#616 Inflation, Bitcoin, and Monetary Policy with Lyn Alden

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

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

• 0:02Anthony Pompliano?

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

• 0:46Anthony Pompliano?

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• 2:10Anthony Pompliano?

  In the App Store. Again, Kraken, one of the OGs of the crypto world. They've been supporting Bitcoin developers for years, and I'm a big fan of their CEO, Jesse. So visit kraken.com/pomp today to learn more, or search Kraken in the App Store. Last but not least is Amber Group. With low yields and looming risk of inflation around the world, it's no question crypto is the alternative. With Amber App, you can easily earn high yields on your crypto assets. They're an all-in-one crypto finance app designed to help you earn, swap, trade, and invest in crypto. You can earn interest instantly simply by depositing assets to your wallet and you receive daily interest payouts. Again, you also have customized fixed term investments between 1 and 360 days to enjoy higher yields as well.

• 2:52Anthony Pompliano?

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• 3:11Speaker 01

  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.

• 3:35Anthony Pompliano?

  Lynn, thank you so much for doing this.

• 3:37Speaker 02

  Hey, thanks for having me.

• 3:38Anthony Pompliano?

  Absolutely. Let's maybe just start with, for those that don't know you, maybe you give kind of a quick 30 seconds on just what you spend all day doing, and then kind of your perspective with the research service that you've got, which I think is absolutely fantastic and highly suggest people go subscribe to. But how do you kind of think of your day-to-day role and what you spend most of your time focused on?

• 3:57Speaker 02

  Mostly research. So my background is initially in engineering, and I went into engineering management, kind of blended into finance. And then now I work full time doing investment research as an independent analyst. And so most of my time is research. And so I focus on individual companies as well as physically major sectors and overall what's happening in the macro space. So inflation, policy, that sort of thing.

• 4:21Anthony Pompliano?

  Got it. And so when you look where we are today, it feels like the Fed is the most important person in the market and kind of their monetary policy decisions, some of the fiscal policy decisions that are being made as well. How do you kind of create a framework to evaluate what's happening and what the impact of that will be in the future? Is there a specific framework that you use?

• 4:43Speaker 02

  The closest thing I have to a framework is the concept of the long-term debt cycle popularized by Ray Dalio. So that's the idea that, you know, we go through these five to 10-year business cycles with rising debt and, you know, you have a recession and then you go into the next cycle. But if you string a bunch of those together, what we've actually seen is that each cycle doesn't reset to the previous one in terms of debt or interest rates. And so what do you get is higher and higher debt as a percentage of GDP over time and you get lower and lower interest rates. And that that happens for decades until interest rates run into roughly zero or in some cases mildly negative. And so they run out of that policy room and have to pull in other types of tools. And so the last time we were in this type of environment in most developed countries was actually back in the 1940s.

• 5:25Speaker 02

  And so, you know, we have a lot of analogues to that time, obviously with different technology and things like that. So that's actually my main probably model framework. But then, you know, more tactically, I'm just kind of looking at what are the bottlenecks in the system that would force, say, policymakers to do something? And so because we're at the end of a long-term debt cycle, we're in a very macro heavy environment. And so some of the things that people expected with the past, say, 30, 40 years are behaving very differently in this environment. That's how I approach it.

• 5:54Anthony Pompliano?

  Got it. And I think that you and I see very eye to eye in terms of a lot of what's going on. But for those that are watching at home, just how do you think of your portfolio today? So like, is there an allocation that you kind of are targeting? Or if somebody was said to you, like, where are you invested at the moment? Just so they have that perspective of kind of how you're tactically actually playing in the market?

• 6:12Speaker 02

  I have kind of like an all-weather approach. I remain somewhat diversified. However, I tilt towards areas that I think are likely to have a much stronger performance over, say, a five-year period. And so that includes for me, I'm a pretty equity-focused, so I include a lot of individual equities, and then I have some other hedges or asymmetric bets on the side. And of course, ever since early 2020, I've been pretty big into Bitcoin as well. And so for me, it's, you know, my portfolio is mostly underweight, you know, the bond side, for example, and pretty heavy into equities, digital app, some commodity exposures. And that's where a lot of my focus is over the past few years.

• 6:56Anthony Pompliano?

