Warren Pies, Founder of 3Fourteen Research and Portfolio Manager of the $FCTE ETF, joins Jared Dillian, Founder of Jared Dillian Money and The Daily Dirt Nap, for an insightful discussion on the Fed’s upcoming rate cut, the future of the economy, and their trading strategies. The two market veterans also delve into a potential resurgence of inflation, why gold could be in a secular bull market, future U.S. dollar weakness, and much more!
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I do think that Fed’s going to cut. They’re going to cut pretty aggressively and persistently. Think we’re going to get a resurgence of inflation. The underlying ingredients, sure more inflation. If we don’t have a recession, art, they’re in place now. I
Jared Dillian 0:11
personally think we are at a major inflection point right now. Welcome. Sorrentino median, I’m Jared Gillian from Jared. Gilliamo money. I’m here with Warren pies of 314 research, who is also the portfolio manager of the FC te ETF, Warren, good to see you again.
Warren Pies 0:38
Nice to see you, Jared. Nice to catch up here.
Jared Dillian 0:40
I think, I think the last time we talked was, it’s got to be, like, two or three years ago. At this point, we did a real vision interview. I don’t even remember what we talked about, but you’re, you’re a super thoughtful guy, and there’s a lot of, I mean, just incredible macro stuff going on in the markets these days. I mean, today is September 11, and just just ridiculous action in the stock market, which we’ll get to eventually. Let’s just start, you know, give me, just give me a couple minutes of your macro overview where you think we are today, and then I’ll do the same, and we’ll kind of take it from there. Yeah,
Warren Pies 1:22
I’d love to get your thoughts, and hopefully this is more of just an exchange versus an interview. So I’ll give you what I how I see things off the bat here. Yeah, we came into the I think in order to understand where we’re at, we have to kind of think about where we came from, coming into the year, it looked to us like everybody was most money managers, the consensus, as best we could peg it down, was looking for a weak first half strong second half for the markets. And that was really going back to, I’d say, election cycle work, which is, you know, I guess it’s as good as anything to put a projection out on, but, but our view is that the soft landing was likely to come into view, or at least be adopted as a narrative for the market, and the first half was going to be a big bull run in that would force money managers to chase and kind of keep us going here into this, what I would say is the seasonal period of weakness, and so that’s what I think is operating in the background right now. The big question, I think, the big transition on the macro front, is that in the first half, everyone was to worry about inflation. So every time we had five, 10% pullback in the stock market since 2022 you’ve seen really it’s inflation that’s caused it. Inflation pushing rates higher, rates causing stocks to sell off. And I do think around the midpoint of this year, that focus from inflation shifted to growth, and so we had been underweight. The only real change we made in our allocations is that we were underweight bonds through the first half of the year, and we moved them to an overweight on July 5, and that’s where we are right now. We’re still overweight bonds, and that’s paired with basically a benchmark weight for equities. And the reasoning is, is that now, with inflation off the table, you’re going to see this kind of traditional negative correlation between stocks and bonds show up, especially on stock sell offs, and that’s what we finally have seen here in the August weakness. And so when I look at it. It really all comes down to the growth question here, and are we going into a recession? And I do think the data is weakening. I think it looks, you know, lot of things look dicey. We have a framework. Our framework looks to housing construction jobs, and because our view is that you really see about an 8% at least an 8% drawdown in housing construction payrolls before before leading into each modern recession, and we have not seen those payrolls budget. However, when we put our model together that looks into where those where we’re likely headed, unless these lower rates invigorate, reinvigorate the housing market. I think those layoffs will materialize next year. So our best guess is still soft landing, that we avoid a recession. I do think that Fed’s going to cut. They’re going to cut pretty aggressively and persistently through the next six nine months. And I do think those rates are going to feed into the housing market, into consumer durables, we’re seeing things like existing home sales still on the floor, back at 2009 levels. New Car sales are below 2018 levels. So you see the effects of tight monetary policy in the economy. So as they unwind rates, I think those areas take the baton from other areas, and that’s how the soft land. Actually plays out just last point, I think tactically, we said, expect to sell off. We even, you know, even back in July, we said we expect to sell off between August and October. It’s actually normal to see a five to 10% drawdown in the markets in this window, in the years where you get have had a 10% first half of the year, and then you end up with a pretty strong seasonal Chase, which would be in the post election period. So I’m looking for a post election rally. The thing that bothers me the most about that roadmap is it is pretty consensus from what I hear. So always makes me feel uncomfortable to be with the consensus. The one last thing I know, last time we talked was really about oil, and that’s what a lot of our clients look at. The big prediction we had, which is actually kind of playing out, is that we would hit 90 bucks a barrel on Brent around the end of q1 in that at the very end of the year, we thought oil had downside to as low as $55 a barrel. And so to me, this oil weakness is really about the struggle to digest those OPEC barrels, and not so much about recession. So that’s my 40,000 foot view. What are you seeing? Well,
