“I’m Insanely Bullish on Bonds” | Jared Dillian on Copper, Bonds, Semis, and The Awesome Portfolio

0:00Join today once again by Jared Dillion of the Daily Dirt Dept and the new book, The Awesome Portfolio. Jared, good to see you. Good to be here, man. Thanks for having me. Yeah, you too. Jared, looking at the front page Bloomberg, global bond sell-off sends yields to highest level since 2008. What do you make of the bear market in bonds that we've had the fact that these long-term government bond yields can't really seem to catch a bid? Your thoughts. How much time do we have? How much time has you got? This is a very long story. So I am of the belief that there is a mind-virus going through people in the market. People believe that deficits are out of control. People believe that inflation is out of control. We are really back to where we were in the late 70s when people were calling bonds certificates of confiscation. The reality is that inflation is not that high. It's come down quite a bit in the

1:07last couple of months. It continues to come down. Yes, it's been above the target for five years. Yes, wars did say it's a firm target. I don't understand the obsession currently when the rest of the economic data is actually terrible. We've had two week payroll reports. The estimate for the next one is 55,000 jobs. We have a 66% chance of a rate hike. It's madness. All the other data has been, like I said, inflation is coming down. Before I walked in here, we got what we had Chicago PMI, the day of the Jackson Hole, which was 10 points lower than expected. Joltz was terrible today. ISM was slightly below expectations. But the point is that not only is inflation not a concern, it looks like we are entering a slowdown and growth.

2:09Getting back to the deficit's point, everybody is worried about supply of bonds. In absolute terms, the deficit is $2 trillion, which is a scary number. It's only 6% of GDP. Back in 2010, it was 12% of GDP. People showed up at the auctions. The auctions had bid to covers of three or higher. It's very easy to measure the supply of bonds. But nobody ever talks about the demand for bonds. If we had a big risk off event, triggered by some unknown catalysts, but if stocks were down 20%, trust me, interest rates would be much lower. People would show up in buy bonds. I am not worried about the bond market at all. I'm insanely bullish. I think 5.5.5.3 on 30 years is an incredible

3:10deal. I think 4.7 on 10s is an incredible deal. I personally have moved a huge portion of my money into bonds in the last month. This is a very long-term trade for me. I'll hold this for three to five years. But I am a big believer in this. So your bullish on bonds, you think that the narrative of that bond yields are going to go to the moon is he's gotten totally out of hand. Oh my god. Yeah. I mean, so somebody just sent me, I guess, Ray Dahlia wrote a piece in Time Magazine about bonds. Like you said, it's on the Bloomberg front page every single day. Like every single day. People are obsessed with it. And I'm a sentiment guy. So when I see stuff like that, I'm just naturally going the other way. Yes. And the point you make about supply is interesting because there's a video I've seen of Paul Volk or Reston P's legendary Fed share,

4:12probably 1978, 1979, somewhere around there. You may be early, early 80s, but the long-term yields were like 12%. And he was asked, why are yields so high? And he said, well, the government is having to compete out in the market. And there's just not enough, you know, there's just so much bonds that are being issued. The private sector, the government. And obviously, what we have now is 10 to 50 times higher in terms of issuance. So I think that demand is going to catch up. It definitely is. It is interesting. You said 2010. I think that you're totally right that everyone wanted bonds in 2010. I think the unemployment rate then was a lot higher. We came out of a financial crisis when everyone lost money from taking too much credit risk and bonds rallied. Then there was all this regulation past to make credit risk unattractive to take. And it incentivized taking duration risk, interest rate risk, bond risk. Now, you know, we come out, everyone in fixing come lost so much money from buying, buying duration. So I think it is a slightly different scenario. But I'm inclined

