America’s Debt Cycle, Bitcoin, and Bubbles — with Lyn Alden

Lyn Alden, a full-time investor and independent analyst, joins Scott to discuss the symptoms of an economic bubble and America’s debt cycle. Lyn also explains why she’s bullish on Bitcoin and shares her investment strategy, including why she’s paying attention to the Russian equity market. Follow Lyn on Twitter, @LynAldenContact. Scott opens with his thoughts on how there’s a record decline in the number of men attending college. Algebra of Happiness: open yourself to new experiences, friendships, and opportunities. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:48Speaker 01

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• 1:18Scott Galloway?

  Episode 98. The Atomic Number for Californian Titanic was the top grossing film in 1998. What did Jeffrey Dahmer say to Lorena Bobbitt? Are you gonna eat that? That's bad. That's bad. Go, go, go!

• 1:41Scott Galloway?

  Welcome to the 98th episode of the Prof G Pod. In today's episode, we speak with Lynn Alden, a full-time investor and independent analyst. We discuss America's debt cycle, emerging markets, Bitcoin, and Lynn's investment strategy. But first, what's happening? Here we are. It's Labor Day, a bust to the new year. Things feel eerily reminiscent. Anyways, for one, I am back from vacation and ready to rock. I went to Ibiza.

• 2:13Scott Galloway?

  That's right, went into the men's bathroom, true story. And they offered me something called fanta naranja, which is a form of mali or this thing called MDMA. And you know what I found out when I was on X? I like me. That's right. I hate me less and less under a drug initially administered to couples during talk therapy. Then I went back to the same bathroom, different guy, and he offered me something called a rim job. And the good news is, he found my hip replacement. Good bathroom sex humor. Good bathroom sex humor. Anyway, none of that is true. I wasn't a visa, but I didn't do a whole lot there. Mostly hung at the hotel

• 2:53Scott Galloway?

  because I was so freaked out around COVID. Came back, went to this sandbar off the coast of the Atlantic called Nantucket, really leaning into my white privilege now. And am about to go back to Florida, but have delayed going back to Florida because I have an unvaccinated 11-year-old. And we have what could only be described as a mad king and someone whose politicization has moved to depravity and has decided to somehow weaponize or politicize mass. And crazy fucking parents have decided that school board meetings are an opportunity for them to put on display their mental illness and their lack of citizenship. I'm not even sure how many of these fucking whack jobs even have kids anyways. That's

• 3:36Scott Galloway?

  nice to be moving around the world. And my problems are most people's problems on their best day. But it's just weird to think that we are now in an era where you're no longer going back home because of your fear for your kid going back to school. School used to be the safe place. All of a sudden, back to school has become this very weird time. So for better or for worse, kids are back in classrooms and back on campuses as the Delta variant extends its march across the US. The CDC said last week that the hospitalization rate for COVID-19 among kids ages 0 through 17 was fivefold from late June to the middle of August. It just shocks me that...

• 4:18Scott Galloway?

  The narrative in the US, really our superpower as a nation is our optimism, and our narrative can be self fulfilling. I think the economy is good, I'm optimistic. I buy a car, the economy does get better because I put more money into the system, which creates more jobs, more wealth, upward spiral. If I envision my future, if I write down, I am going to get a job, and I envision my list, and I write down my list that I can literally make the future happen, I can pull it forward. Problem is, the virus didn't get the fucking memo around our narrative. And every time we imagine what the future is supposed to be like, wasn't this supposed to be the virus that doesn't affect kids? Well, we like that narrative, right? Well, it's okay, this virus is awful and it's tragic,

• 5:02Scott Galloway?

  but it's mostly killing Nana and Pop Pop, which is, which is meaningful, but not a profound tragedy, or not what I'd call terrifying, but it doesn't, it doesn't impact kids. Well, guess what? The virus doesn't seem to care about our narrative. Bloomberg reported that just after one week of school in Hillsborough County, Florida, more than 10,000 students were in isolation or quarantine because of exposure to COVID. At the higher educational level, more than 1,000 colleges and universities have adopted vaccination requirements for at least some students and staff. It just strikes me as fucking crazy, we don't have vaccine mandates. When we look at what we ask people to do, or have asked people to do in this country in terms of the sacrifice, whether it's going into the jungle

• 5:44Scott Galloway?

  or some field in Europe to get a bullet in the gut, or to pay more than 50% of your income to the government, whatever it might be, it just strikes me just strange. We've decided somehow that, oh my God, a mask, that's, that's just too much! That's a bridge too far! What the fuck? At least nine states have banned or restricted school mask mandates. I just, how did we get here? And as many as 20 Republican-led states forbid vaccine mandates in some form. Some universities in these states are getting created to incentivize students to take the vaccine. Texas A&M University is holding a raffle that only vaccinated students can enter. The prize, free tuition for a year, which is probably worth about 700, 800 grand at this point. All right.

• 6:27Scott Galloway?

