Jared Dillian: A Recession Where Stocks Go Up?

[00:00:00] Speaker 1: will the fed give the market what it wants hi everyone welcome to the market house i'm maggie lake and today i'm talking markets with jared dillian editor of the daily dirt nap hey jared it's great to see you again hey how you doing doing pretty good doing pretty good uh for monday uh a lot of action in the market hey everybody who's joining us live on sub stack and youtube uh as always drop your questions and we will get to as many as we can um another sort of a lot going on today another record day for us stock just relentless the s p and nasdaq both hitting new highs as everyone turns their attention to the fed meeting which i think is going to be the big event although we have some competition for that it looks like but um what are you expecting uh how do you think this is going to play out this week with the fed jared well uh i've been thinking about [00:00:49] Speaker 2: it a lot um i mean they're going to cut 25 for sure there is a small chance they cut 50. i don't think that's likely although you know since powell spoke at jackson hole we've had two big pieces of data we had a payroll report which was terrible and we also had the revisions which were terrible um so that's new information uh i still kind of don't think that gets powell into the cutting 50 camp i think the most likely scenario is they cut 25 and you'll get a descent out of christopher waller and or somebody else uh for 50 basis points um which i think will be enough to rally the bond market and probably the stock market and probably every asset on earth because that's what happens so that's [00:01:41] Speaker 1: exactly what i was wondering i mean does does the uh does the fact that we're on a rate cutting cycle now just sort of mean more fuel to the everything rally yeah i mean if you think about it um you [00:01:54] Speaker 2: know we're cutting rates with stocks at all-time highs bitcoin at all-time highs gold at all-time highs the unemployment rate at 4.3 percent and inflation at three percent i mean you know people have been talking on twitter about how they're going to run it hot i mean this is like i mean it the evidence is pretty clear like they're going to run it hot like every asset class is on its all-time highs we're cutting rates with unemployment in the four handle and you know it just doesn't make any sense yeah although you you [00:02:30] Speaker 1: sort of certainly from the white house perspective um they they think that the that they're too restrictive obviously um do you do you think there's any disappointment if they only do 25 or political fallout i mean this is kind of an interesting time now because we've never had this much sort of over persistent political pressure on the fed and talks of you know trying to get rid of people and reform the institution and all of that i don't think there's going to be any political fallout if [00:03:01] Speaker 2: they cut 25. i think uh a 25 basis point cut could be construed as a little bit hawkish um maybe you see stocks down in that scenario um maybe you you know maybe you see the front of the curve back off a little bit but um i don't i don't think there's i i mean i think trump will look at a 25 basis point cut and say okay they're moving in the right direction but you know he'll say powell is too slow and too late and stuff like that um but um yeah i think that's what's going to happen yeah too little i mean you [00:03:41] Speaker 1: can even get all all of the above i'm sure it's it's not going to be enough what bonds are more interesting though right because there's there's been this sort of outside risk that if they are too aggressive you could actually see yields go up not down um so stocks look if stocks look set to sort of continue their record running and you know be pretty satisfied as long as they get some kind of rate cut with an indication of more how does this play out for the bond market well you know yields have rallied [00:04:09] Speaker 2: across the curve for like the last two or three weeks you know tens are pretty close to four percent uh you know bonds are up around um five percent now they're like four six or something like that so you've seen a pretty big duration rally and also you're starting to see mortgage rates come down the last time i checked on mortgage rates they were below six and a half uh somebody emailed me today and said that you can get jumbos in california at six and an eighth um so i don't i'm i'm not necessarily a believer that you're going to get this vicious curve steepening i mean maybe if they cut 50 but i don't think you're going to get a vicious curve steepening on a 25 basis point rate cut [00:04:57] Speaker 1: yeah um which would be good a lot of people waiting for those uh waiting for the mortgage rates come down too that's been really tough um what about i just called it the everything rally before and that's not exactly fair because we haven't seen small caps really participate although william in the chat is talking about record high in call buying in iwm by small specs yeah he thinks that's a sign of the top of a top if we've if we're in this sort of easing cycle do you think it will benefit small caps [00:05:30] Speaker 2: yeah i mean i'm kind of a small cap bull anyway uh