Podcast Summary: The Monumental Miscalculation | Jared Dillian on Tariffs, Fed Risks, and Where Markets Go from Here

Podcast: Excess Returns
Host(s): Matt Zigler, Jack Forehand
Guest: Jared Dillian
Date: April 26, 2025

Episode Overview

This episode of Excess Returns dives into macroeconomic turmoil surrounding tariffs, monetary policy, and global markets, featuring the outspoken market commentator and former trader Jared Dillian. Dillian shares his contrarian opinions on the current tariff policy, the Fed’s outlook, bond valuations, currency risks, recession probability, the durability of value investing, and how to construct resilient personal portfolios. The conversation is energetic, sprinkled with memorable anecdotes, and relentlessly challenges conventional economic wisdom.

Key Discussion Points & Insights

1. Tariffs: Deflationary or Inflationary?

• Jared’s Contrarian Take: Dillian firmly argues that large tariffs are deflationary, as opposed to the widely held view that they are primarily inflationary.
  • Quote [02:21]: “I really do believe the tariffs are deflationary... If a car goes from 50,000 to 60,000, you’re like, I’m not paying 60,000, and you don’t buy the car. That's demand destruction. Multiply that times everything in the economy and the economy slows down.”
• Short vs. Long-term Effects: Small tariffs can be inflationary, but large tariffs destroy demand so severely that the net effect is disinflation or outright deflation.
  • Quote [03:52]: "Teeny tiny tariffs are inflationary, but big tariffs are deflationary."

2. The Federal Reserve, Rates, and Political Dynamics

• Fed’s Tariff Narrative: Dillian suggests the Fed’s argument that tariffs are inflationary could be politically motivated, giving them room to maintain tight monetary policy during a Trump administration.
  • Quote [04:37]: “Powell is being very cynical... he knows tariffs are deflationary, but he's saying they're inflationary in order to justify tighter monetary policy while Trump is president.”
• Rate Cut Outlook: Dillian recommends deep cuts (down to 3%), but doubts Powell will act unless forced by egregiously bad economic data.
  • Quote [46:28]: “They should cut...fed funds to 3%.”
  • Quote [46:59]: “There's a possibility that...the Fed doesn't cut at all...mostly political reasons.”

3. Bonds: "Most Mispriced Security on the Board"

• Dillian sees the current bond market as highly attractive given deflationary forces, recent dislocations, and high yields.
  • Quote [06:46]: “Bonds are the most mispriced security on the board. To me, tariffs are deflationary, not inflationary. 60% chance of recession, depending who you ask.”

4. The U.S. Dollar & Trade Mechanics

• Short-Term vs. Long-Term: Short-term, Dillian expects a bounce; long-term, he believes the dollar is destined to decline (“doomed”) due to fundamental imbalances and over-valuation.
  • Quote [10:43]: “In the long run, the dollar is doomed...tariffs are negative for the dollar in the long term.”
  • Quote [12:24]: “I would say at least 20% down from here...over a couple of years.”

5. Globalization, Standard of Living & Reshoring

• Citing anecdotes about cheaper goods (e.g., Little League pants, Walmart doormats), Dillian defends globalization and free trade as drivers of a high U.S. standard of living.
  • Quote [13:02]: “We have a much higher standard of living because we can get cheap stuff from China...Free trade brings down prices, it is disinflationary.”
• He is skeptical about rapid reshoring/manufacturing initiatives, emphasizing the long slow transition and economic trade-offs.

6. Debt, Financial Wars & Reserve Currency Status

• National Debt: Dillian is not alarmed by current debt/GDP ratios, predicting a crisis is still a long way off (if at all), and that consequences are largely abstract in the U.S. due to reserve currency status.
  • Quote [20:33]: “I agree with Dalio that we are going to have a debt crisis. It’s probably going to be after Dalio is dead...If you are the world’s biggest economy with the reserve currency...stuff just takes a long time to play out.”
• Financial Wars: He views foreign bond selling as a “financial war” tactic, but notes actual risks are manageable given current treasuries held by China and others.
• Reserve Currency: The U.S. dollar’s reserve status, he argues, is more dependent on military (specifically naval) power than on financial metrics.
  • Quote [23:28]: “The smartest thing I ever heard: the dollar will stop being a reserve currency when we lose an aircraft carrier...The strength of the currency is tied to the navy.”

7. Portfolio Construction: The "Awesome Portfolio"

• Dillian endorses a diversified allocation: 20% each in stocks, bonds, cash, gold, real estate, arguing that traditional 60/40 strategies fail in high-correlation environments.
  • Quote [28:22]: “The awesome portfolio: 20% stocks, 20% bonds, 20% cash, 20% gold, and 20% real estate...all five diversify across different risks and inflation regimes.”
• Rebalancing: Rebalancing annually is generally best; necessary for real risk control, not just keeping up with trends.
  • Quote [31:20]: “Annual rebalancing is the best. Otherwise your portfolio starts to look like...60% Apple.”

8. International & Value Investing

• International Stocks: After years of lag, international stocks are working again—a reversal Dillian saw coming.
• Value Revival?: Dillian draws a direct analogy to post-dotcom 2001-2004 outperformance of value, sees current setup as similar.
  • Quote [38:25]: “The analog here is 2001 to 2004 after the dot.com bubble blew up...value and especially small cap value were massively outperforming.”
  • Quote [40:23]: “Relative to the US the rest of the world is value...If going international...could mean value is becoming fashionable again.”

