[00:01] In focus with Jeremy Saffron is brought to you by Swan, the real Bitcoin company. >> Welcome back. I'm Jeremy Saffron. Now, today we're looking at a market that's rallying at the index level while the core drivers of the US economy lose momentum and the major indices are near record highs. Yet, the average US company isn't participating. Consumer spending just stalled in real terms and private credit margins continue to compress. And meanwhile, the Federal Reserve has quietly halted its balance sheet runoff, which tells you liquidity
[00:32] conditions are far tighter than the headlines suggest. And to add to that, Bitcoin has broken its decadel long correlation with equities correcting sharply even as there are new reports that sovereign wealth funds are quietly accumulating behind the scenes. And meanwhile, gold is holding above $4,000 supported by central bank demand and reserve managers who are rethinking the re uh reliability rather of long-term duration of sovereign debt. Now, this is not a normal market environment and it's not a normal cycle. Investors are trying to navigate all of this. So, of course,
[01:03] we brought in somebody who knows a thing or two on the macro environment. And my guest today has been ahead of every major macro shift since 2019. Her latest research covers the rise of fiscal dominance, the growing risks in private credit, the quote utility trap in crypto, and the next phase of global liquidity, what she calls the gradual print. Joining me now is Lynn Alden. Lynn, welcome back to the show. Great to see you. >> Uh, happy to be here. Thanks for having me. >> Uh, I want to talk to you a little bit about this disconnect. When investors look at the S&P 500, they obviously see
[01:33] markets making new highs. But when you remove the seven mega cache, you know, the remaining 493 companies look really nothing like that. A capital expenditure outside of the AI giants is is really flat and consumer uh spending has stalled here. So are are we watching a market being held up by a handful of names as we've discussed before while the broader economy loses momentum? Explain where we're at in this moment. Is it is it a soft landing or is it just a mask? Uh so I think it's a little bit of both. I think as you described it there's a narrowing uh and so uh the two main
[02:04] drivers holding up uh GDP growth are one the fiscal transfers. So we still are running above target uh you know fiscal deficits as a percentage of GDP and those are going to a segment of the economy and then of course AI capex and so any any investment or trend that's gen forces is generally in pretty good shape. uh and a broader set of of entities that are not really on the right side of those uh are are you know suffering they're they're they're dealing with tighter uh monetary policy
[02:34] uh and they're not really getting the benefit of of either AI spending uh or the fiscal transfers. So we have a narrowing of the economy uh and as I kind of point out in my recent report uh this is in some sense what you see in emerging markets. It's a little bit more stagflationary uh it's a little bit different than a normal slowing economy that we see in developed markets uh because it's still coming with above target debasement uh largely driven by that fiscal excess uh and so it's it's more stagflationary rather than kind of the disinflation that we normally see
[03:05] during uh you know kind of weaker economic periods. >> Yeah. And you know, Lyn, when we talk about the the bearish side of things, I always get in trouble because the bulls push me back on this and they say, you know, they argue that the wealth effect is real, that the top 10% own the bulk of the assets and and and they continue to spend. I mean, even if manufacturering is is is weaker, they say that the strength of service keeps the US out of recession. Does that argument carry weight? >> Uh, to some extent. I mean, that that's why I'm not too bearish because you have to ask what else would you be long? Uh,
[03:35] is it cash and bonds? Uh certainly around the margins that can be useful for selloffs uh for volatility reduction. Uh and I am more nervous around equities here than I was you know a year or two ago. Um but that's kind of been my trend for a while that there's multiple things to truly be bearish about. Uh but you still generally want to be long scarcer things uh compared to abundant things. Uh and it is true that you know the the top segment of society uh is responsible for a lot of the spending. uh they hold a lot of the assets and so I I generally describe the
[04:06] current macro environment as more of a social issue than a macro issue. Meaning that there's there's political ramifications from the level of frustration that that exists throughout the economy. Um but that's different from something that could that could kind of heavily sink stocks. U you know right now we see uh you pretty much record divergence between uh near all-time high stock prices and near all-time low consumer sentiment going back many many decades. The only other time we were in this kind of position was the really early 80s uh when when stocks were recovering and sentiment was
[04:37] still very low in in a recession. Uh so this is quite an unusual period uh especially outside of a recession. It's pretty much unprecedented uh and so you see that narrowing effect uh which is real um but it doesn't necessarily mean you want to short it. >> Yeah. Yeah. Yeah. Good point. I mean, you're saying macro has, you know, become kind of a social issue that the economic story is now kind of inseparable from from how people feel about their own financial stability. Of course, we're seeing that show up in the data. Consumer sentiment just rose for the first time in 5 months, but it's
