#1009 - Is It Time To Rethink the Fed? | with Jared Dillian

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0:54Hi, everyone. Is it time to rethink the Fed? That's the question we're wondering about. Welcome to the Real Vision Daily Briefing. I'm Maggie Lake. With me today is Jared Dillian, editor of the Daily Dirt Map newsletter. Hi, Jared. Hey, how you doing? It's great to see you. Before we jump into talking about the markets today, the biggest investment decision many of us are going to make today is whether to go with Iowa or Yukon in the Women's March Madness. That goes off tonight. Brian put a poll up on YouTube. Let's get the hive mind going. We'll check in before the end of the show. It looks like it was 50-50 so far.

1:31And feel free to weigh in on the chat on the platform as well. It looks like we have a little bit of a division when it comes to sort of what to do here, Jared, because we had a really interesting session. We had the U.S. monthly jobs number came in stronger than expected. Treasury yields moved higher, but so did stocks, which seems a little counterintuitive. We had all the indices higher, although not enough to offset what is still a losing week. What did you make of the data? You know, the data, I think, is, look, I mean, first of all, let me just preface this by saying that bond yields are kind of in no man's land here.

2:14The economic data is a no man's land. Really, we're arguing about whether we get one cut or two cuts or three cuts. And, you know, we're kind of leaning towards less cuts at this point. And the whole idea of getting cuts while you're printing 300 ,000 on jobs and stuff like that is kind of insane to begin with. You know, I mean, I can't explain the price action in stocks today. Yesterday, that meltdown during the day was very bearish to me. It was not a close that you would want to buy. It was a very ugly close. Futures traded up a little bit overnight. Like I said, I can't explain the price action today.

3:01I thought we would get some follow through today. But yesterday, if you're familiar with the term outside reversal, that's when the market opens on the highs above the previous day's highs and closes on the lows below the previous day's lows. That's what we had yesterday. Today could be an inside day and we could walk in Monday and things could be different. But, you know, with gold rallying, oil rallying, the VIX jumping, you know, 20, 25 percent, this kind of smells like a geopolitical trade to me. You know, we heard rumors about Iran attacking Israel. There's always a possibility that, you know, Putin just elected himself for another six more years, so he could attack Lithuania and go for Kaliningrad.

3:53Syngrode, you know, there's the Middle East, there's still Ukraine, like, there's with, there's an underlying bid to commodities. And like I said, this just all feels like a geopolitical trade to me. And the risk reward for owning stocks just is not there. So yeah, yeah, you put that very well, because that is what's sort of swirling around. And I want to go through some highlights, because we've really seen that kind of concern that you just articulated come up throughout our conversations all week. I just want to flag on the geopolitical front that for members, if people have access to the platform, which you should if you don't, Andre has had a great conversation with Marco Papic, so it's worth seeing to get a better sense of what Jared's talking about on the geopolitical front.

4:43But we have been hearing, Jared, a lot of concern about the trends in inflation, what it means for rates, and the problems it creates with policymakers, especially with those debt levels we're talking about. Here are some of the highlights from the conversations, and we'll talk on the other side. If this is immigration, then there's a head of steam on this, and this thing could speed up rather than slow down. Profits could speed up rather than slow down. Everything could speed up. So what happened is, you know, it feels like the market's got a whiff of, you know, the inflation bug is back. You've got rates ratcheting higher right away, right out of the chutes in April.

5:23Right. I think in response to, you know, that commodity bubbling that we just went over. And so now you've got higher yields, you've got tens pushing the upper end of the range. You've got stocks rotating where, dare I say, technology looks a little bit vulnerable. We believe, and much like Jim Bianco believes, is that the longer term trading in trades is probably higher because, again, we have this fundamental view that's based on the confluence of our quantitative research and our econometric forecasting tools that says inflation is probably going to bottom at a level that is inconsistent with 2 % inflation.

5:56That's probably a Q3, Q4 event. We expect markets to start to sniff that out and price that in Q3. Now, global liquidity expansion is monetary inflation in my terms. And therefore, what you need are dedicated monetary inflation hedges. And those dedicated monetary inflation hedges are gold and we suspect, and I use the word suspect, cryptocurrencies. We don't know because the timeline or the history is too short, but certainly that's how they behave. Bitcoin behaves like exponential gold.

6:30Some great stuff. Just a programming note, Harry is going to sit down with Warren Mosler. We talked about it in the show to dig into that question about what's really driving the US economy? Is it fiscal? Is it something else? It's a question that's really important to Harry to get the answer to because it dictates so much of what will happen with rates and with portfolios. So mark your calendars. And again, if you don't have a Real Vision platform membership, now's the time to get one. Otherwise, you're going to miss out on this good stuff. So Jared, what are you expecting in terms of rates? Do you also see, because the conclusion from this is we're reflating.

