Inside Today’s Issue

• Essay: You Probably Don’t Own Bitcoin And That’s A Huge Mistake
• Strong GDP Growth
• Job Growth = Rate Hike
• Diesel Rises Again
• Chart Of The Day… Morgan Stanley Bitcoin Trust (MSBT)
• Today’s Mailbag

Editor’s note: The Porter & Co. editorial and Customer Care teams will be off on Monday because of Labor Day. We will all be back on Tuesday.

Nobody invented money.

It was not designed, chartered, decreed, or granted. It was discovered, slowly, in trade. A man takes salt in exchange for his labor because he knows he can exchange it for other goods. Cattle, hides, shells, iron bars, bricks of tea, cakes of salt, strings of beads: each of these served as money at different times in history.

Carl Menger, one of the founders of the Austrian School of economics, first theorized how money evolved through trade. Men were led, he wrote,

each by his own economic interests, without convention, without legal compulsion, nay, even without any regard to the common interest, to exchange goods destined for exchange (their ‘wares’) for other goods equally destined for exchange, but more saleable.

The most important takeaway is that money predates all government. Governments don’t create money – in fact, as you’ll see, governments constantly corrupt money.

The second most important takeaway is that the market – through the choices of millions of individuals each pursuing their own economic interests – will always trend toward the best and most reliable form of money. That’s why, over time, more people favored metals, particularly gold and silver. And it’s why more and more people are choosing Bitcoin (BTC), today.

And what did governments add to money? Fraud, of course.

The denarius, the benchmark coin of the Roman Empire, was 90% silver (3.9 grams) under Julius Caesar. By AD 200, the coin was less than 60% pure, and by AD 300, it contained 5% silver. The Empire disintegrated alongside its money – something Americans would be wise to remember.

The same thing has happened to every empire.

Between 1544 and 1551, in a program historians call the Great Debasement, England’s silver coinage went from the old sterling standard of 92.5% fine to 75%, then 50%, then 33.33%, and finally to 25% in April 1551. Measured in metal, a pound sterling fell from 153.4 grams of pure silver to 25.9. Roughly 83% of the silver content was removed in only eight years.

It happens, over and over again. As sure as the sun rises in the East, every government, if it gains enough power, will attempt to control money by creating a currency. And they will devalue that currency to steal. That’s exactly what’s been happening in America since 2010. It’s why people under the age of 40 can’t afford to buy a house, get married, or have a family. It is what’s driving the collapse of our culture and our society. It’s what’s leading more and more people into lives of desperation: gambling, prostitution, and substance abuse. It’s leading people to become politically radicalized. And, if it continues, it will lead America to socialism, a financial collapse, and even a civil war.

But this doesn’t have to happen to you. You are still free to choose what you save. And you should save money, not the government’s currency. What is money? Money is what people voluntarily save. It is discovered, in markets, over long periods, by people making their own self-interested choices. Currency is what a government issues and debases and requires you to use as legal tender for debts and taxes. Money doesn’t require any coercion. It’s chosen freely, in the market.

Unless you understand this background, Bitcoin will never make sense to you.

Beyond this basic distinction between money and currency, the other misunderstanding that’s common even among people like financial commentators Peter Schiff and Jim Grant, who have an Austrian orientation, is that because Bitcoin is inert – it’s just code – it doesn’t have any intrinsic value.

As the Austrians proved, value is relative. And, in the modern world, code can have enormous value. Look at Microsoft (MSFT). What is it, other than code?

Every technology that Bitcoin has combined into its code has tremendous real-world value. Public-key cryptography verifies bank wires, military traffic, software distribution, and every other encrypted commercial transaction. Cryptographic hash functions compress huge files into a short fingerprint, which is how password databases and software integrity have been protected for decades. Distributed consensus protocols (blockchains) keep databases organized for mission-critical infrastructure around the world.

Saying that these things have no value because they are only code is profoundly ignorant.

Bitcoin combined these technologies to create something extraordinary: a way to send a fixed amount of value (a proof of work) to anyone around the world using only the public internet. Bitcoin allows two strangers, who do not trust each other, to exchange a form of money, with final settlement, without asking a bank, a clearinghouse, a corporation, or a government for permission. It also allows individuals to save an unlimited amount of money using only their minds: a seed phrase.

Gold’s weakness is its physical presence. It requires custody. To use gold, people ultimately must hand it to someone: a bank, a treasury, a depository institution. Or else… they risk having it seized (see 1933) or stolen. Bitcoin removes this risk. And that is a revolutionary monetary characteristic. Over time, I believe this will transform the relationship between people and governments. It creates a defense against debasement and coercion.

Like gold, Bitcoin is inert. It has no earnings. It pays no coupons. And, like gold, its supply only grows slowly, and the costs to mine Bitcoin continue to increase. To value Bitcoin, you must understand the other side of the scale: the currency you’re measuring it against. Bitcoin’s price, like gold’s, is driven by monetary aggregates.

The Porter & Co. Bitcoin Liquidity Model uses least squares regression analysis, which is a statistical method for understanding the historical relationship between global currencies and Bitcoin, using about 500 weekly observations beginning in January 2015.

The monetary aggregates we use include:

• Federal Reserve net liquidity, which is the Fed’s balance sheet minus the Treasury’s cash account minus money parked in the reverse repo facility. It is what the Fed is actually leaving in the banking system.
• Global M2 in dollars. M2 is broad money: currency, checking accounts, savings deposits and close equivalents. We sum the United States, the euro area, Japan, China and the United Kingdom, converted to dollars.
• Total circulating supply of the two large dollar stablecoins, USDT (Tether) and USDC (Circle Internet).

Statistics show our model explains 89% of the variation in Bitcoin’s price. Most Bitcoin enthusiasts claim Bitcoin’s price is driven by its halving cycle. But it isn’t. Once global liquidity is measured properly, the four-year halving cycle adds nothing to Bitcoin’s price. Bitcoin’s code was designed to keep the price of Bitcoin stable against the growth in compute. It’s working. What’s driving its price higher is debasement by governments.

On May 21, I posted this on X.com (@porterstansb):

I expect Bitcoin will continue to be highly correlated with liquidity in the global financial system. My model says each 1% rise in Global M2 YOY adds ~4.5% to fair-value BTC. Model fair value is $136,050.

On May 26, on Anthony Pompliano’s podcast, I said,

The mispricing today in Bitcoin is as large as I’ve ever seen before in the model.” And I explained why: “I think that’s because the tech stocks have been so strong that all of the risk capital has fled into tech stocks, and it had to come out of somewhere.

My conclusion:

I think we’re seeing a great opportunity today in Bitcoin, certainly the best opportunity I’ve seen in Bitcoin in a decade.

On June 20, we published an entire issue of my newsletter, Complete Investor, about Bitcoin:

In this issue, we’re re-recommending Bitcoin (BTC). And we believe buying it now, before the next halving, will prove to be the single best financial decision of the next decade.

By June 30, Bitcoin had fallen to $58,524. It recovered through August, and today is trading above $79,000. But… despite the rebound… Bitcoin is still trading below the lower 1-sigma band of around $94,000 of our pricing model.

Nero shaved the denarius. And every empire since then has destroyed itself and most of its people through debasement. But nobody can shave a Bitcoin.

If you use their money, you’ll be their slave. Free yourself with Bitcoin.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: The Most Famous Gold Chart This Year
• The Crowd-Out Of Data-Center Spending
• Another Nvidia Circular Funding Deal
• AI Has Not Yet Reduced Inflation
• Chart Of The Day… Gold
• Today’s Mailbag

The Fed didn’t print a dollar, and gold had its best month in 27 years.

The Federal Reserve’s balance sheet didn’t move an inch this month, and gold still had its best month since 1999.

If that sounds backwards, you’ve been watching the wrong building.

On August 19, the U.S. Treasury announced it would double its buybacks of long-dated government debt, from $2 billion an operation to at least $4 billion. Treasury Secretary Scott Bessent calls it a “Treasury Twist.”

Then on Monday, August 24, two senior Treasury officials told CNBC where the money could come from: the government’s own checking account at the Fed. Bessent has built it to roughly $950 billion. The last Treasury ran it at $550 billion to $600 billion.

Follow the cash…

The Treasury buys long bonds from the banks, its balance at the Fed goes down, and the banks’ reserves go up by the same amount. Money that sat frozen in a government account starts moving, and the Fed’s balance sheet never does.

Nobody has to call it quantitative easing (“QE”), so I’ll call it what it is: Checkbook QE.

It’s the same liquidity, in a different building, with no press conference.

Because the Fed won’t do it. Federal Reserve Chair Kevin Warsh took the helm wanting a smaller central bank, and futures give better than one-in-three odds his Fed hikes this month.

Meanwhile, the 30-year yield hit its highest since 2007 this month and federal debt crossed $40 trillion. Somebody has to be the buyer of last resort for the long bond. The Fed declined. The Treasury volunteered, and told you where it keeps the money.

Gold answered inside a week.

Bullion started August near $4,000 an ounce and traded above $4,700 to end the month, up about 14% on the month. The last time it moved that fast was September 1999, when 15 European central banks agreed to sell less gold. This time a government showed you its checkbook.

Gold is a great way to be right about Checkbook QE. It’s a slow way to get paid for it.

M2 hit a record $23.2 trillion this summer. Hold gold at the ratio to the money supply it reached in 1980, and the price lands near $10,000 an ounce.

