How Much Higher Could Yields Climb?
[Music]
the trade is definitely more mixed this
morning as the Russell’s pretty weak but
Tesla is trying to spark a rally in some
of the TCH and growth names joining us
to assess the situation in the landscape
Jared Dylan is investment strategist at
Malden economics and publisher of the
daily dirtnap newsletter Jared great to
have you back thanks for being here hey
thanks for having me all right so what
do you think uh does it look like we
might have the gumption to start a Tesla
Le comeback here in this market
well I think it’s going to be a pretty
quiet day today I think it’s going to be
what you call an inside day um you know
the data we got this morning at a
durable goods was pretty pretty neutral
I mean it’s definitely not soft but um
you know we’ve had a pretty impulsive
rally off those PMI numbers and uh I
think it’s about running out of gas
right here and you know to keep just to
put this in context the S&P broke Trend
a few weeks ago and has been trending
lower so I think you know I’m looking
for spots to sell rather than for dips
to buy yeah I was reading some of your
stuff lately and it seems like you do
think we meaningfully cracked that this
might be the start of something more
than just kind of evaluation reset how
do you determine where the door has been
opened to what kind of window of
opportunity levels wise
Jared well you know it’s uh we used to
say on the trading for Leman it’s hard
work being short stocks and I generally
try really really hard not to be short
stocks uh I took a shot at a short
position around 4780 in the S&P and it
worked for a couple of hours and then I
was quickly stopped out uh I’m not
looking for a spot to put on a short
here the one thing I’ll point out is
that you know volatility has picked up
quite a bit um you know before we had
the vix in the 12 handle the 13 handle
and now it’s in you know the 16 handle
the 17 handle so it does appear that
there’s been an underlying regime change
in the markets um but I’m not I’m not
aggressively trying to short here that
would be suicidal okay so especially
with the with the big ones coming out
the next 24 hours the inside day you’re
looking for today sounds like you’d like
to see maybe a pop there to give you an
opportunity then to short cuz I mean it
still seems like you want to sell
rallies
right well I think you also have to look
look at um the front end of the yield
curve I think you have to look at Twos
for Clues uh we had a big move in twos
yesterday which was really the first
uptick in twos we’ve had for a while on
the PMI numbers um you know I think with
twos near 5% it’s actually compelling
value uh and I think if you know there’s
there’s a strong correlation between
two-year notes and the S&P and if we got
some more weak data and we got twos down
to about 480 or 485 then the S&P would
probably be 100 handles higher okay so
then I guess you take your cues from
Bonds on looking for opportunities to
put on trades as opposed to the tech and
earnings driven stuff are you taking
this more from a macro perspective that
we’re running in to like uh another you
know saw of bond selling that’s going to
cut through this
Market well you know the the long term
path of interest rates when I say
long-term you know I mean 3 to 5 years
the long-term path of interest rates is
definitely higher but bonds did get
pretty
oversold um I I I love to play Bonds on
the long side I did it successfully at
the end of
20123 um but you know if you look at if
you look at the bond market it was
pretty
oversold and like I said I you know I
think you have value at at at 5% on twos
here I think
uh I think 30s are you know pretty
undervalued so yeah I think I think now
is a decent shot to take a shot at the
bond market on the long side if you
think the trend generally though is
yields going higher what’ll be your cues
to get out of that uh trade if you are
going to buy right
now yeah I mean I think uh I think 4
30ish on 10 would probably be the point
at which I get out um look like you know
the fundamentals are we have um
unsustainable deficits we’re running
about a $2 trillion deficit and um it
has the potential to either get worse or
very worse depending on who gets elected
in November um there there isn’t uh
there isn’t a a a deficit Hawk that is
running for president so you’re looking
at the potential for higher deficits
down the line more Supply higher bond
yields and by the way I should point out
that gold has been positive not super
strongly positively but positively
correlated to bond yields which is
counterintuitive yes let’s talk about
that I know you wrote about this as well
gold in particular uh it’s been probably
the most impressive trade of the last
couple months given that it was at
records and it held it while momentum
rolled over it’s Shrugged off many of
the traditional indications that it
should break higher yields higher dollar
there’s been a lot of reports of Central
Bank buying kind of post us uh uh
getting involved in Russia and Ukraine
that seems to be a decent Story how much
of it answers the strength and gold in
your
mind well gold broke out from what was
essentially a 133-year consolidation if
you go back to 2011 it broke out of a
13-year
consolidation and that you know the
longer the consolidation the more
impulsive the breakout and we had a 15