7:08Inflation is going to be a problem. We've already seen people ratchet back those Fed expectations. But are we actually going to see treasuries move back up into that five, five and a quarter, five and a half percent range? Is that what you see happening? I don't have strong opinions about it. I mean, I looked today, I looked at the expected number for CPI next Wednesday, and the headline number is expected at three and a half percent. And I think it's worth pointing out that inflation bottomed like eight months ago, and it's been creeping higher ever since. And I think you'd have to be living under a rock not to see the inflationary pressures building throughout the economy.

7:50Like it's everywhere you look, whether you go to Home Depot or Lowe's or the grocery store, McDonald's or whatever, like inflation hasn't gone away. It slowed down for a period of time, but it hasn't gone away. What does that mean for bond yields? I mean, like I said, technically, bonds are kind of in no man's land. If I had to choose between one way or another, I would probably choose higher yields. The one thing I want to point out is a lot of people have noticed that bond yields are going up and gold is going up at the same time, which that doesn't make any sense. Because if interest rates are going up, that should theoretically make gold less attractive because gold doesn't pay any interest.

8:33I put out a thread on Twitter yesterday, which was pretty popular, and I talked about why gold is rallying in spite of the higher interest rates. And what I said was is that higher interest rates actually increase the probability that at some point we will monetize the debt. So to back up a second, a couple years ago, interest expense in the federal budget was about$300 billion. Now it's at$1.1 trillion. If interest rates go up, if tens, say, go up to 5.5 % or 6%, we are in fiscal checkmate. There is nothing we can do. And at some point in the next five years, there will be political pressure on the Fed to cap interest rates for two reasons.

9:25One, so people can continue to buy cars and houses and stuff like that. But two, because you can't allow interest expense on the debt to go any higher. So if the Fed caps interest rates and they print money to buy an unlimited amount of bonds at a certain yield level, that's when gold goes parabolic. So when interest rates go up, it actually increases the probability of that happening, which is good for gold. And that's why gold is doing what it's doing. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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11:52Yeah, I think that, and your notes have been fantastic about gold. I encourage everyone to go look at them. And you have been talking about this for a while. I know it's been on your radar. Talk to me about the price action as well, because there is a feeling that you see the headline gold in record territory, and everybody either thinks they've missed it or are wondering if it's time to take profits, because it's been this sort of disappointing trade for a long time. Are we in a different era? How do you think about the price action here? So the way I think about the price action is we had a 13-year consolidation from between 2011 and 2024.

12:35We just broke out of the consolidation. We broke out of a base. And all the emails I get from subscribers or anybody else is asking when to take profits. When do we sell gold? When do we sell gold? When do we take profits? And I'm like, did you just see what happened to Coco? Right? Right. Like imagine Coco had like a 47 year base and it broke out of this base. And if it traded up a couple hundred bucks and you're like, OK, time to get profit, time to take profits like you want to hang yourself, you know. So anytime commodities like sort of commodities writ large, like any commodity breaks out of a base, it's going to run for a long time.

13:20So, look, there's always a time to sell something. I'm not like the Bitcoin people. who refuse to sell Bitcoin at any price and then take a giant drawdown, there's going to be a time to sell gold. But it is way early to be talking about that. It's super, super early. I think that's so helpful to say that. And we have Christopher in the chat saying, do not fade as well. He's looking at different technicals, Elliott Action, et cetera. Thank you for that, Christopher. What about buying it, Jared, if you haven't? Well, I have it in your portfolio because I just I remind everyone all the time. And if you've been watching our coverage, we talk to people about all different kinds of assets, right?

14:04There are people who think Bitcoin's the way to go. There are people who've been arguing for a long time that gold's the way to go. They were wrong some of the time. But Rick Rule was out last year talking to me about how low a percentage it is in Puber's portfolio. And he was just saying even an incremental change makes a difference in addition to a bunch of other stuff. So what about if you don't have it in your portfolio? Should you? So Rick Rule is right. So everybody is massively underinvested. In No Worries, my book, in The Awesome Portfolio, I recommend that everybody should have 20 % gold.

14:38mostly for portfolio and risk reduction reasons. But I believe everybody should have 20 % gold. I think the average person has about 1 % gold, right? I mean, a lot of people have more than that, but so many people have none, right? So I think the average person has 1 % gold. What we are seeing is reflexivity in action, right? We just saw the price go up 15 % and now people are asking themselves, gosh, maybe I should own gold. Maybe I'm underinvested. Maybe I should get involved. And this is literally Soros' definition of reflexivity. It's happening right before our eyes. People are getting sucked into this trade.

