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A Decade of Dirtnap

January 31, 2018

In today’s Outside the Box, we finish up our 8-part Strategic Investment Conference Speaker Series. It’s been quite a ride and I hope you’ve enjoyed Mark Yusko’s letter to fellow investors… George Friedman’s big call on the future of the EU… Niall Ferguson’s take on the “antisocial networks”… Grant Williams’ treatise on the consequences of excessive quantitative easing… Louis Gave’s thoughtful questions for 2018… David McWilliams’ lesson from history on speculative behavior… and Lacy Hunt’s quarterly review.

Today, we close the series with the inimitable Jared Dillian: editor of the monthly newsletters Street Freak and ETF 20/20, creator of the much-loved daily newsletter The Daily Dirtnap, author of two books, and columnist at Bloomberg View—amongst others. Yes, he truly is that prolific.

Jared first caught my attention some years ago, long before we got him on board here at Mauldin Economics. The Daily Dirtnap is quite unlike any other newsletter you’ve ever read: It’s packed with insight and market analysis, while also being incredibly entertaining.

Jared publishes almost every weekday, and he recently celebrated The Daily Dirtnap's anniversary—it's been published continuously since 2008 (quite an achievement, as your humble analyst knows).

So it’s fitting that today I share The Daily Dirtnap: Volume 10, Issue 1 with you.

In it, you’ll read his market predictions for 2018. He is definitely not what I would call consensus, and he is making me think about what is around the corner for investors. As I said in Thoughts from the Frontline recently, “most of the forecasts I’ve read expect a good year.” And my own forecast for the year could be described as “fairly upbeat.”

Jared does not expect a good year, to put it mildly. I’ll leave it to him to share exactly what he thinks will set a match to the markets in 2018, but his feelings can be summed up with this sentence:

“I think we are going to have a bad year, and I think that ‘people making fun of pessimistic people’ is going to hit a wall going full speed.”

That’s not to say Jared doesn’t see opportunity this year… just elsewhere in the world.

By the way, at the SIC this year, Jared will be moderating both the ETF and Cryptocurrency Panels, asking the tough questions of John Burbank, George Gilder, Steve Cucchiaro, Jan van Eck, and others.

He’s also going to be sitting down for a fireside chat with our own Ed D’Agostino. Ed will be teasing out the trading ideas Jared is currently developing, as well as digging deep into his approach and methods. No doubt Jared’s years spent on the trading floor at Lehman Brothers will come up in conversation, too. It promises to be unmissable.

Now, I’ll leave you to The Daily Dirtnap. I know you’ll enjoy it—every day, more research pours into my inbox than I could possibly read in two lifetimes, but I always make sure that I read Dirtnap. The ideas Jared shares, his unique take on the markets… I’m not quite sure how he manages to keep it consistently top quality every single day he publishes, but he does. It really is required reading.

If you like what you read, you should consider giving it a try. Every morning, it’ll fuel you for the day better than a cup of coffee ever could. You can learn more about it here.

Your can’t wait for the SIC analyst,

John Mauldin, Editor
Outside the Box

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A Decade of Dirtnap

By Jared Dillian
Vol. 10, No 1; January 2, 2018

I’m typically not one for nostalgia, but doing 10 years of anything (in a row is pretty impressive. I have saved every single issue, in this bookshelf in Christian’s office.

That’s what 9 years of writing looks like.

Anyway, looking ahead to 2018. I hear that we just had a perfect year in the stock market, a year in which the market was up every single month, which apparently has never happened. Hard work being short stocks. What about next year? I wish you all could have been present for my talk at DirtCon, in which I laid out the long term view.

The long term view is: Trump is going to be Trump.

Again, Axios has the best sources in the White House. Mnuchin managed to keep a lid on Trump during Tax reform, successfully I might add, but Trump is a true believer on trade and he wants his tariffs. We are going to get them imminently.

This is the whole reason we are holding letter X. The position is somewhat large, and I am going to make it even larger in 24 hours.

But the tariff issue is much bigger than letter X. Let me go out on a limb and say that...tariffs...could hammer the stock market. Nothing seems to hammer the stock market, so who knows, but historically, unfree trade seems to do the trick. And the thing about opening the tariffs Pandora’s box is that people retaliate, and it gets worse and worse and worse. I hate to make sweeping statements, but this could be the beginning of the end of globalization.

