Jared Dillian — "I'm insanely bullish" on the long bond

0:00 The set-up — the front page is the trade

• Farley opens with the headline itself: "looking at the front page of 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?"
• Dillian's first move is to diagnose the crowd rather than the data: "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."

0:56 "Certificates of confiscation" — the late-'70s frame, and why the data does not support it

• The analogy is explicit: "we are really back to where we were in the late '70s when people were calling bonds certificates of confiscation."
• His rebuttal is one sentence long: "the reality is that inflation is not that high. It's come down quite a bit in the last couple of months. It continues to come down." He concedes the five years above target and Warsh's "firm target" language without conceding the trade.
• The mismatch that animates him: "I don't understand the obsession currently when the rest of the economic data is actually terrible… we've had two weak payroll reports. The estimate for the next one is 55,000 jobs and we have a 66% chance of a rate hike. It's madness."
• The supporting prints, all fresh: Chicago PMI "10 points lower than expected" on the day of Jackson Hole, JOLTS "terrible today," ISM slightly below. "It looks like we are entering a slowdown in growth."

2:08 Everyone counts the supply of bonds; nobody counts the demand

• The scale check first: "in absolute terms, the deficit is $2 trillion, which is a scary number, but it's only 6% of GDP. And back in 2010, it was 12% of GDP. And people showed up at the auctions. The auctions had bid to covers of three or higher."
• The asymmetry in the discourse is the edge: "it's very easy to measure the supply of bonds, but nobody ever talks about the demand for bonds."
• And demand is state-dependent, not structural: "if we had a big risk-off event triggered by some unknown catalyst, but if stocks were down 20%, trust me, interest rates would be much lower… People would show up and buy bonds."

3:02 The position: "I'm insanely bullish," and it is a three-to-five-year hold

• The levels: "I think 52, 53 on 30 years is an incredible deal. I think 47 on 10 is an incredible deal."
• The size and the recency, unusually specific for a public appearance: "I personally have moved a huge portion of my money into bonds in the last month."
• The horizon is what separates it from a tactical fade: "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." No ETF, fund or ticker is named anywhere in the episode.

3:29 Saturation as a signal — Dalio in Time, Bloomberg every single day

• The evidence he actually weighs is media coverage: "somebody just sent me — I guess Ray Dalio wrote a piece in Time magazine about bonds. Like you said, it's on the Bloomberg front page every single day."
• The rule stated plainly: "I'm a sentiment guy, so when I see stuff like that, I'm just" — Farley finishes it — "naturally going the other way."

3:52 Volcker on crowding out — the supply argument is not new

• Farley produces the archive clip: Volcker, "probably 1978, 1979," asked why long yields were at 12%, answering that "the government is having to compete out in the market and there's just not enough… so much bonds that are being issued, the private sector, the government."
• Both agree the composition has changed since 2010 — then, "everyone lost money from taking too much credit risk and bonds rallied," and regulation made credit risk unattractive so investors took duration instead; now "everyone in fixed income lost so much money from buying duration."
• Dillian's conclusion is demand-side and flat: "I think that demand is going to catch up. It definitely is."

5:17 The new crowder-out is the private sector — Google's $40 billion

• Farley's addition, which Dillian takes on board: "a lot of this AI issuance is weighing on the bond market. So when Google comes to market with a $40 billion bond issue, that puts a lot of pressure on the market."
• The inversion of Volcker: "the government borrows first and the private sector borrows second. But if you're getting a trillion in bond issuance out of the private sector, that obviously puts a lot of pressure on yields, too."
• And immediately, the sentiment read on the AI-capital narrative: "there's a very popular AI podcast and they were talking about how basically AI is just going to rule the world. There's going to be so much demand for capital that yields are going to go to double digits or maybe even triple digits… these people are very smart about AI but obviously less well versed in finance. So I think that that's a pretty strong sentiment indicator."

6:13 Torsten Slok's two branches — and the half of it Dillian will not take

• The argument, as Dillian relays it: "AI succeeds and it's massively deflationary and yields come down or AI fails and the market crashes and yields come down. He's like, 'I don't see a scenario where yields don't come down here.'"
• The endorsement is real but time-limited: "I have a lot of respect for Torsten Slok… I think that argument is probably true on a 10-year time horizon."

7:07 "Have you paid your Netflix bill?" — and productivity is fake

• The anti-deflation retort in one line: "so many people in tech… 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."
• The net inflation call: "the demand for capital from capex is going to be so much more of an inflationary force than the deflationary force of increasing productivity."
• The measurement attack: "I think that productivity is a real concept, but… it's just such a hard thing to measure. Productivity skyrocketed in March and April 2020 because so many people got laid off. So if capital and labor are in the denominator and that goes down it causes productivity to be kind of artificially" inflated. "I'm a fader of productivity."

7:51 The Lehman ritual: read the charts by hand, one at a time

• The method, and its provenance: "I had him pull up the top 50 stocks charts in the S&P this morning… I used to do this when I was at Lehman… I would literally get a glass of scotch and sit down and go through all 500 charts in the S&P."
• What the exercise is for: "if you do that, it starts to paint a pretty clear picture as to what is topping, what is bottoming."
• Today's read: "semis, healthcare and financials are topping right now."

