Why Tariffs Lead To DEFLATION: Wall St Veteran's RECESSION Warning | Jared Dillian
Summary
Bond Bullishness: Guest is strongly bullish on US Treasuries, expecting multiple rate cuts and significant upside along the curve.
Deflation Outlook: Argues tariffs are deflationary, citing falling “true inflation” and the likelihood that rate cuts come late.
Weak Dollar: Expects a weak dollar scenario akin to the Plaza Accord pattern, improving the trade deficit while impacting asset allocation.
Recession Risk: Sees higher odds of a US recession, with unemployment potentially rising to 6–8% due to government and private-sector layoffs.
Housing/Homebuilders: Notes weakening housing trends with homebuilders cutting prices, high inventories, and potential pressure as mortgage rates fall.
Energy/Oil: Discusses oil producers with a technically constructive base but macro downside risk if recession deepens; OPEC+ supply adds pressure.
Portfolio Strategy: Recommends diversification, hedging with puts, holding cash for opportunities, and tactical rotation (e.g., Staples), rather than selling out.
Transcript
Around 10 or 11:00 this morning, and this is on Tuesday March 4th, it was getting a little dicey in the markets. stocks fell a little flashy crashy. 2 year notes are ripping. Commodities, as a result of the tariffs, are crashing. Particularly in agriculture. it's just a disaster we all know that tariffs increase costs but does that mean they cause inflation what if tariffs are actually deflationary what if they make prices go up and because of that demand drops so much that we have a recession the first recession in 16 years well that's what Wall Street trading veteran Jared Dillian and I discussed today along with how to trade a recession and how to protect your portfolio I'm Ed D'Agostino and this is Global Macro Update Jared let's talk about what's going on in the economy I want to get into your thoughts on if a recession is more imminent I I personally think it is and I have not been in the recession camp for the last you know ever since Co but I'm getting nervous what do you think I'm not getting nervous because I like recessions like we recessions number one are fun to trade uh my newsletter business goes up in a recession believe it or not um there plus you like we've we've really had like 16 years without a recession so there's a lot of malinvestment and overinvestment that happens going to clean all that out so I'm ready for a recession like I am ready um and also from a political standpoint like if Trump is going to cause a recession better to do it in the first half of his term frontload the pain and then come out of it in the second half you know what I mean I could not agree more now now is the time to give everybody the medicine right I mean you know he's a one-term president right off the right off the bat so he's not worried about getting reelected but there's still the midterms you got to do it now you probably saw that the Atlanta fed GDP now estimate like went negative like it was at 3% now it's negative like in like in a month like it went negative yeah negative 2.8 it's 100% politically motivated for sure having said that is it's probably true it's also probably true like like I actually so if we started this you said you know what do you think my odds are we're going into recession I think the odds are higher Mohamad L Aran just said that on Twitter he is the master of the obvious like he's made a career out of just saying the most obvious things and he's like oh I think the odds of a recession are going up I'm like no [ __ ] like stocks are crashing like bond yields are you know I it's funny around 10 or 11:00 this morning and this is on Tuesday March 4th it was getting a little dicey in the markets like yeah stocks felt a little flashy crashy two-year notes were like there was like no offer they were ripping um you know Comm Commodities as a result of the tariffs are crashing um particularly in agriculture like it's just it's just a disaster so um and the dollar is the dollar is just getting destroyed you know and it really felt like around 10: or 11 this morning that there was real stress in the markets for the first time since August if you remember what happened and and plus the yen is ripping too like the yen is ripping so um we we do have real stress in the markets now let's first talk about what at kind of let's break down all the things that might be indicating that there's a recession uh coming potentially or at least that the odds have gone up and then let's talk about how to trade it how how you would play it as a Wall Street Trader uh let's start with interest rates what are they saying are rates going down because there's a flight to safety or or are they pricing in the success of of uh government Cuts I would say last week or the week before they were pricing in um Doge um but now it's become more about the economic Outlook I think um you know two-year notes are still above 4% I think they're 4.1 or something like that and if we have just say six rate Cuts this year I mean that you're looking at a two-year note in the low threes you know um so even as much as twos have moved here I think I I I still think the Bond Market is a buy you know even at these levels what about the 10year bond right because that that is the bond that mortgages the mortgage rate is set off of the 10year uh best Scott bessent Secretary of Treasury and and president Trump both said repeatedly they want the 10-year interest rate to come down yeah it's funny because you know Trump in his first term was T targeting the stock market and this time around he's targeting the bond market um and if that's you know uh bessin I think knows what he's doing um I would not be surprised to see three and a half on 