Friday Haymaker - Guest Edition
Adam Taggart w/ Lyn Alden
“… we are about to enter a reverse Asian Crisis, with Europe and the US in the role of Asia in 1997, and Asia and China in the role of the International Monetary Fund. Given the vast stock of money invested in the US and Europe, it may be the biggest misallocation of capital in history.” -Gavekal founder, Charles Gave
Adam, Alden, & a Humble Haymaker
Haymaker readers who afflict their precious leisure time with that uber-vexing game known as golf might recall the name Harvey Penick. He became one of golf’s most acclaimed instructors and he achieved national prominence for his best-selling Little Red Book.
At one time, Harvey had aspirations to join the nascent PGA Tour. However, a singular event caused him to change the arc of his career… he heard Sam Snead hit a golf ball. The gunshot-like sound of that alone caused him to realize he needed to earn a living teaching, not playing. As they say: those who can, do; those who can’t, teach.
That’s a bit how I felt after listening to this week’s Guest Haymaker star, Lyn Alden. She’s that good and what makes this even better is that she’s interviewed by my great friend, the super-smooth and cerebral Adam Taggart.
Because Adam provides an introduction, as well as the Executive Summary, I’m going to keep my own lead-in extremely concise. However, I do want to point out that Lyn is opining on some of my favorite subjects. These include my oft-described Federal Fiscal Funding Fiasco (she refers to this as fiscal dominance, an increasingly discussed topic); the risks of stagflation; the likelihood we’re in the midst of the Fourth Turning; the importance of a far more diversified portfolio construct to deal with the foregoing; the rise of populism (that has the potential to morph from the rational variety into something much more ominous); her intriguing description of what she calls “global blackjack; why the Fed’s aggressive rate increases have often been stimulative rather than contractionary; how that stimulus has benefited the wealthy (unlike with the pandemic-related “stimmies”); and the reason some sectors are flourishing in spite (or because) of high interest rates.
On that last point, I thought this Gavekal chart was a perfect visual illustration of this phenomenon. There’s no question the reason that the massive mountain of cash shown below is a function of the blue chip and/or mega-cap tech companies, like Microsoft. The fact that they can now earn 5%, as opposed to barely over zero, is manna from heaven (or Jay Powell). Of course, for the millions of smaller and, often, heavily indebted businesses, borrowing rates pushing 10% are an existential threat.
The same is true for high-net-worth individuals. The highest interest rates in almost 20 years are providing an enormous income lift. Companies that cater to the wealthy are, generally, flourishing (and may well continue to do so).
Accordingly, the Fed’s war on inflation might be backfiring and further aggravating what I call the “Tale of Two”, a true Dickens of a problem. Instead of Two Cities, it’s a tale of two consumer cohorts and two corporate sectors. For the lucky few (like me), the situation is just dandy. For the majority of Americans, however, it’s a much darker story.
By the way, I can’t recommend Adam’s work highly enough. You would be doing yourself — and your investments — a big favor by putting him on your preferred watch list. Please don’t hold it against him that he’s had yours truly on his show a few times. There are only so many Lyn Alden types out there.
David “The Haymaker” Hay
Lyn Alden: New Era Of Fiscal Dominance = More Inflation, Slower Economy
Investors require a different playbook now that the rules have changed
Adam Taggart
In order to succeed, it's critical to understand the rules you're playing by.
And the rules for investing may have recently changed.
There's a good argument to be made that we’re now in an era of fiscal dominance.
Today's guest, one of the smarter you'll get the chance to hear from, is certainly making that case.
So what exactly is ‘fiscal dominance’?
Why is it important for investors to understand?
And which assets do well, and which do poorly, in such an era?
To find out, we have the good fortune of speaking today with Lyn Alden, investment strategist & author of the recent book Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better.
She also shares her outlook on the dollar, gold and Bitcoin.
To hear it all, click here or on the image below:
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Adam’s Notes: Lyn Alden (recorded 4.25.24)
Executive Summary:
Fiscal dominance occurs when large sovereign deficits and debts limit the options available to central bankers to address economic challenges, particularly inflation. Lyn sees the US now in such an era of fiscal dominance.
Federal debt currently stands at ~120% of GDP, significantly higher than during Volcker's tenure. Moreover, the fiscal deficit surpasses the combined sum of annual new bank loans and corporate bond issuance. This situation poses an increasing challenge for current Federal Reserve Chair Jerome Powell, who must navigate a delicate balance between controlling inflation while avoiding exacerbating the fiscal deficit. But when push comes to shove, he’ll have to sacrifice the Fed’s inflation target in favor of trying to keep the national debt serviceable.
Eras of fiscal dominance tend to be