The Pomp Podcast - #722 The Macro Economy and Your Portfolio w/ Lyn Alden

Episode Date: November 15, 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 inflation, employment, supply chain disruptions, monetary policy, fiscal policy, stocks, bonds, commodities, and bitcoin.  ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Circle is a global financial technology firm that enables businesses of all sizes to harness the power of stablecoins and public blockchains for payments, commerce and financial applications worldwide. Circle is also a principal developer of USD Coin (USDC), the fastest growing, fully reserved and regulated dollar stablecoin in the world. The free Circle Account and suite of platform API services bridge the gap between traditional payments and crypto for trading, DeFi, and NFT marketplaces. Create seamless, user-friendly, mainstream customer experiences with crypto-native infrastructure under the hood with Circle. Learn more at circle.com.

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 inflation, employment, supply chain disruptions, monetary policy, fiscal policy, stocks, bonds, commodities, and Bitcoin. I really enjoyed this conversation with Lynn, and I hope you do as well. Before we

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All right, let's get into this episode with Lynn. Hope you guys enjoy 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. Yesterday, 6.2% CPI. What was your just overall read? Were you expecting this high of a CPI print, or did that catch you by surprise to the upside? I didn't have a firm view on exactly what it would be, so nothing between, say, 5% and 6.5% would have been surprising. My overall high conviction view that it was going to be sticky at these elevated levels for at least a few more quarters because we were seeing basically, especially rent inflation and owner's equivalent rent inflation, those official components of the CPI, which are kind of like wonky ways to measure actual rent increases and actual housing price increases, those were on the uptrend. And so those were the clear drivers of a lot of the inflation pressures. And so I didn't have an exact number in mind, but yeah, this wasn't surprising.

And one of my overall views going back over the past year was that we would get inflation and that also we'd have a big disconnect between inflation and interest rates. So people holding cash or treasuries are not getting adequate amounts of interest to cover their loss of purchasing power. So it's essentially a currency devaluation going on. OK, so you had a thread yesterday. We're going to talk about a couple of these just to start with. And the second tweet in this thread, you said it looks a lot like the 1940s.

And you pulled up a chart that basically had the Fed holding the interest rates low despite the periodic inflation. And then you also showed the 1970s as well. And so maybe talk a little bit just about what was happening in the 40s and the 70s that you see a lot of similarities. Sure. So those were the two inflationary decades of the past century in the United States. And so in the 1970s, that's what a lot of people think of as the inflationary decade. But it's actually a somewhat less viable example here. It has some overlap, obviously. So in the 70s, debt as a percentage of GDP at that point was very low.

They had already inflated away a lot of debt from the 40s and the 50s. And so actually, public debt as a percentage of GDP was something like 30%. And private debt wasn't that bad either. And so overall, you had a pretty low debt environment. We had other issues, obviously. So basically they had spent decades drawing down their gold reserves to support the Bretton Woods system, which is where the dollar was pegged to gold, and they couldn't really back that anymore. And two, U.S. oil production peaked in 1970, representing a real-world constraint, and they had to import more of their oil. And so basically you had this combined scenario where they went off the gold standard, so that broke the money system.

And then they actually had that inflationary component of oil restrictions. And then also there were geopolitical issues, obviously, in the Middle East. And so for a while, that was a very inflationary period. And as you can see on the chart there, the Fed kept trying to raise interest rates to combat inflation. But they were generally, you know, they weren't decisive with it. They were slow. They kept saying it's transitory. Sounds familiar.

And so they fought this for a while. And it wasn't until the very end where a number of factors relating to demographics, as well as Paul Volcker coming in and jacking up interest rates super high, he basically put the economy into recession in order to stabilize the dollar, the purchasing power. So that's how that decade went. Now, if you go back to the 40s, it was a different environment because most of the inflation was driven by fiscal spending, whereas in the 70s, it was a combination of a lot of things. It was partially fiscal spending, a lot of it was bank loan growth, right? Whereas in the 40s, it was almost entirely gigantic war spending. And so we often think of war spending as foreign spending, but actually most of it is spending on the domestic economy.

