The Pomp Podcast - #616 Inflation, Bitcoin, and Monetary Policy with Lyn Alden

Episode Date: July 27, 2021

Lyn Alden is the founder of Lyn Alden Investment Strategy, which provides market research to hundreds of thousands of individual investors and financial professionals. Lyn’s focus is on value investing with a global macro overlay, including currency differentials, shifts in monetary policy, and equity valuations. In this conversation, we discuss monetary policy, fiscal policy, inflation, portfolio allocations, macroeconomics, bitcoin, gold, Federal Reserve actions, and MMT.  ======================= Revolut is a finance app in the US and UK, that say they're the simplest way to access crypto. Sign up today at Revolut.com/pomp and make 3 card transactions to get $15, which you can exchange for any tokens Revolut supports. As usual, when you move your money from fiat to crypto your capital is at risk. See T&C's for details. Revolut is a financial technology company. Banking services provided by Metropolitan Commercial Bank, Member FDIC. Cryptocurrency services provided directly by Paxos Trust Company, LLC. ======================= Whether you're an experienced crypto trader or just starting out, Kraken has the tools to help you achieve financial freedom. With the new Kraken app, you can easily buy and sell over 60 of the most popular cryptocurrencies in just a few minutes. Featuring a sleek new design and an easy-to-use interface, you can now take your crypto portfolio with you on the go, 24/7. Visit kraken.com/pomp to learn more or search "kraken" in the app store. ======================= With over $1B AUM, Amber Group is a world-leading crypto finance platform helping institutions and individual investors to buy and sell cryptocurrency, earn yield, manage risk and access liquidity. Amber App new users only - earn 16% APR on BTC, ETH and USD stablecoins! Click on the link to sign up now: https://www.ambergroup.io/?utm_source=10508 =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Lynn Alden is the founder of Lynn Alden Investment Strategy, which provides market research to hundreds of thousands of individual investors and financial professionals. Lynn's focus is on value investing with a global macro overlay, including currency differentials, shifts in monetary policy, and equity valuations. In this conversation, we discuss monetary policy, fiscal policy, inflation, portfolio allocations, macroeconomics, Bitcoin, gold, federal reserve actions, and MMT. I really enjoyed this conversation with Lynn, and I hope you do as well.

Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Revolut. Let's go back to the basics for a second. I've partnered with Revolut, a finance app in the US and the UK that say they're the simplest way to access crypto. They're putting their money where their mouth is too. You can sign up, make three card transactions, and they'll give you $15, which you can exchange for any of the tokens Revolut supports. As usual, when you move your money from a fiat to crypto, your capital is at risk. So make sure you pay attention to what you're doing. These guys have made it easier to get some skin in the game. And if they say that it's easier, that's your job now is to let me know, do you agree or not?

Go check it out at Revolut.com. Again, Revolut.com. You'll get that $15 reward and put them to the test. Revolut.com. Next up is Kraken. For the last 10 years, Kraken has been one of the best platforms for trading crypto online. Now with the new Kraken app, it's easier than ever to buy and sell Bitcoin and over 60 of the most popular cryptocurrencies on the go 24-7. You can simply download the Kraken app, connect your bank account and start investing for as little as $10. Just a minute is all it takes to get started. With the new Kraken app, you'll have your portfolio in your pocket wherever you go. Monitor your investments, track winners and losers, keep tabs on your favorite projects, or view the most traded cryptocurrencies of the day. It's got all

the features you need with none of the complexity. It's a simpler way to invest in crypto. Visit kraken.com slash PompNow to learn more or search Kraken in the App Store. Again, Kraken, one of the OGs of the crypto world. They've been supporting Bitcoin developers for years, and I'm a big fan. of their CEO, Jesse. So visit Kraken.com slash Pomp today to learn more or search Kraken in the app store. Last but not least is Amber Group. With low yields and looming risk of inflation around the world, it's no question crypto is the alternative. With Amber app, you can easily earn high yields on your crypto assets. They're an all-in-one crypto finance app designed to help you earn, swap, trade, and invest in crypto. You can earn interest instantly simply by depositing

