Macro Outlook (A Discussion with Lyn Alden)

Hey everyone and thanks for jumping back Into the macroverse today we have a Special guest with us Lynn Auden I would Recommend that you visit her website at Lynn we're going to link all That in the description below or the Pinned comment links to to her Twitter As well this is just a continuation of Our collaboration Series where we bring On various guests to discuss various Things in financial markets whether it's Macroeconomic views uh things related to Equities crypto et cetera lint pleasure To have you here on the show To be here thanks for having me yeah so I wanted this to just sort of be a um Try to try to keep the conversation Flowing and I I want to start off by Just asking you in general what do you Think are some of the biggest risks or Challenges facing the global economy Today are there certain primary risks That you're weighing in terms of how You're navigating these financial Markets more so than others what would You say are are the main risks that that We need to be concerned about right now I think energy and commodity shortages Are going to probably be a multi-year Story uh to deal with uh they come and Go in terms of their severity based on Whether based on you know demand Destruction temporarily uh but the Supply side remains uh rather tight

Um so I think that's an ongoing kind of Constraint to be aware of and on the Other side of that on the demand side we Have Um you know over the past couple decades We've transferred a lot of debt from the Private sector to the public sector Basically whenever there's a crisis we We kind of push some of that debt up to The Sovereign level and now a lot of It's actually becoming a pretty relevant Size up there you have a lot of Countries throughout the developed world That have over 100 that the GDP and that Was you know that that worked for a While when you had structurally Declining interest rates because even Though you had higher debt to GDP you Didn't really have higher uh interest Servicing costs because there was offset By that that structural downtrend in Interest rates and now that we're in a Flat to up interest rate environment While you still have very large deficits While you still have uh very high Sovereign debt the gdps you start to get An actual problem with interest expense Uh which can actually be an inflationary Force because you know deficit driven Inflation is one of the two main types Of inflation you know along with bank Lending driven inflation and higher Interest rates actually exacerbate the Size of those deficits to how much money

From the public sector is pouring into The economy and so you can get a Situation if the central banks are not Careful where as they try to raise rates To quell private sector inflation they Risk exacerbating public sector driven Inflation and they can generate this Kind of sticky runaway type of inflation Environment especially when you have Those commodity and and Supply backdrops So I think I think the key risk is that We're probably gonna have a number of False Dawns where it looks like we're Getting inflation under control but then It's still the underlying factors still There when we try to have another growth Cycle and along the way whenever they Try to tighten their currencies up you Know most assets then suffer in price Whether it's stocks whether it's Bitcoin Whether it's crypto so whether it's you Know XYZ a lot of these things are going To uh you know get get volatility get Kind of pushed around based on them Trying to get a grip on this Yeah inflation is certainly something That has been plaguing us for a little While and I guess I wanted to get your Views a little bit more if we could Unpack inflation because you know There's two primary periods I guess Where we can look at least in recent History where you could compare it to You have the the 1940s of course you

Know coming out of World War One or World War II and then you also have the 1970s and do you think that what we're Going through right now is is more Similar to one of those periods or do You think uh what we're what we're Experiencing right now is is very Different because in both of those cases We had more than one Peak on on you know We saw more than one Peak on inflation Do you think it's it's going to follow a Similar blueprint as what we saw back Then I do I think we're probably gonna have Multiple ways of inflation you get it Under control for periods of time and Then it and then it breaks out again Until some of the underlying uh uh Forces are fixed and to answer the Earlier part of the question so a big Part of my thesis for a while is that This is much more like the 1940s Um and that's because you look back at The sources of money creation Um in the 1970s you had Peak Demographics you had the baby boomer Generation uh reaching their home buying Years Um and so you had basically a lot of Bank lending drilled inflation a lot of Loans are being created so you had an Expansion of broad money largely from That that bank lending Channel and then You know adding on to that you had you

Know deficits from the war deficits from Uh you know kind of domestic programs But they were actually a smaller Component compared to that bank lending Um whereas in the 1940s you had the Opposite you didn't really have Banks Lending much at all Um but you had absolutely massive fiscal Deficits and monetization of those Deficits in order in order to fund World War II but a lot of that was domestic You're spending on factories you're Spending it on labor when they when the Soldiers came home you you gave them GI Bills to go get get trained and educated And get a house uh that kind of thing so That was basically a massive fiscal Spending program and that's what drove Up a lot of that inflation and the Challenge now is that we have kind of 1940 style inflation uh right now They're treating it as though as 1970s Inflation so they're treating it as Though you know you have to quell Bank Lending by raising interest rates uh Which I I think is going to be a Challenge Um and then two in the 1940s you had an End to it you had basically you know When the war ended uh you had a Productivity boom uh they were able to Get that under control whereas now when You look at deficits for the foreseeable Future and a lot of these are