[05:07] still sitting near recessionary territory despite markets at highs. I mean, what what does it mean when the macro picture and the lived experience of the majority diverge this sharply? I mean, does does that become a a constraint on policy or a catalyst for for instability? >> Uh, so it's not necessarily a constraint on policy because I mean, over the next 12 months or so, they can do practically anything. Uh, I think the next time it matters, uh, is the midterms. Uh, that's where these things tend to show up. They showed up in the prior election. They'll show up in the next election uh, to
[05:37] varying degrees. Uh, I'm not a political analyst, but that's pretty clear. Um and uh and that's the that's the you know challenging thing for policy makers across the board is that we look at the headline numbers GDP uh and the overall labor market. Uh there's no kind of end defined recession. Um but it's because it's so narrow. Uh so uh basically have a handful like two main pillars holding up the whole thing and the rest of it uh in isolation is pretty much in a recession. Um but that's only that's one
[06:07] piece uh compared to these other pillars. And so you have that disconnect between, you know, concentrated stock market doing pretty good, nominal GDP doing pretty good, but the but the median person is saying, "Well, I'm not really feeling it." >> Yeah. Yeah. And I mean, you know, going back to what you're just saying, you're describing an economy that's becoming narrower at the top where a small slice of these companies and consumers keep the data looking healthy while the broader base seems to be weakening. We, you know, we see that dynamic in emerging markets as you just talked about all the time, right? Strong headline growth with very fragile um
[06:38] underlying breadth, I guess you'd call it. I mean, do do you think that the US is taking on those same characteristics as you've put in your your your piece this morning? I mean, an emerging marketlike structure where asset prices hold up even as real economic participation thins out. >> Yeah. Yeah. So when a developed market enters fiscal dominance, meaning that they're running structurally large fiscal deficits, and they also have very high existing public debt to GDP, meaning that higher interest rates, you know, kind of blow out the interest expense of the federal government. Um, when when a developed market's in that
[07:09] position, it does have some emerging market-like properties. Uh, now it's got some other, you know, things in its advantage. I I call it emerging market light. You know, it's it's a more stable than a typical emerging market, but it does show kind of directionally similar signs. Uh and one way to think about it is that when an emerging market has a recession, often the stock market is going up in local currency terms because uh their recessions are often accompanied with uh currency crisis. So the currency's weakening uh you know the stocks making all you know highs in their local currency but their stocks doing poorly in dollar terms or gold
[07:40] terms. Uh and if you look at at US markets today, uh you know, the stock market over the past several years has gradually rolled over relative to gold. And that's despite uh all this AI uh fueled um you know, stock market gains and spending. Uh and so when you look at stocks priced in gold, it looks pretty much like you'd expect in this pretty low sentiment environment. But when we look at stocks priced in the dollar which is debasing uh then it looks pretty good because that's what that's what happens when you have that more stagflationary type of of economic
[08:11] malaise uh or that type of kind of fiscally dominant uh kind of a run it hot environment where it's the combination of a rising cost of living uh and you know kind of weaker wages and just kind of softer not really collapsing but softer job market. All those things come together so that there's this kind of multiple invisible lever lovers of pain for the median consumer even as some of the nominal figures continue to look fine. Interesting. I like your your terminology on that about it being light because you know when emerging markets narrow you typically see currency stress
[08:42] yet the dollar I mean it's still firm and US assets are still attracting that global capital. What's the catalyst that kind of forces this narrow structure to break if it does? I mean, does it take a credit event, a labor downturn, or, you know, does it just simply grind to, you know, to a valuation reset? >> Yeah, good question. I mean, one is that the the most of the developed world is in a similar bucket. Uh, they're not generally running as big fiscal deficits. Uh, but Europe's obviously got its host of problems. Uh, Japan's quite indebted. Uh and so when you're when
[09:13] you're looking at the dollar index compared to a basket of other majors, uh basically all all major currencies are devaluing relative to gold and relative to to other you know most other scarce assets. Uh the dollar has been you know pretty weak this year uh relative to other currencies. Most of that weakness was in the first half of the year. So it's it's been somewhat stable since then. Uh some of what's holding it up of course is um you know we do have the AI spending. So, you know, if we had an economy look more like Europe without, you know, basically the US economy without AI, that would look more like Europe. Uh, so that's that that'd be
[09:44] kind of weaker. Um, and you know, right right now overall, basically it's just that's the issue. It's concentrated. Uh, so what could you know, kind of threaten the existing structure? One is uh if if the investor uh a base so basically stock buyers and or bond buyers if they do get more spooked by AI capex and they they kind of perceive it more as a bubble and they want to you know lighten their exposure to it u that could create a vicious cycle to the downside kind of like how we've seen a virtuous cycle to the upside. So all that wealth effect or at least you know a portion of the