What happened during globalization?

  • Prices came down
  • Wages game down
  • Financial assets went up
  • Hard assets went down
  • Consumers benefitted

Now send this process in reverse.

Anyway, for people who weren’t there during the conference, I said that Trump was eventually going to be Trump, because cooler heads can only prevail for so long. The volatility that we thought we were going to get from the beginning—we will get. And that is the one thing that I’m more willing to bet on than lower stocks: higher volatility.

The other thing that the Axios guys keep hitting on is that the probability of war is a lot higher than we think it is. Wars can be good for stocks, but in this case, probably not, considering that they are priced for perfection, and considering the risks involved.

So I’m going to say that war is bad for stocks and tariffs are bad for stocks and the chances are good that we are going to get one or both.

I have a gift for oversimplification, so there you have it.

I think we are going to have a bad year, and I think that people making fun of pessimistic people is probably going to hit a wall going full speed. This one snuck in over the Christmas break: Uber just did a massive down round, with Softbank, of course. I wonder. What would Uber’s valuation be in a Softbankfree world? A down round from the biggest unicorn is a huge deal, but

nobody was paying attention during the Christmas-New Year’s no-zone. If there’s one position I can play, it’s the goalie.

Corporate Tax Cut Fever

As I write, a Bloomberg story just came up (and disappeared...I hate when it does that) about how “Corporate Tax Cut Fever May Spread Around The Globe.” This should be obvious, but isn’t. We are in competition with other countries. To attract investment, other countries, especially in Continental Europe, are going to have to lower corporate tax rates. Macron was lowering France’s, but he is going to have to lower it faster. The U.K. is in the midst of lowering theirs.

So I just wrote a bearish article up there ↑ but there is going to be a lot of (lagged) global growth coming out of these tax cuts. I don’t care if you like Trump or not, or whether you think he’s an idiot for talking about the stock market all the time, the stock market went up because he promised tax cuts and delivered. If you start seeing this elsewhere in the world, you might see rising stock markets there as well.

Not for nothing, we’re still long a boatload of EWQ, and I said at the time that the French election was a really, really big deal, and that Macron was going to ruthlessly transform/reform the French economy. That’s the whole reason we’re long EWQ. France is going to be ripping for years to come, especially if he gets some giddyup on these corporate tax cuts.

On the one hand, tax cuts...on the other hand, tariffs. Going to be an interesting year. For what it’s worth, I’d say that the tax cuts are mostly priced in and the tariffs are not. Is anyone other than me talking about the implications of unfree trade? I don’t think so.

Going Postal

Actually, it’s about time we retired the “going postal” phrase. Nobody has gone postal in a post office in a long time. The reputation is no longer deserved.

Trump said that the postal service needs to charge Amazon more to deliver packages. Trump is looking a bit lost/befuddled here, but one of these days he is actually going to dream up a legitimate way to go after Amazon, and then it is going to be all over. Is there anyone in the Trump administration who understands antitrust law well enough to make this happen? Are they having conversations with legal scholars and lawyers at the DOJ? If you really dislike Amazon, this is the way to go after them. Trump doesn’t like Amazon, and it’s because Bezos’s paper rips on him 20 times a day.

This is going to happen. It is only a matter of time.

I have to wonder what goes through Bezos’s head. Your newspaper rips on the president every day. Not smart! Yes, you have 100 billdog, making you the richest person in the world, but the richest person in the world is not more powerful than the president of the United States, who has unlimited legal resources at his disposal. Why poke the tiger? Talk about a giant ego.

The trend is your friend. There is resentment building against big tech companies. It has not reached a top! We are not even halfway there. This is a 5-10 year trend; this is only the beginning. 2018 will be the year that we start to see some action. I have no idea what form that will take, but it’s coming. See “BOOLEAN ALGEBRA” from last year.

Darkest Hour

Saw the Winston Churchill movie, was not disappointed.

Americans don’t know a lot about Churchill. They don’t know that it’s actually one of history’s great ironies that he became prime minister so late in life—really, most of his best work had already been done. Churchill was one of the world’s most prolific writers, mostly by dictation. The man was a fountain of words, writing millions over his lifetime. It took a guy like Churchill to make the case that Hitler could not be negotiated with—when everyone was in the mood to negotiate—even the King.