Non-discretionary types of spending Throughout the developed world it's Mostly you know taking care of promises That were made decades ago Um there's really not any clean solution For how you would stop this sort of Fiscal driven inflation uh and I think That's that's one of the big challenges Facing them now obviously one simulator We have to the 70s is the energy side uh And so a kind of a a not widely reported Fact about the 70s is that U.S oil Production peaked in 1970. so basically From the you know the middle late 1800s All the way up to 1970 you had Structurally Rising almost every year But structurally Rising U.S oil Production and that peaked we basically You know Tap maxed out how much conventional oil We could get per year out of the United States and so we had that kind of Downtrend at the same time as we had all That that demand from from All That Home Building all that you know economic Growth and so we became far more reliant On export which obviously you know gave Us conflicts uh in the Middle East Regarding oil embargoes and things like That so you had that supply side and oil Well you also had that demand side and I Think today we have somewhat similar Dynamics where throughout the 2010s we You know most marginal oil production

Growth came from Shale oil Um that's you know I I think the low Hang fruit has already been gotten from That doesn't mean we can't go a little Higher but I think that you know I'm not Going to see a straight line upward of U.S oil production like we saw the past Decade and that means there's not a lot Of new marginal supply out there uh at a Time when we also have this fiscal Derivative inflation so I I think that's The that's the one thing where it is Kind of similar to the 70s is that that Oil constraint If this is really going to be like a a Period of just sort of persistent Inflation like the 40s and the 70s uh What if we were to sort of hone in here On on the aspect of it that we're Looking at right now and that's before If you know we're currently coming out Of a first Peak if you will of of Inflation that we saw earlier uh in 2022 One of the narratives that we've seen And and the narrative has changed very Very quickly over the last several Months you know went from hard Landing Soft Landing to no Landing to uh to Rocket emojis right when we saw back in January when everything was was going Back up again but in terms of in terms Of the context of History what is the Context of History tell you in in in Sort of in terms of what we are likely

Going to see coming out of at least the Mess we're in right now not necessarily You know the Resurgence of inflation Five years from now or three years from Now but let's say like in the next one One to two years what do you think are Are some likely outcomes that we're Going to see Um based on the effects of of interest Rate hikes and and so on and so forth It's a really good question because There's not that many historical analogs Because uh we're doing that the weird Combination we were fighting 1940 style Inflation with 1970s policy uh and so That that particular mix is kind of Unprecedented uh my my base case since Around the spring of 2022 is that we'll Tie into a disinflationary recession and Then when they when they try to ease out Of that is when we would get the second Round of inflation you know perhaps in 2024 perhaps in 2025 depends on the Timing obviously those things can play Out quicker or shorter than you expect Um and you know for for so far I would Say that's played out because since then We've seen the purchasing managed index For example declined from 55 down to 47 Which is you know mildly contraction uh We've seen deceleration in most economic Indicators but the labor markets still Being kind of the the pretty strong area Uh but you generally see a broad

Deceleration of growth kind of a stall Speed in terms of growth if you look at Uh you know Capital orders if you look At retail spending if you look at you Know a lot of these nominal figures and Adjust them for inflation originally Flat down year over year in in real Terms in a lot of these metrics uh same Thing for like Imports Um and so right now I describe this as Being at stall speed basically that you Know the tight monetary policy has Rained in the activity specifically in The real estate sector and the Unprofitable Tech sector those are the Two most interest rate sensitive areas Other areas have held up better and so My base case continues to be Deceleration into recession and then you Know inflation on and and basically a Period of renewed growth and inflation On the other side of it The risk factor that I'm watching for For that view is that it's possible that The the fiscal driven inflation is Enough to override the private sector uh Disinflation from from this tightening Of policy uh sooner than that right and So I I think we saw a taste of that in December and January uh we basically saw A mild re-acceleration of some of the Economic growth and inflation factors uh But like we saw today for example and I Actually wrote about this to clients a

While ago that upon seeing that what Powell's going to do is get more hawkish Uh he's gonna you know he sees that that Kind of volley he's like holding a Volleyball underwater he sees it kind of Coming back out and he's going to push It back down and what we saw from his Talk today is he's doing exactly that we Just saw a rapid repricing of the Probability that they're going to do 50 Basis points instead of 25 basis points And so I still lean towards that Disinflation into recession followed by You know next round of growth and Inflation Outlook but we do have to be Mindful that they might not even be able To fully constrain it uh and that it Just kind of breaks out sooner than we Think but I think that's still the Minority view but one that I continue to Look for indicators uh that that is Happening Yeah I would say I'm in general Agreement here I mean the the repricing Of the terminal rate has been going on And ongoing for for a long time and and You're right I mean even even as we make This video I think we saw the the Complete reap or we saw it earlier today When when Powell was speaking but I I Checked it right before we came on here And I I think it was at 75 odds or Something now the 50 basis point rate Hike so it has even gone up from the uh

From where I was earlier do you think That uh there's any well let me phrase It like this so so one of the things That we get when we get these sort of These business Cycles we get the once we Get to the point where we get that Disinflationary recession assuming that We do Um and we come out of it Is there any scenario where you can see Inflation not returning you know like in A sustained way like we saw in the 70s Like like we saw in the 40s like is There is there a scenario where we can Get back to a phase of economic Expansion Quicker that is sustained uh and not Where we're just going to be brought Back down by inflation time and time Again the reason why I asked that is Because you know if you look at the 70s Um You know we had we had the you know we Had the S P 500 just kind of put in Lower lows and higher highs for the Better part of 10 to 15 years and so it Leaves investors wondering you know how They're going to generate yield where Are they supposed to go so I I suppose It's a two-part question uh really like Do you see any scenario where we get Back to that sooner rather than later And then the second part of the question Is if if you don't see that uh where do