They're building factories, they're paying for GI bills. You know, a lot of the programs are somewhat similar to what we saw over the past year and a half, but obviously tailored towards more industrial purposes. And so you had this massive increase in the money supply from the fiscal spending, which was monetized by the Fed. And so you had an inflationary component, especially because also every country in the world was trying to get as many commodities as they could, right? So there's a lot of commodity demand. And so you had a very inflationary environment.

The difference was that because federal debt as a percentage of GDP was 130%, they could raise interest rates to 5% or 10% or higher because it would bankrupt the government. So they had no choice. They just had to hold interest rates low despite the fact that inflation was high. And so if you were holding cash or treasuries, you just got annihilated on an inflation-adjusted basis for like a nine-year period where they just held rates super low even though inflation peaked at 19% year-over-year in the 40s. And the overall average inflation for that decade was about 6%, and you just sat there earning roughly 0% on your T-bills and roughly 2.5% on your longer-dated treasury bonds. So when you look at this, you had a second tweet that basically said this is the widest gap that we've had on record. And you'd have to go back to the 40s and kind of situation you're talking about there. Is your thought process that we now are entering the exact same situation where they're going to have to keep the rates low for a decade or so?

And we can look to the 40s as the actual guide for what to expect moving forward? Or do you think there's some similarities, but we may get kind of a different outcome or different action? And one, they obviously have the hindsight of what happened in the 40s and the 70s, but also they may have some different thoughts in terms of what to do moving forward. So I find that the 40s is the most instructive analogy to be familiar with. Basically, I would say it's not going to be identical to that. There are differences that I can go over, but anyone who's not familiar with the 40s is going to be in for a rough time, I think, and confused about markets. And so it's a useful period of study in terms of fiscal monetary policy. So I would say in those areas, fiscal monetary policy, it's likely to be very similar to the 1940s.

There are some differences. And so obviously there's a different geopolitical environment. We're not in a world war. Instead, there's, you know, basically spending related to, you know, lockdown things and basically fiscal stimulus in that regard. So there's still kind of similar fiscal environment, but it's for different purposes. There's very different demographics in the developed world. Right. of a much older population. And so some of these structural deficits aren't really going to go away anytime soon. Whereas at the end of World War II, they were able to eventually get their deficit away, at least for several years. And so there's differences there. And another difference is that the United States back then was a creditor nation and a trade surplus nation. So we were like

a rising power. We were producing more than we were importing. And we owned more foreign assets than foreigners owned of our assets, whereas in this period, the United States is the world's biggest debtor nation where you have a structural trade deficit. So in some ways, we actually look more like the United Kingdom looked in the 1940s, meaning that they were the existing kind of world reserve currency. They were the ones running structural trade deficits. And the United States was kind of like China back then. They were the one that was coming up with massive GDP growth. They were the ones making things for the world. And so their roles are somewhat flipped here. So there are important differences to be aware of.

I think one final difference is that in terms of the equity market, it's a pretty different environment because we went into the 40s, equity valuations were very low. You just came out of the 1930s, depressionary period, and then obviously the beginning of the war years were not going very well. So basically until there were major victories in the Pacific, equities were very, very low valued. And they started to rise after that when you had these inflationary pressures, and when it became increasingly obvious that the United States was going to win the war and that things

were going to go pretty well at the end. And so going into this environment, obviously, it's very high equity valuations. And in many ways, that actually does look closer to the 70s because you had very, very high valuations in the late 60s, early 70s going into that inflationary period. And so that can certainly affect how equities perform on an inflation adjusted basis between these two environments. When you start to look across asset classes, I know you've done a ton of work looking at everything from public equities to obviously the bond market, crypto, etc. It feels like being invested has been the trade for the last 18 to 24 months, right? Just you could almost pick any market as long as you were investing, you weren't holding cash, you've done pretty well.

