Jared Dillian: Bessent "Can Land the Plane on the Aircraft Carrier"
The Daily Dirtnap author on why he's bullish bonds, bearish the dollar, how Americans are "living like Gatsby" in Europe, and why one of his best trades of 2024 was also his worst.
It was a big day in markets yesterday, and that was before Trump said he’s going to slap 25% tariffs on Canada and Mexico. Joining me on Talking Markets was The Daily Dirtnap’s
, who brought plenty of contrarian thinking to this episode.Trump, Tariffs, and a Tricky Environment
Talking Markets was recorded before the Canada/Mexico tariffs breaking news, but Jared said: “Everybody’s talking about tariffs, but nobody really knows that what looks like yet. I think (Treasury nominee) Scott Bessent would probably favor more of a targeted approach than 10% or 20% across-the-board tariffs.”
“He has said in podcasts and interviews that he believes that tariffs should be used as a source of revenue just like they were like the first hundred years of our country,” Jared said. “It’s going to be a really tricky macro environment.”
The Bessent Bond Trade
Jared thinks the bond market rallied on news of Scott Bessent’s nomination because the market was worried that someone was going to be nominated “who was going to be crazy with tariffs or with the deficit.” “[Bessent] is super smart,” says Jared. “He knows he has to term out the debt, he knows this is going to be like landing on an aircraft carrier. And he is the right guy to do it.”
💡Jared is bullish bonds in the short term chiefly because of the sentiment that Bessent can bring a happy ending to the debt. He thinks 10-year yields are going to go to a little over 4%, and is similarly bullish on TLT, which he thinks could go to $96 or $97, again in the short term.
About That Debt
Jared says Bessent knows he has to term out the out the debt, which
also discussed with us recently:Janet Yellen has been “extremely clever” in skewing the issuance calendar towards shorter-dated debt instruments, which has artificially lowered yields on 10-year notes. “We think this has taken almost 100 basis points out of the long end of the market,” he said, estimating that this has saved the US government $350 billion a year in interest charges.
Jared explained: “Bessent now has to roll out those maturities into longer maturities, which means the auction sizes are going to get much bigger. So if you have a $40 billion bond auction, that's now going to be a 60 or an $80 billion bond auction, which is going to put a lot of pressure on the bond market, which is going to cause the yields to go up. It's going to cause the curve to steepen.”
Currency Intervention in 2025?
Jared thinks “there is a real possibility that they could do a massive currency intervention sometime in the first year of Trump's second term.”
“The dollar remains incredibly strong, just outrageously strong on a purchasing power parity basis,” he said. “You have Americans who are middle-class here, going to Europe, living like Gatsby. It's like the currency valuations are all out of whack.”
He also pointed out that JD Vance talked about taking a look at the dollar in the lead up to the election, and that Trump “jaw-boned the dollar about 10% lower in his first term.”
So, how does Jared see it playing out? He says they will first try jawboning: “They’ll verbally intervene as much as possible, and if they don’t achieve the desired results, they’ll do an intervention.” Jared acknowledged that this is a contrarian take, but said “If I did a list of the top 10 surprises, this is what I would put on there.”
Large Correction in 2025?
Jared says it seems like Warren Buffett is expecting a 20-30% correction as he’s sitting in a ton of cash - and that he agrees.
“US market cap is now 48% of global market cap. We have basically half of the market cap of all equities globally,” he said. “The last time that happened was Japan in 1990. There were similar narratives, too. There’s this narrative that the US is superior and we have all these tech companies and we have capitalism. Japan had all the same narratives in 1990. Things can change on a dime.”
💡Jared doesn’t see an imminent correction - he’s thinking 2025, or even 2026. But he’s hedged: “I bought some long dated puts in the S&P in July. I think it was the December 2026 puts. So they're two year options. So if the market crashes 30%, that pays off and I'm fine.”
Size Matters
Trump is “good for for small business,” Jared says. “This is a very populist president. Trump is hostile to pharmaceutical companies. He's hostile to tech companies. He's hostile to credit card issuers. This is a president that is hostile to most big corporations. If you take tech and pharma and maybe throw in credit cards, that's like 50 % of the S&P 500.”
💡“I think this could actually be a turning point for small versus large [caps],” Jared said. “[But] I'm not really sure how I would play [it]. The obvious way you play it is you short S&P and buy Russell, but that is such a scary trade because it's been the widow maker for the last 20 years.”
Jared’s “Worst” Trade of 2024
Jared was looking at Javier Milei in Argentina well before he was president. He went long on 2 Argentina stocks in June 2023, and made a ton of money on it.
But then in May this year, he was in the middle of the stress of moving house, and the stock started to roll over, so he said “Screw it, I’m out.” It’s up a ton since then.
“And if I had held on, my god, that would have been incredible,” he said. “So it was my best trade in a long time, but it was also my worst trade because I just panicked out of it too early. So the good news is that my subscribers don't always listen to me. And a lot of them held on, and they're still holding on, and they're super happy.”
💡Jared says he is very good at picking bottoms, but not always the best at riding tops. It’s important to know what kind of investor you are.
Quickfire Round
Jared on… Gold: “We need to form a base around $2,530 and it's going to take a little while. We're not gonna make a higher high anytime soon.”
Jared on… Bitcoin: “I’m not trading it. But I think it's going to hit $85,000 before it hits $100,000.”
Jared on… Oil: “There is so much chop in [oil] between $68 and $71. It’s like a washing machine, I just can’t trade it. So if it broke below $65, I would probably sell it. If it broke above $75, I would probably buy it. But in here, it's just a disaster.”
Jared on… Healthcare: “If you were paying attention to the technicals in some of the pharma companies before the election, they were starting to break down Healthcare has underperformed the S &P 500 by 15 % in the last three months. And I don't think anybody has noticed that.”
To watch the full episode, right this way.
By the way - Jared just opened up an offer for anyone who's been thinking about joining The Daily Dirtnap - you get to try it out for $99 for 3 months, rather paying $795 upfront for a full year. I do not get anything for promoting this - I'm not shilling! Just seems like a pretty solid offer to me. That's available here.
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.