Jared Dillian launched the Daily Dirtnap newsletter after the 2008 financial crisis, gaining a loyal readership by providing market insights and actionable trade ideas.
Jaradillian emphasizes the value of sentiment analysis, particularly on Twitter, in understanding market dynamics and making investment decisions, and sees the negative sentiment on Twitter as a potential upside catalyst for gold.
Deep dives
Jaradillian's journey from Lehman Brothers to launching the Daily Dirt Nap newsletter
Jaradillian, an ETF market maker, launched the Daily Dirt Nap newsletter after the 2008 financial crisis. The newsletter gained a loyal readership among those seeking market insights and actionable trade ideas. Jarad's conversation on the podcast covers his early days at Lehman Brothers, his experience trading ETFs, and the formation of the Daily Dirt Nap. He also shares his love for writing and discusses his fiction book centered around the Palm Pilot spinoff. Lastly, the conversation delves into macro markets, including gold, inflation, and energy. Jarad takes a contrarian view on gold, emphasizing its value as a low-correlation asset and a potential upside catalyst.
Facing the challenges of risk management and liquidity provision in the ETF trading desk
Jaradillian discusses his experience as the head of the ETF trading desk at Lehman Brothers during a period of significant growth and volatility. He reveals the risk management and liquidity provision challenges faced by his team, including the need to provide tight pricing and lock markets. Jarad also shares insights into the role of market psychology in predicting clients' behaviors and capitalizing on market sentiment. He further discusses the challenges of pre and post-market trading and the potential mispricings that could occur. Despite the difficulties, the ETF business remained highly competitive and drove revenue growth.
The impact of extreme market volatility on risk-taking mindset
Jaradillian reflects on how experiencing the dot-com bubble and the 2008 financial crisis impacted his risk-taking mindset. Beginning his career in a bear market, he learned the importance of recognizing market downturns and being prepared for them. These experiences shaped his views on risk and reinforced his cautionary approach to trading. He also emphasizes the significance of historical events and the potential return of inflation as catalysts for future market risks. Jarad believes that the markets are driven by human behavior and the tendency to forget past crises, leading to potential blind spots in risk assessment.
Exploring the role of sentiment and social media in market analysis
Jaradillian highlights the value of sentiment analysis, particularly on Twitter, in understanding market dynamics and making investment decisions. He shares examples of how sentiment on social media platforms can contribute to market dislocations, citing the case of Bitcoin and gold. Jarad also discusses his contrarian view on gold, seeing the negative sentiment on Twitter as a potential upside catalyst. Additionally, he emphasizes the correlation properties of assets like gold and the importance of sentiment analysis in predicting clients' actions and market outcomes.
In 2008, as the global financial crisis unfolded and his employer, Lehman Brothers, descended into bankruptcy, Jared Dillian decided to go it alone. An ETF market maker with a gift for writing, Jared launched the Daily Dirtnap, a newsletter focused on identifying market themes and actionable trade ideas. Thirteen years and 3,000 publications later, the Dirtnap is widely enjoyed by a loyal readership finding value in Jared’s unique insights. Our conversation is one part retrospective, exploring the fast days of the pre-crisis period when Jared committed risk capital at Lehman, locking ETF markets in pursuit of buy-side commission business. In the process, we get a window into the formation of the Dirtnap, that being his daily client communications over Bloomberg while at Lehman. We also discuss Jared’s active imagination and love of writing, learning more of his fiction book, “All the Evil of this World”, built around the Palm/3Com pricing dislocation.
Lastly, we talk macro markets, covering gold, inflation and energy. With gold, Jared takes a contrarion and bullish view, seeing the vastly negative sentiment on Twitter as an ultimate upside catalyst and also placing value in the low correlation that gold has with risk assets generally. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jared Dillian.
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