MAGGIE LAKE: Hi, everyone. Welcome to the Real Vision Daily Briefing. It's Friday, April 22nd, 2022. I'm Maggie Lake here with Jared Dillian, author, editor of the Daily Dirtnap Newsletter. Hi, Jared, how are you?

JARED DILLIAN: Hey, what's up?

MAGGIE LAKE: I am not sitting in my usual location, you're in your usual studio, but I am traveling. I'm in DC for an Energy Conference happening tomorrow because I am a dork. I'm excited about it. But then everything got blown out of the water by this market action today. We're ending the week on a really ugly note, and it was really accelerating during the day, which I know is worrying for everyone. As we close out here you've got up and down what almost 1000 points over 2.5% loss, over 2.5% loss for the NASDAQ. Rather S&P 500 close stock for the NASDAQ.

We'll see where we settle it may even be more than 2.8 on the DAO. We've got the VIX up sharply over 20%. We're really seeing this all come together. We're going to break it down. I want to get your thoughts. But first, Raoul was originally going to be on the Daily Briefing today, he wasn't able to make it. But he's watching the market action. I know all of you, all your senses are up when you see this. Raoul wanted to send this market update to share some of his thoughts. Let's listen to that first.

RAOUL PAL: Hi, everyone. Just a very quick update from me. The markets, I was expecting the markets to have found some traction to the upside, and that failed. My demark counts had failed. I haven't shared many of these with people, but I just thought the setup was concerning enough that I should put an update out over Real Vision Daily Briefing.

What I've seen is that the market rejection of this recent rally has been fast and severe. What's really interesting is things like energy stocks have been slammed as well. Oil stopped going up. Commodities are going down. The dollar is going up significantly. Bond yields have stopped rising. If the NASDAQ breaks the recent low, it's forming a large head and shoulders top. You can see it on my Twitter feed, where I've just written about this.

If that is to go, then we've got a significant amount of downside to come in the coming weeks. It feels like this rolls into the summer if that's the case, then we could have a sharp correlation of one sell off, where everything sells off at the same time and every position gets taken out and shot. Whether you're long oil, long gold, long gold miners, short bonds, all the trades, everyone's got on the whole lot gets taken out, including the equity markets, be really careful.

We knew that the interest rate market was going to break something. It feels it's going to break the equity market, and I think growth will follow, meaning that the growth of the economy will follow. I do think eventually this is the thing that's going to stop the bond market rising and the turnaround in yields that I've been looking for. So, it's part of my big picture view. I didn't think we're going to get accelerated downside of equities.

I thought something else would break first, whether it was going to be China or Japan, but it feels it's potential to be equities. Look, there's no certainties out there. I don't know. I have been buying the riskier growth names into weakness over a period of eight weeks, and I've only just started that. I'm looking for this downside to lair into positions of stuff that I want to get into. I know a lot of you interested in crypto.

Obviously, crypto will get caught up in this and will go lower, but I think we're all used to that going up and down right now. I don't think it takes out the low. I think it's just more noise within this wide sloppy range we've been in for the last year in a bit, but it could scare a few people look. So, just be careful out there. There's no certainties. I don't know. I'm not trying to sound the alarm.

I'm just trying to sign the caution to say look, be careful. Things are uglier than they seem, and the interest rate market as ever is going to break something right at the top of the charts of truth. Something always breaks and it feels like it's going to be everybody's portfolio. Good luck.

MAGGIE LAKE: It's a lot to take in. I saw that and I was like, wow. Okay, clearly Raoul's concern in the idea that something's going to break and it's something in everyone's portfolio. A lot of concern in his update. Jared, how are you feeling? Are you do share that same concern?

JARED DILLIAN: Yeah, it's a big shit sandwich. It's really, really bad. The funny thing is this that we put in the lows three or four weeks ago, and we bounced off the lows, and we've been trading in a range for the last couple of weeks. I was pretty neutral, but I've been seeing some interesting stuff. I saw a chart recently that showed basically the change in 2 Year note interest rates going back over like the last 50 years.

The last time we've had this big of a change in 2 Year interest rates, guess the year? 1987, yeah. It really made me think just generally about the idea that, you go back to these points in time in history where interest rates back up a lot, and it breaks things. It happened in 1994. 1994, you had tenure interest rates go up about to 2.5%, and you had all these derivatives blow ups. You had Procter and Gamble in Orange County and stuff like that.

It's really not the magnitude of the move in interest rates, it's really about the speed. And this has been a very fast move. I think that's mostly what's responsible for this move in stocks in the last couple days.

MAGGIE LAKE: I think you bring up an excellent point at the speed. Jim Bianco yesterday said something to me that really struck me, and he is like the system's just not built for this. You see this-- and by the way, you're seeing it in Treasurys supposed to be safe haven relatively risk free. You're also seeing it in the yen, another vehicle that's supposed to be pretty. These are supposed to be pretty steady markets, and you're seeing these really, really rapid moves. And you just worry-- It made me nervous when you said derivatives, Jared. Have you seen anything going on in the market in those kinds of areas that would be cause for concern?

