Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we interview Jared Dillian, author and editor of The Daily Dirtnap newsletter.

Dan Ferris: And Corey and I will give you a little sneak peek of our 10 surprises for 2024.

Corey McLaughlin: And remember if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

2024 is right around the corner. Thanksgiving is behind us. It's coming. It'll be here.

Corey McLaughlin: Looking forward to it. Let's go. Still got some leftovers in the fridge from Thanksgiving, though. But yes, let's move on to 2024.

Dan Ferris: Yeah, we've got good leftovers and looking forward, of course. At the end of each year now, we do our 10 surprises – 10 things that would surprise investors in the coming year. The one that I want to do a sneak preview of – I would hope it would be kind of obvious. I really would. And I think it would surprise a lot of people if the – let's call them the "Magnificent Seven" – the seven stocks that have led the market higher and higher all year – if they underperformed horribly, if they – how does one say – sucked wind. If they were – we're talking Apple, Microsoft, Amazon, Meta, Nvidia – I always leave one out, but you know which ones I mean. Those seven. Tesla is another one.

Corey McLaughlin: Google.

Dan Ferris: Yeah. Google, Alphabet. That's right. So, if those seven stocks did not absolutely scream again, or if they didn't do well, if they didn't go up, if they just didn't go up, I think it would surprise a lot of folks.

Corey McLaughlin: Yeah, you do think that will surprise people, because I guess – maybe we're – I'm looking at it like they've gone up so much that they can't possibly go up. Am I wrong in that thinking? That's not the mainstream thinking is what you're saying. Yeah.

Dan Ferris: Yeah. I don't think it is. I think everyone believes – I think lots of people – I won't say everyone – lots of people believe we're in a new bull market, and they think those seven stocks are unassailable. They're – I think the performance – to me, the performance speaks for itself. The performance tells me that lots of people love them, and the problem I have with them is that at this point, they're viewed as absolute no-brainer, great performers. They're safe. I mean they're trading at an average at 55 times earnings. They're not safe. They're Cisco in March of 2000 at this moment. OK. They're not safe. At least they're not priced for any kind of return in the near term.

Corey McLaughlin: Yeah, no. I'm with you. If anybody is thinking the Magnificent Seven are safe in 2024, I would caution against that. That's certainly not what I'm thinking. We've already had this run-up from them this year. And if we think what's going to play out in the next 12 months or even if it doesn't, like you said, they're priced for more than perfection. 50 – can you go up from there? I don't know.

Dan Ferris: Yeah, can you go up from perfection? I don't know. I think that more broadly, I think if the market isn't up next year, if we're not in a new bull market, I think that might surprise a lot of folks. People think the dip has been bought, and it's clear sailing from here. I don't know.

Corey McLaughlin: Yeah, I'm not so sure. I'm not so sure about that one. This is getting me excited about thinking about our – the surprises that we said this time last year. Trying to think of them off the top of my head, excuse me. I remember one of them I'll just mention was bitcoin making a new all-time high this year I said would surprise a lot of people if that happened. Obviously, that hasn't happened yet, however, I will say that bitcoin has been up over 100% the last year.

Dan Ferris: Absolutely.

Corey McLaughlin: And it's about a double in the last couple of months alone. My point there with that surprise last year was that bitcoin was hated so much at the time. You had SBF. You had the FTX thing. You had just plunge from all-time highs to where sentiment – which our guest, Jared Dillian, will talk about a little bit – was so low. I didn't think it could go any lower. I figure if you wanted to take – if you're HODLing your bitcoin, you would still want to HODL it. That would not be the time to sell. You'd just want to hold on to it. If you did that, you've made back some from the all-time high. You're halfway there to 60. You're at 37,000 up from 17, I think it was. So yeah, surprises can happen. It's not a new all-time high, so I'm not going to take credit for it, but it's trending in the right direction there.

Dan Ferris: Yeah, so I just want to beat this one horse to death a little bit more. Of the Magnificent Seven, do you know which one is the worst performer?

Corey McLaughlin: I don't. I want to say Alphabet. But I could be wrong.

Dan Ferris: You're actually not far off. Alphabet, year to date as we speak, is up 55.7%. The worst performer is Apple, up 46%. The worst performer, the worst one is up 46%. Of course, Nvidia is the best, up 227% just since January the 1st. Meta is up 181%, which we should probably give our colleague Whitney Tilson just a little shoutout. He was really bullish on them a little over a year ago, and really nailed that one. But wow, Tesla up 91%, Google up 55%, Amazon up 74%, Microsoft's up 57%. Wow. I mean, those numbers – for a one-year – an 11-month, not even a one-year, an 11-month performance, those numbers are amazing. These are like $100 billion market cap companies. I'm just sitting here going – and trillion-dollar. There are a few trillion-dollar market caps in there.

Corey McLaughlin: And what is it? Is it all AI optimism? Is that what we're talking about here? Is that what the market's doing? I don't know. It's just –

Dan Ferris: That's not a bad guess, I think.

Corey McLaughlin: If that's the case, then it would make sense that maybe we're – you're pricing in 10 years of future returns there now, because –

Dan Ferris: It looks like it. Yeah.

Corey McLaughlin: – betting on the AI story. Nobody knows what's going to happen with it exactly. Something's coming. I don't know. This also reminds me, if you're talking about those returns, what about the rest of the market? What has the rest of the market been doing? It's not much. If you talk about those equal weight measures and indexes before. It also just reminds you of the "Un-magnificent 493" that are just plodding along. Maybe there are some good buy opportunities in there eventually.

