Episode summary
It's a Bubble. So Why Is Citi's Dirk Willer Buying?
The Meb Faber Show
· · Hosts: Meb Faber · Guests: Dirk Willer
Summary
Dirk Willer argues that the market is already in bubble territory, but he does not think that is an automatic sell signal. Using a GMO-style definition, he says the bubble likely started around the middle of last year and that the key investor mistake is not recognizing that bubbles can keep running while also leaving room for a sharp payback later. He says the right posture is to stay invested, avoid leverage, and think about hedges rather than abandon equities.
On the macro side, Dirk Willer says the Fed is still not close to the point where it would end the bubble, though liquidity withdrawal eventually matters. He is constructive on the S&P 500 into year-end, sees November and December as seasonally strong, and thinks rates can keep rising without killing stocks unless bond-market volatility spikes. He is cautious on bonds for now, but says they become compelling again when the Fed is much farther along the hiking cycle.
Outside the U.S., Dirk Willer is positive on Brazil, selective on Taiwan and Korea because of the AI trade, and more cautious on Europe. He also likes gold as a long-run reserve-asset hedge, thinks copper still signals improving global momentum, and says a bubble break would likely send the Fed toward aggressive easing and a much larger bond rally.
Key takeaways
- Dirk Willer says the market is in bubble territory, but the bubble is still a reason to stay invested rather than sell everything.
- He thinks the Fed is not yet close to ending the cycle, so it is too early for a durable bond rally.
- He favors Brazil on a mix of business-friendly politics, high real rates, and room for sharp easing.
- He remains constructive on AI-linked markets like Taiwan and Korea, while saying Europe lacks the AI tailwind and faces energy and policy risks.
- He says gold is a long-run reserve-asset hedge, but near-term rates still dominate its trading setup.
Notable quotes
“We entered bubble territory roughly middle of last year. Our punch line really is guys, it's great. It's a bubble. Let's buy it”
“The first Fed hike is usually not a problem. The last Fed hike is a problem”
“we think that means He's hawkish. Now there was a question does he control the committee right”
“the market never said that uh it's a big fiscal problem because that usually shows up the most clearly in asset swap spreads”
“Brazil is idiosyncratic. you have um now I mean there's still a second round of the presidential election but it seems it is the prediction markets the it's done”
How the episode opens
US markets near all-time highs. A lot of AI bubble talk, bubble talk in general. How do you define one? We in one.
We entered bubble territory roughly middle of last year. Our punch line really is guys, it's great. It's a bubble.
Let's buy it. What's the difference between a bubble and a bull market? You tell a bubble to buy it.
And the difference is that you give back a fair chunk of the money that you make while you're in a bubble. In 2000, the market cap of the equity market was a bit more than 100% of GDP. And the bursting bubble gave you a recession.
That was a shallow recession that was a recession. And now it's at 240% of GDP. So you can expect a bigger recession and the Fed will react to that.
Maybe rates go back to zero.
How would you describe the worst Fed so far? — We created what we call the war shadow rate. Right now it's at the highest. We think that means he's hawkish. The first Fed hike is usually not a problem. The last Fed hike is a problem.
What's on your brain as we look out to next year? I really hope the the bubba will keep giving for another year. 80% of our efforts should be dedicated to trying to figure out when this baby peaks because then Fed will change direction. Rates will change direction. Rates could go very very low levels again. The Fed will probably have to buy the back end of the curve. Gold will go straight up.
What's up y'all? Today's guest is Dirk Willer, head of global macro asset allocation emerging market strategy at City. Dirk, welcome to the show. — Great to be here.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai bubble
- fed liquidity
- bond selloff
- emerging markets
- hedging
Companies and tickers mentioned
- C
- Citi
Watch the episode
Watch “It's a Bubble. So Why Is Citi's Dirk Willer Buying?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Meb Faber Show, this episode and its artwork belong to The Idea Farm. Octagon is not affiliated with the show; this page is an independent summary.