10 in even a month or two like it could get there it could get there fast which would be good or bad for the housing market depending on your point of view right because you've had all these people that are trapped in these low interest rate mortgages uh you get mortgage rates down to 6% or below and people say okay I can move now and they list their homes and you have all the supply on the market and come down prices come down I think that's possible I've seen some charts recently about home builder profit margins which are the highest basically in history um and you know here in Myrtle Beach DR Horton lenar we used to call him DR Horton um so DR Horton and lenar they're they're cutting prices on new homes by a lot by like 60,000 um the inventory of single family homes is the highest that's been since before the financial crisis um so housing market is looking you know and I I've been a housing bull but the housing market is looking a little little weak here that's kind of what I wanted to key in on is a lot of people who I think got the last couple of years right are starting to shift their thinking which which really has my attention like guys like uh Neil duta from from Renaissance macro I was listening to him on uh with Tom Keane last week on Bloomberg Radio and you know he's he's been fairly consistently bullish um and last week said look I'm I'm getting concerned I've been concerned for a while you know I started getting bearish in July um and then we had that puke uh the end carry trade blowup or whatever you want to call it and um which I thought would turn into something bigger and literally like that crisis lasted a day and then we made new highs um but i' I've been I've been pretty bearish on and off since July um and I think I think this might be it in terms of he talked about trading it um so the S&P 500 got down to the 200 day today and it bounced um so probably going to bounce around here we have payrolls on Friday if we have a weak payrolls number on Friday then probably through the 200 day and there's really no support below that at all you mentioned payrolls let's talk about unemployment right now it's at 4% kind of the Goldilocks level right like it it it's sort of perfect for the economy but we're hearing about all these layoffs now we're hearing the it's not showing up overtly in the data yet but the anecdotes are really starting to crank up lots of companies started in Tech now it's sort of spreading out there's a question as to whether it's it's due to the economy or whether it's due to Ai and automation just putting putting efficiency on the table for these companies and so they're saying well why wouldn't we why wouldn't be we become more efficient what where do you think happening in the labor market directionally with respect to the labor market the first thing I want to talk about is the government um because the government was the biggest contributor to jobs added over the last couple years most of the new jobs are going to the government and now we have Doge laying people off so uh I heard somebody emailed me and and the guy was being kind of a jackass and he's like he's like dude what would happen if you know unemployment went to 9% because of Doge so I'm like all right so I went to perplexity and I asked how many federal workers are there military X post office and it said 2.4 million and I said okay what would happen to the unemployment rate if 2.4 million people got laid off like all government workers and the unemployment rate would go up two points so it would go from 4.1 to 6.1 so if we laid off every single government worker the unemployment rate would go up two points which is not a lot and we're not going to lay off every single government worker so um but really I think where there's there's there's Network effect isn't the word I'm looking for but correlations or whatever like you start laying off a third of government workers now you're putting contractors and Beltway Bandits out of business and people Downstream from that so there's kind of a multiplier effect so even from Doge I think you could get the unemployment rate up to 6 or 6 and a half you know uh just just from government layoffs and now all the things you mentioned with the private sector and Ai and stuff like that um look like you know I got to throw private Equity into the conversation if private Equity croaks um you know private Equity owns I don't know how many trillions of private businesses um they are not they're going to remorselessly lay people off in a downturn right um they are not going to hang on to workers so a lot of these layoffs I mean and this is all kind of Doomsday talk and stuff like that like this is like worst case scenario um but the layoffs could happen fast right so I think in a worst case scenario we could end up with unemployment at 7 and half 8% um that's like the worst case scenario I think base case is probably 6 six and a half so if you think about that the other the other sort of thing that people have been worrying about in the markets over the past few months uh and and well beyond has been inflation right but it but if we have an unemployment rate of six or or higher um interest rates are going to come down there's not going to be inflation even with tariffs would be the argument so let's unpack all that I think that tariffs are actually deflationary yeah I do too I think it's the opposite of conventional wisdom the conventional wisdom is that tariffs are super inflationary we're going to be paying 25% more for all these Goods it causes inflation actually what tariffs do is they slow down the economy and it's a deflationary force so just in uh the last couple weeks you've seen the true inflation data dropped to 1.3% so I mean it just Gap lower so true