15:20And it's just incredible to watch. It's got a long way to go. I'm so interested if, sort of weigh in, if you all feel like you're underweight gold. It's such an interesting, because listen, as you said, a consolidation period of 13 years, that's a long time. I mean, for some people, this has been sort of a dead trade. And they've been, you know, much in the way that we talked about 60-40 forever for bonds, they've been told that, you know, gold goes nowhere. And, you know, you better use your capital elsewhere. So this is going to be a really interesting time. What about from like an institutional point of view, Jared?

15:57Do you think that when we say people are underweight, is it just retail or is it across the board? All kinds of funds are underweight. It's across the board. It's everybody. It's central banks. Central banks are underway. You know, I mean, Gordon Brown sold all the gold out of the Bank of England back in like 2000. You know, for all the mining that Canada does, the Bank of Canada doesn't have any gold. You know, so everybody is underweight. I mean, it's almost comical. So I think this will continue until you start seeing some of the strategists at the banks changing their portfolio allocations.

16:40And they say, well, we're not going to do 60-40 anymore. We're going to do 60-30-10 or something like that. And they're going to have an allocation to gold, and then it's going to be time to sell. Yeah. So just a reminder, there is, as Jared said at the beginning, this isn't a forever recommendation. There will be a time, but that time is not right now. So let's talk about stocks a little bit, because it seems like from your scenario, you feel like they're very vulnerable here. Is it across the board? Is it just a risk-off environment? Or do you feel like some sectors will do well in this. There's a sort of a rotation and it's maybe going to be money out of tech or some of the higher, high flying, fast moving areas, higher risk areas.

17:27There is, there's a rotation going, going on as we speak, like take a look at basic materials, like basic materials are making new highs. Energy is done really well. Tech is kind of losing steam here. So that rotation is happening. I don't really have anything quantitative to say about stocks other than just that I have a bad feeling. And the other thing that I'll point out is that - Well, we pay attention with you. When you say you have feelings, your spidey sense comes up. We pay attention to that. If you look at the ratio of the S &P to gold, or you can do the Dow gold ratio or the S &P gold ratio.

18:09But if you look at the chart, it's making lower highs and lower lows. So gold and stocks are not necessarily always negatively correlated, but the ratio of gold to stocks should go up over time. And also an interesting thing, somebody pointed out to me, every time I talk about gold, I can't see the comments, but people are probably putting Bitcoin in the comments. What about Bitcoin? What about Bitcoin? Like if you look at a chart of gold over Bitcoin over the last couple of years, it's gone relentlessly lower, but it's made a double bottom and it's starting to pick up. So I think we might be entering a period of time where gold actually outperforms Bitcoin for a while.

18:53I think that's possible. Yeah. Surprisingly, we hadn't had a comment yet, but I'm sure they're there. I'm not looking at the YouTube chat. I'm just looking on our platform, but Sarah did say no need for gold when you see the gold versus Bitcoin chart in Raul and Julian's business cycle update this week. That's something that's out on our platform. They update and have a rolling macro investing tool to help guide. So, you know, Raul's supposition has been that crypto well performs gold. But of course, as you mentioned, we've been in a consolidation period. period, not so much versus each other, but how are you thinking about gold?

19:34And that last clip we played for Michael Howe, he was like, listen, you want hedges against monetary inflation, the monetization of debt, and you certainly want to think about gold and then potentially Bitcoin that's been acting like exponential gold. But Michael's caveat was that there's not a lot of data yet on that. So we know you're bullish on gold. How are you thinking about Bitcoin? Um, I mean, I look like, you know, people call Bitcoin a hard asset. And I suppose it is because the supply is theoretically limited. And, you know, the fundamentals are actually great at the moment, because we just launched all these ETFs, and they have like 50 billion in assets, and they continue to attract assets.

20:23um yeah i would you know i would take a look at that gold over bitcoin chart you know like i i don't know if you're pulling up there i can't see it but um it looks like it's i think this is just bitcoin is that just bitcoin yeah i think it might be just bitcoin but so the voice of brian appears uh so what are you saying about versus gold what were you saying i interrupted you i i think gold is going to outperform over at least the next couple of months and maybe longer. I think it's going to outperform Bitcoin. Would you be thinking about having Bitcoin? Even though gold's going to outperform, would you be thinking about having Bitcoin in your portfolio?