Jared Dillian 6:20
let me just bounce off some of the stuff you said. The key thing is, you know, you had said that you had predicted that the market would be first focusing on inflation and then focusing on growth, and then we would get negative correlation between stocks and bonds, which, like you said, is happening. You said you’re overweight bonds. I mean, I personally think we are at a major inflection point right now with these growth worries, right I do think that oil prices have a lot to do with growth. I mean, they are, they are, obviously they have to do with OPEC, but I think it has a lot to do with growth. If you look at commodity prices across the board, just pick a commodity. It with the exception of gold, which is not really a commodity, they’re all on their ass, like it just could the commodities basket. If you look at the index, if you look at like the Bloomberg commodity index, or anything, it’s on the lows, had a 15% drawdown, you know, just sitting in my computer and staring at the screens and watching the price action, it feels like we’re getting close to capitulation in this growth scare trade, right? I think we’re very close to a bottom in oil. I think we’re very close to a bottom in a lot of commodities. I think we’re very close to a top in bonds. I think that’s, I think this is literally playing out as we speak. You talked about the Fed. You know, you mentioned that the Fed’s going to cut aggressively, but I think we’re going to get 25 basis points for the first cut. That seems to be pretty priced in at this point. If we got 2525 25 for the rest of the year, that’s a little less than market expectations. So the market will have to recalibrate that, and might lead to some risk off. I’m not I’m not super bearish on stocks. I think we have support somewhere in the neighborhood of 5300, in the s, p, what the plan that you laid out for stocks is actually pretty close to what I was thinking. And I do think we’re going to get a soft landing or no landing. I don’t think we’re going to get a recession or a severe recession. And right now the market is trading. I mean, if if you look at positioning, you know the commitment of traders data across a whole bunch of commodities, we are at record shorts. We’re like at record short positions, like the lowest net long positions. And the market is trading like we’re looking at short positions that are more extreme than the financial crisis or the European debt crisis or the pandemic. Like, that’s how, that’s how short the market is positioned in commodities, and I think a lot of it has to do with this growth scare. So back to you.
Warren Pies 9:19
Well, I don’t look at every commodity, but I look at oil quite in closely. And yeah, the I’ve been saying, I think we’re, you know, there’s, we aren’t going to go straight down in oil, for sure, my view is that this is, we’re going to balance here, really, like you said, hedge fund manage money on CFTC, disaggregated data. We look at it on a percentage shorts, shorts as a percentage of total managed money, open interest is that, like you said, 36% you just don’t get that high, except that very close to market bottoms, I think, just to be technical, to trade the market, you want to see those positions start to reverse. So you want to see those come down. Them to really trigger a buy signal, like a an eat, a layup type buy signal, but we’re in that neighborhood where we should be watching for that. And then gas oil managed money positioning gas oil, so middle distillate, refined products, is net short. That only happens like three or four times going back in the full history of this data, series of the positioning, like you said, so and it’s the deepest net short that we’ve seen since late 2015 early 2016 if you remember that brutal sell off in crude oil back then, yeah. And so that it all aligns with what you’re saying. And my view on bonds, our view on bonds, was that this rally would take us to about three, five on the 10 year. My when you look at soft landings, that usually the bottom occurs the absolute bottom, and yields occurs right around right after the first cut. So we’re looking for that yields to bottoms, bonds to top, as you said here, too. So you know, we’ve been playing that trade for the last, I don’t know, 80 basis points or so on the 10 year, and looking for that as for looking for an off ramp on that trade, too. So yeah, in one way, I look at it as a rule of thumb on the 10 year. Is that, what is it? What are we pricing in at three, five on the 10 year? I think we’re getting close to recession level. Pricing normalized, the 10 year trades at about 140 basis points, spread to the Fed funds rate over the Fed funds rate. So once the Fed’s done cutting basically from a three, 510, year, you’re you’re kind of saying the Fed’s going to take the funds rate down to two, two and a quarter, maybe percent, which is aggressive in above most terminal rate estimates that you see out there right now. And so you’re really seeing a 10 year once you get to this neighborhood that has fully priced to cut cyclone. And so you might people might be saying like, Well, why are you sounding so bearish or negative on bonds? Because I think you have to keep a cyclical view separate from a secular view. And I think when you look at the secular view of bonds, you’re going to want to have more periods where you’re underweight bonds than overweight. But when these growth scares are happening and they’re intensifying, you want to be able to kind of identify them in advance, and that’s when bonds will actually provide some positive, some positive action for your portfolio, for your mix of assets. So I’m with you on a lot of that stuff. I think we should be watching for inflection points across all those, those cross markets.
