immediate collapse. In fact, he said the opposite: the house would not fall, but it would stop being divided. It would become “all one thing, or all the other.” Three years later, the Civil War began.
Ray Dalio developed his “Big Cycle” thesis by studying roughly 500 years of history. Long enough to watch societies move from order to disorder and back again. He often says the patterns become obvious only when you zoom out far enough to see multiple lifetimes at once, “like a movie” rather than a snapshot.
Each cycle typically spans 50 to 100 years. This week, Ray wrote that we have entered Stage 6, which he calls the period when the existing world order breaks down.
That’s a big statement.
In his framework, this phase is marked by rising internal conflict, realignment of power among nations, and a shift toward “might makes right” dynamics across trade, technology, capital flows, and geopolitics. In plain English, the rules that governed the post-World War II world order are no longer holding.
Ray is not predicting inevitability or catastrophe. Stage 6 is the most challenging phase, and history shows outcomes depend on leadership, policy choices, and whether societies can restore cohesion before disorder accelerates. He references statements from U.S. Secretary of State Marco Rubio, German Chancellor Friedrick Merz, and French President Emmanuel Macron from last week’s Munich Security Conference, the world’s leading annual forum for global security and geopolitical strategy. You and I see this, too: China, Russia, Iran, Venezuela, Europe/U.S., and the extreme internal division that currently exists within the United States between right and left.
Grab that coffee and find your favorite chair. You’ll find an interview Ray did with Tucker Carlson. Like Tucker or not, he asks questions that help illuminate Ray’s thinking and how this framework informs his approach to markets. Please know that regulations prohibit me from making specific recommendations in this letter. I can speak in general terms about asset classes, but not specific investments. If you’d like to learn more about how we are positioning client portfolios, simply reply to this email and someone from CMG will reach out.
You’ll also find several important charts on private- and corporate-sector debt, plus insights from good friend Barry Habib and his team on the housing market (he’s bullish) and the near-term direction of interest rates.
Heat that coffee up. Let’s go.
On My Radar:
U.S. Private Sector and Corporate Balance Sheets Are in Good Shape
Barry Habib - “The Opportunity In Housing That So Many Can’t See”
Personal Note: The Wallach Beth Winter Symposium in Park City
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Ray Dalio - Big Cycle Stage 6
Ray tweeted this week, “It’s official: The current world order has broken down. In my parlance, we are in the Stage 6 part of the Big Cycle in which there is great disorder arising from being in a period in which there are no rules, might is right, and there is a clash of great powers. How Stage 6 works is explained in detail in Chapter 6, “The Big Cycle of External Order and Disorder,” in my book Principles for Dealing with the Changing World Order. If you can, I think it would be worth your time to read.”
Ray Dalio, in his book Principles for Dealing with the Changing World Order (and related writings like LinkedIn posts and interviews), describes a recurring "Big Cycle" of rise and decline for nations/empires, spanning roughly 50–100+ years across generations. This includes the Big Cycle of Internal Order and Disorder, which unfolds through six archetypical stages: a timeless, cause-and-effect progression from internal order (peace/prosperity) to disorder (conflict/breakdown) and back again.
These stages explain how societies build strength, overextend, fracture due to wealth gaps/debt/conflicts, and eventually restructure through crisis. Following, I’m again providing a summary of the six stages based on Dalio's framework:
Stage 1: The new order begins after war/revolution. A new leadership consolidates power following a major conflict (e.g., civil war, revolution, and/or international war). Debts are restructured or monetized to reduce burdens, wealth gaps narrow, and conflicts ease as people unite around rebuilding. This marks the "birth" or rebirth of the system with fresh momentum.
Stage 2: Consolidation of power and building systems. Leadership further solidifies control and establishes effective resource allocation systems (institutions, governance, etc.). "Civil engineers" (practical builders like Deng Xiaoping or Lee Kuan Yew) thrive here, designing productive structures that improve education, competitiveness, and quality of life.
Stage 3: Peace and prosperity (the high point). The system works well: strong education, innovation, economic output, trade dominance, military strength, and often reserve currency status. There's broad productivity growth, favorable finances, and relative harmony. Examples include Victorian Britain, late-1800s Germany, or 1960s U.S.
Stage 4: Excess, decadence, and widening gaps. Overconfidence leads to overspending, excessive debt/credit bubbles, wealth/political polarization, and declining productivity relative to earlier gains. Hubris sets in, eroding competitiveness.
Stage 5: Very bad financial conditions and intense internal conflict (pre-breakdown). Large deficits, unsustainable debt, money printing, and eroding borrowing power. Wealth gaps fuel intense ideological/political fights; moderates lose ground. Conflict escalates (but the system for resolving disagreements still functions to some extent). Dalio has often placed the U.S. (and sometimes other powers) here in recent years, as a leading indicator of potential decline.
Stage 6: Civil war/revolution or major breakdown. The system runs out of money/credit; the mechanism for peaceful dispute resolution fails. This triggers violent conflict (revolution, civil war, or equivalent restructuring), often with "inspirational generals" leading. It destroys the old order, paving the way for a new one (looping back to Stage 1).