21:02I mean, speaking for me personally, I've owned Bitcoin before. And if I owned it again, I would own it in the form of the ETFs because the taxes, I mean, if you do it on Coinbase, the taxes are a pain in the ass and it's just a hassle. And, you know, I don't feel like dealing with it. I'd rather have it in a brokerage account and get a 1099 and do the taxes that way. So if I owned it again, I would actually buy the ETF, but I have no plans to do that in the immediate future. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision daily briefing.

21:46Interesting. So let me take Quentin's question. Gold miners are finally participating in a rally nearly 50 % under their all-time high still. Do they keep going? So does the gold rally extend to gold miners, do you think, Jared? Well, GDX has gone from 25 to 33 in the last month, which is about a 30 % return. Still, there was a chart going around Twitter a couple of weeks ago that showed that miners were the cheapest relative to gold in history. And there was another chart with Newmont that did it specifically with Newmont that showed that Newmont was the cheapest relative to gold in history. I do have an allocation of miners.

22:40It's probably 4 % or 5 % of what my allocation to spot gold is, but I do have some miners. You want the miners for that optionality. I mean, look, like, if miners return to sort of like, you know, 40-year mean valuations, then it's a 3 to 5x trade from here, you know, so. Good question, Quentin. Boy, you guys are on fire this Friday. It's another great question from Mark to my question, our conversation about gold as a portion of people's portfolio. Mark asking, Jared, conversely, do you think the average person has too much technology? Oh, my God, yeah. Holy cow. Absolutely. Absolutely. And the amazing thing about this is this is sort of like one of my pet peeves.

23:37Everybody owns Apple. Like, everybody has a stock. And everybody's cost basis is super, super low. People have owned Apple for 10, 20, 30 years. and I hear the dumbest things from people all the time about Apple and Google and all these tech stocks. They say, well, if I sell it, then I have to pay taxes. And I'm like, dummy, like, if you don't sell it and pay the taxes, then you will have losses. Like, so what would you rather, would you rather pay taxes or would you rather lose money, right? Like people, it's, people just have this mental block around like taking gains and paying taxes, take the gains, pay the taxes.

24:22The taxes are a symbol that you actually did well in the trade. Like just pay the taxes. It's incredible. But people are just sitting on mountains of capital gains with these stocks and they'll never sell because they have to pay the taxes. Yeah. And drawdowns are painful. You know, I mean, the buy and holds and ride through, and it has worked sometimes, but this is really important to know your timeframe. We talk about that. We bang on about this all the time. But if you need that money, you don't want to go through a drawdown. It's super painful, but it's really hard. It's hard to make that decision, Jared, taxes aside sometimes.

25:02I mean, I guess my point is there's always another Apple, right? A lot of people say, like, this has been the best trade of all time. I can't sell it. Look, there's always another trade. There's always something to do. You take profits in one trade, you move on to the next trade, and maybe that works out well too.

25:24Boy, this is, okay, I'm going to do Nick's first. I'm going to get to yours, Lee. You so far won the question of the day, but Nick is asking, because it's kind of related to what we're talking about. Hi, Jared. Just like in uranium, do you see any other trades that are overcrowded? Do you see any a-holes in other trades? What looks overcrowded? People just love that. Yeah, that's like on, I don't want to say on your tombstone, but in your sort of bio on your books. There should be something about that famous comment about too many a-holes in uranium. Exactly. Exactly. I mean, really, I would just say tech at the moment.

26:05I mean, certainly not commodities. I will say that the weight loss drugs, pharma companies are probably overpriced at this point by a lot. And this comes at a time, you know, I've taken the weight loss drugs. I've taken Ozempic. I've taken ZepBound. Oh, really? How'd you find it? Uh, it actually works. You know, I've lost, actually I've lost about 15 pounds recently. So, um, but you know, the, the weight loss drugs that I was taking were a thousand dollars a month and you can get them at a compounding pharmacy for$300 a month. Right. So, and then you have Bernie Sanders talking about how the weight loss drugs are egregiously expensive and the markup is so big and stuff like that.

26:52there's going to be a lot of price pressure on these drugs because everybody is going to want to take them. So this is not a time I would buy Novo or Eli Lilly. I think I'm a little scared to short these stocks, but I think these are definitely over-owned at this point. That's really, I think that's very helpful because it's been so much in the news and in the zeitgeist that I think a lot of people think about that and think about the potential. So it's really interesting to hear you say that. I had to ask this question from Leigh. Boy, this is just like a, I don't even know. We would have to do many shows on the answer to this, but I'm going to ask it anyway, because it's so good.