inflation is at 1.3% this is like we are experiencing deflationary forces right now inflation is not going to be a problem uh I saw I don't remember which fed official I mean they all say the same thing but uh some fed official was saying we have to be vigilant about inflation and all this stuff they are not getting the joke uh there's inflation is not going to be a problem right so um and they'll figure it out eventually but the rate Cuts will come to late is my guess you really think we'd see six rate Cuts this year yeah I mean we're pricing in three so that isn't that much of a stretch um we're we're currently pricing in three so I think you know 625 basis point rate cuts that takes you down to 3% I think it's possible we get more but I would say that's kind of base case so I have no way to verify this but but several news outlets reported and whether you trust them or not it's another story but let's just let's just assume that they did some due diligence several news outlets reported that your average car price is going to go up by $122,000 if the tariffs that are currently being put forth on Canada and Mexico stick I can't imagine the car industry not getting anything but decimated if the average car price goes from roughly $50,000 now up to over 60 uh that that sure seems like a break on the economy I hate doing that but I you know this is kind of stuff I was writing about months ago with the tariffs when Trump was first talking about this stuff when he said tariffs was his favorite word like I actually used that example in my newsletter I was like look a $50,000 car is now going to cost 60,000 and people are going to squeal like I think everybody was in love with the idea of tariffs in principle but I think in practice it's going to be very ugly and people are going to be upset very fast um so so yeah I mean you know I'm sort of in the market for a new car you know too late like I can't like it's I can't do it now yeah I just my whole cabinet is filled with tequila and avocados so I'm all set there there's supposed to be an offset to these tariffs right so I so I I but the interesting thing is I haven't heard a lot of talk about the potential offsets right you you you wrote about it you rate for reason magazine you wrote about potentially flattening the the tax code make make it a flatter tax um where is the offset to tariffs if if if tariffs are supposed to contribute Revenue to the government in theory there would be an offset in our in our taxes the offset is uh the dollar is getting the dollar down that's the offset so um if you if you depreciate the Dollar by 10 or 12 or 15% then really the impact to the tariffs is negligible at least from an exporting standpoint you know so that's kind of the release valve before we go any further let me just ask that you subscribe to the channel and leave us a comment or a question I really appreciate your help and your support of this channel if you want to know when we post new videos sign up for our weekly email notific there's a link in the description below now back to our discussion with Jared I was actually looking up about the plaza Accord in 1985 uh I don't know what you know about the plaza cord I didn't know much actually it's it was kind of before my time I had to look it up but in the early 80s the dollar got very strong so there was a bunch of G10 countries that got together to um exert some influence on the dollar and try to get it lower um and boy did ever get the dollar lower like you can look at a chart of the dxy going back to the80s and there was a peak and then the dollar sold off like 35% so um you know I was at a conference last week in Kansas uh I put up a bunch of charts about the dollar um the dollar is following the ex exact same pattern from 2017 in Trump's first term dollar rallied a couple of percent in 2017 and then it sold off like 12% for the rest of the year same thing's going to happen what do you think the impact is going to be on US exports um and and and one of the things that I want to think about with you is some of our trading partners are really pissed off at us namely Canada like like really really mad um and and are go going out of their way at least at the retail level the consumer level going out of their way to not buy uh us products um will that happen at the factory Industrial Level I don't know but this an interesting little wrinkle yeah I actually have a Canadian Facebook friend and she is like she's posting all this stuff about boycotting us products and I'm like I'm like those types of things don't work and they're stupid but people are upset very upset yeah yeah we have a lot of Canadian viewers and they they they they weighed in pretty heavily over the last month not too pleased I didn't do it I didn't do it so do you think that overall US exports like you know a let's take a it's getting crushed this week I think that on balance the trade deficit will go down um that's that's what happened in 1985 uh we were running record trade deficits and the plaza cord work the dollar came down and the trade deficit got smaller so I do think that's going to happen true inflation down to uh 1.3% you said yeah what a change I'm super bullish on bonds yeah I mean getting back to the earlier point we're going to the the front end of the yield curve is going to be pricing in rate Cuts pretty soon um and I think I misspoke earlier I I think I said that 2year yields were 4.1 that's actually where 10year yields are I think twos are like 38 385 39 something like that um but still like if if we're going to get six rate Cuts this year which I think is going to happen there's the bond market has a long way to go which from an asset allocation standpoint you know I mean I talk about the awesome portfolio and how everybody