  One of the things that I keep kind of coming back to is this idea that the economy seems to still be recovering from COVID and the economic downturn that occurred in response to that. And there's been all this fiscal monetary stimulus. And a couple of weeks ago, we saw the Nasdaq and S&P hit an all-time high at the time, the same day that the Fed's balance sheet hit an all-time high. We today saw that the Nasdaq hit another all-time high, and it almost feels like it's like a weekly occurrence now that asset prices just continue to go higher and higher. Yes, there's some drawbacks here and there, but for the most part, we're just trending in one direction. How much of this is a game where, whether it's the Fed or politicians on the fiscal side, like, they just can't

• 7:38Anthony Pompliano?

  stop. And so we're just going to continue to see this happen over the coming months versus you think that actually the music will stop at some point and we'll see some different activities from both of those groups?

• 7:49Speaker 02

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

• 8:32Speaker 02

  but every couple of decades, that whole kind of feedback loop can unwind. And so, you know, I think it's getting pretty heated at this current time. And I think some of the things to watch for potential reversal would be, say, changes in regulation that maybe go after corporate taxes, or that, you know, basically, basically we've seen over the past few decades is arbitrage where productivity has gone up a lot, but wages have not. And that's because of automation, technology, as well as offshoring. And so that gap between productivity and flat wages has mainly gone to the corporations. And so we've had, you know, roughly, you know, four decades of that. It really accelerated in the 90s. And so that loop is starting to

• 9:14Speaker 02

  get kind of pushed back from, you know, populism and some policymakers. And so, you know, I still think that has a little bit more to go. But I do think that that eventually is going to probably, that pendulum is probably going to start moving back in the other direction, where policymakers, I guess, favor corporations a little bit less than they have over the past few decades.

• 9:33Anthony Pompliano?

  Yeah. One of the things that seems really interesting to me is if you talk to maybe like a Jeremy Grant, I was reading something this morning, a couple of days ago, he was talking about, you know, if every metric from the equity side were overvalued, there should be a market correction, kind of this time isn't different. But when you look at things like the quantitative easing or the Fed's actions, it seems like it is different, right? And so how do you kind of balance those two things between what I would consider more fundamental analysis in whether it's equities, commodities, et cetera, and people who have been those value investors or around for a long time, they're like, look, this is the same thing as the 2000 crash or the

• 10:12Anthony Pompliano?

  2008 crash. It's just a matter of time versus the school of thought of like, no, the response is different. They're willing to do things. It's almost like they've banned market corrections and outlawed bear markets. Could both be right? Is one side going to be kind of overwhelmed by the other? Just how do you think about balancing those two perspectives?

• 10:32Speaker 02

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

• 11:12Speaker 02

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

• 11:56Speaker 02

  that's actually less clear than it was, you know, 20 years ago in that bubble. And so that's one of the challenges that investors have. That's why some people call it the everything bubble, because in the dot com bubble, specifically a stock bubble, real estate was not silly priced, bonds were not silly priced. In this environment, stocks, bonds, certain parts of real estate, kind of across the board, there's pretty high valuations. And generally, the areas where there's not bubbles, in my opinion, are, you know, say, certain commodities like, like energy sector. I mean, that's been in a multi-year bear market, like literally, energy stocks are in like a more than a decade-long bear market. I think the healthcare sector is not really in a bubble. Basically, there are pockets of the market that are reasonably valued, but the overall index as a

• 12:37Speaker 02

  whole is quite valued. And so it just comes down to weighing that risk versus the risk of owning currency that's getting devalued. Because one thing that makes this cycle different, again, is that this is the, you know, kind of the, towards the end of a long-term debt cycle. And so we have to go back to the 40s to really find a fiscal and monetary environment that looks like this. And so basically, Usually if you get inflationary pressures, the Fed raises rates and does other activities to try to contain that. But basically, what made the 40s different was that you had massive inflationary pressures, but because debt was so high and those US fiscal deficits needed to be financed for an external catalyst, obviously the war, they just held interest

• 13:18Speaker 02

  rates low anyway and just let cash and bonds basically burn away. And so I think the 2020s are kind of shaping up to be that sort of environment. And we're already seeing it now where inflation is 5% at the current time, while Treasury yields are, last I checked, like under 1.3%. And so that also applies to cash in the bank, that applies to T-bills are even lower. And so I think this is going to be an environment for the next, you know, more often than not for this decade, that yields for cash and bonds are going to be below the inflation rate. And so you have to kind of pick other areas and just try to avoid things that are obviously bubbles, that are euphoric, that are overvalued, and focus on companies or assets that you feel like you have an edge in and that you think will be higher five to 10 years from now.