particularly small cap value in fact um just launched a new newsletter at jared dillian money which is based on small cap value you know i i oh yeah yeah so i i think um i think this asset class is going to turn i'm pretty bullish on small caps and i actually i own an etf um the ticker is isvl and it's international small cap value so this thing is just the bastard right like nobody wants it it's international it's small cap and it's value like and it's it's up i i i mean i i don't know the i don't know what it is in percentage terms you know i've held it for a while but it's up a lot in the last year you know so i i think it's [00:06:22] Speaker 1: turned that's so interesting is it um is it the international part of it is that because you see this kind of diversification away from the us is that what's attractive i know you've been keeping [00:06:34] Speaker 2: your eye kind of globally for yeah and for sure like the dollar is sold off about 12 percent from the highs so that's that's helped it a lot um and you know you did see four or five months ago you did see a big diversification into especially europe europe either for a period of time europe actually did well and outperformed the us by about 600 basis points but that's kind of come back so yeah um [00:07:03] Speaker 1: so a couple other interesting headlines that were also washington bits of news that were market movers today first of all china trump tweeting out uh that sort of indicating that the two countries are getting close to a trade deal um one that keeps tick tock open for business to the great relief of of throngs of sort of young people i suppose um do you think that has the potential to be a real market mover on the details or is this is this something that not so straightforward well i think it has the potential [00:07:38] Speaker 2: to affect currency markets i think if we got a trade deal with china i think the dollar would go up um and it it would it theoretically be bullish for stock everything is bullish for stocks um but the tick tock thing i saw some stuff on that today and um i was reading that you know tick tock would stay open but the algorithm would end up in u.s hands right so i'm not really sure what's going on there but that's [00:08:10] Speaker 1: fine i'm just so skeptical that that they'd give over the algorithm i mean like i i just find that's the whole that's the holy grail of that i just i it would be i mean this is one where i think the devil's in the details right i mean if they sell it but it's the shell of the company they're not handing over the the algorithm then what's the point i mean you know you're basically just buying the name right super interesting and a horse race again of who who who would buy that um so watch that story folks i'm not sure that the headline seemed very positive but i think on the tick tock part at least it might be a little bit more complicated than that um do you are you watching tariffs jared how we're you know for a while it's all we were worried about and it seems to just have evaporated this concern that somehow the tariffs are either going to be inflationary or they're going to hit consumer demand because ultimately it's the u.s consumers that are going to end up paying for them i know that's not the narrative out of the white house um but it certainly seems to be what small business owners i talk to are saying so how are you thinking about tariffs and does it matter or [00:09:15] Speaker 2: we just pass that now well you know the supreme court is going to rule on whether trump has the power to unilaterally impose tariffs and i think that if the court rules that he doesn't have that power that's bullish for the dollar it's might be bearish for stocks um but i i think we're gonna that decision was going to be fast-tracked i think we're going to get a decision on that sometime soon i don't necessarily think it's going to go in trump's favor um you know neil gorsuch you know in particular is more libertarian and he's likely to vote against that and i think amy coney barrett is too uh alito and thomas will vote for it and who knows about kavanaugh but i think he could get a six three or five four decision against trump uh on that tariff case i don't think it's a slam dunk that [00:10:08] Speaker 1: he's he's gonna win that case that throws a lot up in the air doesn't it i mean that from a from a sort of revenue point of view the idea that they and that's what that's his argument right now he's not really making legal ones he's just saying it's a hot mess and we'd end up having to pay billions [00:10:23] Speaker 2: back to all these other countries yeah it actually it because tariffs are really the heart of their whole economic policy agenda like the reason that we passed a big beautiful bill and we extended the tax cuts from 2017 is because we thought we would have the tariffs as a source of revenue to offset that and if that disappears then the deficit picture just suddenly just gets atrocious um probably negative for bonds you know i think if you see that but there were talks about like josh hawley was trying to pass a bill that would give tariff rebate checks to people you know so i i'm really cynical about that i think you know i think that money is spent no matter how much we bring in so yeah i mean it would