Last week, I wrote something that concerned many of our long-time subscribers.

Subscribers expressed alarm because this advice is contrary to so many other things I’ve taught over the years.

As I’ve been writing about since my 2011 documentary The End Of America, we are in the process of losing the dollar’s world reserve currency status.

We reached a major milestone on this path to perdition last summer, when foreign central banks’ holdings of gold surpassed the value of their U.S. Treasury investments. While the consequences of these changes are far-reaching, the most important immediate impact will be higher borrowing costs for the U.S. Treasury.

The other concern is political.

Massive government debt and huge increases to annual deficits, along with looming unfunded pension obligations, are fueling radical politics. As the government spirals toward insolvency, there’s growing desperation to maintain the gravy train. That’s what’s driving growing populist demands for socialist economic solutions, like the proposed California wealth tax and rising protectionism.

It’s a catastrophe in the making.

These trends have the potential to trigger a technical U.S. Treasury default, as it is inevitable that the government will be forced to print trillions of dollars to finance its growing obligations and borrowing costs. That would cause catastrophic losses for long-duration bond investors.

That’s what’s happening in Japan, where the 10-year bond yield has tripled over the last year. That’s cost investors over $200 billion. And that’s what happened in Great Britain in September 2022, costing investors around $700 billion. In both cases, the bond markets sold off after the governments announced plans to both increase spending and cut taxes.

As rates move higher around the world, it impacts America’s bond market too. The Wall Street Journal reported this morning:

I believe it’s now certain America will soon experience a financial reckoning, much like we saw in 1973-1974.

As I explained last week, after the U.S. abandoned the gold standard in August 1971, Congress passed huge increases to spending, including linking Social Security payouts to meet the inflation rate. Funding the resulting deficits would have been impossible without the Federal Reserve, which began buying enormous amounts of Treasury bonds with newly printed money. In the 10 years following the August 1971 break with gold, the size of the Federal Reserve’s balance sheet grew 174%, from $70 billion to over $190 billion. This set off the roaring inflation of the 1970s, which wiped out long-duration Treasury bonds.

For the stock market, that meant a decline of more than 50% between 1973 and 1974. And, for financial stocks, the sell-off was even more intense. For banks, which must hold Treasury securities as reserves, the technical default (printing money to finance government debt) was catastrophic.

You’ll never guess which commercial bank owned the most Treasury bonds back in 1973… It’s the same institution that’s the largest holder today: Bank of America!

Rising Treasury rates have already saddled Bank Of America (BAC) with $100 billion in unrealized losses. But these losses will grow vastly larger as Treasury yields continue to rise.

Here’s what that meant for Bank Of America’s shares during the 1973-1974 bear market.

There are rare exceptions to “normal” investing rules.

There are times when the damage to the financial system itself is so large that it’s virtually impossible to avoid a large drawdown, even if you’re following a Permanent Portfolio allocation.

I’ve seen two of these kinds of events in my career: the Global Financial Crisis of 2008 (-50%) and the COVID collapse (-40%).

During these massive drawdowns, it didn’t matter what you owned or how you were hedged – your portfolio declined.

I accurately predicted the 2008 Global Financial Crisis and was heavily short financial stocks, including Fannie Mae, Freddie Mac, Lehman Brothers, Capital One, and General Motors. Even so, my portfolio only broke even that year! I would have been much better off selling everything in May 2008 – when I shorted Fannie and Freddie – and simply holding 30-day Treasury bills (cash).

Overall, the Permanent Portfolio saw a drawdown of around 20% in 2008.

The same thing occurred during January, February, and March of 2020 (the COVID crash). The Permanent Portfolio saw something like a 25% drawdown in only three months.

Thus, there are rare and extreme situations that should cause you to consider getting out of financial assets altogether, at least for a period of time.

The world’s financial system – all of the banks, all of the payments systems, all of the trade settlement, etc. – is all built on top of U.S. sovereign bonds. If there is a default (or a technical default, like in 1973), it isn’t clear how much damage will be done to the holders of Treasury securities. But more than you can possibly imagine is a safe bet.