You look to sort of generate yield in This type of environment Sure so basically one way to get Inflation under control would be to Reduce fiscal deficits and have some Sort of massive productivity gain right You know they they figure out nuclear Fusion for example something like that Right basically a massive new source of Productivity Um and obviously it's an exaggeration But essentially that you know if you if You reduce the risk of War if you reduce Uh Mal investment if you reduce fiscal Deficits and you really go hard on Making sure that we have abundant cheap Energy from multiple different sources And the uh distribution to get all the All the places it needs to be that can At least do a lot of damage control for Inflation you still have that kind of Backdrop of just it's a very Top-heavy uh demographic and deficit Driven problem that seems really kind of Unfixable for the next decade uh but but There are things like that that could Mitigate I think the the magnitude the The other the darker answer to that Question is asking who we is because if You look at the 1970s to the 19 80s you Know how do we get inflation under Control part you know everybody looks at The high industry it's under volcker uh You know we went through a recession

Went through pain but there but if you Look at say Latin America for example Latin America had the 1980s debt crisis You basically Spike the dollar so strong And they had a lot of dollar denominated Debts and so they were just absolutely Crushed and Latin America had a lost Decade if you look at Global oil Consumption it basically flatlined Throughout the whole 1980s Um the longest stretch the world ever Had of of lower total energy usage was That period from like 1980 to like 1983. You're like three consecutive years of Reduced energy usage whereas the only Times you had like one year of reduced Energy usage was like 2009 and 2020 uh And it says how severe that that early 1980s economic Global contraction was And so basically in large part what the United States did and other countries is You kind of threw Latin America under The bus And that got inflation more under Control for us because it's like well You know you're going to use less oil so So there's more for us and you know we Resolve some of the geopolitical Conflicts in the Middle East and that's Kind of how you got this period of of um You know inflation under control and Then of course you had the rise of Asia Because you had you know a ton of Untapped Labor uh from the Soviet Union

From China you know closed China and as That opened up in the 80s 90s and Thereafter We basically shifted the the economic Center of gravity over to Asia and that Was that kind of qualifies as a big Productivity boom because you brought Tons and tons of new people uh into the Global Workforce Um and so the challenge is that it's Hard to repeat that uh I I think you Know around the margins we're repeating That now I mean basically when when Europe was aggressively bidding to get LNG to replace their lost Russian gas Who suffers I mean Pakistan suffered for Example they had trouble getting LNG to Keep their lights on for their Electricity because they're being outbid By Europe now basically the LNG Market Is kind of a zero-sum game I mean in Years you can get more capacity on and We're working on that especially at the United States but any given time there's A you know fixed amount of LNG and if Europe now has to radically go increase Their LNG I mean someone else is not Getting LNG and so sadly one of the one Of the answers they they you know when Pal is tightening he's not just Tightening for the the U.S market he's Basically trying to tighten all Emerging Markets developing countries to squeeze All their debts and have them consume

Less so that that's kind of the dark Answer to how you could see a more Disciplation outcome is if you have very Very poor economic growth in some of the Weakest parts of the world Um but it's not really my base case Although it is like a you know that's a That's a likely outcome for any given Like six or twelve month period while They're in that aggressive tightening Phase and then the question is okay you Do you you kind of lay the damage out What happens when you try to get the Next growth cycle I don't think they're Going to get like this like 10-year 1980 Style Long period of energy suppression I Think it's gonna be harder to do that This time so it's less of my base case As for where to hide out Um I I've generally been I think you Know key bills and other cash Equivalents are recently safe bets when You have like this period of volatility When you have a period of aggressive Tightening uh they're obviously not Great long term I mean they're probably Going to underperform inflation this Decade uh but they can outperform in a Given six to eight 18 month period Um I generally find certain value stocks You know energy pipelines energy Producers uh certain Health Care stocks Certain infrastructure type of of things

Certain Banks even I generally find that They're probably well positioned for Like a five-year period to kind of at Least tread water with inflation Um and and you know even if you have the S P 500 kind of going sideways or going Down and inflation in adjusted terms Some of those cheap yield heavy things Can actually do pretty well in that Environment generally generally during Periods Nation whether it's the 40s the 1970s or the 2000s you generally have Value stock outperformance it's Generally that's the type of thing That's usually doing pretty well and Then lastly you know things like gold And Bitcoin I think that when you get Past the current period of fed Tightening if you do get that kind of More runaway scenario where they because The inflation is more fiscal driven and More supply side driven rather than you Know something that the private sector Can really work on with with tightening Too much if you do get that kind of Realization of a second wave Despite higher rates I think that's Where you can get kind of a realignment A little bit towards that hard money Narrative whereas right now that's Obviously being suppressed because Whenever we see higher inflation prints Whenever you see higher labor prints Demarcus as well

