Inside Today’s Issue

• Essay: The Second Secret Dividend Can Make You Rich…
• People Are Staying Unemployed Longer
• ExxonMobil Shuts Down Key Diesel Refinery
• Meta Goes “junk”
• Chart Of The Day… Sabre (SABR)
• Today’s Mailbag

Edit Delete

Editor’s note: Before we get into Porter’s Journal for today, we want to share his new Ignition Point broadcast. In the newly released video, he reveals how several separate technological forces are fusing to create what Porter calls “the next Mag7.” Watch it here.

---

Yesterday I wrote to you about “secret” dividends.

These are the huge sums of corporate profits that end up being allocated to things besides cash dividends. Finance bros call these decisions “capital allocation,” and they frequently make all of the difference between a winning investment and a losing one. After all, only about 35% of corporate earnings come back to you directly in dividends. Most of the cash ends up in other places.

One thing a good management team will do with these funds is pay the second kind… a secret dividend. This is a way of returning capital to you – but it’s a dividend that never shows up in your brokerage account. There isn’t a record date. There isn’t an ex-dividend date. There is no particular time limit to benefit from these dividends and they’re not announced – you can’t know exactly when they will be paid. You just have to keep track of them by watching the company’s share count. If they’re paying a lot of these kinds of secret dividends, then the share count will fall. And, as a result, your ownership interest will grow over time.

That can make you extremely rich. But these kinds of secret dividends can also ruin you. The difference comes down to one question to ask:

When a company sends out 90% of its cash as a normal dividend, there is less room for management to hurt you. You get the money. You decide what to do with it. But when a company keeps the cash… borrows more money… and buys back stock… you are handing your checkbook to the people in the boardroom. You are trusting them to know what the business is worth. You are trusting them to tell the truth about the cash. You are trusting them not to borrow too much. You are trusting them not to buy stock just because it makes the next quarter look better.

That is why the second secret dividend – share buybacks – is so powerful. And that is why it is so dangerous.

When it goes wrong, it can destroy even the biggest and strongest business in the world.

Look at General Electric (GE). By the year 2000, under Jack Welch, GE was the most valuable public company in the world. But just eight years later, GE had taken on so much debt that it was one of the biggest borrowers on Earth – it owed more than $700 billion, making it the 10^th largest sovereign borrower in the world! Think about that. GE is not a country!

These enormous debts meant shareholders were not merely trusting GE’s managers to run their industrial business. They were trusting them to allocate around one of the biggest piles of borrowed money in the world. They were trusting them to decide how much to borrow. When to buy another business. When to buy back shares of GE.

But… GE wasn’t even telling the truth about its own earnings!

In 2009, the Securities and Exchange Commission charged GE with civil fraud. The government said GE had used improper accounting to make earnings look better than they really were. Among other things, GE was accused of pulling more than $370 million of locomotive revenue into earlier periods and using accounting changes that added $585 million to 2002 profits.

GE paid $50 million to settle the case.

That should have told investors everything they needed to know. You cannot trust a management team with $700 billion in borrowed money when it lies about its own earnings. A disaster was only a matter of time. (And yes, I knew it at the time – I told investors in 2010 that GE would soon collapse in an accounting disaster.)

In 2014, GE bought the power businesses of French engineering company Alstom. GE said the deal would cost about $13.5 billion. It told investors the deal would add to earnings right away. It promised billions of dollars in savings. But GE was not just buying turbines and power plants.

It was buying long-term service contracts. These were the same kinds of contracts GE Power already used to report earnings long before the customers paid the cash. It was all a scam. GE Power would sign a service contract that might last for many years. The company would estimate what it would cost to do the work in the future. Then it could record profit today based on those future-work estimates. If management later decided that future costs would be lower, it could report more profit right away.

The cash did not have to show up first. The estimate was enough.

You’ll never guess what happens when the people who get to make these “estimates” are the same people whose bonuses are tied to the “profits” these estimates create. I mean, you’ll never guess.

In 2016, about one-quarter of GE Power’s reported profit came from changes in estimates of future costs. In the first three quarters of 2017, nearly half of Power’s reported profit came from those estimate changes.

GE also sold future payments from those service contracts to GE Capital. That made the cash coming in today look better. But it meant GE was pulling money from the future into the present. Then the whole story fell apart.

In 2018, GE took a roughly $21 billion write-down in its Power business.

The lesson is simple. A company cannot make a bad business good by buying back stock – it can only make it look good for a very short amount of time. A company cannot borrow its way out of a business problem. And, of course, a company cannot survive for long on paper profits that never end up accruing cash.

GE did all three. And it very nearly went bankrupt.

Jim McNerney came from the Jack Welch school. He spent years at GE before becoming Boeing’s (BA) chief executive in 2005.

Boeing was one of the greatest engineering companies in the world. Its job was simple: build the best airplanes in the world. But the company became more focused on cost cutting, outsourcing, margins, Wall Street targets, and the stock price.

To make the share price look good, it bought back huge amounts of stock.

In 2014 alone, Boeing bought about $6 billion of its own shares. Then it approved another $12 billion plan to buy more. Buying back stock did not cause the 737 MAX crashes. But the buybacks tell you something about what management cared about. Boeing did not need a better plan for buying back shares. It needed to protect the thing that made Boeing valuable in the first place: great engineering, great manufacturing, safety, and trust.

A secret dividend cannot replace any of those things.

That’s to say, simply finding companies that pay huge secret dividends isn’t enough.

What matters, ultimately, is how the underlying business performs and whether or not the share buybacks happen at the right price and for the right reasons.

Who does it best? Apple (AAPL).

Apple has bought back nearly $880 billion of its own stock since 2013. That is more money than any company in history has spent buying back its own shares. But Apple was not buying back stock to hide a broken business.

Apple was buying back stock because it was one of the best businesses in the world… and because the stock market badly misunderstood it.

From 2016 through 2018, many investors looked at Apple and saw a phone company. They worried the iPhone would stop growing. They worried about China. They worried that Apple depended too much on one product. They worried that the next iPhone would not be good enough. So they gave Apple an ordinary share price.

But Apple was not an ordinary company. Apple developed an entirely new business model, based on intellectual property. Apple did not need to build any factories. It did not need to own huge amounts of land. It did not need to spend most of its money building new facilities. Instead, Apple simply designed great products. It made the software. It owned the brand – not the stores, not the factories, not the land.