How does this change as we get deeper and deeper into this? And it feels like there's almost this element where every time we get towards a market correction or what could be the start of a bear market, there's just something that comes up. It's like they reach in their toolbox and whether it's some sort of guidance, whether it's some sort of actual spending bill or some sort of action. And I joke all the time that like bear markets have been banned and market corrections are outlawed and like everything has to go up. Is that actually true or is there just like some correlation between the actions they're taking and has that impact? But they will actually allow us to have kind of more prolonged market corrections and maybe even a bear market in one of those kind of core asset classes. So I think a bear market can happen, especially in real terms, right? So obviously, if markets go flat for a decade, but inflation averages 6% for the decade, that's really poor performance in real terms, even though we don't think of it as like a big market crash, for example.

And so I kind of look towards that possibility as being somewhat likely. And there's a couple of catalysts to look for, I would say. So one is basically if interest rates were to rise, that would be very detrimental to the equity market. I mean if treasury rates go up to 3%, 4%, 5%, that would be devastating for some of these – especially these really high-valued growth stocks that are like unprofitable growth stocks that we're happy to pay 10 or 15 or more times earnings for and times revenue for because basically interest rates are so low, alternatives are so low. were betting on their future out 10 years, if those discount rates go up dramatically, that puts a lot of pressure on those big companies, and then also including some of the big FANG companies that really kind of drive a lot of the S&P 500. So that would be a risk. Now, if interest rates stay low and inflation stays hot, that's a trickier outcome. The catalyst I

would look for there would be if the Fed basically stops doing QE. Because QE is a complicated thing, because the inflation we're seeing is largely due to fiscal spending and other measures, which QE supports. But QE on its own is not necessarily inflationary, as we saw from the 2010s decade, where they did QE, but it just stayed in the banking system because there was no fiscal spending to really get that out into the economy. And so instead, it just inflated asset prices. And so I would say that if you get an environment that's rather inflationary and it becomes somewhat self-sustaining with wages going up and therefore prices going up and therefore wages going up and therefore prices going up, if that becomes a more self-sustaining

loop and if they slow down QE or end QE, that could be a rougher time for equity markets because you have less of that asset price inflation most likely, and you still have this underlying real inflation going on. When you think about somebody like Jack Dorsey and Square, obviously they have a very incredible data set. One of the things I'm fascinated by is not only is it a data set of point of sale data, But also they have everything from the payroll data for companies that they work with. They also have the consumer cash app.

They have cards. They kind of have, in my eyes, kind of a 360 view of many data points, both in real time, lots of them, and across a diverse set of market participants. And so I continue to say that that is, in my opinion, one of the most valuable data sets in evaluating some of this. Do you have any thoughts about what the data would show if somebody could actually see that versus the government's ability to collect some of this data and analyze and use cost-of-living index baskets and things like that? How do you think about the data we're looking at? And I use that as a proxy for if we have bad data, then we're going to make bad decisions regardless. But what are your thoughts on that? I think they could certainly construct probably a more accurate or real-time inflation measure in the company.

I don't know if they have one, but I think they could with their data. And it's also clear from Jack's tweets he's been looking at macro stuff. So he's looking at probably the WTF happened in 1971 site. He's been mentioning alternative ways to measure inflation. Obviously, he had that famous hyperinflation tweet. He's been looking at, obviously, some of those macro things. And so I don't know exactly what he has in terms of internal data. But if they wanted to construct an internal inflation measure, they could.

And an example I use – so if you go back to that rent inflation and owners' equivalent rent inflation, so house pricing used to be included in the inflation basket back in like the early 80s and before then. And so if houses go up 20 percent, that would be in the CPI. Now, they took that out because they said, OK, well, houses are a capital asset. We're trying to measure consumer price increases. But we still obviously – obviously housing is a big consumer expense. So they said, OK, we'll come up with a measure that determines basically what is the equivalent kind of monthly expense of being a homeowner. And so they kind of put that wonky measurement in there. And if you track home price growth compared to owner's equivalent rent growth, there's a couple things.