Fed's going to tighten that's going to Strengthen the dollar that's kind of Cycle we're now but I think Beyond a Certain point that that shifts Yeah I mean I thanks for that answer uh That answer sort of brings three more Questions to mind Um uh one of them and I'll get to Bitcoin last but so so one thing is the US dollar uh has showed a little bit of Renewed strength here in in the short Term and actually looking back at the 1980s uh we actually saw a very similar Move right up to 114 115 then back down To around 100 and then and then we saw What happened after that and it as you Said right like it crushed uh some some You know some areas of the world do you Think that the dollar is is kind of Coming to its end of this rally that It's in I think the last time I checked It was between 105 and 106. do you think That the dollar has has reason to Continue going uh much higher from here I mean we know the fed's likely going to Continue tightening it seems like They've got it you know probably at Least another 7 500 basis points to go Um of course you know so do other so do Other essential Banks as well what What's your view on on the on the US Dollar here because it sounds like you Know while there is certain reason to Believe that the US could sort of um

Get into addition a disinflationary Environment at the expense of other Places you said it's not necessarily Your base case so I'm curious as to what Your outlook is on the US dollar Currency index the dxy over the next Like um uh six to 12 months or so Yeah so if you look at developed markets Basically the one challenge is that the The dollar Index is really only a Handful of currencies I mean like half Of it's the Euro and then there's the Yen and the pound to make up most of the Rest of it uh and a small tale of other Currencies and so really what you're Saying is is basically how is it going To compare to Europe Japan and Britain Um it you know I think absent of a Another energy crisis in Europe uh were Probably unlikely to to breach the the Prior dollar highs that we saw uh over The past year Um because at that point when you're Comparing the dollar to the euro and It's like well what would you rather own A dollar or uh the the currency of a Continent that's having an absolutely Acute energy crisis and De-industrializing in real time Um now that that is being abated and They now have the rest of the year to Get more LNG infrastructure online and Continue kind of Shoring up their energy Grid for the next winter

Um you know if they handle that pretty Well I think they can avoid the type of Damage to the euro compared to the Dollar that we saw in this prior Spike But if they if something happens and That doesn't go that way then you do Have another risk of a dollar breakout But I I generally think range Bound for For a while basically higher than the Recent lows uh but lower than the than The recent highs when you look more Broadly at Emerging Markets the reason I Don't think we're going to have a 1980s Style just Emerging Markets get crushed Scenario is because they they've now Been through like three cycles of this Right so this is they had the 1980s Strong dollar then they had the late 90 Strong dollars so in 1980s it was Latin America in the 90s it was uh mostly Southeast Asia currency crisis And in recent years it's been Argentina It's been turkey it's been Lebanon it's Been kind of kind of these Pockets Around the world no specific region Um but you see a lot of countries have Kind of prepared for this I mean a lot Of a lot of the ones for example that Went through big currency crisis in the 90s uh build up pretty big foreign Exchange reserves Um and you know Latin America has Generally less ideal Reserve situations Compared to Asia but there's still many

Cases not that not that bad right and so I do think that when you look at most of The relatively strong developing Countries the the larger ones most of Them are kind of prepared for this I Mean Brazil for example before the FED Started tightening they they front ran The FED they got super high interest Rates positive real rates pretty quickly Because they knew they're about to get Squeezed Um and so I I think that the as the U.S Economy becomes a smaller Global like Percentage of global GDP and as you see Some degree of Central Bank coordination To buy energy and other currencies uh to Diversify their reserves to shore up Their reserves I I think our ability to Squeeze the rest of the world is not as Strong as it was in the 80s and so I Don't think they're going to be able to Do that type of You know where they make someone else's Problem to save ourselves I I think That's probably that's not anywhere near My base case for the cycle but I do look For signs that I'm that I'm wrong on That and that they do manage to Basically you know push it on to the the Weakest parts of the world We recently saw China reopen and that Was honestly I mean a pretty popular Narrative behind some of the uh the Recent moves in Risk assets uh but my

Question on on China here is When when China closed down it was sort Of seen as like a Um you know leading to some inflationary Pressures right from like supply side Sort of point of view and then now that It's opening back up we've also sort of Seen well now that it's opening back up It's providing inflationary pressures uh But for other reasons what what are your Expectations here with with China in Terms of how it could affect because I Mean you know the Federal Reserve can do What the Federal Reserve wants to do but Does the does the China does China Reopening does it change the equation at All uh do you think it leads to more Persistent inflation here in the short Term or or how do you how do you view The reopening of China I think it leans towards the Inflationary side because if you examine Both sides of that argument that you Mentioned uh like whether or not China Are closing or opening is more Inflationary we do actually have some Decent data on that to the extent that You can trust data out of China uh and To some extent corroborate it with you Know the where it connects with the Foreign markets but basically if you Look at China over the past couple years Of these like rolling lockdowns their Consumption uh cratered right their