assets to your wallet and you receive daily interest payouts. Again, you also have customized fixed term investments between one and 360 days to enjoy higher yields as well. Whether you're a long-term holder or trading on market moves on Amber app, you can earn interest on your terms and do more with your crypto. Go check them out by clicking on the link in the description or go to ambergroup.io today. Again, ambergroup.io or go click on the link in the description. All right, let's get into this episode with Lynn. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat

any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Lynn, thank you so much for doing this. Hey, thanks for having me. Absolutely. Let's maybe just start with, for those that don't know you, maybe give kind of a quick 30 seconds on just what you spend all day doing, and then kind of your perspective with the research service that you've got, which I think is absolutely fantastic

and highly suggest people go subscribe to. But how do you kind of think of your day-to-day role and what you spend most of your time focused on? Mostly research. So my background is initially in engineering, and I went into engineering management, kind of blended into finance. And then now I work full-time doing investment research as an independent analyst. And so most of my time is research. And so I focus on individual companies as well as basically major sectors and overall what's happening in the macro space. So inflation, policy, that sort of thing. Got it. And so when you look where we are today, it feels like the Fed is the most important person in the market and kind of their monetary policy

decisions, some of the fiscal policy decisions that are being made as well. How do you kind of create a framework to evaluate what's happening and what the impact of that will be in the future? Is there a specific framework that you use? The closest thing I have to a framework is the concept of the long-term debt cycle, popularized by Ray Dalio. And so that's the idea that we go through these five to 10-year business cycles with rising debt, and you have a recession, and then you go into the next cycle. But if you string a bunch of those together, what we've actually seen is that each cycle doesn't reset to the previous one in terms of debt or interest rates. And so what do you get is higher and higher debt as a percentage of GEP

over time, and you get lower and lower interest rates. And that happens for decades until interest rates run into roughly zero, or in some cases, mildly negative. And so they run out of that policy where we have to pull in other types of tools. And so the last time we were in this type of environment in most developed countries was actually back in the 1940s. And so we have a lot of analogs to that time, obviously, with different technology and things like that. So that's actually my main probably model framework. But then, you know, more, more tactically, I'm just kind of looking at what are the bottlenecks in the system that would force, say, policy makers to do something. And so because we're at the end of a long-term debt cycle, we're in a very macro heavy

environment. And so some of the things that people expected over the past, say, 30, 40 years are behaving very differently in this environment. That's how I approach it. Got it. And I think that you and I see very eye to eye in terms of a lot of what's going on. But for those that are watching at home, just how do you think of your portfolio today? So like, is there an allocation that you kind of are targeting? Or if somebody was said to you, like, where are you invested at the moment, just so they have that perspective of kind of how you're tactically actually playing in the market? I have kind of like an all weather approach, right? I remain somewhat diversified. However, I tilt towards areas that I think are, you know, likely to have a much stronger performance

over say, a five year period. And so that includes for me, I'm a pretty equity focused. So I include a lot of individual equities. And then I have some other hedges or asymmetric bets on the side. And of course, ever since early 2020, I've been pretty big into Bitcoin as well. And so for me, it's, you know, my portfolio is mostly underweight, you know, the bond side, for example, and pretty heavy into equities, digital assets, some commodity exposures. And that's where a lot of my focus is over the past few years. One of the things that I keep kind of coming back to is this idea that the economy seems to still be recovering from COVID and the economic downturn that occurred in response to that. And there's been all this fiscal monetary stimulus. And a

couple of weeks ago, we saw the NASDAQ and S&P hit an all-time high at the time, the same day that the Fed's balance sheet hit an all time high. We today saw that the Nasdaq hit another all time high. And it almost feels like it's like a weekly occurrence now that asset prices just continue to go higher and higher. Yes, there's some drawbacks here and there. But for the most part, we're just trending in one direction. How much of this is a game where whether it's the Fed or politicians on the fiscal side, like they just can't stop. And so we're just going to continue to see this happen over the coming months versus you think that actually the music will stop at some point and we'll see some different activities from both of those groups.