should own 20% in bonds and even people who hypothetically are doing a 6040 like you have to make sure you have the 40% in bonds it might be time for me to finally Jason Brady was lecturing me two years ago to just get get out of the three-month t- bills and and move out move out farther on the curve and I I didn't I've just been hanging out in the front end but and it's been great but I guess it might be time to move you know what other thing um that factors into potential deflation um Energy prices I mean oil is getting crushed uh which bumps me out being long oil producers OPEC plus announced that they are going to increase their output in in April I saw that yeah energy costs are going to keep going down I'm sort of conflicted on that um you know from a technical standpoint the charts are telling me that energy is that oil is bottoming here right um I think from a technical standpoint we have more or less formed a base in oil um and I don't think there's much downside however uh from a macro standpoint you know if you believe we are really going into a semi severe recession there could be a lot of downside in oil prices you know what I mean I mean just using 2008 as an example like oil went from 140 to 30 in a couple of months you know so um like I said I'm a little bit conflicted I sometimes I put a little too much faith in my chart reading abilities you know so I'm kind of a nervous long in oil all right well let's talk about how to trade this so let me give you the the the the poster child that I want to think about here you're 45 years old you've been long the market just the market right the S&P 500 you've you've made a killing uh over these last several years you know up over 20% two years in a row uh you've done great now you're getting nervous what do you do I mean a whole bunch of things are coming to mind so you can buy puts you can hedge the whole thing uh if you know how to do that we have an options Master Class coming out so you know you know there's you can do that uh you can diversify in other asset classes you can go into bonds and gold and commodities and real estate and stuff like that so you can diversify across asset classes uh you could sell everything and go to cash and just take the tax hit um you could uh do some rotation into different sectors you could uh you know you can be overweight in Staples um which for the last year have been getting killed relative to the S&P 500 so Walmart and Proctor and Gamble and things like that um in McDonald's and you know whatever so there's there's a you can do a combination of those things there's a lot of things you can do to protect yourself um I think for you know I I got to put in a plug for the awesome portfolio like you know the beauty of the awesome portfolio is you don't have to think about selling stuff liquidating stuff taking a tax hit being out of the market you're always in the market you're always fully invested right uh and the only tax consequences are when you rebalance at the end of the year right so um you know it just goes back to my overall philosophy that you just in you just have to be Diversified across asset classes there is a good chance that we'll have a 20% correction which will last a year kind of like 2022 like 2022 is a great example right like we the market was down 20% like 18% and at the time it felt like the end of the world right and at the end of 2022 the market bottomed and then it went up like another 50% right so if you if if if you sold everything and headed for the hills then you missed out on those gains right so that's very hard to do um we could take a 20% draw down we could take a 30% draw down and two years from now we could have another bull market which you would miss right like this is why I don't like being long just the index because you are faced with these decisions every couple of years right like what do I do if if you have if you're Diversified you don't have to you don't have to make these decisions you know what I mean that's a great point I mean as a as a gen xer who had a front row seat to the great financial crisis right like I was scarred and most of my friends were scarred for years after that the market got so crushed and it took so long to bounce back and a a lot of of us of of of my age group my peer group missed out on a huge some of them missed the entire next 10-year Bull Run cuz they were just scarred and I forgot to mention one thing you always have to have some cash you always have to have some cash which in the awesome portfolio you do you have 20% cash but you have cash to take advantage of opportunities so if you have even if you have 80% stocks and 20% cash like if the market Market goes down 20% you can deploy the cash right and buy stuff cheaper right cash is an option to buy something cheaper in the future right and so many people are just loaded up to the gills with stocks they're fully invested and then the market crashes and they're they just they're stuck they just can't take advantage of it you know Buffett by the way has 350 billion in cash right like and everybody has been like aha Buffett what an idiot and this this happens like in every single cycle you know he loads up on cash and then he starts buying distressed companies getting preferred stock with all this stuff like it's going to happen again the ultimate jokes on you yep you write about all this kind of stuff at uh at your website Jared dillian money I I would encourage people to go sign up for your if you have a free weekly letter the Jared dillian letter creatively named theonomous named yes I have fun writing the Jared dillian letter I've you know um it's you you know what's funny is I I I kind of forget um how that letter reaches and touches people like I'll publish you know it gets published on Thursdays so the Jared dillian letter comes out and then people start posting screenshots of it on Twitter right like look what Jared dillian said I'm like hey that's pretty cool you know so it's it's it's a big influential letter and you should sign up it's free doesn't cost anything can't get cheaper though even if there's dation we're not paying you to read it yeah we draw the line there uh Jared always a pleasure talking to you thanks for showing up my friend yeah of course
