MAGGIE LAKE: Hi, everyone. Welcome to the Real Vision Daily Briefing. It's Thursday, April 14, 2022. I'm Maggie Lake and here with me today is Jared Dillian, editor of the Daily Dirtnap newsletter. Hi, Jared. How are you?
JARED DILLIAN: Hey, Maggie.
MAGGIE LAKE: So what are you watching today? What's on your radar?
JARED DILLIAN: Well, everybody's watching what's going on Twitter for sure.
MAGGIE LAKE: Tweeting about Elon trying to buy Twitter. It's a world to itself.
JARED DILLIAN: Actually, just about an hour before the Daily Briefing, I saw that the Board of Twitter was thinking about adopting a poison pill.
MAGGIE LAKE: Yeah.
JARED DILLIAN: And poison pills are never a good idea, but they're particularly not a good idea after somebody has already put in a bid. They are going to get sued so hard it's unbelievable. So.
MAGGIE LAKE: Yeah. Do you think he's serious? That was my first thing, I was like, oh my gosh, Elon Musk wants to buy Twitter. I'm like, wait, does he really? Or is he just screwing with them? Do you think he really wants to buy it?
JARED DILLIAN: No, I think he really does. Part of it for the free speech reasons that he cited, but also-- he's not doing this altruistically. Twitter, for all of its intellectual and cultural significance, just has a microscopic market cap. It's a snack.
It always has been a snack for anybody that wanted to buy it. He can do it with his own personal wealth. It's just a fraction of what he has. So I think if he buys it at a $40 billion market cap, he could make multiples of that.
MAGGIE LAKE: So you think so? Is it just because his mere presence? The guy is spread pretty thin. Obviously genius, his ideas, for all his detractors-- his ideas, not all of them, but he makes more progress than people want to give him credit for. I'm talking about on the idea basis, not always on the revenue basis. But you think he could make a go of it? What would be the difference of Elon being at the helm?
JARED DILLIAN: Well, I think Twitter would do more things to monetize its base. For example, one of the things that Elon was talking about in his tweets is having people pay for the Twitter Blue service at $3 a month and then giving them sort of a verified badge in return. And you would see hundreds of millions of people sign up for Twitter Blue in that case. There's a lot of ways to make revenue at Twitter. And Twitter has just been terrible at turning a profit.
MAGGIE LAKE: Interesting. Do you think he'd actually devote some time there? Or would you be able to attract the right people because he's Elon?
JARED DILLIAN: So I have a Coast Guard Academy classmate who actually was the head of security at SpaceX. So Elon wasn't his direct boss, but there was one person between them, so he was two places removed. And he worked there for two years and he said he had to take a year off afterwards. He was just worn out.
Elon just drives people really, really hard. The whole culture of Twitter will change. I firmly believe that could be an $80, $100, $120 billion company within a couple of years.
MAGGIE LAKE: Wow. So do you have a position in Twitter?
JARED DILLIAN: I don't.
MAGGIE LAKE: Or did you put a position on that is the basis of this?
JARED DILLIAN: No. And actually, I don't recommend putting one on, because if the board succeeds in fighting him off, the stock price is going to go a lot lower, especially if they adopt a poison pill.
MAGGIE LAKE: Yeah. Well, do you think this would draw another buyer out? Poison pill aside. It's always been talked about as a potential acquisition. You think somebody will, a billionaire battle-- somebody else come out and say that they don't want Elon to get it, so they're going to make a bid for it, or a company?
JARED DILLIAN: Yeah, I think that's very possible. And Jack is on the board. Actually, before I came on the air, I went to the Twitter website and I looked at the people on the board. And the board, there's somebody from Salesforce, and there's a couple of VCs, and there's Jack, and Parag, and somebody does public-private partnership stuff. It's a very cozy board, let's put it that way.
And I think they want to preserve the Twitter culture. I think they probably think, incorrectly, that Elon would ruin it. So yeah, they might be willing to accept another bid.
