Is a U.S. Recession Still in the Cards? | Ash Bennington & Jared Dillian

0:00Hi, everyone. I'm Raoul Pal, the CEO and co-founder of Real Vision. Here at Real Vision, we're committed to give you the best knowledge, tools, and network to help you succeed in your financial future. If you're enjoying this podcast, please take a moment to give it a five-star rating. It truly helps us continue to bring top-tier content. Thank you so much.

0:28Welcome back to Real Vision. I'm Ash Bennington. Today, I have the pleasure of speaking with jared dillian editor of the daily dirt nap and an old school real vision favorite jared it always great to have you on the show old school i love it we're the we're the we're the old school crew man here at real vision yep yep yep i actually remember um when real vision first started uh ro gave me like this little like camera with like an sd drive to take like videos to my office and it was a complete disaster. Like I recorded a couple of videos. I'm like, like, it's really hard to do it like by yourself, like just talking into a camera.

1:08So it was terrible. But that was like in like 2015 or something like that. So listen, here's the thing about innovation, man. If it doesn't start as a complete disaster, you're not thinking outside the box, right? Like if it was easy, everybody be doing it. And now, and I'm not going to name any names, but I think there will be one or two people who have copied Real Vision. One or two, a little bit. That's okay. Listen, we're glad to have him. Jared, it's an interesting moment to have you with us, kind of an inflection point to talk about trade policy and markets. Man, let me just start it off and ask you to give us your big picture overview, 35 ,000 feet of what's happening right now.

1:54Because, boy, there's a lot happening. And it does feel like we're in this moment of a little bit of pause as markets are trying to figure out what's going to happen next. Yeah, it's funny. I don't even know that I really have a big picture overview. I mean, we can start talking about the stock market, which has bounced about 13 or 15 % off the lows. it's my belief that there is going to be some catalyst whether it's tariffs or China or something three to six months from now that is going to plunge us into an even worse bear market now this is all like this is all conjecture like people ask me if I can see the future and I can I can see like two or three weeks out right and anything beyond that is conjecture and people like to talk about it on podcasts and it's kind of fun to talk about, you know, but I think when Trump announced the tariffs on Liberation Day, he broke the market, right?

2:56And you're talking to somebody who trades and looks at the screens and looks at price action every day, right? Like something is different about the price action and I can't really put my finger on it. The market seems broken. This bounce that we've had, I mean, it was very impulsive at first when Trump announced that the tariffs would be delayed, but the market acts like crap, like it really does. So I just, I think the analog here is 2001, 2002, right? September 11th, the market was down like 13 % in a week. Then it bounced strongly back up almost to the highs. It consolidated for about six months.

3:43And then we got the big bear market in the summer of 2002. That's kind of the template I'm using for today's markets. Boy, it's a really interesting metaphor. And back in the day when I was one of the young guys working on Wall Street, I remember that period. Well, I remember that volatility, that NASDAQ crash, just an interesting time to talk about. Let me ask you this. When you say this idea of the markets breaking, this dislocation, what did you see specifically in the price data that led you to describe it that way? I don't know. It's funny. I just had my conference and one of my speakers was a guy named Tom Morgan, who you might know.

4:30um and tom was he talked a little bit about like intuition human intuition and he talked about this story of a guy who was a horse trainer for 30 years and then somebody talked to him into making odds on horses and he ended up being the best odds maker in the world right but when they asked him okay systematize what you do make a set of rules so that we can systematically do what you do he did it and it was a million times worse like he couldn't describe what he was seeing in the horses so it's it's really like so my answer your question is it's really just intuition you know it's there's something i i can't describe it there's something different about the price action um it's i mean i guess if i were to put it in a quantitative sort of way like in a bull market in stocks you generally get um a grind higher you get less than one percent moves and you have more up days than down days right now we have more down days than up days and the down days are big that's the math behind it right but in terms of just like watching the futures on the screen like it's different that's the only thing i can say about it but you feel it You feel it.

5:54You have that sense when you look at it. Yeah. Hi, Raoul here. Listen, I think we've got until 2030 before the economic singularity arrives. Now, it might not be the exact date, but it's around then. So we have about six years to figure out how to unfuck our future. I've put together a report to help you called Prepare for 2030. It's going to help you take the first steps in that journey to make sure you're secure past 2030. So just click on the link below and start your journey now. It's interesting, Jared, because you obviously look very closely at price data, but you're also thinking about the macro picture.

