#1037 - Ride of Fade the Stock Rally? With Jared Dillian

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0:59Ride the rally or fade. Hi, everyone. Welcome to the Real Vision Daily Briefing. I'm Maggie Lake. With me today is Jared Dillian, editor of the Daily Dirt Nap newsletter and a member of the RV Marketplace. So if you'd like to subscribe to Jared's work, you can find an easy link in the Marketplace tab on our website and RV members get a special offer. So check it out. Hey, Jared, it's great to see you. Yeah, good to be back. It's been a while. It has. And keen observers, and we know our members are, will notice that you're sitting in a different location. Yep. New house. New office in the new house.

1:33Yep. Awesome. How's it feel? It feels great. This is an amazing space. I gave you the tour. I'm not going to turn my camera around for a daily briefing, but it's an amazing office. Yeah, that's great. Jared built a podcast studio in his office, which is pretty awesome. So we're looking forward to tuning into everything you have on tap and the books and all that good stuff that year. A lot of creative juices flown in that space, people. But let's focus some of them on the markets because it was quite a day for U.S. stocks. NASDAQ and S &P 500 both hitting record highs, treasury yields backing down.

2:17What did you make of the market action? Well, it's quite a day for bonds. I actually thought that was most interesting. You know, the CPI came in mostly in line, you know, slightly better. And whenever you have like an inline number on some piece of economic data and the bond market rips one way or another, it kind of tells you how people were positioned going into it. And, you know, we've had commodities rallying over the last couple of months. Copper has gone parabolic. Everybody's been talking about all this inflation. Everybody was short going into the number bonds and had to cover. Retail sales, I think, really was what pushed it over the edge.

3:00It was a terrible retail sales number. And if you believe that this is the beginning of the end for the consumer, if this is the first data point where we're seeing a real slowdown in consumer spending, then that's exactly what the Fed would like to see. And I don't know. I still, I'm not entirely sure we're going to get 25 basis points in September, but nonetheless, it changed the landscape a bit. Yeah, it certainly did. And you're right. Rate action has been driving everything. But it's been a source of frustration, right? Because we've been here before where rates sort of decide, the bond market decides that we're going to get rate cuts or that the worst is over with inflation.

3:49And then we've kind of bounced back again. We've been on both sides of the argument. Does this feel like it's different this time, that rates are going to move lower and that we are going to open up that lane? Or could we be in another situation where a bad print gets us right back up with higher yields? Oh, I mean, we have a couple of data points now. I mean, there are three data points, really. We have a slightly better CPI today, retail sales. And we also had the claims number from last week coming in at 234. One claims number doesn't really mean anything, you want to look at the four-week moving average.

4:27But we have claims tomorrow. If we get another claims number in the 230s range, then just connect the dots. It kind of seems like we're pointing towards a slowdown. Yeah. And it really started when we got a bad print on the monthly jobs number. UMICH was terrible. We've had a sort of steady drumbeat of things coming in lower. We understand that the expectation is that, okay, the Fed's going to come in, but does this feel like the economy rolling over? Do we finally have to start talking about the risk of a recession? Or is it just the cool down that the Fed needed? It doesn't matter. I don't know.

5:10I think it's a little bit premature to be talking about the risk of a recession. I mean, my portfolio is set up where if we get a recession, I'm killing it. I would love a recession. Like that's kind of how I'm positioned. But I think it's a little premature to be talking about that. I do want to talk about one thing, which I mentioned in one of my newsletters earlier this week. You know, I've been trading for a long time. And back when I was at Lehman Brothers in the early days in like 2002, this is before Algos, right? So when a piece of economic data would come out, if you were fast, you could actually trade off of it.

5:50Now it just happens in microseconds and it's impossible. But for the data that would come out at 10 o 'clock, like the ISM numbers and stuff like that, you could actually, with a program trading terminal, you could launch a basket of stocks with your mouse right after a number came out and make money off of it. Like I said, this is before the outgoes. Well, back then, good news was good news and bad news was bad news. If ISM came in hot, you would buy stocks. If ISM came in weak, you would sell stocks. And this all changed around 2007, 2008. And now everything is backwards where good news is bad news and bad news is good news.