So a lot of it is the currency going down just as much as the assets going up. But we see, for example, there are certain balances in the system. And so in the United States case, we run very large trade deficits with the rest of the world. And then they take those dollars, and they used to reinvest those back into treasuries. And to a greater extent, they've been investing elsewhere, but they actually are cycling a lot of that back into U.S. equities now. And so basically Switzerland, for example, will buy Apple stock in their Swiss National Bank. And so that's kind of a policy we've been seeing both from public pools of capital and private pools of capital overseas. And so this feedback loop is pretty persistent.

But every couple of decades, that whole kind of feedback loop can unwind. And so I think it's getting pretty heated at this current time. And I think some of the things to watch for potential reversal would be, say, changes in regulation that maybe go after corporate taxes or that basically – basically we've seen over the past few decades is arbitrage where productivity has gone up a lot, but wages have not. And that's because of automation technology as well as offshoring. And so that gap between productivity and flat wages has mainly gone to the corporations. And so we've had roughly four decades of that. It really accelerated in the 90s. And so that loop is starting to get kind of pushed back from populism and some policymakers. And so I still think that has a little bit more to go. But I do think that that eventually is going to probably – that pendulum is probably going to start moving back in the other direction where policymakers, I guess, favor corporations a little bit less than they have over the past few decades. Yeah. One of the things that seems really interesting to me is if you talk to maybe like a Jeremy Grantham, I was reading something this morning, a couple of days ago, he was talking

about, you know, if every metric from the equity side were overvalued, there should be a market correction, kind of this time isn't different. But when you look at things like the quantitative easing or the Fed's actions, it seems like it is different, right? And so how do you kind of balance those two things between what I would consider more fundamental analysis in whether it's equities, commodities, etc. And people who have been those value investors or around for a long time, they're like, look, this is the same thing as the 2000 crash or the 2008 crash. It's just a matter of time versus the school of thought of like, no, the response is different. They're willing to do things. It's almost like they've banned market corrections

and outlawed bear markets. Could both be right? Is one side going to be kind of overwhelmed by the other? Just how do you think about balancing those two perspectives? Yeah, I think both sides have merits. And it's been part of my research process for years now. I mean, that's the challenging thing about valuations. People could say back in 1997 that valuations were heated. And then for three years, it just went higher and higher and higher to the dot-com bubble before correcting. And by the time it corrected, it didn't really get much lower than the initial points where people started pointing out how heated it was. And so things were heated in terms of valuation a few years ago, and they've only got more heated since. And so actually it's – part of my research has basically been saying, hey, a lot of things are overvalued. Here's why I'm still in equities. And so far that's been the right decision. And partially it comes down to comparisons.

And so in the dot-com bubble, for example, treasury yields were like 6%. And so the equity risk premium for owning equities towards the end of that cycle was disastrously bad for equities. It was a clear, much better risk reward to go into a treasury yielding 6% compared to how low dividend yields were in the SBRF 100, how high the valuations were, how low the earnings yield, you could call it, sickly adjusted earnings yield, all sorts of metrics. By every metric, it was equities were kind of silly. The challenging thing about this cycle is that by most metrics, equities are very overvalued. But at the same time, treasury yields are super low. And so when you're estimating the forward return of stocks versus bonds over, say, a 10-year period, that's actually less clear than it was 20 years ago in that bubble. And so that's one of the challenges that investors have.

That's why some people call it the everything bubble because in the dot-com bubble, specifically a stock bubble, real estate was not silly priced. Bonds were not silly priced. In this environment, stocks, bonds, certain parts of real estate, kind of across the board, there's pretty high valuations. And generally, the areas where there's not bubbles, in my opinion, are, say, certain commodities like energy sector. I mean, that's been in a multi-year bear market. Like literally, energy stocks are in more than a decade-long bear market. I think the healthcare sector is not really in a bubble. Basically, there are pockets of the market that are reasonably valued, but the overall index as a whole is quite valued.

