Inside today’s Daily Journal…

Editor’s note: Porter has turned the Journal over to Marty Fridson, lead analyst for Porter & Co.’s Distressed Investing. For nine consecutive years, Marty was ranked No. 1 in high-yield strategy… He brings those years of experience to today’s Journal about the weakening market for U.S. Treasuries.

Here’s Marty…

The U.S. government has spent its way into a collapse of the sovereign U.S. Treasury debt regime…

Like it or not, foreign companies and banks need dollars in order to do business. The problem for those foreign-dollar users is that U.S. bank regulations got tighter after the Global Financial Crisis in 2008.

That raised the cost for banks to provide dollar funding to the rest of the world. As a result, the premium paid by foreigners for directly accessing dollars went up. And the premium goes up even more when times get tough, as everybody clambers for dollar funding all at the same time.

So for now, at least, the rest of the world still wants dollars, and the Fed has been creating them with seemingly no limit. As one French finance minister famously put it in 1960: the U.S. currency still enjoys an “exorbitant privilege.” Neither the euro nor the Chinese yuan is on the verge of usurping its place in global trade.

For U.S. Treasury bonds, on the other hand, a grim future has already arrived.

To understand the math behind this grim future, imagine you’re a European investor who wants to earn a return in dollars. Buying a U.S. government bond is the simplest way to do so – but it’s not the only way.

You could instead buy a German government bond and use the foreign-exchange market to convert the euro-denominated interest to dollars. This is called a “synthetic” dollar investment.

Up until 2008, investors were usually willing to opt for accepting a lower yield to own U.S. government debt directly – Treasury bonds were the most liquid form of sovereign debt and everyone accepted them as collateral.

But those advantages disappeared as the total amount of marketable Treasury debt exploded from $6 trillion in 2008 to $30 trillion in 2025. To be clear, it’s no cause for panic when Treasury debt simply grows along with an expanding U.S. economy. But the 2008-2025 increase represented a 10% annual growth rate. Real (inflation-adjusted) GDP grew just 2.25% a year over the same period. In short, the federal government has been stepping up its production of debt much faster than U.S. workers and businesses have been stepping up the production of goods and services.

Investors haven’t missed the fact that the U.S. government has been spending and borrowing with reckless abandon. So instead of accepting a lower yield on Treasury bonds than on the synthetic variety described above, they’re now demanding a premium yield to lend to the U.S. government.

Up until 2023, Treasury bills, which are issued with maturities of one year or less, still enjoyed their special privilege, yielding less than comparable foreign obligations. No longer, thanks to the Treasury flooding the market with this near-cash type of paper. Between 2013 and 2019, the amount of Treasury bills outstanding expanded by 52%. In the next six years the amount ballooned 171%.

There’s no mystery about the Treasury’s increasing reliance on these very short-term obligations. At most times, T-bills represent cheaper funding than bonds, which have maturities of up to 30 years. At certain times during the last 20 years, the gap has been as great as two percentage points. That means the government can save taxpayers billions of dollars by issuing shorter-dated debt.

But there’s a risk attached to that strategy. The Treasury could wind up having to replace a large portion of its debt at a difficult time in the market, when borrowing costs are higher. This risk explains why responsible corporate treasurers never let too much of their companies’ debt come due within the next 12 months.

Given these disturbing facts, it’s not surprising that America’s debt has lost its elite investment status. And let’s not be complacent about the foreigners’ longstanding love affair with the dollar. There have already been some rumblings of discontent.

During 2009, the dollar’s price dropped sharply against gold and some major world currencies. In one of the most noteworthy reactions, supermodel Gisele Bündchen demanded that consumer-good giant Procter & Gamble pay her in euros for her efforts to promote its line of Pantene hair products.

If the dollar falls off its pedestal sooner rather than later, don’t say you haven’t been warned.

Tell us what you think of today’s Journal: [email protected]

Martin Fridson
New York, New York

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2. More trouble at OpenAI. The company behind ChatGPT has missed several monthly revenue targets this year and has also fallen short of its 2025 goal of reaching 1 billion weekly active users. OpenAI CFO Sarah Friar has reportedly said she is concerned about OpenAI’s ability to fund its future computing contracts, which now total more than $1.2 trillion. The ripple effects of financial distress at OpenAI – currently being sued by Elon Musk over its non-profit status – could spread far and wide, as many of America’s largest technology firms are investing heavily in computing capacity based on the promise of OpenAI’s future spending commitments.

3. The United Arab Emirates is leaving OPEC. This morning, the UAE announced it will exit the Organization of the Petroleum Exporting Countries (“OPEC”) – ending nearly six decades of membership and stripping OPEC of its third-largest producer. The country has been pumping roughly 30% below its 4.85 million barrels per day (“bpd”) capacity to comply with OPEC quotas – representing roughly 1.5 million bpd of additional crude oil it will now be able to deploy freely. Once Gulf shipping normalizes, this additional supply is likely to put downward pressure on the price of oil.

Shares of semiconductor firm Intel (INTC) soared 23% to an all-time high following blowout earnings on surging AI-related central processing unit (“CPU”) demand, officially surpassing its dot-com bubble peak for the first time after nearly 26 years.

On Friday, with the news that it now seems likely that the U.S. Senate had cleared the path for the confirmation of Kevin Warsh as new chair of the Federal Reserve, we asked Journal readers:

Will the Fed cut interest rates at all during the remainder of 2026?… 57% of survey takers selected “no,” while 43% said “yes.”

In yesterday’s Daily Journal, “Warren’s Mistakes,” Porter explained what’s gone wrong with Berkshire Hathaway and how investors can build a portfolio that can do much better. Readers share their thoughts…

K Miller. writes:

Rob M. writes:

Jim F. writes:

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