6:34We had a terrible retail sales number today, and the S &P is up almost 2%. Yeah. I mean, I'm just telling people it didn't always used to be this way. It didn't used to be this way. This used to be bad news for the market. Yeah, which is why I asked. Because initially, the fact that rates aren't going up, borrowing costs aren't going up, I could see that being positive. But if it means, if the reason behind that is because we're headed to something that's a slowdown or recession, that's got to have an impact on corporate profits. So, you know, it can be a little puzzling. I mean, I guess the liquidity story is dominating and people are not worrying about the profits.

7:20The liquidity story is dominating. Yeah, the liquidity story is dominating. And by that, we mean the Fed is going to come in and try to support the economy in some way. and that money in the system will find its way to what has been the case, finding its way to risk assets. Curious about, let's back up on the sentiment reading for a second or sentiment issue in the market. So somebody in the, David in the chat said, what a day for Bitcoin, oil, gold, silver. I mean, everything was up. Earlier this week, we saw meme stocks sort of reemerge and we had that change. They were down today. They were moving.

8:01Bitcoin was not. They were down today. Other assets are moving on this. What is your sense of the return of that? If it was a couple-a-day event, should we just consider it noise? Or is it a worrying sign that the sort of excesses and speculation are back in the market? it. It's definitely a worrying sign. I mean, this didn't happen in October of 2022. Keith Gill did not pick October 15th of 2022 to put that meme on Twitter. The markets were already at the all-time highs. So from a sentiment standpoint, and this is what I do, it is a sentiment data point. If you're a bull, this is not the type of thing you'd like to see.

8:47Having said that, technically, we had a very strong, impulsive move today. It's the type of move where you usually get follow through. I don't think this is the top. I mean, at a minimum, we probably have another 2 % to 4 % before you even think about calling it the top. So I think we're going to get follow through off of this. 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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10:23Yeah, it's really important to think about that. And Tony was on yesterday, also kind of, you know, once again, indicating he felt like it was going to be this kind of day today. He was seeing the things line up. And so both of you are on the same page with that, that when you get this strong move, that you do sort of have to respect the market and respect the momentum. Jared, what about the sort of nature of the rally? Are we seeing the kind of breadth and volume that gives you confidence? Or are there some things underneath the hood that we need to pay attention to? Well, we're seeing volume.

11:01I mean, basically, what we're seeing is sort of an inversion of what we saw for the last couple of months, which is tech lagging and commodities rallying. I'm looking at my screen today. Most commodities are down. I'm looking at FCX. FCX is about Unch. But the big tech names are up. Like I said, it's an inversion of what we've seen for the last couple of months. and this is not the type of environment that I like to trade. I mean, I wouldn't be surprised if next week or the week after we're talking about the Magnificent Seven again and that whole thing happens and it's back to where we were a couple of months ago.

11:49And why don't you like that environment? Why don't you like trading that environment? It's just hard for me. I have a theory about this. I think a lot of people become the traders that they are because of the environment that they were raised in. You know what I mean? The time that they started trading dictates what kind of trader they are. So I started trading literally at the top of the dot-com bubble in the first three years of my career were a bear market. Right? So it's really like I wasn't burned by it, but that made a big impression on me that stocks can and do go down 50%, especially tech stocks.

12:38So like I said, the first three years of my career were the biggest tech bear market of all time. And I trade like that ever since. Yeah, well, it's great for you to have that awareness because I think some people have that bias and they don't realize it. But do you miss opportunity? There's so much happening in tech. And we can debate the AI trend, whether it's hype or not, or whether you need to be smart about it, not just jump on the next moving mention of AI. But do you feel like you miss out on that? Because we're at that cusp again, aren't we? Where we're at the potential to have this transformational change that does impact so many companies.

13:20So how do you make sure you don't miss things, but respect what you saw, I guess is what I'm asking. Well, for one thing, writing a newsletter, people aren't paying me to recommend Apple. You know what I mean? It's the most consensus stock of all time. Everybody owns it. It takes no brainpower to be long Apple. People aren't paying me to recommend Apple. They're paying me to look for opportunities in places where they wouldn't ordinarily look. So I've never really participated in the big tech stocks, Apple, Google, whatever. I never have. But I've made a pretty decent living screwing around with other stuff.

14:05Yeah. It's a great point. That's the known, right? So what you want to concentrate on is the stuff outside of the known. Yeah, especially because so many of us do hold this sort of big cap. So if we are looking at that, if we put those off to the side for a moment, where do you see opportunity against this backdrop? Well, let's just wrap up the macro backdrop. So we're seeing some worrying signs. We're seeing data roll over. Sounds like you think maybe the peak is in, certainly, and we're in a better rate environment, a lower rate environment now. We're not going to maybe test that. Because remember, Jamie Dimon came out and say, hey, they could be 2%, they could be 8%.