Anyhow, some interesting parallels today with North Korea. North Korea isn’t marching across Asia annexing territory, but you could make the same argument that Kim Jong-Un is not someone you can negotiate with. He is as irrational as Hitler. Trump may understand this intuitively, but he may be the least articulate leader in our history, and if we learned anything from tax reform, it is that salesmanship counts for a lot. A lot of people think their taxes are going up (when in fact they are going down), and by the way, under Trump we’ve pretty much completely defeated ISIS, but nobody is talking about it. Again, inarticulate, a lack of salesmanship—which is all part of leadership.

Saw the movie yesterday at the 1:40 PM showing and the place was packed. Everyone had the same idea.

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Discuss This


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Jan. 31, 11:13 a.m.

Hi, I’ve lived in France for 20+ years. The election WAS a very big deal mainly because a few weeks before the second vote it looked like the second round could very well be a choice between far left (Mélenchon) and far right (Le Pen). Cue massive sighs of relief when Macron won. But the fact that he won comfortably in the second round doesn’t hide the fact that less than 5% of the vote separated Macron, Le Pen and Mélenchon in the first round. I’ve lived here long enough to get under the surface (my wife is French, she has a pharmacy, I was a local councillor) and to say the French (electorate) are fickle would be the understatement of the decade. Macron is a shrewd opportunist, he has a good hand currently and is playing it well but I think he’s riding a wave that won’t last as long as you think. I hate to say it but there is a lot of jealousy in France which is why the country always has one foot stuck in pseudo-communism (try running a small business here). I called Brexit and Trump, and the French election in so far as I believed Le Pen would not win ... this time. In all my time here I’ve never believed that the Front National would win the presidency but sadly I am convinced that Le Pen, or more likely her niece will be elected next time. As far as investment strategy goes that is by far my number one long term concern. The current calm/optimism is welcome in so far as it provides the time to wrap things up and get the hell out of Dodge.


Jan. 31, 9:54 a.m.


I have a lot of respect for you and appreciate your writing, so please don’t take this as a personal criticism, but who is this “we” who defeated ISIS?  Unless you’re identifying these days with the Syrian army, the Iranians, Hezbollah, and the Russians, I don’t know who you’re talking about.  Because it sure wasn’t the US military that did the job.  ISIS were our boys, our proxies, who were supposed to overrun the Assad forces.  They’ve now been defeated by the Shiite axis with the help of the Russian’s tiny military force.

“We” never went after ISIS.  That was all just bluster to cover what was really going on.

John White 69443420

Jan. 31, 9:21 a.m.

1. Jared- EMFs are up its true, but nowhere near as overpriced as S&P, let alone Macdonalds etc, right ?
2.Andrei-i have no idea where you are getting your figures from-Breitbart ? Fox “News” ? Zero Hedge ? RT ? Vonnegut ? There are no reliable, responsible US , UK or German figures of civilian deaths that come within an order of magnitude with your assertion.  Civilian deaths during the war include air raid deaths, estimates of German civilians killed only by Allied strategic bombing have ranged from around 350,000[6][7] to 500,000.[8][9][10][11][12] Total civilian casualties from all sources including Russion atrocities in 1944-45, are well less than 2 million by any responsible estimate. In a greater Germany (what was East and West Germany plus Austria) between 1938-1945, there was on a average, a population of 80 million (larger in 1941, less than 80 million in 1945-46. 500,000/80,000,000 = 0.6%...you exaggerate German civilian deaths by over 50 Times !! Is this ignorance willful or just inadvertent ?


Jan. 31, 8:42 a.m.

North Korea is not being irrational. We firebombed civilian targets during the war, killing 1/4 to 1/3 of their civilian population. It was a war crime according to our own naval leadership. They have not forgotten, there are still some survivors alive today. They see what happened to Gadhafi. Anyone in their position would do exactly what they are doing as far as wanting a way to strike back. Sure ousting a petty dictator is a great idea if we can do it without massive casualties this time around.


Jan. 31, 8:34 a.m.

AMERICA has become The Country of War.North Korea is NOT going to attack ANYBODY first.Kim Jung-U is not irrational.The real country of Aggression is ISRAEL.They and The Deep State Neocons
control Our Government. Sad but True. J Huebner MD