• 13:59Anthony Pompliano?

  Yeah, you mentioned inflation. This is something we focus a ton on on the show in terms of CPI is at 5.4% in June, core is at 4.5%. And it almost feels like everything we're hearing from executives, especially in like the food sector, is just, hey, our inputs are going up, we're increasing prices, we're not going to stop, we're going to keep doing that. Customers seem to be responsive to that. It's almost like they're getting like a positive feedback loop and it's going to encourage them to do it more. At the same time, we're hearing from politicians, you know, either one, this is transitory, it's going to go down, stop worrying about it, it's not that big of a deal. Or two, oh, yes, it's higher than we expected, but we're just going to spend more, whether it's infrastructure or otherwise, to kind of get out of it. Maybe without thinking about like what to do as

• 14:40Anthony Pompliano?

  an investor, just your evaluation of inflation today, who's right? Are both people kind of sort of right in each group? How do you feel about where we are today? Do we go up from here? Does it kind of go sideways? And is there a difference between the rate of change versus the actual aggregate change of prices and kind of the belief that like that'll stay constant in the future?

• 15:00Speaker 02

  Yeah, you really nailed it at the end there, I think. There's a difference between the rate of change and the absolute price level, and that's what trips people up about transitory. So generally, you know, but you know, among the macro analysts, I've been in the inflationary camp for the past few years. And so we're seeing this play out. But I think the way to think about it is to make sure you understand the difference between rate of change inflation and absolute inflation. So rate of change inflation would be, you know, prices are, say, 5% higher than a year ago. Now, if next year prices are only 4% or 3% higher than than now, that's that's, you know, less inflation rate of change terms. But it's not like those prices went back down. There was no deflation that took those prices away. So you can have you can have niche areas

• 15:41Speaker 02

  that say go back down like lumber was a very specific bottleneck. Whereas once Chipotle raises prices and wages, we're you're never going to see the old prices and wages again. That that's a new level that we've reached in absolute terms. And so again, the analogy I use is the 40s because you know, everyone thinks of inflationary 70s, but in the 40s, which again was the last time we saw this sort of fiscal monetary environment. Similar kind of external catalyst that justified a lot of the fiscal spending that we saw. Now, of course, there's the pandemic, there's the, you know, all sorts of other things that they can use as cover. And so what we're seeing essentially is, you know, in the 40s, you had you had high inflation, it actually literally got 19% year over year at one point.

• 16:20Speaker 02

  Then it would cool off and go back down to zero. But there's no period of deflation. It is not like it's not like those prices went down. They just stopped going up. They leveled off. And then they'd have another big spike to like 12%, then they would level off, then they would spike again by like 8% level off. And so you had these stepwise increases in prices. And so my overall model for the 2020s is kind of like that, where I don't think we're just going to have like this big giant runaway inflation. But I think we're going to have these periods where prices go up pretty rapidly and then maybe cool off for a time, but we don't we don't deflate back down to where we were before. And so I think, you know, basically, by the end of the decade, people holding cash and bonds will have been able to buy fewer goods and services with those with those things than they could before.

• 17:01Speaker 02

  And of course, there'll be some disinflationary areas due to technology, software, music, maybe, you know, a clothes attire. But things you actually want, as Michael Saylor puts it, things that you actually key key real estate, key companies, you know, gold or Bitcoin, like things that are actually scarce, that that aren't being just like made far more abundant due to technology. Those are the things that, you know, your your bonds and cash are likely to buy a lot fewer of those things five, 10 years from now.

• 17:30Anthony Pompliano?

  Yeah, the thing to me that is absolutely scary and Stanley Chuck and Miller had a pretty, I don't know, week where he went pretty hard at this across a couple of different venues, where he basically said, "Look, the devaluation of the dollar, the Federal Reserve's actions over the last decade or so coming out of the 08 crisis has led to a massive increase in wealth inequality." And it seems like you're in a similar camp where you're saying, "Look, those that are just holding cash, you're going to lose all that purchasing power. The people who actually hold would end up being kind of resilient, value accretive assets. Those are the people who are going to get richer." And so is it fair to kind of say that that wealth inequality gap, based on where we're going today, given the information we have, that's only going to get wider and wider in the future?

