Nobody Gets Out Alive

Going to start off this year on a bearish note.

Most people don’t realize how precarious our financial position is, as a country. I’ll explain. Right now, we are running deficits of 8% of GDP. We’ve done that in the past but usually only during wartime or severe recessions. Now, we are running deficits to GDP of 8% in good times. So, what happens to the deficit if we hit a recession, perhaps a severe one?

Well, if we hit a recession, you know for sure that in this political environment, the Trump administration (or any other administration) would pull out all the stops in dealing with the recession. We’ll have stimulus checks… big ones. We’ll have extended unemployment benefits. We’ll have direct subsidies to a range of industries. We’ll spend $5 trillion or more, driving the deficit to GDP to 12%, 14%, or more—like we’ve only experienced during World War II.

This is the point at which the bond market revolts and interest rates go up (a lot), which the economy will not be able to tolerate, and the only remaining rational response out of the authorities will be to compel the Federal Reserve to cap interest rates across the curve, buying an unlimited amount of Treasury bonds with printed money. That’s the point at which we get inflation the likes of which we have never seen in the United States, and if you think gold is high now, wait until you see what it does then.

This will happen. It’s not a matter of if, only a matter of when. The tomb is sealed; we just don’t realize it yet. If we get a recession this year, it will happen this year. If we get a recession in 2029, it will happen in 2029. And by the way, these are just the financial effects—politics will get very ugly, and to put it politely, we’ll be choosing between a right-wing socialist (a national socialist) or a left-wing socialist (a Communist) in the next election. All I have to say is: Enjoy that 37% top rate while it lasts. It won’t be around for much longer. For those of you who study demographics, we are getting down to tag ends in the Fourth Turning. The last time we had a First Turning, tax rates were 92%.

How to Prepare

Financial pundits like to throw out nightmare scenarios like these, because everyone likes a good thought piece, and everyone likes to talk about doom, but nobody has any idea on how to prepare for it. The obvious way to prepare for it is gold, which I have been yapping about for years, and if you had heeded my advice, you would be pretty happy already.

It’s a big reason why Street Freak ended 2025 up 42.7% and the Strategic Portfolio up 28.1%. By the way, like Street Freak, I just did an end-of-year review of the Strategic Portfolio. If you missed it, check your inbox. It went out on Tuesday, and we’re offering a limited-time discount if you’re interested in joining. Save yourself some money, and let’s do it again this year. You can get the details here.

Now, complementary to gold are things that hurt if you drop them on your foot. Commodities. All metals, energy, agriculture, softs, everything. Commodities had a good year in 2025, but this is just the beginning.

When thinking about asset allocation, most people assign a weight to commodities of about 5% or 10%, if anything at all. I assure you that is too small. As much as 50% of your portfolio should be comprised of commodities or commodity-related equities, and even that is being conservative. Paper assets, stocks and bonds, are built on trust, and when trust evaporates, people want real assets. Dennis Gartman used to argue that commodities are not an asset class. Back then, he was right—but sometimes they are. You could do a lot worse than just naively investing in a commodities index fund. There are a few out there.

Stocks are a riddle, wrapped in a mystery inside an enigma. If this scenario were to play out as I predict, stocks would probably go down a lot—potentially a huge amount—and then potentially go up a lot, when the inflation takes hold. Remember, stocks are inflation pass-thru vehicles. 

I will go on the record making a big prediction here: We will get a blistering bear market sometime in the next two years. Now, that may not sound like much of a prediction—two years? Anybody can predict that. Well, I’ve waited this long. You will need exposure to the downside, in the form of puts. And there is no better time than now—the price of options, in terms of implied volatility, is about as low as it gets. Buy them and roll them. Keep rolling them. If it works, roll them down and out. You buy insurance when it is cheap. I would never advocate being unbounded short the stock market—too dangerous.

There are these people called “optimists” who crow about the 11% annual returns in the stock market and insulate themselves from any negativity whatsoever. I should know because I have been blocked by a few of them on X. I always, always think about the risk of ruin. The “number go up” attitude espoused by the index fund simpletons is highly simplistic. Your first goal should be to protect your wealth. If you can grow it while protecting it, fine. If you can survive a bear market and return zero, that is a massive victory.

Print this out and tack it on the wall. Look at it every so often. One day, you will thank me.

A Few Personal Notes

Happy New Year! Glad to be back. I think you should know that I have the DJ gig of a lifetime coming up. On January 23, I will be playing at the legendary Omnia Nightclub at Caesar’s Palace in Las Vegas, opening for Zedd. If you get a wild hair, come out and see me. I’ll be playing from 10 pm–12 am.

Also! If you like my music, please go check out my latest mix, “Nocturnal,” recently posted on SoundCloud. It is nothing short of a masterpiece. Find a quiet spot in your house, put on your headphones, and disappear into space for an hour and twenty minutes. It’s beautiful stuff.

Let’s make some freaking money this year, shall we?

Jared Dillian, MFA