5:15to agree with you. Yeah. One point I do want to bring up is that a lot of this AI issuance is weighing on the bond market. So, you know, when Google comes to market with a $40 billion bond issue, that puts a lot of pressure on the market. So you were talking about Volker, basically talking about the crowding out effect. Yes. You know, the government borrows first and the private sector borrows second. But, you know, if they're, if you're getting a trillion bond issue inside of the private sector, that obviously puts a lot of pressure on yields too. Yeah. And also just a sentiment thing. There's a very popular AI podcast and they were, they were talking about how basically AI is going to rule the world. There's going to be so much, you know, demand for capital that yields are going to go to double digits or maybe even triple digits. So I think as a sentiment indicator, that's pretty, yeah, I need people are very smart about AI, but you know, obviously less well-versed in finance. So I think that that's, that's a pretty strong sentiment indicator. Yeah. Yeah. I mean, look like it's, it's been pretty lonely. I mean, I'm sure you saw the torsion slot comments from

6:20over the weekend and, you know, just break it down real basic, you know, he was talking about AI. And he said, look, there's two possibilities here. AI succeeds and it's massively deflationary in yields come down or AI fails and the market crashes and yields come down. He's like, there's really, he's like, I don't see a scenario where yields don't come down here. I have a lot of respect for torsions locked like he's one of the more thoughtful economists out there. He absolutely is and he that, you know, for a long time, he stuck his neck out saying that race would be higher than normal, which he obviously was, was correct about. Yeah. I love torsion. I will say that I think that argument's probably true on a 10-year time horizon, but Jerry, like so many people in tech, they always say that tech is so deflationary. It's like, I don't know, have you paid your Netflix bill? It's not that deflationary. And also, I think that the demand for CapEx is, demand for capital from CapEx is going to be so much more of an inflationary force than the

7:22deflationary force of increasing productivity. I also think productivity is kind of fake. You think that's fake? I think that productivity is a real concept, but I think that it's just such a hard thing to measure. One thing I'll say is that productivity skyrocketed in March and April 2020, because so many people got laid off. So it's just if capital and labor are in the denominator, and that goes down, it causes productivity to be artificially things. So I'm a fader of productivity in the practical world, I would say. Okay. Cool. What do you think about Stocks, Jared? You know, it's funny. I have an assistant. He's also my execution trader, and I had him pull up the top 50 stocks charts in the S&P this morning. And it's a really interesting exercise. I used to do this when I was at Lehman, I haven't done it in years, but when I was at Lehman, I would literally get a glass of scotch and sit down

8:25and go through all 500 charts in the S&P. And if you do that, it starts to paint a pretty clear picture as to like what is topping, what is bottoming, right? So it looks to me like semi's healthcare and financials are topping right now. You know, on the MacroDirt podcast that I do with Tony Greer, I talked about financials topping a couple of weeks ago. I talked about how JP Morgan was a pretty good short Goldman Sachs Morgan Stanley Wells Fargo all look like they're topping, healthcare, Johnson and Johnson, and also Nvidia, AMD, a couple of the other semi names. Like I'm seeing some charts that are bottoming interestingly enough, Intel looks like it's bottoming, Oracle looks like it's bottoming, but I'm seeing a lot more charts that are rolling over than

9:28charts that are basing. Okay, so healthcare had been a laggard but has been recently catching a bit. Semi's have been on fire for three years. Tell me your view on semiconductors, powering the AI trade and in particular sentiments on semiconductors. Do you think everyone is still balls long semiconductors and so convinced that Nvidia could never go down 30%. Yeah, I mean, I think you have to distinguish between people like you and me like smart people and people who work at hedge funds versus your average retail people. Like I teach college students, right? And I have a student who he showed me his portfolio. It's 50% Nvidia and 50% Broadcom and that was his entire portfolio. And my suspicion is that's the case with a lot of retail investors in the US. Like they're, you know, they were the darling stocks for a long time. Everybody piled into them.