That meant Apple could return huge amounts of cash to shareholders – far more than most companies with the exact same amount of earnings. In 2016, Apple spent about $10.5 billion on buildings, equipment, and other long-term items. That sounds like a lot of money. But Apple generated $216 billion in sales that year. So it spent less than five cents of every sales dollar on the long-term things it needed to keep the business growing.

In 2017 and 2018, the number was about the same: roughly five cents out of every sales dollar.

That is tiny for a company of Apple’s size. Most companies are not like that. Most companies need giant new factories, trucks, machines, land, inventory, and debt just to stay in business. But not Apple.

Apple had a mountain of cash left over after it paid for the things it needed. But the market didn’t give Apple the premium share price its business model deserved. In fact, it was so mis-priced relative to its return on invested capital that even Warren Buffett noticed. Berkshire Hathaway started buying Apple in 2016. It kept buying through 2017 and 2018, when Apple still traded like a big hardware company instead of the cash machine it had become.

By the end of 2018, Berkshire owned about 245 million Apple shares on a split-adjusted basis. That was roughly 5.7% of Apple. Buffett did not need to understand every new phone feature. He saw a company with a great brand, loyal customers, huge cash, low spending needs, and a stock price that did not match the business.

Apple’s board saw the same thing. So it took a mountain of cash and used it to buy more and more of its own AAPL shares.

Apple’s incredible buyback campaign over the last decade is an excellent example of how much wealth can be created for shareholders with secret dividends – when they’re executed in the right way. GE and Boeing are the cautionary tales.

Today there are several companies that are paying big secret dividends in the right way.

MSCI (MSCI) sells the stock indexes, ratings, and data tools used by the biggest money managers in the world. It is a tollbooth business. Once a big pension fund or investment company builds its work around MSCI’s data, changing is hard. That gives MSCI huge cash and very low spending needs. In 2025, its board approved a new $3 billion plan to buy back stock. MSCI is the kind of company that can make the second secret dividend work because it earns a lot of cash without needing to build giant factories.

O’Reilly Automotive (ORLY) sells brake parts, batteries, belts, filters, and the other things drivers and repair shops need right now. It has bought back roughly $27.5 billion of its own stock since 2011. This works because the business is strong. A repair shop cannot wait a week for the right part. O’Reilly’s stores, warehouses, delivery system, and deep parts list matter every day.

Tractor Supply (TSCO) sells feed, fencing, tools, work clothes, dog food, truck supplies, and the things rural homeowners and farmers need. Since 2007, it has spent more than $6.6 billion buying back stock. It has cut the number of shares by nearly 8% since 2021. The company has kept buying even as sales have slowed and investors have worried. That does not guarantee the stock is cheap. But it shows you what owner-like management looks like: a simple business, real cash, and a board willing to buy more when the market is less excited.

Next plc (NXT.L) is a British clothing and home-goods seller. Most clothing stores are not great businesses. But Next is different because it treats every pound of cash like it matters. It uses cash for online growth, small deals, dividends, special B-share payments, and share purchases when the price makes sense. In its latest year, Next returned £839 million ($1.1 billion) to owners.

These are not identical companies. But they share one important thing. They make real cash. They do not need to make big capital investments to grow. And their boards understand that buying their own stock is an investment – not a trick.

If you want to specialize in investing in companies that pay big secret dividends, there are several funds and exchange-traded funds (“ETF”) that are based on this strategy.

But most have the same problem. They look only at the number of shares that disappeared. They do not ask whether the business is good. They do not ask whether the company has too much debt. They do not ask whether the company bought stock when it was cheap.

Here is a quick guide:

If you want one fund today, I would choose Cambria Shareholder Yield ETF (SYLD).

Its founder, Meb Faber, is a friend of mine. More important, he is one of the most honest people in this business. Cambria understands something that most Wall Street firms miss. A company should not get credit just because it buys back stock. If it pays down debt, pays a dividend, and buys stock with real cash, that is much better than borrowing money just to make its share count smaller.

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 Three Secret Dividends
• Gold Beats Out Treasuries
• The Fed Raises Rates
• Private Credit Slips Again
• Chart Of The Day… Veeva Systems (VEEV)
• Poll Results
• Today’s Mailbag

You will not get rich on regular dividends.

And you’ve probably never heard of the three kinds of secret dividends that public companies use to make the insiders incredibly rich.

The average payout ratio of the S&P 500 is around 35%.

That means, if you’re counting on regular dividends, you’re missing out on roughly two-thirds of the earnings of the companies you own. Where does all the money really go…?

It probably won’t surprise you that company insiders try very hard to make sure that you never understand where the wealth really accrues. It ain’t the dividend you read about in the paper that matters, that’s for sure. It’s the dividends you never hear about that will make you rich.

Ask me how I know…

In October 2023, while I was CEO of MarketWise (MKTW), our board declared a “special” $50 million cash dividend. This was the largest cash distribution we’d ever made as a public company. It was about 4x more than our regular annual dividends. But it never showed up on the securities databases as an “indicated” dividend. It went virtually unmentioned and unnoticed. It doesn’t even show up as part of the total return in most equity databases. It’s like it never happened.

And unless you were a shareholder on November 10, 2023, you didn’t get any of the money. None. Even if you’d held the stock for years previously. But… if you owned the stock on that one day, you got your pro-rata portion of a huge pile of money. Otherwise, you got zilch.

A trailing 12-month dividend yield divides the regular dividends of the past year by the current share price. But the databases exclude these kinds of “special” or one-time distributions. It’s like they don’t exist. Nasdaq’s methodology only reinvests regular dividends. And market makers deduct special dividends from the price of the stock on the open after the ex-date, when the stock trades “ex-dividend.” So the largest cash payment a company makes in a decade can be absent from the yield figure on public-pricing screens and buried in the return series we use to judge the stock. It’s like they never happened.

But it’s these kinds of huge dividends that will make you rich.

It’s funny how the most powerful thing public companies can do with their cash payments is virtually a secret from the public.

Why? Well because that’s how the insiders want it. High-quality companies that are closely managed and closely held by insiders use these kinds of dividends to massively enrich themselves.