MAGGIE LAKE: Interesting. Well, it's going to get interesting. And it's funny, the stock is down today. It had an initial pop, but it's down. What do you make of that? Are they betting that he's not going to succeed? Or are they just betting it's going to be a mess? What do you think that price action is about?
JARED DILLIAN: Probably that he's not going to succeed-- that the board is going to fight him off. Yeah. Yeah.
MAGGIE LAKE: This is going to be a juicy one that's going to keep us entertained for the next few weeks, for sure.
JARED DILLIAN: Yeah. Yeah. Matt Levine is going to have some more things to say about this.
MAGGIE LAKE: It's funny because Elon, you don't always see him-- and he was out at that Ted, I guess it was previously arranged, but he was at that Ted Conference today talking tons about it too, which was super interesting. So we'll see if we hear him being a lot more vocal-- certainly tweeting about it for sure.
While we were all entertained by that, the rest of the market not so entertaining. We saw equities kind of back down again, they've just been chopping around this week-- the NASDAQ giving back, I think, all of the gains that it had. The S&P 500 off 1%, VIX is up a bit.
But it's interesting-- we were so busy, and I was so busy with other things today, I almost missed that we got a pretty strong reading on US consumers. University of Michigan reading for March came in strong. So you could say, OK, that's backward-looking, but the future expectation component was strong too. That sort of surprised me, given what's going on with inflation.
JARED DILLIAN: Not being somebody who really digs into the data, I don't if I'm supposed to be surprised or not surprised. One of the things I hear from people-- actually, every Thursday morning I go on the local radio show and I talk about markets and stuff-- and the two radio hosts that I was on with they said, well, we're in a recession. We're definitely in a recession.
I'm like, no, actually, we're not in a recession. It feels like a recession because inflation is so high and consumer confidence is so low because of inflation. But the labor market is super tight, and inventories are low, and the economy is running hot. This is not a recession. You will know when we're in a recession.
MAGGIE LAKE: But it's interesting they felt that way.
JARED DILLIAN: Yeah. They do. And that's true of a lot of people. John Mauldin, my boss at Mauldin Economics, he's writing in thoughts from the frontline. He's saying we're already in recession, and I disagree with him. But I guess we are kind of on a forward basis.
MAGGIE LAKE: That's why I was surprised to see the sentiment reading come in, at least the future expectation-- all these things probably lag even when you're talking about future expectations. Let's see what happens next month, and put three months together for a trend or four months together. Because anybody who thought these prices were going down, maybe they figured, oh, it's temporary. But at some point, I would think that you're going to start to see that in spending behavior and across the board for the economy the bite from prices.
JARED DILLIAN: The other thing that's happening is that rates, it's like Chinese water torture-- rates just keep going higher and higher. The 10s are 2.83% today and bonds are over 2.90%. Mortgage rates just went over 5% I think I saw a thing today on Twitter that said that mortgage rates went up 1.15% in a month, which is the fastest ever.
MAGGIE LAKE: Yeah.
JARED DILLIAN: So that's going to hit consumer confidence at some point. So I'm actually in the process of building a house. I haven't gotten a construction loan yet. This is happening at the worst possible time.
MAGGIE LAKE: And you've got material costs going up.
JARED DILLIAN: Yeah.
MAGGIE LAKE: All around. You got to increase that budget, I think, Jared, for that. And this is the problem-- people can't even get stuff done before they have to recalculate.
JARED DILLIAN: Yeah. Yeah. Yeah, rates going up is a big deal. I do think that at some point in the near future, next week or the week after, you're going to have an opportunity to buy bonds. I think the sell-off has been pretty extreme. I think we're going to get a pretty big bounce. And that's coming. That's definitely coming.
MAGGIE LAKE: And are you talking 10-year? Where on the bond curve are you talking?
JARED DILLIAN: Oh, let's just say 10-year-- 10-year notes, yeah. Yeah. You could retrace all the way back to 2.30% or 2.40% and it doesn't really affect the uptrend in yields. So it could be a pretty big move.
