What a Year It’s Been

I am writing to you from my hotel on Miami Beach. Tonight, I am going out for a sumptuous dinner and then to my favorite nightclub, Do Not Sit on the Furniture. I am going to try to wrangle a DJ gig there. I can be pretty persuasive sometimes.

In market news, people are still trying to figure out what to make of the FOMC meeting last week. On the surface, it wasn’t especially dovish—there were two hawk dissents and only 25bps of projected cuts in 2026. But we are essentially restarting quantitative easing, this time in T-bills in an effort to… steepen the yield curve? Facilitate issuance? I’m not really sure. It would seem to be bullish for gold.

I don’t want to get too deep in the weeds on that. At the moment, I am focused on two things:

1. China

2. Oil

Both are cheap.

China Could Fly

China has actually done pretty well this year, in an under-the-radar fashion. China, as you know, is not exactly booming. It’s essentially working off decades of overcapacity—it’s the 1930s over there.

My thinking here is that the CCP might not be long for this world. Xi Jinping isn’t going to be around forever. Yes, I am looking very far out into the future. But imagine if China is liberalized, and you no longer have this top-down authoritarian state-directed capitalism—China will fly. I think it is worth having some exposure here while it is cheap as sort of a free option of this happening. If you haven’t looked at a chart of the Shanghai Composite in a while, you should. It peaked at the Beijing Olympics and has been going sideways for 15 years. Some technicians might call this forming a base.

As I said, these are all very cheap companies, even after the price appreciation this year. Now, there are a lot of zombie companies in China, but there are some very good ones. I am still thinking about how to implement this trade. I don’t expect it to work next year, the year after that, or the year after that. I have no ability to time it. But it is a lot easier to be invested already than to chase it higher once it breaks out.

Max Bearish Sentiment

Oil is incredibly cheap, now around $57 a barrel. Unless we get a terrible recession, there wouldn’t seem to be a lot of downside here. 

Now, a lot of people are talking about Venezuela, and liberalizing Venezuela and releasing all that trapped oil on the market, but I am skeptical about that. I wouldn’t shed a tear if SEAL Team One took out Maduro, and I think it would be the most humanitarian mission ever, but people disapprove of international meddling, and I doubt it would help Trump’s approval rating. For sure, Marco Rubio wants it to happen.

The one thing I fall back on is that sentiment in the energy markets has been max bearish for a while, going back at least a year, and positioning is very short. Of course, sentiment has been max bearish for a while, and the trade hasn’t worked, but I think we are getting down to tag ends here. It’s not a high-conviction idea, but in a world where tech is a massive percentage of the index (and seems to be falling apart), I think that a higher weight to energy stocks would be warranted.

A Continuation of 2025

Those are my two big ideas for 2026. How do you like them?

Aside from that, I think 2026 is going to be a continuation of 2025. Dollar down, emerging markets up, international stocks up—the same macro stuff will work. By the way, in case you missed it, I just did a Street Freak “report card” for the year, where I talk about some of this stuff. We crushed it this year—up 42.7% year to date—and we’re getting ready to do it again in 2026. If you’d like to join us for the year ahead, you can enroll now at a limited year-end discount.

Anyway, looking ahead, just don’t ask me to put a price target on the S&P 500. That’s how you make a fool of yourself. I’d say lower, but if it was up 20%, that wouldn’t surprise me either. And I don’t have a good feel for the bond market. Rates 1% higher or rates 1% lower wouldn’t surprise me. I should point out that 10-year yields just had a big technical breakout, so I am leaning bearish for now, but I do not have a lot of conviction.

As for the economy, it’s hard to bet on a recession, in spite of the crappy economic data and soft labor market. Having said that, AI infrastructure has been a big boost to the economy, so if that falls apart, and private equity and private credit unwind, it could be a pretty awful year for markets and the economy. As you know, I am bearish on private equity. Please navigate over to our ShortPrivateEquity.com website for the latest on that.

I don’t have any big holiday plans, other than to do some writing. I will share a piece of exciting news—I have been booked as the opening DJ for Zedd at Omnia in Caesar’s Palace in Las Vegas on January 23. I believe Omnia is the biggest club in the US. After 17-plus years of DJing, I have reached the pinnacle of my career. Am I nervous? You bet. Just practice until it’s automatic and remember to smile.

Jared Dillian, MFA