And so it just comes down to weighing that risk versus the risk of owning currency that's getting devalued because one thing that makes this cycle different, again, is that this is kind of towards the end of a long-term debt cycle. And so we have to go back to the 40s to really find a fiscal and monetary environment that looks like this. And so basically, usually if you get inflationary pressures, the Fed raises rates and does other activities to try to contain that. But basically what made the 40s different was that you had massive inflationary pressures, but because debt was so high and those U.S. fiscal deficits needed to be financed for an external catalyst, obviously the war, they just held interest rates low anyway and just let cash and bonds basically burn away. And so I think the 2020s are kind of shaping up to be that sort of environment, and we're already seeing it now where inflation is 5% at the current time, while treasury yields are, last I checked, like under 1.3%. And so that also applies to cash in the bank. That applies to T-bills are even lower. And so I think this is going to be an environment for the next, more often than not for this

decade, that yields for cash and bonds are going to be below the inflation rate. And so you have to kind of pick other areas and just try to avoid things that are obviously bubbles, that are euphoric, that are overvalued, and focus on companies or assets that you feel like you have an edge in and that you think will be higher five to 10 years from now. Yeah. You mentioned inflation. This is something we focus a ton on on the show in terms of CPIs at 5.4 percent in June, cores at 4.5 percent.

And it almost feels like everything we're hearing from executives, especially in like the food sector, is just, hey, our inputs are going up. We're increasing prices. We're not going to stop. We're going to keep doing that. Customers seem to be responsive to that. It's almost like they're getting like a positive feedback loop and it's going to encourage them to do it more. At the same time, we're hearing from politicians, you know, either one is this transitory. is going to go down. Stop worrying about it. It's not that big of a deal. Or two, oh, yes, it's higher than we expected, but we're just going to spend more, whether it's infrastructure or otherwise, to kind of get out of it. Maybe without thinking about what to do as an investor, just your evaluation of inflation today, who's right? Are both people kind of sort of right in

each group? How do you feel about where we are today? Do we go up from here? Does it kind of go sideways? And is there a difference between the rate of change versus the actual aggregate change of prices, and kind of the belief that that'll stay constant in the future. Yeah, you really nailed it at the end there, I think. There's a difference between the rate of change and the absolute price level, and that's what trips people up about transitory. So generally, among the macro analysts, I've been in the inflationary camp for the past few years, and so we're seeing this play out. But I think the way to think about it is to make sure you understand the difference between rate of change inflation and absolute inflation. So rate of

change inflation would be prices are, say, 5% higher than a year ago. Now, if next year prices are only 4% or 3% higher than now, that's less inflation rate of change terms. But it's not like those prices went back down. There was no deflation that took those prices away. So you can have niche areas that, say, go back down, like lumber was a very specific bottleneck. Whereas once Chipotle raises prices and wages, we're never going to see the old prices and wages again. That's a new level that we've reached in absolute terms. And so, again, the analogy I use is the 40s because everyone thinks of inflationary 70s. But in the 40s, which, again, was the last time we saw this sort of fiscal monetary environment, similar kind of external catalyst that justified a lot of the

fiscal spending that we saw. Now, of course, there's the pandemic. There's all sorts of other things that they can use as cover. And so what we're seeing essentially is in the 40s, you had high inflation. It actually literally got 19% year over year at one point. Then it would cool off and go back down to zero. But there was no period of deflation. It's not like those prices went down. They just stopped going up. They leveled off. And then they'd have another big spike to like 12%. Then they would level off. Then they would spike again by like 8% level off. And so you had these stepwise increases in prices. And so my overall model for the 2020s is kind of like that, where I don't think we're just going to have this big, giant runaway inflation. But I

think we're going to have these periods where prices go up pretty rapidly and then maybe cool off for a time, but we don't deflate back down to where we were before. And so I think basically, by the end of the decade, people holding cash and bonds will have been able to buy fewer goods and services with those things than they could before. And of course, there'll be some disinflation areas due to technology, software, music, maybe clothes, attire, but things you actually want, as Michael Saylor puts it. Key real estate, key companies, gold or Bitcoin, things that are actually scarce, that aren't being just made far more abundant due to technology. Those are the things that your bonds and cash are likely to buy a lot fewer of those things five, 10 years from

now. Yeah. The thing to me that is absolutely scary, and Stanley Druckenmiller had a pretty, I don't know, week where he went pretty hard at this across a couple of different venues. where he basically said, look, the devaluation of the dollar, the Federal Reserve's actions over the last decade or so coming out of the 2008 crisis has led to a massive increase in wealth inequality. And it seems like you're in a similar camp where you're saying, look, those that are just holding cash, you're going to lose all that purchasing power. The people who actually hold what ended up being kind of resilient value accretive assets, those are the people who are going to get richer. And so is it fair to kind of say that that wealth