For example, RLI (RLI) is one of America’s leading specialty property-and-casualty (P&C) insurance companies. I’ve followed it and written about it in my newsletters since 2006. They sure wish I wouldn’t…

On May 14, 2026, RLI declared a $2.00 special dividend, expected to total approximately $184 million, payable June 12 to holders of record on May 29. They’ve been paying out most of their profits in this way for decades. Since the Global Financial Crisis, RLI has paid out a total of $611 million in regular dividends. But where did the real money go…? RLI has paid out a total of $1.8 billion in special dividends – 3x more.

Or there’s TransDigm Group (TDG). You’ve probably never heard of the company, but it is the best managed aerospace company in the world. On September 20, 2024, TransDigm declared an enormous special cash dividend of $75.00 per share ($4.4 billion in cash!), paid October 18, 2024, to holders of record on October 4. Where did the money come from? TransDigm borrowed it. Its stated goal is to deliver returns comparable to a well-performing private equity fund – but only to the insiders who know when these huge payments will be made.

Four dates govern every dividend. The declaration date is when the board announces it. The record date is the day you must appear on the company’s books as an owner. The ex-dividend date is the trading cutoff, set by exchange rule rather than by the company. The payment date is when cash arrives.

Since May 28, 2024, American stocks settle one business day after the trade. Buy a stock and you become the owner of record the next business day.

The TransDigm board declared the $75 dividend on September 20, 2024, with a record date of Friday, October 4, and a payment date of Friday, October 18. To collect $75 per share, you had to buy no later than the close on Thursday, October 3, so that the trade settled on October 4.

These big special dividends are fun to track and are great for padding your account with cash. But … there’s a problem with big cash distributions. First, they trigger taxes. And second – and more important – they take capital away from the company, where it will no longer compound.

If you want to become vastly wealthy, you need to look for the second kind of secret dividend.

These are truly invisible. They’re not typically announced. And no payment will reach your account directly, so there’s no taxes you’ll owe. Instead, this is a hidden way of buying more shares. Only… you don’t have to pay for them.

AutoZone (AZO) began paying this kind of secret dividend in 1998. Through November 22, 2025, the company has spent $38.9 billion on these dividends – none of which was announced publicly.

What kind of dividend is this…? The kind that buys more of a company for you, silently and automatically.

Berkshire Hathaway (BRK) bought about 10% of American Express (AXP) in 1995. It hasn’t spent a dime on the stock since then, 31 years ago. And yet… today Berkshire owns 22% of one of America’s greatest companies. Berkshire paid $1.29 billion for 10% of American Express. But today it owns 22% … worth almost $50 billion. Without the secret dividends it received, Berkshire’s stake would only be worth $20 billion.

There are many of these kinds of leading secret dividend paying stocks. And, I believe, most of the passive wealth in America today was created through these secret dividends.

My favorite example of America’s leading secret dividend payer is homebuilder NVR (NVR), a company that I’ve been recommending since 2007. It’s just a homebuilder. It’s not rocket science. But it has created massive wealth through its secret dividend program and almost no one knows it even exists.

If you bought 5% of NVR in 1996, it would have cost about $7 million (732,955 shares). You became a major shareholder in a national homebuilder. And you never bought another share. But over the last 30 years, NVR has paid out $17 billion in secret dividends. None of this money hit your account, directly. You paid no tax. But your wealth exploded as a result.

Today, your 732,955 shares would be 26% of the company. Your stake would be worth $4.59 billion. You didn’t just become rich, you became massively wealthy. All from dividends that no one else can see. All you had to do was understand how they work.

These kinds of secret dividends create so much wealth, all the libtards want to make them against the law. And they were against the law until the mid-1980s. I’m convinced there’s simply no better way to become truly wealthy in America. And it’s easy: you literally do nothing and get incredibly rich.

But even they aren’t the best kind of secret dividend.

The best kind of secret dividend is so rare and such a closely guarded financial secret that I honestly shouldn’t ever write about it. If I was smarter, I would never explain this to anyone else – ever. This is, without question, the single greatest wealth secret I have ever discovered.

You see, companies like AutoZone, American Express, and NVR become pretty famous for their secret dividends. A lot of analysts and investors know about these stocks and track the size and scope of their big secret dividends.

But no one has ever told you about HEICO (HEI). And no one ever will.

In 1990 the Mendelson family took control of a tiny $25 million South Florida company with about 200 employees. Laurans Mendelson and his sons Eric and Victor did not attempt a transforming acquisition. They didn’t fire a bunch of people to cut costs and raise profits. They didn’t borrow a ton of money, either. And like a regular business, they paid cash dividends twice a year. HEICO occasionally pays special dividends, too.

But that’s not where the money went. The Mendelsons were amongst the savviest capitalists in the United States. They weren’t going to waste their cash on dividends. HEICO’s payout ratio is 4%. The Mendelsons took 96% of their earnings and they invested in the most valuable secret dividend stream of all…

Look at last year. In fiscal 2025, HEICO reported record net sales of $4.49 billion, up 16%, and record net income of $690.4 million, up 34%, on a consolidated operating margin of 22.7%. Nothing extraordinary. Just a good business with solid growth.

But where did the money go? HEICO completed five acquisitions during the year, three at the Electronic Technologies Group and two at Flight Support, whose net sales have now grown sequentially for 21 consecutive quarters.

Thirty-five years of that arithmetic turned a $25 million company into a company earning $690 million a year.

Instead of paying you cash, HEICO invests your pro rata share of their earnings into better businesses than you can invest in yourself. It manages them. It grows them. And you reap the returns with higher earnings, higher cash dividends, and a vastly higher stock price.

These kinds of special dividends mean you don’t need the stock market to go up to get very rich. These companies are, independent of other factors, their own compounding machines.

Danaher (DHR), AMETEK (AME), Roper Technologies (ROP), and Constellation Software (CNSWF) run this same strategy in life sciences, instruments, vertical software, and industrial niches. These stocks aren’t called private equity firms, but that’s what they do. And they’re among the best in the world at it. They buy small businesses at sensible prices with modest leverage and the returns compound quietly for decades.

Shhhhhh…!

Don’t tell anyone.

Good investing,

F. Porter Stansberry
Stevenson, Maryland

Presented By: Porter & Co.