6:34I get a tweet out about a week ago talking about the deficit. Talk a little bit about your view of the deficit and how it's going to potentially impact the price action in risk asset markets in your view. Yeah, well, this is a big part of it. So we are not only are we not doing anything about the deficit, we're actually making it worse. So Doge cut$160 billion and it seems like they're about done or they've shifted their focus on to something else like regulation or something like that. and$160 billion versus Trump wants to basically do$600 billion in tax cuts, which is going to take the form of eliminating taxes for people making under$200 ,000 a year.

7:19That's going to cost about$600 billion. The deficit actually is going to get bigger and also cutting taxes on tips and Social Security and stuff like that. Like the deficit is going to get bigger. interest expense this year is running ahead of where it was last year in the year before in spite of all this small government talk that trump has been doing right so trump you know i think a lot of people have been fooled i've been fooled right like i you know this like leading up to the election i said well maybe trump has small government instincts this time maybe he's really going to do something about the deficit it's totally not the case uh we're looking i mean Last year, the deficit was about$2 trillion.

8:01We're looking at$2.5 to$3 trillion deficits. It's going to get worse. People are kind of scratching their heads, wondering why gold has gone absolutely parabolic. Like, that is the reason, right? So it's kind of hard to get super bullish on, especially the long end of the yield curve, under the supply conditions. You know, that's another thing that kind of acts like crap. But, you know, third-year bonds just can't catch a bid, can't sustain a bid. I think that has a lot to do with it. You mentioned two of the most important aspects of this market, which is what's happening in U.S. Treasuries and what's happening in gold.

8:40I know you touched on it there. Deeper thoughts on that, particularly on what we've seen in terms of just the extraordinary bull market in gold. well i would say that from a sentiment standpoint and sentiment matters a lot for gold i would say more than for you know other stuff um from a sentiment sentiment didn't start to get hot until the last week or two um you know everybody saw the baron's cover on gold and everyone's like oh my god the baron's cover and everybody was tweeting about gold and there were all these jokes about gold and you know suddenly it captured everybody's attention and we put in like a short term top.

9:19My sense is, you know, having traded markets for 26 years, sometimes you have a trend that is so unstoppable that it doesn't matter. It's like the, the technicals don't matter. The sentiment doesn't matter, you know, in gold, not only, not only do you have the whole deficit picture and stuff like that, it's literally everybody is buying gold. China is buying gold, All EM central banks are buying gold. They're not going to stop buying gold because of a Barron's cover, you know. So the flows just overwhelm it. And, you know, this is kind of the way stocks behaved in like 2017 and et cetera, like going into 2020, like all these, all the resistance points, all the points where the market is supposed to run into resistance.

10:11It just absolutely fails. And you have an unstoppable trend that continues for years. So, look, that's not to say that, you know, I did, you know, I was talking with Tony Greer on our podcast, The Macro Dirt, and Tony is kind of an old school technical guy. And he said, you know, we got the Barron's cover where we put in this blow off top and then it's going to come down to the moving averages around, you know, 2 ,800 or 3 ,000 or something like that. I don't necessarily think that's the case. You know, I think the trend is too strong. And in terms of gold was like 31 % above the 200-day moving average, which is like massively overbought.

10:49You can work off an overbought condition by going sideways. You don't have to go down, right? And that's kind of what I'm thinking is going on with gold. And the idea, by the way, for people working off the overbought condition is that essentially those moving averages move up to the price, right? Just by going sideways. Yep, yep. Yeah. All right, Jared, talk a little bit about what's happening in treasuries. Honestly, not a lot is happening in treasuries. We do have a Fed meeting tomorrow. I don't know when this is getting, I guess we're live. I think we're live. Yeah. We have a Fed meeting tomorrow.