and quality gap based on where we're going today, given the information we have, that's only going to get wider and wider in the future? It depends on the types of inflation we see. And so over the past decade, until this last year where we're actually getting some real CPI inflation, the past decade is mostly characterized by asset price inflation and not really CPI inflation. So that was kind of a somewhat disinflationary tech-heavy decade where if you were owning key properties or key tech companies or just the S&P 500 as a whole, you got much further ahead than someone who is not invested in assets. And so if we start to see that shift towards more commodity inflation, and we start to see that shift towards wages and

reshoring and those sorts of things trickling through the system, I do think the 2020s could be a different type of decade where wealth concentration stays flat or maybe even goes down a little bit, because it's a different type of inflation than what we saw last decade. And so it's one of those things where cash and bondholders are getting inflated away. But at the same time, a lot of people have debts. And debts are the other side of that equation. So if someone has, say, assets that are, say, a house, and you have a 30-year mortgage, if we do have a somewhat inflationary decade, that should, say, be good for that kind of

conservatively leveraged homeowner. And so I do think you could have that type of environment. So it really kind of comes down to what types of inflation we get. Is it wage and kind of commodity inflation, or is it more that same sort of asset price inflation? When you think about a portfolio, inflation hedge ends up being a very popular kind of term that people are thinking about or actually acting on. I believe that you own Bitcoin and gold. Correct me if I'm wrong there. And then how do you think about sizing inflation hedge-type assets in a portfolio?

Are there other assets that you're looking at from an inflation hedge perspective? And then also maybe any comments in terms of it seems like the stock market has become an inflation hedge to some degree, and people are kind of piling in there as well. So kind of how do you just think about what to do once you understand the inflation situation we're in? Yeah, so the major inflation hedges are – gold is kind of a weird one because it can do well in inflation or disinflation. what gold primarily is, is a hedge against negative real yields. And so that can actually happen in disinflationary or inflationary environments, where something like copper, oil, those types of industrial commodities are more inflation hedges. And so even if real rates are positive, if inflation's high, those things are likely doing well, in part because they're

often what's driving the inflation. And Bitcoin, its own beast, I mean, obviously, the past 10 years, the last decade, was most inflationary for asset prices, not, say, the commodity index. And Bitcoin obviously was tremendously successful because I've described it as kind of combining gold with the tech stock. So you have that digital scarcity, gold 2.0 narrative, combined with the fact that, say, unlike gold, which is going to be the same 10 years from now in terms of what it is, the Bitcoin network is better now than it was five years ago. And unless there's some sort of catastrophic tail risk, it'll most likely be better five years from now. So there'll be more activity on the Lightning Network. Basically, there's developers every single day working on

making Bitcoin better. Kind of like if you own, say, a tech stock, let's say Roku, for example, there's people working every day to build that network out, right? And so I kind of view it like that. So again, Bitcoin is not a pure inflation hedge. It's more of a, it's a gold 2.0. So a hedge against fiat debasement, while also a growth stock at its own rate. So it's actually taking market share. So I think generally, if you're going to hedge against inflation, you want to have some degree of commodity exposure, commodity companies. And then how you size that partially depends on what your conviction level is for inflation. And so my overall approach is to have some energy companies, some gold miners. I did have copper

miners, but I trimmed them out when they kind of went parabolic there. And then I might add back to them. And so I have kind of that barbell approach where I have some long-term growth stocks that are, I think, basically disruptors. They have this long-term compounding effect. And then on the other side of the spectrum, that's when I have that more commodity exposure or gold and then things like that. And then Bitcoin is kind of in the middle where it's, it's, it's, it's both sides of the camp, essentially. When you think about, um, kind of the policies that are being put in place, my favorite question to ask folks, and then I'll let Joe and John ask a couple of questions

