Inside today’s Daily Journal…

Ironically, it was just before the war in Iran began that we warned explicitly about True Believers.

The True Believer, Eric Hoffer’s 1951 book, describes the people who get swept up in political movements and cultural revolutions. Desperate to escape the failure of their own lives, they seek validation, belonging, and status by believing in things that are obviously, and even dangerously, untrue. It’s this kind of thinking that’s driving our government’s current war in Iran.

Air power alone has never “won” any war. And it will not “win” this one, either.

You cannot believe what the government tells you about the war. You cannot believe what the Fed says about inflation. If you do not understand – and make rational decisions about actual facts – the coming crisis will wipe you out financially.

True Believers will go broke.

You must understand these critical facts. The United States has $40 trillion in outstanding debt. Mandatory spending plus interest consumes 37% of GDP (!) before a single discretionary dollar is spent. The federal deficit is running above 5% of GDP for the fourth consecutive year. Interest expense alone is on track to hit $2 trillion per year by the end of President Donald Trump’s term – if he’s not impeached first. No one cares about these debts – until they can’t be financed. That’s when it will matter. And by then it will be too late.

The Fed is printing $40 billion a month in what they call “reserve management purchases.” The actual reason is that $9 trillion in U.S. Treasuries must be rolled over this year, and there aren’t enough real buyers. The last several auctions were abortions with over 20% of the bonds purchased by dealers, using lines of credit supplied by the U.S. Treasury.

Why no buyers?

Central banks around the world bought a record 1,133 tonnes of gold in 2025 while cutting their Treasury holdings by $189 billion. Denmark’s national pension fund sold 100% of its U.S. Treasuries. Brazil and China completed a bilateral trade deal in which over 40% of transactions settle in China’s currency, the yuan, bypassing the dollar entirely.

Does this sound like a safe and sound world reserve currency?

Even the people responsible for the system are warning about the system. Larry Fink – the CEO of BlackRock, the largest asset manager on Earth – wrote in his annual letter that the U.S. risks losing the dollar’s reserve currency status to digital assets like Bitcoin. U.S. Secretary of State Marco Rubio has said publicly that the dollar is at risk of replacement.

When the people who built the house start telling you the foundation is cracking, you should listen.

I’ve been warning since January that the trigger for a 1973-74 style stock market crash (of 50% or more) is the 10-year Treasury yield crossing 5%. That’s the level at which Bank of America’s (BAC) $100 billion in unrealized bond losses – already the largest in the banking system – begin to detonate. BAC is down 14% year-to-date, from $55.95 to $48.09. It was the largest holder of Treasuries in 1973, when its stock crashed in the subsequent bear market. It is the largest domestic holder of Treasuries today. History rhymes.

Most of the time, investors can safely ignore macro fluctuations. Recessions come and go. The business cycle turns. But there are rare exceptions – like maybe once a decade – when expensive stock markets collide with problems that are serious enough to derail even great businesses. The two kinds you must watch for? Lasting energy disruptions. And genuine threats to the banking system.

Right now, we are facing both.