The Portfolio Built To Survive Every Crash | Jared Dillian

Jared Dillian's Awesome Portfolio holds equal 20% allocations in stocks, bonds, gold, cash, and real estate. Backtested from 1971, it has returned approximately 9% annually versus roughly 11% for the S&P 500, but its worst drawdown ever was 12% in 2022 and 9% during the financial crisis, compared to the S&P 500's 57% decline from 2007 to 2009, which turned one million dollars into roughly 430,000. Dillian argues the 2% annual gap is more than offset by near-elimination of severe drawdowns, and he believes 90% of investors liquidate near market lows, permanently stopping compounding. He characterizes cash not as a drag but as an option on future cheap assets, noting money market funds yielded 14 to 15% in the late 1970s and early 1980s, and current yields of 4 to 4.5% are meaningfully positive. He also challenges the idea that index funds are conservative, pointing to the S&P 500's 89% drawdown in 1929 and its ongoing daily volatility of around 1%.

Dillian interprets the Fed's decision to hold rates as entirely intentional rather than a policy mistake. He argues that holding Fed funds steepens the yield curve and pushes the long end higher, creating an immediate tightening effect through rising long-term rates and mortgage rates, which was the desired outcome. Had the Fed hiked instead, the curve would have flattened, which would have been stimulative and lowered mortgage rates. Holding rates also keeps Trump satisfied because Trump focuses on the optics of the Fed funds rate and does not understand yield curve dynamics. Dillian sees Kevin Warsh as a profound philosophical departure from Powell, Yellen, Bernanke, and Greenspan, wanting a diminished Fed role, fewer FOMC meetings, and markets doing the heavy lifting. Warsh also explicitly acknowledged what was always implicitly true, that the Fed follows market pricing rather than leading it.

Dillian is positioned long SOFR and twos, reflecting his view that rate hikes are off the table and cuts are coming. At the time of recording, Bloomberg showed 1.7 hikes priced in out to June of next year, and he expects that to move to zero or negative, meaning he sees the market mispricing the path of Fed funds. He predicts the yield curve will continue to steepen over the next six to twelve months, with Fed funds falling to 3% while the long end stays elevated. Recent economic data including payrolls, CPI, PPI, PCE, and JOLTS have all been soft, and he has heard that GDP is negative if AI is excluded, though he has not verified those numbers himself.

Dillian views the sharp intraday selloff on the day of the Fed meeting, where the market fell roughly 100 handles into the close, as the starting gun of a bear market. He draws a parallel to February 27, 2007, when the ABX subprime index gapped 10 points lower, the S&P fell 4%, and the VIX doubled, even though the S&P went on to make new highs in the summer of 2007 before the full crisis unfolded. He also flagged the Leopold fund reaching approximately 45 billion in NAV while highly levered as a canary signal, noting that the most leveraged player is typically taken out first. Despite this bearish framing, he acknowledges that three days of price action following the selloff, with no intraday pullbacks, feels like real money coming in rather than a simple technical bounce.

Dillian is bearish on financials based on technicals and believes they may be topping, even though a steep yield curve is historically good for banks and XLF, JPMorgan, and major banks are currently at highs. He notes it is historically rare for the broad market to have a significant correction when bank stocks are at highs. He favors health care and staples, which he says implies a generally negative view on everything else. He liquidated nearly all energy positions recently based on chart analysis, and oil subsequently fell approximately eight or nine dollars. He believes oil could fall back to 60 or 65 if the war truly ends.

On gold, Dillian says people lining up outside to buy physical gold in January was a clear top signal. He now sees gold bottoming and basing, expects one more small test below 4000 to complete the base, and believes a move above 4250 would represent a blue sky breakout and a path back to prior highs. On the yen, he cited Dennis Gartman's view that intervening against your currency always works but intervening on behalf of your currency never does because FX reserves eventually run out. He also noted that Scott Bessent has a history of profiting from FX interventions, including buying and selling the peso in Argentina, and warned that being on the other side of a professional FX interventionist like Bessent makes shorting yen at 155 a questionable trade.