is what would you do if you had kind of, uh, carte blanche control and, and, uh, could use fiscal or monetary tools? Are there specific things that, uh, you think that you would do that maybe is, aren't being done or aren't being talked about? I would cut, um, payroll taxes. And so a big trend we've seen over the past decades is that we've cut corporate taxes, and so that's been good for one thing, but a lot of that goes to the asset owners. Whereas we've actually – if you factor in both payroll taxes and just general healthcare costs, it's really expensive to hire someone, and those workers get a big chunk of their money out of their paycheck. And so one of the best ways to address the wealth concentration we've seen is to tilt things a little bit more in the favor of people that are working, basically reward labor more so than other categories. And of course that can take – basically where someone is on the political spectrum, if they're more left-leaning, then they can say, OK, we're going to do this program and this program, and some of those I think have value. On the other hand, if you're more right-leaning but you're still concerned about wealth concentration, you can say, well, let's have tax cuts that target the actual – say the bottom 80 percent of that income spectrum.

And so, for example, the corporate tax cuts and the broad tax cuts that happened a few years ago, a lot of those benefits, even though they were broad-based, they still went mostly to the top end. Whereas I think if you had one that kind of focused on that payroll side taxing, how much you tax labor, I would like to see that go down. if you want to have basically a more vibrant domestic economy and to make the United States a more attractive place to build things and to hire people. Lynn, I don't think I've seen this show before, but two things we spend a lot of time talking about are Bitcoin. And my brother Joe bought a bunch of Roku stock

when they went public and did very well. So he reminds us all the time that Roku is a pretty good one. Joe, what questions you got? I was very happy to hear you say that, Lynn. Thank you. I give them a hard time often about it. Thanks for doing this, Lynn. I really appreciate it. My question, I guess, is twofold. Part of this show, as we were just mentioning, is about the education of financial markets for people

that have either just started investing or figuring out their journey along investing in their own personal portfolio. I guess the first part would be, when you started thinking about that on your own pace, how would you recommend people go about learning? There's books they can read and podcasts and new avenues, but you personally, how did you approach that? And then second off, how should younger people that maybe just got started investing recently be thinking about kind of what we've seen over the last 12 to 24 months kind of overall, right? We saw a bunch of – as you said, we haven't seen kind of the fiscal and monetary stimulus that we've seen in decades, kind of the recession due to COVID and all this stuff. How should they be thinking about that on the long-term impact of their personal portfolio? Yeah, so I guess to sort through those, how I learned was initially it was from the internet, right?

So the fact that we have, you know, access to democratization of information, so I can go and basically find, you can have like, you know, basically an economist writing a blog, you can have an investor writing a blog. And so, you know, a lot of my initial learning was in the early 2000s when blogs were a big deal. Now it's shifted to some extent towards social media and these other platforms, but essentially finding people that, you know, that they have a very detailed process, right? So they're not just promoting something, they actually are going through step by step, here's

why i'm doing this here's my approach and that could be on video form that could be text form all sorts of things like that and it basically learned from them and also then then to go out and say you know i want to learn the other side of that i want to go and say okay where where could that be wrong what is the opposite view because you can't invest in something until you can articulate the the bearish case against it or you can't short something until you articulate the bullish case for it and so i would do that approach i think basically there's a lot of information online, I'm kind of numbers oriented. And so, you know, after I did a lot of that kind of foundational work, I would then go into, you know, when it comes to say the long-term death

cycle, you know, say after I discovered that years ago from Ray Dalio's research, I then took that and said, well, let me kind of like if you see a scientific study, it's not really that relevant until someone repeats it or changes it and just kind of test it to see if it's still valid. And And so I kind of said, okay, let me go actually to the data and reconstruct all of that and see and kind of look at it from other angles and things like that. And so kind of going through those long-term, century-long pieces of data and seeing how that played out, seeing the history of what policymakers were doing back then and why, I found that very instructive for me. And so I think people have different areas of learning. They could be more visual. They could be more audio.

So they could be more numbers-based. And so they have to find what works for them and just make sure they're following competent people and then also always asking, what is the alternative view? I want to make sure I can articulate both sides. As far as portfolio positioning, I think one thing that I think investors do is they tend to go all in on something, which obviously can work really, really well if you're right. But I think that most investors should have at least some degree of diversification. It doesn't mean you want to have diversification where you just own everything. But I think you want to have a couple different bets out so that if you're disastrously wrong on one, the other five, say, work out really well. But then from there, basically invest primarily in what you know and what you think you have a circle of competence in rather than trying to invest in everything just because someone said something.