Now run the same arithmetic on a miner. The big producers pull an ounce out of the ground for roughly $1,600 all-in, so at $4,000-an-ounce gold, they clear $2,400 an ounce, and at $4,700 they clear $3,100. The metal moved 17%. The margin moved 29%.

At $10,000, the number is on the chart below, because if I say it out loud you’ll think I’m selling something.

I am. Just not that.

My flagship service, Katusa’s Resource Opportunities, turns 10 this year.

I started it to show readers the names I own, the price I paid, and why, and to bring them into the private financings I write my own check into first, at the same price and terms.

• That’s how a $0.90 unit in Artemis Gold’s 2019 financing became a $45 stock.

The losers are in the letter next to the winners, with what I got wrong.

The correction left a list of gold producers priced at margins I haven’t seen in my career.

Some have repriced. Most haven’t.

The three I’d own first are in a report every new member gets on day one.

For the anniversary, for 10 days, I’ve reopened the price our charter members paid the day we launched: $1,499 instead of $3,500, with a full refund inside 30 days if it isn’t for you.

I’ve never reopened that price in 10 years and I won’t again.

Claim the charter price: $1,499 instead of $3,500.

The Treasury has $950 billion and just told the market it’s willing to use it. Gold had its best month since 1999 on the announcement alone. The spending hasn’t started.

Join Katusa’s Resource Opportunities at the 10-year charter price

Marin Katusa

Keep in mind, we at Porter & Co. only publish guest essays from publishers we know to offer well-researched ideas vetted by a legal team, excellent customer service, and reasonable refund policies. Katusa’s Resource Opportunities is one such partner. We do not, however, under any circumstances, make any representations about their investment ideas or strategies, nor will we warrant them as equal to our own. We do recognize that the markets are tempestuous and, at times, ideas that we may not endorse prove valuable.

Tell us what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: How’s A 30% Annual Dividend Sound?
• Tax Money Keeps Rolling In… And Out
• Money Supply Grows Bigger And Bigger
• Tech Goes From Cap-Light To Cap-Heavy
• Chart Of The Day… Deere & Co.
• Today’s Mailbag

It’s like trying to drive a car at night without any lights…

Many years ago, one of my mentors was explaining the real purpose of prices. Prices convey information across a complex economy. But when the money is “broken” – when it’s constantly inflated by the Federal Reserve – that information in those price signals is corrupted. The feedback mechanism breaks down. As a result, it’s like trying to drive a car at night without any lights – accidents are bound to happen.

We’re about to see an enormous accident in global tankers. But you’d never know it…

The shipping tanker market is gushing more cash than I’ve ever seen before. By the time the 3Q dividends land, the six largest tanker companies will have paid out over $3 billion in cash to shareholders this year. The indicated annual yields on some of these stocks is over 30%.

Should you grab some of this historical cash windfall…? Maybe – but only if you know when the music is going to stop.

Tankers are the most cyclical, mega-capital industry in the world. Tankers’ depreciation schedules make data centers look like a safe long-term investment! A supertanker costs well over $100 million, takes two to three years to build, starts rusting the day it launches, and always dies young – it’s typically scrapped after two decades.

Why would anyone want to be in this business? Because the world cannot function without these ships. Roughly a third of the oil consumed on Earth reaches its refinery by ship.

The cost of the shipping is a tiny fraction of the value of the cargo. So when shipping gets disrupted or when demand for imported oil grows suddenly, there will be enormous increases to shipping rates because demand doesn’t change. A refinery that cannot get crude stocks has to shut down. Shut-in costs more than any freight bill, so refiners bid against each other for the last available vessel. The daily rate to hire very large crude carriers (“VLCC”) does not rise 20% or 40% in a tight market. It increases 500% or 1,000% – usually within days.

Prices can remain elevated for years because it takes a lot of time to build more ships and because ships are rusting out of the fleet all the time. The gap between when a shortage emerges and the delivery of a new fleet is “the window” – it comes along once every decade or so. And truly immense amounts of money can be made. But you must know when it’s time to leave the party.

I’ve written previously that the current market cycle reminds me of the 1973-1974 bear market. Energy prices spiked because of a war in the Middle East. U.S. politics were coming unraveled because of Watergate. And stocks were coming off huge highs in 1972, as the Nifty-Fifty – a group of high-quality stocks – were trading at higher multiples than anyone had ever seen before.

That market also featured a huge tanker cycle – almost exactly like the one we see today.

Leasing rates on the largest tankers quadrupled between May and September of 1973. Egypt and Syria attacked Israel on October 6 of that year. The Arab oil producers cut supply and embargoed shipments to the United States. The rush to find crude anywhere in the world and to ship it to America was on. The freight market went vertical.

Then it broke.

On October 24, spot rates for large tankers fell 75% in only three days. By November they were down 90%. Why did rates collapse so fast and so completely? The embargo cut the volume of oil so completely that there was nothing left to carry.

But the oil supply crash wasn’t the real disaster. The disaster was what happened next.

By January 1, 1974, the world’s shipyards had orders for 193 million tons of new tanker capacity – 90% of the entire existing fleet. In other words, the fleet owners ordered themselves an entire second fleet. The new ships came. And kept coming. World tanker capacity – the supply – went from 440 million tons in 1973 to 494 million in 1974, 544 million in 1975, and 633 million by 1978, while the demand didn’t grow at all.

By Q2 1976, almost 20% of the entire world tanker fleet was moored and out of service. But idling a ship is not free: keeping a supertanker anchored costs as much as $75,000 a month. Plus, it costs roughly $700,000 to prepare it and secure a berth.

By February 1979, the rate index for the largest tankers had fallen to a level roughly 95% below the 1973 peak. In April 1983, a full 10 years after the peak, the world had 310 million tons of tanker capacity available but it still only needed 137 million. There was a surplus of 173 million tons, meaning more idle oil-carrying capacity than the entire industry could employ!

I wasn’t in the markets during the 1970s, but I watched the same cycle happen again in the mid-2000s.

As China’s economy boomed following its entry into the World Trade Organization (“WTO”), demand for crude carriers surged amidst a broad commodities mania. Oil surged from $30 to $147.50 a barrel by July 11, 2008. Demand for tankers followed crude higher. Rates for the largest tankers averaged $53,000 a day in January of 2008 and peaked above $169,000 a day by July.

What happened next? Global tanker building contracts, which had been running $30 billion a year, jumped to $91 billion in 2004, $104 billion in 2005, and $135 billion in 2006. The price of a new supertanker went from $63.5 million in 2002 to $129 million by the end of 2006. But owners kept ordering. By January 2007, Clarkson’s (the world’s largest shipbroker) put the global orderbook at 300 million tons – roughly 31% of the existing fleet.

The bust took five years to work through. And not everyone survived. Overseas Shipholding Group, then the largest American tanker operator, filed for bankruptcy in November 2012 with $4.15 billion of assets against $2.67 billion of debt.

Today, we’re sitting in “the window” – supplies for tankers are super tight. Leasing rates have soared. And a whole new fleet is on order. The clock is ticking… but how long will “the window” stay open?

With the war in Iran this spring, the Strait of Hormuz was effectively closed. That left a huge number of tankers stranded in the Persian Gulf. Rates for the largest tankers touched $436,000 a day. Traffic has been resuming gradually, though ships are still sitting idle around the strait waiting to move. Every ship stuck at anchor is a ship not competing for cargo. Veson Nautical (whose software handles booking and payment for the fleet) does not expect full normalization before the end of this year.

The other factor pushing leasing rates higher isn’t transitory. Oil production keeps rising in the United States, Guyana, Brazil, and Argentina while consumption growth is highest in Asia. A barrel shipped from Guyana to China occupies a vessel far longer than a barrel shipped from the Persian Gulf to Japan. The industry counts demand in ton-miles. The longer the voyage, the higher the transportation cost, and the more demand for ships grows.

Finally, there is the age of the fleet. Nearly half the world’s tanker capacity is more than 15 years old. Roughly 130 supertankers aged 20 or more are still trading today against fewer than 20 of them five years ago. Old ships sail slower, sit longer in port, and carry less.

But… the new ships are coming. Through the end of July, fleet owners contracted 96.4 million tons of new tankers, against a previous annual record of 81.3 million tons set in 2006. This year’s new ship contracting will surpass 100 million tons. So far, shipping companies have ordered 197 supertankers and 103 Suezmaxes (the largest ships that can transit the Suez Canal), records in both classes.

But they aren’t on the market – yet. In a “normal” year, something around 40 supertankers are delivered. But only one supertanker was delivered in 2024. And only five in 2025. Owners only scrapped 2.16 million tons in 2026. The order book delivers in 2027 and 2028.

Until the new boats come online, there’s a lot of money to be made in shipping.

Frontline (FRO) earned $659.2 million in Q2, $2.96 a share, on revenue of $943.3 million. Its supertankers earned $152,700 a day against the $23,800 a day Frontline needs to cover cash costs. It declared a $2.61 a share dividend, which is 100% of adjusted profit, and an annualized yield of 23.6%.

International Seaways (INSW) earned $294.9 million in adjusted profit, $5.91 a share, and generated $261 million of free cash flow, a company record by roughly $100 million. Its fleet averaged $79,000 a day against $27,500 a year earlier, its supertankers cleared $150,000. The board declared $5.05 a share on August 7. That’s 20.2% annualized.

DHT Holdings (DHT) earned $198.3 million, $1.23 a share, with its spot vessels earning $162,600 a day against cash costs of $22,600. DHT made more money in the first half of 2026, $362.9 million, than in any full year in its history. It declared a quarterly of $1.22, which is 100% of ordinary profit and annualizes to 24.8%.