Jared Dillian 12:42
Yeah. The way I look at this is, you know, we have had economic weakness. So the PMIs have been negative for like, a year, right? So all the PMIs, all the surveys, have just been terrible for a long time, and hasn’t really been a good signal. The labor market has been weakening. You know, honestly, the last payroll print was not terrible. You know, missed by 23,000 jobs. The unemployment went down, unemployment rate went down, the average hourly earnings went up. Like it was kind of a mixed payroll report. I wouldn’t characterize it as catastrophic. What I think we’re seeing in the labor market is normalization, right? So what happened was, during the pandemic, we pumped all the stimulus into the economy, and we created all these labor shortages. You know, you went to a restaurant and it was half closed because they couldn’t find people to work. Had all these labor shortages. Four years later, you’re finally starting to see the labor market normalize into something like what it was before the pandemic, right? That’s really all this is. And people are misinterpreting this data to mean, okay, payrolls are getting worse, therefore we’re going into a recession. It’s just normalization. That’s all it is. So you know, you talk about the 10s at three and a half. I you know, I think they’re at three seven right now, or something like that. I think that is grossly mispriced, right? Grossly mispriced. And if you look ahead past the election to whoever gets elected, whether it’s Trump or Harris, it’s going to be inflationary. Like, no matter who gets elected, it’s going to be inflationary, for sure. So, um, yeah, I mean, I actually, you know, I haven’t really been looking at 10s. I’ve been looking at 30s. And if you look at 30s, at three, nine or 4% that That, to me, seems, seems grossly mispriced. It is ridiculous. I stare at the screen and it mocks me every day. So,
Warren Pies 14:49
I mean, I have a lot of friends, like, I’ve been in three big bond bear for a while. You know, we’re long for a little bit when they got to five, and then we got off that went underweight again. Yeah. November of last year, probably a little early. I think the yields kept going lower after we made that move, but nevertheless, we’ve been bond bears. And you know, did a lot of have done a lot of work on the deficit situation and how non federal reserve issuance that’s going to have to get digested by the market during this Qt period, and all these different things. But I just think that once growth becomes the dominant factor in the market, you know, you get up a reflexive move into fixed income. And some of these valuations, like, yeah, they matter. They matter over the long term. And I think it’s good for us to intellectually understand that just 10 years pricing in quite a bit. It’s probably pricing in a recession at this point in time, or very close to it. And so, you know, if you don’t think there’s a recession coming, then you’re probably getting close to into this move. You know, I still think there’s going to be a solid I don’t think it’s going to like that. The growth scare is just going to lift all at once. I think it’s going to be a process for a bit. And so I don’t really have a I’m not fearful. I’m not wanting to short bonds here, like I think there’s a lot of people who want to jump on shorting bonds, and I just think it’s early for that. I do think inflation will come back, like you said, but I don’t think it’s coming back in the numbers, which is what the Fed cares about. So that’s all I should really care about in the numbers on for another year or so. Yeah, that’s, that’s to me, was my rough timeline. Is a real at the Fed Cup, we’re gonna have this kind of Goldilocks period. Who knows how much the market front runs all that in? You know, markets and economies can diverge somewhat. But, um, yeah, I’m not worried about, I’m not going to think about shorting bonds, even though there might be an opportunity here or there, until I think inflation I still see once I see evidence that inflation is ticking back up, and then I’ll be looking at that.