So it's basically if someone is tech savvy, they can get more in the tech space. There are commodity experts that can make a lot of money in the commodity space. And so it really comes down to – same thing with real estate. Someone can get really good at building up different rental properties and have their own kind of real estate empire. And so whatever kind of catches their interest and then they can build a lot in, if they lean into that, then they have an edge that is hard to replicate in Wall Street. Especially because the biggest advantage that a retail investor has is that you're not marking your portfolio to market every month or every quarter. right there's no one saying if you underperform this quarter you're fired and so you you have the advantage of saying what is what i think is going to be higher five years from now and then

invest like that john what do you got yeah so lynn thanks for doing this um so you talked about being very diversified in equities commodities bitcoin all that um i'm curious what you think about kind of how people have been saying a crash is coming in the economy right so history is no indication of the future. We talked about the dot-com bubble and everything like that. I'm curious what you think about the next three to five years and how the US economy looks. So I do think that it's partially going to depend on what happened with fiscal policy. And so we've talked about before how powerful the Fed has been, but I actually think one of the more powerful forces we've seen over the past year and a half was fiscal policy, right? Because

the Fed can lend and can do asset purchase and stuff like that, but they can't just send helicopter money to people in a way that the fiscal authorities can. And so a lot of those kind of big moves you saw are actually due to the fiscal side of things, which, of course, the Fed was involved with because they monetized the bond issuance that paid for that. But it still had to go through that fiscal decision-making filter. And so that partially can affect how inflationary or disinflationary, whether the economy kind of runs hot or if it runs cooler. And so that's, i think one of the biggest things to watch over the next uh few years um as far as a crash is concerned i mean it's one of those things people are always saying that and then you know occasionally

they can be right and then you have a big crash uh and so my overall approach is to make sure i know what i own right so so you know it's not just like i own say a squiggly line that's on a chart right so you know i have to know if it's going down is it something i want to lean into and buy more of it or it's something I actually, I do think the thesis has changed and need to sell it now. So one thing I do is even though I don't like bonds and cash, I retain a non-zero position in bonds and cash. And I dial that around a little bit. So if things get really heated, I can take some chips off the table and say, let's say, for example, I bought copper miners and then they tripled. And I can say, you know what, I'm going to sell half my position or maybe even get out of

that position, put in some cash or bonds for now, and then maybe reload if we get a pullback. And so I don't try to time the market too much, but I do tilt it around a little bit based on what's cheap, what's euphoric, and so to have somewhat of a defense against a major, major drawdown. So my overall approach is that I do think we will see consolidations and corrections and maybe even a crash in the next few years. And then it kind of comes down to what is the fiscal policy response going to be to that? Are they going to kind of let that kind of ripple through the system? Or are we going to see a repeat of what we saw back in, say, March of 2020, where they just threw a fiscal bazooka at it? And so I think those are the big trends to watch.

Lin, do you feel like modern monetary theory, MMT, helicopter money, whatever you want to call it, it's inevitable? Whether it's a one-year, three-year exercise or a 20-year exercise, is this more of a societal thing where eventually you go from kind of the upstart nation to eventually a nation that can't get away with not taking care of their people. And so handing out the money ends up being kind of the inevitability, regardless of if it was the United States or elsewhere. Eric, how do you think about that view of the world and the likelihood we'll see it here in the United States at some point?