Dan Ferris: The Un-magnificent – you're talking about the rest of the S&P 500 of course. The S&P 500 Equal Weight is up 3.7%. So, Apple is up like 46%, biggest stock in the index. Microsoft, Amazon – all these are in there. And the whole Equal Weight is up just less than 4% but the Russell 2000 Equal Weight – negative 5% here 11 months into a screaming hot year.

Corey McLaughlin: A lot of "divergences," they would say, in technical speak. Divergences.

Dan Ferris: Alligator jaws.

Corey McLaughlin: Which say all is not well, or all is not a screaming bull market. It's obviously been one for those tech stocks, but for everything else, not so much.

Dan Ferris: Yeah, screaming bull market for $7 trillion market cap tech stocks. I think Tesla is the only one that doesn't have a trillion-dollar market cap. And still a bear market, down 30-odd percent from the highs of late November 2021 for everything else, for everything else. I mean it's just I don't know.

Corey McLaughlin: So, is this good news or bad news for the overall market? You know that there's the Magnificent Seven and there's everything else that's been flat essentially. I don't know.

Dan Ferris: Well, looking backward, of course, it's not great news, is it? But looking forward, I'm sure everyone will tell you, "But the breadth, the breadth, the breadth." It has recovered and it's gone from like 10% of the S&P 500 making new highs or whatever to something like 70%, those kind of numbers. I don't know the exact figures, but I did see from 10 to 70-something recently. We've all heard breadth a million times in the past month. Breadth, oh breadth. Maybe this is it. Maybe that's what happened. You get a breadth recovery and then you really are in a new bull market. I'm skeptical because I think everything is still expensive as hell.

Corey McLaughlin: Yeah, and I'm skeptical just because I think a recession has essentially already begun, I think.

Dan Ferris: Oh, yeah.

Corey McLaughlin: You may disagree or agree. I don't know. I'm skeptical for that reason. If you've got these expensive stocks at 50 times earnings, and we're saying, "They can't possibly go higher." Could they? I guess they could, but at that point, I'd be even more skeptical.

Dan Ferris: Right. It could always get worse.

Corey McLaughlin: Yeah, yeah. So yeah, just be careful if you're piling in those ones at this point. I think there's a lot of different other ideas that are worth considering than chasing Nvidia and Meta and everybody higher. Don't be Cisco in 2000.

Dan Ferris: Exactly. Yeah, don't. That's right. Don't think that the stock that has just screamed and is trading for 200 times earnings is the no-brainer that you have to own. That's what Cisco – everybody – it was in 10 of the top 10 mutual funds of its time. It still hasn't recovered 23 years later. I feel like I bring up the same statistics over and over again. I'm like an old guy that keeps telling that same story at dinner. "I remember Cisco. Cisco at 200 times earnings." Why do I do this?

Corey McLaughlin: Somebody at Thanksgiving was telling me the same thing. "Remember when Cisco was the toast of the town?"

Dan Ferris: Exactly. "In my day, we had Cisco." Everybody talking – but there's a reason of course why I repeat this stuff. It's because I think it's still relevant. I'm going to keep talking about how expensive everything is and how I expect the stock market to, at best, go sideways for the next several years. Or actually, I think sideways for several years and down for a few makes the most sense to me. I think probably next year – I shouldn't say this, but one of the other surprises will be that the economy will do better than people think. Interest rates will stay high. Valuation will start to recover, which means stocks will fall. And credit, I think will be a better investment. I think there will be problems in credit markets, and there will be defaults and things, but the credit investors will have a field day and I think that field day buying bargains is a couple years off for equity investors.

Corey McLaughlin: Yeah, it sure seems like that. To me, when I'm hearing reiterate the valuations of the tech stocks, interest rates staying probably higher. I don't think they're going to go as low as maybe some other people think. You're looking at that and you're like the 60/40 portfolio is still – it's not a – I don't think is a solution right now especially if bonds don't recover to those levels that they were in the last 10 years, which they shouldn't if rates stay higher, or they won't if rates stay higher. Stocks are just risky at this point. It's wise to look at some other things like commodities, especially if the Fed even cuts rates a little bit. I think that's going to reignite the inflation story or reality, and we'll be talking about high inflation and commodity prices all over again. Which it may be that that may happen. That may be natural and healthy for this to happen in a rate-hiking cycle, higher-rate environment. This is going to be the new story. When the Fed cuts rates, "Oh, let's not juice the economy too much. Let's try to keep inflation under control instead of we need inflation over 2%." Let's not forget that the Fed was begging – trying to come up with anything to create inflation for 15 years and now they're trying to do anything to get rid of it. All right, so that part of the story has flipped on its head. Anyway, think about some other things besides the old, 60/40 conventional stuff that has worked for the last 40 years... 40 out of the last 42, the last two not included.

Dan Ferris: Yeah, that's right... 40 of the last 42. Yeah, I don't disagree with any of that, and that's what I've been doing in The Ferris Report. In Extreme Value, we find the greatest businesses, the most cash-gushing, wonderful businesses. We have not recommended any of the Magnificent Seven, even though five or six of them at any given moment are the most incredible businesses that have ever existed. But they're just priced for more than perfection, as we said. Aside from doing that in Extreme Value, in The Ferris Report, I've just done everything but stocks in the past two or three issues. I'm just like, "Wow, I've got to think of something else that's not stocks again this month because I think it's going to be a little problematic."

