In episode 395, Jared and Cameron cover topics ranging from his short story collection NIGHT MOVES to insights on the bond market and how strong jobs data impacts rate cuts moving forward, oil prices, and the dualities present in the current economic landscape. Jared emphasizes the importance of having cash on hand for emergencies and shares his thoughts on navigating risks in equities.
Be Smart by Jared Dillian
Episode 395: Surprise Jobs Data Hits Bonds—Plus, the Fed’s Likely Adjustment
(upbeat music) - Jared, you got the Espresso going today? - This is my third one for today. I usually do three Espresso's a day. - They get you properly juiced. - I actually just had a cigar. - Oh, nice. Out on the porch. - Yeah, it's beautiful weather here. It's like 75 degrees, cigar in the back porch. Awesome. It's like some Tony Soprano shit you got going on. - The market is very quiet. There is nothing going. And it's been quiet. If you look at a chart of the S&P 500, going back to September 19th, we've been in this tight range for like three weeks. And I haven't had a new subscription since September 22nd. Like the market is dead. So I don't know what's going on. Like I think maybe if Trump pulls ahead or Kamala pulls ahead, we'll get some action in the market, but it's stocks have been really quiet. - Well, I saw you tweeted something about polling is Trump pulling ahead in the latest polls. - Trump is slightly pulling ahead. One of the betting markets, the biggest one is called Polly Market. That's probably the most reliable one. And Trump today has gone to 54% on Polly Market. - Four weeks exactly until the election. - Yep. - It's getting super close. All right, Jared. I got night moves here. I have three stories to go. Since we last spoke, I have read the crash, 200 hours hit and run creep, Amanda left out and disaffected. You want to go and just get into this now? - Yeah, let's do it. - Top of all night moves, let's do it. This might surprise you. My favorite story out of this batch. And actually, I think in the whole collection so far is hit and run. - That is a good one. That is really, really did it for me. The Amy character, the wife, it's just so vicious that it made me laugh at times. - Like the text and just the dialogue she says to Ross is just so insane. - Yeah. - But I love the how it comes full circle from beginning to end. It's a really good story. - Oh, that's awesome. That's awesome. - Did you send that one out to publishers? - I do it, Mags. - Yeah. - I'm surprised that one was not published. But so it goes. - Yep, 200 hours is also really, really good. - Yeah, 200 hours is my personal favorite. I got a little teary-eyed when I was writing that one. I also got a little teary-eyed when I was writing Beyond Love, which is the last story, which you'll see. - Mike, who we work with, for those who don't know, he works with us at Jared Zilliam Money. Told me that Beyond Love and Seaboard Street, I believe it's coming up in the last three are among his favorites. So I'm really excited to polish these off. - I gotta tell you, here's the book. For Christ's sake, go buy it. Like it's tough to get people excited about a short story collection. You know what I mean? It's just people like novels, if they like fiction at all, that most people read nonfiction, especially newsletter subscribers, finance people. They read a lot of nonfiction books. They read Morgan Houssell and Richard Thaler and all these sort of economic think books and stuff like that. Take a break, read, do some pleasure reading. It's good for you. - What I like most about this is the stories that are kind of in that 16 to 20-ish page range. So it's just like such an addicting book. You like read one, you're like, okay, well, I wanna say with it for a second, but I feel like I gotta rattle off some more now. Like I read like four of them yesterday and stop myself. - What did you think of creep? - That is my least favorite story, to be honest with you. - Now because why? - Because of, I felt like there wasn't the strongest of stories in there compared to the other ones. - But there's, yes. So it's also one of my least favorite, but it's actually an interesting story because I forget the character's name. What's her name? - I feel like I started this with a J. - Jordan, right, Jordan. - She sets the guy up for failure. You know what I mean? She like totally sets him up for failure. She has a terrible attitude going into it. She expects it to fail, it does fail. - Right, spectacularly. - Yeah, I think there's also some interesting, like there's subtext about dating in the 21st century and the electronic age and, you know, like there's kind of some interesting undercurrents in that story, you know? It's not the most emotionally powerful story. It's not, you know, but there's some interesting stuff in there. But story I also really loved was left out. The relationship between the dad and the kid was amazing. Harry or, yeah, wait, Hank, sorry. Hank, the kid is just so likable. It's such a good attitude about the whole thing and the ending made me laugh. This is so good. - Cool. - Like I said, these are so addictive. If you haven't picked it up, I would highly recommend it. Night moves is out now, get it. All right, market headlines, you want to dive into these? - Yep. - First one up, we got bond traders buckle up for no landing after