• 18:12Speaker 02

  It depends on the types of inflation we see. And so over the past decade, you know, until, until this, like, last year, where we're actually getting some, some real CPI inflation, the past decade is mostly characterized by asset price inflation and not really CPI inflation. So that was kind of a somewhat disinflationary tech-heavy decade, where if you were owning, you know, key properties or key tech companies or just the S and P 500 as a whole, you know, you, you got much further ahead than someone who was not invested in assets. And so if we start to see that shift towards more commodity inflation, and we start to see that shift towards wages and reshoring and those sorts of things trickling

• 18:54Speaker 02

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

• 19:36Speaker 02

  it, is it wage and, and kind of commodity inflation? Or is it more that, that same sort of, of asset price inflation?

• 19:44Anthony Pompliano?

  When you think about a portfolio, inflation hedge ends up being a very popular kind of term that people are thinking about or actually acting on. I believe that you own Bitcoin and gold, correct me if I'm wrong there. And then, how do you think about sizing inflation hedge type assets in a portfolio? Are there other assets that you're looking at from an inflation hedge perspective? And then also maybe any comments in terms of, it seems like the stock market has become an inflation hedge to some degree, and people are kind of piling in there as well. And so kind of how do you just think about what to do once you understand the inflation situation we're in?

• 20:19Speaker 02

  Yeah, so the major inflation hedges are, gold, gold's kind of a weird one because it can do well in inflation or disinflation. What gold primarily is, is a hedge against negative real yields. And so that can actually happen in disinflationary or inflationary environments, where something like copper, oil, you know, those types of industrial commodities are more inflation hedges. And so even if, even if real rates are positive, if inflation's high, those things are likely doing well, in part because they're often what's, what's driving the inflation. And so, and Bitcoin is own beast. I mean, obviously, the, the past 10 years, the last decade, was mostly inflationary for asset prices, not, not say the commodity index. And Bitcoin obviously was, was tremendously successful, because it's, I've described it

• 21:01Speaker 02

  as kind of combining gold with the tech stock. So you have that digital scarcity, gold 2.0 narrative, combined with the fact that, you know, say unlike gold, which is going to be the same 10 years from now, in terms of what it is, the Bitcoin network is better now than it was five years ago. And unless there's some sort of catastrophic tail risk, it'll most likely be better five years from now. So there'll be more activity on the Lightning Network. Basically, there's developers every single day working on making Bitcoin better, kind of like if you own, say, a tech stock, let's say Roku, for example, there's, there's people working every day to build that network out, right? And so I kind of view it like that. So again, Bitcoin is not a pure inflation hedge. It's more of a, it's a gold 2.0, so

• 21:44Speaker 02

  a hedge against fiat to basement, while also kind of a growth stock at its own rate. So it's actually taking market share. So I think generally, if you're going to Hedge against inflation, you want to have some degree of commodity exposure, commodity companies, and then how you size that partially depends on what your conviction level is for inflation. And so my overall approach is to have some energy companies, some gold miners. I did have copper miners, but I trimmed them out when they, when they kind of went parabolic there and then I, you know, I might add to, add back to them. And so kind of, I have kind of that barbell approach where I have some, like, you know, long-term growth stocks that are, you know, I think basically disruptors, they're, they have this long-term compounding

• 22:27Speaker 02

  effect. And then I, on the other side of the spectrum, that's when I have that more commodity exposure, or gold and then things like that. And then Bitcoin's kind of in the middle where it's, it's, it's both sides of the camp essentially.

• 22:41Anthony Pompliano?

  When you think about kind of the policies that are being put in place, my favorite question to ask folks, and then I'll let Joe and John ask a couple of questions, is what would you do if you had kind of carte blanche control and could use fiscal or monetary tools? Are there specific things that you think that you would do that maybe is, aren't being done or aren't being talked about?