Okeanis Eco Tankers (ECO) earned $230.3 million against $26.9 million a year earlier. It paid $5.25 a share on August 21, which annualizes to 30.9%.

So… the question is… how long will “the window” remain open?

We can see the next two quarters clearly, because the ships are already booked.

• Frontline has 86% of its Q3 supertanker days fixed at $156,900 a day, above the $152,700 it just earned, and 79% of Suezmax days at $117,400 against $111,500
• DHT has 1,020 days chartered out at $75,900 and 58% of its spot days booked at $152,700
• International Seaways has 48% of its days at $61,000 blended across crude and refined product against cash costs running between $14,500 and $25,700, those bookings pay the dividends through the end of the year

How much longer can it run after that…? Maybe another one or two quarters, with risk growing substantially after June of next year.

What will the crash look like?

The tanker orderbook today stands just over 31% of the fleet, where in January 1974 it stood above 90%. Owners cannot flood this market the way their grandfathers did. And the fleet is old. There are a lot of boats that need to be replaced.

But investors should remember: After the last boom in 2008, Frontline’s dividend went from $3.00 to $0.02 in 11 quarters.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

Porter Stansberry
Stevenson, Maryland

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: Why Good Investment Ideas Might Start Out Unpopular
• El Niño And Commodity Prices
• More On Bessent And Bonds
• A September To Remember… Or Not
• Chart Of The Day… Veeva Systems (VEEV)
• Today’s Mailbag

Editor’s note: Today, Porter turns the Journal over to Matt Tuttle, CEO of Tuttle Capital Management and portfolio manager of the Porter & Company Porter Portfolio Index ETF (PCPP).

In late 2021, betting against Cathie Wood felt about as smart as betting on rain in San Diego.

Wood’s ARK Innovation ETF (ARKK) had returned 153% in 2020, against roughly 18% for the S&P 500, and the press had decided that she was the next Warren Buffett.

But the returns were the story, not the holdings. In my view, ARKK held the opposite of what I look for in an investment: the fund was full of richly valued companies with limited cash generation, and its shareholder base had mostly bought after the sharp runup in prices.

So I built a fund, the Tuttle Capital Short Innovation ETF (SARK), which sought the inverse of ARKK’s daily return through a swap agreement. That is – as ARKK fell (which I was pretty sure would happen before long), SARK would rise.

My fund found an audience quickly. Wood had a loyal following that took the fund personally – and I heard from a lot of them. Their catcalls, though, didn’t change what was in her portfolio.

In a similar vein… Porter Stansberry had spent years making an unpopular argument of his own: that the dollar was being eroded, that the deficit arithmetic didn’t work, and that the “safe” asset sitting in every retirement account had quietly become one of the riskiest things a person could own.

He’d built a portfolio around it. What he needed was someone who could turn that into an index and then leave it alone, even if it might look foolish in any given quarter.

And that’s how our fund, the Porter & Company Porter Portfolio Index ETF (ticker symbol PCPP), came about.

The index holds not one, but four generally unfashionable positions:

1. Cash-generating businesses, instead of the hot story
2. Insurance companies, instead of government bonds
3. Gold and Bitcoin, and
4. Short-dated bonds, instead of reaching for yield

I’ll come back to how those fit together. First, though… why I think being unpopular is worth something.

About 16 months after building SARK, I built a fund that took the other side of the on-air stock picks of CNBC shouting-head Jim Cramer.

I loved the idea, but the fund didn’t work. I shut it down inside a year, at a loss.

The point, though, was never the return.

My aim was to highlight how – and ask why – a man can go on television every weekday for two decades, tell a national television audience what stocks to buy, be wrong repeatedly and at scale, and face no formal accountability. He said Bear Stearns was just fine – days before it went under. He called Silicon Valley Bank a “buy” on air one month before regulators closed the bank. He compared Sam Bankman-Fried to J.P. Morgan.

The fund closed, but the point remains. And, incidentally, I haven’t been back on CNBC since.

My firm’s tagline is “The antidote to Wall Street.” We mean it, and it has cost us.

Here’s what I learned building those funds in public.

Financial TV isn’t lying to you. From my point of view, it’s doing something more subtle. I see the real problem is that it needs characters – not analysts.

The easiest way to stay on the guest list is to be a “perma-something.” Always bullish, always bearish, it doesn’t much matter which. Repeat the same forecast for long enough, and the market eventually obliges.

Then you’re the person who called it. The dozen wrong calls before that disappear.

What doesn’t get you booked is being right early – and downright inconvenient in the meantime.

Years ago, I made a simple observation to a reporter about a large brokerage and one of its analysts. He told me he couldn’t print it. His editor would kill him.

Let me guess, I said. It’s a major advertiser for the paper?

He nodded. Yep. And that, I’d argue, is how the system works. Who loses? I think it’s the guy who takes what the talking heads are saying at face value.

Porter spent years saying the U.S. dollar wouldn’t stay dominant forever, that the deficit arithmetic didn’t add up, and that long-term government bonds, the very thing investors are told is safe, had quietly become one of the riskiest assets you could own.

For most of those years, that made him sound like a crank to the institutions selling the old playbook. Then 2022 happened. Then April 2025 happened. Some of the same institutions now make a version of the same argument.

Which brings me to the thing I actually believe: Being unpopular with the crowd isn’t by itself a flaw in an investment thesis. Plenty of unpopular ideas are simply wrong. But an idea that everyone already holds has no advantage left in it.

So here is how those four positions inside PCPP actually work. It’s worth stating plainly up front that the fund is passively managed, and these four positions reflect the methodology of the underlying rules-based index rather than a manager’s view.

The stock sleeve screens on historical cash conversion and shareholder distributions. Consensus says buy the index and own everything in it. This owns a screened subset rather than the whole index.

The “bond” sleeve isn’t bonds. It’s property and casualty insurers – the companies that write home, auto, and business policies, chosen for underwriting quality. They stand in for the government debt that did not hedge equity losses in 2022 or in April 2025.

The hard-assets sleeve pairs gold and Bitcoin. Gold is the 5,000-year store of value everyone knows. Bitcoin is the newer digital asset built to be scarce and is maintained by network consensus rather than a central issuer.

The fixed-income sleeve is short-dated bonds and Treasury funds that mature in a few years rather than a few decades. Consensus calls that a drag on returns. The intent is to hold assets that can be sold without a large loss of principal, so the annual rebuild has something to draw on.

And none of it runs on judgment. Fixed targets, a published methodology, an annual rebuild.

Four uncomfortable positions in one ticker. Porter & Co. creates the index. As the adviser, I can’t override it. Which is the point.

Most investors can hold one contrarian view. That’s uncomfortable but survivable. Almost nobody can hold four of those views – at once.

Experience tells me there tends to be one you talk yourself out of, usually not long before it turns. Sometimes it never does.

And while a rules-based structure doesn’t make that discipline easier, it removes the discretion. It does not remove the risk that the rules produce poor results.

Early can just feel wrong for an uncomfortable length of time.

I’ve been shouted down for the Cathie Wood ARK Innovation trade and mocked for the Cramer one. I’d take both again.

Porter spent his career researching how to hold a portfolio through different market environments.

The index attempts to express that view in a single set of rules.

You can see the whole thing at porterandcofunds.com.

Matt Tuttle, CEO/CIO
Tuttle Capital Management

P.S. Every morning before the open, I publish The Daily H.E.A.T., my framework applied to whatever the market is doing that day. It’s free. Sign up here.

Tell us what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: Leopold’s Software Glitch
• Leopold Tops This List
• All Presidents Run Up Debt
• All-In On Tech Stocks
• Chart Of The Day… uniQure (QURE)

Editor’s note: Today, Porter delivers part two of a three-part series on the implosion of Leopold Aschenbrenner’s Situational Awareness fund – and the key reason behind its failure that everyone seems to be missing… The final installment of this three-part series will appear in the next Journal, on Friday.

Also note this brief update to Monday’s essay, when we reported that Intuit (INTU) was a stock that Leopold Aschenbrenner’s Situational Awareness fund had shorted. Yesterday, Intuit reported fiscal Q4 results and guided fiscal 2027 non-GAAP earnings to $22.88–$23.12 per share against a Wall Street consensus of $27.31. Some people on Wall Street believe (like Leopold) that this is more evidence of the “death of software.” We disagree.

What actually happened is far more banal: effective August 1, Intuit stopped stripping out share-based compensation from these adjusted numbers. CFO Sandeep Aujla said the 2027 guidance carries a $5.81 impact from stock-based compensation expenses. Ergo, when you add $5.81 back, the guidance midpoint is $28.81 per share, 5% above the $27.31 estimate.

Here’s another way to look at it. Intuit’s GAAP accounting requires no reconstruction. Aujla guided fiscal 2027 GAAP earnings per share to $20.12-$20.36, (growth of 22%-24%) against a $19.94 consensus. Those are not the numbers of a dying business.

Fiscal 2026 revenue grew 14% to $21.4 billion. Non-GAAP operating margin expanded 1.5 points to 41.7%. Q4 adjusted earnings came in at $4.03 per share against a $3.58 estimate. Mid-market revenue grew 39% with customers up 28%, and Intuit Enterprise Suite – the accounting and payroll package sold to companies too large for QuickBooks Online – passed $145 million in annualized revenue, 4x the prior year.

Microsoft (MSFT) passed 30 million paid Copilot seats in the June quarter, up from 15 million in January. Tech wizards like Leo Aschenbrenner hate Copilot – Microsoft’s artificial intelligence (“AI”) assistant. Just like they hated Windows ’97. And everything else Microsoft has ever built.