10:33Yeah, I hesitate to use the word dumb money because they've been right, you know, for sure. But they're probably not going to sell at the highs. Okay. So, you know, I don't look, I don't really think of things in terms of fundamentals like, you know, the last Nvidia earnings, the leather jacket guy said they were growing at 70% and the stock ripped. I mean, for sure, like Nvidia is growing at 70%. What I've been waiting for for the last six months is for that second derivative of growth to change. And you see the growth rate start to come down to 60 or 50% and that's when the stock, that's when the stocks are going to top. So yeah, Nvidia, I think earnings are accelerating. I think they, you know, earnings revenues were growing like 200% a few years ago and they slowed down to like 50 or 60. So I think he's guiding for, yeah, yeah, revenues were growing like 55% so they did slow down. And now, um,

11:37yeah, he got it, the CFO guided for 70% growth over the next 12 months. Jared, I actually have some data from a company called Vanda Research, you know, I'm lucky enough to be on their distribution, which is like top of the line positioning data on retail. And they actually say that retail positioning in semiconductors is among the lowest it's been over the past two years and that actually the selling in overall single stocks for retail community in late gen, sorry, late July. So basically the, you know, the hedge fund on wind was the biggest since 2020. So I think Jared, who is extremely long semiconductors is hedge funds in semiconductor and institutions. I think institutions are like very, very long semiconductors, but interestingly, I just want to offer that as like a potential data point about how retail was maybe a little calm down a little bit. I like it. I like it. I can go with that. I mean, if he think,

12:40if he think about, you know, look, I would never want to work at a pod shop because, you know, I sustained draw downs larger than 5%. Like it's very different. It's, it's very difficult to manage money in that environment, right? But, you know, my guess is all the multi strategy hedge funds, like all those pods were long semis and related stuff for a long time. I mean, it like you have to be, right? Like I mean, that's just that's just a way that business works. So, you know, then you had to shake out a couple of months ago. I guess it was last month. But yeah, I think that the bottom was like July 27th. Yeah. Yeah. Do you think that that was the bottom in semiconductors? We had a strong bounce coming out of that faltered a little bit. Well, I think any time you have a leverage player that goes to you, that is that usually marks a bottom, right? Yeah. And so Citadel

13:48got the cleanup print on that. And now they're pretty much out of that trade at this point. But yeah, just for audience. So yeah. So, um, situation, situational awareness, a hedge fund was a very long semiconductors. And they liquidated most or all of their publicly traded securities, sold them in block trades to Citadel. That was announced July 27th or 28th. And then in the middle of August, like later later August, Citadel announced that they had sold the bulk of those positions. So yeah, I agree with you. Hedge funds, the leveraging are actually bullish because they, the owners go from week your hands to less weekends. Well, the thing is is that, um, if you go back to the financial crisis, there were a number of blow ups. Um, but you know, when Bear Stearns blew up, it was March 17th of 2008. And there were a lot of people who said, that's it. That was the bottom. And the S&P rallied 17% over the next three months. Wow. You know, um, so, you know,

14:52everybody thought the coast was clear. And then of course, the main event happened, which was Lehman. So, you know, I kind of struggle. I mean, look, situational awareness was a gigantic fund. It was humongous. But I struggle like it's the same thing. Like the most leverage player gets taken out first, but there's still so much leverage in the system, you know, um, so like my guess is, there's another situational awareness coming in the months down the line. You know, there's too much leverage in the system. Very interesting, Jerry. Could you share more of your thoughts on sentiment with regards to semiconductors or AI broadly? Well, you know, we had four magazine covers on AI in the last week. One from Barons, which said something like it will never end or something like, but I, so I read it in your, in your newsletter, the Daily Jurtnet. I think it