job surprise. So the no landing scenario, a situation where the US economy keeps growing, inflation reignites in the Fed has little room to cut interest rates, had largely disappeared as bond market talking points in recent months. And then we got that payroll number. Jer, what is going on in bond world? Hey, I like to be on the right side of these things. So I was short bonds going into it. It worked, wasn't big enough. The yield curve steepened, not steepened flattened massively. Short term rates, two year yields were up, 22 basis points on payroll day. So basically what happened was we went from pricing in 10 rate cuts to six rate cuts in the span of a couple of days. And the next meeting in November, we're pricing in an 83% chance of a 25 and a 17% chance of no cut at all. Now, I think they're gonna cut 25. Like once they start on a cycle, they usually continue on that cycle. I don't think anything's gonna dissuade them from cutting at the next meeting, but I do think it's gonna be 25. But that maybe that's the last cut. I mean, if the data, you know, Powell said he's data dependent, if the data continues to be hot, they might go from five and a half to 475 and leave it, you know, which would be one of the biggest mispricings of the front end of the yield curve in forever, you know. I mean, I thought 10 rate cuts was stupid, you know, but. - Next up, let's talk oil here. Brent oil surges to $80 as war risk keeps investors on edge. So Brent crude soared to $80 a barrel. It's highest price since August as mounting tensions in the Middle East raise speculation that Israel may attack Iran's oil infrastructure. What do you make of all this Middle East tension going on? How do you think this is gonna affect markets? - I think Israel is gonna attack the refineries and other oil infrastructure. I think it's only a matter of time. So I think, you know, I think the market is correctly priced. If they don't end up attacking Iran, then there's lots of downside in oil, for sure. And this is the first time in about a year where geopolitical events have forced a risk premium into oil prices. Like for a long time, geopolitical events had no effect. And now the oil market is finally starting to pay attention to geopolitics. - All right, this is a big one this week for me. The great Florida migration is coming undone. So a surplus of housing inventory and dwindling buyer interest are slowing sales, hurricanes in extreme weather are making it worse. So we have got Milton bearing down once again on Florida's Gulf Coast this week. I think I saw it so cat five currently. Hurricane Helene, the storm's property damage was pegged at 15 billion to 26 billion. And now Milton is predicted to cause between 40 to 75 billion in damages. I mean, what can people do from a financial perspective to even prepare for this? Is it go beyond an aggressive emergency fund? - To prepare for a cat five hurricane? - I mean, not like just to like cover themselves in case they have to just jump ship and flee. - So have, this is something I like to talk about a lot. You gotta have a lot of cash, a lot of cash. And it's funny because I was actually on the Amazon page for no worries the other day. And there was like a new review and this guy gave the book two stars and he was like making fun of me because I said people should have cash, right? I'm like, this is, so I have a subscriber in Western North Carolina up around the Asheville area. And he's like, this right now is an experiment with a cashless society and he says it's not working. If you don't have cash, you cannot buy food, you cannot buy gas, you cannot buy water, you cannot buy anything. And people have just been used to using credit cards for everything and guess what? There's no power for a month and you can't buy anything with your credit card, you know? So you always have to have cash, several thousand dollars of cash, a lot, just for emergencies like these. So that is, you know, aside from having lots of insurance and all that stuff, that's like my one piece of advice. - Didn't you say you have a family member in the Tampa area? - Yeah, my mother-in-law, she doesn't live there full-time but she has a house on the water. It's not in a great part of Tampa but she technically does have beachfront property in Tampa and that is probably not gonna be there after this week, so. - Yeah, it's not looking good. - Yeah. - Yeah, I may lose power too, but at least I'm on the southeast side right now. Let's go to the mail bag. I've got kind of a long question for you. So I'm gonna break it up into three parts. This is from Rachel. I also streamlined this a bit 'cause we've already touched on some of the developments with oil and labor, but part one here. Do the dualities of the markets tell us there are warning signs or is this a new normal? For example, high-income earners are doing fine, low-income, not so much. The US and Europe are cutting rates, Japan's heightening. Half of the country's GDP is rising and the other half is falling. Half of investors expect 25 basis points. The other expects 50, although that's probably changed now. It feels like half of the world is watching a rom-com while the other half is watching a horror movie. And should I just be at home reading night moves instead? - Well, the answer to that is obviously yes. I don't mean to bring in something like totally