Jared Dillian 16:53
So one of the things you when you mentioned is construction jobs. What if the construction jobs data is bad? What if it’s giving you a false signal? Okay, so if you take a chart of home construction, actually, let me do it this way, home construction is going like this, and construction jobs are going like this, like what if the data is bad, because 10 million people came across the border and they’re being hired in the construction industry, and they’re being they’re not being reported, they’re being paid off the books, right? Like when I look at those two charts at home construction and construction jobs, it’s the only explanation that I can find, because there’s a massive divergence there. And so if you’re looking at construction employment as a leading indicator of the economy, and you say, okay, construction employment is flatlined or going down, like I I just think there’s a possibility that the data isn’t good, you know, that it’s unreliable. So
Warren Pies 17:57
I mean, it’s possible, and it’s probably happening, you know, I mean, but I think that’s probably been the case through all of history, is that there’s just a lot of off the books, construction labor. I mean, you know whether you’re, whether it’s Mexican labor or now more like South American labor coming through Mexico. I think that’s part of the market. It’s in the market. And you just have to, I personally think you just have to work with the ingredients you’re given, you know. And to me, that’s, that’s, it’s possible, but we haven’t really seen it before. It’s worked. It’s, it’s worked in every other cycle. I’d be hard pressed to imagine that it’s skewing the data entirely. The thing I’m my, my read on it is actually that payrolls are stronger than they should be given housing, given construction activity. So like units under construction for multifamily and single family are now falling. Multifamily falling for like a year and a half. Single families now rolling over. Our model says that the residential construction industry needs about 900,000 employees, given this kind of workload, and we’re still at 950,000 employees. So our model saying, hey, there should be revisions to this data downward, or layoffs imminently, and that would get us right into that recession neighborhood. So that’s why I’m on this. I’m nervous about it. That’s what’s making me nervous, is looking at this backlog of projects that’s starting to bleed lower, and saying, Hey, I mean, can this support this many workers? And my feeling is that if mortgages get down sub 6% which looks like they’re going to builders, then can buy down mortgages to sub 5% I think that’s enough to keep the plates spinning it for a bit longer. And I also think if you look at our model, we were saying for years that they’re basically not enough workers to support the workload. So back just two years ago, our. Model said, Look, we’re the industry is short 80,000 employees. So we’ve gone 130,000 job swing there. And I think that those days, it’s been a tight construction labor market for many years, maybe last 10 years, been extremely tight. And I think that the employers remember that, and they’re going to be slow to let those Let good laborers go, the ones that show up on your books for sure. You know, forget the the off the books, guys. But so that, to me, is the underlying issue that I see is that we’re seeing starting to see units under construction come down. And I really do think we need to see activity pick up to support the amount of workers on the payrolls,
Jared Dillian 20:46
getting back to inflation for a second. I you know, I said that. I think that 2025 is going to be a resurgence of inflation. I’ll say it more specifically. I think we’re going to get a resurgence of inflation. There’s some people on Twitter who post those charts, like the overlay with like 1969 to 1982 like the big waves of inflation and stuff like that. And here we are, sort of in the trough of inflation. I don’t really like overlay charts. I think they’re kind of dumb. Kind of absolves you of thinking. So I’m not bullish on inflation because the chart says it’s going to go up. I think whatever policies we get out of DC are going to be inflationary. But one thing I will say about inflation is that I I spend a lot of time thinking about the psychological component. Okay, so we still have an inflationary psychology, like people believe that inflation is high, and there’s a whole discussion about that, because people confuse the level of price with the inflation rate, right? So people go to the grocery store and it costs 300 bucks to buy groceries. So they think that inflation is high when it’s not. So when you have an inflationary psychology, it causes people to act in such a way that perpetuates inflation, right? So they buy more they buy more often, they buy early, they buy large quantities. And I still think we haven’t broken the inflationary psychology in the way that Volcker and the recession of 82 did. Right? The Fed did a lot. The Fed raised Powell raise rates faster and higher than Volcker. Right? The Fed was very aggressive. They were late, but they were very aggressive. I don’t think it was enough to break the well, in 1982 we had negative 6% GDP. We had a terrible recession, right? And that was enough to do it. And we never, we never really got that. I mean, 2022 was a tough year, like stocks and bonds were both down 20% but we never really got that deep recession to break that psychology. So I think it’s coming back. I think inflation is coming back. Do
Warren Pies 23:06
you have a timeline on what you’re when you’re expecting that to start showing up in the data?