[10:14] wealth effect that investors have enjoyed over the past couple years could partially unwind uh and therefore ironically you know kind of less enthusi could could result in less consumer spending at the upper income levels because their stock portfolios are doing poor. Other than that you could see for example as the Fed you know gradually gets more doubbish uh with rate cuts and potentially uh you know they've already ended quantitative tightening as you said but you know they could eventually go back to balance sheet expansion. uh you could get a weakening of the currency and a gradual rotation
[10:44] elsewhere especially as we see I mean this year like Latin American equities have done quite well emerging market equities in general have outperformed the S&P 500 so around the margins capital's not really fleeing from those places into the US anymore it's just not really coming out of the US so potentially the next phase is something could could trigger at least you know some portion of that capital to want to go elsewhere >> yeah no that's an interesting point I mean it talks about concentration risk to your point because I was reading this morning Moody's economist Mark Xandandy summed it up simply with this quote, "Tariffs are the headwind, AI is the
[11:15] tailwind, everything else is being throttled." I mean, if if AI spending cools in 2026, even slightly, as we just talked about, does the broader US economy lose the only engine keeping GDP positive at this point? >> I think it would lose one of the two main ones. The other one is fiscal transfers. Uh so you know very large social security outlays uh Medicare outlays uh interest expense um all you know defense all these things uh they do you know largely flow into the economy. So uh that's going to towards senior
[11:45] spending uh that's going toward healthare and then by extension the healthcare workers and their spending. It's going to the defense industry and their spending. Obviously this is an issue for for taxpayers and for for currency holders. Uh but it is a sort of like nominal stimulus on the economy. So uh basically you when you have most of the economy kind of held up by fiscal transfers and AI uh if AI you know goes away then it's basically one pillar and you lose kind of one of your two main legs. Uh so it still wouldn't be like an outright just sharp reversal. Uh but it
[12:15] would be a softening of an otherwise of an already soft situation by further contraating it pretty much entirely down to fiscal transfers. Now I don't really expect a major reversal in AI capex in 2026. Uh I I think the the the main risk would be a slowing. So there's basically projections of what it's going to be over, you know, next year, the year after that. And if those numbers are still positive, but they're just coming out on the softer side of expectation, then around the margins, that's just a weakening of the two main pillars, >> right? Yeah. It's fascinating actually hearing you talk about those fiscal
[12:45] transfers. I don't think many people think about it as as a major support holding the system together. You know, everything from stimulus era savings to expanded government. I mean, as we've seen, how much of the current GDP and market strength is simply a function of fiscal transfer activity? And if those flows slow or get politically constrained, as we've seen, I mean, what does that landing look like? >> Well, it's somewhere around I mean, fiscal deficits are somewhere around six or 7% of GDP, which is historically uh quite large outside of a recession. We're almost stimulating as though we're
[13:15] in a recession before there's any recession. Uh, and you know, tariffs have taken a small bite out of that. But when you're running a $2 trillion deficit uh and you have you know you take uh you know 400 billion in annualized tariffs uh away from that uh you know it makes a dent. It's a it's a macro uh relevant variable uh but that's still in effect. So we've seen a mild softening of the fiscal side uh because of those you know basically tax increases uh at the same time as we see AI. So, uh, right now, uh, basically if
[13:45] you factored out if if we did like a really quick tightening of the fiscal situation, you probably would see more, uh, normal characteristics of a recession. Um, and so it's it's basically it's a difference between a normal kind of disinflationary recession and that more stagflationary type of recession because, you know, the fiscal deficits don't work miracles. They may mostly just pop things up nominally uh, in in in what is already a very levered situation. So we kind of gradually see uh private sector debt shifting over to the public sector. It's the same process
[14:16] that Japan went through uh except we're going through it as a twin deficit nation. So we're doing it with a trade deficit and a fiscal deficit uh you know counterbalanced by the fact that we're the global reserve currency. So uh in some ways we're more extreme than Japan and running into issues at a lower kind of debt threshold but it's a similar playbook already out there. >> Yeah. Yeah. Very interesting. And then we can get, I guess, to the Fed's kind of quiet pivot because it may be one of the most important stories of the month. I mean, on December 1st, we know that the Federal Reserve halted its balance sheet runoff. Quantitive tighting is
[14:46] effectively over. And based on liquidity data, it wasn't really a strategic choice. I mean, it seemed like it was a stress response to conditions in the repo market. I mean, did the did the market effectively tell the Fed you're done? And and does this confirm that the Treasury market can't function smoothly without a permanent Fed backs stop? Well, that's that's exactly what happened. They had been sucking liquidity out of the system. The combination of the Treasury general account uh filling a little bit above target because of the shutdown. Uh combined with the fact that you know