appear [00:11:10] Speaker 1: it would appear so but super complicated with the courts um if they you know if they rule that way i it's that seems to be something that's not not really being factored in right now um george is saying wouldn't a decision against tariffs be bullish gold even if the dollar goes up as uncertainty goes up [00:11:31] Speaker 2: yeah i think so i think so i mean is there anything that's not bullish gold right now [00:11:36] Speaker 1: that's like another one of those it's another one of those stories that it's hard to find to find a compelling reason except just you know because it's come so far so fast that it's hard to find anyone who's willing to be bearish gold i mean you got to look at the chart of the [00:11:51] Speaker 2: gold miners the gold miners are up over a hundred percent this year it's the number one sector out there um and this is you know it's funny because i was uh chatting with one of my friends and he was going through some old 401k accounts and stuff like that and he said that he had a buy of gdx at 57 in 2011. so this thing has been underwater for 14 years yeah and now he's finally making money on [00:12:20] Speaker 1: it 14 years later so and i i'm in there he hung in there yeah i have some of those too i averaged down [00:12:27] Speaker 2: and i was i was buying a lot of gdx below 20. um so i my cost basis is like 30 on that so uh hi tommy [00:12:37] Speaker 1: thornton he's saying hi jared he's in the chat as well hey um john taylor makes a really interesting point um those arguing for fed cuts point out that the headline unemployment is deeply flawed and what matters is that it's rising the downward visions to the labor market were absurdly high and demand is slowing i just want to flag i first of all are you worried about the labor market jared um [00:13:04] Speaker 2: i don't i don't know i don't know if worry is the right word um i don't think we have a really good grasp on what hiring looks like these days you know because if you can't trust the bls numbers and look like there's a whole bunch of politics involved in this you know trump has his histrionics have made people doubt the bls numbers where in the past we never used to doubt the bls numbers but we've had these two massive revisions this year and last year um and so everybody's like making all these political statements about this like all the biden jobs are gone and stuff like that i think you just have to look at this point you have to look at private measures and the biggest one is adp and adp has been going down as well you know i think the last one was 54 000 something like that uh adp has been trending lower so you know there's i there's a whole bunch of theories on this like some people say it's because of ai like ai is actually starting to cause job losses some people are saying it's because the deportations right like that's hitting the labor market it could be a combination of these things [00:14:13] Speaker 1: who knows yeah you're you're absolutely right about that and it does seem like it's it's it's murky and and and for for a lot of reasons um just just a heads up programming note i talked to on this point i'm glad you brought it up john uh i had a great conversation with julietta clerk um that we are releasing for the first episode of macro sessions uh and she had some really interesting things to say about the labor market and i think she's very much in the camp that she's super concerned about underlying weakness that's not being accurately picked up and what that means the implications for that um so so check that out it was it was really eye-opening um and then of course later on we talk about what it means for markets but um but we spent a lot of time talking about the labor market and ai [00:15:06] Speaker 2: specifically so i just want to check that out i want to jump in on one more thing with this so you know during the pandemic we had all the stimulus and we created these labor shortages right so you remember back to like 2020 you would go into a restaurant nobody would be working there like people got the stimulus and they were staying home like there are these huge labor shortages and it caused huge amounts of distortions in the labor market which i think persisted for a number of years so this the weakness we're seeing in the labor market could really just be a return to what is more of a normal labor market post pandemic and the neutral rate of unemployment is probably more like five percent five and a half not four you know in the dot-com bubble the lowest the unemployment rate got was 3.9 and that was the hottest economy i have ever lived through in my entire life so we're pretty close i mean we're reasonably close to that right so i think i think another part of it is we're just working off these distortions from the [00:16:10] Speaker 1: pandemic five years in the future so yeah yeah that makes a lot of sense and i also think you know i mean we're roughly calling it ai but let's just say technology when we all see it around us i go to the supermarket i check out myself now um everywhere you go you're seeing this so you we we know it's coming right we sort of feel that but is that really being picked up and are they still have people on the books but they're just working less like there's