So what?

Accenture alone bought 740,000 Copilot seats. Bayer, Johnson & Johnson, Mercedes-Benz, and Roche have each deployed more than 90,000. Microsoft’s commercial remaining performance obligation – contracted revenue not yet recognized, which is the closest thing software has to a railroad’s signed freight contracts – stands at $678 billion, up 84% year over year!

Annual recurring revenue for Adobe’s (ADBE) AI-first passed $500 million in the quarter ended May 2026 and tripled year over year. Salesforce’s (CRM) Agentforce went from $800 million of annual recurring revenue in the January quarter to $1.2 billion by April, up 205%. Veeva Systems (VEEV) is giving its AI agents away free inside Vault CRM through 2030, which is the single most revealing data point in the set: Veeva does not need to monetize AI, because Veeva’s moat is the validated record, not the intelligence applied to it.

Aschenbrenner thought AI would eat the applications. Instead, the applications are selling AI as an upsell on top of a subscription the customer cannot afford to cancel – because it costs nothing compared to the value it delivers.

These software companies are computing tollbooths: they’re what enterprises pay to implement compute. And as compute gets cheaper, they will generate vastly more revenue, not less. The proof is sitting there in their earnings and cash flow: they’re riding on lower and lower cost of compute, which makes their business more and more efficient.

• Adobe: 36.6% operating margin, 35.6% return on invested capital (“ROIC”), capital expenditure of $179 million on $23.8 billion of revenue – 0.75% – and $9.85 billion of free cash flow (“FCF”)
• Veeva: 28.7% operating margin, 68.5% ROIC, a 44.3% FCF margin, and effectively no capex at all
• Salesforce: $41.5 billion of revenue, roughly $14.4 billion of FCF, capex of about 1.4% of revenue, and $72.4 billion of contracted backlog
• Intuit (INTU): $18.8 billion of revenue, roughly $6.1 billion of FCF, $124 million of capex

Veeva earns 68 cents a year on the dollar. And invests nothing in growing its business.

Adobe currently trades at about 11x trailing earnings. Salesforce at about 13x. Intuit at about 14x. These are the multiples of a dying industry applied to businesses converting a third to nearly half of every revenue dollar into free cash.

This enormous mispricing was manufactured by people who, like Aschenbrenner, believed these businesses were doomed. But they aren’t.

And that’s not all.

Aschenbrenner assumed that because a technology is transformative, the capital that builds it will earn its cost.

There is no relationship between those two things. In fact, it’s more likely not to be true.

Leo’s own essay contains the tell:

Over the past year, the talk of the town has shifted from $10 billion compute clusters to $100 billion clusters to trillion-dollar clusters. Every six months another zero is added to the boardroom plans.

He wrote that as a bull case. But it isn’t. That is a recipe for a financial disaster.

• Amazon (AMZN) spent $131.8 billion of capex in 2025 against $139.5 billion of operating cash flow. That is 94.5% of everything the business generated poured back into the ground, in a single year. Its 2026 capex guidance is $220 billion.
• Alphabet (GOOGL) spent $91.4 billion in 2025, 55.5% of operating cash flow, and guides to $195 billion to $205 billion this year
• Meta Platforms (META) spent $72.2 billion, 62.4% of operating cash flow, and guides to $125 billion to $145 billion
• Microsoft spent $115.9 billion in the fiscal year that just ended, against $182.9 billion of operating cash flow. Capex was 34.9% of revenue, up from 18.1% two years earlier. FCF fell to $67.0 billion from $74.1 billion in fiscal 2024, on revenue that grew by more than a third over the same span. Microsoft is running harder and generating less cash. That is what a huge capital cycle does even to the best business in the world.
• Moody’s (MCO) projects hyperscaler capex of $785 billion in 2026 and close to $1 trillion in 2027, funded in part by roughly $175 billion of debt issuance this year. Where will the money come from?
• Oracle (ORCL) had fiscal 2026 capex of $55.7 billion, FCF of negative $23.7 billion, capex at 82.6% of revenue, long-term debt up from $76.3 billion to $124.7 billion, and $248 billion of future data-center lease obligations not yet on the balance sheet
• CoreWeave (CRWV) had $5.13 billion of 2025 revenue, $14.9 billion of capex, negative $7.25 billion of FCF, net debt at 8.1x EBITDA, term loans at 11% to 15%, a weighted-average short-term borrowing rate of 12.3%, and a $1 billion private placement in April 2026 at 9.75%.

Meta’s Hyperion campus in Louisiana is financed through a special purpose vehicle in which Blue Owl Capital (OWL) holds 80% and Meta holds 20%, funded by $27.294 billion of senior secured notes at a 6.581% coupon maturing in 2049. The noteholders have no pledge on the physical data center. Their credit is Meta’s promise to pay rent starting in 2029, plus a residual value guarantee – that’s $27 billion of debt, secured by a lease, sitting off the balance sheet.

And like the EU’s finance minister explained two decades ago…

When it gets serious, you have to lie.

Microsoft extended server useful lives from three years to four, then to six, adding about $3.7 billion to fiscal 2023 operating income. Alphabet did the same, adding about $3.0 billion. Amazon added about $2.5 billion in 2024. Meta added $2.59 billion in 2025. Oracle added $573 million. Every one of those is a non-cash increase in reported profit produced by an assumption about how long a chip stays useful.

It’s a lie.

But not everyone is lying. Effective January 1, 2025, Amazon shortened the useful life of a subset of its servers and networking equipment from six years back to five, citing, in its own 10-K, “the increased pace of technology development, particularly in the area of artificial intelligence and machine learning.” That cost it $1.4 billion of additional depreciation and $1.0 billion of net income.

Amazon is the operator with the longest and hardest-won experience running data centers at scale, and Amazon is the one telling you the hardware wears out faster than the schedules assume.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

Inside Today’s Issue

• Essay: Leopold Was Wrong
• GenZ “Invests” In Sports
• Consumers Tap Out
• Uncle Sam Keeps Spending
• Chart Of The Day… BWX Technologies (BWXT)

Editor’s note: Today, Porter begins part one of a three-part series on the implosion of Leopold Aschenbrenner’s Situational Awareness fund – and the key reason behind its failure that everyone seems to be missing… We will publish the next Journal this week on Wednesday.

Leopold Aschenbrenner lost $30 billion (67%) in a month.

The consensus post-mortem – from The Wall Street Journal to comments on X – is that the young man who ran the Situational Awareness fund used 4-to-1 leverage on concentrated positions and got carried out. While that is true, it does not convey any useful information. Leverage is certainly the reason Leopold lost so much, so quickly. But it is not the reason he lost. Leverage is merely a magnifying glass. It doesn’t pass judgment.

The reason his fund was doomed was because he’s wrong. And no one, anywhere, has explained why Leopold Aschenbrenner was wrong.

On the morning of Thursday, July 30, before the opening bell, Aschenbrenner’s Situational Awareness sold its entire public stock portfolio – the long side and the short side together, roughly $16 billion of it – to Ken Griffin’s Citadel in a single block trade.

That night, Aschenbrenner wrote to his limited partners. Net performance for the month, unaudited: down 67%. Net performance for the year: still up 80%.

We let you down this month. We came closer to permanent capital impairment than is acceptable to us.

Six days earlier, on July 24, he had written a different letter. That one reported a 439% net return for the first half of 2026, described the selloff in artificial intelligence (“AI”) stocks as one of the best buying opportunities since early 2025, and invited his investors to wire more money starting August 1. It closed with a postscript:

At times we call out opportunities that seem like a particularly good time to add funds, if you have been waiting for one.

Assets that stood near $45 billion at the start of July finished the month around $10 billion, and roughly half of what remains is a single illiquid private stake in Anthropic.

Leopold is 25 years old. He graduated from Columbia University at 19, as valedictorian. He worked at the FTX Future Fund from February to November of 2022, then joined OpenAI’s Superalignment team, then was fired in April 2024. Two months after the firing, he published a 165-page essay called “Situational Awareness: The Decade Ahead,” raised $225 million from Patrick and John Collison, Nat Friedman and Daniel Gross, and started a hedge fund. He had never managed money before.

Situational Awareness was constructed to express exactly two convictions.

1. The physical build-out of AI – the chips, the memory, the power, the data centers, the neoclouds – was the trade of the decade. The fund’s disclosed long positions read like an inventory of the second derivative of the AI boom. Bloom Energy (BE), fuel cells for data centers. Sandisk (SNDK) and Micron Technology (MU), memory. CoreWeave (CRWV) and Nebius Group (NBIS), rented compute. IREN (IREN), Core Scientific, Applied Digital, Riot Platforms, CleanSpark, Bitfarms, Bitdeer – Bitcoin miners converting their substations into AI compute.

2. Application software was going to be destroyed by AI. Not disrupted. Obliterated.

Leo explained why on Dwarkesh Patel’s podcast, in June 2024:

I’m so bearish on the wrapper companies because they’re betting on stagnation. They’re betting that you have these intermediate models and it takes so much schlep to integrate them. I’m really bearish because we’re just going to sonic boom you. We’re going to get the unhobblings. We’re going to get the drop-in remote worker. Your stuff is not going to matter.

That was the whole thesis. Buy the compute. Short the stuff that runs on the compute.

By CNBC’s reporting, the short leg included Adobe (ADBE). A 13F does not disclose short stock. It does not disclose swaps. We only know about Adobe because reporters were told… but you can look at the tape and, when you do, it’s clear that Leo was short software in a major way.