  In other higher ad news, The Wall Street Journal reported on a trend that's been playing out over the last few decades. Women are far outpacing men when it comes to higher education enrollment rates. And the COVID-19 pandemic has accelerated that trend. Again, COVID-19's enduring feature will be as an accelerant more than a change agent. Nothing's really changing, it's just accelerating. The Journal found that there are one and a half million fewer students attending US colleges and universities today than there were just five years ago. Men have accounted for 71% of this decline. There are some scary numbers that don't bode well for universities. More have gone out of business in the last five years than in the previous 20 years. And whereas the number of college-age students had accelerated over the last 20 years, it's

• 7:10Scott Galloway?

  going to decelerate over the next 20 years. Peter Drucker, kind of my business or economics role model, said every major trend in society can be reversed, engineered to demographics. True story, I used to subscribe to American Demographics. There was a magazine called American Demographics, and I would put it on my table to ensure I would never have sex with a stranger. The ultimate prophylactic. Anyway, two-year community colleges registered their biggest declines in male enrollment during the 2021 academic year. Think about this, biggest declines in males in 2021 at two-year community colleges. An analysis of census data by the Pell Institute for the Journal found that this trend is

• 7:52Scott Galloway?

  consistent across race, geography, and economic background, with poor and working-class white men having lower enrollment rates than young black Latino and Asian men. What the fuck? Isn't that strange? Maybe it's time. Is it the Mother of All Over corrections? Is it that young, uneducated, white men have more opportunities and have decided that college has gotten so expensive it's just a product trade-off? Dunno, dunno. Furthermore, men are not applying to college at the same rate as women. Women mature sooner. I think a lot of men are confused about their role. I think a lot of young men look at dad and think, "Well, okay, I have outdoor plumbing. Doesn't that mean I deserve a house and two cars regardless of my effort?" What is going on here? According to the Common Application...

• 8:37Scott Galloway?

  For the 2021-2022 school year, women submitted nearly 1 million more college applications than men. Now, reporting on this trend is not to say there hasn't been tremendous upside around the fact there are more women enrolled in schools. It's a good thing. We needed this correction, if you will. And there's still, however, the gender wage gap. Women with a college degree earn less on average than men with a college degree, although I think it's been narrowed among women under the age of 30. But because more women are getting college degrees, more women are reaping higher earnings than their less-educated male counterparts, and the gender wage gap, see above, has narrowed considerably. All right. So why are dudes abandoning education? Is there something about the way we are raising boys that makes them less ambitious? Do they mature later?

• 9:22Scott Galloway?

  A 2013 report found that boys have less understanding than girls about how their future success in college and their careers is directly linked to their academic effort in middle and high school. I think that's one thing we all struggle with as parents, is how do you connect reward with grit or effort or good behavior? Because right now, my kids don't really need to connect anything with anything. They basically get up, they don't make their beds, I'm embarrassed to say that. Occasionally, I get angry and say, "Make your bed," and they do it once. I know a joke on Sundays was cleaning day at my household. My mom and I used to clean the house, and I used to slip out of the house early to go into Westwood to play at this arcade. And if I hadn't cleaned my bathroom to the extent she thought was up to standards, she

• 10:06Scott Galloway?

  would call around until she found one of my friends and tell them to go to the arcade and tell me to come home, that I had to make my bed or clean my sink. I often say, "If I had what my kids have, I wouldn't have what I have." I don't see any reason why kids, or at least my kids, are going to easily connect any sort of activity with anything to aspire towards, because their lives are so amazing now. If I were my son at the age of 11, unfortunately, he doesn't listen to this, so I can say this, the only thing I know I would have in my life as an adult is a Range Rover and a cocaine habit. I just, I connected work very early because I had jobs. We're actually going to try and get my son a job at the CVS as he's turning 14.

• 10:51Scott Galloway?

  But I think we all struggle with how to make those connections, right? How to connect sacrifice, putting off present consumption for future consumption, how to maintain impulse control. And how to, again, make those connections. "The most important predictor of boys' achievement," the report said, "is the extent to which the school culture expects values and rewards academic effort, but the rewards have dwindled while the costs have skyrocketed." Putting the men aside, "Should we be surprised by the declining number of students attending US colleges and universities?" Likely not. Far too many colleges have abandoned their purpose as public servants and preyed on the hopes and dreams of the middle class to line their own pockets. Prices have exploded 1,400% since 1978, but the product has hardly changed at all.

• 11:36Scott Galloway?

  It's pretty simple. When the product doesn't get any better, but you keep raising the price on it, eventually people leave, or eventually people decide to go to another, or choose another product. In the late 80s and early 90s, I attended five years of college at UCLA. Should've been four, it was five. That extra year was worth it. Lot of Planet of the Apes, lot of pot smoking. See above worth it. In two years of business school at UC Berkeley, the cost? A grand total of somewhere between, I think it was eight and 10 grand in tuition for all seven years. Fast forward to the present day, $10,000 won't cover two classes at NYU where tuition costs over $80,000. Think about that, 80 grand. And by the way, at NYU, it's still worth it. The top schools, that investment is still worth it.

• 12:19Scott Galloway?