9. Market Sentiment & Volatility

• Bearish Sentiment Contrarian: Most are bearish; Dillian is tactically bullish, believes market lows are in for now.
  • Quote [41:30]: “I think it's super bearish. I think people are bearish in general. And I'm bullish. I am bullish for the moment, for sure.”
• Sentiment Indicators: Views traditional sentiment surveys (e.g., AAII) as near-useless—prefers reading Twitter reactions and magazine covers for real-time insights.
  • Quote [44:42]: "I use [sentiment] all the time, but in a qualitative sense, not quantitative...most of my sentiment info comes off Twitter."
• VIX & Option Trades: High VIX is a selling opportunity; he sold puts aggressively during recent spikes.

10. Fed’s Future Moves and Bitcoin

• Unpredictable Fed: Cut? No cut? Dillian says nothing would surprise him; too many cross-currents and political risks dominate.
• Bitcoin: Surprised by its resilience; notes it’s acting more like gold this year, not just a levered Nasdaq.

11. Personal Beliefs Most Disagreed With

• Dillian considers his support for free trade—and opposition to tariffs—as his most controversial stance today, reflecting a stark shift in U.S. political consensus over 20 years.
  • Quote [50:04]: “I think the majority of people would disagree with me on tariffs...We were very much a free trade country...I find myself consistently on the other side of people.”

Notable Quotes & Memorable Moments

• On Tariffs and the Fed:
  “Powell is being very cynical about this...he's saying tariffs are inflationary in order to justify tighter monetary policy while Trump is president.”
  (Jared Dillian, [04:37])

• On Standard of Living:
  “We have a much higher standard of living because we can get cheap stuff from China. Free trade brings down prices, it is disinflationary.”
  (Jared Dillian, [13:02])

• On U.S. Dollar Doom:
  “In the long run, the dollar is doomed...I think from a trading standpoint, the dollar is due for a big bounce, but on a three to five year basis...it is still really, really strong. It can depreciate a lot more.”
  (Jared Dillian, [10:43])

• On the Debt Crisis Timeline:
  “I agree with Dalio that we are going to have a debt crisis. It's probably going to be after Dalio is dead. I might not be around.”
  (Jared Dillian, [20:33])

• On Reserve Currency and Naval Power:
  “The strength of the currency is tied to the navy...the dollar will stop being a reserve currency when we lose an aircraft carrier.”
  (Jared Dillian, [23:28])

• On Portfolio Construction:
  “The average person is not diversified, right? They have stocks...and a lot of people are like, if I have the S&P 500, I have 500 stocks, I’m diversified. Well, no, not really. Not when a hundred million other people are doing the exact same thing.”
  (Jared Dillian, [28:55])

• On Free Trade (Allegory of the Sandwich):
  “Making one sandwich is like 10,000 hours worth of work, right?...Trade is mutually beneficial transactions. Makes everybody richer all the time.”
  (Jared Dillian, [51:17])

• On Contrarian Sentiment:
  “A lot of times I’ll just throw out a trial balloon and I’ll be like, gosh, the stock market is really low and I’ll get like a hundred replies and I’ll look at the replies and if 80 of them are bearish, then I’m like, okay, I kind of know how people are set up.”
  (Jared Dillian, [44:54])

Timestamps for Important Segments

| Segment | Timestamp | |---------------------------------------------------|--------------| | Tariffs: Inflationary or Deflationary | 02:21-05:20 | | Fed Policy Motives and Political Angle | 04:37-05:20 | | IMF/GDP, Demand Destruction from Tariffs | 05:20-06:46 | | Bond Market Dislocation & Opportunity | 06:46-07:34 | | Reasoning Behind Tariffs, Revenue, Reshoring | 07:34-10:32 | | Dollar Outlook: Short and Long Run | 10:32-12:50 | | Globalization Anecdotes (Little League Pants) | 13:02-16:54 | | Debt, Foreign Holders, Financial Wars | 17:40-19:07 | | Reserve Currency and Naval Projection | 23:28-25:11 | | Navigating Unpredictable Macro Environments | 25:11-26:45 | | Constructing the "Awesome Portfolio" | 28:22-30:34 | | Rebalancing and Portfolio Drift | 31:20-32:59 | | International Stocks, Value vs. Growth | 33:17-35:45 | | Are We Slouching to Recession? | 36:08-37:57 | | Value Investing’s Potential Comeback | 38:03-41:05 | | Market Sentiment, The VIX, Twitter Polls | 41:15-45:40 | | Fed Outlook—What Should/Will They Do? | 46:13-48:36 | | Bitcoin as Digital Gold? | 48:36-49:40 | | Most Contrarian Opinion: Free Trade | 50:04-52:44 |

Tone & Style

The conversation is candid, irreverent, and witty, with Dillian’s trademark sarcasm and contrarian humor. The hosts’ banter keeps it light but never distracts from a deep dive into serious macro issues.

For Listeners: Why This Episode Matters

This is a must-listen for long-term investors wrestling with volatile macro policies, seeking both big-picture frameworks and practical portfolio advice. Dillian’s perspectives challenge the crowd, provoke critical thinking, and provide actionable insights across policy, asset allocation, and sentiment analysis.