[15:16] just there's there's kind of pockets where liquidity is and where it isn't. Uh you know the Fed had to intervene with their standing repo facility. Uh now to some extent this was anticipated by the Fed about 2 years ago. they, you know, they publish annual reports where they kind of project what their balance sheet's going to look like. And they're basically saying by around 2026, they're likely going to end uh balance sheet reduction and go back to gradual balance sheet expansion that's roughly in line with nominal GDP growth. Uh now, I I think overall this hit probably a few
[15:46] months early, uh you know, partially because of that uh Treasury general account issue. Um but it's really not that different from what they expected. So they've already had, you know, a period of time of gradually taping the tapering the rate of their balance sheet reduction. Now that now that they had this acute liquidity stress kind of uh, you know, kind of tapping them on the shoulder, they've they've all outended uh the balance sheet reduction. There are some talks about balance sheet expansion. That's still probably a little bit premature, but I think we'll probably see that in 2026. And again, it'll be in line with gradual GDP growth
[16:18] most likely. it won't be some massive uh fiscal stimulus uh or I I should say a monetary stimulus. Instead, it'll be this this like you know gradual liquidity surplus added uh to kind of keep the wheels on because as you say the treasury market pretty much needs that to function. The repo market needs that to function. Now technically there's other levers they can pull. they can for example ease the supplementary leverage ratio for for large banks which would effectively allow them uh to absorb uh more treasuries and to able to perform more reproductivities without
[16:48] running into certain thresholds. Um but that's something that the Fed will have to look at you know probably next year. >> Yeah. Yeah. I mean so in other words I mean the Fed anticipated as you mentioned years ago that this balance sheet reduction would eventually hit a wall and that they would need to stop QT. I mean um with that I mean if if this was expected internally does that mean that the Fed has already accepted that the system can't run without a permanent rising you know balance sheet is is this the moment where those temporary tools quietly become more structural you think >> right so before 2008 they had a
[17:19] structurally rising uh balance sheet already the monetary base was structurally rising that's how fiat system works it you know it's different from gold in that regard uh now of course the difference here is that they now now with kind of post GFC regulations, banks uh run with much higher cash levels and so the Fed's balance sheet is a bigger share of the GDP. Uh but it does make sense that they're they're they're going to go back to gradually expanding that balance sheet but from a higher uh layer and this is you know this is one of the foundations of debasement. Uh if if you
[17:50] know in theory you had a fixed monetary base that's what the Fed controls the monetary base. If you had a fixed monetary base and banks make all these IUs on top of it, uh whenever they run into problems, uh their number of IUs would would collapse, you know, closer to the the the base amount. Uh and you know, people would would risk losing uh you know, deposits in their bank and the banks of course would would be at risk. Uh and instead the way that they operate the system is whenever they run into that issue, they instead increase the monetary base to keep most of those IUs money good. And that's basically
[18:20] different between say you know kind of a hard money gold system uh versus uh you know the fiat world we live in. >> You've coined the term the gradual print and I want to bring it back to this because the big print is obviously you know we we know you for it Lynn. Obviously we've seen you on the stage we've been talking about it but this this new term the gradual print instead of massive stimulus waves you argue that we're entering a phase where liquidity expands kind of slowly roughly in line with the nominal GDP. If if liquidity expands only gradually, does does the cap, you know, does that cap the upside
[18:51] for financial assets? I mean, what what are we looking at in 2026? Is it going to be kind of a a meltup narrative investors want to believe or do you think it's a slow grind? >> Well, sentiment can dictate how fast asset prices move because asset prices of course can move quite differently than underlying liquidity conditions. Uh, but generally speaking, yeah, that that should, you know, the bias is toward kind of a gradual increase. Uh, yeah. And for context, in 2019, there was a repo spike. Uh, and the Fed was kind of shifting. They they ended quantitative tightening in response to
[19:21] it. They started shifting to kind of gradual balance sheet increases. They didn't want to call it QE because they weren't doing it for economic stimulus and they weren't buying duration. They were only buying T bills. Uh, and they were doing it primarily just to support bank liquidity. Uh, now and then of course a few months later when when you know COVID lockdowns hit, they went into like giga stimulus. Uh but if you factor that out, that's basically that that was kind of that liquidity thing that they were addressing. What we see here today is kind of a repeat of 2019 uh except you know hopefully without this you know