  Where you get screwed, and where I think men are abandoning university, is for a mediocre school, all right? I can't apply to NYU, I'm not going to get in. I don't have those sorts of grades, those sorts of achievements. So I apply to a second-tier school, I don't get in there, and I end up only getting into a third-tier school. And what's most corrupt about pricing at universities isn't the price increases, but the price cohesion, or the price collusion, or essentially the cartel that is one of the most corrupt cartels in the world. And that is that all universities raise their prices in lockstep. So what ends up happening is because of the incredibly low, artificially low admissions rate and the psychic income we get as administrators, academics, and alumni of these universities,

• 13:01Scott Galloway?

  we keep arbitraging good kids down to mediocre schools who pay essentially a Mercedes price for a Hyundai. And I think people and families are just fed up. So why are these men leaving the higher education system in droves? The men interviewed by the Wall Street Journal explained how they feel lost, worried about their futures, frustrated by the class material, or just quit school to go to work, or just have no plan in mind. This is, I think this is really an existential crisis in our country, and that is, and I've said this before, the most dangerous person in the world is a young man with no job, who's broke, and in no relationship. And that's not to say that it's more important that men have a future than women. I'm not saying that at all. I'm saying young men,

• 13:46Scott Galloway?

  who are bored and not attaching to school, not attaching to work, or not attaching to a relationship are more dangerous, unfortunately. And some of this, there is a big upside. We needed, people of color, women, needed some catching up, if you will. So I think admissions departments were, I think affirmative action is a good thing. I think it should be economically based, not race-based or gender-based, which would accomplish probably 80% of the same thing. But there's definitely something strange going on. So how do we fix this? What do we do here? At the end of the day, we need more on-ramps to a good middle-class lifestyle. We need more vocational training. We need to recognize that 50% to 70% of people are not going to end up with a traditional four-year degree. We need to

• 14:31Scott Galloway?

  stop this gestalt of thinking you have failed as a parent if your kid doesn't get into college. I have that. I'll be heartbroken. I gotta be honest. I'll be heartbroken if my kid doesn't get into school. But the reality is, some kids just aren't cut out for college. It's just not what they want to do. They don't have those skills. So we can't just decide, all right, you either go to Yale, or you're a total fuck-up. There's gotta be some gray here, some 50 shades of gray. And we need to create more vocational opportunities, similar to what they do in Europe and many countries in Asia. And when you look at the opportunities, because of the dearth of talented people that have gone into sort of the vocational professions, you can make pretty good money. And there's a huge mismatch in the industry's hiring right now. For god's sakes, try and get a plumber. Try and build a house and

• 15:15Scott Galloway?

  get an electrician. It's just crazy what a certain amount of certification or apprenticeships can do in our economy right now. And we need to offer more people those types of opportunities and be more formal about it. I also think we just need greater connective tissue, whether it's some sort of... Public service, or a Corona Corps, or some sort of training that gives people the opportunity to serve in the agency of others, whether it's in healthcare, social services, that gives them some technology skills, socialization skills, management skills. But there needs to be more elegant on-ramps and a recognition, a recognition that a kid, a kid finding a career somewhere he can add value, somewhere she can add value, that doesn't necessarily mean college,

• 15:58Scott Galloway?

  maybe better, maybe a better option than sending them to Joey Bagadonuts U, which they don't enjoy, but they encourage huge debt for. College is a great way. College is a great path, but it can't be the only path.

• 16:17Scott Galloway?

  Stay with us. We'll be right back for our conversation with Lynn Alden to discuss America's debt cycle, Bitcoin, and her investment strategy.

• 16:29Scott Galloway?

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• 19:02Scott Galloway?

  Welcome back. Here's our conversation with Lynn Alden, a full-time investor and independent analyst.

• 19:09Scott Galloway?

  Lynn, where does this podcast find you?

• 19:12Speaker 02

  I mean, I like New Jersey, Atlantic City.

• 19:15Scott Galloway?

  Do you love Atlantic City?

• 19:17Speaker 02

  Not really, no.

• 19:17Scott Galloway?

  You're representing now. No, not really?

• 19:20Speaker 02

  No, I'm not a heat fan. I moved here a long time ago for a job, and I stuck around even though I no longer work there, but I'll probably be moving in the years ahead.

• 19:29Scott Galloway?

  Yep, yep. Okay, so let's bust right into it. I want to talk to you about America's debt cycle. Where are we in that cycle right now? And where do you think we're headed? And what's good or bad about where we are?