Porter & Co. Market Snapshot

Porter & Co. Top Positions

Inside Today’s Issue

• Essay: Why We’re Changing Our Allocation In A “Permanent” Portfolio
• Oil Tankers: $1 Million Per Day
• The Oil Crisis Has Arrived
• Bond Yields Go Global
• Chart Of The Day… APA
• Reader Poll… Interest Rates
• Today’s Mailbag

Today’s Journal is extremely serious, but let me begin with a joke.

Normally, bond salesmen never get into heaven. If you’ve never read the classic Liar’s Poker, then you may not understand why. Bond prices are opaque. That means bond salesmen can frequently get away with “murder” – taking a huge spread out of the trades they do for customers. There are a lot of bond traders without scruples who take advantage of “muppets” and sell them bonds with spreads wide enough to drive a new Ferrari through.

And so bond salesmen generally don’t get into heaven. But when 9/11 happened, God made some exceptions. An entire bond trading firm (Cantor Fitzgerald) got wiped out when the planes hit the towers. So God brought them all in. And he explained:

Look, you guys really don’t deserve to be here, okay. But I feel terrible about what’s happened to you. You’ve lost your lives, your families… your Ferraris. Everything. So, I’m willing to make an exception – this time. But I need something in return…

Well, as you can imagine, the bond traders were shocked and confused at first. But then they realized that God needed something from them. And unless they could give it to him, they were going to hell – for eternity!

The emerging-markets managing director came to his senses first. (He was the one most used to everything going to hell.) He stood up and faced God.

God, you’ve saved us. Thank you. We are all in your debt. And looking back, I understand why you don’t normally allow bond traders in here. We are all grateful and want to do whatever we can to help. What can we do for you, God?

God walked over to him. He put his arm around him and said, “Walk with me a minute.”

As they walked out of earshot of the other traders, God asked…

What do you think interest rates are going to do next year…?

We’re making a substantial change to our recommended allocation in Porter’s Permanent Portfolio. We recognize that there are lots of good reasons not to follow our advice about this change.

In the first place, no one can predict interest rates, not even God. And, secondly, the entire idea of a Permanent Portfolio is that you do not have to do any trading or hedging, as the portfolio is already hedged. It holds 25% in cash and 25% in gold and Bitcoin, which is a hedge against monetary volatility. Assuming you rebalance each year, this kind of portfolio will survive a crisis and continue to prosper – just as it did in 2008/2009 and just as it did during the COVID market panic.

But even though there are real risks to making this change, we think it’s the best course – for conservative investors who are retired.

Here’s why.

The 10-year U.S. Treasury yield hit 5% on Monday, September 14, driven by soaring energy prices, the widening war with Iran, and a bond market losing patience with Washington’s deficits.

Interest rates on the benchmark U.S. bond have only touched that level once since before the Global Financial Crisis, in October 2023. But by that point, the Fed had raised its benchmark rate 11 times (!) since starting the cycle in March 2022, taking the federal funds target range up to 5.25-5.50%.

In other words, back in October 2023, the Fed was already well into a tightening cycle. Commodity prices were already coming down, and measures of inflation were moderating. And the Fed Funds rate was at par with two-year Treasury notes.

Today, commodity prices are soaring. And the Fed hasn’t begun a determined hiking cycle – putting itself way behind the curve. The Fed Funds target range is currently 3.50%-3.75%, while the two-year Treasury yield is 4.67%. That means the Fed is about 100 basis points behind the market’s rate of interest.

What does all this mean? We’re on the cusp of a rate-hiking cycle.

And there are real risks to this cycle because of the size of the national debt. We are entering uncharted waters with the massive size of the coming refundings. Total marketable U.S. Treasury debt outstanding is $31.8 trillion, carrying a weighted-average interest rate of about 3.48%. About 33% of that debt, roughly $10.5 trillion, matures within 12 months. Call it $15 trillion over the next 18 months. So roughly half of the national debt will reprice in the next 18 months.

If rates average 5% (which, again, is behind the curve currently), that will add $220 billion in annual interest expense. That would be a 21% increase to current interest expense ($1 trillion currently). It would also add 12% to the annual deficit.

While important, the bigger issue is how this big increase in interest expense will be paid for. There’s zero chance the government reforms entitlements or cuts military spending. Which means these bigger interest payments will surely be paid for by yet more inflationary government deficit spending. And the deficit is already running at 6% of GDP (gross domestic product).

That will push us into a very dangerous situation. The Fed may not be able to raise rates high enough to stop the inflation this time because our debt stock is now so large relative to GDP that a Paul Volcker-style interest rate-hiking cycle isn’t fiscally survivable like it was in 1980.

These risks are not priced into the market yet and, in fairness, these risks may not materialize for a few more years. However, I do note that Bank of America (BAC) is down 10% in the last month. It’s my best canary in the coal mine stock to gauge interest rate risks, because of its enormous, low-yielding bond portfolio. (Bank of America bought $700 billion in 2% bonds in July of 2020.) As rates go higher, the risks grow that Bank of America will fail because of the losses on these bonds.

My main concern is that this inflationary cycle may be much harder to control, because it’s being driven by factors (entitlement spending, global geopolitics) that aren’t easily constrained. And as I told you yesterday, that kind of macro outlook reminds me very much of the 1973-1974 inflationary period, which didn’t resolve for a decade.

That means our property-and-casualty (P&C) insurance stocks face a very tough outlook.

P&C insurers write the policies that cover your car, your home, and your business against loss. They invest the premiums they collect, called float because it sits in their account between the day you pay and the day a claim gets paid. And insurance companies invest mostly in bonds.

That business model works well when rates and inflation are calm. It comes apart when they spike, for three reasons that hit at once.

1. Claims get more expensive. It costs more to rebuild a fire-damaged house, replace a wrecked car, or settle a lawsuit when the general price level is rising. State regulators approve premium rate increases with a lag, sometimes a year or more, so claims costs can outrun the premium dollars collected to pay for them. Insurers call this loss-cost inflation. On liability lines, where lawyers and juries set the price, it’s called social inflation: litigation costs and jury awards climbing even faster than the government’s own inflation figures.
2. The bonds insurers already own lose value. A bond paying 4% is worth less the moment the market can buy a new one paying 6%. That loss shows up immediately on the balance sheet, in book value: the net worth per share that investors use to price insurance stocks in the first place.
3. The whole stock market’s multiple, the price investors will pay for each dollar of a company’s earnings or net worth, shrinks. When a 10-year Treasury pays 5% with no credit risk, investors demand more from every other asset, including P&C stocks that already trade close to book value. Book value shrinks from the bond losses, and the multiple applied to what’s left shrinks too, so both hits land in the same quarter.