Anyway, we have a guest today who probably has some views on all of this and has an interesting story to tell. Maybe we'll cover a little bit of that, too. Very interesting guy. Some of you probably know him. He spoke at our conference this year. His name is Jared Dillian. He has a new book out and a new one coming out. Let's just talk with him about as much of that as we can pack into an interview. Let's do it right now.

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Jared, welcome to the show. Glad you could be here.

Jared Dillian: Thanks. Great to be here.

Dan Ferris: So, we were just talking before we hit the record button, and I was among the few who was not able to get a copy of your book at the recent Stansberry Conference. This is your new book. This is your latest one called Those Bastards.

Jared Dillian: Well, actually no.

Dan Ferris: No. OK.

Jared Dillian: Those Bastards, which is a collection of essays, came out in April and that's the book that you all handed out at the Conference. My new book, it's called No Worries: How to Live a Stress-Free Financial Life is coming out January 23, and actually I have an advance copy of it here. So that's being published by Harriman House. It's coming out in January. Highly recommend everybody pre-order it. It is about how to live a stress-free financial life.

Dan Ferris: Well, we could all use that right now. It's been a stressful couple of years. Soaring market, falling market, and pretty – well, soaring again if you're just looking at the big indexes. But I want to talk about that because it's something that I actually try to focus on in one of the newsletters that I write. Can you give me the bullet points? And then maybe we'll drill down into each one of a stress-free financial life.

Jared Dillian: Yeah, there's a couple things. No. 1, the conventional wisdom in personal finance is that you want to cut aggressively small expenses. The example that everybody uses is "Don't buy coffee from Starbucks. Make coffee at home." If you don't buy coffee at Starbucks, you'll save four bucks a day, $1,200 bucks a year. You'll have $40,000 bucks, which if you invest will be $200,000 bucks. You can have a comfortable retirement if you give up drinking coffee. The problem with that is that coffee is a small daily luxury, and people have a difficult time giving up small luxuries. Coffee is hard to give up. Coffee wakes you up. It helps you poop. It does a lot of things. But people can give up large luxuries. So, if you get a 2,400-square-foot house instead of a 2,800-square-foot house, you're not going to be in that house miserable. You're not going to be thinking, "This house sucks. I hate it. It's too small." You'll be perfectly comfortable in that house. It'll cost $100,000 less. Over the course of paying the mortgage over 30 years, you will have saved $120,000 in interest which is like three lifetimes worth of coffee.

So, one thing I try to point out is it's not a million small decisions that determine whether you have money. It's a couple of big decisions. It's the house. It's the car, and it's the student loans. If you get those three decisions right, then you don't have to worry about the little stuff. The little stuff doesn't matter. We live in a culture – Americans are all about the little things. I don't know if you remember that commencement speech at Texas A&M years ago with Admiral McRaven where he said, "If you just make your bed in the morning, if you just do this one thing, if you just make your bed then your day will be off to a good start, and you'll be terrific." It doesn't matter. I don't make my bed. I really don't. I don't make my bed. I get up and then I just leave it a mess. I get in it at night, and I don't care. I focus on the big things. We are taught that the little things matter. Little things don't matter. Big things matter. Big, big things.

Dan Ferris: This is refreshing. I cannot tell you how many times I've had this exact precise discussion with my better half because she's saying, "No, we can't afford the $70 bottle of wine."

Corey McLaughlin: Yeah, Dan, I was going to say the same exact word – refreshing. The same thing too with my better half.

Dan Ferris: Yeah. It's like she says, "We can't afford a $70 bottle of wine." I'm like, "You know, it's $70." Then she's like, "Can we go to Fiji for three weeks?" I'm like, "The way you want to do it, it costs like $50,000." You know what I'm saying? That's not three weeks actually. That would be $150,000. God bless you, Jared. Thank you. If that's the main point of the book, I'm pre-ordering right this split second, and I mean it. I'm clicking pre-order right now because that and I'm not going to read it. I'm going to give it for a gift to you know who.

Jared Dillian: See, here's the thing. The personal finance industry has this mythological person with $100,000 Chevy Silverado and a 580 credit score, and this person that spends too much and buys $70 bottles of wine and is in debt. This is the bad person. We say this is the bad person. It is possible to spend too much money, but what the personal finance industry doesn't talk about is the person on the other extreme, the person who spends too little money. Americans are cheapskates. We are a nation of cheapskates. We are lousy tippers. We don't give to charity. The average charitable donation is $850. That's for a year, which is 4% of the median income. We don't give that much to charity. We're lousy tippers. We buy generic brand pork and beans at the grocery store. The vast majority of people are very good with their money, but the problem is that they spend too little, and the consequences of spending too much are you're in debt. You're paying lots of interest. You could go bankrupt. But the consequences of spending too little are it damages relationships with family and friends because you're cheap. If you have a relative that is cheap, and I'm sure you know somebody that is really cheap, it is really hard to be around this person. They're constantly chiseling.

