The ‘AWESOME PORTFOLIO’ to Combat Era of Inflation

Investors are concerned about persistent inflation despite many stock indices continuing to melt up. To solve this financial stress, best-selling author Jared Dillian discusses what he calls the ‘AWESOME Portfolio’ and strategies for living a more stress-free financial life…

From gold price predictions to what he is doing with his own money, Jared doesn’t hold back in our latest pod.

On the pod, Jared and Aaron, with their practical approach, discuss his time at Lehman, what he sees for the markets and gold in the coming years, and his strategy to fight what he believes will be many more years of an inflationary environment. Most importantly, the guys talk about what it takes to truly live a stress-free financial life, offering tangible steps and strategies.

Dillian preaches that it’s all about structuring one’s affairs in a manner that suits the individual. Even the rich can become stressed when they take on too much debt and risk, which often happens as they continually pursue more…

Dillian believes there are only two sources of financial stress: debt and risk. He explains that many rich people have a lot of financial stress due to their many ventures and the associated risks; while many of the so-called ‘have-nots’ live peaceful and happy lives..

Wages Have Not Gone Up As Fast as Prices

Dillian believes high food prices are behind growing discontent in America and around the world. Like most areas impacted by inflation, the high cost of food hurts low-income earners the most. Dillian explains that food prices are up 46% since the pandemic, noting,

“In 2019, food prices represented 6.5% of the average household budget; today, it’s 11.3%. So, really, that extra 5% is coming out of vacations, it’s coming out of travel, it’s coming out of savings, it’s coming out of investment, and it’s crowded out a lot of other things that people want, just to get something that they need.”

Jared Dillian: Boost Your Revenue, Don’t Cut The Little Expenses

While many focus on cutting back on their favorite foods or entertainment, Dillian says they should focus on creating more revenue. He argues that most people waste 4-5 hours per day and that if they were to work for at least half of those hours, they would boost their revenue significantly. Dillian references the average annual salary of $60,000 in America and notes the inability to significantly cut expenses given how much of that salary already goes to necessities. While someone on that salary might be able to cut $2,000-$3,000 per year, a second job (or side hustle) could net anywhere from $10,000-$30,000 annually.

There is an Abundant Supply of Money

According to Jared, people must change how they view money, and their relationship with it. They need to find new ways to generate income as there are plenty of opportunities in today’s economy for those willing to put in the effort. Instead of flopping on the couch after work, if people use that time to start a side hustle, or get a second job, they can change their financial well-being for the long-term. Dillian provides one example of a lady who started a part-time business and turned it into a six-figure revenue generator.

Why Wasn’t Lehman Brothers Bailed Out During the 2008 Financial Crisis?

Aaron asks Jared Dillian, a former trader for Lehman Brothers, a question he has long wondered: Why wasn’t Lehman Brothers bailed out?

Dillian quickly explains two key reasons. First, Lehman’s assets were very illiquid. Dillian cites the fact that Lehman had bought upwards of $40 billion worth of real estate worldwide. These assets can take years to liquidate – so it would have been a mess for the government. Second, he revealed the reason behind Wall Street’s general dislike of Dick Fuld – Lehman’s CEO at the time.

Dillian believes Lehman had some of the best talent in the industry. Lehman supported money-making ideas and entrepreneurial-minded people. That said, Dillian didn’t overlook how stressful it was. During his seven years working at Lehman, he only took 9 days off!

How Jared Dillian is Preparing for Inflation

For the Federal Reserve, moving forward debt monetization will be the name of the game, according to Dillian. He believes that because the debt-to-GDP ratio in America is very high (around 120% at the moment). So, it will be almost impossible for the U.S. economy to grow itself out of its debt burden.

“You should be looking at things that give you exposure to inflation. So, gold, real estate, to a lesser extent, stocks. Stocks do well in inflationary environments.”

Dillian also reminds investors,

“In an inflationary environment, you actually want to have debt… because your income will go up in nominal terms, and those payments will get smaller relatively speaking.”

