Investing Notes: Lyn Alden 9/26/2020

These are my personal notes from attending conferences/webinars/talks - and this one is from this past weekend in watching a couple sessions from the Trading Investment Summit: Investing Notes: Lyn Alden 9/26/2020. I recently started following Lyn on Twitter too - after discovering that some of my favorite investors also follow Lyn, so thought it'd be a good opportunity to catch an interview live to learn a little more about her perspectives. 

Here's a link to her BIO, with some additional resources she's created.

Hope this helps! (And feedback always welcome.)
​--Arry 

Investing Notes: Lyn Alden 9/26/2020

Lyn Alden Interview

Lyn founded LynAlden Investment Strategy. Free newsletter every 6 weeks. Engineering background. Started investing before studying as an electrical engineer. 

How has the banks/markets responded to Covid? What’s your view on this, esp regarding employment/supply chain? ——> April 2020 - looking forward square root sign curve regarding employment. Falls, small recovery, then will be a very slow recovery. So far, that’s what we will see. We have a credit cycle playing out - permanent job losses are happening. Going forward, this will be an issue. Fiscal policy is what to watch out for - will dictate how “K shaped” this will be. If you see more fiscal, you can see a narrowing of the K. 

How to get this trickle down effect of QE over these years. Helicopter money into people’s accounts has a good short term effect. ——> Central bank have been trying to address this problem of the global financial crisis - we have had low rates for so long, so it is miss pricing risk. Negative rates destroy the economy.  It’s an over reliance on monetary policy - it’s like the 30s-40s. We need more fiscal policy - in the 40s, that’s what happened after the war. Lot of the deficits is tied to structural, an aging demographic. Fiscal versus monetary policy. This recessions we got a lot of direct to consumer earlier. Now it comes down to what happens next. We’re in a normal recession right now.

Apple issuing debt even with their cash pile of billions. Is it sustainable for low rates? It’s good for real estate, taking out low 30 year fixed rates. It’s good for stocks. But what else? ——> Whole yield curve is so low. Looking at the long term debt cycle, in a typical biz cycle, you might get more leverage in the system, then you get an external catalyst, and then a small recession. Then monetary policy comes in and ends it. Over multiple short term multiple biz cycles, then you’ll get more debt in the systems, … then you get lower interest rates, then you hit zero. The last time we hit zero bound was 1930. This will be a big deleveraging event - but they play out differently. Very challenging time for markets. Not a lot of safe havens right now - because they are not good places for holding right now. No safe haven to put your money right now. 

The FED has announced a symmetrical period… how will this affect the dollar. Interest rates will not be volatile because central bank will hold. You’ll get more currency volatility. 1940s, when we were getting off of 0 bound, they said won’t let the 10 year yield go above 2.5%. Inflation reached double digits - it was inflationary and contained. In 2020, we’ll see a scenario like that. They will cap treasury yields - and let treasury underperform. We’ll come down to fiscal policy. Central bank will put the breaks on it - so it’s all about fiscal policy. 

How calculating inflation has changed so much. Inflation is basically which is reported is different. Central banks changed different from tightening to easing pretty quickly. The pain problem is the debt - everywhere, not just the US. So much debt - how will central banks get out of it? —> Long term debt cycle will be done by inflating a large chunk of the debt away. It’ll be like 1940 — they capped yield below inflation rate. You get all of your money bank nominally - but you lost 30% off your purchasing power. We’ll be in that period. We’ll get inflation. Real yields will be negative for awhile. Over the next many years, negative real yields. 40 year period from late 1930s to mid 1970s, you mostly failed to keep up with inflation. We’re in that situation. Yields are so low - only short term trades is where you might gain. 

Look at total debt to money supply — our debt is building up nominally, but it peaked in 2007 and has been in decline because of the money supply growth faster than debt. US came out of the 1940s as the only country as the global creditor nation with a large industrial nation. Now it is the largest debtor nation. This one is different. People point to “Japanification”. It’ll maybe stagnation? Japan is currently is the world’s largest creditor nation - they own more foreign assets than foreigners own their assets. That’s not our case. I’m in the dollar-bear camp. Over the next 10 years, the dollar will lose value against some major currencies. Japan also owns a lot of their own debt, btw.

Since we had massive QE, zero rates - have we seen inflation? QE and zero rates are more deflationary. Housing going up Disposable income has been getting reduced of the average person - because most people don’t have all these extra assets. Thoughts? ——> Some extent. View a similar outcome from a different lens. QE mostly props up asset prices. Fiscal policy working with banks - that’s more generally inflationary. Need to point more to fiscal policy. This happened in the 1930s, you didn’t see broad price inflation until 1940s where they saw the broad price inflation. Fiscal policy more than more central bank monetary policy.

1930s we had twin budget surpluses in the early 1930s, The starting point was positive. We have twin deficits right now going into this. ——> This is more of a inflationary variable. We have slower population growth. Rapid tech growth. Deflationary forces, that are offset by trade deficit, debtor nation, etc…. More vulnerable currency than back then. Over the next 10 years, we’ll see the dollar decline (maybe more 5 years). Depends on more fiscal policy. It might go down to the “70s”. It’ll depends on fiscal policy between all the countries. 

Fiscal policy that leads us to the most event of the year, the US elections. What is a risk-positive or risk-negative outcome? Trump with Senate Red, House Blue = lot of things can happen. Depends on the decisiveness of the election. You’ll get large deficits no matter what. Size of deficit is all about the gridlock. There will be a volatility period. 

What is the breaking point? The confidence level? Where’s the limit? ——> FED is trying to do tightening. Domestic balance sheets are tapped out, even with the deficit oof 5% of GDP. Now QE happening to buy treasuries. We’re getting into a fiscal issue. We can’t float the treasuries to the foreign sector. Much slower rate of purchase than before, so we are self-funding them. These deficits are not going away anytime soon. You’ll still get large deficits, the central bank buying a large amount of it. If you look into 2021-2023, that narrative will change with so much deficit.

One of the most popular asset classes, Gold, Silver views on the next 1-2 years? ——>. 1 year I’m neutral. Out 3 years, I’m bullish on it. I turned bullish on this back in 2018. It’s really correlated to real interest rates. Sentiment layer on top of it. Real rates are less negative than 1 month ago. How well gold does really depends on stimulus? Are we getting disinflation? Inflation? How big will the stimulus be? Especially for the middle class. The wealth concentration (like the 20s-30s), …. Part of the inflation debate will depend on middle class, this is key. History repeats itself. 

Dollar losing its reserve currency status. What’s your view? Will this happen? ——> Good question. Most people ask the wrong question? We are at the point where there is no one currency that can do this. This is a weird period in history. Previous periods didn’t have such a lock globally. The dollar since the 1940s have been in a super entrenched position. After WWII,US was 40% of global GDP, rise of emerging markets, …. The US is now 20% of global GDP. We’ve run many large trade deficits. We exported our industrial base and our currency to the world. US used to have 80% of the world’s global GOLD reserves. Going forward, the trick is not to look for which currency will replace the dollar. You could have regional trading currencies. Trade between Russia and China, used to be 80% of dollars, but now it’s got more Euro. But Russia/China are antagonist towards the US. A handful of currencies will be used to price commodities. Going forward, central banks buy less gold/treasuries. The dollar will be A reserve currency, not the ONLY currency to price commodities. Just a part of the system.