One is that housing prices grow faster than owner's equivalent rent. So it's basically a way to understate inflation in some ways. And two, it's a lot smoother. So it doesn't go up and down as quickly as housing prices do in some of these big events. And yet, you know, so if you look at, say, the largest owner of single-family homes in the U.S. is Inventation Homes. It's publicly traded. I believe it's a REIT structure, but it's publicly traded. And so they own like tens of thousands of single-family homes.

And they disclose their rent increases. And offhand, the numbers were something like 16% for new tenants and something like 7% for renewals. And the average was like 11% across their board for rent increases, whereas if you look at rent and CPI, it's nowhere near that. And so it's kind of coming in with a lag, and it's somewhat understating it. So if Jack's looking at, or if people at Square are looking at kind of real-time data, they'd probably see, you know, closer to the real numbers for, you know, some of the inflation

we're seeing rather than seeing this kind of laggy managed basket that slowly catches up over time, but still understates it. Got it. And then one of the other things that I'm really, really interested in is as people see the higher and higher inflation number, it feels like people are getting red pilled on a daily basis and they may not even know what inflation is. So some see CPI, some just see, I went to the store while we were on the show, somebody DM'd me a screenshot of their Chick-fil-A order, and it's like $14, right? And, you know, of course,

there's sticker shock with some purchases. Do you look at changing the portfolio, right? Are there things that you're tactically doing as inflation continues to not only be persistent, but actually accelerate in official numbers? Or is it, no, I positioned myself kind of Q3, Q4 last year for inflation, and now it's just playing into exactly how I've been kind of allocated in a portfolio perspective. So I've not been making many changes lately because I've been positioned for this. I made a lot more changes last year or earlier this year where I was kind of positioning for things, whereas now I've actually been in a state of not making very many changes at all because it's just kind of playing out. But you raised an important point there of basically,

we talked before about differences between now and the 1940s. And one of the differences is the speed of information. And so in the 1940s, you didn't have the internet. You got like a newspaper. Many people weren't even following the markets, obviously. And so you couldn't sit there and look up, say, St. Louis Fed website to get the exact like, you know, what is inflation right now, according to the government. You couldn't do things like that. And so when they held bonds that were yielding zero to two and a half percent for a decade while inflation was averaging six percent, you know, there were obviously financial professionals that were aware of that and could and could somewhat quantify that. But it's not like people on aggregate could tell you those

numbers. Whereas now with the internet, with Twitter, with social media and memes that can spread information very quickly, you know, people like just regular people know what they can look up inflation. They can look up bond yields. They can look up their whatever wage increase they got over the past year. And they can say, wait a second, I'm getting paid less than my pay went up 5%, but inflation went up 6.2%. And that inflation rate might even be understated. So that's not good. Or they can look at, you know, they can post their pictures of like what their Thanksgiving turkey costs this year compared to last year. And then it'll get, you know, 10,000 likes and go viral. And so that's a very different dynamic than you had in the 1940s.

And so that can make it difficult to, you know, that topic is called financial repression, which is where you hold rates below the inflation rate for a prevailing period of time. And sometimes it's combined with regulations that force certain pools of capital to own those crappy assets like banks or insurance companies or pensions or other large pools of capital. And financial oppression is easier when information moves slower, where it's a lot harder to do when it moves at the speed of light. What questions do you guys have? Hey, Lynn. Thanks for doing this. So my question would just be around kind of what we're seeing in Bitcoin. I think most people look at the on-chain metrics and look really healthy and strong.