There is one important offset to these risks. As insurance companies’ old, low-coupon bonds mature, insurers reinvest the cash into new bonds paying the higher rate. Thus, investment income rises over the following one to two years, and the stocks’ dividends rise with it, usually with a lag of a year or two behind the rate move itself. But that rebuilding takes years to show up in earnings, while the bond losses and the multiple compression show up the day rates move. The stock falls first, and recovers. If it recovers, it does so on a much longer clock than the dividend does.

I wanted to know how this unfolded during the 1973-1974 inflation. So I went back to the last time inflation and rates did this to P&C insurers, and I studied their share prices between January 1973 to January 1975, the two years bracketing the oil embargo, the wage-price spiral, and the 1973-74 bear market.

I used a primary source: the Associated Press‘ own NYSE and over-the-counter stock tables, printed daily in newspapers and digitized by the University of North Texas’s Portal to Texas History. We pulled the closing quotes nearest January 1973 and January 1975 for every major P&C insurer that was trading at the time, while we carefully excluded life insurers. Then we cross-checked the prices against Yahoo! Finance.

Here is what a pure-play P&C portfolio did over those two years.

The average decline across those nine names was 42%. The median was 43.5%. The S&P 500 itself fell 41% – from 119.10 to 70.23 – over the same stretch.

P&C insurance, the industry investors buy for safety, fell in line with the broader market, and in several cases fell harder.

We left several well-known names out of that table on purpose. Aetna Life & Casualty, Travelers, CNA Financial, Old Republic International, General Reinsurance, and Kemper all traded through the same period, and all fell too, in some cases much further. CNA Financial dropped 85%, but CNA was carrying a large life and health insurance book and came within a step of insolvency in 1974, when Loews bought 83% of its stock in a rescue. Aetna and Travelers ran life insurance and group health divisions as large as their P&C operations. General Reinsurance wrote reinsurance, not primary policies.

For a conservative investor, our recommendation is simple: stand aside from the P&C insurance industry until interest rates find a ceiling.

For our own track record, we are selling our 25% P&C allocation (“Insurance”) inside Porter’s Permanent Portfolio, in full. The proceeds move into our cash holdings, whose target allocation rises from 25% to 50% of the portfolio. The Lindy stocks (“Equities”) and the gold-and-Bitcoin allocation remain at 25% each.

We acknowledge that this kind of tactical move is risky. Selling triggers taxes and opens us to another risk: selling too soon. I recognize the 10-year U.S. benchmark yield touched 5% in 2007 and again in 2023, and both times it reversed. If that happens a third time, we will look foolish holding half the portfolio in cash while stocks and bonds recover without us.

As always, I simply give you the information I would want if our roles were reversed. In my personal portfolio, I have established a $10 million short position in long-duration bonds. I’m using that to hedge my exposure to the stock market. I’m not suggesting that’s right for you. I’m only explaining that I have a substantial amount of capital at risk based on the very analysis that I’m giving you.

I see a slew of risks that our country hasn’t faced in 50 years: massive and growing deficits, an energy shock now running through the global bond market, and the automatic cost-of-living increases built into Social Security and other entitlement programs. Together they point toward double-digit inflation and a 10-year Treasury yield above 8%, not a retreat below 5%.

Note: This change applies to our own track record, not to every account built around this idea. The Porter & Company Porter Portfolio Index ETF (PCPP) that Tuttle Capital Management runs keeps its rules-based 25% allocation to each of its four sleeves. And your own allocation may not need to change either, depending on your tax situation, your time horizon, and how much of this risk you are already hedging elsewhere.

Our new target allocation, until rates stabilize, is 25% Lindy stocks (high-quality businesses with the pricing power to raise prices as fast as their costs rise), plus 25% gold and Bitcoin. The rest, 50% cash, sits ready so we can redeploy into high-quality stocks and bonds once it looks like the inflation tide is going to recede.

A 10-year Treasury yield at 5% and moving higher doesn’t break a good insurer’s underwriting. But it does change the price investors will pay for it.

Tell me what you think of today’s 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 First Step Toward A Monetary Reset
• Inflation Expectations Rise
• AI Leaders Call For A Pause
• Trump Gives Support For Crypto Bill
• Chart Of The Day… 10-Year Treasury Yield
• Today’s Mailbag

Edit Delete

Editor’s note: Join Porter for his new Ignition Point broadcast this Wednesday and discover how several separate technological forces are fusing to create what Porter calls “the next Mag7.” Secure your seat here.

---

As I’ve been warning could happen since March, yields on the 10-year Treasury bond are now trading above 5%.

The 10-year U.S. Treasury bond yield jumped to 5.005% in the minutes after the August inflation report hit the wire last Friday – the 10-year traded above the 5% level again this morning. Both times, as soon as the yield broke above 5%, there was a massive intervention in the market forcing yields lower. I suspect the Fed is actively suppressing rates. Or it could be the Treasury issuing more short-term bills and buying longer term bonds.

My new book 2029 The End Of America: Why The Age Of Paper Money Is Ending And How To Survive The Coming Global Monetary Reset explains exactly why this is a very dangerous situation, not just for investors, but for our entire country. I write on page 29:

When Powell raised the federal funds rate from zero to 5%, he did not just cool the economy — he tripled the United States government’s annual interest expense. Net interest on the national debt went from $345 billion in October 2020 to $981 billion in October 2025. That is more than the entire defense budget of the United States of America… The next time inflation breaks out — and it will break out, because the structural forces driving it have not been addressed and the monetary expansion of 2020–2022 has not been meaningfully reversed — the Fed will face a choice Paul Volcker never faced: it will have to choose between fighting inflation and keeping the Treasury solvent. It cannot do both. And because no democracy in the history of the human race has ever chosen Treasury-solvency-and-austerity over inflation when the choice was forced upon it in a moment of crisis, the Fed will choose inflation.