Dan Ferris: Yeah. I'm not going to name any names here on the podcast, but there is one particular individual that we always have to think about. "Now, if we're going to do this, we have to think about being around Mr. X or Mrs. X", whoever it is. I agree with that. But the phrase spending too little I'm sure will rankle many ears. I mean many listeners will say, "Spending too little, what do you mean?" Because we are also – I guess I won't try to preface this. I'll just ask the question. We often hear if you take care of the pennies, the dollars will take care of themselves. Is this not true to any extent, Jared?

Jared Dillian: No, it's not true. Actually, the opposite is true. The goal is to have a healthy relationship with money. If you spend too much, then money is your master. You're trying to make the monthly payments. You're laying in bed at night worrying about how to pay the rent. Money is your master. If you spend too little, if you're agonizing over whether to get a soda out of the soda machine, then money is your master. Really, the problem with this book is that it's presenting a middle-of-the-road solution. In personal finance, people have been putting forth extreme solutions because extreme solutions are really easy to understand and implement. For example, cutting up your credit cards and just using cash and living off the grid, that's not realistic, but it's really easy to understand. Or I'm going to go into debt and buy a bunch of rental properties and do the passive-income thing, massive amounts of debt. It's not realistic, but it's easy to understand. The middle-of-the-road solution is the hardest solution. It's the hardest to implement. Trying to find that balance.

Dan Ferris: Ah. Now we have encapsulated into a single concept – balance. That we all understand, don't we? We all know what balance is and we're all – we all tend to be – it's like that story about one of the early Apollo missions. They were off course 99% of the time because they're constantly correcting. They got there because it was a constant exercise in course correction. I feel like that's admittedly, all cards on the table, that has been my financial journey in life. My personal financial journey is the constant course correction. I spent nothing for years because I had spent way too much and gotten in way over my head when I was very young, and then I spent nothing. I was all cash, and just I wouldn't buy a car. So, balance. All right. You've just – you've definitely sold one copy of the book here. I just bought it.

Corey McLaughlin: Two, Dan. I'm going to get one too, Dan.

Dan Ferris: All right, two copies. All right. Let's see how we can affect this during the show. Balance is good. You've got another one from the book that you want to share?

Jared Dillian: Yeah, so there's only two sources of financial stress. A lot of people when they think of financial stress, they think of somebody who doesn't have any money, is living paycheck to paycheck. They're struggling to pay the bills, but that's not really a source of financial stress. There's two sources. One is debt. Debt is a source of financial stress, and the other is risk – financial markets risk. So, it's not a function of how much money you have. I know people who have no money, virtually no savings. They pay the bills every month and they're happy because they don't have debt and they don't have risk. The richest guy in the world, Elon Musk, took out a bunch of debt to buy Twitter. Tesla went down 75%. He almost got a margin call. The richest guy in the world almost went "tango uniform" because he had too much leverage. So, he has lots of financial stress. Whether you have financial stress is really how you structure your financial affairs, how you structure your life, and how much debt you use and how much risk you take on.

Corey McLaughlin: Jared, this is Corey. You're speaking so much to my outlook on finance and how I got into this industry. Nobody is born knowing everything about money, but I didn't know squat. You're taught or some people are taught that money is the root of all evil. It's not something you should be trying to understand, but it's exactly the opposite. You should be trying to understand money and how it works and how the financial system works and just what you said there touches on spending less than you make, no matter what those levels are. Elon Musk or whoever is – doesn't have a huge investment account and is happy like you said. Yeah, I'm excited to get a hold of this book, too.

Dan Ferris: I'm not saying I don't still have both of those sources of risk operating in my life, but it's not the disaster it was years ago.

Jared Dillian: Let me tell you a quick story. This just happened. This just happened yesterday. I booked a trip to Memphis for a Christmas party in December, pretty close to Christmas. Booked the flights, booked the hotel and I was going through my e-mail yesterday and I saw the confirmation for the hotel and it said November 21, and I said, "Oh no. I booked it for November instead of December." So, I called up the hotel and I said, "I screwed up. I booked it for the wrong month. Can you help me out here?" They said, "Well, our cancellation policy is that if you cancel at 10:00 a.m. on November 21, you get a refund, but it's 5 p.m. so you're out of luck." So, I basically set $450 on fire, which was stupid. It's just an absolutely stupid thing to do. I just wasted $450 bucks. I'm sitting on the couch, and I told my wife about it. I'm like, "You know, I'm sitting here worrying about $450 bucks, and my investments are moving around $100,000 a day." It's really about perspective. You know what I mean?

Dan Ferris: You know, Jared, this reminds me of Harry Browne, How I Found Freedom in an Unfree World. He talked about personal finance. He said that at that time – I think the book was published in I want to say the '80s, a long time ago, so the numbers reflect that – he said, "I don't care about anything that costs $100. I don't care. If somebody comes to me and says, 'You need to do something and it costs $100,' I just give them the $100. They do it and I don't care." He developed that threshold and that's what you're describing. The threshold – for a guy like you who is up $100,000, down $100,000 by the minute by the day, whatever, maybe $450 isn't so bad. You don't care. For me, I've realized that I think life put this on me. It's somewhere in the $500-to-$700 range, just because homeownership involves myriad expenses approximately in that gap. Getting things fixed, and having things serviced and having people come and do things all the time, and I just stopped worrying about how much it costs. My wife will say, "This guy charges $400. That guy charges only $375." I'm like, "Don't care. Stop. Don't want to hear it. Don't want to hear it. Go away. Make it go away."

Corey McLaughlin: Will they show up at my house? Will they be here on time?