• 19:43Speaker 02

  So historically, it looks a lot, you know, we have to go back to like the 1940s to find a similar period of time where we are now. And so... You know, using, say, for example, Ray Dalio's conception of long-term debt cycle, you know, it places us very towards the end of it. And so if we think of, say, the short-term business cycle, the five to 10-year credit cycle, you know, you have accumulating debt in the system, then you have some sort of deleveraging event, some sort of, you know, recessionary event, policymakers come in, they cut interest rates, they do stimulus, we build back up from the debt. And basically, if you string a bunch of those together, what has happened over the past several decades is that you get higher and higher debt as a percentage of GDP, like lower, like higher lows and higher highs, and then you get lower and lower interest rates, lower lows, lower highs, until you get all the

• 20:28Speaker 02

  way down to zero interest rates, you get very, very high debt to GDP levels. And the last time we saw that happen was, was the 1930s, and then it extended into the, into the 40s. And so, basically, when they run into, you know, this much debt, generally, what you get is, you know, you're more prone to currency devaluations, where they essentially hold interest rates below prevailing inflation rate for a period of time. That's kind of the historical precedent.

• 20:54Scott Galloway?

  So, I'm old school, and I can hear people calling me boomer when I say this, but I think at some point, if you just keep issuing debt, it becomes a problem, and that you're not managing your financial affairs well, and it begins, it isn't a problem until it is. And I look at these record levels of debt, and there is no free lunch, and yet I see this emerging theories around, a modern monetary theory of like, points on a scoreboard. Do you feel our current levels of debt are dangerous?

• 21:24Speaker 02

  I think they're, yeah, I think they're pretty dangerous, especially if you're holding cash or bonds. And so, there's a study a while ago, I forget the firm that put it out, but it showed that, you know, over the past, say, 200 years, they looked at, you know, 50, 50, I think it was 52 countries that had debt to GDP reach 130% or so, and 51 of them, over the next, say, 10 to 15 years, either defaulted, in some cases, or, you know, inflated away a significant part of that debt. And so they had a major currency devaluation, bondholders did not get paid back in real terms, with the one exception Being Japan, who's managed to push that out farther than anyone else so far in history. But they have other things going for them. They have a, you know, they have a current account surplus.

• 22:09Speaker 02

  They're the world's, you know, largest international investment position creditor nation. So they have other factors on their side besides the debt. But yeah, generally, when you get this high of a debt level, you know, historically, there has been very significant consequences. Mainly that, that, you know, the bonds on, on the debt, the mathematics don't work anymore for positive real rates. So essentially, bondholders have to get financially repressed. And that's generally the best of case. That's kind of the gradual, you know, bleeding out of purchasing power. If you continue to holding bonds after that point.

• 22:38Scott Galloway?

  So how do you take that information and act on it, though? And it seems like everyone is acting on it. Is it just you need to have, you need to own assets and you need to buy stocks? What other, what else can you do to prepare for this? Or to recognize where we are in this part of the cycle in terms of your own economic well being?

• 22:57Speaker 02

  Well, that's essentially it. Basically having exposure to scarce assets. So it could be high quality equities. Of course, you have to watch out for valuations that, you know, the risk there is that, you know, we've already squeezed a lot of juice out of the equity market, you could say. Or we're in some, some metrics show that we're record high valuations. Other ones show that we're maybe the second most expensive you've ever been. But there's a big spectrum across the board. So for example, we have a bigger growth to value ratio divide in terms of valuation than we've, than we've seen for a very, very long time. We also see that, that many foreign markets are not that expensive. There's out of favor sectors that are not that expensive. And so historically, what generally does well in this type of environment, as you'd expect from, you know, a weakening currency, is for, for harder assets to do well.

• 23:42Speaker 02

  And if you get outright inflation, then generally commodities and other kind of, you know, scarce assets like that can do well. And so if you look back historically, commodities over the very long run, underperform many other asset classes like equities. Cause they're not able to compound very well. It's kind of a poor business overall. But there are certain decades where they, they radically outperform and those tend to be those more inflationary decades.

• 24:06Scott Galloway?

  So you, some very credible media institutions and people come to you for advice on the following question. What asset classes are you, do you think will overperform the market? Which asset classes do you think will underperform the market? And then let's talk about specific companies to the extent you're willing. Where, what are you telling your clients right now?

• 24:28Speaker 02

  Generally, I think that emerging market value shows a lot of promise. So if you look at areas that have underperformed over the past decade, it's generally foreign markets, it's generally value. But of course, I think investors have to be cautious there, right? Because of course, the big, the big trap with value investing is to find value traps, things that look cheap, but they continue, you know, they're melting ice cubes. They're basically losing out on business. They're obsolete. So basically to go abroad and to find things that have not been propped up to unusual valuations. And so if you look at the US equity market, essentially what we've done over the past couple decades is that we've run these very large structural trade deficits over the past, especially the past 25 years, starting in the mid 90s. And the foreign sector took those, those, you

• 25:13Speaker 02

  know, those dollars that they earn, because for them it's a surplus, and they, they put it back into US assets. They used to buy a lot of treasuries, for example, but in, in recent decades, they've been increasingly buying US stocks, US real estate. And so we've had this really strong feedback loop where we, we keep basically hollowing out our manufacturing base, running these structural trade deficits in a way that say other developed countries have not done. And a lot of those dollars flow back into our equity market. And so the big risk, I think, to watch out for, and it's hard to say when this might happen, or how high it can go first, is that if that loop starts ending, if we, if we start basically trying to rein in our trade surpluses, if for whatever reason, the world starts, stops viewing US equity markets as kind of the, the best place to be, that trade

