Inside today’s Daily Journal…

In August 2007, John the Baptist came to Wall Street.

For those of you whose fathers didn’t teach Sunday school and didn’t read the bible every day, John the Baptist was a well-documented Jewish prophet, born about six months before Jesus.

His parents were notably elderly and had been childless in their youth. His birth was widely considered a miracle. Interestingly, his mother, Elizabeth, was a cousin of Jesus’ mother, Mary. Miracles seemed to run in the family.

John began preaching in the lower Jordan River valley, in the 15th year of Emperor Tiberius. His core message will sound familiar to Christians:

He urged moral reform – righteousness, justice, charity – and administered a “baptism of repentance for the forgiveness of sins” via full immersion in the Jordan River. He baptised Jesus in A.D. 29 and was among the first to recognize his divinity.

Later, John condemned the local governor (Herod) for divorcing his wife and marrying his brother’s wife. Herod, egged on by his new step-daughter, cut off John’s head and served it to his new wife on a platter.

In Christianity, John the Baptist is seen as a forerunner to Jesus. His preaching was a warning: the time to repent is now. He was warning that everything was about to change.

On Wall Street, the first time I saw John the Baptist was on August 6, 2007.

On that day, everything in the financial markets changed. A singularity emerged: assets that were normally uncorrelated began to move in lockstep. And, even worse, the markets began to work in reverse.

Rather than appreciating businesses that were well-run and safe to own and discounting the businesses that were failing, the opposite began to happen, with horrific volatility. If a stock was a “long” in a standard-value factor model, it was sold. If it was a “short,” it was bought and moved higher, with incredible speed.

It was a “mean reversion” storm, where the best stocks tanked and the worst stocks soared.

None of these moves were supposed to be mathematically possible.

Goldman Sachs calculated the volatility represented 25-standard deviation moves… for several days in a row. To put that in perspective, a 25-sigma event shouldn’t happen even once in the history of the universe. The market was telling the quants their models weren’t even close to correct.

As Warren Buffett long counseled, “beware of geeks bearing formulas.”

At the time (the early 2000s), innovations in computers enabled people with advanced degrees in math and physics to build complex financial models that could deliver outstanding returns in their funds without any risk!

The “quantitative equity market neutral” strategies were the darlings of Wall Street because they were “beta-neutral” – their returns were uncorrelated to the stock market. And because they had very little volatility, they could be safely leveraged – sometimes by as much as 8x.

While each of these funds had a slightly different mathematical “sauce,” they all basically made money using the same strategy: they were long “good” stocks (value, quality, momentum) and short “bad” stocks. And because every PhD at Goldman Sachs, AQR Capital, and Renaissance Technologies was looking at the same data, they all ended up owning the same stocks and shorting the same stocks.

The market gods were not amused. The arrogance of the quants required a reminder of what drives all of the markets and all of the correlations: the creation of credit.

In late July 2007, several multi-strategy hedge funds began taking massive losses on subprime credit. To meet margin calls on their failing bond portfolios, these funds had to sell their most liquid assets – their stocks. And what stocks did they own? The same stocks the leveraged quant funds owned. The sudden collapse of the mortgage bond market likewise meant that interest rates moved suddenly higher. That meant the cost to borrow shares to short went up, as did margin leverage costs. That triggered the models to begin reducing leverage and closing short positions.

Suddenly, all across Wall Street, every asset is moving in the same direction – down – except for the one asset (weak equities) that everyone was short. Giant funds were hitting “sell” on their long positions and “buy” on their shorts. The most sophisticated investors in the market, who’d promised investors that their portfolios couldn’t move down more than 1% or so in a month, were experiencing losses in excess of 20% – in a day.

Goldman Sachs famous Global Alpha fund collapsed. It lost 22.5% of its value in the first week of August, wiping out $1.5 billion in days. Goldman was eventually forced to inject $3 billion of its own capital to stabilize it.

All of the big funds – AQR, Medallion, Highbridge – experienced massive losses.

But this wasn’t the end. It was only John the Baptist. It was the market gods warning that the global credit creation machine was not just slowing down, but reversing.

This was a localized, high-speed preview of the systemic collapse that would arrive exactly one year later.

A John the Baptist event.

Yesterday’s market rout was exactly the same thing. John the Baptist was giving us a warning.

U.S. bonds, normally a safe-haven, sold off heavily with the 10-year yield jumping from below 4% to 4.11%. The 4% barrier was effectively broken, leading many investors to dump bonds out of fear that higher oil prices will lead to higher inflation. And the higher rates were even more pronounced at the longer end of the curve. TLT (the 20+ year duration Treasury bond ETF) fell 1.33% as long rates hit 4.7%.

Higher interest rates means higher margin costs, higher borrow costs (for shorting), and the likelihood of much tighter credit conditions.

Across Porter’s Permanent Portfolio everything fell at the same time. Assets that are normally non-correlated all traded down together, suddenly and violently. It was a singularity of risk.

The price of gold, normally a safe haven during periods of financial uncertainty, fell an incredible 5%. High-quality stocks (the S&P 500) declined 2.5%. And even insurance companies, which normally have very low volatility, dropped more than 2%.

The fact that high-quality property and casualty (P&C) insurance names were being sold alongside speculative AI stocks because of higher interest rates is the ultimate warning that something is fundamentally broken in the markets.

Usually when interest rates increase like they did yesterday, P&C stocks rally because higher rates means more income from their bond portfolios.