MAGGIE LAKE: Wow. Is it a short-term one? Because you have the Fed continuing to say they're going to be as aggressive as they can. Whatever language they can find, they're trying to telegraph that. They're going to start reducing their balance sheet. What's that bond move look like? Is it a short-term play and then resumes moving higher?
JARED DILLIAN: Yeah, I think that's it. Basically, this is a technical call. Really, the trend is nearing exhaustion. We're getting down to tag ends on higher yields. And I just think there's going to be a really big bounce. And I'm going to play it personally. I'm definitely going to trade that.
MAGGIE LAKE: Interesting. A lot of people have been looking at the action in bonds and sort of saying, oh, they're telegraphing a recession coming. I know you just said we're not in one, but Westom Nakamura caught up with Joseph Wang, the Fed guy on Twitter. And Joseph brought up a sort of interesting-- he's increasingly concerned about the fallout from these high prices. And he brought up a kind of interesting point as to why. Let's have a listen to that clip.
JOSEPH WANG: To your broader point, though, there's definitely going to be a recession. That's kind of baked in. And I think an easy way to think about this is an economy is what? If you want to have growth, right, how do you get more growth? You either have more inputs or you have more productivity, which is to say you have, let's say, you get more out of your inputs.
Let's say you have a factory that produces cars-- if you want to produce more cars, you can either add more inputs-- let's say more labor and more materials-- or you can have some kind of weird, not weird, some kind of technological innovation that increases your productivity, such that using your existing materials, you can produce more cars. That's how we get real growth.
Now, what's happening in the world, though, is we're having a structural supply shock because of what's happening over in Russia and Ukraine, there's just less materials-- less stuff. There's less oil, there's less all sorts of raw commodities. So that reduces the inputs in the big economic machine.
And if you have your inputs, you necessarily have fewer outputs. And when you have fewer outputs, that's basically less growth, which gets you, potentially, probably into a recession.
MAGGIE LAKE: I just thought that was kind of an interesting way to look at it when we're looking at this inflation story-- just that there's less stuff, right? Less material, less oil, less raw commodities, and that reduces the input going into the economic machine. I kind of like the idea of that.
And I don't know, is that coming in your mind, Jared? You just don't think we're there yet? Or do you think we can skirt recession?
JARED DILLIAN: We're definitely going to have a recession. It's just a question of when. The curve inverted. I think if the Fed hikes rates enough, and when I say enough, I would say that you'd have to get Fed funds up to about 4%-- one of the things I said at the Macro Experience is I think the yield curve can invert by a lot.
I think we could have the most inverted yield curve that we've had in history where you could have Fed funds at 4%, 10s at 2.75%, something like that. You could have a massively inverted yield curve, which would be telegraphing a pretty big recession.
MAGGIE LAKE: Yeah. Well if you think that, then you do think we're going to have a sharp downturn, right?
JARED DILLIAN: Yeah, I just think it's going to be a 2023 story.
MAGGIE LAKE: Right. We're too early now.
JARED DILLIAN: A lot of people have sweaty palms about this. It's like they really want a recession. And I'm like, when the curve inverts, you have anywhere from six weeks to 18 months before you get a recession. And I think it's going to be closer to 18 months.
MAGGIE LAKE: Buys us some time. Yeah, I think we both had the same impression when we were out in Del Mar at the Macro Experience, Real Vision's conference, that there was just a lot of, I don't know if we can call it doom, but it was heavy. There was a lot of worry in the room.
JARED DILLIAN: Macro Doom.
MAGGIE LAKE: It did feel-- in fact, I don't if you heard Julian and Ralph's conversation on Macro Insiders, but Julian started off by saying, I heard I scared the shit out of everyone. And we were like, yeah, sort of. But yeah, there is no shortage of stuff to worry about. So if you do think that maybe we've got this longer period, two questions.