What’s happening today — in the markets, with the Iran War, and in our politics — is almost exactly what happened the last time there was a huge, global monetary reset, which was in the early 1970s when the U.S. defaulted on its promise to redeem dollars for gold.

That decision unleashed a new, global fiat monetary regime that’s seen asset prices soar while wages stagnated, destroying the middle class in America. It led to a decade of much higher inflation rates and much higher interest rates from 1971-1981. By the time the 1970s monetary reset was over, long-term rates were 15% annually, high-quality stocks were trading at six times earnings, and the dollar’s purchasing power had fallen by more than 50%.

Could that really happen again? Absolutely.

Last year, the federal government ran a deficit of almost $2 trillion, spending 34% more than it collected. The government, already supporting unprecedented debts, is running a deficit that is 6% of GDP — during peacetime and with full employment!

This hasn’t happened since the 1970s.

And look at our politics. Who reminds you of President Richard Nixon more than President Donald Trump? Trump issued roughly 225 executive orders in the first year of his second term, and, like President Barack Obama (!), is using law enforcement to settle political scores. He’s the most “imperial” president we’ve had since Nixon. (Obama! was the most insufferable.)

The difference between 1971 and today is that the federal government is vastly larger and the spending is even more out of control. Today, all state and local governments combined spend around $3.7 trillion annually. That’s only half of federal outlays: the federal government spends more than the other 50 states, combined.

And then there’s the war.

In October 1973, Egypt and Syria attacked Israel on Yom Kippur. The Arab oil producers answered with an embargo, and oil ran from $3 a barrel to nearly $12 in a matter of weeks. America’s involvement in this war was never about Israel. It was always a war over the dollar. The Saudis had threatened to stop pricing oil in dollars after Nixon broke the gold promise in 1971. The war, and the secret petrodollar arrangement that ended it, kept oil priced in dollars for 50 years and allowed America to run endless trade deficits financed purely with paper money. That deal ended in 2024. And look whose oil industry is being destroyed in this war: Saudi Arabia’s. That’s not a coincidence.

There’s one other major similarity between today and the early 1970s that no one is talking about yet: the urgent need for entitlement reform.

In the 1972 election year, Congress and Nixon gave Social Security recipients a 20% across-the-board benefit increase.

Trump is promising something even bigger in this election: a $5,000 “dividend” for voters if the Republicans win both the Senate and the House.

But it’s the 1972 law that’s the real risk. The Social Security Amendments of 1972 did something no government had done to itself before: it wired future benefits directly to inflation. Starting in 1975, guided by the consumer price index (“CPI”), checks would rise automatically every year. No vote required, ever again.

When inflation ran higher in the late 1970s, one of the main reasons it was so hard to control was because federal spending was mandated to increase alongside inflation. The first automatic cost of living adjustment (“COLA”), in 1975, was 8%. By 1980, it was 14.3%. The government had built a machine that took the very inflation it was causing and fed it straight back into its own largest expense, automatically.

So… what caused the inflationary spiral of the 1970s? A deranged, imperial president who refused to cut spending even when it was obviously out of control, a war in the Middle East that disrupted oil supplies for a decade, and an entitlement system that vastly increased spending, automatically because it was indexed to inflation.

And what do we see today?

The federal government is $40.1 trillion in debt, running close to $2 trillion in annual deficits, and the two fastest-growing line items (Social Security and interest expenses) are linked to inflation. Printing money won’t cure these obligations – it will make them grow faster.

The Strait of Hormuz has effectively been shut for over 100 days, and Houthi attacks on tankers in the Red Sea have added a second front. There’s already been substantial damage to major energy infrastructure, and there’s no end in sight to this conflict. Oil is above $100 a barrel.

The CPI rose 3.4% in August and has been above the 2% rate for 66 consecutive months – more than five years. That’s driving massive increases to Social Security payments, with 2027’s COLA expected to be 3.7%. The program, which has been operating in the red since 2010, currently pays out about $138.4 billion a month, or roughly $1.66 trillion a year, to 71.3 million beneficiaries. A 3.7% COLA adds about $5.1 billion a month to that, or $62 billion more a year. And that’s before counting the roughly 1.5 million new beneficiaries who join the rolls annually.

America’s federal government is a leviathan spiraling toward insolvency with a printing press. You know what it’s going to do. It is going to defraud its creditors.

How? In all kinds of ways. By defaulting on Social Security (yes, that will absolutely, 100% happen). And by resetting the value of our currency much lower, thus making it easier to repay its debts. That’s exactly why long-duration interest rates are going much higher.

That will not be good for equity valuations. It will also not be good for our country. The 1970s were a period of tremendous political violence. And this time will be worse.

If you haven’t yet, now is a very good time to read my book.

It’s available at Amazon.com, both as a paperback and on Kindle. You can also listen to it as an audiobook. It’s only $9.99 (via Kindle). Please read it. And give a copy to someone you love. It’s a thorough guide to protecting your wealth from the coming monetary reset.

P.S. Attentive readers will recall that earlier this year (in March) I suggested that retired investors, or investors who didn’t want to face a lot of volatility this year, should sell the property-and-casualty (P&C) insurance allocation in Porter’s Permanent Portfolio and move those assets to short-term Treasury bills (SHY). Doing so would create a Permanent Portfolio asset allocation that’s ready for higher inflation and higher interest rates: 25% stocks, 25% gold and Bitcoin, and 50% cash. I explained that when the 10-year Treasury yield broke above 5%, I would move our official allocations to match this conservative allocation. I haven’t done that yet, because, so far, the 5% level hasn’t held. When I change our official allocations, I’ll let Complete Investor subscribers know.

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 Highs And Lows Of Drug Development
• Declining Treasury Returns
• Insider Buying At Uber
• Japan’s Yen Support
• Chart Of The Day… Roivant Sciences (ROIV)
• Today’s Mailbag

We don’t normally update stock recommendations from our various services in the Daily Journal, but from time to time something happens that’s important enough to discuss with the entire audience.

On Friday, Porter & Co. Biotechnology recommendation Novartis (NVS) announced that its heart and cholesterol drug pelacarsen failed in a Food And Drug Administration (“FDA”) Phase III trial to reduce cardiovascular events despite lowering the harmful cholesterol Lp(a).