11:29Look, I have low conviction in this. I have very low confidence. But I think the meeting is going to be a little bit on the hawkish side. uh i think powell is not going to cave to trump uh i think it's going to flatten the yield curve a little bit um you know you're going to see two-year yields go up in bond yields i think i think they're going to flatten the yield curve a little bit um and i think it's probably going to be i think the fed meeting is probably going to be negative for gold but beyond that um i don't know like it's i i honestly think the bond market is pretty fairly valued i don't think there's a lot to do here you know when you have bond yields at like four seven four eight like that's actually you know from a value standpoint that's pretty good um you're not going to find close to five percent yields too many other places in the world um so i i just don't think there's a lot to do here at bonds at the moment uh yes we are live i'm watching us live on mute on the real vision site and by the way we should say since we are alive uh send us your questions i'm sure you've got questions uh let's hit us up with him and we'll get jared to answer them oh we got one already actually uh let's just throw it in here as we move on and this one's from paul e who's always watching thanks paul uh what is jared bullish and bearish on for the next three to six months a little longer term perspective well i don't know about three to six months but um one thing i'm super super bullish on is latin america and specifically colombia chile and brazil um argentina has gotten a little bit expensive um some of the other countries are kind of a mess but let's go through this country by country the president of colombia is a drug addict okay he is an absolute he's an alcoholic and a drug addict he's a disaster he gets high and goes on twitter and picks fights with world leaders like he is completely incompetent and a leftist and he is going to be out very very soon right and whoever they get is going to be better uh chile is having an election soon they're moving right in brazil there's an election next fall um lulu's going to be gone right now i mean look things can change look at what happened in canada but right now as of this moment it seems like a foregone conclusion that the right-wing party is going to win in brazil you are talking with these three countries with colombia and brazil especially you're talking about some of the cheapest stocks in the world like brazil is trading at six times and has an 8 % dividend yield.

14:13EWZ has an 8 % dividend yield. Like Columbia, the same thing. And a lot of US investors have kind of forgotten how cheap the rest of the world is relative to US stocks. US stocks are trading like 20 or 21 times. Europe is like eight to 10 times. The rest of the world is like six times, right? And you're getting humongous dividend yields. And you saw what happened in Argentina. The stock market is basically doubled. Like and I think the Malay effect applies here. I think what Javier Malay is doing is is spreading to other parts of South America. I am so bullish on it. I can't see straight. Right.

14:53So I am making this a very large position in my portfolio. Good macro trade. We should say in the interest of fairness, President of Columbia has denied those accusations made by his former foreign minister. Let me ask you this. When you look at LATAM, obviously, huge, huge potential for growth. I think a lot of people recognize, but folks have gotten burned more than once in those geographies, largely on currency devaluation. I'm curious when you mention those multiples, is that baking in maybe some potential risk in the currency? How do you think about that? um you know i haven't looked at cop uh which is the colombian peso or the chilean peso in a while i do look at the real um in the chart of the real looks like it's stabilizing um i'm actually sort of a bit bullish on it um so i'm not i'm not super worried about the fx it reminds me of the old joke you mentioned that 2001 2002 going around back then which was the solution to the problem was to rename it real.com.

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17:06You folks with a few gray hairs will remember those days. Jared, let me ask you this. What else is on your radar? What else are you looking at?

17:17You know, I'm looking at fertilizer. The fertilizer names are pretty beat up, and they've formed a base, and they're starting to turn higher. So that's, that's one of my trade ideas. Um, and, but, you know, getting back to bigger picture stuff, um, I'm long-term structurally bearish on the dollar. And I think you and I talked a couple of months ago and I told you how bearish on the dollar I was and the dollar completely got destroyed. Um, I think it's due for a bounce. uh i'm actually long the dollar at the moment uh i'm betting on a three to five percent bounce is this dxy chair yeah dxy uh and i'm and it's it's a little bit painful um but i think there is going to be i think i think the short dollar idea became very consensus very fast this whole idea of capital flight of money leaving the u.s leaving u.s stocks and u.s bonds and u.s currency That idea got very consensus.

18:21And of course, The Economist had a cover talking about a dollar crisis. We are nowhere near a dollar crisis. Like people got very bearish on it very fast. So I do think we're going to get a bounce. And that's what I'm playing in the short term. Here's a great follow up question from Paul E. Who wants to know, express that LATAM trend through ECH, GXG, and EWZ. These are the MSCI versus the BlackRock vehicles, ETFs for tracking those currencies. Any preferences there? No, those are the exact tickers. Yeah. Do you have a perspective? You talk about this view that you have that there's just this feeling in the price.

19:02I just want to talk a little bit more generally because you mentioned that strong sensation that you have from watching those screens and doing it for decades. that there is this sense that maybe six months out something's going to happen. Do you have a view of the timing of what the time horizon on that might look like or what the sequence of events might look like that could happen as we lead into that dislocation? I really don't. I mean, look, like Trump is Trump 2.0 is different from Trump 1.0, right? Trump 1.0 was cheerleading the stock market higher. Trump 2.0 is completely indifferent as to whether we get a recession and actually seems to believe that stocks should be lower.

