Is a U.S. Recession Still in the Cards? | Ash Bennington & Jared Dillian
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Welcome 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's always great to have you on the show. Old school. I love it. We're the old school crew, man, here at Real Vision. Yep. Yep.

I actually remember when Real Vision first started, Ro gave me this little camera with an SD drive to take videos to my office, and it was a complete disaster. I recorded a couple videos. It's really hard to do it by yourself, just talking into a camera, so it was terrible. But that was in 2015 or something like that. Yeah.

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 gonna name any names, but I think there were one or two people who've copied real vision. One or two, a little bit.

Yep. 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. Because 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 like

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?

And 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.

Um, so I just, I think the analog here is 2001, 2002, right? September 11th, the market was down like 13% in a week. Uh, then it bounced strongly back up almost to the highs. It consolidated for about six months. And 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?

Um, I don't know. It's, it's funny. Like I just had my conference and, um, one of my speakers was a guy named Tom Morgan, who you might know. Um, 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

And then somebody talked 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. Right.

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 to your question is it's really just intuition. You know, it's, there's something I can't describe it. There's something different about the price action. 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 a grind higher. You get less than 1% 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 you have that sense when you look at it yeah hi ral here

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It's interesting, Jared, because you obviously look very closely at price data, but you're also thinking about the macro picture. I 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, yeah.

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. That'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 Medicare.

The deficit is going to get bigger. Interest expense this year is running ahead of where it was last year and 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, 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. We're looking. I mean, last year, the deficit was about two trillion. We're looking at two and a half to three trillion dollar 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, that's another thing that kind of acts like crap. 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. I 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. From a sentiment, sentiment didn't start to get hot until the last week or two. You know, everybody saw the Barron's cover on gold and everyone's like, oh my God, the Barron'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 and

My 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,

you know? Um, 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, it 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, twenty eight hundred or three thousand 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, you know, gold was like 31% above the 200 day moving average, which is like massively overbought. You 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. 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. I think we're live. We have a Fed meeting tomorrow. Yeah.

I looked, 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. 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, uh,

But beyond that, I don't know. Like it's, 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. You're not going to find close to 5% yields too many other places in the world.

So I just don't think there's a lot to do here at bonds at the moment. 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, send us your questions. I'm sure you've got questions. Let's hit us up with him and we'll get Jared to answer them. Oh, we got one already. Actually. It's just throw it in here as we move on. And this one's from Paul. He was always watching. Thanks, Paul. 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 one thing I'm super, super bullish on is Latin America and specifically Colombia, Chile, and Brazil. Argentina has gotten a little bit expensive. 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 abs. 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. Chile is having an election soon. They're moving right in Brazil. There's an election next fall. Um,

Lulu is 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. EWZ has an 8% dividend yield like Columbia, the same thing.

And a lot of U.S. investors have kind of forgotten how cheap the rest of the world is relative to U.S. stocks. Like U.S. stocks are trading like 20 or 21 times. Europe is like 8 to 10 times. The rest of the world is like 6 times, right? And you're getting humongous dividend yields. And you saw what happened in Argentina. The stock market has basically doubled like crazy.

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. So I am making this a very large position in my portfolio. Good macro trade. We should say in the interest of fairness, President Columbia has denied those accusations made by his former foreign minister. Right.

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 a coming in 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 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 in 2001, 2002, going around back then, which was the solution to the problem was to rename it real.com.

You'd post a few gray hairs. We'll remember those days. Jared, let me ask you this. What else is, what else is on your radar? What else are you looking at? You know, I'm looking at fertilizer. The fertilizer names are pretty beat up and they formed a base and they're starting to turn higher. So that's, that's one of my trade ideas. And, but, you know, getting back to bigger picture stuff,

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. I think it's due for a bounce.

I'm actually long the dollar at the moment. I'm betting on a three to 5% bounce. Is this DXY, Jared? Yeah, DXY. And it's a little bit painful, but I think there is going to be, I think the short dollar idea became very consensus very fast. This whole idea of capital flight, money leaving the U.S., leaving U.S. stocks and U.S. bonds and U.S. currency, that's

That idea got very consensus. And 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, ETS, for tracking those currencies. Any preferences there?

No, those are, those are the exact, those are the exact tickers. Yeah. Do you have a perspective is you talk out this talking about this, this view that you have, that there's just this feeling in the price data. I just didn't want to talk a little bit more generally because you, you mentioned that, that, that strong sensation that you have from, from watching those screens and doing it for decades, that, that, that there is this sense that maybe six months out, something's going to happen. Do you have a,

A view of the timing of what the time horizon 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. Right.