And combined with the inflation print and stuff like that, I think most people expect over the next six plus months we'll see price appreciation in Bitcoin. But as we get closer to that 2024 halving, do you think that, one, I guess, will there be another kind of crypto winter where we see a big pullback? And two, do you think the idea that distribution is getting tighter, right, 19 million of the 21 million Bitcoin that will ever be in existence have already been put into existence? Do you think that will make that crypto winter shorter, or how do you think about that? It's a good question, and I've thought about this before, and I've talked about it to some extent. So I break it into two parts. One is the more euphoric of a spike you get, like you had in late 2017 or parts of 2013, 2014, the more euphoric that spike is, the more likely you are to have a crypto winter for a period of time. Whereas, for example, the high we got in Bitcoin back in, what was it, April, that was less euphoric and therefore the pursuing kind of correction was less deep, less violent, less long.

And so I would say part of it depends on how bullish it gets in the first place. The deeper part of the question, I think, is that the further we go, the halving should become less important. And I think this really clear kind of four year price appreciation cycle will probably become less impactful. And you might have smaller bull markets and smaller bear markets and kind of the less of this kind of clear four year thing. Because, as you pointed out, you know, a large percentage of the coins are already mined. And the percentage of new coins coming from miners is low compared to other sources of supply that exists in the market from existing holders. Whereas before, those new coins were a very significant part of Bitcoin, you know, the number of Bitcoin that exists. And so that should theoretically become less important.

We're also seeing interesting dynamics where in prior cycles, miners were these small companies, often in China. They didn't have great financing. They would have to sell a lot of the coins that they mined to pay their bills. And so miners were regularly selling to the market. And so we considered this basically dilution. Whereas now what you're seeing is that, you know, as miners have come over to North America and as their number of companies, you know, whether it's, you know, like Galaxy or others, that basically improved ways to lend to miners. Right. So they can they can mine to them using the ASICs as collateral. They can make all sorts of different types of loans to them. And also some of those companies are publicly traded.

So they have much better and cheaper sources of capital. And so they're actually able to do kind of the Michael Saylor playbook where they just never sell their Bitcoin. They issue other types of liabilities, whether it's debt or equity, and that funds their operations. And then they mine Bitcoin. And some of them might have to sell a certain percentage of them. It depends on how they want to do that. But the point is they're not selling like 80%, 90% of the Bitcoin that they mine. And so it's not even as though that the new Bitcoin supply is really getting to the market.

There's this kind of this structural change in the way miners operate and their capital structures. This is even smaller private companies that are hodling their Bitcoin. And again, it's partly because they have lower cost of capital and because after long enough time of appreciation, obviously miners would prefer to hold their Bitcoin. They don't want to look back and be like, man, those miners from 2012 that sold their Bitcoin, sucks for them, right? They want to actually hold their Bitcoin and basically make that a balance sheet asset in a similar way that Michael Saylor does with MicroStrategy. And so I think that's going to be a big theme. So when you combine those things, there's not a lot of new supply. Some of the miners are just hodling the supply they do create.

And then just the fact that it's becoming a more mature asset class, it's more widely held, less spiky in terms of price. It's obviously still a volatile asset, but it's less volatile than it was in, say, 2013. I would expect bull markets to maybe be somewhat less euphoric and bear markets to be, say, shorter or maybe less extreme. Maybe instead of a 90% drawdown, you have a 50%, 60% drawdown like you saw this summer. So that would be my base case, but obviously you'd have to change based on what's happening in the market. John, what questions you got? Yeah, Lynn, thank you for doing this, and I see you again. So the stock market has been insane.

The S&P is up like 25% year-to-date. it's at $54 trillion. It was 20 months ago, it was only at like $27 trillion. Is this sustainable? And then if not, what assets can people run to, to kind of hedge against all this inflation that's going on? Yeah. So this rate of growth is generally not sustainable, at least in real terms. And so when you look at, obviously, valuation metrics were already kind of high, and now they're even higher. Now they're approaching records. Some of them are records. Other ones are basically records that are only surpassed by the dot-com bubble, whether you look at price of sales, price to sickly adjusted earnings, replacement cost, market cap to GDP, dividend yields, right?