Between the June 30 close and the July 29 close – the last session before the block trade cleared his shorts – the two sides of his portfolio did this.

The longs:

• Sandisk: down 55.32%
• Nebius: down 46.33%
• Bloom Energy: down 45.90%
• CoreWeave: down 38.90%
• Micron: down 35.98%
• IREN: down 35.91%

The shorts, over the same 20 sessions:

• Workday (WDAY): up 37.24%
• Adobe (ADBE): up 28.49%
• Intuit (INTU): up 27.64%
• Salesforce (CRM): up 20.25%
• Veeva Systems (VEEV): up 17.15%

Over that same window, the Invesco QQQ Trust fell 10.14% and the SPDR S&P 500 ETF Trust fell 2.32%. Nvidia – the supposed epicenter of the AI trade – fell 5.04%, and finished the full month of July up 0.33%.

This was not an AI crash.

The S&P 500 stayed near its record throughout. This was a violent rotation out of the leveraged, capital-hungry, second-derivative end of the AI complex and into the profitable, cash-generating, asset-light end of it. Which is to say: the market rotated out of exactly what he owned and into exactly what he was short.

Then there is Microsoft (MSFT).

Microsoft closed at $390.54 on Wednesday, July 29. It closed at $451.10 on Thursday, July 30 – that is a gain of 15.51% in a single session on 110.2 million shares, against a July average of 37.1 million. Yes, Microsoft reported its fiscal Q4 after the close on July 29. But the results were nothing out of the ordinary. Revenue came in at $90.00 billion against an $87.62 billion consensus – a small 2.7% beat. Earnings were $4.74 per share against $4.21. It was a good quarter. Not a historic one. A 2.7% revenue beat does not add roughly $450 billion of market value to the most widely owned company on Earth in six and a half hours.

The reason Microsoft was up 15% is extremely important. Leo blew up quickly because of leverage. But he failed because he is simply wrong.

Aschenbrenner’s software thesis rests on a single premise: that a company selling enterprise software is selling the work the software performs. If a model can perform that work, the company is worth nothing.

That premise is what a very smart 25-year-old engineer believes. It is not what anyone who has ever run a business believes.

Nobody buys Microsoft because Microsoft writes the best code. They buy Microsoft because Microsoft is the rail everything else runs on. Active Directory is where your employee identities live. Excel is where your board deck’s numbers come from. Teams is where the compliance-recorded conversation happens. Azure holds a FedRAMP High authorization and Department of Defense Impact Level 5 clearance, which means a defense contractor cannot casually swap it out for something cheaper without re-clearing the entire stack with the government.

Veeva Systems runs the customer relationship management and regulatory document systems of the pharmaceutical industry. Nineteen of the top 20 biopharmaceutical companies use Veeva’s regulatory information management platform. Those systems are validated under GxP – the good-practice quality regulations that govern anything touching a drug – and 21 CFR Part 11, the Food And Drug Administration’s (“FDA”) rule for electronic records and signatures. Every major release is formally qualified. When an FDA inspector arrives, the audit trail in that system is the company’s defense.

You cannot replace that with a model that is very good at writing code. You would have to re-validate a decade of regulated records, in front of a regulator, on a system with no track record, to save a fee that rounds to nothing compared with the cost of building a new drug.

How small a fee? Veeva’s licensing runs somewhere between roughly $1,800 and $6,600 per sales representative per year. A fully loaded pharmaceutical sales rep costs the employer between $134,000 and $219,000 a year. The software is 1% to 5% of the cost of the person using it.

Microsoft raised the price of a Microsoft 365 E3 seat from $36 to $39 per user per month on July 1 of this year, and E5 from $57 to $60. Add Copilot at $30 and a fully loaded E5 seat costs $1,080 a year. Against a knowledge worker costing $120,000 all-in, that is roughly 1% of the employee.

This is the part the compute maximalists cannot see. These companies are not selling labor. They are selling the rails on which labor runs, at a price so far below the value created that the buyer never bothers to negotiate hard, and with switching costs so high that the buyer could not leave even if he wanted to.

Do people try to leave? Constantly. And they almost always fail. (Ask me how I know!)

Panorama Consulting Group tracked studies of enterprise resource planning replacements and found average cost overruns at 189% across industries. Gartner projects that by 2027, more than 70% of recently implemented ERP (enterprise resource planning) initiatives will fail to fully meet their original business goals. Ripping out a core enterprise system is one of the most reliably disastrous things a large company can attempt, and it was true before anyone had heard of a transformer model.

The incumbents are not being disintermediated by artificial intelligence. They are selling it!

Next, I’ll explain how Aschenbrenner went terribly wrong. He thought AI would eat the applications. Instead, the applications are selling AI as an upsell on top of a subscription the customer cannot afford to cancel.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

Inside Today’s Issue

• Essay: The Day “Safe” Stopped Feeling Safe
• An Important Market Warning Sign Gets Louder
• Axon’s New Deals
• Trouble At Broadcom
• Chart Of The Day… Franco-Nevada (FNV)
• Today’s Mailbag

Editor’s note: Today, Porter turns the Daily Journal over to Matt Tuttle, CEO of Tuttle Capital Management and portfolio manager of the Porter & Company Porter Portfolio Index ETF (PCPP).

It was April 8, 2025, about 20 minutes after the market open.

I’d already made my peace with the equity screen on my desk. The S&P 500 had given up 10.5% in the two sessions after U.S. President Donald Trump’s “Liberation Day” tariff announcement, bad enough to be the fifth-worst two-day stretch in 75 years.

And then there was the other screen.

The long bond was falling too. Not holding… not lagging… but plummeting. According to the conventions of portfolio management sold by Wall Street, a free-falling long bond while stocks were collapsing was precisely what was not supposed to happen.

By the end of what was a very long week, the 30-year Treasury closed at 4.85%, the sharpest weekly jump in long-dated yields since 1982. (The way a bond works is that when its yield rises, the price falls.)

This was big trouble for anyone with a classic 60/40 stocks/bonds portfolio. The airbag didn’t deploy because bonds – the asset that’s generally supposed to go up, when stocks go down – was going down too.

I’d seen this movie before.

Three times in 17 years, the hedge – the asset that was supposed to be the ballast – didn’t hedge.

In 2008, during the Global Financial Crisis, Treasuries held. Stocks lost 37%, long Treasuries returned more than 20%. What failed, though, was everything else that had sold as diversification: corporate bonds, mortgages, credit funds, alternatives. They fell together at the exact moment managers expected they would provide a cushion for stocks by not marching to the same drummer.

In 2022, the hedge itself failed. Pandemic supply shocks, stimulus spending and the energy spike after Russia invaded Ukraine drove inflation to a 40-year high of 9.1%. The Fed raised rates 425 basis points in nine months. (A basis point is one hundredth of a percentage point, so that’s a 4.25-point increase.) Few things are more challenging for a long bond than rising rates.

The standard 60/40 portfolio – for decades the default recipe in retirement planning – lost roughly 17.5% for the 2022 calendar year, as measured by Morgan Stanley Investment Management using a blend of 60% U.S. equities and 40% U.S. Treasury bonds. It was the worst year since 1937. And stocks weren’t doing the damage alone: long Treasuries fell harder that year than at any point in the recorded data.

Then came, as I mentioned, April 2025, when both equity and bond screens went red at once.

Each time the classic hedges failed, we were told it was an anomaly.

But three anomalies in 17 years starts to look less like bad luck, and more like a design flaw.

I reached that conclusion the expensive way, one drawdown at a time. Porter reached it years earlier, and he published his thoughts for the world to read.

He talked about the erosion of the dollar, and the dark and inevitable arithmetic of a government that has not stopped borrowing. He called it the bond trap: the “safe” asset had quietly become one of the riskiest things you could own. He’d been writing that years before the charts made it obvious.

That’s why, when Porter’s team called late last year about turning those ideas into an exchange-traded fund – an ETF – it was a quick and easy answer.

So how does the asset that the industry treats as its safest… become one of its riskiest?

How the 30-year Treasury works: Hand the government $1,000 for 30 years. You get a fixed coupon (that’s the interest) every six months, and then you get your principal back 30 years later.

Two things decide what that promise is worth: What those dollars will buy in 2056, and what rate other buyers demand for the same promise in the meantime. Because if they demand a higher return, the bond that you own will be worth less.

So let’s look at the borrower. The United States government ran a federal deficit of roughly $1.8 trillion in its 2025 fiscal year – 5.9% of GDP, against a 50-year average of 3.8% – plus trillions more in unfunded Social Security and Medicare promises.

In my view, there is no politically viable tax increase, and no realistic spending cut, that could close a gap that size. Historically, gaps of this kind have often been narrowed by inflation.

In other words, dollars get created, each buys a little less, and the debt gets repaid in money worth a whole lot less in real terms than the money borrowed.

That isn’t a hedge. A hedge is supposed to pay when your stocks don’t. Inflation, though, takes both.

So if the long bond isn’t reliably the defensive part of a portfolio, what else might do that job?

Porter’s answer, and the part of his framework I had the hardest time arguing with, is to hand that job to property and casualty (P&C) insurance stocks. Those are the snoozefest (for anyone who’s not an investor, at least) companies that write your home and auto coverage, and pay out when a tree lands on a roof or you get in a fender bender.

A savvy insurer who knows how to price risk could be paid to hold its bonds. Premiums arrive today, claims are paid out years later – and the insurer can retain what it earns on the money in between. For example, Warren Buffett’s Berkshire Hathaway (BRK) ran roughly $176 billion of other people’s money that way in 2025.