Their retail purchase is pretty much Cratered their domestic construction Pretty much cratered so their internal Use of of energy and just overall Consumption really stagnated uh in Certain points cratered on the other Hand their industrial production uh Actually stayed pretty strong I think Essentially they understood that you Know their industrial production is Their Powerhouse they need to retain Their current account Surplus as much as Possible and so even though you had Occasional like uh you know disruptions From there uh their industrial Production never really went down to the Degree that some of those people feared About you know China's going to shut Down we're not going to get on any of Our iPhones anymore it's like no they They pretty much kept making the iPhones They pretty much the parts of the Economy they kept online was all the Stuff going to the west And whereas now you see the resumption Of some of those domestic consumption Things uh which is pro-inflation it's Pro-commodity uh while you're you still You never really took Offline that Industrial side so I I think the Inflation side has a case to be bigger Than any sort of um inflationary forces That that did come from the you know the The shutdown uh and now it becomes a

Question of size right how much do how Quickly do they try to stimulate their Way out of this Versus how much they try to like come Out slowly Um Overall you have kind of peak Chinese Demographics uh you have a lot of Overbuilt construction there already so I don't think we're gonna go back to the 2010s China that just like constantly Grows and just like you know builds Ghost cities every like year Um I think we're on a slower Growth rate for China now where it's More about like on a per capita basis They're going to be consuming more over Time as they you know kind of catch up Somewhat with the say the European level Of consumption uh or at least close that Gap to some degree uh but I don't think You're gonna because of that lack of Population growth and because they've Already reached a pretty high level of Consumption I think it's going to be a Slower Pace going forward so I don't Think that's a huge inflationary Force But I I do strongly inclined towards the View that on net that reopening is is Another inflationary force to be aware Of Fair enough do you think that major Indices like you know the s p the NASDAQ The Dow Jones

Uh what's your general view on on these Over the next say let's say five years Because I mean over the next five years You could see that disinflationary Recession that you mentioned but you Could also see uh you know at least Temporary expansion again before another Inflation wave so do you do you think It's just going to play out at a similar Again we talked earlier about how there Are similarities more similarities Between you said the 40s uh than than Um than the 70s though there are some Reasons to think there's some Similarities to the 70s so do you think There's going to be similarities in Terms of like you know stock market Performance like the 70s where you just See a relatively flat flat returns in The market I do so another similarity to the 70s Even though I think the 40s are closer Is it in the 70s well actually in the Late 60s you had uh the market was very Growth oriented uh it was in like you Know Disney Xerox uh you know those Types of of companies they were they Were very overvalued Um and as as they approached the Inflationary 70s you had higher discount Rates uh that that pretty much reduced The valuations of those big growth Companies and even though their Fundamentals did fine I mean their

Earnings grew throughout the 70s they Got like a re-rating of their earnings Multiple and so the stocks went Basically nowhere for 10 15 years uh Even as their their fundamentals Continue to grow and you basically had To get out that period of success and You had a market rotation you basically What did well was you know energy energy Stocks uh value stocks gold things like That you had a the worst part was those Like growth oriented Um like a basic duration play like a Long duration asset either it the Treasury bonds or gross stocks are what Did poorly similarly when you and you Had the crashing of bubble and Then you had the next cycle which was The 2000s decade it was very commodity Value or into decade you know you had Oil do really well you Commodities do Really well you had a really real estate Bubble uh Banks again it was a bubble But they were doing really good uh Emerging markets were doing good uh Basically until that decade ended and What happened with the with the stock Market the S P 500 is they really only Got roughly back to Bubble highs Right so especially an Inflation-adjusted terms they were Negative Um and so you basically had another lost Decade

Um and then you know you didn't really Reliably after you had the crash of 2008 2009 you didn't actually get back above The prior you bubble High and The SMB 500 until something like 2015. Uh you know I forget the exact number And whether or not it's inflation Adjusted it depends on on those details But essentially those when you have that Kind of gross to Value rotation Um and that kind of disinflation to Inflation rotation it's usually quite Poor for what the prior leaders in the Market were and it doesn't mean that Their fundamentals collapse it just Means that you know their their Fundamentals chop along sideways to up And their valuations kind of stagnate to Take into account of the fact that you Know that the cost of capital is higher Uh their inputs either labor or Commodities are higher now so their Margins might not be as good and so I I Do generally think that we have five Plus years of not very good Inflation-adjusted market performance Um but that there could be some sectors Whether it's energy whether it's Infrastructure certain you know Health Care certain Bank type things that were Never really overvalued to begin with I think you could have pockets where They do well and if I'm right about Emerging markets at least the big ones

Not getting crushed Um I think you could have decent Performance in some of those markets Over the next five plus years uh but I Would be concerned about these big U.S You know large cap indices Yeah so I I think that's an interesting view so With with one of the things you Mentioned earlier was was um you know Bitcoin and gold I believe and and you Know Bitcoin is is something that is is Obviously going to be a uh something That I I think my audiences one is going To want to hear your opinion on so I Might as well go out and ask it and and Sort of shift here to to crypto a little Bit in general uh in 2018 we saw Bitcoin Find its bottom uh I believe when the FED paused I I believe it was actually Right around the FED pause when it Bottom then when the FED cut we saw Bitcoin you know I had a had another Scare and you know and Um in late 2019 early 2020 Um do you think so I mean it sounds like You think we could see some type of of Of that type of move again where Bitcoin Shows continued weakness until we at Least get to the end of this rate hiking Cycle followed by renewed strength for a While is that is that your general Expectation and if if that is your General expectation what do you think