Jared Dillian 23:12
Probably middle of next year?
Warren Pies 23:15
Yeah. And do you expect that to be more of like core inflation or commodity based inflation, or maybe both, both. Yeah, yeah. I mean, I think I’m sympathetic to the view that inflation is not dead. I don’t think it is dead for basically the reasons you laid out, which is, there’s a phrase I did, Milton Friedman say inflation is always in everywhere, a monetary phenomenon. And I remember tweeting out, I thought I was clever for a minute that inflation is always an everywhere psychological phenomenon. And I so I agree with you that there’s a psychology to it. I do also think that if you were trying to get down to brass tacks, like, what’s causing the inflation we’ve seen, there’s been, like, this big debate over these years. Is it supply chain from covid spending? I think if it was, we can all think about it, it’s kind of silly to say it’s just the supply chain at this point, because if you had a supply chain with no demand side stimulus, you would have had prices go up in the level like you said, would come back down to where it was pre supply chain disruption, and what we’ve seen across the board, think about houses in your neighborhood, car prices, whatever prices just leveled up and then stayed there, and everyone kind of knows, to your psychology point that they’re not coming back down, that that was like a one time shot in the arm of crazy stimulus, where We went off the rails and just, you know, injected money straight into the system. And so I think that the ultimate genesis of inflation is the deficit. So we’re running a 6% deficit in the middle of an expansion. We’ve never done that before. Procyclical deficits this large art we’ve. Ever experimented in this way, really is an experiment. And so you have to be open to a wide range of outcomes. And I so I do think that while that deficit is that large and the economy is growing, we should be expecting inflation to kind of bubble back up. I just guess when I look at the timing of everything, the way, the way the BLS and the Fed looks at timing of inflation, there’s, it’s a lot about base effects. Like you said, it’s like the levels already in, baked in. Now we have to have increase from that level in order to trigger inflation. And I think we have pretty tough seasonal comparisons, are pretty good seasonal comparisons, depending on your how you’re looking at it going through the first four months of next year. I also think that oil is a tailwind. I think OPEC is needs to get that oil back. So that’s like 200,000 barrels a month that’s set to start coming back the end of this year. So that comes through next year. So I see that as like a cap on the price of oil, and so I probably think we have a little bit longer to go before we get that re, re acceleration of inflation. That would be my personal view, probably another year from now before we start looking out for it. But hey, I could be wrong on that. Like I said, this is a run uncharted territory, and I agree with you that the underlying ingredients, sure, more inflation, if we don’t have a recession, are they’re in place. They’re in place. You
Jared Dillian 26:31
also, you talked about stocks and seasonality. And to be perfectly honest, I don’t pay any attention to seasonality at all. I call it Farmers Almanac kind of stuff. And I kind of, you know, piss all over it, like I don’t, but you’ve obviously, you know, spent a lot of time looking at historical data, and you said that if the first half of the year is good, then you usually get a pullback in August to October, and then you rally towards the end of the year. That actually seems like a pretty good scenario to me. So I think so
Warren Pies 27:02
I would try to convert you to seasonality. Because I was, I was a big seasonality skeptic for years too. Like, I thought it was, like, just simplistic. And why would this happen? And I think, I think a lot of it is goofy, to be honest. You know, the idea that you could pick, like, a single day out and be like, this is the best day of the year. This is the worst day of the year. That’s kind of random noise, but I do think, as I’ve gone down the path of honestly running a business where I talk to so many different money managers, and what I realize is that everybody’s judged on the calendar year. So a lot for as far as many people in this industry, your life is basically over on December 31 if you underperform, and that causes distortions in behavior, and I think it does show up in the in the data. And so we combine a couple things, we look at strategist forecasts, and we’ve done up on a bunch of back testing, so quantified it when the market is above the strategist year end target is a good time to be long the market, because it means that there’s not enough optimism. There’s a chase going on among