“I’m Insanely Bullish on Bonds” | Jared Dillian on Copper, Bonds, Semis, and The Awesome Portfolio

Episode Summary

Executive Summary: Jared Dillian argues that the bond market sell-off is driven more by fear and crowded sentiment than fundamentals, and he is strongly bullish on long-duration bonds. He also sees signs of topping in semis, financials, and healthcare, warns that AI-related capital spending and debt-financed tech investment may be inflationary, and remains bearish on private credit/private equity. He promotes his equal-weight, multi-asset “Awesome Portfolio” as a lower-volatility alternative to indexing.

Main Topics: Bullish view on bonds amid the sell-off: Dillian rejects the idea that bond yields must keep rising, saying inflation is easing, growth is weakening, and bond supply concerns ignore demand that would surge in a risk-off event. AI-driven sentiment and capex as a market force: The discussion centers on whether AI is deflationary or inflationary. Dillian argues AI capital expenditures and debt issuance by hyperscalers may be inflationary, and he calls AI a bubble, though not necessarily an immediate crash catalyst. Technical topping signals in equities: Using broad chart review, Dillian says semiconductors, healthcare, financials, and broker-dealers look like they are topping, while some names like Intel and Oracle may be bottoming. Semiconductor crowding and retail/institutional positioning: The conversation examines whether semis are still overcrowded. Dillian believes many retail investors are heavily concentrated in a few AI winners, while hedge-fund deleveraging can still be bullish in the near term. Gold, copper, and macro hedges: Dillian is cautiously bullish on gold and least bullish on copper, viewing copper sentiment as overly tied to the AI trade and gold as a beneficiary if labor data weakens sharply. Portfolio construction and lower-volatility investing: He explains his new book, The Awesome Portfolio, which advocates equal exposure to stocks, bonds, gold, cash, and real estate to reduce drawdowns while giving up little expected return. Private credit and private equity bear case: Dillian reiterates that private markets remain under pressure and will unwind slowly because illiquidity delays repricing compared with public markets.

Key Arguments: Bond yields are elevated largely because of a sentiment-driven ‘mind virus’ around deficits and inflation, not because fundamentals justify it. Inflation is trending lower while growth data is weakening, so the bond market is mispricing recession/slowdown risk. Bond supply matters, but demand would rise materially in a risk-off event, pulling yields lower. AI is likely to be more inflationary than deflationary in the medium term because capex and financing demand can overwhelm productivity gains. AI-related debt issuance is unusual for tech, which historically has been financed mainly with equity rather than long-dated debt. Semis, healthcare, and financials show technical topping patterns, suggesting leadership rotation may be underway. Retail investors may still be concentrated in AI winners, but hedge-fund liquidations can be bullish because stronger hands absorb the stock. Private credit/private equity problems will take a long time to resolve because illiquidity delays forced repricing. A diversified, equal-weight multi-asset portfolio can cut volatility substantially with only modest sacrifice in returns. Gold is supported if jobs data weakens sharply; copper is less attractive because its current narrative is too crowded and AI-linked.

Data Points: 30-year Treasury yield: 5.2%-5.3% - Dillian says this is an attractive level and a long-term buying opportunity. 10-year Treasury yield: 4.7% - Dillian cites this as an attractive bond entry point. U.S. deficit: $2 trillion - He notes the deficit sounds large in absolute terms but is about 6% of GDP. Deficit as % of GDP in 2010: 12% - He compares current deficits to a larger prior episode when auctions still cleared well. Chance of a rate hike: 66% - He cites market pricing despite weak labor and manufacturing data. Next payrolls estimate: 55,000 jobs - He uses this weak estimate to argue growth is slowing. Chicago PMI surprise: 10 points lower than expected - Referenced as another sign of weak economic data. Gold rally: 15% in one month - He says the move was large and meaningful before retracing below the 200-day. Gold 200-day level: 4,500 - He says gold broke back below this level after Jackson Hole/Warsh commentary. Gold support area: 3,900-4,000 - He identifies this as the next major support zone. Unemployment rate: 4.1% - Discussed as a sign the labor market is weaker in payrolls than headline unemployment suggests. Prior unemployment rate: 4.5% - He notes it had risen to this level before falling again. Hyperscaler bond coupon: ~6% - He says current tech debt financing costs are much higher than in 2021. Google bond issue: $40 billion - Used as an example of AI-related debt issuance pressuring bond markets. NVIDIA growth rate: ~70% - Mentioned as the level that kept the stock strong and as a sign to watch for second-derivative slowdown. NVIDIA prior growth rate: ~55%-60% - Referenced as a previous slowdown from earlier triple-digit growth. Private credit / private equity drawdown period: 2+ years - Dillian says the unwind is slow and still not complete. Awesome Portfolio worst drawdown: 12% - He says the portfolio’s historical maximum drawdown is much lower than equities. S&P 500 annual drawdown: ~40% - Used as a comparison to show the volatility of stock-only investing.

Pivotal Quotes: "There is a mind virus going through people in the market." — Jared Dillian: His core explanation for why bond yields remain elevated despite weakening macro data. "If AI succeeds and it's massively deflationary and yields come down, or AI fails and the market crashes and yields come down." — Jared Dillian: His summary of why he thinks higher yields are hard to sustain in an AI-driven economy. "The way we save and invest for retirement is very, very dumb." — Jared Dillian: His critique of all-in S&P 500 indexing and the rationale behind his diversified portfolio approach.

Implications: Listeners should expect continued rotation away from crowded AI/semiconductor winners if growth slows and sentiment turns. Dillian’s message is that bonds and diversified multi-asset portfolios may outperform on a risk-adjusted basis as macro fears, heavy AI capex, and private-market illiquidity work through the system.