14:46So it sounds like, do you think we're away from the risk of that, you know, five and a half, six, seven, eight environment? And we're in a more sort of benevolent rate environment? At least for the next six months. I mean, you know, the election is going to change everything. If Trump gets elected, you're looking at probably lower short-term rates and higher long-term rates. You're looking at a big steepening in the yield curve. If Biden gets elected, you're looking at more of the same, although the Fed might feel they have room to actually hike rates after the election if the economy is still strong.

15:33So, I mean, really, like our window, we can only see out six months. And what happens after that is going to change everything. I mean, if you remember the 2016 election when Trump was elected, Hillary was pretty much priced in and Trump pulled it out at the end. And that changed the entire financial environment. Stocks rallied 30 or 40%. I mean, it was... So something similar could happen in November. And there are even more unknowns now, I think. Yeah. You know, if he does win, especially we've been talking on the geopolitical side of things about trade and, you know, just, you know, how much of the rhetoric actually turns into, you know, actual recommendations or policy.

16:19So you're right. There's so much unknown, maybe more than we're even used to. So in that shorter period, then in the period we can see as we enter the summer, where do you see opportunity outside of the big mega cap tech names? Well, I mean, up until today, I was looking at copper. I was looking at commodities. I do think we made the turn of commodities. Tony and I probably agree on that. Um, so that, you know, that's, I, I have, I actually made sort of a shopping list on my screen, um, of a bunch of different stuff. And, uh, you know, what was interesting was when I walked in this morning, commodities were all green.

17:03And by the end of the day, they were all red. So this is part of... A lot of people don't realize this, but this is part of a push-pull between real assets, hard assets, and financial assets. And financial assets and hard assets are often negatively correlated. I call it paper versus things. So today was a big day for paper. So financials and tech and stuff like that. And it was a bad day for things. So we kind of operate in these regimes where sometimes paper outperforms, sometimes things outperform. But I think paper assets are going to probably outperform for the next couple of weeks. Ched, wondering about your thoughts on gold and silver up until the election.

17:53Yeah, big day for gold and silver today. Silver especially. Silver had a big move today. The charts continue to look amazing. I mean, this is, along with short private equity, probably my highest conviction trade. My position in silver is pretty small. I'm not really positioned for a big move in silver, but my gold position is very large. The high was$24.30. We got up to about$23.90 today. We've been correcting for about a month in gold, and now it looks like we might have another run at a breakout again. What are you concerned about in the private equity space? Because you mentioned short private equity.

18:40Yeah, this could be a long conversation. You can give us a highlight because you've been writing some great stuff on that in your notes. Yeah, this is my number one short idea. I mean, basically, there's a bunch of things, right? So I don't think we should live in a world where all companies are privately held. I think there are significant benefits to going public. And I also don't think that private equity managers are particularly skilled in managing their portfolio companies across a range of industries. I don't think this is... I think there is a bubble in private equity. I think it's a massive bubble.

19:26And private equity made sense when rates were zero and you could buy portfolio companies or four or five times. But when rates are 5 % and you're buying stuff at 10 to 12 times, it just does not make any sense. I actually tweeted the other day, Buffett is sitting on$189 billion in cash and he can't find anything he wants to buy. And the private equity guys think everything looks good, right? Just wave it in. So we are very close to the top of that cycle. And I think it could be, it's kind of premature to say this, but I think it could be a big short. I think the unwind of private equity could be something like what we have with the financial crisis in 2007.

20:15Are there systemic problems that will come from that? we're not really going to know where those problems are until it happens, but for sure there, there will be. Yeah. I mean, basically, you know, there, there's no liquidity. People are going to want their money out. They're not going to be able to get their money out. If public markets start selling off, if the public markets sell off 20 % and private markets have to mark down their holdings, people are going to want to redeem, you know? So. 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.

21:00I mean, there is sometimes a sense that private market, in the same way that they benefit when they have access to stuff that the public market doesn't, that private market, private equity is sort of made up of the wealthy, family offices, those with means, those with assets. So if it gets ugly for them, though, does it jump over to impact? I mean, one would think there's some liquidity. It gets ugly for pension funds and endowments. Those are the ones that are really stuffed with alternatives. I saw recently that, I think it was the Stanford endowment had, I think I might get this wrong, but 38 % of their money in private equity.