• 23:03Speaker 02

  I would cut payroll taxes. And so a big, a big, no, a big trend we've seen over the past decades is that, you know, we've, we've cut corporate taxes and we've, you know, we've, and so that, that's been good for one thing, but that a lot of that goes to the, the asset owners. Whereas we've actually, you know, if you, if you factor in both payroll taxes and just general healthcare costs, it's really expensive to hire someone and those workers get a big chunk of their money out of their paycheck. And so one of the best ways to, to address the wealth concentration we've seen is to tilt things a little bit more in the favor of people that are working, basically reward labor, you know, more so than other categories. And of course, that can take the, you know, basically where someone

• 23:48Speaker 02

  is on the political spectrum, if they're more left-leaning, then they can say, okay, we're going to do this program and this program. And some of those I think have value. On the other hand, if you're more right-leaning, but you're still concerned about wealth concentration, you can say, well, let's, let's have tax cuts that target the actual, you know, the bottom. The say the bottom 80% of that income spectrum. And so, for example, we, you know, the, the corporate tax cuts and the broad tax cuts that happened a few years ago. You know, a lot of those benefits, even though there's, they were broad based, they still went mostly to the top end. Whereas I think if you had one that kind of focused on that payroll side taxing, how much you tax labor. I would like to see that go down if you want to have basically a more vibrant domestic economy. And to make the United States a more attractive place to, to build things and to hire people.

• 24:32Anthony Pompliano?

  Lynn, you, you, I don't think I've seen this show before, but two things we spent a lot of time talking about are Bitcoin. And my brother Joe bought a bunch of Roku stock when they went public and did very well. So he, he reminds us all the time that Roku is a pretty good one. Joe, what questions you got?

• 24:46Speaker 03

  I was, I was very happy to hear you say, say that Lynn, thank you. I give them a hard time often about it, but thanks for doing this Lynn, I really appreciate it. My, my question, I guess is twofold. Part of this show, as we were just mentioning, is, is kind of about the education of financial markets for people that have either just started investing or figuring out kind of their journey along investing in their own personal portfolio. So I guess the first part would be, when you started thinking about that on your own pace, how would you recommend people go about learning, right? There's, there's books they can read and kind of podcasts and new avenues. But you personally, how did you kind of approach that? And then second off, how should younger people that maybe just got started investing recently? Be thinking about kind of what we've seen over the last 12 to 24 months, kind of overall, right?

• 25:30Speaker 03

  We saw a bunch of, as you said, we haven't seen kind of the fiscal monetary stimulus that we've seen in decades. Kind of the recession due to COVID and all this stuff. How should they be thinking about that on the long, the long-term impact of their personal portfolio?

• 25:44Speaker 02

  Yeah. So I guess to sort through those, you know, how I learned was initially it was from the internet, right? So the fact that we have, you know, access to democratization of information. So I can go and basically find, you can have like, you know, you know, basically an economist writing a blog. You can have an investor writing a blog. And so, you know, my, a lot of my initial learning was in the early 2000s when, when blogs were a big deal. Now, now it's shifted to some extent towards social media and these other platforms. But essentially finding people that, you know, That they have a very detailed process, right? So they're not just promoting something, they actually are going through step by step. Here's why I'm doing this. Here's my approach. And that could be on video form, that could be text form, all sorts of things like that. And it basically learned from them.

• 26:27Speaker 02

  And also then, then to go out and say, you know, I want to learn the other side of that. I want to go and say, okay, where, where could that be wrong? What is the opposite view? Because you can't invest in something until you can articulate the, the bearish case against it. Or you can't short something until you articulate the bullish case for it. And so I would do that approach. I think basically there's a lot of information online. I'm kind of numbers oriented. And so, you know, after I did a lot of that kind of foundational work, I would then go into, you know, when it comes to say the long-term debt cycle, you know, say after I discovered that years ago from, from Ray Dalio's research, I then took that and said, well, let me, kind of like if you, if you see a scientific study, it's not really that relevant until someone repeats it or changes it and, and just kind of tests it to see if it's still valid.

• 27:12Speaker 02

  And so I kind of said, okay, let me go actually to the data and reconstruct all of that and see, and kind of look at it from the other angles and things like that. And so kind of going through those long-term, you know, century-long pieces of data and seeing how that played out, seeing the history of what policymakers were doing back then and why, I found that very instructive for, for, for me. And so I think people, you know, people have different areas of learning. They could be more visual, they could be more audio, you know, they could be more numbers-based. And so they had to find what works for them is just make sure they're following competent people and then also always ask, what is the alternative view? What is the, you know, I want to make sure I can articulate both sides.