• 25:55Speaker 02

  can unwind pretty violently over a long period of time. And in that case, you'd probably get outperformance from some of the things that, you know, are doing well fundamentally, but that have not gotten a lot of capital inflow. So that's generally emerging market value, you know, could be even, even US value to some extent. I think, you know, some part of a bond portfolio. Can be replaced by gold. I, you know, I think that Bitcoin is a good percentage of a portfolio. Having a non-zero Bitcoin position is something I've been advocating since around April 2020. And so I think there's a variety of, you know, alternative assets that someone can put in to maybe replace a part of that,

• 26:36Speaker 02

  you know, say the 40% of their, you know, if they have a 6040 portfolio, say, taking some of those bonds and putting it into some other types of assets.

• 26:44Scott Galloway?

  So we're going to circle back to Bitcoin, but I just want to double click on emerging markets like so good companies in emerging markets. So a cable vision, the, the, the data, kind of the data monopoly or the cable, you know, broadband provider in Argentina. Just stock hasn't gone anywhere. Constant outflows. Is it, is it good companies in markets like that that have been overvalued that just look cheap? Is it just cycling out of the American sort of, if you will, tech play into good companies? Or is it Europe where private equity firms are crawling all over British companies because they look cheap? Relatively speaking, be more specific about markets and types of companies that you think you're bullish on.

• 27:26Speaker 02

  So for example, I've been pretty bullish on the Russian equity market around these levels. There's not been a lot of enthusiasm.

• 27:33Scott Galloway?

  The Russian equity market.

• 27:35Speaker 02

  Russian equity market.

• 27:36Scott Galloway?

  Lynn from Atlantic City likes the Russian equity market.

• 27:40Speaker 02

  Well, it's funny if you look at.

• 27:41Scott Galloway?

  I'm sorry, say more.

• 27:42Speaker 02

  Yeah. And if so, what I do, for example, I look at a bunch of different markets and I, first I took it, I look at the macro situation. So I look at things like what are the debt levels, public and private debts? So Russia, for example, is one of the lowest in that regard. Then you can look at things like, you know, do they have, you know, what is their fiscal situation like? What is their, how much foreign exchange reserves do they have relative to their, either their GDP or their money supply, however you want to measure it. And so, for example, using that type of metric, you'd identify ahead of time that things like Argentina and Turkey are not, were not very well positioned to defend their currency. Whereas something like Russia, even though they have a lot of currency volatility, they actually have massive foreign exchange reserves to defend it if they want to. And their equity valuations are very cheap.

• 28:26Speaker 02

  And then if you do expect a reasonable decade for commodities, right? So the past decade was was very poor for commodities. And so Russian equities is very poor. If you expect better performance of commodities, you know, especially from, you know, very cheap levels compared to, you know, their similar counterparts in other countries, they can do pretty well. And and there's a lot of corruption in the Russian equity market, but the large caps generally are, many of them are run in a Western style. And so, for example, if you look at Lukoil as as a, you know, a specific example, they've historically actually been better managed, you can argue, than most other super majors in the world. They run with like a Western approach. They have a lot of independent directors.

• 29:10Speaker 02

  And so, you know, there is, I think, value there. But of course, you wouldn't want to generally put too much of your portfolio there because you have political tail risk, right? It's obviously the United States and Russia not on friendly terms. We also saw what happened in China in recent months that shows that, you know, when you're exposed to these other types of regimes, you have that risk. And so essentially, what I do is I pick a few different markets and I diversify. So I like India, I like Russia. At these levels, I, you know, I think you can speculate with China. It obviously had to be very, very careful there with position sizing. I like, you know, certain countries in in in South America. You know, Brazil's been very beaten down lately.

• 29:51Speaker 02

  You know, so I think that there's a bunch of markets out there where, you know, especially if you combine, say, some degree of technicals with fundamentals, if you look for, you know, signs of stabilization, upturns, those are places to at least keep on your radar, I think, to consider overweighting up to a certain, you know, risk point.

• 30:10Scott Galloway?

  So I put forward a thesis and want you to respond to it because I think it's sort of in line with your narrative. Chinese internet companies. I look at Alibaba and I see a company growing faster than Amazon that trades at a forward P E of 16 versus 60 at Amazon. They just look look like it's a fire sale. Huge macro risk, but the thesis is the government wants to send a signal. It doesn't want to kneecap these companies that it still needs its winners. It still needs them to be economically viable. It still has a lot of information age workers they want to see employed. Is this like an, I look at, and I've been wrong. I thought Alibaba was a buy three months ago and it's off 30% since then. This feels like an incredible opportunity.

• 30:51Scott Galloway?

  Granted, some real, a real significant macro risk here, but there's just very few companies of this quality you can buy at these values. Your thoughts?