JARED DILLIAN: No, I haven't. I don't have any reason to believe that there's someone or something out there that has a huge amount of exposure, but somebody has the exposure. It's a zero sum game, so somebody's long duration and somebody's short duration. So, somebody's on the wrong end of this. That's really an issue about the financial system plumbing. The overall point here is that higher interest rates are going to choke off the economy. And it's a bit of a high prices of the cure for high prices.

The interesting thing is that, as we go around in our daily lives, inflation is everywhere. We see it in stores. We see it on Amazon. We see it when we shop for flights, or hotels, inflation is everywhere. In our discussions with friends and colleagues, we talked about inflation. We hear about it on the radio. We see it on TV. We read it out. We read about it on the internet, and it's become so pervasive.

My guess is that we're going to be talking about something else six months from now. I don't know what that is. Maybe it's a recession. That's probably what it is. We've really reached peak inflation panic. We've reached peak inflation panic. The last week or so commodities have not done so well. Energy sold off a little bit. AGs have sold off a little bit. XLE has come down. I think that's an early warning sign.

MAGGIE LAKE: I noticed that today, by the way. That's the other thing about today. I want to ask you about that peak inflation about a second. The other interesting thing about, hey, everything's down, everything's getting killed. There doesn't seem to be anywhere to hide. Is that significant? How should investors think about that?

JARED DILLIAN: Well, there is some place to hide. There is some place to hide and that's in Treasurys. Which is very counterintuitive because Treasurys have just gotten slaughtered for the last six months. If you listen to Raoul, and that happens, like this scenario that he laid out, if that actually happens, the one place to hide will be Treasurys. That's actually something that I've done in the last couple of days. And I've done with myself--

MAGGIE LAKE: Yeah, you've been talking about that. Which does seem counterintuitive. Especially I haven't asked you, you tweeted about. And I love this because you, Raoul, Jim Bianco, there's been a drumbeat of people saying I got a Spidey sense. I'll feel good. This doesn't feel good. And this was before we saw this bloodbath today. But to hear that, and then I hear you talking about buying bonds, does seem strange to people. So, walk us through the rationale there. Are you buying or not? Where are you buying them?

JARED DILLIAN: Let me just tell you a story. There's a local radio show that I go on every Thursday morning. And I'm like the finance guy that they bring on once a week and I talk about financial stuff. After I left the show, I got a Facebook message from somebody who listens to the show, and it was this woman.

She said, hey, I heard you on the show. I'm applying for a mortgage, when should I lock in rates? I said, well, my opinion, not investment advice, but my opinion is that rates are going to go down. And she said, well, why? Because everything I read says that interest rates are going to go up. And I said, that is why interest rates are going to go down.

MAGGIE LAKE: Again, it's looking like you're trade. There's too much consensus when there's 100% consensus, then history tells you usually it's the other way. But what does that-- in fact, I think that we've got actually a question on this very issue. From Ross on the Exchange. You recently mentioned on Twitter, you see the US 10 Year yield reversing soon. Can you expand on why you see this happening?

JARED DILLIAN: People ask me that stuff all the time. What are your reasons? All I can really say is what I just mentioned before, we are at peak inflation panic. You scroll through Twitter, and it's all charts on interest rates. These parabolic movement moves in interest rates. It's all people are talking about. This is pure sentiment.

We actually, we don't know what the catalyst is going to be. Maybe it's the French election. Maybe Sunday, they're going to elect Le Pen. And we're going to walk in Monday morning, and bonds are up a 0.5. I don't know what the catalyst is going to be. All I'm looking at the chart is that exhaustion, sentiment is peaked. If you wait for the reason, then you'll miss half the trade.

MAGGIE LAKE: Well, especially things move as quickly as they've been moving. I think we also are seeing, and the reason people are struggling with this is we're seeing the Fed continue the hawkish rhetoric. We're going to do 50, maybe 75, let's frontload policy change. Are we likely to see Treasury prices move ahead of any Fed? In other words, the Fed can still say sound hawkish, but Treasury yields start to recognize that recessions coming or things are overdone or a policy, maybe they're going to be behind the curve again, and recognizing the fallout from high interest rates, would we see Treasurys move before the Fed starts to change their rhetoric?

JARED DILLIAN: Oh, yeah. What you're going to see is a massive inversion of the yield curve. So 2s, I think are like 270, or something like that. You're going to see a yield curve, where 2s are 3% and 10s are 2%. It's going to be a massively inverted yield curve. And basically, we're going to be pricing in a very severe recession, which won't happen until next year, but that's what the yield curve is going to be pricing in. If I say buy bonds, like people say, what bonds do you buy? You want to buy duration. You want to buy the long maturities, 10s, 20s, 30s.

MAGGIE LAKE: Because the front end is what's feeling that right now responding to the Fed. All of the anticipation of the rate hikes are coming. Do you think the front end i s appropriately pricing Fed policy? Because I've heard people say, listen, they're going to do more for longer. And yeah, rates have gone up, but they're still not where they need to be if the Fed is able to carry out its plan. Is that sound plausible or is that--?