That’s why, when we see Treasury rates backing up to the “Biden Bust” level (over 5% on 10-year Treasuries), we will take steps to hedge against these risks (like shorting banks) and we’ll raise a large amount of cash in the portfolio.

It will be a very difficult time in the market.

Let’s hope there’s a miracle and our political leaders come to their senses before they spend all of us into oblivion.

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

Good investing,

Porter Stansberry
Stevenson, Maryland

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1. Gold surges as dollar weakens. The price of gold broke above $5,000 per ounce, driven by rising geopolitical risk, policy uncertainty, and expanding U.S. deficits. Global central banks – now in their longest gold-buying streak on record – are avoiding U.S. Treasuries to buy gold, further eroding confidence in dollar-denominated assets. Meanwhile, the dollar has declined for four consecutive months.

2. Tensions rising with Iran. The USS Abraham Lincoln aircraft carrier has put itself in position to strike Iran, while Iran’s Supreme Leader Ali Khamenei has moved into a fortified underground shelter and threatened to close the Strait of Hormuz in response to any hostilities. A disruption in the Strait of Hormuz could slow the flow of up to 15 million barrels per day of oil exports to global markets, leading to a big increase in energy prices.

3. New England pays the price for years of political stupidity. This weekend, during the frigid temperatures and heavy snowfall of Winter Storm Fern, Boston and the greater New England area was forced to burn oil to keep the heat pumping. Oil accounted for a stunning 40% of the region’s electrical production mix. Why? Because, in the name of fighting “climate change,” foolish politicians like Massachusetts U.S. Senators Ed Markey and Elizabeth Warren have spent the last 10 years blocking every proposal to extend natural gas pipelines just a few hundred miles from Pennsylvania’s Marcellus shale… never mind that natural gas is one of the cleanest, most-reliable sources of electric power on the planet. We warned about this impending disaster well over three years ago in our documentary The Boston Blackout, yet the powers that be still haven’t done a damn thing to address it.

Natural gas prices in the physical market reached above $30 per thousand cubic feet today – and one major U.S. gas producer entered 2026 unhedged, and thus is fully participating in these price increases – EQT (EQT): the inaugural recommendation of Porter & Co.

Porter Comment: Leslie – We got another subscriber asking the same question. My best advice is: if you don’t know how to use a gun, it’s best not to pick it up.

There are some financial strategies that, while they can work extremely well, are also good ways to completely destroy your savings. Using leverage is one of those things. Also in this category: selling naked options. It can be an incredibly valuable strategy, but unless you know when not to use it, it will, sooner or later, wipe you out.

You can be a successful investor and build a substantial nest egg without ever selling a naked option, without ever using leverage, and without ever shorting a stock. For virtually all of my subscribers, this is the path to stay on.

In regards specifically to using leverage, if I were going to offer that kind of information, I would want to do it in a personal setting, like a MasterMind class. It’s too risky and too hard to explain.

Here’s an outline, though.

If you’ve built an extremely low-risk, low-volatility portfolio that follows the Permanent Portfolio structure, you can use leverage to move the portfolio’s volatility higher. If your portfolio’s results are good enough (Sharpe Ratio: 1.0 and higher), leverage can provide gains that are worth the extra volatility. If you don’t understand betas and Sharpe Ratios please stop here. To do this successfully requires tremendous investment discipline to avoid high beta positions. It requires quarterly rebalancing. Using leverage in this way can increase the annual returns substantially. But, if it were easy, everyone would do it.

Please note: The investments in our “Porter & Co. Top Positions” should not be considered current recommendations. These positions are the best performers across our publications – and the securities listed may (or may not) be above the current buy-up-to price. To learn more, visit the current portfolio page of the relevant service, here. To gain access or to learn more about our current portfolios, call our Customer Care team at 888-610-8895 or internationally at +1 443-815-4447.