15:54was something like the AI bubble will never end. So they're doing that classic journalist thing that I've done sometimes of like playing both sides, being like the AI bubble, you're calling it a bubble, but you're still bullish. You know, it's like, make a call, you know, um, so, uh, so yeah, but yeah, no, the four magazine titles are, it's a little brutal on the center side. Yeah, yeah, for sure. So look, I mean, there's nothing in the S&P chart that leads me to believe we're going to crash tomorrow next week, next month. Uh, the chart is pretty neutral. Um, like, I, you know, I'm not seeing any like, like huge red flags in the technicals. Um, the market's actually pretty quiet. All things considering. I mean, we, you know, it's not Labor Day yet. Like, I'm sure things will perk up after Labor Day. But um, yeah, that's basically where I stand. So yeah, also the S&P is hold held in so much better than I would have thought with the massive sell-off in in semiconductors. Like I, I would have thought, oh my god, if semiconductors go down 30% like the S&P will be down 18% and it's, that was not true at all. And so I guess, yeah, what do you,

16:57what do you make of what has been rallying to fill the gap? Well, I mean, you're looking at banks, you're looking at healthcare, you're also looking at energy, um, and industrials, although industrials have been coming down in the last couple of weeks. Um, but yeah, like, like I said, you know, when I went through that chart package, like this is, this is all the stuff that looks like it's topping to me, you know, um, especially the broker dealers like Goldman Sachs and Morgan Stanley have very scary charts. Tell me about copper out of all the metals. I am least bullish on copper. Um, like I'd much rather own gold silver platinum pladium than copper. Uh, I think sentiment on copper is pretty hot because the I AI trade. Um, so the chart, I mean, the charts in the upper right hand corner, um, that doesn't necessarily mean you sell it, but um, it doesn't really look like it's topping, but the last couple days have been kind of ugly, so I'm not sure.

18:02What about gold? So I think people are, um, freaking out about gold after Jackson Hall. So basically we rallied 15% in a month with gold, which is a huge move and it was well needed. Um, after after Worsh's speech, gold broke back down through the 200 day at 4500. So now like all the amateur technicians are like, oh, it's back through the 200 day. So it's gonna, you know, it's, it's gonna go back down to 4000. It might, uh, we might retest 4000. I kind of doubt it. Um, I think once you cross through the 200 day a number of times, it kind of loses its significance, you know, um, so I'm cautiously bullish here. Um, you know, there really isn't support until 3900 or 4000, but that doesn't mean it's gonna get there, you know, um, and ultimately, if you look long term, um, I mean, basically we have payrolls this Friday, right? And the, the jobs data keeps getting

19:09worse and worse and worse. It's 55,000 expected. If we get a super ugly jobs print like negative 50,000, negative 100,000, something like that, this whole trade is gonna reverse and Worsh is gonna be the best gold salesman of all time. Because he's gonna be dutish. Yeah. Yeah. Yeah. So Jared, obviously, as, as you know, the non-farm payrolls is quite correlated with immigration. So if you have huge levels of immigration, immigration legal and otherwise, like that causes non-farm payrolls to be good. So like under a Biden administration, when we had like 300,000 non-farm payrolls a month, in some months, that wasn't necessarily like amazing, because, um, amazingly a sign of a strong economy. And likewise during Trump, when migration is neutral or even negative, the maybe the break even rate is like 40,000 or 50,000. So like really the unemployment rate has been going down. So yes, payrolls have done exactly what you said. They look abysmal, but the unemployment rate

20:10is has actually gone down. Well, that's because of the participation rate, right? Yeah. Yeah. Yes. And I think that's because in part, like, you know, native-born Americans have a slightly lower participation rate than immigrants, I would imagine. So yeah, I mean, the unemployment, Jared, the unemployment rate is like, you know, has 4.1%, and not only on an absolute level, is it good, but it has momentum. Like it was at 4.5%. So unemployment has been going down. So I'm curious, you know, just how weak is the labor market? Yeah. The unemployment rate is a little bit of a head scratcher. Like if you remember when it got up to 4.5, everybody was saying that it triggered the sombrel, right? Like and Claudia Som came out and said actually technically it triggered the sombrel, but it probably did not. And sure enough, the unemployment rate has come down to 4.1. So tell us about baldness drugs. I don't know anything about it. Literally, I just saw a tweet and I put it in the newsletter. I will say I do have a history of finding the fine-nordisk. So years ago,