But that didn’t matter yesterday because what we were seeing was a globally synchronized margin call. The $1.6 trillion in lost equity value triggered automated liquidation in “risk-parity” funds and leveraged portfolios. Whatever could be sold, was being sold – most notably gold.

Investors have asked me many times why we would “waste” 25% of Permanent Portfolio allocating to “cash” – ultra-short-term fixed-income vehicles. Yesterday’s trade shows exactly why. When the markets crash, correlations soar. It’s only cash that will dampen volatility.

Even with that large cash allocation, the Permanent Portfolio fell -1.56% compared to the S&P 500’s 1% decline. This is an extremely rare outcome. It’s a warning of what’s coming.

As oil leaped 7% to 8% (the price Brent crude oil briefly touched $84 per barrel) and the Strait of Hormuz remained closed, every participant in the global market realized their “cost of carry” had just exploded. And every company in the S&P 500 just saw its input costs rise 15% in a weekend.

War is inflationary. And inflation means the cost to borrow is going to go much, much higher than anyone expected last week.

Like the 2007 Quant Meltdown, yesterday’s John the Baptist showed that the system cannot handle a sudden reversal of the “Cheap Energy/Low Rates” regime.

What that means is that it is time to repent. It’s time to get out of speculative investments. It’s time to get out of debt. It’s time to unwind highly leveraged trading strategies. Yesterday was only the warning. The crisis is yet to come. And it will be the biggest crisis in history.

For the last 15 years, the world’s markets have been driven higher by the largest peacetime sovereign credit expansion in history. It is as if every major political leader in the Western world has forgotten that debts must be serviced and repaid – or else chaos follows.

Since the end of 2007, the G7 nations (the U.S., UK, France, Germany, Japan, Italy, and Canada) have created approximately $42 trillion in net new sovereign debt. To put that in perspective, the total sovereign debt of the G7 in 2007 was roughly $24 trillion. So today, as we navigate the volatility of March 2026, the level of sovereign debt has ballooned to $66 trillion.

In 2007, John the Baptist’s warning was about credit quality (bad mortgages). Yesterday, the warning was about basic math: inflation makes these debt levels impossible to finance.

With $66 trillion in G7 debt, every 1% increase in interest rates represents $660 billion in additional annual interest expense.

Yesterday’s spike in the 10-year yield toward 4.10% wasn’t just a “trading move” – it was a warning.

When Treasury yields rise during a global conflict, the market is telling investors that the sovereign credit creator (the U.S. Government) is no longer viewed as a “risk-free” refuge, but rather as a participant in the same inflationary fire as everyone else.

This is the beginning of the end to the sovereign credit boom of the last 18 years.

The U.S. bond market is now in its longest drawdown on record.

The Bloomberg US Aggregate Bond Index has been in a drawdown for 67 months, dating back to August 2020, with a peak loss of 17.2%. To put that in perspective: every other drawdown in the index’s 50-year history resolved within 16 months, and none exceeded 12.7%, which happened in 1980.

The current cycle is nearly 4x longer than the next worst, and the depth of the losses dwarfs anything investors experienced in the decades between the early 1980s and 2020.

Credit is the foundation of the world’s economy and the lifeblood of the markets. Higher rates and vastly higher interest costs for the world’s governments isn’t bullish for equity markets.

Yesterday’s market action was only John the Baptist. Christ is yet to come.

Tell me what you think: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

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1. Energy supplies disrupted. While there is word that Iran has reached out to the U.S. about ending the conflict, the war has disrupted energy supplies in the region. This includes the shutdown of Qatar’s Ras Laffan liquefied natural gas (“LNG”) export terminal, responsible for 20% of global LNG. Saudi Aramco’s Ras Tanura facility, one of the world’s largest oil refineries, is offline after damage from a drone attack. And Iraq has shut oil production as storage tanks overflow. The damage has been done, and the longer the war continues without resolution, the greater the risk of a protracted global energy shortage… and higher prices for oil and natural gas.

2. Workers are raiding their 401(k)s. U.S. retirement accounts are increasingly functioning as financial lifelines for those facing foreclosure, eviction, or mounting medical debt – a record 6% of Vanguard participants have taken hardship withdrawals in 2025, a three-fold increase from pre-pandemic levels. Even as average account balances soared to a high of $167,970, the median hardship withdrawal remains a modest $1,900, suggesting that even minor financial shocks are enough to force lower-income earners to “break the glass” on their futures.

3. Trump sides with the crypto industry in its trillion-dollar fight with banks. President Trump met privately with Coinbase Global (COIN) CEO Brian Armstrong on Tuesday, then immediately blasted banks on Truth Social for blocking passage of Congress’ digital-asset-market structure bill. “Americans should earn more money on their money,” he wrote. The fight centers on stablecoin yield – banks want to prohibit crypto exchanges from paying interest-like returns on holdings, as this would force the banks to also offer a reasonable yield to consumers or risk losing trillions in deposits.

After falling below $70,000 from its October 2025 high of $125,000, Bitcoin had a strong rally today with the price up more than 7%, nearing $74,000.

Yesterday, Porter’s Journal essay “Target Is Racing Toward A Dead End” explained why he believes one of America’s greatest retailers is failing badly. Readers shared their thoughts…

Doug E. writes:

Porter Comment: Fascinating. Most of my subscribers claim that Target’s customers have abandoned the store because they embraced the DEI trend, not the other way around. That’s never been a part of my analysis – either way. For me, it’s obvious that in-person shopping is disappearing, except for specialty retailers/boutiques. – Porter

Mike B. writes:

Jesse H. writes:

David H. writes:

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