Dan Ferris: Yeah. "Don't care. Make it go away." So, I like this. I like this book and it's not even out yet. So, wow. I have to admit, I've had Street Freak on my shelf, your first book, for a while now, and I couldn't even find it. We were going to get you on the show. I was like, "Hey great." I couldn't even find the thing. I haven't read it yet, so you've just put a fire under me. I'm reading Jared Dillian next. That's what I'm doing next.

Jared Dillian: Cool.

Dan Ferris: Yeah. So, let's talk about – now that we've discussed personal finance which is a great topic that we hardly ever get to, what do you see when you look out at the wide world of – our listeners are going to be mostly interested in the stock market – but boy, after the last year and a half or so, they're sure interested in interest rates as well. What do you see when you look at the wider world in the stock and bond markets?

Jared Dillian: Yeah, I've actually mostly been focused on the bond market probably for the last six months. The yield curve inverted 16 months ago and typically after a yield curve inversion, you get a recession anywhere between three weeks and 18 months. So, we're getting close to the limit here. We're getting close to 18 months. We also had the deepest yield curve inversion since the 1980s. So, it was a very deep inversion. The economic data has been deteriorating very slowly over the last year. If you look at the 12-month average of claims and payrolls, it's been coming down very slowly over the last 12 months. I think one of the main reasons we haven't gotten a recession yet, every recession is different, and I think it's because of the $3 trillion stimulus we pumped into the economy, and that money is still sloshing around. It's taking the economy a very long time to roll over. There's a group of people. They call themselves the Higher for Longer crowd. I don't know if you guys are part of that crowd, but basically the belief is that even though the yield curve is undefeated as a recession indicator, this time is different. We've heard that before. This time is different. And we're not going to have a recession and interest rates are going to keep going higher, which I totally disagree with. I totally disagree with.

I don't think we've eliminated the business cycle. I just think it's taking a long time to happen. I think we'll be in recession sometime in the next six months. I think that the fed-funds curve which is pricing in the first rate cut in May, I think that's probably about right. I think it might happen earlier, but no disagreement there. That's basically it. I believe we're going to have a recession. I think two-year notes are going to go to 2.5%. I think 10-year notes are going to go to 3.5%. The curve will be 100-basis-points steep. It just makes a lot more sense to be in bonds rather than stocks right now. You're getting a 4.5% coupon. If you look at investment grade, you're getting 6% to 7%. If you're looking at high yield, you're getting 8% to 9%. It just makes more sense.

Dan Ferris: If you can do private lending at all, you can get double digits.

Jared Dillian: Yeah, right. That's a whole other story.

Dan Ferris: Whole other story and requiring great skill, but there are people who have that skill. I just looked. I bought the new book No Worries. Then I just looked. I was going to go buy Those Bastards, and Amazon said you purchased this edition on April 2, 2023, so it's around here somewhere in the thousands of books. I'll find it. It's in there somewhere. I didn't need to get a free copy, I guess. But do you think it's different – I don't want to say it's different this time, but do you think that coming out of COVID, basically the shutdown of the economy and then restart changes the cycle at all? It doesn't sound like you do.

Jared Dillian: I think it lengthens it. I think it lengthens the cycle, but I don't think it eliminates the cycle.

Dan Ferris: Or the cycle is not of a different character. It's the difference is only in length in other words. It's not in any qualitative way.

Jared Dillian: Yeah, so for example, we got existing home sales the other day. It was a horror show. It was terrible. The median price of a house is down. The time to sell a house is down. The transaction volume is down. One of the interesting things about the housing market is that it stayed pretty strong even as rates went up. Rates went up – 10s went up to 5%. The housing market was trucking along. Finally – it just takes time, rates start to bite. Now the housing market is rolling over and the housing market is really a big engine of the economy, and if you look at the NAHB survey, it came in at 34, which is well below 50. So yeah. Things – we got durable goods today, which came in at down 5.4%. The data is rolling over. I have confidence that this is going to happen.

Corey McLaughlin: Jared, I'm similar view of seeing the data been rolling over for the last – now and the past couple of months too and perhaps in pre-recession or early recession behavior with the yield curve and all of that. As far as the markets are still responding, so bad news is taken as good news for the moment it seems like. Do you think that's true or – and then when does the bad news become bad news for the markets and stocks and that?

Jared Dillian: Yeah, so you actually see this phenomenon at the top of every cycle. You saw it in 2000. You saw it in 2007. So, when the economy begins to roll over and rates start to come down, the stock market responds to lower rates by going higher in the short term, but eventually the economy gets really bad, like you said, bad news becomes bad news. I saw a really great chart about a month ago that showed the last rate hike in a rate hike cycle in the context of where it was in the stock market. The last rate hike was at the top of the market in 2000 and it was at the top of the market in 2007. So yeah, I have no illusions that the Fed is going to begin cutting rates at some point in the near future. Stocks will respond to that, but ultimately the trend will be down. So just in the short term, looking at the market over the last couple weeks, the stocks got down to 4,100, 4,150. We're up about 10% off the lows. We're getting back to the previous highs of 4,600. The all-time highs of 4,800. Feels like stocks have some momentum here. I think we're getting close to where you could put out a short somewhere between 4,600 and 4,800 in the S&P. But I'm not in a hurry to do that because sentiment is not at extreme levels yet. We're not at extreme bullishness. In fact, we're not even really close. We're not at those extreme bullish levels.