Insurance companies also choose what to own and, for example, shorten maturities (to reduce volatility and downward price movement) when the rate environment is dangerous. A bond fund, though, holds whatever its index dictates, all the way down.

Of course, an insurance company that isn’t good at understanding the risks it’s taking on will wind up paying out more than it takes in, which doesn’t do investors any good. That’s why in the “bond” slice of the new fund I’ve created with Porter, we screen for underwriting quality before anything else.

PCPP is a passive fund. It seeks to track the investment results, before fees and expenses, of the Porter & Co. Porter Portfolio Index — a rules-based, multi-asset index. In the Porter & Company Porter Portfolio Index ETF (ticker symbol: PCPP), no holding is chosen by discretion on the day. The rules are written in advance.

A quarter of the portfolio goes to P&C insurance stocks, drawn from Porter & Co.’s analysis that’s screened for size, business mix, and historical return consistency. The top 20 that clear those bars go in, weighted so that historically stronger underwriters receive larger weights. No name accounts for more than 10%, and the index is rebuilt once a year.

Nobody gets to fall in love with a name. Porter & Co. builds the index. As the adviser, we can’t change it.

The other three sleeves of the fund operate the same way. You can read the full framework and the prospectus at porterandcofunds.com.

In my opinion, “safe” doesn’t suggest an investment that doesn’t move.

The question worth asking is whether the thing you bought as a hedge behaves the way you expected – during a week that the equity side is down double digits, and you’re looking at two red screens.

By that definition, the long bond may have stopped being safe some time ago.

From what I’m seeing, most portfolios haven’t gotten the memo.

Matt Tuttle, CEO/CIO
Tuttle Capital Management

P.S. Every morning before the open, I publish The Daily HEAT, my framework applied to whatever the market is doing that day. It’s free. Sign up here.

Tell us what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: Target’s Tariff Refund Isn’t A Turnaround
• Evaporating Dividend Yields
• Down Days For Walmart
• How Bessent Played With Bond Yields
• Chart Of The Day… Veeva Systems (VEEV)
• Today’s Mailbag

Last September, I explained why I think Target (TGT) will end up in bankruptcy within five to seven years. Since then the stock is up 85% – which in the minds of most readers will surely lead to the conclusion that I am wrong. But am I?

Here’s my thesis.

Target was the premier retail shopping experience for roughly two decades. The “Target run” was a weekend habit for many middle-class and upper-middle-class consumers. Target combined outstanding retailing with competitive prices, which won it a higher operating margin than other retailers. Those profits powered its constant expansion and brand marketing, which created a valuable national brand. For a very long time, this was more than good enough to hold off competitive threats from Costco Wholesale (COST), Walmart (WMT), and Amazon (AMZN). But, at the heart of Target’s success was an elevated, in-person shopping experience.

Then COVID happened.

Consumers’ shopping habits changed… dramatically. Upper-middle-class customers stopped coming to the store, at first because of masks and now because delivery apps save so much time. Additionally, in many areas, Target’s stores became rundown and filled with both low-class employees and low-class customers. As traffic fell, margins collapsed.

The shopping app trend continues: DoorDash grew revenue 35.6% in its June quarter, to $4.45 billion from $3.28 billion. Instacart grew 14.1%, to $1.04 billion from $914 million. The affluent household now pays a fee to avoid going to Target.

Target lost the customer who made it profitable.

Key stats from Target’s fiscal 2021 peak to its lows in fiscal 2025:

• Revenue: $106.0 billion to $104.8 billion, down 1.2% in nominal dollars across four years of inflation
• Operating income: $8.95 billion to $5.12 billion, down 42.8%
• Operating margin: 8.4% to 4.9%
• Diluted earnings per share: $14.10 to $8.13, down 42.3%
• Free cash flow after capital spending: $5.08 billion to $2.83 billion

The company’s product mix also demonstrates this key demographic shift in its customer base. Since 2022 (full fiscal year 2022 vs fiscal year 2026):

• Home furnishing and décor: $20.3 billion to $15.6 billion, down 22.9%
• Hardlines: $18.6 billion to $15.8 billion, down 15.1%
• Apparel and accessories: $17.9 billion to $15.7 billion, down 12.2%
• Food and beverage: $20.3 billion to $24.1 billion, up 18.9%

Target replaced its highest-margin customers with people looking for cheap groceries.

But that’s not what today’s headlines claim. The company reports that operating margins have soared – jumping from 5.2% to 9.6% in the latest quarter.

When I saw those headlines, I laughed. There’s no way to increase operating margins when you’re in the middle of a turnaround that requires you to vastly improve the shopping experience while lowering prices. Target is spending heavily to improve its stores and it’s lowering its prices. How could margins improve?

Target received $994 million of refunds on tariffs last quarter. Getting a billion dollars certainly helps! The company chose to book this income as a reduction of cost of sales. Cost of goods sold therefore fell 1.7% while sales rose 5.3%, in part because of inflation.

The increase in operating margins was not brilliant merchandising. It was a one-time windfall and an accountant with a valuable imagination.

Target’s headline result was: 33.7% gross margin, up from 29.0% a year ago; a 9.6% operating margin against last year’s 5.2%.

What were the numbers, absent the one-time windfall?

Let me show you the 2Q results from 2024 and 2025. (Fiscal 2025’s Q2 was the liquidation quarter, when Target cleared excess inventory and cancelled orders. It’s not indicative of the company’s normal business. Fiscal 2024’s Q2 is the last one that ran normally.)

Target has a new chief executive, an “acceleration office,” 30 new stores, 130 remodels, and price cuts on more than 10,000 items. What’s changed? After two years, costs continue to grow – Selling, General, And Administrative (“SG&A”) is now 21.6% of revenue – and profits continue to fall – operating margin is 5.9% down from 6.4%, net income is $1.12 billion down from $1.19 billion.

Target went from 1,926 stores and 243.3 million square feet to 1,995 stores and 250.5 million square feet, while merchandise sales per square foot fell from $430 to $410, down 4.6% before inflation – 69 additional stores produced less sales per foot.

Another sign of brand decline: credit card profit sharing, the fee Target collects on its co-branded card, fell from $710 million to $522 million. Fewer affluent cardholders spending on credit.

Target has seen a 3.6% traffic increase. Two quarters of rising traffic is evidence that something is changing. The numbers tell me it’s more people responding to Target’s discounting because gross margin and operating margin continue to decline (compared to a real baseline, not a liquidation quarter).

Target is buying traffic with lower prices. It has reduced prices on more than 10,000 items in the last year. Average transaction price was flat this quarter and fell 0.4% for the full fiscal year, despite inflation above 3%.

Target is completing its conversion into a discount chain — more customers, cheaper carts, thinner margins, and a store experience that pushes the remaining affluent shopper toward an app.

Competing on price means competing with Walmart, which has far greater scale, and Costco, which competes with less markup, and Dollar General, which has lower cost per square foot.

Target carries the cost structure of a lifestyle retailer and the assortment of a discounter. That’s the Kmart strategy. And it doesn’t work.

There’s one wildcard that could enable Target to continue to tread water for longer than I expect.

Target sells advertising (Roundel) to its vendors. The incremental cost of those advertising dollars is close to zero. It also has Target Plus – a third-party marketplace where Target books a commission. And Circle 360 is the paid membership program at Target. Management reported Roundel gross billings were up nearly 20%, Target Plus merchandise volume was up more than 40%, and Circle 360 membership revenue up over 40%.

Target discloses advertising revenue in its annual filings:

• Fiscal 2023: $404 million
• Fiscal 2025: $649 million
• Fiscal 2026: $915 million

These are impressive numbers. But advertising is only 0.87% of total revenue.

To add one percentage point of operating margin, Target needs $1.05 billion of incremental operating profit. Advertising would have to more than double, at zero incremental cost, to recover a single point of the three and a half points of operating margin lost since fiscal 2021.

It’s a very important part of its business and it’s something that Kmart didn’t have. Is it enough to save the business? I don’t think so.

Capital spending is up 30% this year to $5 billion for the year. Target continues to invest heavily into its core retail business even though it continues to report falling sales per square foot. Shareholders are funding a bet that remodeled stores attract a customer who has already installed a shopping app and won’t go Target again. That strategy isn’t working: Target has added 69 stores over the last four years. And sales per square foot continue to fall.

Frankly, I think these decisions and the management’s handling of the tariff refund accounting show they’re delusional. But if you doubt me, just consider that they are also saying Target will resume repurchasing its own shares in the back half of this year.

Operating cash flow over the last 12 months was $8.72 billion. Remove the $994 million refund and it is $7.73 billion. Spend the promised $5 billion of capital and pay the $2.07 billion dividend, and $661 million remains for the entire year.

What Target must do is rebuild its brand, its merchandising, and its shopping experience to recapture its core, high-margin user. So far it hasn’t found that formula. And with so much competition from Costco, Amazon, Walmart, and Dollar General I don’t believe that’s possible.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

P.S. For 50 years, market predictions offered up at The New Orleans Investment Conference have become market reality. This year, Porter has been invited to address the prestigious event, taking place October 28 to October 31. To learn more about the legendary conference and to attend, follow this link…

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Inside Today’s Issue

• Essay: Follow The Flow Of Money
• The High Cost Of Diesel
• Private-Credit Cockroaches
• More 52-Week Lows Than Highs
• Chart Of The Day… Presidential Debt
• Today’s Mailbag

Editor’s note: Today’s the final essay in a multi-part series on how the massive spending into the AI buildout will play out over the economy and for the companies involved. Please see the first essay here, the second essay here, the third essay here, the fourth essay here, and the fifth essay here.