That looks like for Bitcoin uh let's Just say you know over 2024 2025 uh Which could of course coincide with Another resumption of high inflation but I'm curious as to you know how do you Think that would look for Bitcoin would It would it likely lead to somewhat Tempered returns as well you know if Inflation were to come back Um or you know what's your general Expectation I'll leave it somewhat open Yes look if you look back a little Earlier then if you look back at that 2017 bull market Um that that bull market in Bitcoin and This and the broad space actually Coincided with with Fed rate hikes I Mean they were hiking throughout 2017 While you had that you know boom and That was in large part because the Fed Was hiking into strength you had a Rising purchasing manager's index Rising Liquidity measures falling dollar and They were hiking into this Um the real risk comes when they hike Into a decelerating economy so in in for Example they were still hiking in 2018 Um and especially by the second half of 2018 you had basically a lot of Indicators roll over start to decelerate Uh they were negative yet but they were Decelerating from their year-of-year um Change your idea PMI you know purchase Manage index roll over and the Fed was

Still hiking and that's when you had Kind of a bloodbath and Bitcoin And kind of like a lot of Assets in General you had you know in late 2018 You had growth stocks sell off you know They were down 30 in many cases the Gap Was down over 30 percent uh you know From its highs uh during that period and That essentially reversed when the when The FED paused they basically they kind Of changed their narrative around their Tightening they said they're not going To be an autopilot they're going to be More data dependent and you're able to See a resumption in in kind of you know A lot of those asset prices Um I think we're probably in a similar boat Now because right now in their hiking Cycle they've been hiking into a Decelerating economy right because They're viewing inflation as the primary Concern they think they think that Higher interest rates are like a key way To get that under control and so we we See a similar Dynamic to late 2018 That's kind of has been the story of all 2022 is hiking into that weakness Um and so I think as long as you have That Dynamic that is a challenging place For for you know Bitcoin and similar Assets uh that doesn't mean you have to Have new lows uh you know it's quite Possible that that we've seen the lows

Um but I also don't think it it means That you're going to get another Straight up bull market anytime soon Until you have a a shift either in Policy or perception of that policy so Like I said before right now whenever You see higher inflation or whatever you See um uh you know strong labor market The market is still fully assuming that The FED has its under control that if They get hawkish enough they can crush This they they can they can you know Cause this like structural period of Distinflation if they're just tight Enough Um and I think that's in the long run Not going to be rewarded because I think That the because the fit the inflation's Largely fiscal driven it's large outside Of the fed's control if anything they're They're interest rate hikes even though They can quash some private sector Inflation they can exacerbate public Sector inflation I think if if the market realizes that At some point if basically inflation Keeps breaking out and you know they're Already like say in a recession and We're still in inflation That's when I think you could get a Shift and people say well wait a second You know Um maybe more rate hikes you're not Going to get inflation under control and

Maybe want to be in in scarcer assets Right so I I think there are Periods where you can have pretty rough Shifts I mean another comparison is that During the 70s I mean they were Frequently hiking rates in the 70s and You know you had gold go from 35 an Ounce to like 800 an ounce I mean it had Like a you know an order of magnitude Increase throughout that hiking cycle uh Because the the market kept losing Confidence that they were going to get Inflation under control until eventually After a long period of time and really High prices they did Um and so I I think that's the pattern I Look for which is you know probably Probably kind of choppy lackluster Performance for a while but then in 2024 To 125 especially if you either get Another growth cycle or you get kind of A loss of you know faith in the fed That's what I think you you probably get You know pretty good performance of Things like gold and Bitcoin it's Interesting how for Bitcoin it has been Very cyclical over long periods of time Right 2014 2018 2022 2015 2019 2023 I Mean 2015 and 2019 we're also relatively Choppy years neither of them led to new Highs and only one of them only one of Them I think 2015 we put in a new low at The beginning of the year and then we Just sort of chopped around that low for

The remainder of the year and and so It'll be interesting to see if once Again you know 2024 we go back to QE That we have to having you could kind of See the narrative playing out again my My next question is is more so because You know when you think about Cryptocurrency I feel like there's sort Of two different sectors of it right you Like have Bitcoin in sort of one basket And then you kind of have everything Else right and sort of another one Um one of my questions I don't really Want to hold on hone in on any specific You know altcoin but one one thing I've Thought about and I'd like your like Your opinion on is do you think that A more aggressive fad so like a higher Interest rates just a more aggressive Fed because we have higher inflation do You think it's going to lead to Less speculation in sort of these like In the in the rest of the cryptocurrency Market that you know it's harder to Necessarily find exactly what that Utility is because it's just so Speculative do you think people are Going to have to be pickier with where They allocate funds for the next you Know cycle if you want to call it that For for cryptocurrency Um because you know as we've seen before Bitcoin runs and then you know every Everything else sort of hops on the