• 30:59Speaker 02

  So I generally agree with that. Basically, I would describe it as, I think there's a high probability that those Chinese internet companies will say outperform over the next five years compared to say the S and P 500. But then there's that tail risk where you literally could get a big fat zero. For example, if something crazy happens, if, you know, because those have, not that those companies may maybe go to zero, but for example, you know, you have more complex legal rights and risks as an American, say, investing in that company. Obviously, we've recently seen political risk, but overall, I think if you look at Alibaba, Tencent, JD, and some of those others, you know, those I think are pretty attractive

• 31:40Speaker 02

  risk reward opportunities here, especially if you manage position because, you know, it's somewhat asymmetrical. If you do a small position, you can get a very large return from them potentially. And if you only bet a small position, if there's that, say, less likely tail risk of, say, you know, just completely, you know, fails to ever recover for one reason or another, then you haven't bet your entire portfolio on it. Another thing is that one of the biggest risks in China that's playing out now is that they have a lot of real estate debt. So when people talk about debt in China, it tends to be pretty localized. So they have, you know, there's, there's less, say, debt at the sovereign level, but you do see strong balance sheets with these internet companies and a lot of the debt is localized into those other sources.

• 32:23Speaker 02

  So if you wanted to say invest in China, but minimize your exposure to that sort of, that area, then some of those internet companies are, are, you know, but theoretically safer way to do it.

• 32:38Scott Galloway?

  Coming up after the break.

• 32:40Speaker 02

  We generate more electricity than we use and we have to so that we have a reliable grid. You know, if we had a perfect supply-demand balance, then you know, the marginal laptop turning on would cause a brownout. So of course, we have to have this excess supply and Bitcoin miners actually come in and kind of soak that up.

• 33:00Scott Galloway?

  Stay with us.

• 33:06Scott Galloway?

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• 34:44Scott Galloway?

  So let's pivot to crypto. You actually have a background in electrical engineering. Let's, let's talk about crypto and energy consumption. You feel as if it's been overstated.

• 34:53Speaker 02

  Yeah, for a couple of reasons, because one is the way that Bitcoin scales, it generally, over time, there's fewer coins issued every 10 minutes. So every four years, there's something called a halving, so fewer Bitcoins get created. And that's why Bitcoin asymptotically approaches 21 million coins in existence. It's already, you know, it's already mined well over 18 million of them. And so if you look at, say, miner revenue, which is kind of the top end for, for energy consumption, right? Because they're the ones buying the energy. Of course, it'll end up being just a percentage of that because they have other expenses. They, they hope to earn a profit, things like that. But if you look at miner revenue, that keeps shrinking over time as a percentage of both Bitcoin's market capitalization and Bitcoin's transaction,

• 35:38Speaker 02

  annual transaction volume. And that's because in earlier days, that block subsidy was very, very large. And so Bitcoin mining revenue was pretty big relative to the size of the ecosystem. Whereas over time, that approaches just transaction fees, rather than new coins being issued. And so it should become more and more energy efficient relative to its size over time. And then the other key factor would be that most, for the most part, it's a unique energy buyer, because they need cheap energy, but they're willing to go to remote locations, because unlike a data center, they don't need 100% uptime, they don't need massive bandwidth, they, they can deal with periods of downtime, and they can, all they need is a basic internet connection. And so

• 36:20Speaker 02

  they can go out to remote sites, for example, where there's stranded energy, or, and they can also move, for example, seasonally. And so they can actually soak up energy that's, that's not really being used, because throughout the whole world, we, we generate more electricity than we use, and we have to, so that we have a reliable grid. You know, if we had a perfect supply-demand balance, then, you know, the marginal laptop turning on would cause a brownout. So of course, we have to have this excess supply, and Bitcoin miners actually come in and kind of soak that up. And so, you know, you can always find anecdotal cases of, you know, an issue happening because of Bitcoin miner, but in the grand scheme of things, it's a small percentage of global energy, it's increasingly efficient, and it uses it in a unique way that's mostly a non-rival

• 37:05Speaker 02

  electricity source.

• 37:07Scott Galloway?

  Are you bullish on Bitcoin or à la crypto? How do you discern between the different coins or different types of companies that are piggybacking off the phenomenon?

• 37:19Speaker 02

  So that would depend on timeframes. So my fundamental view is bullish on Bitcoin specifically. But historically, what we've seen is that during Bitcoin bull runs, because of the, there's a lot of enthusiasm in the space, a lot of capital pours into other tokens as well. And many of those actually outperform Bitcoin. But a risk that you see generally is that, say, that the coins doing well in one cycle are generally different coins to the next cycle. So most coins don't survive through multiple cycles and keep building value like Bitcoin has. There's a very poor track record for most of them. And so, you know, there's Bitcoin, there's Ethereum. Those are kind of the two that have developed some degree of a network effect. And then down from there, it's far more speculation.