One of our main themes in Porter & Co Biotechnology is a technology called RNA interference. It can prevent harmful proteins from being produced inside cells, before they cause harm in your body. As this intervention occurs earlier in the pathology of disease and inside cells, it has a good safety profile and can be extremely effective. We believe it’s going to become a dominant new approach to treating chronic disease.

One of the biggest potential market opportunities for RNA interference is preventing the production of certain kinds of cholesterol that are linked to cardiovascular disease (heart attack, stroke). Cardiovascular disease is a leading cause of death, so there are potentially huge markets for these drugs – if they’re safe, and if they can prevent disease.

Novartis has been conducting a six-year-long, huge (8,323 people) clinical trial (“HORIZON”) using an older form of RNA interference (antisense) to target lipoprotein(a). Lp(a) is a cholesterol-carrying particle found in the blood. It resembles an LDL particle, the type commonly called “bad cholesterol,” with an additional protein called apolipoprotein(a) attached to it.

Your genes determine most of your Lp(a) level. Diet, exercise, and statins generally do little to change it. People born with high Lp(a) experience more heart attacks, strokes, and aortic-valve disease over their lifetimes. And currently there’s no FDA-approved treatment to reduce Lp(a), which makes it one of the most valuable potential drug targets in medicine.

Novartis’ Lp(a) drug is called pelacarsen. On Friday afternoon, Novartis announced that pelacarsen did not lower the risk of cardiovascular events in the treatment population of the clinical trial. We don’t have complete data from the trial, so we don’t know exactly how it failed. We do know that Pelacarsen did what an antisense drug is supposed to do: it lowered the protein it was designed to lower. The problem is that patients did not suffer fewer cardiovascular events as a result.

There’s a lot of controversy about cholesterol drugs (statins) already. Many people claim that LDL isn’t the cause of heart attacks. While cardiovascular disease is multi-faceted, there’s no question that lowering LDL, especially before cardiovascular disease has begun, can dramatically reduce the risk of heart attack and stroke. We know this because some people have natural mutations that result in much lower levels of LDL and they have much less (88% less, in one landmark study) incidence of heart disease. Likewise, some people have natural mutations that lead to much higher levels of LDL – they get heart disease when they’re still very young.

Using drugs to replicate lower levels of LDL improves cardiovascular health: The Cholesterol Treatment Trialists combined 26 randomized trials containing 170,000 participants. Each 38.7 milligram-per-deciliter (“mg/dL”) reduction in LDL produced a 22% reduction in major vascular events and a 10% reduction in overall mortality. A meta-analysis of patients beginning at very low LDL levels found a 21% reduction in major vascular events for every 38.7 mg/dL reduction, combining statins and nonstatin drugs.

I’m explaining all of this because I suspect there will be a lot of people (especially on the internet) who point to this clinical-trial failure and then claim that cholesterol isn’t a factor in heart disease. But that isn’t what this trial means. LDL has bidirectional genetic evidence and repeated outcome benefits from several mechanistically different drugs.

Still, if high Lp(a) leads to heart attack, then why didn’t lowering it reduce heart attacks?

Pelacarsen is an antisense oligonucleotide (“ASO”) – a short, manufactured strand of genetic material designed to bind to one specific messenger RNA. When pelacarsen binds to the message for apolipoprotein(a), the cell destroys that message. With fewer instructions available, the liver makes less apolipoprotein(a), and the patient’s Lp(a) level falls.

This clinical trial enrolled 8,323 patients who already had cardiovascular disease and Lp(a) levels of at least 70 mg/dL. Patients received either an 80-milligram pelacarsen injection once a month or a placebo injection containing no active drug. Neither the patients nor their doctors knew which treatment they received (this was a “double-blind” clinical trial).

The trial measured a composite endpoint. A composite endpoint combines several medical outcomes into one score so that the trial can accumulate enough events to reach a conclusion. The Pelacarsen trial, Lp(a)HORIZON, counted the first occurrence of cardiovascular death, a nonfatal heart attack, a nonfatal stroke, or an urgent procedure to restore blood flow to the heart.

Researchers often call this collection of outcomes MACE – major adverse cardiovascular events. Pelacarsen did not significantly reduce these events in the overall trial population, even though it lowered Lp(a).

“Did not significantly reduce” has a precise meaning. The difference between pelacarsen and placebo was not large or consistent enough for the trial to rule out chance under its pre-specified statistical test. Novartis has not disclosed the actual difference, known as the hazard ratio, or the range of plausible values around it, known as the confidence interval.

We therefore do not yet know whether pelacarsen produced no benefit, a small benefit, or a benefit concentrated among patients with the highest Lp(a). Novartis also has not disclosed the separate event counts, the amount of Lp(a) lowering achieved during the study, or the complete results for patients who started at 90 milligrams per deciliter or higher.

1. Lp(a) may identify cardiovascular risk without being a useful drug target. A marker can predict disease without causing enough of the disease to make its removal helpful. Medicine has seen this before: raising HDL cholesterol improved a laboratory number but did not reliably prevent heart attacks.
2. Treatment may have started too late. Genetic studies measure the effects of high Lp(a) across an entire lifetime. Lp(a)HORIZON began treatment after patients already had cardiovascular disease. Lowering one source of damage for several years may not reverse decades of plaque formation and injury.
3. Pelacarsen may not have lowered Lp(a) far enough. Its earlier trials produced reductions near 80%. Competing siRNA drugs have produced reductions above 90%. If cardiovascular benefit requires crossing a threshold rather than merely lowering the level, the deeper reduction could matter.
4. The trial may have enrolled too many patients whose remaining risk came from something other than Lp(a). The median starting Lp(a) was 108 milligrams per deciliter, and 21.4% of patients entered below 90 milligrams per deciliter. About 77.5% received high-intensity statins, and roughly 11% received a PCSK9 inhibitor.

PCSK9 inhibitors are powerful LDL-lowering drugs. A 2025 analysis of 273,770 patients with established cardiovascular disease found that the connection between Lp(a) and recurring cardiovascular events weakened as LDL treatment intensified and disappeared statistically among patients receiving PCSK9 inhibitors. If modern treatment had already removed much of the risk attributable to Lp(a), pelacarsen had little left to prevent.