Bandwagon and kind of kind of runs with It Um and then we we get into these into These bear markets where you sort of see The devaluation of the altcoin market Not only on their USD pairs but also on Their on their Bitcoin pairs as well Um so what's your view on on sort of the Next cycle here in terms of in terms of Cryptocurrencies in general like do you Do you think that uh it's going to be a Harder harder to find yield and these More speculative plays uh than it has Been in the past do you see Bitcoin is Sort of the safe haven no matter what I'm kind of curious what your views are I think when you see kind of a liquidity Driven bull market you'll see a lot of The assets kind of correlate as you have In Prior Cycles uh but I do think that The on average that there's a higher Average cost to Capital and that uh you Know like the bubble that happened in 2021 is hard to reproduce because you Had super low interest rates you had Massive fiscal stimulus Um and I think that level of speculation Is hard to return to going forward that Might have been the high water mark for Speculation and maybe that comes back to Piping maybe we have like an even bigger Cycle but I think that that the sheer Scale of that speculation is hard to Match even though I do think we'll we'll

Still have forward Bubbles as long as This you know continues to be adopted Um but I do think that in a generally Energy constrained physical driven Inflation higher cost of capital World It does around the March introduce the Excess uh reduces the Peaks or the Durations of how long speculations can Exist Um yeah and basically the things that Survive and grind higher are the things That are offering people utility the the Things that have you know the strongest Use case uh that are are changing their Narrative that aren't you know going Through things like that so I I Currently kind of separate the space Into three groups there's Bitcoin There's stable coins and then there's Kind of everything else Um so I and it's almost like separating Money from you know new tech reveals Right so tokenizing the dollar making The dollar more accessible to people and And you know throughout developing Countries I think that's that's you know Basically a use case I think Bitcoin is A use case uh basically transacting with Lightning holding Bitcoin Um you know all these different things Like that I think that there's emerging Technologies that I think are going to Make it even more accessible Um going forward

Um as far as the broad crypto space you Know I think that the reason these two Camps are so different is that on one on Kind of the Bitcoin side of things you Have kind of the view that money itself Is broken they want to reinvent money And on the crypto side is more like they Want to reinvent the tech rails for how Money and trading moves around Um and it's not necessarily that either One is is the only thing that's going to Happen Um but I think that's why you have like Two very Divergent views Um and I the way that I kind of put it Into the bucket is I think I think the Money problem is bigger Um I think that the way what we Define Is money in the way that money moves Is a bigger problem to solve in the Decades ahead and I think that's why I Think the total adjustable Market of Bitcoin if it continues to exist and be Successful and avoid attacks and grind Grind along is interesting Um you know when you go out to other Tech rails I think it basically is a Mainly a question of tokenizing assets We've tokenized the dollar you know you Can you can imagine a case where you Know should a middle class person in Nigeria be able to easily Buy The S P 500 if they want to and it's you Know basically instead of all these

Silos that exist can you take existing Securities and make them purchasable by Anybody with a smartphone and use them As collateral and do things like that That's basically that I think that the Case for crypto and of course that's we Have diversion opinions like should you Build it on a side chain on bitcoin Should you have your own layer one I I For me that's a less interesting Market To play around in because I think it's I Think that's more like solving a half Trillion dollar problem or a trillion Dollar problem basically the tech reels For Hal trading and settlement and Things like that work uh it's certainly An interesting question to explore Whereas I think I think Kind of solving money basically making Money better is like an order magnitude Bigger Um kind of problem and opportunity set Do you think that the crypto markets Main headwinds right now are macro Related macro headwinds or do you think It's more like regulation headwinds Based on like you know Securities or These Securities are they not or do you Think it's just a combination of both I think it's both I mean I think the Macro headwinds are clear I mean Generally during falling PMI Environments fall in liquidity Environments the whole Space is terribly

All the all the excess gets rung out of It Um you know a lot of the leverage in This case was was blown out of it Um a lot of the hype uh was blown out of It Um but I do think the regulatory issues Are concern as well I mean you do have In some in some some degree of like an Operation choke point happening uh you Know uh basically banking access for Crypto there is also a lot of concerns Uh around what is defined as a security Uh you know I think another way of Looking at it is that a lot of the what People Define as opportune in space was Regulatory Arbitrage is basically saying We want to we want to do security type Things without going through the normal Security process you know without the Normal disclosures and things like that Um and that's that opportunity that's Reducing now because more jurisdictions Are clamping down on that and so if if The case for your crypto is register Arbitrage is probably not great whereas I think I think it's more like what is Actually solving a problem that is not Regulatory Arbitrage what is what is Fixing an underlying problem that people Have and that's where I think you get Into Bitcoin stable coins and then the Other subset is is just tokenizing Existing Securities

Um and basically making them more Accessible right one thing I wanted to Ask you about is is actually an asset Class that is often laughed at by by Crypto investors but I I think it's Important for us to always recognize That these things do often move Cyclically and one of those that I look At is is obvious you know precious Metals you look at the context of History we've seen some pretty massive Bull runs in in gold and silver in the Past and even talked about one earlier With gold I believe uh and one of the Reasons why I think precious metals get A bad bad rap for uh you know people Around our age is that at least in our Investing careers we haven't really seen A you know a true massive Bull Run in in Say gold or silver in the same way that You've seen in in say Bitcoin Um but these things are often cyclical Uh as well so my question I guess is is What's your view on on precious metals In general like you know whether it's Gold silver uranium uh whatever it might Be what's your general view on Unprecious Metals during and we know we Don't really know exactly how long this Inflationary period is going to last but However long it does last what's your View on on precious metals during that Time I think looking back from the end of the