Dillian practices what he preaches, as he recently bought a large new house with a substantial mortgage that he hopes will be inflated away to some degree. Whether Trump or Biden wins the election in November, Dillian believes the outcome will be inflationary.

Jared Dillian’s AWESOME Portfolio and his 40% Allocation to Gold

Jared reveals his 40% allocation to gold and explains the ‘AWESOME Portfolio.’ He states,

“The ideal asset allocation is 20% stocks, 20% bonds, 20% gold, 20% cash and 20% real estate. Me personally, I have like 40% gold and 0% bonds at the moment, but aside from that, I’m following the AWESOME Portfolio to the letter.”

Dillian believes that gold is not correlated to anything else and therefore mitigates volatility in one’s portfolio. He also thinks gold is the best risk-reduction vehicle in history and the ultimate diversifier.

Central Banks Will Continue to Buy Gold

Lastly, Jared explains why everything changed for U.S. Treasuries once the American government froze $300 billion of Russian assets shortly after the war in Ukraine began…

Not long after watching Russian assets get frozen by the Americans, and as a way of protecting their wealth, China and other nations took matters into their own hands by buying large quantities of gold to hedge against the U.S. dollar-dominated financial system.

China and Russia have been working furiously to break away from SWIFT for years. This US-controlled, Belgium-based messaging service facilitates international transactions and allows banks to communicate globally (Russia has been banned from using it). China’s alternative to SWIFT, known as CIPS (Cross-Border Interbank Payment System), has a network of over 1,200 financial institutions.

Still, the U.S. is the top dog, and it remains a significant political risk for countries like India and Saudi Arabia to abandon the SWIFT system for CIPS or even Russia’s far less adopted ruble-based payment system known as SPFS. With all this uncertainty, gold remains a crucial asset class for many countries and their financial security.

U.S. Navy Propping Up U.S. Dollar

Dillian points to Great Britain and Spain, two nations that had reserve currencies and had the world’s top naval armies at the same time…

“If we lose a naval war, then the U.S. will lose its reserve currency status… That’s when it will happen. And the interesting thing is, is that China now has a larger navy than the U.S. in terms of number of ships…”

“…they’re not as sophisticated as the U.S., but they have more.”

Gold’s Infinite Ability to Disappoint

Gold goes up in spurts, spending more time going down than up. In the short term, Dillian is bearish on the price of gold. The long-time trader believes gold will trade sideways and consolidate over the next year or so. But over the long term, looking out 5 to 10 years, he is very confident gold will be a lot higher.

Jared Dillian Talks Sentiment and Predicts 75% Nvidia Drawdown

Dillian calls Nvidia a bubble.

“It will have a 75% drawdown. Right. There’s many historical examples of this. The biggest one is Cisco. Cisco in 2000.”

He continues,

“At the end of a bull market, breadth narrows over time, until one stock is holding up the whole thing. And that’s what Cisco did in March of 2000.

So, really, if you can predict when Nvidia is going to reverse, you can kind of predict when we’re going to have a correction or a bear market.”

Nvidia (NDVA) bounced Tuesday but is down about 10% since Thursday. We could be witnessing the beginning of a much larger correction for Nvidia, the entire NASDAQ exchange, and potentially U.S. markets. Another recent guest, Chris Vermeulen, is forecasting a significant correction in U.S. equities in the near-term.

Bullish on Property Market, Despite Demographics

Jared believes property values are set to boom in the United States as millions of immigrants, both illegal and legal, move up the property chain and ultimately buy homes. Despite fertility rates declining globally, a major concern of Aaron’s, Dillian thinks the U.S. and Canada will remain sought-after locations for global immigrants.

Sentiment – Dillian’s Secret Weapon

Finally, Jared Dillian reveals that investor sentiment analysis, not fundamentals and technicals, guide his investing philosophy and actions. It is the one thing that everyone does not have access to. When human behavior gets too out of line with reality, he places his bets accordingly.

Enjoy the pod!