20% move higher in gold in about a month
uh it’s consolidating right now I don’t
think it’s over actually um I’ve been I
I have a large position in gold and I’ve
been looking for an opportunity to hedge
it and I think that opportunity is going
to come around 2500 or so uh I do think
we have one more push higher to
2500 and then it’s going to be time to
hedge everything up how do you do that
you sell uh calls against your position
buy puts just take some uh profit what’s
the approach cuz I’m sure there’s a lot
of happy gold bugs that are wondering
what do I do up here I would buy puts
actually uh I I just have a general rule
I never sell calls on gold I never give
away that upside okay because gold
ultimately is a right tail asset it has
a big right tail it has the potential to
explode higher so I never sell calls on
gold I will buy puts for sure I will
fully hedge the position what about
silver um should this be a part of this
conversation how much does it follow
gold in your mind how much does it have
more true industrial cyclical
connections uh it it that’s a great
chart actually you’re show right there I
was just about to talk about that um you
know silver has broken out and silver is
the ultimate right tail asset you know
there’s been two times in its history
when it’s broken out to $50 an hour out
and it’s done so very quickly uh I do
have a little bit of silver I focus more
on gold but if you look at inflation
adjusted silver if you had a chart of
inflation adjusted silver over time that
makes silver look very very cheap at $28
an ounce okay so it seems like if the
chart is indeed breaking out a lot of
upside potential can you give me kind of
thoughts on how far you think this could
go Futures right now at 2727
uh it’s I don’t know um that you know I
hesitate to give price targets for stuff
like that um I’m just going to take it
one day at a time but you know there’s I
I think ultimately over the span of 6
months 12 months 2 years I think silver
is going to be drawn like a magnet back
to that $50 high that it made both in
2011 and back in the 70s so I do think
we’ll get there one day but that’s you
know silver has humiliated a lot of
people over the last 10 years and uh I
don’t want to be one of
them in this conversation a lot of folks
think that Bitcoin should be a part of
the discussion did we learn over the
last month that it still is much more
tied to risk momentum than it is any of
the store of value stuff that seems to
be working for
gold I think that’s I think that is what
we learned um if and by the way if you
look at a chart of the gold to bitcoin
ratio it’s been trending lower for years
really and it’s just started to bottom
and turn higher and what we’ve seen here
with the conflict in the Middle East is
that gold is acting as a store of value
and Bitcoin is not Bitcoin is trading
with risk so if you’re trading in an
environment where you do have
geopolitical risk I do think that gold
will strongly outperform Bitcoin
okay Jared uh generally when you look at
the expectations for pal the central
banks give me kind of a final macro
thought then I want to ask about your
new book you got coming out are you uh
thinking that they might actually go all
the way around back to hikes you think
we’re that powerful in the economy or
should we generally be looking still for
an eventual uh
cut no I think I think the market
implied probabilities are actually about
correct I mean the last time I looked we
were pricing in one or two rate Cuts
before the election and look like this
is all based off of uh the end of 2023
when the data started to get soft and we
had that big rally in duration and the
FED said look we have you know we’re too
restrictive we have to cut so I still
think they’re operating off of that and
I think we’ll get probably 125 basis
point cut before the election but I
think we’ll be looking at rate hikes
after the election okay all right so
seems like right now in conclusion
you’re not looking to short the market
but you do think we broke momentum so
you’re open to shorting rallies looking
more for like a short-term Bond bid
before that reverses seems like most
your confidence is in the gold and the
silver trade not a lot of love for
BTC that’s that’s everything you said is
100% correct okay hey last time we
talked you had a book coming out you
doing two books in one year or what I am
doing two books in one year so no
worries no worries how to live a
stress-free Financial life came out in
January and I actually have a a short
story collection that’s going to be
coming out in November it’s called Night
Moves oh nice so what kind of short sto
is this like Wall Street Tales is this
like uh Margin Call stuff or what no
it’s just classic literary Fiction it’s
uh it’s very good you’ll like it all
right cool awesome stuff Jerry thank you
for uh the thoughts and appreciate the
macro discussion helpful for us for our
kickoff to today’s session good to see
you thank you Jared Dylan investment
strategist at Malin economics and
publisher of the daily dirtnap
newsletter
Futures are mixed as the market bounce back continue. Jared Dillian discusses this, as well as how much higher yields could climb. He also questions if his is the top for gold. He also talks about the 5-year treasury auction. Tune in to find out more about the stock market today.
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