Here’s Porter now…

How do I know the funding and the buildout won’t continue? Because this entire bubble was never about technology. The bubble around the artificial intelligence (“AI”) buildout was caused, like all financial bubbles, by a corruption of the money supply.

The railroad boom of 1865-1873 was fueled by the paper money of the Civil War. The telecom bubble of 2000 was fueled by the Federal Reserve’s response to the Russian default and fears about Y2K. And, of course, the mortgage bubble of 2008 was fueled by the Fed’s aggressive response to 9/11 and the “War on Terror.”

The AI bubble is a direct result of the Federal Reserve’s response to COVID. Our central bank created an unimaginable amount of new money – roughly $7 trillion.

By late 2021, the money market funds that received most of this cash couldn’t find enough safe, short-term places to put it. So the Fed opened up what amounts to a giant parking lot for cash. It’s called the reverse repo facility (“RRP”).

Don’t let the jargon fool you. This is simply the government printing money and handing it out to favored financial institutions.

Technically, it works by a money market fund depositing its cash to the Fed overnight. (Note: there’s no reason the Fed, which can create as much cash as it wants, would ever need to borrow money from a money market fund.) The Fed then gives the fund a Treasury security as collateral for the night. The next morning the Fed gives the cash back plus a tiny amount of interest. It’s called “reverse repo” because from the Fed’s point of view it’s the reverse of a normal repo – the Fed is borrowing the cash rather than lending it. Once again – as with neocloud, which I wrote about on Monday – when something is called a made-up word that has no actual meaning in the English language, beware.

With the Fed handing out money for nothing, it was no surprise that the RRP “parking lot” filled up fast. At its peak in December 2022, the RRP held about $2.5 trillion in money market fund cash.

And that money is what has been powering the entire AI bubble.

Let me show you what happened.

Early in 2023, the interest rate on Treasury bills rose above the rate the Fed was paying on RRP cash. That happened because the Fed was responding, finally, to the massive inflation their policies and the government’s massive deficits had caused.

Money market funds are legally required to seek the best safe yield they can, so as interest rates rose, they pulled cash out of the RRP and bought T-bills instead. This happened continuously from mid-2023 through October 2025. Roughly $3 trillion of cash came out of the RRP over that period – from $2.5 trillion at peak down to essentially zero by October 2025.

As you’ll see below, what happened to this capital as it entered the private financial system is complicated. But all you have to know is that from mid-2023 until last October, trillions in capital flooded into our financial system. And that’s what’s driven equity valuations higher and higher, and that’s what’s funded the entire AI buildout.

The key thing to know is this: that money is now all spent.

Our private financial system works primarily on two tiers. Money market funds (when they can’t get a completely free ride from the Fed) lend cash to primary dealers (the biggest banks). The primary dealers relend cash to everybody else: hedge funds, private credit funds, real estate financing vehicles, and increasingly, the AI-capex financing engine.

When the RRP started draining in 2023, the money that came out went into T-bills at first. But it didn’t stay there. Through private repo lending, it funded the primary dealers (the big banks). And because the big banks now had an enormous amount of cheap short-term cash coming in, they lent out more and more to non-bank borrowers. Why? Because trillions in capital had to land somewhere in only about two years.

Non-bank is finance jargon for any lender or credit institution that isn’t a chartered bank. It includes hedge funds, private credit funds, private equity firms, mortgage lenders that aren’t banks, insurance companies, pension funds, real estate investment trusts, business development companies, structured product vehicles, and so on.

Collectively, they are called the “shadow banking system” because they perform banking functions – they extend credit – but they don’t take insured deposits and don’t have direct access to the Federal Reserve’s liquidity facilities.

The shadow banking system has grown enormously over the last 15 years. It’s where most private credit lending lives – Blue Owl Capital (OWL), Apollo Global Management (APO), Ares Management (ARES), Blackstone (BX), and KKR (KKR). It’s also where most of the AI-capex financing sits. Not the equity – that’s on the hyperscalers’ balance sheets – but the debt behind the data centers, purchases of the high-speed GPU chips, and neocloud operators. That financing gets warehoused in the shadow banking system and eventually distributed as securitized paper, which, hey, why not, Moody’s says it’s AAA!

The shadow banking system funds itself largely through repo. It borrows short-term cash from the primary dealers, secured by whatever collateral it holds – Treasuries for the most part, but also mortgage bonds, corporate loans, structured products rated AAA. That’s what’s so valuable about that Moody’s rating.

As a result, from mid-2023 through October 2025, both sides of the plumbing grew at the same time.

The primary dealers’ repo funding grew because money market funds pushed more and more cash into it as they pulled out of the RRP. Non-bank lending grew because the primary dealers, flush with all that new cheap cash, extended it out to the shadow banking system, which used it to fund private credit, hedge fund leverage, and – most importantly for our purposes – the entire ecosystem of data center loans, GPU-backed term loans, and neocloud financings.

Both grew because the same exogenous force – the RRP draining – was pushing money into both simultaneously. It looked like the private credit system was generating its own growth out of business demand. It wasn’t. It was being lifted from underneath by the parking lot emptying.

By October 2025, the RRP was effectively empty. The parking lot was drained. The COVID “credit card” was tapped out.

From that point on, the financial system became zero-sum. Any new dollar of primary-dealer repo funding has to come from somewhere else in the system. It can’t come from the RRP anymore because the RRP is empty.

Money market funds have a finite amount of cash to lend. If they lend more of it to primary dealers in repo, they have less to lend elsewhere. And the primary dealers, if they want to keep their own repo books growing, have to pay higher interest rates to attract that cash. Higher repo rates raise the shadow banking system’s funding cost. Higher funding costs mean the shadow banking system can either extend less credit or charge borrowers more.

The mechanical result: if primary dealer repo grows, non-bank lending shrinks by approximately the same amount. The two lines that had been rising together for three years – bank repo and non-bank credit – now move inversely.

That’s what’s happening. The correlation flipped in October 2025 and has stayed flipped. Repo went from a rising tide that lifted both dealer and shadow-bank balance sheets to a zero-sum competition between them.

Nvidia (NVDA) saw this coming and raised $25 billion to survive what’s about to happen. CoreWeave’s (CRWV) most recent financing tanked because of the impact of a zero-sum financial world.

Shadow banking is being squeezed. The most-leveraged, weakest-collateral, most-concentrated shadow bank borrower – a neocloud with GPU collateral serving AI customers – gets repriced first.

But this is only the beginning.

The two-year Treasury to Fed Funds interest rate spread sits at +50 basis points – the same level reached in the second halves of 2001, 2008, and 2021. Emerging-market inflows just posted one of the largest sudden stops on record. Real U.S. personal income is falling at recession pace. Year-to-date household-survey employment losses exceed both 2001 and 2008. Prime-age labor-force dropouts are at ex-COVID records. Except for mortgages, credit delinquency rates are at crisis highs.

What ends a capex boom? It eventually runs out of money.

Jesse Livermore described what happens when a capex boom runs out of money in Edward Lefevre’s book Reminiscences Of A Stock Operator.

Finally there came the awful day of reckoning for the bulls and the optimists and the wishful thinkers and those vast hordes that, dreading the pain of small loss at the beginning, were now about to suffer total amputation – without anesthetics. A day I shall never forget, October 24, 1907… No money anywhere, and you can’t liquidate stocks because there is nobody to buy them. The whole Street is broke at this very moment.

Livermore made $1 million on that day. He saw his signal to start shorting when the railroads began advertising equity offerings that had earlier and earlier execution dates and accepted payment in installments.

He recognized a death struggle for capital.

Will you?

Tell us what you think of today’s Daily Journal:porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

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Inside Today’s Issue

• Essay: No More Free Money
• Bonds On Fire
• Traders Short, Insiders Long
• The Home Depot (HD) Reports Earnings
• Chart Of The Day… Axon Enterprise (AXON)
• Today’s Mailbag

Today is Porter’s fifth essay in a multi-part series about the enormous financial risks of the ongoing artificial intelligence (“AI”) bubble. Please see the first essay here, the second essay here, the third essay here, and the fourth essay here.

Hyperscaler free cash flow is on track to fall roughly 50% from its late-2024 peak through early 2026, and to turn negative for the first time in 2027.

That means the entire bubble will depend on credit by the end of this year.

Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META), and Oracle (ORCL) have added roughly $350 billion of on-balance-sheet debt in five years, plus $1.1 trillion of off-balance-sheet data-center lease commitments and GPU supply deals – $1.65 trillion of hidden obligations across five names.

Morgan Stanley estimates the sector faces a $1.5 trillion external financing gap against $2.9 trillion of capex through 2028.

Where will the money come from…? Some of it will come from Nvidia’s (NVDA) new $500 billion credit fund. And even more will come from the public.

Pay attention: This is where the artificial intelligence (“AI”) buildout goes from something that will threaten tech companies to something that will threaten our entire banking system and our entire economy.

Banks, ever ready to package dodgy debt for other people to hold, have begun operation “AI bag holder.”

Outstanding data-center debt securitization issuance grew from $4 billion in 2020 to $61 billion year-to-date 2026. Barclays projects $180 billion in securitizations by year-end 2028 (!).

How will so much AI data-center debt possibly be sold to investors? By regulatory arbitrage of course! How do you make dodgy debt attractive to the financial system? By “proving” to the regulators that it’s risk-free.