The missing results will distinguish these explanations. We need the actual event rates, the hazard ratio, the confidence interval, the achieved Lp(a) levels, and the results among patients starting at 90 mg / dL or higher. We also need to know whether the event curves moved apart late in the study, which would suggest that benefit requires more time.

What The Result Means For Lp(a)

Lp(a) remains a genetically established risk factor.

Genetic evidence tells us that people exposed to high Lp(a) for decades have more disease. A successful clinical trial must show that lowering Lp(a) with a drug, later in life, improves patient outcomes. Pelacarsen failed that test.

The next decisive Lp(a) study belongs to Amgen (AMGN). Its drug, olpasiran, is being tested in an ongoing large-scale trial called “OCEAN.” This trial required a higher starting Lp(a), uses an siRNA that produces deeper lowering, and excludes stroke from its three-part primary endpoint. Those differences address several possible weaknesses in Lp(a)HORIZON. But they do not guarantee success.

Eli Lilly’s (LLY) lepodisiran also uses siRNA to target Lp(a) and is being tested in a larger population that includes some patients without established cardiovascular disease. Lilly’s muvalaplin is a daily pill that prevents Lp(a) particles from assembling rather than silencing messenger RNA (“mRNA”).

Ionis Pharmaceuticals (IONS) discovered pelacarsen. Novartis licensed it and became responsible for worldwide development, manufacturing, and commercialization.

The contract allowed Ionis to receive as much as $900 million. The amount included a $75 million upfront payment, a $150 million license payment, a $25 million development payment, up to $290 million tied to regulatory progress, and up to $360 million tied to sales. Ionis had received more than $275 million through the end of 2025. It would have received another $50 million if the FDA accepted a pelacarsen application.

Novartis has never disclosed the cost of Lp(a)HORIZON. Our reconstruction is $250 million to $700 million, with $450 million as the base estimate. The study operated for more than six years, enrolled 8,323 patients at 902 sites, administered monthly injections, and continued until independent reviewers confirmed 993 cardiovascular events.

Novartis paid Ionis more than $65 million for a separate next-generation Lp(a) ASO program that it terminated in 2025. Including that program, other pelacarsen studies, drug manufacturing, launch preparation, Lp(a) testing campaigns, and the original Ionis equity investment, our total Novartis Lp(a) spending estimate is $850 million to $1.55 billion.

Here’s what matters to shareholders: Novartis expensed the clinical work as it occurred. Pelacarsen has no current sales. Its failure therefore has almost no effect on 2026 earnings.

The pelacarsen call option from our August recommendation should be treated as lost. But Novartis is a broadly diversified, major pharmaceutical company. It does not depend on pelacarsen alone. Its LDL drug, Leqvio, is growing rapidly. It silences PCSK9 rather than apolipoprotein(a), lowers LDL cholesterol rather than Lp(a), and operates in a pathway already validated by successful outcomes trials using PCSK9 antibodies.

Our August valuation was $180 per Novartis share. We don’t believe the failure of this trial impacts that valuation by more than $2 to $4 per share. Our next evaluation will occur when we get the full Lp(a)HORIZON data set.

What’s actually driving the share price of Novartis down today was a different clinical trial failure. And it matters more because this was a major ($12 billion) acquisition, not just a licensing deal.

Earlier this year, Novartis bought Avidity Bioscience, which was a clinical-stage biotech company developing RNA medicines for inherited muscle diseases.

Avidity’s core technology is an antibody that can deliver RNA drugs into muscle cells. The company had three advanced programs, including a Del-desiran for myotonic dystrophy (type 1). This inherited muscle disease causes weakness and myotonia: the inability to relax a muscle normally after using it.

The drug uses small interfering RNA, or siRNA, to destroy the toxic genetic message that causes DM1. An antibody carries Avidity’s siRNA into muscle. Earlier biopsies proved that this delivery system worked: del-desiran reached human muscle and reduced its intended RNA target by 37% to 46%. Its Phase III clinical trial (“HARBOR”) enrolled 159 patients. Its primary test measured how quickly patients could open their hands after squeezing them. Del-desiran did not improve that measurement significantly versus placebo. Novartis said other measures showed some clinical activity, but it has not released the full data.

The failure does not prove that the drug missed its molecular target or that Avidity’s muscle-delivery system is broken. The trial may have used a noisy new measurement, enrolled too few patients for a variable disease, treated them for too little time, or failed because partial correction of the molecular defect cannot restore damaged muscle. The complete strength, walking, daily-activity, and biological results will distinguish those explanations.

But, a lot more money is at stake in these drugs. Novartis assigned $7.5 billion of the purchase price to Avidity’s muscular dystrophy programs. If del-desiran is abandoned, most or all of that accounting asset could be written off. Our base estimate is a $6.2 billion loss of equity value, or about $3.25 per Novartis share.

While failed clinical trials are never good news, these are normal costs. We see no reason to change our outlook on Novartis and continue to expect it to become the market’s leading RNA-interference company.

And… there’s a reason we take a portfolio approach to our biotech investing.

Roivant Sciences (ROIV) is up about 20% today on strong Phase II results for mosliciguat in pulmonary hypertension caused by interstitial lung disease. Mosliciguat is an inhaled medicine designed to relax the blood vessels in damaged lungs, making it easier for the heart to pump blood through them. The drug reduced resistance in the lung’s blood vessels by 56.3% versus placebo. Patients also walked 35.2 meters farther in six minutes, while NT-proBNP, a blood marker of cardiac strain, fell 53.2%. The result is persuasive because the drug improved three different things: blood flow through the lungs, patients’ physical ability, and stress on the heart. Roivant has begun Phase III (“PHrontier”).

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

Good investing,

F. Porter Stansberry
Stevenson, Maryland

Porter & Co. Market Snapshot

Porter & Co. Top Positions

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…

Edit Delete

Edit Delete

Presented By: MyWallSt

Porter & Co. Market Snapshot

Porter & Co. Top Positions

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

Porter & Co. Market Snapshot

Porter & Co. Top Positions

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

Edit Delete

Porter & Co. Market Snapshot

Porter & Co. Top Positions

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

Porter & Co. Market Snapshot

Porter & Co. Top Positions