[19:51] kind of big lockdown or pandemic or war or whatever in front of us. And so if you just have that environment you're more you're more likely looking at this kind of more gradual scenario. Uh and you know the gradual print I mean the term there is so I was on Natalie Brunell's show and I talked about this kind of gradual expectation we were going to see. Uh, of course my friend Larry Leard has a book out called the big prints. Uh, and so we're on somewhat different sides of of you know how much balance sheet expansion we expect next year. Uh, if there's a really big stimulus, we can call that the big print. Whereas I my base case is more
[20:22] toward a gradual expansion uh, of the balance sheet uh, which they won't call a stimulus. They won't say it's for economic stimulus. They'll say it's for financial plumbing and technical issues. Um, but really basically it's to support ongoing fiscal deficits uh, and bank lending. uh without you know allowing any sort of contraction to occur. >> Yeah. Yeah. So I mean if the if the Fed is adding liquidity even gradually while inflation remains above target I mean aren't they just locking themselves into a path where inflation never truly resets? And I know we've talked about
[20:52] this before but if CPI stays above 3% doesn't any liquidity injection kind of work against their goal or we just see this rinse and repeat? >> Uh pretty much yeah. uh they basically uh that and that's the issue when they so when when they run into fiscal dominance >> uh their choices essentially are uh either let inflation run hot or let the sovereign bond market potentially default and run into liquidity problems. Uh that that's really their their two main choices. Like I mentioned the other the third choice which only works temporarily is they could ease
[21:22] regulations on banks so they don't have to count treasuries and cash against their capital which basically allows banks to lever up and buy more treasuries or perform more repo lending. Uh so they have a handful of levers they can pull that either look like QE or shadow QE. Um but you know at the end of the day they never let the bond market just go illquid. Uh and so they always heir on more inflation even when it's above target. >> Yeah. Let's talk about gold for a second. I mean obviously you know it's a kick audience. So we got to talk about Bitcoin too. It's been impressive and
[21:53] somewhat disarming. You know a little bit alarming to watch but I mean gold is trading still above $4,000 but but what stands out is the type of demand behind this move. I mean you argued that it's not CPI trade. It's it's a collateral trade right? I mean is this breakout being driven by a shift in how global balance sheets think about safety? Are we seeing that rotation out of these long-term sovereign debts and into this sovereign metal? >> Uh so partially it's not that we're seeing like a wholesale selling of treasuries by sovereigns, but we're really we're not really seeing any much like net buying uh by sovereigns for
[22:25] treasuries. Uh we are seeing net accumulation of gold. Uh we we basically seen that ever since 2009, but of course it kicked into high gear again after 2022. Um you know because there just you know obviously concerns the countries have around their sovereign assets being frozen. uh you know basically are you really sovereign if you hold your reserves in a foreign security that can be frozen. Uh so we've seen more interest in in um you know sovereigns repatriating gold that they already have claims to as well as buying more tonnage. Um you know if you were to ask
[22:55] me last year would I expect gold to hit 4,000 this quickly? I'd say probably not. I mean my my base case was you know back when we were at say 2,000 was to you know get to 3,000. Uh I didn't expect it to quickly go to 4,000 but as a as a bull I'm happy to see it. Uh I don't think it's overvalued even though it is you know potentially kind of technically overbought in the sentiment sense. Um and I think but it's it's natural. Basically we're kind of exiting the the kind of the postw World War II dollar bubble. Uh that's kind of we we kind of reached maximum dollar roughly
[23:26] around the year 2000 based on various metrics like you know dollars as a percentage of reserves. Uh we've seen this kind of gradual shift toward gold reasserting itself back into the system. uh which I think is you know in the long run a healthier state of affairs. Uh it's not really kind of um sustainable to have countries around the world all buying the bonds of one country. Uh that even hurts that country in some ways. All the all this kind of trade imbalance we see uh the triffin dilemma that's at play is partially because we are the reserve currency. Uh so shifting back to neutral reserve assets uh can be a
[23:58] painful transition but I think it's it's you know it's a more natural state of affairs. Uh and so I think a lot of these moves makes a lot of sense. So, so I mean, you know, sovereigns are preparing for a world where the US remains the core of the system, but the margin of safety is kind of no longer trusted to the same degree. >> Yeah, I would describe it. It's it's moving to a world where the US is the the biggest individual entity in in currency reserves. Uh but it is not the only game in town. Uh so right now the two, you know, obviously the two biggest economic powers are the US and China. Uh
[24:30] China's got a much stronger industrial base. The US has a much stronger kind of capital markets and global reserve base. Uh but around the margins, there's been a shift, you know, a tiny bit into into, you know, Chinese bonds, but primarily into these neutral reserve assets like gold. Uh and uh so basically, you have gold as a major reserve asset. You have treasuries as major reserve asset. Around the margins, you have other major developed fiats as reserve assets. Uh and that's just in general, it's a more balanced system than than basically having, you know, 80% of all assets, you know, stuffed into US markets. Yeah.
