Jared Dillian: Sentiment Is Still Really, Really Bad

Episode Summary

Executive Summary: Jared Dillian argues that markets are driven primarily by sentiment and positioning, not just fundamentals, and uses this framework to explain calls on energy, office REITs, gold, and bonds. He also discusses the macro backdrop, a likely Fed pause after one more hike, and themes from his new essay collection, including luck, finance culture, and mortality.

Main Topics: Sentiment-driven investing framework (Priority: 5/5): Dillian explains that he trades almost entirely on sentiment, fading crowded consensus trades and looking for reversals when everyone is positioned the same way. Energy and office REITs as contrarian trades (Priority: 5/5): He revisits successful bearish calls on natural gas and discusses why he thinks crowded bearishness in office REITs may create a sharp bounce, despite weak fundamentals. Gold, mining stocks, and macro positioning (Priority: 4/5): Dillian is constructive on gold, viewing recent strength as a function of sentiment and positioning, and sees upside if the Fed pauses and shorts are forced to cover. Bonds, rates, and the economic outlook (Priority: 4/5): He is cautious but open-minded on Treasury bonds, expects one more Fed hike, and sees the economy as slowing but not in a classic deflationary recession. Market breadth and mega-cap tech dominance (Priority: 4/5): The conversation explores how 2023’s rally has been concentrated in mega-cap tech, leaving active managers underperforming and making stock selection harder than expected. Book themes: luck, depravity, appearance, and mortality (Priority: 3/5): Dillian discusses his new book of essays, especially ideas about luck in hiring, the culture of finance, signaling through appearance, and near-death experiences.

Key Arguments: Crowded trades tend to reverse because when everybody thinks alike, there may be no marginal buyers left. Fundamentals can be bullish, but if positioning is extreme, the trade can still fail or reverse sharply. Office REITs like SLG may be over-shorted; even if fundamentals remain weak, the dividend and extreme bearish consensus create upside risk for shorts. Gold is more a long-horizon inflation hedge than a reliable short-term inflation trade; sentiment and positioning matter more over shorter windows. A Fed pause after one more 25 bps hike could be a catalyst for gold and risk assets if market positioning is skewed. Treasury bonds may have bottomed on a chart basis, but the recent breakdown weakens the bullish thesis. The current market is not truly a stock picker’s market because mega-cap tech has driven most gains. Active trading persists because finance is also entertainment, even if passive indexing is often the most rational long-term approach. Finance culture is ‘depraved’ in the sense that it centers money-chasing and status rather than productive or cultural ends. Luck is a meaningful differentiator in hiring and performance, though it is difficult to define and measure directly.

Data Points: Natural gas price move: About $7–$8 down to close to $2 - Used to illustrate the collapse after the peak of the energy mania and Dillian’s bearish call. Oil price level: Low $70s when he turned bullish; prior highs above $120 expected - He says he got bullish again after sentiment became too bearish. SLG market cap: $1.2 billion - Commercial office REIT used as the main example of a crowded bearish trade. SLG dividend yield: 14% - Presented as a margin of safety even if the trade thesis is wrong. SLG short interest: 20% - He says this is unusually high for a REIT and signals crowded bearish positioning. S&P 500 level: About 4,130 - Discussed in the context of the post-SVB rally and still-bearish market sentiment. S&P 500 squeeze target: 4,400 to 4,600 - Dillian’s expected upside squeeze before a potentially great shorting opportunity. Short positioning in S&P futures: Highest since 2011 - Referenced as evidence of extreme bearish positioning among speculators/hedge funds. Weight-loss drug TAM: About $1 trillion - Used to frame Eli Lilly and Novo Nordisk as growth stories rather than value stocks. Gold high: Around $2,047 - Recent peak discussed as a resistance level that failed to hold. Gold prior bear-market low: Around $1,600 - Referenced as part of the earlier weak price-action period. Gold 2011 sentiment benchmark: Search interest in 'how to buy gold' as high as 2011 - Used to compare current retail interest to the 2011 bubble top. Fed hike expectation: One more 25 bps hike in May - His base case for the end of the tightening cycle. End-year rate cuts priced in: About 1.5 cuts - Mentioned as current market pricing. Unemployment outlook: 4.5% to 5% - His view for labor market weakening ahead. 2022 oil/nat gas call timing: Bullish in 2020, bearish in 2022, bullish again in 2023 - Presented as evidence of his sentiment-based process. Book essays: 69 essays, 10 new - Describes the contents of his latest book, Those Bastards. Class/project origin: 10–11 months - Time span over which he wrote the essays for the book. Weight loss from Ozempic: 22–26 pounds - Personal anecdote used to illustrate that GLP-1 drugs work.

Pivotal Quotes: "There were too many assholes in the trade." — Jared Dillian: On crowded energy positioning near the peak of the oil and natural gas mania. "When everybody's thinking alike, nobody is thinking." — Jared Dillian: Explaining why extreme consensus in office REITs can set up a bounce. "Finance is entertainment." — Jared Dillian: His explanation for why many people trade despite knowing passive investing is superior over the long run.

Implications: Listeners should focus less on headlines and more on crowding, positioning, and sentiment. The discussion suggests opportunity in hated or over-shorted assets, caution in chasing consensus, and a likely regime where mega-cap tech, gold, and contrarian macro trades remain central.