There are all sorts of metrics to measure valuation. And so it's very hard for them to continue at this pace. Now, they kind of go higher. I mean, they went higher in Japan, for example, in the late 80s. They can get to pretty extreme levels. But I wouldn't say it's sustainable on a long-term basis. If you look back over periods of inflation in the past, generally commodities and real estate is a better hedge against those sorts of environments than equities. Equities have a somewhat checkered past.

So obviously in the 40s, they did pretty well, but that's because interest rates were low and they started with low valuations. In the 70s, they did about as bad as bonds did actually. So equities were pretty terrible in the 70s, especially growth equities or just overall market indices. um and so generally commodities and real estate would be would be once and obviously in this day and age bitcoin would be in that essentially that commodity bucket for now whereas it's this scarce asset that you can hold that's that's you know outside of the you know fiat currency system that's getting devalued melting ice cube and so you can you can describe it as commodities hard assets real estate with a fixed fixed mortgage right fixed 30-year mortgage it's

It's a nice thing to have. And then assets like Bitcoin. Lynn, one of the other things that I spent a lot of time thinking about is from a monetary policy standpoint, the Fed only has so many tools. But we also see a narrative taking over in the political realm who is basically in some way you could argue that politicians are having a hand in monetary policy. And obviously they've got the fiscal policy that they've more historically been able to affect. How do you look at the idea of the Federal Reserve or a central bank in any country being independent versus being heavily influenced by some of the social programs, the political kind of debates that occur, etc.? So that actually goes back to another difference between the 40s and 70s and why it played out like that. So generally the idea of independent central banking is that you're never going to have complete independence, but you want to have some degree of autonomy. You don't want, for example, the person running the Fed to be the treasury secretary who can juice the economy six months before an election or maybe do the pain right after the election.

You don't want to do these intricate timings to basically benefit your own party. And so the idea of an independent central bank is that they're appointed by an administration. They're confirmed by whatever governing body of the country it is. And so there's some degree of independence. And then they have they have a different term. Right. So so that basically, you know, they have some latitude to make their own independent decisions that are not tied to having that that group win or lose an election in theory. And so there's obviously a spectrum there. And so in the 70s, you had a somewhat independent central bank. Paul Volcker was basically doing a lot of unpopular things at the time, and he had varying levels of support from the administrations throughout his tenure. year. And so that was an example of partially independent central banking. In the 1940s, basically, independent central banking goes out the window when you have debt as a percentage of GDP over 100% with massive deficits, because those deficits have to be monetized. And so in the

1940s, from 1942 to 1951, there was almost no central bank independence. Basically, the Treasury pretty much took over the Fed. And they just became the de facto monetizers of deficit spending. And they even did a thing called yield curve control, where in addition to just holding the short end of the rates low, they actually hard capped the long end of the yield curve too. So basically 10-year treasuries, they said, we're not going to let these go over 2.5% interest. And they had to buy a lot of them in order to keep them suppressed there. That was just a stated policy. And so that was an example of no independence.

And it was funny because towards the end of that period, that nine-year period, the Fed, they were trying to break out of that. So, I mean, the war ended in 1945, and the Fed's like, so we can be independent, right, guys? And the Treasury's like, well, not yet. We need to do other things too. It's kind of like that meme, like the Star Wars meme where Anakin says something, and then she's like, well, like, right? And he just looks at her. kind of what happened to the Treasury and the Fed. The Treasuries wouldn't let go and it wasn't until 1951 that there was enough pressure to finally kind of get them separated again. And so that's

