“I’m Insanely Bullish on Bonds” | Jared Dillian on Copper, Bonds, Semis, and The Awesome Portfolio

**Jack Farley** (0:00)
Join today once again by Jared Dillian of The Daily Dirtmap and the new book, The Awesome Portfolio. Jared, good to see you.

**Jared Dillian** (0:08)
Good to be here, man. Thanks for having me.

**Jack Farley** (0:10)
Yeah, you too. Jared, 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, the fact that these long-term government bond yields can't really seem to catch a bid? Your thoughts.

**Jared Dillian** (0:29)
How much time do we have?

**Jack Farley** (0:30)
How much time have you got?

**Jared Dillian** (0:34)
This is a very long story. So I am of the belief that 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. We are really back to where we were in the late 70s, when people were calling bonds certificates of confiscation.
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. Yes, it's been above the target for five years. Yes, Warsh did say it's a firm target. I don't understand the obsession currently when the rest of the economic data is actually terrible, right? So, we've had two-week payroll reports. The estimate for the next one is 55,000 jobs, and we have a 66% chance of a rate hike. It's a madness. All the other data has been, like I said, inflation is coming down. Before I walked in here, we had Chicago PMI, the day of the Jackson Hole, which was 10 points lower than expected. Joltz was terrible today.
ISM was slightly below expectations. But the point is that not only is inflation not a concern, it looks like we are entering a slowdown in growth, right? Getting back to the deficit's point, everybody is worried about supply of bonds.
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 cover of three or higher. So it's very easy to measure the supply of bonds, but nobody ever talks about the demand for bonds, right? So if we had a big risk off event triggered by some unknown catalysts, but if stocks were down 20%, trust me, interest rates would be much lower, right? People would show up and buy bonds. So I am not worried about the bond market at all. I'm insanely bullish. I think 5.2, 5.3 on 30 years is an incredible deal. I think 4.7 on 10s is an incredible deal. I personally have moved a huge portion of my money into bonds in the last month. And 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.

**Jack Farley** (3:29)
And so you're bullish on bond. You think that the narrative of that bond yields are going to go to the moon is he's gotten totally out of hand.

**Jared Dillian** (3:39)
Oh, my God. Yeah. I mean, so 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. Like every single day, people are obsessed with it.
And, you know, I'm a sentiment guy. So when I see stuff like that, like, you know, I'm just naturally going the other way.

**Jack Farley** (4:03)
Yes. And the point you make about supply is interesting because there's a video I've seen of Paul Volcker, you know, rest in peace, legendary Fed chair, probably 1978, 1979, somewhere around there, you know, maybe early, early 80s. But the long-term yields were like 12%.
And he was asked, why are yields so high? And he said, well, the government is having to compete out in the market. And there's just not enough, you know, there's just so much bonds that are being issued, the private sector, the government. And obviously, what we have now is 10 to 50 times higher in terms of issuance. So I think that demand is going to catch up. It definitely is. It is interesting. You said 2010 I think that you're totally right that everyone wanted bonds in 2010 I think, you know, the unemployment rate then was a lot higher. We came out of a financial crisis when everyone lost money from taking too much credit risk and bonds rallied. Then there was all this regulation passed to make credit risk unattractive to take and incentivize taking duration risk, interest rate risk, bond risk.