Why Tariffs Lead To DEFLATION: Wall St Veteran's RECESSION Warning | Jared Dillian
Summary
Transcript
Around 10 or 11:00 this morning, and this is on Tuesday March 4th, it was getting a little dicey in the markets. stocks fell a little flashy crashy. 2 year notes are ripping. Commodities, as a result of the tariffs, are crashing. Particularly in agriculture. it's just a disaster we all know that tariffs increase costs but does that mean they cause inflation what if tariffs are actually deflationary what if they make prices go up and because of that demand drops so much that we have a recession the first recession in 16 years well that's what Wall Street trading veteran Jared Dillian and I discussed today along with how to trade a recession and how to protect your portfolio I'm Ed D'Agostino and this is Global Macro Update Jared let's talk about what's going on in the economy I want to get into your thoughts on if a recession is more imminent I I personally think it is and I have not been in the recession camp for the last you know ever since Co but I'm getting nervous what do you think I'm not getting nervous because I like recessions like we recessions number one are fun to trade uh my newsletter business goes up in a recession believe it or not um there plus you like we've we've really had like 16 years without a recession so there's a lot of malinvestment and overinvestment that happens going to clean all that out so I'm ready for a recession like I am ready um and also from a political standpoint like if Trump is going to cause a recession better to do it in the first half of his term frontload the pain and then come out of it in the second half you know what I mean I could not agree more now now is the time to give everybody the medicine right I mean you know he's a one-term president right off the right off the bat so he's not worried about getting reelected but there's still the midterms you got to do it now you probably saw that the Atlanta fed GDP now estimate like went negative like it was at 3% now it's negative like in like in a month like it went negative yeah negative 2.8 it's 100% politically motivated for sure having said that is it's probably true it's also probably true like like I actually so if we started this you said you know what do you think my odds are we're going into recession I think the odds are higher Mohamad L Aran just said that on Twitter he is the master of the obvious like he's made a career out of just saying the most obvious things and he's like oh I think the odds of a recession are going up I'm like no [ __ ] like stocks are crashing like bond yields are you know I it's funny around 10 or 11:00 this morning and this is on Tuesday March 4th it was getting a little dicey in the markets like yeah stocks felt a little flashy crashy two-year notes were like there was like no offer they were ripping um you know Comm Commodities as a result of the tariffs are crashing um particularly in agriculture like it's just it's just a disaster so um and the dollar is the dollar is just getting destroyed you know and it really felt like around 10: or 11 this morning that there was real stress in the markets for the first time since August if you remember what happened and and plus the yen is ripping too like the yen is ripping so um we we do have real stress in the markets now let's first talk about what at kind of let's break down all the things that might be indicating that there's a recession uh coming potentially or at least that the odds have gone up and then let's talk about how to trade it how how you would play it as a Wall Street Trader uh let's start with interest rates what are they saying are rates going down because there's a flight to safety or or are they pricing in the success of of uh government Cuts I would say last week or the week before they were pricing in um Doge um but now it's become more about the economic Outlook I think um you know two-year notes are still above 4% I think they're 4.1 or something like that and if we have just say six rate Cuts this year I mean that you're looking at a two-year note in the low threes you know um so even as much as twos have moved here I think I I I still think the Bond Market is a buy you know even at these levels what about the 10year bond right because that that is the bond that mortgages the mortgage rate is set off of the 10year uh best Scott bessent Secretary of Treasury and and president Trump both said repeatedly they want the 10-year interest rate to come down yeah it's funny because you know Trump in his first term was T targeting the stock market and this time around he's targeting the bond market um and if that's you know uh bessin I think knows what he's doing um I would not be surprised to see three and a half on 10 in even a month or two like it could get there it could get there fast which would be good or bad for the housing market depending on your point of view right because you've had all these people that are trapped in these low interest rate mortgages uh you get mortgage rates down to 6% or below and people say okay I can move now and they list their homes and you have all the supply on the market and come down prices come down I think that's possible I've seen some charts recently about home builder