• 38:04Speaker 02

  And then even if you look at Ethereum, there's a lot of interesting development going on. But if you look at the way that, say, the protocol works, you know, they're still changing the underlying base layer. They're changing from proof of work to proof of stake. You know, they have, they have something called difficulty bombs in the code that basically kind of would otherwise kill the chain. And so it kind of forces them to do a hard fork to update to a new chain. So it kind of gives more power to the developers. They're able to change their monetary policy. Whereas Bitcoin is a lot more solidified network, right? So it's not, it's very, it's by design, it's changing very, very slowly on the base layer. And a lot of the development is on higher layers like Lightning, an open source network

• 38:46Speaker 02

  that runs on top of Bitcoin and some of these, you know, side chains that kind of connect to it and things like that. And so overall, I think, I think the real story long term is probably Bitcoin. And I view most of these other tokens as more like equities in the sense that they're not decentralized in the way that Bitcoin is. They generally still rely on central development hubs. They have, you know, the developers have more ability to change the monetary policy or other details of the code. And then most of them lack the network effects that, say, Bitcoin and Ethereum have.

• 39:18Scott Galloway?

  You've done some research on bubbles. What are the symptoms of a bubble and how many of those symptoms apply or don't apply to crypto right now?

• 39:26Speaker 02

  So the short version is that it's funny because cryptos had multiple bubbles, but that has not really stopped it from continuing to adopt. And so generally, you know, signs of a bubble obviously are massive gains in a short period of time, euphoria around the area, excessive leverage where people expect that they can take on undue risk with the anticipation that that level of return will continue and then specifically continue without massive drawdown that would liquidate you from that exposure. Generally, there in a bubble, there's a very large disconnect between what the future will bring versus what the future ends up actually bringing. So an example would be the dot com bubble,

• 40:10Speaker 02

  where obviously there was really valuable technology there, but it was bid up to such high valuations that the vast majority of those companies bid up to those valuations became untenable and only a handful of them, like for example, Amazon, were able to bounce back in any kind of reasonable period of time. And so generally, what we see in the crypto space is, you know, you have these bear markets and then you have these bull markets, which historically have happened generally shortly after Bitcoin's halving cycle. So when new supply gets cut in half, you know, their every 10 minute new coin issuance gets cut in half, that has historically been one of the catalysts for a bull market across

• 40:50Speaker 02

  the whole space. And then generally, you get more and more of these junky projects issued and people don't focus on fundamentals, like they can't explain why, say, Dogecoin's different than Bitcoin, what are the technical details that are different? And then they just buy across the board, they speculate, they take more risk in a volatile asset than they should. And then they start talking about how it's going to revolutionize everything and it's going to happen very quickly. And because a lot of those tokens are created and issued, eventually they exhaust buyers, right? So even though Bitcoin's scarce, 1,000 other projects could come along with all these promises of what they're going to do, people pour into them instead and eventually they reach such euphoric levels, they exhaust

• 41:35Speaker 02

  buyers and then the whole thing crumbles like a house of cards and say 99% of those tokens don't make new highs in the next cycle several years later, whereas Bitcoin and then maybe a few others do. So I would say that You know, earlier this year, we had bubble levels, like when you saw, say, Dogecoin going up to, I think it was 70 cents a share, when you saw, you know, the whole space was just going vertical, that had bubble characteristics. We washed out a lot of that. You know, I think that there's a pretty good risk at the NFT area, so non-fungible token area that's happening in some of the smart contract platforms where, you know, there's like a picture, it's a JPEG, and we can copy it, but there's like essentially a signed receipt for it on the blockchain so

• 42:20Speaker 02

  that you kind of own, you could call it the original. You know, those now trade for millions of dollars in some cases. I think that looking back several years now, there's a pretty decent chance that they won't be at those levels, kind of like the ICO coin mania from back in 2017. So I would say that there probably are a lot of over enthusiastic heirs of the market right now. I wouldn't necessarily characterize Bitcoin as one of them, but Bitcoin is very volatile and obviously investors have to take that into account when they construct a portfolio.

• 42:54Scott Galloway?

  So, advice, not to your younger self, but advice to our younger selves. We have a fairly young listenership, but oftentimes I get emails saying, "Well, I want advice as well." From an investment standpoint of your human capital and your financial capital, it sounds like a big theme, and this is just, I think, one of the few remaining pillars that stands the test of time is one diversification. Sounds like you think that a lot of good companies in emerging markets might outperform, that the kind of US equities trade on, it's been played out, but it's looking expensive. A certain exposure to crypto, specifically, you seem to be a fan on a risk-adjusted basis of Bitcoin because of some of the scarcity

• 43:37Scott Galloway?

  credibility it has versus some of our currencies, which seem to be losing their scarcity credibility every day with the printing. What other advice, from an investment standpoint, or even more so from a professional standpoint, would you give your 25-year-old self or some of our younger listeners out there on how to allocate their finite capital, their human and their financial capital?