• 27:52Speaker 02

  As far as portfolio positioning, I think, you know, one thing that I think investors do is they, they tend to go all in on something, which obviously can work really, really well if you're right. But I think that, you know, most investors should have at least some degree of diversification. Doesn't mean you want to have like diversification where you just own everything. But I think you want to have a couple of different bets out so that if you're disastrously wrong, wrong on one, the other five, say, work out really well. But then, you know, from there, basically invest primarily in, What you know and what you think you have a circle of competence in rather than trying to invest in everything just because someone said something. Right. So it's basically if someone is tech savvy, they can get more in the tech space.

• 28:35Speaker 02

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

• 29:15Anthony Pompliano?

  John, what do you got?

• 29:16Speaker 04

  Yeah. So Lynn, thanks for doing this. Um, so you talked about being very diversified in equities, commodities, Bitcoin and all that. Um, I'm curious what you think about kind of how people have been saying a crash is coming in the economy, right? So history is no indication of the future, like we talked about the dot com bubble and everything like that. I'm curious what you think about the next three to five years and how, um, how the US economy looks.

• 29:40Speaker 02

  Uh, so I do think that it, it's partially going to depend on what happened with fiscal policy. And so we, we've talked about before how, how powerful the Fed has been. But I actually think one of the more powerful forces we've seen over the past year and a half was fiscal policy. Right. Because the Fed can lend and can, and can do asset purchase and stuff like that, but they can't just send helicopter money to people in a way that the fiscal authorities can. Uh, and so a lot of those kind of big moves you saw are actually, you know, due to the fiscal side of things. Which of course the Fed wasn't involved with because they monetized the, the bond issuance that paid for that. Uh, but it's still, you know, it had to go through that, that fiscal decision-making filter. Uh, and so that partially can affect how inflationary or disinflationary, uh, whether the economy kind of runs hot or if it runs cooler.

• 30:24Speaker 02

  Uh, and, and so that, that's I think one of the biggest things to watch over the next, uh, few years. As far as a crash is concerned, I mean, it's one of those things people are always saying that. And then, you know, occasionally they can be right and then you have a big crash. Uh, and so my overall approach is to make sure I know what I own. Right? So, so, you know, it's not just like I own, say, a, a, a squiggly line that's on a chart. Right? So, you know, I have to know if it's going down. Is it something I want to lean into and buy more of it? Or is something I actually, I, I do think the thesis has changed and need to sell it now. So one thing I do is even though I don't like bonds and cash, I, I retain a non-zero position in bonds and cash. And I, I dial that around a little bit. So if things get really heated, uh, I, I can take some chips off the table.

• 31:09Speaker 02

  And say, you know, let's say, for example, I bought copper miners and then they, they tripled. And I can say, you know what? I'm going to sell half my position or maybe even get out of that position. Put in some cash or bonds for now, uh, and then, you know, maybe reload if we get a pullback. And so I don't, I don't try to time the market too much, but I do tilt it around a little bit based on what's cheap, what's euphoric. Uh, and so to have some of a, kind of a defense against a major, major drawdown. So my overall approach is that I do think we will see consolidations and corrections and maybe even a crash in the next few years. And then it kind of comes down to what is the fiscal policy response going to be to that? Are they going to kind of, you know, let that kind of, you know, ripple through the system? Or are they, are we going to see a repeat of what we saw back in, say, March of 2020 where they just

• 31:55Speaker 02

  threw a fiscal bazooka at it. And so I, I think those are the big trends to watch.

• 31:59Anthony Pompliano?

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

• 32:31Speaker 02

  I don't like to call anything inevitable, but I do think it's clear that we're heading in that general direction. And we got a taste of this over the past 18 months. I mean, this, you know, large, large fiscal deficits that are monetized by the central bank while the central bank keeps interest rates below the prevailing inflation rate is essentially MMT. And so, you know, we had, again, that we had kind of, we didn't call it back then, but the 40s were kind of an MMT heavy environment. And so generally, you know, MMT kind of comes out towards the end of these long-term debt cycles where you end up having a very different policy environment than most other decades. And then, so I do think that that seems to be gaining favor. And if anything, I mean, basically, you know, it's not really even a right versus left issue. It's more of a populist versus establishment issue at this point. And so,