profit margins which are the highest basically in history um and you know here in Myrtle Beach DR Horton lenar we used to call him DR Horton um so DR Horton and lenar they're they're cutting prices on new homes by a lot by like 60,000 um the inventory of single family homes is the highest that's been since before the financial crisis um so housing market is looking you know and I I've been a housing bull but the housing market is looking a little little weak here that's kind of what I wanted to key in on is a lot of people who I think got the last couple of years right are starting to shift their thinking which which really has my attention like guys like uh Neil duta from from Renaissance macro I was listening to him on uh with Tom Keane last week on Bloomberg Radio and you know he's he's been fairly consistently bullish um and last week said look I'm I'm getting concerned I've been concerned for a while you know I started getting bearish in July um and then we had that puke uh the end carry trade blowup or whatever you want to call it and um which I thought would turn into something bigger and literally like that crisis lasted a day and then we made new highs um but i' I've been I've been pretty bearish on and off since July um and I think I think this might be it in terms of he talked about trading it um so the S&P 500 got down to the 200 day today and it bounced um so probably going to bounce around here we have payrolls on Friday if we have a weak payrolls number on Friday then probably through the 200 day and there's really no support below that at all you mentioned payrolls let's talk about unemployment right now it's at 4% kind of the Goldilocks level right like it it it's sort of perfect for the economy but we're hearing about all these layoffs now we're hearing the it's not showing up overtly in the data yet but the anecdotes are really starting to crank up lots of companies started in Tech now it's sort of spreading out there's a question as to whether it's it's due to the economy or whether it's due to Ai and automation just putting putting efficiency on the table for these companies and so they're saying well why wouldn't we why wouldn't be we become more efficient what where do you think happening in the labor market directionally with respect to the labor market the first thing I want to talk about is the government um because the government was the biggest contributor to jobs added over the last couple years most of the new jobs are going to the government and now we have Doge laying people off so uh I heard somebody emailed me and and the guy was being kind of a jackass and he's like he's like dude what would happen if you know unemployment went to 9% because of Doge so I'm like all right so I went to perplexity and I asked how many federal workers are there military X post office and it said 2.4 million and I said okay what would happen to the unemployment rate if 2.4 million people got laid off like all government workers and the unemployment rate would go up two points so it would go from 4.1 to 6.1 so if we laid off every single government worker the unemployment rate would go up two points which is not a lot and we're not going to lay off every single government worker so um but really I think where there's there's there's Network effect isn't the word I'm looking for but correlations or whatever like you start laying off a third of government workers now you're putting contractors and Beltway Bandits out of business and people Downstream from that so there's kind of a multiplier effect so even from Doge I think you could get the unemployment rate up to 6 or 6 and a half you know uh just just from government layoffs and now all the things you mentioned with the private sector and Ai and stuff like that um look like you know I got to throw private Equity into the conversation if private Equity croaks um you know private Equity owns I don't know how many trillions of private businesses um they are not they're going to remorselessly lay people off in a downturn right um they are not going to hang on to workers so a lot of these layoffs I mean and this is all kind of Doomsday talk and stuff like that like this is like worst case scenario um but the layoffs could happen fast right so I think in a worst case scenario we could end up with unemployment at 7 and half 8% um that's like the worst case scenario I think base case is probably 6 six and a half so if you think about that the other the other sort of thing that people have been worrying about in the markets over the past few months uh and and well beyond has been inflation right but it but if we have an unemployment rate of six or or higher um interest rates are going to come down there's not going to be inflation even with tariffs would be the argument so let's unpack all that I think that tariffs are actually deflationary yeah I do too I think it's the opposite of conventional wisdom the conventional wisdom is that tariffs are super inflationary we're going to be paying 25% more for all these Goods it causes inflation actually what tariffs do is they slow down the economy and it's a deflationary force so just in uh the last couple weeks you've seen the true inflation data dropped to 1.3% so I mean it just Gap lower so true inflation is at 1.3% this is like we are experiencing deflationary forces right now inflation is not going to be a problem uh I saw I don't remember which fed official I mean they all say the same thing but uh some fed official was saying we have to be vigilant about inflation and all this stuff they are not getting the joke uh there's inflation is not going to be a problem right so um and they'll figure it out eventually but the rate Cuts will come to late is my guess you really think we'd see six