On February 11, 2026, $500 million of Compass Datacenters’ $830 million asset-backed security (“ABS”) became the first data-center securitization rated AAA by Moody’s. Pricing: +120 basis points over Treasuries.

Keep in mind, Moody’s only began rating the sector in September 2025.

Thus, on a credit channel that’s scaled 15x in six years, using a rating methodology that’s about a year old, Moody’s delivered its first AAA rating just as the bubble reaches its zenith.

Where have we seen this before? The AAA-rated collateralized debt obligation (“CDO”) of the AI era is here!

And regulators just gave the AI credit machine the same free pass that created the entire mortgage fraud bubble. On July 29, 2026 – the same day CoreWeave (see Friday’s Journal) paid an extra 125 basis points to force through its loans backed by fast-processing GPU chips – the Securities And Exchange Commission’s (“SEC”) Office of Structured Finance sent a letter to Latham & Watkins – the law firm representing the case – that will move a trillion dollars of debt.

The staff wrote:

Based on the representations in your letter, we agree that the fixed-income or other securities issued in data center securitizations of the type described in your letter are not asset-backed securities as defined in section 3(a)(79) of the Securities Exchange Act of 1934.

Translation: AI debt isn’t an ABS. So the rules Congress and the SEC wrote after 2008 specifically to prevent another AAA-rated credit blowup do not apply.

Regulation RR’s 5% risk retention – the Dodd-Frank rule (a federal law passed in 2010 to prevent another Global Financial Crisis) that was supposed to force the sponsor of a securitization to keep skin in the game – gone. Regulation AB’s loan-level disclosures – gone. Rule 192’s prohibition on conflicts of interest, the one written to stop the Abacus-style short-your-own-deal trades – gone. Rule 15Ga-2’s pre-sale disclosure of third-party due diligence findings – gone.

The $200 billion of data-center debt Barclays expects to be sold by 2028 will move without any of these investor protections. Put that together with the Moody’s AAA rating and you’ve got the makings of an epic financial bubble – and collapse.

The rating agency that stamped AAA on subprime CDOs is back with a rating methodology less than a year old, on a market that grew 15-fold in six years, issuing AAA on paper the SEC has just exempted from the risk-retention, disclosure, and conflict-of-interest rules that were written to prevent exactly this. This is not a bug in the system. This is the system moving $1 trillion of AI credit onto insurance-company, pension-fund, and bank balance sheets by pretending the risk isn’t there.

History rhymes because leverage rhymes.

Jay Cooke & Company financed the Northern Pacific Railway on the theory it could always sell more bonds to European investors. A Vienna real-estate bust froze European demand in mid-1873. Cooke was left holding 75% of the bonds himself. He declared bankruptcy on September 18, 1873. The New York Stock Exchange closed for 10 days. Eighty-nine of the country’s 364 railroads failed. Eighteen thousand businesses went under. Unemployment reached 14% nationally and 25% in New York City. Rail construction fell from 7,500 miles laid in 1872 to 1,600 miles in 1875.

The AI collapse will be similar. What’s the first domino? Oracle.

Its credit spreads will blow out when its $300 billion of committed revenue disappears and its equity will collapse.

Data-center ABS spreads will widen from 400 to 800 basis points within six months of the first hyperscaler cancellation.

Digital Realty Trust (DLR) and Equinix (EQIX) marks drop 50%.

Regional banks with data-center and office exposure will fail: Zions Bancorporation (ZION), Regions Financial (RF), KeyCorp (KEY), Truist Financial (TFC), and Fifth Third Bancorp (FITB).

Index fund concentration is worse today than it was in March 2000. The top seven S&P 500 stocks are 35% of the index today, versus 18% for Cisco Systems (CSCO), Microsoft, Intel (INTC), and General Electric (GE) at the 2000 top. A 50% to 60% Magnificent 7 drawdown takes the S&P 500 down 35% to 45%.

Treasuries rally… at first. Flight to quality will push the 10-year yield down 75 to 100 basis points. But then the fiscal deficit will soar as capital-gains tax receipts collapse, and unprecedented government borrowing demand will push yields to levels we haven’t seen in decades. Over 10% on the 10-year U.S. Treasury bond.

Unemployment will soar. Direct tech and hyperscaler layoffs of 300,000 to 500,000. Data-center construction workers, utility contractors, and second-order services take another million-plus. Prime-age labor-force participation will fall another 100 basis points.

Then the 2028 election will become a critical referendum on how we’re going to run our country. The Democrats will win. And they will choose socialism.

The CHIPS Act passed in 2022 shelled out $50 billion in federal money to support the semiconductor industry. Expect CHIPS Act 2.0, with federal grants converted to equity. Expect direct Fed liquidity facilities to backstop the data-center ABS and GPU-collateralized-loan markets, resembling the 2008 federal emergency lending programs. Total emergency fiscal envelope, 2026 through 2028: $500 billion to $800 billion, on top of existing deficits.

How to protect yourself?

• Gold, in the long run
• Cash, in the short run
• Regulated utilities that captured the AI power-purchase agreements before the mania
• Tobacco and energy majors with capital discipline
• Biotechnology, because compute cannot destroy a 20-year patent

What to short: Oracle. CoreWeave. Nebius Group N.V. (NBIS). IREN (IREN). Vertiv Holdings (VRT). Digital Realty. Equinix.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

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Inside Today’s Issue

• Essay: From Him Who Hath Not, Much Will Be Taken
• Hedge Fund Treasury Pile
• What Hyperscalers Don’t Put On Balance Sheets
• Replacing Treasuries With These
• Chart Of The Day… LandBridge (LB)
• Today’s Mailbag

Editor’s note: Today is Porter’s fourth in a series about the enormous financial risks of the ongoing AI bubble. Please see the first essay here, the second essay here, and the third essay here.

It’s no surprise, but investors must remember that when the financial plumbing goes zero-sum, the pain will not be meted out equally. It’s the weakest who will suffer the most.

As Jesus says in Matthew 25:

From him that hath not, even that which he hath is taken away.

Here’s one “hath not” that I’m certain will soon go to zero: CoreWeave (CRWV).

CoreWeave is a “neocloud.”

When a business model is described by a made-up word that has no actual meaning in the English language… buyer beware.

Neoclouds are companies that buy huge quantities of Nvidia fast graphics processing unit (“GPU”) chips, house them in data centers, and rent them out by the hour or the month, primarily to artificial intelligence (“AI”) companies. CoreWeave’s biggest customer (both directly and indirectly through Microsoft) is OpenAI. OpenAI isn’t funded from earnings. It’s funded by investors (who are taking losses) and Nvidia vendor financing.

CoreWeave has a business model only a sadistic mother would love. It is enormously capital-intensive because it must buy the Nvidia GPUs upfront – billions of dollars at a time. But the customer revenue comes in slowly over the following years. It is far from certain whether this future revenue will outpace the rapid depreciation of Nvidia’s GPUs.

And here’s the bigger problem: its collateral is also Nvidia GPUs. GPUs are physical hardware that Nvidia itself has said will be obsolete on a roughly two-year cycle. A GPU-backed loan is a claim on hardware that is losing value from the moment the loan is signed. And the price of these rapidly depreciating assets is likewise correlated to demand for CoreWeave’s services. It’s similar to how car-rental companies all go broke. When there’s a recession and no one is renting cars, the price of used cars likewise collapses.

The same will happen to CoreWeave’s data centers and its GPUs.

On July 29, 2026, CoreWeave came to the leveraged loan market to raise $2.6 billion of new debt secured by its GPUs. But the death scramble for capital had already begun. CoreWeave’s collateral looked shakier than it had 10 weeks earlier, because the market had started digesting the possibility that AI-application revenue wasn’t scaling as fast as the capex commitments.

The loan came to market with initial price talk of SOFR+425 to +450 at 99 OID. Translation: the interest rate would be the standard short-term rate (the Secured Overnight Financing Rate, currently around 4.3%) plus roughly 4.4% on top – so about 8.7% all in – and the buyer would pay 99 cents on the dollar and get repaid at 100, giving them a small extra return over the life of the loan. That’s “price talk” – where the underwriters expected the deal to clear based on pre-marketing to buyers.

The deal actually cleared at SOFR+550 at 97 OID. Translation: the interest rate rose to about 9.8%, and the buyer only paid 97 cents on the dollar and would get repaid at 100 – another chunk of return.

That’s a “125-basis-point flex” – the interest rate had to be widened by 1.25 percentage points from the initial guidance to get buyers to take the paper. The total yield to maturity ended up at 10.44%. And to get even that, CoreWeave had to accept a covenant requiring a 1.35x debt service coverage ratio, meaning if its EBITDA falls below 1.35 times its debt payments, the lenders can take action, aka, force the company into liquidation.

Only 10 weeks earlier, CoreWeave had raised $3.1 billion at SOFR+450, and the deal had actually tightened by 50 basis points during marketing – meaning demand was so strong the underwriters could offer worse terms to buyers. By late July, the same borrower had to offer 125 basis points more, plus a discount on the paper, plus a tighter covenant, just to get the deal done.

The borrower didn’t change materially in 10 weeks. But the credit environment did.

What kills capex booms isn’t poor earnings. Investors, seeing revenue soaring, will always put up more capital.

What kills capex booms is the money running out.

And the money is running out.

In the next essay, I’ll show you exactly what sparked the industry’s desperate scramble for capital, and I’ll show you why the AI buildout is on borrowed time.

Tell me what you think of today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

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