• 44:03Speaker 02

  So I think we cover the portfolio aspects pretty well, basically being diversified, trying to find areas that are maybe unloved, but then also looking at these structural things that have a good probability of structural growth. So I still like some tech stocks, for example, and I think Bitcoins has a good chance of continuing having a really good decade, kind of compounding from the prior decade. And so at least watching that space and having an allocation, I think is important. When we get into, say, other aspects, I think we're in this stage where people have to think very hard about the career they choose, or not even career at this point, because things change so rapidly now, more like the skill set that you want to build. And so it used to be that you could

• 44:46Speaker 02

  take on a lot of student debt without really thinking about it, and then enter the workforce, whereas I think now you have to be more selective in terms of, say, taking on student debt, or what kind of careers you pursue. And so overall, I think one of the most powerful things we have now is that you can, you don't have to go all in on one career. I mean, the way I accelerated out of, because I went into a lot of student debt, I did not come from a wealthy family, and the way that I was able to accelerate, say, my wealth compounding was by always having a side hustle and building other skills outside of my core area. So

• 45:28Speaker 02

  either selecting, say, one obvious thing, like obviously if you were going to medical school or something like that, it's, you're going into a high income profession, it's going to eat up your life, and you really have to generally focus on that. But if you're in many other types of work, you can have a side hustle on the side. And the math that I like to point out is that, like, let's say you earn, say, $60,000 a year, your expenses are $40,000 a year, so you're saving $20,000. Well, if you can go earn another $20,000, you're only increasing your income by 33%, but you're increasing your savings rate by 100%, assuming you keep your expenses flat. And so that's one of the biggest accelerators that's

• 46:10Scott Galloway?

  That's the hard part, isn't it?

• 46:11Speaker 02

  Yeah, exactly. But I generally also find that

• 46:14Scott Galloway?

  Stoicism and a discipline to save.

• 46:17Speaker 02

  Yeah, and I generally find that if you are doing something you enjoy that you're also good at, you get flow, that state of flow from doing it, you end up spending less on frivolous things because you're enjoying the type of work you do. And so generally, it's one of those things where it's simple but not easy, but you know, find ways to increase your income. And just, I think, once someone kind of fully grasps that math, where it doesn't take a large income boost to literally double your savings rate, if you are seeking out those sources of income and while Simon and Tennessee holding your expenses flat.

• 46:53Scott Galloway?

  Lynn Alden is a full-time investor and independent analyst. She founded Lynn Alden Investment Strategy in 2016 to provide institutional level research online to institutional investors and retail investors. Her work has been featured in The Wall Street Journal, Business Insider, Market Watch, and CNBC. And she's also served as a consultant to start-up companies, hedge funds, and executive committees. You can find her research at LynnAlden.com. That's L-Y-N-A-L-D-E-N dot com. She joins us from Atlantic City, New Jersey. Lynn, thanks for your time.

• 47:22Speaker 02

  Thanks for having me. Happy to be here.

• 47:33Scott Galloway?

  Algebra of happiness, the lanes within which we are comfortable operating. I've found that I've gotten older, I have a certain algorithm or a path that involves the types of activities, the places and the people I want to do things with. And I have become less and less open to new activities, whether it's going on a boat ride around Manhattan, which I was invited to do yesterday and I said no, whether it's investing in a new friendship that could evolve into something. I just kind of have my gig. And I noticed specifically with someone older in my life, that she has become somewhat agoraphobic, that she doesn't like to leave the house, is only comfortable being around certain

• 48:15Scott Galloway?

  people. We talked about doing a 70th birthday party for this individual, and she did not want to do it. And what I've noticed is, and I recognize this in myself, that as we get older, we find the things that we like and we become more fearful. And it's, I don't know if it's less comfortable or more fearful. And this is your brain telling you it's time to die. That it's the unexpected, that it's new relationships, that it's new stimulation that force our brain to adapt, to be malleable, to release a hormone, to get, you know, to get it, to get a rush of the right chemicals in the morning, to get the cortisol, whatever it is going. And if you want to live longer and you want to be healthy and you want to

• 48:59Scott Galloway?

  lead a rewarding life, you need to constantly take the time to stop, push out your arms, and make sure that the lanes and the guardrails within which you are comfortable operating get pushed out and don't close in on you. It is very easy to decide, I want to stay at home, I only want to interact with the following people, and I want to maintain the certain types of experiences, whether it's food or relationships, or even the emotions I feel. You need to get out there. And this is something that old people need to do, or people my age need to do, to live longer and really enjoy life. And this is absolutely something you have to do as a young person. Nothing wonderful will happen

• 49:40Scott Galloway?

  to you if you do not constantly, constantly push those borders out and go to different places and open yourself to different types of relationships and be willing to explore friendships with people that you otherwise think you wouldn't be interested in being friends with, that you don't take risks and meet people. Go to that party, go to that dinner party, try something new, try something new. Force yourself. If you are not uncomfortable, if you are not uncomfortable with the things you do, you are not going to have as many as people in your life to love, you are going to die sooner. Push the boundaries out, push

• 50:21Scott Galloway?

  the boundaries out. If you are not regularly pushing yourself to a level of uncomfortableness, to a level of a little bit of anxiety, you aren't living life. Push those boundaries out. Do something different. Be open to new experiences, be open to new friendships, be open to new opportunities.

• 50:40Scott Galloway?

  Our producers are Caroline Chagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you next week on Monday and Thursday.

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