[25:01] Yeah. Well said. Uh, okay. So, you didn't expect gold to climb as high as it did as quickly as it did, which I think a lot of people felt the same way, Lynn. I mean, what about Bitcoin? Were you expecting that that haircut? Were you expecting that that high and then to see this nice little, you know, correction, I guess we could call it. What are your thoughts? >> Well, Bitcoin's always like more volatile than people expect. I mean, I would have liked to have seen 150K. This year, we only got to 126K, uh, which is not too far off, but it's a little bit on the disappointing side. uh in general I I think you know there's there was a
[25:32] little bit of treasury uh like those treasury companies uh you know some of their MNAVs their market value to to net asset value got a little bit excessive we also started to see altcoin treasuries which I don't think was a particularly healthy development so I think it's natural for for a lot of that space to get washed out uh even though you know some of the leading ones I think are are healthy overall they have pretty low debt to um you know bitcoin ratios uh so I think as we see that right size as we see some selling I also think there's kind of a self-fulfilling profit Y. So, Bitcoin hit a multi-year peak in Q4 of 2013. Then it hit another
[26:05] major peak in Q4 of 2017. Then yet another major peak in Q4 2021. Uh, basically it's kind of in line with the with Bitcoin's kind of 4-year supply having cycle. Uh, so I think investors are spooked uh that if it didn't reach their targets here in Q4 2025, uh, that they might have to wait multiple years uh, for their next run. Uh, that's where I would generally disagree and I think that, you know, we're no longer on a 4-year clock. Uh so I think there's some selling that basically fear that we are uh but there's no particular kind of supporting reason uh that that cycle
[26:35] would still be in effect. So I do think that in the next couple years I think Bitcoin is still well positioned uh and right now basically a lot of the leverage and sentiment has been washed out of it. >> Yeah, you brought up strategy. I I have to ask you I mean it's kind of the elephant in the room as we kind of go about it. I mean the stock has been obviously extremely volatile. The premium kind of collapsed and analysts are openly questioning the balance sheet risk. I mean, it's a company with billions in leverage tied to directly to the Bitcoin's price. I mean, how concerned should investors be about concentration risk there? I mean, does does the strategy model work in an
[27:06] environment where liquidity is tightening and and the ETF market now absorbs most of the in institutional flows or, you know, is is the market kind of finally just repricing the idea that a corporate balance sheet can function as a Bitcoin hedge fund? >> Well, I think they're repricing it. I mean, I don't think that the three times MNAV it was trading at was sustainable. I mean there were other ones trading at even higher MNAVs like Metaplanet was at something like an eight times MNAV back in June. I don't think those levels are sustainable. Um I do think that Bitcoin with um you know non-allable leverage
[27:37] attached to it, the type that corporations can issue uh is pretty attractive and can warrant an MNAV above one. Uh but there's a kind of a range that makes sense and I think that a three times MNAV uh doesn't really make sense. Uh so there's been a repricing. Um and I I still think the business case itself makes sense. Uh I you know I would like to see more of these treasury companies have cash flows uh to support their interest expense. But when you look at how most of them are structured uh you know the top ones like strategy or metaplanet they've got pretty low debt relative to their assets. Uh you
[28:09] know so so you know during the bull market uh micro strategy has something like 20% debt in preferreds as a percentage of his Bitcoin. Now it's a little bit higher because Bitcoin's gone down. uh but even their preferreds are not, you know, exactly debt. Uh and so the actual debt portion is still quite a low percentage um of their Bitcoin holdings. So, uh it's it's fairly conservative leveraged. Uh but it does make sense that investors would be spooked when they're holding it at three times MNAV or even even when back down to two times MNAV. Um that they'd want
[28:40] to kind of rightsize that position. So, I think we we've seen kind of this over euphoria in the space. Uh I think there's going to be, you know, there's an ongoing wash out of the weaker ones. um uh the ones that are were kind of poorly capitalized or poorly run uh or you know bet on the wrong asset. Um but I think as it as it kind of washes out I do think that a handful still makes sense as long as they're conservatively run. And the of course the different differentiation they have compared to ETFs is that if an investor is bullish uh you know they can buy unlevered
