Episode summary
Down 50%. Up 200% | Jared Dillian on the Regime Change Investors Aren't Ready For
Excess Returns
· · 1 hr 3 min · Guests: Jared Dillian
Summary
Jared Dillian argued that markets are structurally slow to price low-frequency, high-impact events like war, regime change, and geopolitical shocks. He pointed to Ukraine, Iran, and oil as examples of investors and policymakers waiting too long to adapt, then rushing to reprice risk once the event is unavoidable. His broader point was that the real mistake is not regime change itself, but staying anchored to the old rules after the environment has changed.
He said the post-2020 world looks very different from the long stretch from 1981 to 2020, when stocks and bonds were often negatively correlated and the 60/40 portfolio worked well. In an inflationary regime, he argued, that diversification benefit breaks down, which is why he expects commodities to keep outperforming and why he is bearish on stocks over a long horizon. He also said the Fed will likely take the conservative, least-embarrassing path, especially with oil rising, and that higher energy prices can also suppress demand rather than simply feed inflation.
Dillian also made the case for being “long gamma” in uncertain environments, preferring options, smaller position sizes, and broad diversification over concentrated bets. He was skeptical of private equity and private credit marks, said Bitcoin behaves more like a liquidity trade than a true store of value, and promoted his “awesome portfolio” framework of 20% each stocks, bonds, cash, gold, and real estate as a lower-drawdown alternative.
Key takeaways
- Dillian thinks markets underprice geopolitical shocks until the event happens, as he said with Ukraine, Iran, and oil.
- He argues the 60/40 portfolio worked in a declining-inflation era, but rising inflation has broken the stock-bond hedge.
- He expects commodities to stay in a bull market and says stocks could fall 50% while commodities rise 200% over the next 10 years.
- He believes the Fed will usually choose the “path of least embarrassment,” making it slow to cut or hike aggressively around oil shocks.
- He says private equity and private credit marks are too optimistic and that liquidity problems will surface first in private credit.
Notable quotes
“The problem with regime change isn't the regime change, it's that most people fail to adapt, right”
“The Fed is not going to cut rates with oil at 100 because that would seem to be insane and that would subject them to a lot of criticism”
“If that idea works and you fast forward over the next 10 years and stocks are down 50% and commodities are up 200%”
“the awesome portfolio is 20% each stocks, bonds, cash, gold, and real estate”
How the episode opens
It's weird because the market is a fantastic discounting machine and it seems to discount some things better than others and sometimes it doesn't discount the very obvious things. The problem with regime change isn't the regime change, it's that most people fail to adapt, right? They're still playing by the old rules.
I don't know if you've looked at V in options on WTI, but they're they're like 150 ball. The Fed is not going to cut rates with oil at 100 because that would seem to be insane and that would subject them to a lot of criticism, right? So, they're not going to do something like that.
Like, they're they're going to do the conservative thing. They're going to wait and see. Is Powell right to be hawkish here?
I actually kind of don't think so. Um, now it doesn't really matter what I think he should do. What what matters is what he will do.
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. The best duel cat psychic supporter and John Bon Joy fan in finance. Let's give a middle school slow dance round of applause for Mr.
Daily Dirtnap himself, Jared Dillian. Welcome back to Access Returns. Somebody pointed out recently that John Bon Joy now looks like be Arthur.
I I don't disagree with that
With the haircut. — You know, it's a look. It's a look. — But once you've been slippery when wet, I think that's an earned right. Gradually devolve into a be Arthur status. It's worth it. New Jersey will do that to a person.
Yep. — All right. I'm taking I'm taking you in. We've got lots of stuff to cover. Markets, macro, and everything in between.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- regime change
- geopolitical risk
- inflation and fed policy
- stock-bond correlation
- long gamma options positioning
Companies and tickers mentioned
- PTON
- Peloton Interactive
Watch the episode
Watch “Down 50%. Up 200% | Jared Dillian on the Regime Change Investors Aren't Ready For” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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