“This week has been like an entire year, and I think I actually have more gray hair now,”
, author of The Daily Dirtnap and founder of Jared Dillian Money, said yesterday on Talking Markets.(Me. Too.)
Thank you , , , , and many others for tuning in live on Substack!
The Bond Market is “a Total Disaster”
There are two theories making the rounds about the bond market right now:
China is retaliating and selling some of their $800 billion worth of bonds
The basis trade is blowing up
Jared likes the China theory better. “The timing is… it’s too much to be a coincidence,” he said. “I would rather go out long bonds into the weekend. If some kind of deal with China happens, bonds are going to rip.”
In addition to that, this week we got some data that is extremely bond bullish, Jared said: “PPI was a horror show, it’s incredibly deflationary, and [University of Michigan sentiment [fell almost 7 points], and still bonds sold off.”
And in addition to that, “liquidity in bonds is down like 90%,” he said. “There is no liquidity at all.:
💡“I think the curve is going to continue to flatten,” he said. “The Fed is probably going to cut in May, but there’s not going to be a bunch of rate cuts forthcoming.”
VIX at “Extraordinary” Levels
The VIX got up to about 60 this week. “Just for perspective, during Covid it got up to 80 or 90,” Jared said. “In the dot-com bust, the highest it got was about 40. So 60 is an extraordinary level.”
“Generally when it gets up to that level, you want to be selling options, not buying options,” Jared said. “So I’ve been selling puts in the S&P.”
But later in the week it came down to about 38. “Vol is getting murdered,” he said. “I don’t know what’s in store for next week.”
🪢Speaking of options… Jared has just released a new Options Masterclass he spent months writing up. “What I wanted to do was create a class for people who might know just enough to be dangerous,” Jared said. You can get all the details on that here.
A “5 Standard Deviation Move” in the Dollar
Jared’s been bearish the dollar for a while now - In November, he floated the idea that the Trump administration would at the very least jawbone the dollar lower, and maybe even do a massive intervention of some kind:
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.”
Well, surprise!
“In the last couple of days, we’ve had a 5 standard deviation move in the dollar,” Jared said yesterday.
Here’s how crazy that is, per our robot overlord ChatGPT:
“Of course, now everybody’s bearish on the dollar,” he said. “At this point, I think the dollar is going to go down maybe a percent or two, and then you have to start thinking about playing for a bounce. I’m more bullish at these levels.”
Important to point out that JD’s bullishness is shorter-term. “Long term, like two or three years, I think the dollar is doomed,” he said. “I think it’s got a lot more downside. But you could get a 4-5% bounce in the meantime, which is going to catch a lot of people by surprise.”
Stocks Next Week
“I was watching the market up until about 3.57pm and I didn't see furious short covering going into the close,” Jared said. “So I don’t think anybody is expecting anything going into the weekend. When I look at the chart, we put in the bottom on Wednesday morning. I’m listening to my gut.”
Next week: “I look at the chart and it looks like we should have some more downside, like we should retest - or maybe not get all the way back down to the lows, but I think we need some kind of a retest before we go higher,” he said. “So I'm kind of anticipating that next week.”
Following weeks: “I do think in the next couple of weeks, we are going to get a big rally that will take us back up to 5,600-5,700,” Jared said. “Maybe not exactly the highs. It’s going to be a vol murdering event. I think the VIX get back down to about 25 or 20.”
But Still, Diversify
Jared was pounding the table on this last month (why does it feel like it was 84 years ago):
Jared Dillian: "Your Intl Allocation Needs to Be Much Higher Than 10%"
It was an ugly week for stocks, with a news cycle in hyperdrive. We wrapped up the week with Jared Dillian, author of The Daily Dirtnap, who was as cool, calm, and no B.S. as ever:
And he’s still bullish “on anything outside the US,” he said yesterday. “I would say out of my stock portfolio, 40-50% is international at this point.”
Gold
“I think China is selling bonds and using the dollars to buy gold,” Jared said on the gold price action. “If you look at the charts they’re completely negatively correlated… To be up 100 bucks 3 days in a row, I’ve never seen that before in gold.”
That jives with what
told us on Tuesday:“China's going to sell their treasuries because they're going to fight. They can definitely give Scott Bessent an extra handicap because he’s got to roll $7-9 trillion this year… [And] they were buying gold on Friday [April 4] on this tariff thing. The Shanghai premium went to 40, 50 bucks per ounce over London, right… That means, you know, that's going to be pulling gold to Asia, right?”
Sentiment check:
“I talked to a precious metals dealer today and asked how business was, and he said it’s quiet,” Jared said. “People are waiting for a pullback, they’re scared of new highs. So this tells me this is not late stage bull market at all, this is not even mid-stage. This is still early stage.”
Keep Calm And…
Even with all of the market moving events this week, JD said it has been “reasonably orderly.” “Even on Monday and Tuesday, when we were down 11% in 2 days, it never felt like the market was about to break,” he said. “As opposed to August 5 last year, when we had the yen carry trade blow up, that to me felt like the market was breaking - I was actually scared. This week, you had some big moves but it hasn’t felt disorderly.”
And finally, something to remember for next week:
“When volatility is high, you have to trade smaller,” Jared said. “You have to risk adjust your trades, so if you traded 10 units of something before, you can trade units of something now.”
Hear hear.
Have a great weekend everyone,
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.
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