Dan Ferris: No. We are still at extreme valuations on the S&P 500 if you just take the whole index.

Jared Dillian: Yeah, I think the S&P is at like 20 times or 21 times or something like that. It's still super expensive.

Dan Ferris: Right, especially compared to you're talking about 4.5% 10-years. We've been here before over the past decade or so. 10-year was at 4.5%.

Jared Dillian: The stock market is higher today than when the rate-hike cycle started. The Fed has hiked 550 basis points and stocks are actually higher than when it started, which is insane.

Corey McLaughlin: Yeah, that is.

Dan Ferris: It seems insane, but Jared, I'm just playing devil's advocate here because I do agree. It seems insane but then again, what is it? 5.25% to 5.5% on fed funds. That's back to just normal though, right?

Jared Dillian: Yeah, that's the argument you hear a lot from people that – you hear it a lot from the bond bears. You say, "OK, rates on 10s is at 4.5, which is basically the average over the past 100 years." So, we're just up to average levels. The logical conclusion is that they could go a lot higher. I don't – I think that's faulty logic. I don't think that's necessarily the case. First of all, maybe rates go higher in the long term which is super possible. That could definitely happen, but markets don't do anything in a straight line. It's highly unlikely that 10-year yields are going to go up 800 basis points in a straight line. That's just not going to happen. So, if you look at path, if you look at this path dependency of the rate markets, what I think happens is that rates go up to 4.5%. They pull back to 3.5% or 3.0%, and then perhaps two years from now, they go to 6% or 7%. I think that's entirely possible.

Dan Ferris: Right, and as I grab a quick chart on Bloomberg of fed-funds target rate, your comment about path is quite evident. There are cuts and hiking cycles and hikes and cutting cycles. So, getting a cut in – just call it March, April, May – whatever it is. You said May, I think.

Jared Dillian: May, yeah.

Dan Ferris: Not necessarily – could that not wind up being a cut in a hiking cycle? We're guessing about the future here, but I'm just saying because there is the other view that the Fed has its back against the wall, and if they hike anymore, they'll crash the economy and if they cut anymore, they'll just reignite inflation. However, many basis points it takes of cuts and then we're back at your number on the CPI and PCE.

Jared Dillian: I think it was prudent for the Fed to pause rate hikes because we basically had the fastest rate hike cycle in history. We did 500 basis points in a year. I think it's prudent to pause and let those rate hikes work through the economy and I think that's happening. But I lost my train of thought. Totally forgot what I was going to say.

Dan Ferris: Just for our listeners, I'm looking at Jared and he's got almost as much gray hair as I do. That happens to me all the time on the show. We edit it out, but it happens.

Corey McLaughlin: At least you guys have hair.

Dan Ferris: Anyway, I don't know. It was not a great question anyway, because we're just sort of guessing about the path of rates, which is we don't know.

Corey McLaughlin: Rate cuts within a hiking cycle. When the Fed cuts rates or if they cut rates, yeah.

Jared Dillian: Well, it's really dependent upon inflation and one thing I'm very fond of saying is that inflation is not an economic phenomenon. It has nothing to do with economics. It's all about psychology. It's all about psychology. During the pandemic, when we were injecting stimulus into the economy, we flipped from a deflationary psychology to an inflationary psychology. If people believe that there is going to be inflation, then they will act in such a way that causes inflation. Let me give you an example. You're going to go buy a bag of fertilizer at Lowe's and it costs eight bucks. But now you have inflation, and it costs $10. So you say, "Well, instead of getting one bag of fertilizer, maybe I'll get 10 bags and just keep them in my basement of home." So, the act of you buying 10 bags and everybody else buying 10 bags causes the price of fertilizer to go up. So, if people believe that prices will go up, they actually cause prices to go up. I don't think that we've broken the inflationary psychology. People still have an inflationary psychology. People believe that prices are going to go higher, especially with food. That's the big thing. People believe that food prices are going to go higher. It accelerates consumption and it perpetuates this inflation. The reason that we got out of the inflation of the 1970s is because Volcker's rate hikes caused a severe enough recession which by the way was negative 6% of GDP, negative 6% GDP. A severe enough recession that it broke that psychology, so people stopped expecting price hikes.

Dan Ferris: That's for sure.

Jared Dillian: So even though we've hiked rates 5%, I don't think it's enough to break that psychology. I do believe that if we do start cutting rates, it will reignite inflation and we're going to have to go through this whole nightmare all over again. So, I look at things as a trader. I believe that we'll have a recession. I believe that the Fed will cut. But ultimately that will lead to more inflation in the future and higher interest rates.

Dan Ferris: Inflation is a purely psychological phenomenon, Jared? There's no place for the fact –

Jared Dillian: I think so.

Dan Ferris: – that we printed up trillions of dollars – issued trillions in debt and spent trillions and the fiscal picture went off the charts as though we were in World War III.

Jared Dillian: All right, so I might be exaggerating things a little bit because as Milton Friedman says, it's a monetary phenomenon.

Dan Ferris: Phenomenon. I was going to do the same quote.

Jared Dillian: Yeah. It's purely a function of more money chasing the same amount of goods. So that, too. In my newsletter, I focus almost exclusively on sentiment. I focus on psychology. That's kind of my bailiwick. That's what I do. So that's the framework from which I look at it.