Decade this will have been a good decade For Commodities including the precious Metals Um you know as far as so it was precious Metals were generally flat throughout The 2010s and like you said we haven't Really seen Um a bull market recently one way to Kind of look at that uh is to if you Look at Bitcoin for example we hit a High in 2017 and during this whole like FTX crash for example Bitcoin was was Sitting below the peak that it reached In late uh 2017 and so by by some Metrics you went nowhere for five years Uh which was like half as long as gold Went nowhere right so it's actually Pretty pretty remarkable how that how That can happen and it really comes down To choosing your starting points so if You look at gold since the year 2000 uh You know last I checked it was I haven't Checked it like a few months but it's Basically outperforming the S P 500 uh You know basically if you start from 2000 but of course if you start from 2011 it's done abysmally compared to the S P 500 and that's in large part because You had such a massive bull market in The 2000s which is it's not as big as The 70s but you went from like you went From like 300 gold to like two thousand Dollar gold in about a decade Um and you basically had a massive

Bubble and so then it trended sideways From that point and I I had the Basically the luck of actually Experiencing that bull market because When I was a kid I collected some gold And silver coins uh starting in the 90s When they were super cheap and I Remember you know it was like 2011 and There was like commercials for gold like Like uh you know uh how to like buy gold And they were installing like gold Vending machines and I I was lucky I Just kind of was like this is expected That I'm getting out so I actually sold My collection and so I actually at Firsthand experience of like seeing that Bull market in action so the fact that Gold's gone nowhere for Like A decade is In large part because of how insane the Prior full Market was and we kind of had To drain out all that excess we we are Seeing you know even though bitcoin's Obviously you know and so many other Cryptos are taking market share from Gold and silver among retail investors Because there's more there's more types Of things you can buy now that you can Self-custody Um on The Sovereign level none of these Things are big enough really to interest Them and so when you see you know Countries deciding where they're going To allocate their reserves they are Leading more into to gold which is a big

Enough market for them to to work in and So I do think that during some of these Problems that we're gonna you know if if The things we discussed are Directionally true and we have a an Above average inflation decade and You know some more multi-polar world With more geopolitical challenges in it I I do think at The Sovereign level gold Is interesting and I think among certain Percentage of the retail public it's Also interesting and so I do think it's Probably going to have a pretty good Decade but my Approach is not to focus Too much on any one commodity and I I Generally have a view that most or all Commodities are going to do quite well For the decade and that would have some Degree of diversification into those Commodities It's certainly a sobering view to sort Of think about you know like it's easy To cherry pick time frames on various Asset classes we can we certainly do it For uh for for precious metals why not Do it for crypto right and and Bitcoin Is a great example of how you can Sometimes just sort of get stuck in a Position where you you realize that yeah Over the last five years the price Hasn't really gone uh anywhere in a Sustained way Um I I don't want to take too much more Of your time because I know you you got

To get going but I just wanted to wrap Up and ask you if you had any any sort Of final thoughts for the viewers uh What might general advice would you Provide to people not Financial advice Of course but just general advice for People navigating these times because of Course they are they are difficult I Think uh for a lot of for a lot of Investors Um seeing the you know seeing the FED Act in this manner in a way that a lot Of investors haven't really seen uh just Because inflation has not been a thing That has had to been that's that's been Sort of a problem for over 40 years so What would be your general advice on on Navigating financial markets for people Over the next several years My suggestion would be to become Familiar with the 1940s macro Environment which I know is like oddly Specific advice but basically I've Generally found that to be like a cheat Code for being less surprised in the 2020s Um and I you know I keep saying things Like such and such is unprecedented or Such and such is like never happened It's like almost every time I see that I'm like well this happened in the 1940s Um and it's basically the last time that The U.S well the developed world had Very high debt to GDP uh as last time we

Had major fiscal driven inflation Um and the policies ended up being quite Different than the 70s uh the Resolutions have ended up being quite Different than the 70s and while there's Obviously not a perfect analog I mean Technology is very different back then a Lot of things were different back then Um but I I generally find using that as A starting point and being familiar with It is basically like a just a cheat code To reduce your level of surprise in this Kind of environment and then you started Asking instead of okay it's you know That's your Baseline and you say what's Different now what what is not going to Be like the 40s and I think that's Actually in some ways an easier question To answer Um than kind of just like you know Looking at the 70s or kind of looking at All these different times and trying to Figure out what's going to happen I Think the study in that period is is Very useful for investors to you know uh Try to at least at least You know at least help things be a Little clearer as we we kind of navigate This challenging decade Thanks for the advice and uh thanks for Coming on the show uh Lynn pleasure to Have you here reminder if you guys are Uh watching watching here go check out Her website Lynn again that'll

Be in the description below and in the Pin comment and then also uh follow her On Twitter she puts out a lot of great Interesting things over on Twitter as Well so make sure you guys check that Out thank you guys for tuning in make Sure you subscribe and I'll see you guys Next time bye


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