strategists, and that’s been the condition that’s been present through this entire year. So strategists coming into the year, they had, uh, their year end 2024 forecast implied a 1% gain. Yeah, it was pretty much flat, yeah. And so when you go back in time, like the beginning of the year is when the optimism should be at its height, where there’s they should be upping those forecasts and giving you that, you know, it’s 8% it’s career risk. They all want to be like, in the year 8% higher, because that’s the average year. Well, this year, they said 1% in the first half was particularly weak. So when you have a strong January, I do think the January Effect is real. You know, you talk about what, stock traders, Almanac, stuff like that was the old rule of thumb the January. It was January effect, or barometer, or whatever. I think there’s something to that once the first of the year starts out strong, anyone who’s underway is perpetually behind the market as it rallies, and you just have these dips are bought shallower and shallower, and in the end of the year gets here, and everyone looks at November and they say, look, all this money is going to get rolled over and reinvested in As we rebalance at the end of the year, there’s that in that helps feed the seasonal tendency. And so I have to leverage my bets and try and catch up if I’m down. And you see that like there’s like a hockey stick higher in the data, once you get past October in these years where the first half of the year is positive. So, you know, I’m not going to say that that phenomenon will overpower the economy, for instance, like if the economy rolls over. You know, who cares about seasonality? 2008 the whole sell off was in the teeth of this strong seasonal period. But if you’re not having a recession in the Fed’s cutting rates, and it’s kind of just steady as she goes then that you. That phenomenon of people who are behind after a strong beginning of the year is going to take also, I think it’s really important to see how low we get during this seasonal weakness period, whatever you call it, this pre election volatility period that we’re seeing right now, if you don’t get lower lows than what we’ve already had, even lower than that. I think that this structural move, the seasonal Chase, is in play. And so that’s kind of what I’m that’s what I’m looking for. Clearly, again, just to be 100% clear in the hierarchy of things that matter, the economy, if it starts rolling over, it’s not gonna this whole thing is not gonna matter. It’s, it’s, but if, if we avoid the recession like I think, then I I’m these dips are going to get bought. You’re going to get money forced into the market career. Risk is a real thing. And so that’s been my conversion. It’s been looking at the data. Also, what I’d say is in look at the months where the stock market forms major tops, December and January are like 60% of all major cops in the market for the year. And so if you have a bad January, if that you have a if you go high and then fall apart in January, that’s generally portends, you know, negative things for the rest of the year. And if you’re having a strong January, you generally will continue higher until December of that year. These are all just general rules, and of course, there’s exceptions for everything, but I think it’s real
Jared Dillian 31:29
cool. Last thing I want to talk about is gold. So I’ve, you know, I’ve been long gold since 2005 it’s, it’s been the biggest position in my portfolio for 20 years. And a couple months ago, when it got up to about 2450 I cut about two thirds of the position. I was 2500 was a big round number. I was a little nervous around there. And just in terms of looking at the short term price action. Every time gold gets to 2530, it gets rejected. Every single day gets up to there, and it gets rejected. So the way I’m looking at this and gold, as you know, trades very technical, right? There’s really, like, the fundamentals matter far less in gold. I mean, the supply and demand. Who gives a crap? You know, it just doesn’t matter. It’s really about technicals. So the way I look at this is that if we break through 2530 decisively, I’m going to reinitiate that position in gold, and I’m going to ride it higher, right? So what are your thoughts? Yeah, I’m with you. We
Warren Pies 32:39