Dan Ferris: Got you. All right, so that's a pretty balanced view actually because you could see easily perhaps long after the increase in money and credit has worked its way through that the psychology would still be there. I can see that all day long.

Jared Dillian: Yeah.

Dan Ferris: So, it does make a little bit of sense, and it makes me wonder – actually, you know what? Forget what I was just about – I was going to talk about inflation some more, but I've got to talk with you about a personal pet peeve of mine in that very same vein. It's more than a pet peeve. I tend to believe that the last call it – well, just go back to 2009. Since then, investors have this viewpoint that it's almost like U.S. stocks are the safest, greatest thing in the world. They can always be bought no matter how expensive they are, and they'll never go sideways. We'll never see that again, even though we've seen it multiple times in the past century. There is no alternative still. I think this moment in particular is a dangerous time for that. I think it's going to take a horrendous beating which the market tends to deliver them when people require horrendous beatings, it tends to deliver them. Not on any schedule that I know, but it seems inevitable.

Jared Dillian: We are about 22 months below – almost 23 months below the highwater mark. The top of the S&P was January 3, 2022. So, we're coming up on two years without making a new high. We've had some periods in time, very long periods in time where the market didn't make a new high. So, from 1929 to 1945. From 1969 to 1982. We've had periods of a decade or more where you did not get a new high in the stock market. That is – it's funny because we're not that far away from a new high. Valuations are high, but that is brutal on sentiment. A lot of people do anchoring. I'm sure you know what anchoring is where people look at the high watermark and they say, "Well, if I can just get out at the highs, if the market just gets back up to the highs, I'm going to sell, and I'll break even and whatever." So, there's a lot of anchoring going on.

Dan Ferris: Right, that is classic investor foible. Oh boy, I didn't see that coming, but I'm just going to wait until I get back and then I'll get out. You never get back. That is bull market thinking.

Jared Dillian: We could easily have a 10-year period where stocks basically go sideways, to your point, and over that 10-year period, earnings come up and valuations compress and then maybe in 2033, we have that 1982 moment where you have single-digit P/Es and 6% dividend yields and stocks are really cheap, and that is the seeds for a new bull market. We could totally go sideways for 10 years.

Dan Ferris: Yeah, I agree. I think the likelihood – I won't make any predictions. I think the likelihood of that is higher now than it has been. So, what do we do about all this? Are you – you said you just – you like bonds. Are you just avoiding stocks until you get a recession?

Jared Dillian: Pretty much. The only stocks I own are non-U.S. stocks. I don't own any U.S. stocks at the moment.

Dan Ferris: Wow.

Jared Dillian: I own stocks in Argentina.

Dan Ferris: Nice.

Jared Dillian: Yeah, which the funny thing about that is I've down a lot of work on Argentina over the years going back to 2013 to 2014. I'm pretty plugged into the politics there. When Milei began to rise, about eight months ago, I took notice of it. Stocks in Argentina were starting to lift a little bit, so I bought a couple of stocks, added to the positions. Yeah, the election was great, but if Argentina dollarizes, which I think they will, I think they'll be able to accomplish that. There's precedent for this. When Ecuador dollarized a few years ago, they had 8% to 9% GDP growth for a decade. So, Argentina could really, really grow. The whole market – there will be some pain. Dollarization will cause some pain, but I think over the next five to 10 years, you could see 3X to 5X in returns in Argentina. I think India is a big opportunity. India's a huge opportunity especially when you look at it in terms of flows, where China is basically uninvestable, and Russia doesn't exist anymore. Brazil's a mess. If you're an emerging market investor, India is really the only economy that's showing any sort of growth that has stable politics. All the EM flows are going to India. India has had a pretty good bull market over the last couple of years. I don't have any interest in buying stupidly expensive U.S. stocks where things are not super stable around here. There's other places in the world to go where there's a lot more growth that are a lot more promising.

Dan Ferris: Would you buy Argentina right now? Sounds like you would.

Jared Dillian: I would actually. I would.

Dan Ferris: I think the – I just looked at a screen briefly the day Milei got elected in Argentina. I saw the Argentina ETF was up like 35% or something just in one day. Just soared.

Jared Dillian: Just word for the wise about the Argentina ETF, it's not a very good ETF. There's one stock that's 45% of the ETF. It's MercadoLibre. It's basically the Amazon of Argentina. It's a tech stock and it's – if you're buying ARGT, it's really you're buying one stock. It's like half the portfolio. It's not a good basket.

Dan Ferris: Plus, it's tiny, too.

Jared Dillian: Yeah, Argentina has 19 ADRs. There's banks and oil companies and mining companies that you can pick from just buying the ADRs.

Corey McLaughlin: Any similar words of warning on India ETFs or investments? Because like you said a lot of times people will run out and buy these ETFs and not know what's in them.

Jared Dillian: Well, the only thing I'll say about India is that you want to go large cap. India's had a little bit of a minor bubble in small-cap stocks. Small cap is run up a lot in India. It's junky and it's a little overpriced. You want to stick with the big, large-cap, market-cap-weighted ETFs.

Dan Ferris: All right, yeah. I've had the same advice from Rahul Saraogi who we haven't had on the show in quite a while. He's a native Indian. He operates out of Chennai. He's told many people – I've been in his presence. He's told me and many others and he'll say, "Just buy the ETF. You'll be fine." Meanwhile, he's picking stocks. He should be going after clients. It's time for our final question already. This has just breezed by. It's been a lot of fun. It's the same final question for every guest no matter what the topic, even if it's a nonfinancial topic. Same question. Same final question. The question is very simple, Jared. If you could leave our listener with a single thought today, what would it be? If you said it already, we don't mind you repeating it.