essentially what you get into at the end of a long-term debt cycle, where when debt is super high and say there's high levels of wealth concentration and things like that, and it's politically they have no way to cut the deficits, that's when you get that merger of basically central bank and fiscal policy. So you've seen that in Japan for a while now. They have obviously different circumstances. They have a trade surplus, current account surplus. They have other things going for them that have kind of made that smoother than we're seeing in other markets. But in the United States, basically the last time we're in this situation was back in the 40s. And one more example was during 2020, during the heart of the financial crisis that was

happening, there was even that special purpose vehicle set up between the Treasury and the Fed, where the Fed could buy corporate bonds now. And normally they can't do that. And one of the reasons they can't do that is because they can't buy things that they're subject to nominal loss on. So they can buy Treasuries, they can buy mortgage-backed securities, but they can't buy you know, like a corporate bond, because theoretically the company can default on it and therefore they would have a nominal loss. So instead, basically the fiscal side had to authorize basically a backstop as part of one of their bills. They said, OK, here's X number of billions of dollars to cover any losses that the Fed has buying corporate bonds. And then they set up a

special purpose vehicle, which was like a separate balance sheet. So the Fed didn't technically put corporate bonds on its own balance sheet. So it kind of bought them into this other basket and then had that backstop from Treasury and Congress. So that was an example of a closer unification between them that pretty much that we've seen since the 1940s. Got it. And when we go looking forward, I think that you've got a very unique perspective on a lot of kind of what's happening and what has happened in the past, which I appreciate. What are you looking for as we move forward in terms of either milestones, certain development, certain key decisions? Like, are there things where you're like, OK, I'm going to really pay attention to this because that'll have an outsized impact on how this unfolds?

I would say two areas. One is watching fiscal very closely. Right. Because this is a very fiscal heavy environment. Fiscal spending is driving a lot of inflation. And so I'm kind of watching to see what happens there. If you get fiscal gridlock, you're more likely to get a period where inflation levels off for a period of time or at least with some delay. And so if you go back and look at those 1940s and 70s charts, it wasn't like inflation was a straight line. There were rises and falls in inflation throughout those periods. And so I would expect the 2020s to be the same way where you get periods of inflation and then you get some sort of cool-off period. Then maybe you get another round of inflation where there's another fiscal response.

And so these things kind of come in cycles. So I'm kind of paying attention to the election cycle to some extent. I'm looking for signs of gridlock. I'm looking to see probabilities of certain things passing because that affects my view of inflation, nominal GDP growth, things like that. The other thing I'd be looking for is if inflation becomes more self-sustaining in terms of that wage and price spiral where prices go up. You have to – workers demand higher wages to be able to make a living, and then therefore when their wages go up, their employers have to raise their prices on a lot of their goods to make up for that, and then that leads to more wage pressure. And so if that becomes somewhat self-sustaining, then you get inflation even if fiscal stimulus kind of goes dark for a couple years. And so those are probably the two things I'm watching.

In addition, I'd pay attention to the Fed's balance sheet. So right now they're planning on tapering their asset purchases, meaning they're still buying them, but they're planning on gradually slowing down how many they buy over the next six plus months. And if they're able to get through that and they eventually just stop increasing their balance sheet for a period of time, that could be more challenging for equity markets. And so those are some of the things I'm watching, I think, pretty closely overall. And when we start to look forward, it also feels like companies are going to start having to make some decisions here. Obviously, Michael Saylor has outlaid an idea in terms of that corporate balance sheet. As you look forward at those different events, do we think that corporations will start to act much more like macro traders to some degree and start having to do things other than just hold cash and cash equivalents? Or do you foresee a world where it's hard to kind of move the ship?

It's hard to kind of get them to turn and change strategies, and maybe they should or maybe they shouldn't, but we shouldn't expect any sort of change on a material basis across the public markets for treasury management. I think it partially depends on, one, is how smart the company is, how much basically power the CEO has, and how kind of connected that company is, right? So an example of MicroStrategy, he owns, I think, the majority of the voting rights. He knows exactly what he wants to do. He still has a board he had to work with, but he basically had a lot of influence over that company and was able to get on it quick and in a big way. So all in and early, and it paid off substantially. Now, if you look at other companies, they can start putting Bitcoin on their balance sheet in a smaller way. Um, and I think it's the closer they go to being kind of politically connected, the harder it gets.