rate Cuts this year yeah I mean we're pricing in three so that isn't that much of a stretch um we're we're currently pricing in three so I think you know 625 basis point rate cuts that takes you down to 3% I think it's possible we get more but I would say that's kind of base case so I have no way to verify this but but several news outlets reported and whether you trust them or not it's another story but let's just let's just assume that they did some due diligence several news outlets reported that your average car price is going to go up by $122,000 if the tariffs that are currently being put forth on Canada and Mexico stick I can't imagine the car industry not getting anything but decimated if the average car price goes from roughly $50,000 now up to over 60 uh that that sure seems like a break on the economy I hate doing that but I you know this is kind of stuff I was writing about months ago with the tariffs when Trump was first talking about this stuff when he said tariffs was his favorite word like I actually used that example in my newsletter I was like look a $50,000 car is now going to cost 60,000 and people are going to squeal like I think everybody was in love with the idea of tariffs in principle but I think in practice it's going to be very ugly and people are going to be upset very fast um so so yeah I mean you know I'm sort of in the market for a new car you know too late like I can't like it's I can't do it now yeah I just my whole cabinet is filled with tequila and avocados so I'm all set there there's supposed to be an offset to these tariffs right so I so I I but the interesting thing is I haven't heard a lot of talk about the potential offsets right you you you wrote about it you rate for reason magazine you wrote about potentially flattening the the tax code make make it a flatter tax um where is the offset to tariffs if if if tariffs are supposed to contribute Revenue to the government in theory there would be an offset in our in our taxes the offset is uh the dollar is getting the dollar down that's the offset so um if you if you depreciate the Dollar by 10 or 12 or 15% then really the impact to the tariffs is negligible at least from an exporting standpoint you know so that's kind of the release valve before we go any further let me just ask that you subscribe to the channel and leave us a comment or a question I really appreciate your help and your support of this channel if you want to know when we post new videos sign up for our weekly email notific there's a link in the description below now back to our discussion with Jared I was actually looking up about the plaza Accord in 1985 uh I don't know what you know about the plaza cord I didn't know much actually it's it was kind of before my time I had to look it up but in the early 80s the dollar got very strong so there was a bunch of G10 countries that got together to um exert some influence on the dollar and try to get it lower um and boy did ever get the dollar lower like you can look at a chart of the dxy going back to the80s and there was a peak and then the dollar sold off like 35% so um you know I was at a conference last week in Kansas uh I put up a bunch of charts about the dollar um the dollar is following the ex exact same pattern from 2017 in Trump's first term dollar rallied a couple of percent in 2017 and then it sold off like 12% for the rest of the year same thing's going to happen what do you think the impact is going to be on US exports um and and and one of the things that I want to think about with you is some of our trading partners are really pissed off at us namely Canada like like really really mad um and and are go going out of their way at least at the retail level the consumer level going out of their way to not buy uh us products um will that happen at the factory Industrial Level I don't know but this an interesting little wrinkle yeah I actually have a Canadian Facebook friend and she is like she's posting all this stuff about boycotting us products and I'm like I'm like those types of things don't work and they're stupid but people are upset very upset yeah yeah we have a lot of Canadian viewers and they they they they weighed in pretty heavily over the last month not too pleased I didn't do it I didn't do it so do you think that overall US exports like you know a let's take a it's getting crushed this week I think that on balance the trade deficit will go down um that's that's what happened in 1985 uh we were running record trade deficits and the plaza cord work the dollar came down and the trade deficit got smaller so I do think that's going to happen true inflation down to uh 1.3% you said yeah what a change I'm super bullish on bonds yeah I mean getting back to the earlier point we're going to the the front end of the yield curve is going to be pricing in rate Cuts pretty soon um and I think I misspoke earlier I I think I said that 2year yields were 4.1 that's actually where 10year yields are I think twos are like 38 385 39 something like that um but still like if if we're going to get six rate Cuts this year which I think is going to happen there's the bond market has a long way to go which from an asset allocation standpoint you know I mean I talk about the awesome portfolio and how everybody should own 20% in bonds and even people who hypothetically are doing a 6040 like you have to make sure you have the 40% in bonds it might be time for me to finally Jason Brady was lecturing me two years ago to just get get out of the three-month t- bills and and move out move out farther on the curve and I I didn't I've just been hanging out in the front end but and it's been great but I guess it might be time to move you know what other thing um that factors into potential deflation um Energy