The cycle repeats as the painful resolution in Stage 6 creates conditions for renewal. Dalio emphasizes that these outcomes are not inevitable (reforms can avert the worst), but the patterns are historical and driven by debt, inequality, leadership qualities, and productivity dynamics. He has warned in recent writings (e.g., 2024–2026 comments) that aspects of global/U.S. conditions show progression toward or into Stage 6-like "great disorder," with weakening rules, clashing powers, and "might makes right" dynamics. Note that this applies to both internal (domestic) and external (geopolitical) orders. For more details, his book and the original LinkedIn series (especially the 2020 post "Delving into the Six Stages") provide full archetypal descriptions with historical examples.
In summary:
Every world power has its time in the sun, thanks to the uniqueness of its circumstances and the nature of its character and culture (e.g., it has the essential elements of a strong work ethic, smarts, discipline, education, etc.), but they all eventually decline. Some do so more gracefully than others, with less trauma, but they nevertheless decline. Traumatic declines can lead to some of the worst periods in history, when big fights over wealth and power prove extremely costly both economically and in human lives.
Still, the cycle needn’t transpire this way if countries in their rich and powerful stages stay productive, earn more than they spend, make the system work well for most of their populations, and figure out ways of creating and sustaining win-win relationships with their most significant rivals. A number of empires and dynasties have sustained themselves for hundreds of years, and the United States, at 245 years old, has proven itself to be one of the longest-lasting.” Source: @RayDalio, X, w CMG bold for emphasis
Click here to read Ray’s short post.
Click here or on the following X tweet for a detailed description of Stage 6 (Ray’s Feb 14 post).
Source: X, @RayDalio
The great Abraham Lincoln!
Source: X, @RayDalio
Ray Dalio on The Tucker Carlson Show
Here is the link to Ray Dalio on The Tucker Carlson Show, or click on the image to watch.
Source: Youtube, Tucker Carleson
The Problem is Government Debt
Discussing the CBO’s 2026 U.S. budget report, David Friedberg clearly lays out the debt problem and shares his biggest concern: a government bailout of individual state(s) and local government pension funds (highlighting California). He suggests there needs to be a bankruptcy pathway for pensions and reminds listeners not to forget that the Social Security system is running out of money in 2032.
Following is the quick take from the discussion and a link for you to click through and listen as well:
There is no outlook for 3% debt-to-GDP. It is currenly 6%.
Most of the debt is short-term, modeled at 3.1% in the CBO report. But if rates rise to 5%, that’s another ~$650 billion in added interest expense, taking the total to almost $2 trillion, and that’s just on the existing debt.
Because we are running a spending deficit, the debt is rising at approximately $2 trillion per year, which will drive the government's interest expense even higher.
So the debt keeps rising, and the interest expense keeps rising. This is the “debt death spiral.”
Current interest expense is 3.5%; if rates rise to 5%, the interest cost goes to $2 trillion.
Social Security runs out in 2032. That will be financed with new debt. No one will get elected promising to cut Social Security benefits.
The bigger problem at foot is the state and local government obligations. The California public pension system is bankrupt. They have nearly $1 trillion in unfunded pension obligations to their public employees who have retired and will retire. He introduces the possibility that the Federal Government will have to step in to bail it out.
Friedberg suggests that if we get a Democratic president in 2028 and a Democratic-controlled House, we are likely to see federalization of those obligations. Meaning the federal government will step in to bail out the effectively bankrupt state and local government pensions. If not, there will be a massive economic hit.
The CBO report does not factor this in. Add it in, and this may “be not just the straw that breaks the camel’s back but the cement that breaks the camel’s back,” Friedberg said. This is what worries him the most.
David Sacks then jumps in, noting that we all agree with the debt and deficit problems, but that the growth assumptions in the CBO report are too low. He emphasises that we need strong economic growth to get out of the debt death spiral.
All In - Debt Death Spiral (click on the following link, then click on the 32.48 minute mark).
Next are three excellent charts that paint the picture.
US Corporate Balance Sheets in Excellent Shape
US Government Sector Not in Good Shape
Barry Habib - “The Opportunity In Housing That So Many Can’t See”
Some good news! You can find the link here.
MBS Highway - click on this photo to learn more
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Trade Signals: February 19, 2026 Update
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Personal Note: The WallachBeth Winter Symposium, Park City, Utah
The WallachBeth Winter Symposium begins next week in beautiful (and freashly snow covered) Park City, Utah. Over 150 attendees, including S&P, Nasdaq, JPMorgan, VanEck, Invesco, AllianceBernstein, Cboe Global Markets, NYSE, SEI, State Street, Cambridge Associates, First Trust, Goldman Sachs, asset managers, investment advisors, and family offices.
My good friend Andy McOrmond MCs the conference, which he hosts with his excellent WallachBeth team.
Warm regards,
Steve
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Stephen B. Blumenthal
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.
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