thought that gold was going to get to get to $2,500 an ounce this year. That was like, our our call, our official call, back last December. So that was a nice move we’ve had. But, like you said, so like, we’ve tried to model gold in, I say modeling gold was like nailing a jellyfish to a wall. It’s just, you know, they it’s hard to find a consistent driver, so we lean real heavily on technicals. So I think you’re you’re right on in one of the things I’ve noticed with gold is that it has this tendency in to and this is on a lot of different time frames. I noticed this to do what you’re describing, where it stalls out and in basis for a long time. And you we saw that really post pandemic, we’re like 1680 to about 1950 or so, for years, just this wide range. And then you break out. And once, once gold breaks out, especially on these more multi year time frames, it has a tendency just kind of go parabolic. And you don’t want to even put up you, don’t you just want to let the thing run, is the way I look at it. And so I think that’s where we’re at. I think we’ve moved into a secular bull market for gold. I think that the basing period that we went through post pandemic is over. And you know, you know, I gold is kind of the the reciprocal of trust in institutions and trust in institutions is in a secular bear market. And so therefore, I think gold will be in a secular bull market, for all the reasons we just laid out that we have, you know, basically structural deficits that we’ve never seen at this stage of the business cycle. So that’s a form of debasement, whether it shows up in the official CPI data or not. It’s debasement. And gold wins. And then the Fed starts cutting rates. In the face of that, you see the dollar starting to go down. Everyone in the world needs the dollar to weaken, really. I mean, it’s, it’s, it’s bound to happen. And I think that, like, trunk will basically come around and say it. But everybody, even probably Harris, wants the dollar to weaken somewhat. So, you know, I think gold is the most logical beneficiary of that. Well,
Jared Dillian 34:48
before we get going, let’s talk about the dollar for a second. So technically, you know, the dollar sold off for a couple of months. It put it in a low. It’s been kind of bouncing around a low. Um. I also think the dollar should get weaker. I think the dollar should make lower lows, which obviously fits in with my commodities thesis. You know what I mean, thoughts on that
Warren Pies 35:11
I’m with you. I mean, you look at like a purchasing power parity basis, the dollar is overvalued.
Jared Dillian 35:18
It is, it is vastly overvalued. Like, look like we have, you know, I’m on Facebook, like, all my dopey High School Facebook friends are, like, traveling in Europe this summer. Like, you know, look how cheap it is. Like it’s, I don’t know if you remember this, but the exact opposite happened in like, 2005 2006 when the dollar was very weak. We had all these foreigners, you know, all these French and Germans and British like, hanging out in Times Square. I was working in the Lehman building in Times Square, and, like, nobody was speaking English. It was all these tourists, you know, like, you can tell when purchasing power parity gets out of whack.
Warren Pies 35:56
Yeah, everybody’s skiing in Japan. They’re like, it’s cheaper to ski in Japan than Colorado. So, yeah, no, I mean, it’s, I think it’s a matter of time, and it’s just a it’s just some to me, it’s, it comes down to kind of the Fed is the tightest central bank of the major developed market central banks, and that’s one of the reasons. I also think that if you overlay a chart of these, it’s a coordinated hike cycle. It’s going to be a coordinated cut cycle. The Fed needs to cut. I think the longer they the more they get out of whack with other central banks. The dollar could strengthen. If the dollar strengthens and you start having problems with earnings, you could have other things that could be negative side effects. I think the Fed would like, I said, everyone kind of wants is rooting for a weaker dollar. It’s starting to create distortions in the system. And so my way of playing that, I think, is gold number one and number two. I think it’s a low key benefit to earnings. Also, if you get a big hit to the dollar, all these multinational corporations, their earnings look better. And so it’s one of those swing factors. When you’re looking out at forward S and P earnings, and you’re thinking, this market’s pretty overvalued. There’s a lot baked into it. So yeah, I’m with you. I’m with you. Largely, it’s a matter of how you express that view. I like gold. Well,
Jared Dillian 37:13
it sounds like we agree on a lot. Probably we’re both going to go back to our desks and get our heads caved in. That’s usually the way it works out. But Thanks for, thanks for taking 3040, minutes with me today and talking about this stuff, and hope to see you around.
Warren Pies 37:31
Yeah, no, I appreciate the invite in the in the conversation, and I hope we don’t get our heads caved in. Let’s just That’s all I can hope for. You know, that’s like another good day for me, if my head doesn’t get caved.
Jared Dillian 37:42
Gallows humor. All right, thanks, Warren. See you later. I
Warren Pies 37:45
appreciate Jared.
Andrew Brill 37:49
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