prices I mean oil is getting crushed uh which bumps me out being long oil producers OPEC plus announced that they are going to increase their output in in April I saw that yeah energy costs are going to keep going down I'm sort of conflicted on that um you know from a technical standpoint the charts are telling me that energy is that oil is bottoming here right um I think from a technical standpoint we have more or less formed a base in oil um and I don't think there's much downside however uh from a macro standpoint you know if you believe we are really going into a semi severe recession there could be a lot of downside in oil prices you know what I mean I mean just using 2008 as an example like oil went from 140 to 30 in a couple of months you know so um like I said I'm a little bit conflicted I sometimes I put a little too much faith in my chart reading abilities you know so I'm kind of a nervous long in oil all right well let's talk about how to trade this so let me give you the the the the poster child that I want to think about here you're 45 years old you've been long the market just the market right the S&P 500 you've you've made a killing uh over these last several years you know up over 20% two years in a row uh you've done great now you're getting nervous what do you do I mean a whole bunch of things are coming to mind so you can buy puts you can hedge the whole thing uh if you know how to do that we have an options Master Class coming out so you know you know there's you can do that uh you can diversify in other asset classes you can go into bonds and gold and commodities and real estate and stuff like that so you can diversify across asset classes uh you could sell everything and go to cash and just take the tax hit um you could uh do some rotation into different sectors you could uh you know you can be overweight in Staples um which for the last year have been getting killed relative to the S&P 500 so Walmart and Proctor and Gamble and things like that um in McDonald's and you know whatever so there's there's a you can do a combination of those things there's a lot of things you can do to protect yourself um I think for you know I I got to put in a plug for the awesome portfolio like you know the beauty of the awesome portfolio is you don't have to think about selling stuff liquidating stuff taking a tax hit being out of the market you're always in the market you're always fully invested right uh and the only tax consequences are when you rebalance at the end of the year right so um you know it just goes back to my overall philosophy that you just in you just have to be Diversified across asset classes there is a good chance that we'll have a 20% correction which will last a year kind of like 2022 like 2022 is a great example right like we the market was down 20% like 18% and at the time it felt like the end of the world right and at the end of 2022 the market bottomed and then it went up like another 50% right so if you if if if you sold everything and headed for the hills then you missed out on those gains right so that's very hard to do um we could take a 20% draw down we could take a 30% draw down and two years from now we could have another bull market which you would miss right like this is why I don't like being long just the index because you are faced with these decisions every couple of years right like what do I do if if you have if you're Diversified you don't have to you don't have to make these decisions you know what I mean that's a great point I mean as a as a gen xer who had a front row seat to the great financial crisis right like I was scarred and most of my friends were scarred for years after that the market got so crushed and it took so long to bounce back and a a lot of of us of of of my age group my peer group missed out on a huge some of them missed the entire next 10-year Bull Run cuz they were just scarred and I forgot to mention one thing you always have to have some cash you always have to have some cash which in the awesome portfolio you do you have 20% cash but you have cash to take advantage of opportunities so if you have even if you have 80% stocks and 20% cash like if the market Market goes down 20% you can deploy the cash right and buy stuff cheaper right cash is an option to buy something cheaper in the future right and so many people are just loaded up to the gills with stocks they're fully invested and then the market crashes and they're they just they're stuck they just can't take advantage of it you know Buffett by the way has 350 billion in cash right like and everybody has been like aha Buffett what an idiot and this this happens like in every single cycle you know he loads up on cash and then he starts buying distressed companies getting preferred stock with all this stuff like it's going to happen again the ultimate jokes on you yep you write about all this kind of stuff at uh at your website Jared dillian money I I would encourage people to go sign up for your if you have a free weekly letter the Jared dillian letter creatively named theonomous named yes I have fun writing the Jared dillian letter I've you know um it's you you know what's funny is I I I kind of forget um how that letter reaches and touches people like I'll publish you know it gets published on Thursdays so the Jared dillian letter comes out and then people start posting screenshots of it on Twitter right like look what Jared dillian said I'm like hey that's pretty cool you know so it's it's it's a big influential letter and you should sign up it's free doesn't cost anything can't get cheaper though even if there's dation we're not paying you to read it yeah we draw the line there uh Jared always a pleasure talking to you thanks for showing up my friend yeah of course