8:49 The names that came out of it — five topping, four basing

• Financials, already published: "on the Macro Dirt podcast that I do with Tony Greer, I talked about financials topping a couple 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."
• The counter-list: "also Nvidia, AMD, couple of other semi names — I'm seeing some charts that are bottoming interestingly enough… Intel looks like it's bottoming. Oracle looks like it's bottoming."
• The tally that matters more than any single name: "I'm seeing a lot more charts that are rolling over than charts that are basing."

9:41 Who owns the semis — and the trigger that ends it

• The segmentation: "you have to distinguish between people like you and me… and people who work at hedge funds versus your average retail people."
• The concentration anecdote: "I teach college students… I have a student who 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." He declines the cheap shot — "I hesitate to use the word dumb money because they've been right" — but adds "they're probably not going to sell at the highs."
• The explicit top signal, and it is not a valuation: "I don't really think of things in terms of fundamentals… what I've been waiting for for the last six months is for that second derivative of growth to change… you see the growth rate start to come down to 60 or 50%. And that's when the stocks are going to top."

11:25 Farley's counter-data — retail semis positioning at a two-year low

• The source and the claim: "some data from a company called Vanda Research… top of the line positioning data on retail… retail positioning in semiconductors is among the lowest it's been over the past two years," and the late-July hedge fund unwind was "the biggest since 2020."
• The reassignment of the crowd: "who is extremely long semiconductors is hedge funds and institutions. I think institutions are very very long semiconductors."
• Dillian takes the amendment without defending his prior: "I like it. I like it. I can go with that."

12:36 Pod shops, the July 27th shakeout, and the Citadel cleanup print

• Why he could not do the job himself: "I would never want to work at a pod shop, because I sustain drawdowns larger than 5%. It's very difficult to manage money in that environment."
• And why they were all on the same side: "all the multistrategy hedge funds, all those pods were long semis and related stuff for a long time. I mean, you have to be right. That's just the way that business works."
• The mechanics of the low: "anytime you have a leverage player that goes t.u., that usually marks a bottom, right? And so Citadel got the cleanup print on that and now they're pretty much out of that trade." Farley supplies the timeline — Situational Awareness sold its public book in block trades to Citadel, announced July 27th or 28th; Citadel had sold the bulk by late August.
• Farley's formulation of the principle, which Dillian accepts: "hedge fund deleveragings are actually bullish because the owners go from weaker hands to less weak hands."

14:35 Bear Stearns was not the bottom — the caveat on the whole deleveraging argument

• The counter-example, with the date: "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."
• "Everybody thought the coast was clear and then of course the main event happened which was Lehman."
• The forward call: "the most leverage player gets taken out first, but there's still so much leverage in the system… my guess is there's another Situational Awareness coming in the months down the line."

15:26 Four AI magazine covers in one week

• The count is the datapoint: "we had four magazine covers on AI in the last week. One from Barron's which said something like it will never end."
• Farley, who read it in Dillian's own newsletter, names the tell: the piece plays both sides — "you're calling it a bubble but you're still bullish. It's like make a call."
• The verdict: "the four magazine titles are — it's a little brutal on the sentiment side."
• But he refuses to convert sentiment into a crash call: "there's nothing in the S&P chart that leads me to believe we're going to crash tomorrow, next week, next month. The chart is pretty neutral… the market's actually pretty quiet all things considering."

17:11 What filled the gap — and copper is the metal he wants least

• The rotation Farley observes (the S&P held up far better than a 30% semis drawdown implies) resolves into "banks… healthcare… energy, and industrials," which for Dillian is simply the list of what is now topping — "especially the broker dealers. Goldman Sachs and Morgan Stanley have very scary charts."
• The metals ranking is unambiguous: "out of all the metals, I am least bullish on copper. I'd much rather own gold, silver, platinum, palladium than copper."
• The reason is positioning, not supply: "I think sentiment on copper is pretty hot because of the AI trade." The chart is still "in the upper right hand corner," which "doesn't necessarily mean you sell it."

18:01 Gold after Jackson Hole — cautiously bullish, with payrolls as the trigger

• The move and the give-back: "we rallied 15% in a month with gold which is a huge move and it was well needed. After Warsh's speech gold broke back down through the 200 day at 4500."
• He dismisses the mechanical reading of that break: "all the amateur technicians are like, oh, it's back through the 200 day so it's going to go back down to 4,000… once you cross through the 200 day a number of times, it kind of loses its significance."
• Where he stands: "I'm cautiously bullish here. There really isn't support until 3,900 or 4,000, but that doesn't mean it's going to get there."
• The catalyst is dated and specific: "we have payrolls this Friday… It's 55,000 expected. If we get a super ugly jobs print like negative 50,000, negative 100,000, this whole trade is going to reverse and Warsh is going to be the best gold salesman of all time" — because he would have to turn dovish.