a lot going on that i think is is worth sort of you know um thinking about when we try to figure out what's going on with the labor market and i'm sure it's hard for people who track that to know what's happening all right we got some questions in here um some people who are very skeptical about what's going on too as i'm reading them um so another piece of news i just and i i'll get to the questions in a minute another piece of news that came out and if all you all caught this because it's just in the last hour or so but um but all some some indication from the energy secretary uh suggesting at a conference that the u.s would boost or create a strategic uranium reserve um and it pushed uranium stocks up a lot um jared i know you had that fate you you used to be in uranium and you had that that sort of famous line that we laugh about and you you people reminded you of all the time that there are a lot of a-holes in the uranium trades it got too hot you got out are are you looking at uranium and if you're not would you chase it based on a statement like that or the prospect of some kind of strategic reserve i mean [00:17:39] Speaker 2: i'd have to look at the charts i mean i'm you know i'm as far as traders go like i'm pretty i'm totally unbiased and agnostic like i'll i'll buy or shore anything i don't really care um you know i just i just haven't looked at the charts in a while like if if if we get off the show and i go look at the charts and i say gee that's interesting yeah sure i might buy it um but usually you know in a situation like this where you have a piece of news like the strategic uranium reserve like i probably missed it [00:18:12] Speaker 1: but i'd have to look at the charts yeah um sam asking back to gold when jared's think when when are you thinking of trimming your miners you he knows that you've held them for years do you trim and then [00:18:28] Speaker 2: add on dips how would you approach that um i think it's i think it's too early to think about trimming i i mean i think about it all the time like if you're in a winning position like you're constantly thinking about when you take profits like when do i take profits when do i take profits and i think that the investment world is finally waking up to the fact that these gold miners are insanely profitable right now i mean their cost per ounce to extract from the ground is about 1500 an ounce and they're selling it in the spot market at 3600 with like 60 margins like that's it's kind of hard to screw that up now the gold miners have screwed that up in the past they screwed it up 2011 to 2013. uh i don't think they're going to do it again so i think it's i think it's early to be thinking about [00:19:21] Speaker 1: cutting the position or selling uh george asking what's your most likely road map to a market correction [00:19:29] Speaker 2: oh i don't know um it's probably not going to be the fed meeting i i really don't know i mean you know if tommy's watching the video you know he and i both watch uh the mark indicators and you know in this rally since april we've had a series of sell signals in the mark you know i mean we had one in may and one in june and one in july and one in august we've had all these 13s and the mark and uh the market just puts mustard on it and eats it you know so it's just like like it's and it's one of the you know in stocks are tough like technicals in the s p 500 are hard because it's it's an environment in which you know you have four to six billion dollars flowing into the market every day from 401ks and iras and stuff like that there's just billions flowing into the market every day it's not like soybeans right like soybeans you don't see flows like that so the the charts are [00:20:37] Speaker 1: a little bit more well behaved um and it's just hard yeah and that you know we've talked a lot about and we certainly know mike green talks a lot about those passive flows coming in and by the way retail got it right right in april so they're really they're you know they're they're sitting on some really nice gains and um and i'm sure feeling pretty good about that do you worry about so we've got some interesting things coming on and and i said some of the people are um a skeptical as well i know i know tommy was just on the show i know he thinks valuations are stretched um as well but as you say it's kind of hard certainly hard to short this market although tommy's got some short names very hard for regular folks who've been thinking that things look overextended because we just keep hitting records right i mean you just you you haven't been able to to execute on that we have some things going on i mentioned this tricolor um subprime lender that went under a lot of people watching that with some interest um we have all these digital asset treasury companies right that people are um announcing that they're on the board of or that they're involved with now that are going through the roof they're just sort of exist in order to buy up cryptocurrencies there there there seem to be some things that if you're prone to be nervous might give you pause does it feel like a bubble here uh it does it does i mean [00:22:03] Speaker 2: the the bitcoin treasury stuff or ethereum treasury stuff like that's that's a bubble for sure um i don't i really don't