21:50And across endowments, it averages about 20 % to 30%. Pension funds, the same thing. And they just keep piling money in. Yeah. And well, that was created. That was a byproduct of zero interest rates, right? They can't fund their obligations with zero interest rates. And so they were forced out further into the risk curve. But I guess that hasn't corrected because your money's locked up also a lot of the time when you're in those. So when yields went to 5%, they couldn't really necessarily roll that back, I suppose. They might have been trying to, but I think this is really important. And people were talking about it a lot, Jared.

22:33I felt like when we were thinking what's going to break with the increase in interest rates, but then that died off. We've stopped asking that question, what's going to break? I wonder if that's a mistake. We've sort of forgotten about it. Well, like I said, we might get higher interest rates after the election, particularly if Biden wins. So it could be interesting. I mean, stuff did break when interest rates went up. Silicon Valley Bank broke. You know, that was one example. They ring-fenced it. But that threat of something larger. But if you're talking about the amount of money that's in PE, that would be worrying.

23:09We had a question here. a G Blackburn was asking, how do you short private equity? I suppose you pick some names of people or is it an individual name? Is it an ETF? Is it how, how do you think about that? I do. I am concentrated in one name, but you got to subscribe to get it. Right. Fair enough. But you are looking at individual names. Individual names. Yeah. Yeah. Yeah. Interesting. What about Argentina? I know you had, you were early on that. I think you believe you did very well on that. Are you out of that trade now? Are you still interested in that trade? I'm still in. I mean, that is probably...

23:49I'm going to stay in that until the next election. So yeah, I mean, one of the stocks that I bought is up close to 200 % in the span of six months. This is what I said. I don't need to be long Google to get exposure to things that go up. There's lots of other stuff out there if you pay attention. Yeah, which everyone, there's such concentration that... I think that this comes up sometimes when we're talking to people who feel the same way looking for those opportunities. But it's just been so hard because everything's crowded into... to... So even if you see value in companies, it doesn't seem to necessarily get appreciated.

24:33Is it harder to be a sort of stock picker or find that value or you still get the returns? It just doesn't get the publicity? It's hard. It's hard. To be honest, I depend on other people for ideas. You know what I mean? I'm really not the best at coming up with idea generation. But the one thing about being in my position is I talk to thousands of people, right? Lots of people email me and people, you know, I get tons of ideas every day. Some of them are good. Some of them are not so good. But every once in a while, I say, wow, this looks really good. We should do that. So yeah. And then you get and then you, you know, it's that it's you all of your years of experience being able to understand what the market's telling you and the trends and the timing of it.

25:25And that's the hardest part. We get asked that all the time.

25:31You, we were talking about trading stuff. Are you back active? Because for a while you were strictly paper because of the - Oh no, I'm back. I've been back for a while. Yeah, yeah. I thought you were. I just wanted to clarify that because people remember when you were building the house that you were talking about your paper trades. Is there, how do you, so you're sitting on some good, some of your ideas have really played out. You were early, as I mentioned, on Argentina, and you've been doing well with the commodities. How do you know when to take profits, Jared? When do you, because we've talked before about the fact that you will fight and hang on for a trade if you think it's right for a while.

26:10How do you think about that? And are you, because there's so much uncertainty in the future, are you taking profits? Do you have long positions still? Are you trying to wrap things up before we head into this crazy election? How are you going to think about that?

26:29Figuring out when to sell something is a lot harder than figuring out when to buy something, right? Like, if you want to buy a stock, you just push the button, buy the stock. There's really not a lot of brain damage that goes into it. But if you're up 200 % on something, you really have to think. I mean, if you've made a significant amount of money, sometimes you're just like, you know what? I've made enough money. I don't need to try to top this thing. I'm getting out. In the case of Argentina, I think a bunch of things. I think Malay is going to fulfill his promise of turning Argentina around.

27:08I think the Argentina stock market has significant upside. And I'm sticking with it, at least until the next election cycle. Fair enough. As you say, it's the hardest thing to do. By the way, there's a newsflash coming across. We were just talking about Warren Buffett not being able to find things he wants to buy. Supposedly, Berkshire revealed that Chubb was a stock that they had been nibbling at. Again, not surprisingly, not a high-flying AI stock, but an insurer. Yeah. Which is like, he likes operating in territories he understands well. So that's perhaps not surprising. What's going to be, you mentioned claims out tomorrow.