21:21this was like in 2015 or 2016, I think it was 2016, I did a lot of research on immunotherapy, which is basically a cancer cure. You know, it's a drug that attacks cancer cells, which your immune system does not. And bought something called kite farmer pseudocles, which was an immunotherapy biotech. And basically it was a three-bagger. It got taken out, I think, by Bristol Myers. And then a few years ago, I was early on the GLP1's trade. I made a bunch of money for subscribers. So shout out. Yeah. So, you know, this like, I kind of have a philosophy about this, like invest, then investigate, right? The first time you hear about something, you should buy the stock. And then you do your research, because inevitably what happens is people say, oh, it's a baldness drug. All right, I'm going to research that. I'll get to that later. And then

22:24they never do. And then the stock's up 200% and they miss the whole trade. So I gave it to my subscribers. I'm like, look, you know, I'm just putting it out there, research this. And, you know, maybe it turns into something. Yeah, that is good. You know, I actually have been looking into some of these stocks myself. So I think probably there's one abski corp that is, it says it's AI powered drug discovery. So I get a little skeptical there. I think the other one is the ticker is M-A-N-E, like you have a long flowing mane, such as UU Jared. And really what it is is just extremely high powered, rogaine, minoxidil, which, which I'll be honest, like I'm on minoxidil. And normally the reason that they don't crank up the dosage a ton on minoxidil is because it can cause like hard palpitations and hard issues. So they're saying we're able to crank up the dosage and give people a ridiculous amount of binoxidil in a way that isn't going to give them, you know, heart issues, not heart issues, but you know, heart palpitations. And it's like, it's not like it's some

23:27drug that we know if it works or do we know, we know it works. It's extremely powerful at, like, growing hair. It's just being able to do that extra, extra power. There's another company begins with a C in, in a European company that also has an angle there. But I, yeah, I've been looking at myself. So when I saw you were writing about it, just wanted to say that, Jared, do you, do you think that AI is a, is a bubble? I do. I do. I'm not, I'm not bashful to say that. I do. It's um, uh, let me, let me just back up for a second. Um, you know, we were talking about the dead issuance from Google and the hyperscalers and stuff like that. Like, uh, you know, in my lifetime, this is the first time I've seen, um, tech being finance with debt. Like usually you finance tech with equity, right? Because the asset has a very short lifespan. It's going to be obsolete in a couple of years. You don't want to take out 10 or 30 years worth of debt to finance an asset that's

24:31going to be around for two or three years. Um, so, uh, you know, the, the dot com bubble was all equity. Like nobody was issuing debt. And this time we have a lot of debt. Um, and the debt, the leverage is what's get people in the trouble. Also, this is dead at high interest rates, you know, so I don't know what the spread of Google paper is over treasuries. It's probably like 60 or 80 basis points or something like that. You know, but they're essentially paying a 6% coupon on this debt. It's, it's, it's a lot, you know, it's certainly higher than the 2% or 2.5% that they pay in in 2021. Jared, I do think though you hear this argument that with bond yields rising, or the hyper scale is going to stop issuing debt. It's like no way. Like they don't care at all about how obviously this, the finance people working at these companies are aware of this issue. But like is, are the CEOs going to say, oh my god, the, the, the, the 30 year treasury, you'll just hit 6% stop cap X stop cap. It's not going to happen. It's not going to happen. Jared, tell us about your

25:36new book. Yeah. So I have it right here. It's the awesome portfolio. And I'll tell you a secret about this book in a second. But first of all, um, the way we save and invest for retirement is very, very dumb. And when I say we, I mean your average person, right? Basically ideas catch on when they are simple. Okay. And people have been taught a very simple thing over the last 20 or 30 years, very simple. You say, put all your money in the S&P 500 in the index fund, dollar cost average it, write out the volatility and never sell. That's very easy for people to understand. And that has worked for a really long time. Maybe it continues to work. I don't care. That's not the point, right? The point is that when you invest in an index, you get the returns of the index, which are very good, but you also get the volatility of the index. So me personally, maybe I'm just