want to talk get into crypto today but um yeah there's there's uh i mean it's just it's escaping me right now but like there's there's a lot of signs of a bubble out there now the one thing i will say is that you know i'm old enough that i traded in the dot-com bubble and in the dot-com bubble you had a thousand or two thousand tech companies and 98 percent of them were unprofitable right and today you have 10 tech companies and they're the i mean by far the most profitable companies in the world so it's not like it's just garbage you're shorting garbage and now there is garbage out there right like there is stuff like with no earnings or little earnings that you could short but you know by and large like there's a lot of earnings out there and it's just different from 25 years ago [00:23:02] Speaker 1: yeah that's and that's the point that people bring up um what about sentiment uh because two different people this week said well i'm not worried talking about different markets by the way one was talking about crypto one was talking about stocks i'm not worried because the fear and greed indexes still seem like they're neutral and if enough people are asking whether it's a bubble it's not really a bubble but then you have the economist cover which caught a lot of people's attention that was talking about ai and the trillion dollar you know market that it is and they saw that as a top where do you [00:23:34] Speaker 2: feel like sentiment is well i think i saw something recently that um somebody was uh deploying 300 billion dollars for data centers 300 billion that's that's an like the one point i keep coming back to in the daily dirt nap is and this is the parallel with 25 years ago right like you had all this capex and like you had all this supply and demand did not rise to meet supply so if you think about a company called like nortel or lucen or something like that with like telecom equipment like or or optical networking like jds uniface like like they put all this money into capacity and their the demand just wasn't there and prices collapsed so you know when i see you know the trillions of dollars that are going into data centers and stuff like that like i just think people are overestimating demand by a lot you know so those [00:24:39] Speaker 1: are some cautionary tales when you uh when you mention those names if i'm not mistaken there was also a lot of accounting um creative accounting back then too that came to light after the fact worldcom worldcom yeah there was a there are a lot there is a lot going on and um and uh a couple other names as well people ended up behind bars there was a sort of period where where you know once things started to turn you found out what was happening so um you wrote in your um you wrote in your note today that it's a 17-year anniversary of lehman and we were just talking before we came [00:25:12] Speaker 2: on air that it's hard to believe that was 17 years ago yeah that 17 years is a really long time and it doesn't it doesn't seem like that long um you know i was i kind of had one foot out the door anyway um you know it was it was funny because at lehman like everybody was overjoyed that barclays was buying lehman and everybody would get to keep their jobs i was actually upset like i was i was kind of it was i was kind of hoping lehman would just go bankrupt and disappear uh because i had to make a choice i had to um turn down what would have been a lot of money to stay to start the daily dirt nap and that that decision became very hard but you know i quit and uh the rest is history so do you feel like the the [00:26:00] Speaker 1: the sort of trauma of that still lingers today for those who went through it because i feel like you know so many people are are just waiting for the next financial crisis like it seems like now it's inevitable but is that just sort of the the hangover from from that period yeah i i mean i i think the [00:26:22] Speaker 2: people who you know my contemporaries who lived through that um you know but if you think about it in terms of market downturns so from the high in 2007 to the low in march of 2009 stocks were down 57 which was the second biggest bear market in history next to the great depression right and we lived through that like that's insanity if you think about it you know we've had four bear markets of 50 or more one in 1974 one in 2000 2001 one in 2009 and one in 1929 to 1933 right and this was the second biggest one and you know there were there were times and this is like in you know november of 2008 uh after i had started the daily dirt nap where i was looking at my bloomberg screen and citigroup was trading at 99 cents a share and bank of america was like three dollars a share and i'm like literally you felt like the world was coming to an end like any money you had in a bank anywhere was not safe you know like and people [00:27:32] Speaker 1: people have no comprehension of what that was like yeah i i think that's true and i think i i'm and i asked because i wonder how that feeds into sentiment and some folks are going to have had gone through the dot-com bust and that i mean that's a double whammy right if you and so it's understandable that they're just cons it just seems like a matter of time before the shoe drops but i think we have to kind of