19:54And this is like, I can't get paid$30 ,000 for a speaking gig for this. But if I went around and told people, look, dummy, like Trump wants the market to go down, you should probably be sure. It's just common sense. Like that's like, that's the thesis, you know, like the guy in charge does not care if stocks go down 10 or 20 % does not care. So, um, and all the only reason, yeah, I mean, I believe the only reason he walked back to tariffs a couple of weeks ago was because things were getting so disorderly in the markets that Besson tapped him on the shoulder and said, look, we got to do something here.

20:38because if we crash down 30%, then stuff starts to break and you have bank failures and stuff like that. So Trump doesn't care. Also, like this is kind of more philosophical stuff. Like we're starting to find out at least this iteration of Trump. He's not really a capitalist like these tax cuts he's proposing. I mean, they'll pass. They're going to they're going to get supported by Democrats, making the tax code even more progressive, eliminating taxes for 95 percent of people and then raising taxes on millionaires like this is right out of the Democratic playbook. Like this is, you know, I hate to use the word, but it's very socialist.

21:22Right. I have stopped believing in the last couple of weeks that Trump is a capitalist at all. and it wouldn't surprise me to see him do very Nixonian things like cap the prices of commodity wage and price control stuff like that like he's he isn't it was a disaster when Nixon did that I mean yeah absolute catastrophe I haven't I mean do you really think we go in the direction of wage and price controls I mean looking out like two or three years like sure I think I think that's possible. It's look, it's a mess. And I, you know, I think it's I just think it's bearish for U.S. stocks, U.S. assets.

22:07All right. Let me let me play devil's advocate on one of the points that you've made, just because I think it's interesting to do that to stimulate the conversation, the view that Trump doesn't care about the directionality of the stock market. There are those who would make this argument, Jared. They would say, no, that's actually not it. This is the game theory that Trump is playing with this negotiation over trade and tariffs. The reason that he's expressed this view and probably not in so many words, but the implication is that that you have a stronger negotiating position with foreign trade partners when they believe that you have the ability to absorb a sell off in the equity markets and not have it alter your position on trade, not have it alter your negotiating position.

22:54This is Trump being Trump and doing the art of the deal. That's an argument. Yeah. And look, like, you know, I don't really trust Trump, but I kind of trust Scott Besson. And if there's a purpose to all this, like here's a possible, here's a theory, right? 145 % tariffs on China. The purpose of that is to drive China deep into a depression, destabilize the country so that they attack Taiwan. We attack China. We neutralize this adversary. We get world peace. Everybody wins. Right. Like maybe that is the plan. That's a lot. That's a lot of hops. Yeah. So like if that is a plan, like, okay, then sell it to me.

23:43Right. Like sell me this pen. Right. Why should I pay twice as much for a doormat at Walmart? How has this achieved the greater good? And Trump, he is a negotiator, but he's not a communicator. He's done a terrible job of selling the tariffs to the public. He's telling girls that they should make do with two dolls instead of 30 dolls. That's his answer to this, that we should undergo some austerity like to achieve these goals. So, you know, well, again, and I just want to play this through the game theory. I don't know that you have to go that far with the military conflict in the South China Sea.

24:29It could just be that this is about saying, you know, making a calculation that a surplus nation has more to lose than to gain from long-term ongoing trade conflict. And this is just about finding a way to move this to the deal. and that the, you know, the doll comments is he's just expressing resolve in the position. I'm just, that's the argument. I'm not making it, but that's the argument you hear. That's a good point. That's very well stated. And the only way, the only way that you have any leverage in negotiation is if the other side believes that you're willing to go through with the threat.

25:04Otherwise, it's an empty threat and people balk, which is kind of what happened in his first term.

25:13Interesting. Interesting. point i mean interesting point right and and maybe that's what what he's what what the what the um what the thesis is in terms of of of having the the perception of strength in the position but again it's all speculative we just we just don't know and that's what makes this so interesting let me ask you this are you following the port data story are you seeing this this these uh the declines that we're seeing uh in imports here in the united states uh not super closely i have heard of it yeah i'm not following it that closely either which is why i asked but this this there's a there's the story is floating around essentially that the that the volume of uh of imports through shipped goods here in the united states has declined and the perception is that that we're going to see uh further declines but you know i i think that it does bear pointing out that the the average um the average american the average uh the average uh mom and dad living out there lives who don't follow financial news the way that you and I do, probably haven't had the perception of much pain to this point.