left field to answer this question, but this duality or dichotomy that she's talking about, this difference between the haves and the have-nots really started in 1971, right? Like it started when we went off the gold standard. We suspended convertibility into gold, dollars into gold. And it happened very slowly, but over the course of the last 50 years, like the whole nature of the economy and capitalism has changed. And that's really when the inequality started to happen. And then a second round of it happened after the financial crisis, when we did quantitative easing, quantitative easing was supposed to stop deflation and create inflation. What it did was it inflated the price of financial assets, stocks and bonds. So that created a lot of inequality. So like this isn't new. I mean, this has been happening for 50 years. If you wanna go a really interesting website, there's a website called WTF happened in 1971. And I don't know who maintains that website, but there's a series of like 50 charts that show all these divergences in economic indicators over the last 15 years, which basically started when we went off the gold standard. I highly recommend you check that out. - Part two of this, all this to ask are things getting better or things getting worse? - Equities rising seem to tell us they're getting better. However, in this current environment, how do we navigate the risk of equities? - The risk of equities, the risk of stocks is a risk I don't wanna take at the moment. It's super binary. And it may not even be binary. It may just be all bad, right? So in the beginning of this conversation, we talked about how the stock market's been in a range since September 19th. And over that period of time, the polls have been basically deadlocked, right? It's been 50/50. So now maybe Trump's starting to pull away. Well, then you gotta ask, is Trump positive for the market, right? I mean, Harris is negative for the market, you would think, but maybe not. Like crazy things happened around elections. So if you remember what happened in 2016, Trump was sort of framed as this. I don't wanna say threat to democracy, but sort of this unpredictable person who had all these crazy ideas. And when he won the election on election night in 2016, the market was limit down. Like S&P futures were limit down. And they were limit down for a couple of hours and then they went limit up. Like, and then the market went up 25% over the next couple of months, right? So there's, you cannot predict what is gonna happen on election night. Like maybe if Kamala wins, maybe the market is limit down, then maybe it goes up, maybe Trump is limit up, then maybe it goes down. Like, I'm gonna be sitting at my computer trading and I'm just gonna kind of, I'm gonna take some risk and see what happens. But anyway, getting back to the original point, it's very binary here, right? Like it's either gonna go up a lot or it's gonna go down a lot. I don't think the market is gonna stay here for much longer. - And the third part of our question, I love the idea to keep the course on commodities, but is there anything else of good value right now? - If you're speculating, I would stick with commodities and commodity related equities, for sure. You know, banks sort of look good a couple of weeks ago when the curve was steepening, but now it's flat again. So who knows? Utilities are really overpriced. Consumer staples are really beaten up. And if we're not having a recession, then there's no need to buy consumer staples. I mean, you can kind of go down the list. I like energy materials. I like commodities. You know, I still think that's the way to go. - And then G wants to know in the next street freak AMA is, that is gonna be on October 22nd at 2 p.m. All right, let's take it to the week ahead. Being in Florida, I'm pretty much focused on Milton this week and just surviving. Anything else you're anticipating though? - No, I think it's gonna be a pretty quiet week unless something happens in the Middle East. I do wanna say one thing. So here's night moves and you have to buy night moves. So buy it right now. My next book is gonna be coming out in the summer of 2025. And it's another collection of essays. It's called Rule 62, Meditations on Success and Spirituality, gonna be an awesome book. But for now, you wanna get this one. - Have you talked about that you're writing a novel too at some point? - Yes, I already started it. I've written about 7,000 words. And most people would rather write novels and short stories. I would much rather write short stories. Novels are hard. I know what's happened. I know what happens in the beginning. I know what happens at the end and I have no idea what happens in the middle. - Yeah. (both laughing) - I gotta figure it out. - Yeah. - I've been making some good moves on a short story too. I just crossed 6,000 words on it. So it's about nearing completion. I'm excited about it. I haven't written seriously in a while. So you've inspired me a little bit. - Thank you for that. - Yeah, I mean, the longest one out of the ones and night moves is Dr. Burns. And that one is 5,500. So I don't write, and the shortest ones are about 4,000. - Yeah. - Like in search of truth is about 4,000. The wall is like 4,200, yeah. - All right, Jared, let's get out of here. - Okay, thank you for your time. I'll talk to you here soon.