26:38more conservative. I don't want to put my life savings into something that moves around one percent a day or back during the tariff tantrum last year is moving around nine percent a day. I don't want my life savings in that. I don't want to take a 20, 30, 40, 50 percent drawdown, right? Because drawdowns affect your psychology. So if you take a giant drawdown on your life savings, number one, you're going to be miserable and you're going to be miserable until you get back up to the high water mark. And number two, there's a decent chance that you're just going to tap out and sell and stop the pain. And that's the worst thing you can possibly do because then you stop compounding, right? But we've seen this a bunch of times before. This is the antidote to that. So instead of just being in stocks, you're diversified across asset classes, stocks, bonds, gold, cash, and real estate in equal proportions. The interesting thing is is that you're only giving up about one

27:42to two percentage points in performance, but your volatility is cut in half in the worst drawdown that has ever happened with this portfolio is down 12 percent. Whereas about 40 percent for the S&P 500 in a calendar year, right? So this is the answer. This is the answer. And it's the answer, not just, you know, look, if you buy the S&P 500, you will have more money when you retire than if you have the awesome portfolio. That's if you can hang on, if you can hang on. But this is if you want to be happy, if you don't want to be checking your account balance every day, seeing what the market is doing in panicking when the market is down three or four percent. People should buy the book will include a link to the publisher and on Amazon. Jared, two sentiment questions for you. One, you made a brilliant call saying that private credit is screwed and alternative investments

28:43generally, private equity and private credit, you were not a believer in that. I think we did that interview maybe two years ago. And I'm almost positive that pretty much every single alternative asset stock has is lowered now than it was then. We had a washout in private credit and some fundraising issues. And literally every single day it was these Bloomberg articles about private credit, doom, private credit, doom has your sentiment view changed given how much the negativity has been in the headlines at the beginning of the year? No, I mean, yes, like yes and no. I was very bearish when we talked a couple years ago. I'm still bearish. I think all of this is connected. AI, private credit, you know, something else. Like I think it's all connected. And I think if AI on wine, private credit will also or vice versa. So what I think of what I told you at the time,

29:47but I was telling everybody at the time is this was going to take a long time to play out. In the public markets, when something on wines, there is liquidity. You can sell, right? And the market will reprice very quickly in the private markets that doesn't happen. So what you've seen in private equity and private credit is stuff just being held, you know, like like portfolio companies not being sold for a really long time. And it's just going to take a long time to find that liquidity. So, you know, a bear market in the privates is just going to take a much longer time to play out. But we have not found the bottom yet. We haven't. In private credit and private equity. Yeah. Another sentiment question for you, Jared. I'm sure you've heard the following statement. There's a bubble in the stock market, but the bubble is not in valuation. The bubble is in earnings. When you hear that, isn't that not just an admission that the bears are wrong, that the earnings

30:48are so good that, oh, there's a bubble not in valuation, but there's a bubble in this other thing. I haven't heard that before, but that's a really interesting quote. Yeah. I mean, I put a I put a chart in my newsletter today, yesterday, about it was the S&P relative to wages and how would it completely decouple from wages over time. But really, if you put if you overlay a chart on that of corporate profits as a percentage of GDP, it looks pretty similar, right? So corporate profits have gone up a lot. And there are a lot of analogs to the dot com bubble 25 years ago, 26 years ago. But the one thing that's different is there are profits, you know, I mean, except for maybe in open AI and in traffic, but, you know, there are profits. So yes, but that revenue growth in and traffic and open AI has been tremendous. So I just a bear argument was like, where's the revenue

31:52in the in the labs open AI and traffic? And I just want to say, as someone who's calling kind of calling balls and strikes, the revenue growth has been quite quite good, like among the best ever for history of companies. You know more than me on that. Well, Jared, thanks so much for joining us. People can find you on X at daily dirt nap and we'll link to your book, The Awesome portfolio. Awesome. Thanks, Jack.