Podcast Summary: Excess Returns – "The War Markets Can't Price | Jared Dillian on the Regime Change Investors Miss"

Date: March 19, 2026
Host: Excess Returns (Jack Forehand, Justin Carbonneau, Matt Zeigler)
Guest: Jared Dillian (“Daily Dirt Nap”)

Main Theme & Purpose

This episode dives deep into why financial markets struggle to price major geopolitical and systemic disruptions—think wars, regime changes, and inflationary swings—and the human behaviors that underpin these failures. Jared Dillian, long-time trader and author, unpacks the psychological hurdles investors face, how regime shifts break old playbooks, and practical ways investors can adapt—even when it means challenging their own core beliefs. The discussion also touches on asset allocation strategies, risk, position sizing, the impact of political views on investing behavior, and adapting to new technological and macroeconomic realities.

Key Discussion Points & Insights

1. Why Markets Struggle to Price Rare, Disruptive Events

Markets as Discounting Machines: While markets are efficient at pricing in many risks, they tend to ignore or misprice "low-frequency, high-impact" events like wars or regime changes, often until it's too late.
- Quote (Jared; 03:29):
  “It was the weirdest thing in the world. Like Russia put about, you know, a hundred billion dollars worth of military equipment on the border and everyone is like sleepwalking through this…prices didn't move until they actually invaded, even though there was plenty of warning.”
Pattern of Underreaction, then Overreaction: The market may ignore warning signs, then overshoot in response. There are opportunities both before and after the inflection point for nimble investors.

2. The Psychology of Willful Ignorance

Sleepwalking Until Forced to Act: Investors and markets collectively ignore uncomfortable risks until those risks become unignorable—an aspect Jared attributes to “willful ignorance.”
- Quote (Jared; 04:10):
  “It’s like a strange psychological phenomenon. It’s almost like, like willful ignorance. Like, I’m just going to pretend this thing goes away…until I can’t ignore it anymore.”

3. Regime Change & Non-Stationarity in Investing

Old Playbooks Stop Working: The 60/40 portfolio functioned well when stocks and bonds were negatively correlated (declining inflation), but correlations flipped post-2020 with rising inflation and war.
Adaptability: The real challenge isn't the regime shift itself, but investors’ inability to adapt old strategies to new realities.
- Quote (Jared; 13:17):
  “Imagine you’re playing chess and you’re in the middle of a game and all of a sudden all the rules changed…That is what investing is like.”
You Can’t Predict Regime Changes—You Must Respond: There’s no "tell" for regime change; investors must recognize when the old correlations break and adapt quickly.

4. Option Trading Philosophy

Long Gamma (Option Buyer) vs. Short Gamma (Option Seller): Jared prefers being net long options, influenced by Nassim Taleb. He highlights the dangers of shorting options, especially during tail events.
- Quote (Jared; 09:03):
  “I generally don’t sell options as a general rule, not even really covered calls…there’s a lot of people who make a lot of money selling options…But I just don’t want to live like that.”

5. Position Sizing, Risk, and Confidence

Small, Nimble Positions Over Conviction Bets: Jared emphasizes staying “a chicken”—not letting conviction lead to oversized positions, even when you feel strongly about an idea. Small positions can be held through volatility; large ones often can't.
- Quote (Jared; 16:52):
  “I think being a chicken is a virtue…No matter how much conviction I have on something, I generally don’t let position sizes get out of control, because you always have to entertain the idea that you’re wrong.”
Broad ETFs vs. Individual Names: Will size positions larger in diversified ETFs than in individual stocks due to risk concentration.

6. Hard Assets and Commodity Bull Market

Commodities Taking Turns in the Spotlight: Since Sept 2024, a bull market has emerged across different commodities—initially gold, then energy, and now agriculture, driven in part by geopolitical shocks (e.g., conflict in the Strait of Hormuz).
War as a Catalyst: The ongoing conflict has accelerated the participation of broader commodities, with fertilizer and agriculture seeing price movements.

7. Bitcoin & “Liquidity Sponge” Behavior

Bitcoin vs. Gold During Crisis: Since recent conflicts, Bitcoin has significantly outperformed gold—a surprise to Jared. He sees Bitcoin less as a store of value, more as a play on global liquidity.
- Quote (Jared; 22:05):
  “It really doesn’t act like a store of value…since the war started, [Bitcoin] has outperformed gold significantly. And I don’t really know why that is…”

8. Fed Policy and the Path of Least Embarrassment

Central Bank Conservatism: The Fed is unlikely to cut rates while oil remains high, to avoid criticism. They err on the side of caution and perception management.
- Quote (Jared; 27:27):
  “The Fed is not going to cut rates with oil at 100 because that would seem to be insane and that would subject them to a lot of criticism…they’re going to wait and see.”

9. 1970s Analog: Useful or Not?

Skepticism on Analogies: Jared notes that the 1970s were a clear outlier in terms of yields and inflation, but admits that if current trends continue (bearish stocks, bullish commodities), there could be a new parallel.