[29:10] Bitcoin which you know I think makes the most sense. You do want to have your core position be unlevered. Uh ideally you can buy it and take it into self-custody, but you know if you're the type of investor that's going through a brokerage account, the ETFs are very useful. Uh but then for bulls that want a little bit more leverage, uh it's still conservative leverage, but it's some leverage. And so it is a differentiated uh security uh than you get from an ETF or from owning the underlying itself. >> Yeah. Yeah. Well said. And and I guess that brings us to your new letter because this section will surprise a lot of people. I mean, you you argued for
[29:41] that for most cryptocurrencies outside of Bitcoin. Um, obviously, utility is is not a a bullish trait. It's it's more of a trap because once a blockchain becomes purely a utility rail, it it competes like a commodity. You know, fees fall, margins compress, and returns vanish. You compared this to the ETF industry, trillions in assets, but the issuers capture very little value. Are you saying that the high utility is actually kind of bearish for a token that these networks will be very useful to society but terrible long-term investments?
[30:13] >> Pretty much. I basically would say that that puts them in the category that look more like equities. Uh so, you know, from the beginning, I've been bullish on Bitcoin and I've been bullish on the growth of stable coins. Uh but that that bullishness doesn't really extend to other cryptos. Uh you know, that doesn't mean that there's still not some that are useful. I mean obviously there are some things serving as the tech rails for the stable coins and and other types of assets. Um but that the my my argument is that the overall market value of those is unlikely to grow very large. Uh and you know as evidence to
[30:43] that I mean you look at the ETF industry there's over 13 trillion of of ETF assets uh that are you know basically a handful of companies uh issued the majority of them and those companies uh are are worth less than $200 billion. um you know it's it doesn't take a lot of of you know kind of operations to run this really big platform and the same thing is true for the big stock exchanges in the world the company you know the two companies uh New York Stock Exchange and NASDAQ uh that are responsible for the vast majority of US
[31:13] market cap tens of tens of trillions of dollars you know to collectively they're they're worth less than like half of Ethereum uh and so when people look at you know the these crypto assets and they say well this is going to serve as the tech rails for you know billions or trillions of dollars of stable coins and trillions of dollars of tokenized, you know, whether it's real estate or art or equities or whatever you have it. Um, the numbers that they have to, you know, reach in order to make these things worth what they already are worth are extraordinarily high if you look at them in on any sort of revenue basis on and
[31:44] kind of treat them as though they're a tech equity. Uh, and so basically there's a lot of competition between utility protocols. Um, I I think you price them like those tech rails. And the only one that I think is, you know, basically worth being a multi- trillion dollar asset is potentially Bitcoin because that's the one that's bought for its own sake. It's bought because people want to hold Bitcoin. They want, you know, the leading uh network effect and security uh for portable capital. Uh, and you know, so that can potentially warrant it as long as it remains
[32:14] decentralized and secure uh and and kind of the best at what it does. But outside of that, uh, I I think the valuations are quite high. >> Yeah. Yeah. You brought up Ethereum. I mean, in your view, is Ethereum simply priced for kind of a monetary premium it'll it'll never earn here? I mean, if ETH ultimately functions like a toll road with fees constantly, you know, competed down. I mean, how does that justify the valuation on par with the world's largest financial exchanges? >> Uh, well, I I think it doesn't. I mean right now it's partially held because uh
[32:44] you know it it does have that kind of speculative or monetary component to it. Uh but yeah when we look at you know what what could realistically in size run on Ethereum compared to what already runs on top of ETFs and compared to what already runs on the world's major stock exchanges uh you know even if all of that ran on Ethereum uh or ones like it Ethereum's already priced bigger than all of them. Uh, and so, uh, yeah, I do think that there's still a kind of a a kind of a speculation premium on the leading crypto assets. Uh, and so, you
[33:15] know, obviously when liquidity is good and Bitcoin's good, those assets are also generally doing fine. So, it's not that they're not tradable. Um, but that I'm not really I don't really see a compelling reason why you'd want to hold them for five plus years in a similar way that you might do with Bitcoin, similar way that you might do with precious metals, similar to what you might do with high quality equities or real estate. >> Yeah. Interesting. I mean, ETH bills would say to me and I would get the tweets, right? I mean, yes, fees compress, but Ethereum secures trillions in onchain activity. It kind of powers that stable coins that RWAs and