challenge ourselves that may be the case but challenge ourselves as to whether it's just because of that experience and by the way like the wheels were coming off for sure i mean we're we're now i i know still trying to unravel some of the mess that was created trying to get us out of that and it's easy to be critical in hindsight but at the time the wheels were literally coming off and there were people who wouldn't say things out loud to me because it was so bad you know um and they they just couldn't give voice to it because it would have just created an enormous amount of panic um and i know hank paulson the treasury secretary has written about that just like leaving the white house and throwing up and coming back in so it was a it was a really crazy time um doug is asking a hard shift here doug is asking um what do you think about the oil and natural gas markets um and gosh nat gas has been coming up a lot tommy mentioned it dale mentioned it mish has mentioned it to us um as a kind of unloved market that they're kind of keeping their eye on um because it's it's just kind of also [00:28:52] Speaker 2: been overlooked for so long yeah it is it has been overlooked i i looked at the nat gas chart today it does seem to be bottoming um so i'm a little constructive on that oil i really have no idea um there seems to be a floor at sixty dollars a barrel so having said that um you know if we were to go into a recession like if you know things got serious then it would probably go below sixty dollars a barrel but i don't really have a strong opinion just the chart of nat gas looks pretty good [00:29:22] Speaker 1: yeah um so what do what do you what is your favorite trade right now is it that that etf that you talked about because it seems like if from from listening to you it seems like you're kind of in wait and see mode on a lot of stuff that we're kind of at a juncture and you're waiting for some [00:29:35] Speaker 2: clarity what what do you what do you what's your favorite right now uh i i love my portfolio right now which is very odd for me like usually there's a bunch of stuff in there i hate and i and like i don't hate anything right now like you know i have a bunch of positions international especially latin america that are doing really well brazil is coming up colombia is coming up chile is coming up um gold [00:30:02] Speaker 1: i like what about argentina because didn't they have a uh didn't they i have a i have a small position [00:30:08] Speaker 2: in argentina uh milay lost the local election in buenos aires the midterms are next month i'm not really worried about that you know malay was gonna lose buenos aires buenos aires anyway it was just a question of how much um i i i'm bullish going into the midterms so excellent latem so latem's top of [00:30:30] Speaker 1: the charts it sounds like for you yep fantastic stuff um jar it's always fun to catch up with you oh somebody asked sorry this is a question i was holding to the end someone asked if you're deejaying [00:30:41] Speaker 2: anytime soon in texas not in texas i've only dj'd in texas once i dj'd in dallas three or four years ago um which was a pretty fun gig i don't have any plans to go back there i have a dj gig locally in south carolina there's a town called conway that has a halloween festival and uh they're gonna they're gonna have me play for that so i'm actually pretty excited because i never i never get to play locally around here because like the merle beach area does is not like a house music area you know so jimmy buffett area or something um that sounds super fun all right well [00:31:19] Speaker 1: paul you're gonna have to live in hope for the future austin's a music city you got to get a gig in austin yep one of these days he'll he'll make it happen i think paul somehow although now he's kind of like doing these big vegas gigs so i'm not sure texas may have passed him by already um jared you got any recommendation for us as you as you leave something that you're digging right now yeah so speaking [00:31:42] Speaker 2: of djing i uh you know when you dj you have two cd players in a mixer and the cd players don't play cds anymore they just play like off a flash drive or something like that and i just ordered two new ones two new models that came out and i ordered them from sweetwater and one of them didn't work it wouldn't power on so i was really upset uh i called sweetwater they express shipped me out a new one i got it within two days i plugged it in today i'm up and running so my recommendation is sweetwater sweetwater is basically a music company they sell musical instruments and electronics and stuff like that like their service was terrific so i'm super happy so all right well congrats to sweetwater because [00:32:30] Speaker 1: in this day and age you can't even get anybody on the phone or to respond to you i don't know about you guys but i'm always slamming away at the bot so um it's nice to know that customer service still exists well done sweetwater love it great stuff thanks so much jared thanks to all of you for the great questions as usual we will be back on wednesday with darius dale with all the reaction to the fed decision um and tweets that are flying around about it so join us for then in the meantime Take care and good luck out there.