The Pinnacle of Market Nonsense

For starters, here’s some stuff I plucked off the internet:

Stocks are stupidly expensive, and bonds are stupidly cheap. This has been true for a while, but now it’s all hands on deck.

The bond market is a mess. I know because I watch the price action every day. Every rally is sold. Every piece of economic data is an opportunity to sell more. It gets flashy crashy at times.

And here’s the thing: It’s not really about inflation. Inflation is not that bad. Inflation is about average for the last 40 years, and it’s coming down. And it’s not really about deficits. It’s sort of about deficits, but the deficit-to-GDP is 6%—it’s been much worse in the past.

It Is About Two Things

For one, it is about credibility: Bessent’s credibility, Warsh’s credibility, and our fiscal credibility more than anything. If Trump came out and said that he was going to do DOGE 2.0, and he was serious this time, he’d probably save the bond market. If Bessent threatened to intervene and followed it up with a truly massive intervention, the pod shops would probably learn their lesson. The problem is that the market thinks these guys are full of crap, and so far, they have been. All hat, no cattle. So that is problem number one.

Problem number two is growth. As you know, hyperscalers have been issuing a lot of bonds, and they don’t really care what the interest rate on them is, because the ROI is perceived to be infinite. Usually, it is the other way around. Usually, public borrowing crowds out private borrowing. But the hundreds of billions of debt issued by the tech companies have actually made it harder for the government to sell bonds.

So, what is going to fix it?

1. A bear market

2. Ending the war

3. Bessent follows through

4. Yield curve control

5. An honest attempt to cut spending

Or any combination of these things. Until then, the pod shops have beer muscles, and they are massively in the money on what has been the best macro trade of the last 10 years. Unfortunately, I am on the other side of it.

Should I Sell My Stocks?

What Peter Schiff said is absolutely correct. Breadth is probably the worst it has been in history, with just two historical examples, and we know what happened then. 

If you are reading this, you are probably wondering if you should sell your stocks. I would think about selling your stocks. You don’t have to dump the entire portfolio. Sell some. It will make you feel better. And put the proceeds in bonds. 

If Schiff is right, and we have a crash, I assure you that bond yields are not going to be at 5.5%. They will be somewhere around 2%. Those who do not study market history are doomed to repeat it.

But like I said, these conditions have been present for a while. Stocks were rich and bonds were cheap three months ago, and now stocks are richer and bonds are cheaper. If you are a speculator like me, the best way to manage a situation like this is to dip a toe into the trade; and if it starts to work, aggressively press it. Probably the most common fallacy in trading is that the current situation will persist forever. It sure feels like it will persist forever. But it won’t. There may or may not be a catalyst. Sometimes, there is no catalyst. Sometimes the trade just… happens.

The Wall of Money

I was speaking with some well-known short sellers last week (they are actually speaking at my conference), and they talked about how they do significantly less shorting than they did in the past. Well, naturally. It has gotten harder. You probably know of a handful of prominent short sellers who have gotten carried, retired, or gone to jail. The problem is the wall of money that comes into the stock market every week, in the form of 401(k) investments getting shuttled into target date funds and such.

A word about The Awesome Portfolio—buy the book, please. It might save you. If you invest in the Awesome Portfolio, you don’t really care if you top-tick the stock market. Let’s say you did. Well, if that 20% allocation to stocks loses 50%, then you lose 10% at the portfolio level. But bonds and gold will be up, and you will be making money on cash. You literally don’t care if there is a market crash, which would be a nice position to be in. 

Stock ownership as a percentage of household assets is at all-time highs… and has been so for a while. The chart is going from the lower left to the upper right. The guy in the pink and neon green suit gets more speaking gigs than Mel Robbins. This is where we are in the cycle.

Poll

Dumbest Thing I Saw This Week

Maybe my cat Tars taking the reins of the Jared Dillian Money X account. Who’s to say… maybe the lovable idiot will deliver?

Follow Tars Dillian here.

We really do love him.

JDM Survey

Hey, do me a favor and take the Jared Dillian Money survey.

It’ll help the JDM team and me give you more of what you want and less noise. It should take about 5–7 minutes.

Easy, yeah?

Thanks in advance,

Jared Dillian, MFA

P.S. If you are in the Miami area, I am throwing a party at the famed Do Not Sit on the Furniture in Miami Beach on Wednesday, October 7 from 7–11 pm. An early party for the old folks. Please come out and say hi. You can get tickets here.