Trump 2.0 is completely indifferent as to whether we get a recession and actually seems to believe that stocks should be lower. Right. And this is like, I can't get paid $30,000 for a speaking gig for this. Right. 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 that

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, and the only reason, 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 because 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, uh,

I mean, they'll pass. They're going to get supported by Democrats, making the tax code even more progressive, eliminating taxes for 95% 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, right? 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 uh wage and price control stuff like that like he's he isn't those it was a disaster when nixon did that i mean an 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. Um, it's look, it's a mess. And, um, I, I, you know, I think it's, I, I just think it's bearish for us stocks, us assets.

All 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 you have a stronger negotiating position with foreign trade partners when they believe that you have the ability to absorb a

a sell-off in the equity markets and not have it alter your position on trade, not have it alter your negotiating position. This is Trump being Trump and doing the art of the deal. That's an argument. Yeah. And look like that, you know, I don't, I don't really, I don't really trust Trump, but I kind of trust Scott Besson. And if there's, if there's a purpose to all this, like here's, here's a possible, here's a theory, right? Like,

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. Right. Like, sell me this pen. Right. Like, why should I pay twice as much for a doormat at Walmart? Like, you know, why, why, how is this?

how has this achieved the greater good? Right. And Trump, you know, 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. Like that's his answer to this, right. That we should undergo some like 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. It 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 Dow 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 here. 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. Otherwise, it's an empty threat and people balk, which is kind of what happened in his first term.

Interesting, interesting point. I mean, interesting point, right? And maybe that's what the thesis is in terms of having the perception of strength in the position. But again, it's all speculative. 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 the declines that we're seeing in imports here in the United States? Not super closely. I have heard of it.

Yeah, I'm not following it that closely either, which is why I asked, but there's stories floating around essentially that the volume of imports through shipped goods here to the United States has declined and the perception is that we're going to see further declines, but

I think that it does bear pointing out that the average American, the average mom and dad living out their 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. And I think that this is probably one of the most important things, at least as I see it, which is it just depends on how long this goes on.

You know, if there's a if there's a deal to be had the first week of June, it's very different than if if this continues to drag on to, you know, the fall and beyond. Right. Yeah. Well, I mean, that is one thing 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, and 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 that

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?

Uh, honestly, I think we covered just about, uh, everything. 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.

And I don't think 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. Um,

I was around from 2001 to 2004 when small cap value... I don't know if you remember this, but the stock market was getting killed for three years from 2000 to 2003. And small cap value was returning 20% to 30% a year. 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 were there, 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 in the Nasdaq rise a commensurate percentage because the capital flows were just literally leaving those companies and heading over to tech.

Oh, yeah. Yeah. So I'm not saying that it's going to happen tomorrow or soon or anything, but I'm really keeping an eye on it because 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 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. And 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 know that this is exactly like a profile encouraged 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. Trading right now on my screen. 94.5 or thereabout. 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 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.

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. And 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, it's by the way, it a hundred percent, 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, with the same movements, maybe a little bit more volatility, a higher beta. I'm sorry.

excuse me, Bitcoin trading a little bit more volatility, higher beta to 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. By the way, in all fairness, a short number of data points that demonstrate that that could change, but we did see a little bit more move in that direction. Yep.

Okay. Let's see. What else do we have? We have some interesting questions here. I just want to go through. Uh, here's one from, uh, from Mark W who says Long Beach and LA ports are down 24% year over year, uh, four to six weeks before inventory impacts are felt. Uh, so that's the case that I was talking about the concern around the ports that you're seeing more of in the news. All right. Let me just skim through. I saw one other question here that I wanted to ask you. Give me just one second. Bear with me. I'm literally flipping through the chat live guys. So, uh,

So give me a, oh, Polly, this is a good, this is a, this is a comment here for Brian, who says, our producer, Brian, who says, it'd be great if Ash could interview Besson now. Boy, we'd love to get the secretary back on the show. So much more to talk about from a macro front in terms of- Did you have him on the show before?

Oh yeah. Right before he joined about six months before he joined the administration. And he talked about, he talked about markets and running edge fund. And, you know, look, this is a really sophisticated guy who has been there for decades and seen the global macro trades has understood how hedge funds put them on and understands capital flows. Yeah. In best that we trust. Jared, final thoughts, key takeaways from this conversation. Oh,

Yeah, I mean, I would say that, you know, usually I come on with Ash and I'm very strongly convicted about something and I'm pounding the table on something. And I, you know, this is one of those times I'm a little bit at sea, you know, like a lot of people are really like this environment has turned me into a value investor.

And look, I think the answer is to just buy cheap stuff with dividends. And if you do that, you should be able to ride out whatever's happening in the macro. So by the way, by the way, that is such an important skill. I'm always a little bit nervous when someone always has the highest conviction idea every time they come on. Yeah.

A great, important skill. Jared Dillian, listen, it's always a pleasure when we do this with you. Great fun to do it. Thanks again for joining us. Yeah, of course. Thank you. That's it for now. Thanks for watching. Thanks for listening. See you again soon. If you like this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future. Just one click away.