I don't like to call anything inevitable, but I do think it's clear that we're heading in that general direction. And we got a taste of this over the past 18 months. Large, large fiscal deficits that are monetized by the central bank while the central bank keeps interest rates below the prevailing inflation rate is essentially MMT. And so, you know, we had again that we had kind of we didn't call it back then, but the 40s were kind of an MMT heavy environment. And so generally, you know, MMT kind of comes out towards the end of these long term debt cycles where you end up having a very different policy environment

than most other decades. And then so I do think that that seems to be gaining favor. And if anything, I mean basically it's not really even a right versus left issue. It's more of a populist versus establishment issue at this point. And so for example, one of the reasons I think why President Trump was popular is that he kind of – he was a more populist-oriented politician. And so he was willing to spend more in certain areas, willing to do unfunded tax cuts. We're seeing the same thing out of the left. And so basically I think it's one of those things where there's no – there's not that strong of a core of kind of that older school fiscal conservative approach on either side. You still have kind of remnants of that in both kind of the, say, establishment Democrats or establishment Republicans. But for the most part, we have this rising kind of a populist approach that favors these larger fiscal deficits that at this point have to be in large part monetized by the Fed if they're going to do them. And so I do think that overall, you know, we are tilted that MMT type of direction.

Yeah, I tend to agree. I want to finish up with Bitcoin specifically. I know that you were kind of cautiously optimistic and then did a bunch of work on it. And now I would put you in the bucket of, you know, really kind of seeing the value of it, being able to describe it in incredible detail. You talked earlier about the Lightning Network, etc. What are your thoughts today? How do you look at that market and kind of what you expect maybe through the rest of this year and over the next couple of years? And anything specific around Bitcoin that maybe people don't know from your thoughts? Yeah. So, I mean, I started covering it publicly back in 2017. And it was that euphoric price run up. I passed on it. It crashed. It consolidated. But basically, some of my initial concerns were addressed. So we saw the resolution of the hard forks. We saw the solidification of certain network effects, especially around Bitcoin. And so in early 2020, I was like, OK, now I'm in.

I'm pretty bullish on this asset now. It's basically if you have certain concerns, instead of it being permanently bullish or bearish on an asset, you can say, here's X, Y, Z, why I'm not invested. And then if later X, Y, and Z get addressed, you say, well, OK, well, they were addressed and now I'm bullish now. So I have been quite bullish now since early 2020. I continue to be so, at least for multi- or long-term. And mainly what I do is I analyze it from a network effect perspective.

So I kind of analyze it similar to how I would any tech stock, of course, with the exception being that instead of doing price-to-sales or price-to-earnings ratios, you're looking at adoption metrics. You're looking at what kind of development is happening on that protocol. And so over the past, say, seven months, the thing that's interesting to me the most is lightning because one of my theses since January is that basically lightning is reaching a critical mass where it had a – it's kind of like a freight train where it's really slow to start. But once it starts, that momentum is really strong. And so basically that's a network that relies – it's not a broadcast network. It's a channel network. And so it's really reliant on liquidity. And so we went through this couple-year process of building out that liquidity, building out the basic tools.

But I think it reached critical mass where there's enough liquidity and some of the killer apps are coming to it. And I think that flywheel can start. And so ever since January when I first wrote that, we've had a doubling in Lightning capacity in terms of how much Bitcoin are on that network. And I think that's – I think looking back five years from now, I think the Lightning network is going to be a pretty big deal. I could not agree more. I continue to say that the Lightning Network is probably one of the most misunderstood components of this. And, yes, they're not kind of out of the gate, just up and to the right. They've really taken the time to kind of build something that ends up being sustainable and resilient.

And I think that's part of the beauty of Bitcoin is, you know, not going anywhere fast. But that's OK, because it ultimately ends up being the last thing standing, which, as we know, in finance is incredibly important to kind of just survive as half the battle. Before I let you go, where can we send people to follow you on the Internet or subscribe to the research service? And, you know, for those that watch the show, I very rarely tell folks that that I think content is good. But I really, really highly suggest you go check out Lynn's work every time she puts something out. I make sure I go and read it. But where where can I send people? So I'm on Lyndon dot com. I have public articles. I have a free newsletter people can sign up for. And then if they're interested, I have a low cost research service.

And I'm also active on Twitter at Lynn on contact. You you're doing a fantastic job. So thanks so much for taking the time to do this. I think people really learned a lot and, uh, we'll, uh, we'll definitely have to bring you back on because you got a unique perspective of the markets and, uh, it helps that you continue to be a relatively right and, uh, being right more times than not is, uh, is good for this business. So, uh, thanks so much. And we'll, we'll bring you back maybe in a couple of weeks or months. Yep. Thanks for having me. All right. Thanks Lynn.