Jared Dillian: Aside from the book, which is the obvious one, I'd love to say, "Buy my book" but aside from that –

Dan Ferris: Two thoughts.

Jared Dillian: – sentiment is – let me phrase it this way. Fundamental analysis is no good because the market is efficient. You're looking at publicly available information. Everybody is looking at the same information. Everybody's done the same ratios and calculations a million times. It's no good. Technical analysis, I think is slightly more effective but at the same time, everybody is looking at the same charts, drawing the same trendlines. There's a little confirmation bias. It's not as effective. The one thing that works in markets all the time is sentiment analysis, is analyzing sentiment. It's just axiomatic. When everybody is bullish on something, it's time to get bearish. When everybody is bearish on something, it's time to get bullish. There has been some attempts to systematize this. Some hedge funds have done this. I don't systematize it. I like to tell people that I'm not the quantitative analyst. I'm the qualitative analyst. I listen to stories and anecdotes and talk to people and look at Twitter and stuff like that. I look at how people are feeling. That's how I get my edge in the markets. It's repeatable. It's a very repeatable process. So, sentiment is how you succeed in the markets. That's my thought.

Dan Ferris: Thank you for that, because you are only the second guest in the five years I've been doing this to say that. Do you want to take a guess who the other one was? You might know him.

Jared Dillian: Cormac Kinney.

Dan Ferris: No, but we'll be having him on the show soon if we can get him. Chris Camillo. Chris Camillo was one of the – he was covered in one of Jack Schwager's books and he's the social media trader basically. He looks at the sort of sources you do for sentiment in industries and stocks and everything. He says – he does the third way. He doesn't do fundamentals. He doesn't do technical. It's the third way, exactly as you describe. Of course, I'll get into it after the whole world is into it. I'll get into it right at the end when it becomes worth less. Jared, great talking with you. I really enjoyed this. I love what I do but this one is more fun than average.

Jared Dillian: Thank you. Thank you. I appreciate you letting me come on and plug the book. That's super helpful. I hope the book is a big success and if it is, it'll be partly because of you guys. So, thanks.

Dan Ferris: Great. Glad to help. Yeah, I'm happy for you to talk about your book. We want to know everything we can about you. So that's cool. But yeah, thanks for being here. We'll definitely be inviting you back, too.

Jared Dillian: Great. Thank you.

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Well, I hope our other guests don't hear this because I just wanted to say again, that was more fun than average. I really enjoyed that a lot. I think you did, too.

Corey McLaughlin: Yeah, I love talking personal finance because I think that's the start of getting into investing. Like we said there, spend less than you make. My thought has always been that, and smartly invest the rest. So, try to do that as much as possible. So, his message really stuck with me. Honestly, his outlook on the markets pretty much aligns with what I've been thinking myself. I've written that bad news has been taken as good news so far. Eventually I think the bad news will turn into bad news with a recession at some point next year. Who knows what it looks like, but yeah. Yeah, I enjoyed that a lot.

Dan Ferris: Yeah. I'm less convinced on the recession argument than others, but I don't want to get into it here. I want to talk about Jared who, by the way, we didn't talk anything. Just for the listener's benefit here folks, you should really take Jared seriously. He was at Lehman Brothers, and he wrote a book about it. His first book called Street Freak. He had quite the experience there.

Corey McLaughlin: Right. Lost his job in '08.

Dan Ferris: Yeah, so he saw some stuff, and he's been through the ringer and been around the block. That's where he gets this insight. The fact that a guy like that is saying, "I don't do fundamentals and technical. I do" – I don't even know what to call it – "sentiment", I guess he called it. Chris Camillo had a different term for it. I can't remember it, but I should probably know it. I should probably know this inside and out and get ahead of the curve because more smart people who are making tons of money that I hear talking about this, the better I like it. Do you allow sentiment to influence your investment decisions at all?

Corey McLaughlin: Yes, particularly if it helps align with other factors, like last year we saw the bearish crowd was out early and often and people thought, "Oh, well things must be turning around." But there are other factors to look at that would lead you to believe the market could keep going lower through last year. A couple weeks ago when things were oversold, and people were really bearish, that was a moment I thought, put a little more emphasis on sentiment there. Like you said, Jared said he writes about that in his newsletter too, The Daily Dirtnap, which is a great name. So, if you're interested in more from him, you could check that out, too. It's a very popular newsletter already.

Dan Ferris: Yeah, we did have quite a spike in negative sentiment. I don't know what to call it. A spike in negative sentiment on the 10-year right back on October 19, which is I think that's the date that Porter Stansberry was talking about when he was on the show last time as being an inflection point. Prices came off of that, and he's like, "OK, we're not going to get a crisis." I have to say, it's been a little dramatic. The 10-year was – just call it 5%, right about 5%. Now as we speak, 4.4%, which is quite a move in just in about a month.

Corey McLaughlin: It's been quick.

Dan Ferris: Yeah, maybe there's something to this thing. All right. Well, that's another interview, and that's another episode of Stansberry Investor Hour. I hope you enjoyed it as much as we did. We do provide a transcript for every episode. Just go to InvestorHour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or on InvestorHour.com, please.

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