JARED DILLIAN: I saw something today that said that we're pricing in almost 3.5% Fed funds in March of next year, so 12 months from now, 3.5% Fed Funds. It intends or it, I don't know, not 10s, 2s or 270, or something like that. I think the market is pricing incorrectly. If you do see this big inversion in the yield curve, the Fed is going to have to slow down or stop. Actually, if you looked at March 23 Fed Funds Futures, I don't know where they are, but I would be a better buyer.

MAGGIE LAKE: I love it. I don't I don't know-- do you think that's a contrarian view, Jared? Or you just saying it? Well, everyone else is thinking it. Everyone else, I mean, the more seasoned professionals or do you feel like everyone's like, you're crazy, that's totally contrary.

JARED DILLIAN: I think people think it's crazy to buy bonds. We're almost to where we were in like 1979, when we were calling them certificates of confiscation, where they just went down every day. Ironically, that was the best time to buy bonds. They were trading it 40, 50, 60 cents on the dollar is the best time to buy bonds of all time. Look, I do know some people that agree with me for sure. Whenever I tweet this stuff out about the bond market, I get all the haterade. People come after me.

MAGGIE LAKE: Which is why you're brave to do it, but it doesn't take much for people to come after anybody these days. It seems like-- A great question from John. Could the other reason for bonds going up be because Apple, Microsoft, Google, Tesla are now starting to break down? These were the places everyone was running to high. Now with yields at 3% bonds become attractive, what do you think about that?

JARED DILLIAN: Yeah, I've gotten that question a lot. People say, alright, well, if we're going to get a rally in duration, if we get a rally of bonds, does that mean that tech stocks are going outperform? I don't know the answer that question. Maybe it could be possibly. I don't really have a view on that. I don't. What I will say is that when interest rates are going down, growth tends to outperform.

It's not just a matter of interest rates, it's really real interest rates. When real interest rates are going down, growth tends to outperform. When real interest rates going up, value tends to outperform. In my portfolio, I don't really have a growth or value tilt. I'm agnostic at this point.

MAGGIE LAKE: When we see these losses, a lot of people were conditioned to think things look cheap and that we're going to have a rebound because that's what happens now. Things get totally trashed. Then you'd see the bank accounts, maybe not a [?] bounced but a bounce. Could we be in this painful situation and just move sideways for an extended period of time? It has happened to the past, it hasn't happened recently.

JARED DILLIAN: Look, stuff is starting to look legitimately cheap. Somebody's paying me about Disney today. And I was like a big Disney bear back in 2015. I was really hating on Disney. I looked at the chart today, and I don't see a bottom anywhere in the near term. And it's not an outrageously expensive stock. Google is trading at 22 times. It pukes out a lot of cash. Some of these stocks, I mean, earnings have come up in the last year, and some of them are getting pretty cheap. But you can't really trade off a valuation, it's impossible to trade off evaluation.

MAGGIE LAKE: In this environment?

JARED DILLIAN: Ever.

MAGGIE LAKE: When you say it's impossible to-- alright. What should they be looking at?

JARED DILLIAN: Look, everybody has their own system. For me, I look at sentiment. Valuation is one of these things where something looks cheap. You buy it. It gets even cheaper. You buy more. It gets even cheaper. There's no bounds on valuation. It can always get cheaper or more expensive.

MAGGIE LAKE: Another question, Steve asking from YouTube. I'm just going to cycle the questions in because I think people are looking at this, and I'm going to head into the weekend, and just be like, oh, my gosh, I don't know what to do here. Are commodities and hard assets still moneymakers?

JARED DILLIAN: The jury is out. Look, the price action over the last week hasn't been great. I think so. But I can tell you that if we are at peak inflation, panic, and inflation is at 8.5%, and we'll probably get a couple higher prints. If inflation is going to be 5% or 5% 12 months from now, commodities probably aren't a buy. They probably aren't. So, it depends on your inflation outlook.

You can go commodity by commodity. I'm long a ton of gold, and I think gold does well for a bunch of reasons. The AGs, because the fertilizer situation should do well. But yeah, if you think inflation is going to be lower 12 months from now, you just be careful.

MAGGIE LAKE: Yeah, and it's interesting because a lot of people piled into commodities [?]. A lot of people, we got a lot of questions on them. Commodities, metals, that whole space, saw a lot of interest, and a lot of people move into it. Should they stay there if they're there? Does it depend on what price they got in? Or is it something that gets very dicey and you have to be careful?

I also think commodities had the potential. I think it was Raoul who was talking about AG commodities when we're in California. He said, hey, have the potential to mean reverse very quickly, and they could be brutal if you're in them.

JARED DILLIAN: Yeah. When I'm on Twitter, when people talk about stuff with the most intensity, it's usually commodities, and particularly energy and uranium. Uranium got tattooed yesterday. We had this whole discussion the last time about the uranium [?] stuff like that. I am not doing any [?]. I'm not saying I told you so. What I said was that that trade was very crowded. The uranium trade is a microcosm for other commodity trades. I do think they got a bit crowded. I think oil is very crowded.

MAGGIE LAKE: Yeah. This is again, one of these