So you'd have to ask yourself, why, why have an Apple or Facebook or Google put a billion into Bitcoin, right? I mean, it'd be trivial for them. They have, they have billions and billions and billions of cash in the balance sheet. Some of them have over a hundred billion dollars. Why not put one or 5 billion into Bitcoin? Um, and I think, you know, it's hard to say for sure, but I think partially that would spook Congress, right? So if you start to see Google announce a a $5 billion Bitcoin purchase, they might get looked at more, whereas a smaller company doing it gets less scrutiny. And so I think it partially comes down to how kind of, you know, tied they are. And then two, just the makeup of the board of directors, the makeup of the shareholder base,

the CEO, right? So if we keep entering this period, the longer we go with cash and treasury yields held below the inflation rate, you know, the smarter companies should increasingly want to to put their resources into other assets so basically facebook and google holding hundreds of you know tens or hundreds of billions of dollars in in cash equivalents in this environment is a melting ice cube and it depends on the company so for example apple they have a lot of cash but they actually also have a lot of debt they issue a lot of debt to buy back their own shares with they kind of they change their capital structure like that so they're they're somewhat neutrally positioned in this inflationary environment because their debt's getting

inflated away, but also their cash is getting inflated away. Whereas a company like Facebook, which has no debt and has tons of cash, they're just entirely getting inflated away in this environment. And then Google is more in that position as well. So really alphabet. It really comes down to the specific company in question. The ones you want to look at are ones that just have tons of cash that exceeds their debt. And they're just sitting there getting inflated away. And you have to ask, why not put at least some of that into Bitcoin? it. I completely agree. Before I let you go, help everyone understand the research that you do. I just dropped in the chat a link to lynnaldin.com where you publish a bunch of research, but

help everyone just kind of understand your process. And then if they went ahead, they signed up for the newsletter, which I think is fantastic. I don't know if I should say this, but it's the only macro newsletter that I read top to bottom every single time it comes out. So what is the process and kind of what do you spend a lot of time thinking about from a research perspective? Well, I appreciate that. So I basically have three types of content, really. So one is that I put out public articles that just touch on a subject, basically goes into detail on something. And those are meant to be kind of evergreen. You can go back and read them two years later, and they're still pretty much relevant. Then I have those free newsletters that come out every six weeks, and they generally talk about something a little bit more topical. They might include – they generally include some evergreen content in there as well, but it generally ties it more into what's happening now for the next six months, next year. So those are more timestamp type of pieces.

And then – so that's all free material. And then I have a low-cost research service that comes out every two weeks, and I, again, focus on tactical stuff, more specific investment ideas, things like that. And so generally, all my research kind of focuses on that blend of macro. So what's happening in the big picture, right? So what's happening with things like inflation, disinflation, growth, stagnation, overall asset classes I'm interested in. That's kind of the big picture view. And also what country markets I might be interested in more than others. And then the micro view is, you know, what's happening with technical sentiment?

What's happening with these weird things in the market? What's going on with reverse repos right now? What investments look interesting? What is showing signs of maybe having bottomed and it's cheap? What is showing signs of being maybe really expensive and kind of topping out? So that's kind of the more tactical stuff I go into after I already kind of have a big picture idea in mind. Got it. You guys got any other questions?

No. Appreciate you coming on, Lynn. I always learn so much when you do. Thanks for having me. Anyone who is not following you on Twitter or subscribed should absolutely go do it. So listen, Lynn, thank you so much for doing this. I wish that I could say inflation is over. We're not going to be talking about this anymore, but I feel like we will do this many more times again.

So I appreciate you taking the time to come on here. Yep. Thank you. All right. Awesome. See you later.