10. How Politics Shapes Investment Styles

Investment Choices Reflect Political Beliefs: Jared posits most investors’ styles are their politics in numerical form—liberals gravitate to index funds and low-cost average returns, conservatives favor hard assets and gold.
- Quote (Jared; 32:29):
  “For the vast majority of investors, their trading style…is simply their political views expressed in mathematical form."
Challenge of Overcoming Bias: Even successful investors get stuck in old philosophies and may miss new trends.

11. Private Markets: Equity & Credit Risks

Marks Don't Reflect Reality: Jared is deeply skeptical of private equity and credit valuations—actual marks are much lower, redemptions are revealing flaws, and private credit is likely to unwind before private equity.
- Quote (Jared; 38:54):
  “The stuff in these portfolios is not worth what they say it is. It's just not...You're starting to see individual credits within these funds that are marked at par one day and they're marked at zero the next.”

12. The “Awesome Portfolio” and Asset Allocation

20-20-20-20-20 Allocation: Jared describes a robust asset allocation—20% each in stocks, bonds, cash, gold, and real estate. It smooths returns and nearly eliminates large drawdowns.
- Quote (Jared; 45:20):
  “You have this thing that returns a little bit less than stocks...and it cuts your volatility in half and it practically eliminates your drawdowns.”
Behavioral Edge Over Pure Returns: The real gift is behavioral—less volatility means investors are less likely to panic and deviate from their plan.

13. Labor Disengagement & Productivity

Changing Attitudes Toward Work: Jared reflects on how workforce engagement has dropped, partly due to changing societal values and technological distractions.
- Quote (Jared; 53:25):
  “If the one thing that really stood out to me about the Y2K era was that everybody was working so hard…nobody does that anymore, you know.”

14. The AI Productivity Boom

AI’s Mixed Impact: Previously, the internet became a productivity drag due to social media, but AI might reverse that. Jared shares anecdotes from readers amazed at AI efficiency, but admits he’s a “caboose”—a late adopter.
- Quote (Jared; 59:17):
  "About 10 years ago, I had this subscriber…he called me the caboose because I’m not an early adopter, I’m a late adopter."

15. Contrarian View: Voting Is (Almost) Pointless

Voting Seen as Low Impact: Jared provocatively claims that voting is one of the lowest-impact political activities, arguing real impact comes from riskier actions—writing, donating, running for office.
- Quote (Jared; 61:37):
  “I view voting as an act of aggression…you’re trying to enforce your preferences on other people by force…You are not accomplishing anything.”

Notable Quotes & Memorable Moments

On regime change:
“The problem with regime change isn't the regime change. It’s that most people fail to adapt. They’re still playing by the old rules.” (Jared, 01:16 / 14:34 / recurring theme)
On position sizing:
“If you’re too big, then you can get shaken out of a trend very easily. If you had a smaller position, you can stay in the trend because it’s not causing you so much pain on a drawdown.” (17:08)
On private markets:
“The first rule of panicking is to panic before everyone else does.” (44:09)
On adaptation:
“I made a promise to myself…I would invest in [a new trend] anyway, even if I philosophically disagreed with it.” (35:43)
On work culture:
“Monkey Business was about these tech bankers…they were working like 120 hours a week. They wouldn’t even wash their clothes, they would just buy new clothes.” (54:43)
On AI adoption:
“When you tell us that the AI hype cycle is real, that’s when we know…that the bull market in that is well underway.” (59:48)

Timestamps for Important Segments

03:29 — Markets & Geopolitical Risks
04:59 — Underreaction/Overreaction Pattern
09:03 — Options trading philosophy (Long Gamma)
11:21 — Regime change and breaking of correlations
16:52 — Position sizing and risk philosophy
18:59 — Hard assets and commodity markets
21:45 — Bitcoin as a liquidity play
24:15 — Fed policy post-war inflation and commodity spikes
32:29 — Politics and investment style
38:34 — Private equity/credit—why the marks don’t line up
45:20 — The “Awesome Portfolio” concept
53:25 — Nobody works anymore: labor disengagement
55:26 — AI and changing productivity
61:37 — Voting as an act of aggression; continuum of political impact

Final Thoughts & Where to Find Jared

Jared is active on Twitter (@DailyDirtNap), Substack (We're Gonna Get Those Bastards), and offers The Daily Dirt Nap market newsletter. His new book, "The Awesome Portfolio," will be published in September, with other works available on Amazon.

BOTTOM LINE:
Markets systematically fail to price paradigm shifts in advance—yet the biggest obstacle for investors may be their own inertia and attachment to old regimes. Jared Dillian’s advice: Stay humble, stay nimble, be ready to challenge your beliefs, and make risk management your north star. Whether it’s hedging unexpected events, revisiting old asset allocation rules, or examining your own political-investing biases, adaptation beats conviction after the rules of the game change.