19:27 The labor-market puzzle — immigration, participation and the Sahm rule

• Farley's correction to the payrolls panic: the series is "quite correlated with immigration," so 300,000 a month under high migration was not proof of strength, and with migration neutral-to-negative "maybe the break even rate is like 40,000 or 50,000."
• The awkward fact for the recession case: "payrolls… look abysmal, but the unemployment rate has actually gone down" — from 4.5% to 4.1%, "and not only on an absolute level is it good, but it has momentum." Dillian attributes it to participation, and to native-born participation running below immigrant participation.
• The false alarm they both remember: at 4.5% "everybody was saying that it triggered the Sahm rule… and Claudia Sahm came out and said actually technically it triggered the Sahm rule but it probably did not — and sure enough the unemployment rate has come down to 4.1."

21:03 "Invest then investigate" — Kite Pharma, GLP-1s, and the baldness tweet

• The disclosure comes first: on the baldness-drug idea he flagged to subscribers, "I don't know anything about it. Literally I just saw a tweet and I put it in the newsletter."
• The track record he is drawing on: immunotherapy research in 2016 into "Kite Pharmaceuticals… basically it was a three-bagger. Got taken out I think by Bristol Meyers," then "a few years ago I was early on the GLP-1s trade."
• The rule itself, and the failure mode it is designed to beat: "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 they never do. And then the stock's up 200% and they miss the whole trade."
• Farley's own screening turned up an AI-drug-discovery name he is skeptical of and a high-dose minoxidil play whose ticker he does not finish naming; a third, "a European company," is left unnamed too.

23:49 Yes it is a bubble — because this is the first tech cycle financed with debt

• No hedging: "Do you think that AI is a bubble? I do. I do. I'm not bashful to say that."
• The reason is capital structure, and it is a first for him: "in my lifetime, this is the first time I've seen tech being financed with debt. Usually you finance tech with equity, right? Because the asset has a very short lifespan… you don't want to take out 10 or 30 years worth of debt to finance an asset that's going to be around for two or three years."
• The contrast with 1999: "the dot-com bubble was all equity. Nobody was issuing debt and this time we have a lot of debt. And the leverage is what gets people into trouble."
• The price of that leverage: Google's spread over Treasuries is "probably like 60 or 80 basis points… but they're essentially paying a 6% coupon on this debt. It's a lot" — against "the 2% or 2 and a half %" of 2021. Neither of them expects the cost to stop the spending: "are the CEOs going to say, oh my god, the 30-year Treasury just hit 6%, stop capex? It's not going to happen."

25:36 The Awesome Portfolio — the problem is psychology, not arithmetic

• The target of the book: "the way we save and invest for retirement is very very dumb… people have been taught a very simple thing over the last 20 or 30 years… 'Put all your money in the S&P 500 in the index fund, dollar cost average it, ride out the volatility, and never sell.'"
• He does not dispute the returns, which is what makes the argument unusual: "maybe it continues to work. I don't care. That's not the point… 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."
• The failure mode is behavioural: a large drawdown means "you're going to be miserable until you get back up to the high water mark," and "there is 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."

27:34 Five assets, equal weight: half the volatility for one to two points of return

• The construction, stated in a single sentence: "stocks, bonds, gold, cash, and real estate in equal proportions."
• The trade-off, quantified: "you're only giving up about 1 to two percentage points in performance, but your volatility is cut in half. And the worst drawdown that has ever happened with this portfolio is down 12%, whereas about 40% for the S&P 500 in a calendar year."
• And the honest concession that defines who it is for: "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… But this is if you want to be happy."

28:30 Private credit and private equity — the call worked, and he is not taking it off

• Farley scores the prior call: roughly two years on, "pretty much every single alternative asset stock is lower now than it was then," after a washout, fundraising trouble and daily "private credit doom" headlines. The sentiment question is whether the negativity has gone too far.
• The answer is no: "I was very bearish when we talked a couple years ago. I'm still bearish."
• The linkage that makes it one trade with the AI view: "AI, private credit, something else — I think it's all connected. And I think if AI unwinds, private credit will also or vice versa."
• Why the clock runs slower here: "in the public markets, when something unwinds, there is liquidity… the market will reprice very quickly. In the private markets, that doesn't happen… portfolio companies not being sold for a really long time… 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."

30:29 "The bubble is in earnings" — profits versus wages, and the one thing that is different

• Farley's provocation: if the claim is that the bubble is in earnings rather than valuation, "is that not just an admission that the bears are wrong?"
• Dillian answers with his own chart from that day's newsletter — the S&P "relative to wages and how it had completely decoupled from wages over time" — and notes that corporate profits as a percentage of GDP "looks pretty similar."
• The concession he does make about this cycle versus 1999: "there are a lot of analogies to the dot-com bubble 25 years ago… but the one thing that's different is there are profits. I mean, except for maybe in OpenAI and Anthropic."
• Farley, "calling balls and strikes," notes the labs' revenue growth is "among the best ever for history of companies"; Dillian defers: "you know more than me on that."