• 33:16Speaker 02

  for example, one of the reasons I think why President Trump was popular is that he, you know, he kind of, he was a more populist oriented politician. And so he was, you know, willing to spend more in certain areas, willing to do unfunded tax cuts. We're seeing the same thing out of the, out of the left. And so basically, I think it's one of those things where there's no, there's not that strong rapport of kind of that, that older school fiscal conservative approach on either side. You still have kind of remnants of that in, in, in both kind of the, say, establishment Democrats or establishment Republicans. But for the most part, we have this rising kind of a populist approach that favors these, these larger fiscal deficits that at this point have to be in large part monetized by the Fed if

• 33:59Speaker 02

  they're going to do them. And so I do think that overall, you know, we are tilted that MMT type of direction.

• 34:05Anthony Pompliano?

  Yeah, I tend to agree. I want to finish up with, with Bitcoin specifically. I know that you were kind of cautiously optimistic and then did a bunch of work on it. And now I would put you in the bucket of, you know, really kind of seeing the value of it, being able to describe it in incredible detail. You talked earlier about the Lightning Network, etc. What are your thoughts today? How do you look at that market and kind of what you expect maybe through the rest of this year and over the next couple of years? And anything specific around Bitcoin that, that maybe people don't know from your thoughts?

• 34:35Speaker 02

  Yeah, so I mean, I started covering it publicly back in 2017 and it was that you for price run up, I passed on it, it crashed, it consolidated. But basically, some of my initial concerns were addressed. So we saw the resolution of the hard forks, we saw the solidification of certain network effects, especially around Bitcoin. And so, you know, in early 2020, I was like, okay, now I'm in, I'm pretty bullish on this asset now. It's basically, you know, if you have certain concerns, instead of being permanently bullish or bearish on an asset, you can say, here's X, Y, Z, why I'm not invested. And then if later X, Y, and Z get addressed, you say, well, okay, well, they were addressed and now I'm bullish now. And so I have been quite bullish now since early 2020. I continue

• 35:18Speaker 02

  to be so, at least, you know, for multi-year long term. And mainly what I do is I analyze it from a network effect perspective. So I kind of analyze it similar to how I would any tech stock. Of course, with the exception being that instead of doing price to sales or price to earnings ratios, you're looking at adoption metrics, you're looking at what kind of development is happening on that protocol. And so over the, over the past, say, seven months, the thing that's interesting me the most is Lightning, because one of my thesis since January is that basically Lightning is reaching a critical mass where, you know, it had a, it's kind of like a freight train where it's really slow to start, but once it starts, it's, you know, that momentum's really strong. And so, basically, that's a network that rely, it's not a broadcast network, it's a channel network, and so

• 36:03Speaker 02

  it's really reliant on liquidity. And so it went through this, this couple of year process of building out that liquidity, building out the basic tools. But I think it reached critical mass where there's enough liquidity and some of the killer apps are coming to it. And I think that flywheel can start. And so ever since January, when I, when I first wrote that, we've had a doubling in Lightning capacity in terms of how much Bitcoin are on that network. And I think that's, you know, I think looking back five years from now, I think the Lightning network is going to be a pretty big deal.

• 36:31Anthony Pompliano?

  I could not agree more. I continue to say that the Lightning Network is probably one of the most misunderstood components of this. And yes, they're not kind of out of the gate, just up into the right. They've really taken the time to kind of build something that ends up being sustainable and resilient. And I think that's part of the beauty of Bitcoin is, you know, not going anywhere fast, but that's okay, because it ultimately ends up being the last thing standing, which, as we know in finance, is incredibly important to kind of just survive as half the battle. Before I let you go, where can we send people to follow you on the internet or subscribe to the research service? And, you know, for those that watch the show, I very rarely tell folks that I think content is good, but I really, really highly suggest you go check out Lynn's work. Every time she puts something out, I make sure I go and read it. But where can I send people?

• 37:16Speaker 02

  So I'm on Lyndon.com. I have public articles, I have a free newsletter people can sign up for. And then if they're interested, I have a low cost research service. And I'm also active on Twitter at Lyndon Contact.

• 37:27Anthony Pompliano?

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

• 37:46Speaker 02

  Yep. Thanks for having me.

• 37:48Anthony Pompliano?

  All right. Thanks, Lynn.