One of them, do you think that gives officials, whether they be Fed officials, or Treasury officials, or, god forbid, politicians, a chance to adjust, make adjustments? If you're not doing things really rapidly and it takes a little longer to get into that recession, does that reduce the odds of a policy mistake, first question. What do you think about that?
JARED DILLIAN: No, I actually think it increases the odds of a policy mistake.
MAGGIE LAKE: Oh no. Why?
JARED DILLIAN: Well, basically, the Fed always overcompensates in both directions. They cut rates too much, they hike rates too much. So I don't what the exact number is, but let's just pretend equilibrium Fed funds is 3%. They're not going to stop at 3%, they're going to go to 4%, 4.5%, 5%, whatever. Because basically, they're not going to get any signals that they should stop until after they've gone well beyond that.
MAGGIE LAKE: Yeah. Yeah, I see your rationale there. They'll be thinking that they've got all this work to do. They're not going to be looking at maybe some of the earlier signals which will be problematic. OK, the next question, if that's the case, taking into consideration both of those things, how do you play this as a trader? You just said there's a short-term play in bonds, but is there anything else you're looking at if people have the sort of timing of recession off?
JARED DILLIAN: I think there's not a lot to do in stocks here. It's been a pretty rangebound market and I think it's going to continue to be rangebound. I have some long-term fundamental bets in some individual names. But I think the real play is in commodities. When we get recession, let's say next year, commodities are going to go down for sure, OK?
But we have a very long runway until that happens. Let's just call it a year. You're going to have another year where commodity prices are going to continue to rise. A lot of people don't know this particular statistic-- but December corn futures are up 21 days in a row. And this is not getting a lot of press.
MAGGIE LAKE: No. We had a lot of conversations about food commodities when we were out in California, a lot of concern about that and them staying elevated for much longer.
JARED DILLIAN: Yeah. Look, that's really where the opportunities are. That's where the opportunities are.
MAGGIE LAKE: We have a great question from Mark on the RV site. How will Jared number bonds have turned besides price action?
JARED DILLIAN: I'm not going to wait for them to turn. If you wait for them to turn, it's going to be too late. And listen, my style of trading is not recommended for most people. Most people say you shouldn't try to pick the top in yields in this case. You should wait until it turns and then when it breaks, you should sell. I actually try to get pretty scientific about trying to find that point of exhaustion where I can actually get pretty close to the top.
MAGGIE LAKE: This is hilarious. And I guess perhaps you know this fan fave-- this is a question on the RV site from Dirtnap's Favorite Uranium A-Hole.
Hey there. You knew I was going to ask a question when that came up. Does JD subscribe to the notion of impending food crisis food riots?
JARED DILLIAN: That might happen, for sure. Yeah. I don't know how you make money off of that, but that definitely could happen. I don't know if you know the story of the Uranium A-Holes, but this is--
MAGGIE LAKE: I don't. Fill us all in, because we're all laughing. So bring us in on the joke, fellas.
JARED DILLIAN: Four or five days ago, I tweeted about uranium as a sector. And I said, look, I like uranium. Uranium is working. But I said, I don't think it'll continue to work in the future because, this is my quote, "there are too many a-holes in the trade."
And what I meant by that was, this is a teeny tiny sector with $45 billion in market cap. There's uranium newsletters, uranium influencers, uranium Twitter-- there's this whole ecosystem of people. And they're as passionate about uranium as Bitcoin people are passionate about Bitcoin. So it's one of those things, you tweet this, and you think nobody reads it.
And that ended up in the middle of uranium Twitter. And they've been making memes about me. And they have this hashtag that says uranium assholes. And they're putting it in their names. I don't have anything against the uranium guys at all, it's a cult.
You get these trades that get to be a cult. And you don't usually end up making money in the cult.
MAGGIE LAKE: That is such an interesting observation, because I just came off an hour-long interview with Amir Adnani, who's the CEO of Uranium Energy Corp.,