26:18And I think that this is probably one of the most important things that I, at least as I see it, which is it just depends on how long this goes on. You know, if there's a deal to be had the first week of June, it's very different than if this continues to drag on to, you know, the fall and beyond, right? Yeah. Well, I mean, that is one Something that could get stocks to go up is a deal with China, for sure. Get that on the tape and stocks are up 4 % on a row, for sure. If you got a true comprehensive deal, just based on sentiment, just based on the apprehension that I hear every day when I talk to folks like yourself.

27:03And that's a significant headwind. I mean, I'm just speculating here. I'm just guessing, right? That's not a prediction. But if you did see a comprehensive trade deal with China, you would have to think based on the sentiment, based on the things that people tell you after three cocktails about their concerns, you'd have to think that you would see a significant updraft in U.S. equity prices. Yeah. Yeah. Yeah. All right, Jared, what else are you thinking about? What else people need to know that we haven't touched on? Honestly, I think we covered just about everything. thing i mean we could talk about tech um i mean look there's one thing i'm kind of keeping an eye on um and it's um small cap versus large cap in particular small cap value versus large cap growth and small cap value has underperformed large cap growth for 22 years 22 years and i don't think i I have a good handle as to why I think a lot of people don't have a good handle as to why every day I come into work and I think about what could reverse that on a performance.

28:15You know, I was around from 2001 to 2004 when small cap value, like, I don't know if you remember this, but the stock market was getting killed for like three years from 2000 to 2003 and small cap value was returning like 20 to 30 % a year. like some people made their careers off that trade right so i'm not saying by the way we should say for people who are too young to remember that unlike you and me who are there um you know that that followed there's just those those massive talk about blow off tops oh my god you remember those moves where you would see that you'd see the dow drop and the nasdaq rise a commensurate percentage because the capital flows were just literally leaving uh those companies and heading over to tech?

29:01Oh yeah. Yeah. Um, so I'm not saying that it's going to happen tomorrow or soon or anything, but I'm really, I'm really keeping an eye on it because, you know, if the analog to the markets is 2001, 2002, then maybe the analog should be that small cap value starts to outperform. I don't know. So keeping an eye on it. Yeah. I'm just, I'm, I'm flipping through right now. There's lots of interesting comments and questions. Let me see if I can find the one that I just saw, which was an interesting one. Oh, here's one. This comment from Mark Wells, quote, logical people use excuses like Trump is using game theory to explain what otherwise would be considered insanity.

29:45And listen, that's a that's a view, too. That's a view, too. Right. And we're going to have to see. We're going to have to see. I mean, I think, you know, I not that this is exactly like a profile and courage to say, But, you know, my view is it's just too soon to tell. It's just too soon to tell. I mean, there's no idea where we're going to be in, you know. By the way, midterm election for early voting begins in 11 months. Not a long time. Yeah. 11 months. All right. Let's see what else we got here in terms of questions. Here's one from Sarah W. It's a single word question. Bitcoin? Question mark.

30:23trading right now on my screen uh 94.5 or thereabout uh speaking of price action i like the price action and you know the knock you know the bitcoin guys and i'm talking to one of them i suppose uh the bitcoin guys for years said that bitcoin was a store value was digital gold right there was even a book called digital gold by nathaniel popper right um except it didn't act like gold. It acted like the NASDAQ, right? So what's interesting is that in the last month or two, it's actually started to act like gold, right? It's not really correlated with gold, but it's decoupled from the NASDAQ, right?

31:06And it actually is serving as a risk reduction tool. Like I don't have any exposure at the moment, but I will tell you that I like it a lot more now as a diversifier than I did a couple of months ago. So, yeah. Yeah, it's, by the way, 100 % right. The correlation went to one as a risk asset. It was literally a Fed liquidity trade. You saw NASDAQ 100, NASDAQ composite trading, essentially, you know, with the same movements, maybe a little bit more volatility, a higher beta. Excuse me, Bitcoin trading a little bit more volatility, higher beta than NASDAQ. But, and this is an important point, as that correlation has broken down, you really do get what the Bitcoiners have been so passionate about for so many years, which is the idea of an asset that really does perform like an off-the-grid asset, non-correlated asset.