[33:45] tokenization utility should kind of command a higher valuation. At least that's what they argue. Where's the flaw in the argument? If if the network becomes more efficient, doesn't that reduce Ethereum's value capture even further? I mean, does scaling actually work against the token long term? >> I would say it's mainly a size issue. So it is it is true to say that you know whatever rail runs things like stable coins or a little bit of DeFi and things like that is worth something. Um but basically you know we're talking right now running hundreds of billions of total locked value. Uh compared to these
[34:17] other things that run literally tens of trillions and are trading at less than than Ethereum is trading at. Uh basically you don't need a $300 billion asset to run you know a trillion dollars in activity or even 10 trillion in activity. Uh and so basically there's still a very big kind of monetary and and speculative premium attached to it. Uh and so when you when you just price these things like you do price uh existing uh rails um it's already expensive. So it's basically just it's it's a question of magnitude in my opinion rather than uh you know the the
[34:49] separate question of of is it worth anything if something runs on top of it. Of course the answer to that is yes. >> Yeah. And then of course there's Bitcoin the big one. I mean, it's corrected sharply as we've talked about from the highs, but I don't know if you heard about this from Black Rockck CEO Larry Frink. He was kind of talking about how sovereign wealth funds are buying the dips. They're not trading it. They're they're accumulating. Um, what's happening with the price? I mean, why is it falling if sovereigns are accumulating? Is it just a leverage wash out? I mean, is market liquidity still too thin for institutional flows? I'm just kind of looking for an outlook
[35:20] going into next year. >> Well, sovereign buying from what we've seen is is fairly low. it's it's it exists but it's you know not particularly a massive driver. Um >> the major source of selling has been long-term holders which happens in every bull cycle. So whether you look at you know 2013 2017 2021 uh or now and even last year uh you know when when Bitcoin does really well and it's very liquid and the price is reaching new highs you generally have a lot of uh people that you know have been holding it for 5 10
[35:50] years uh where you know Bitcoin might have been worth 5% of their net worth and now it's 50% of their net worth or more because it's appreciated so much. Uh you'll generally see some of them selling some of their position. It could be because they want to rebalance and have less concentration risk. Uh it could be because, you know, they they start a family and they want to upgrade their, you know, consumption, their overall kind of this lifestyle. Uh and so they're selling some of their assets. Uh so you kind of get that normal distribution. It's kind of like how when a startup uh company happens, you know, you have a handful of inside owners. Uh
[36:20] then you have a handful of VCs. Uh you know, is pretty concentrated ownership. But as the company grows very large and becomes publicly traded uh you get selling from those early uh owners and and uh investors not not necessarily their entire position but some of their position in order to consume or in order to rebalance and you see buying from outside entities. So uh basically this whole bull market has been driven by you know people buying through ETFs, people buying through these treasury companies like strategy uh of course a handful you know some people buying their coins
[36:51] directly and taking them into into self- custody but then on the other side of that there has been uh you know uh couple million coins uh being sold by these longerterm holders uh that kind of take advantage of the of the you know liquidity and the strength in the market. So it is still volatile market and there's still overall distribution and change of ownership occurring. >> Mhm. Yeah. And I mean I guess the fiscal reality of what we're dealing with in the US is is part of that that bullish sense of it. I mean US federal debt is approaching $ 38 trillion. Interest
[37:22] costs are about 1.2 trillion a year. There's this debate inside Washington. Kevin Hass obviously says tariffs will materially shrink the deficit. Treasury Secretary Scott Bessing calls tariff revenue a a shrinking ice cube. I mean, who has the economics, right? Can tariffs meaningly, you know, and meaningfully, I guess, offset the the interest bill, or is it just the US already in a structural deficit trap? >> Right. Well, it's a tax increase. Uh, so basically, they they they added a tax increase. Now, normally, Congress is
[37:52] pretty polarized, which would prevent tax increases, but because they used emergency powers, they were able to do a tax increase without Congress. Obviously, the Supreme Court is is kind of in deliberation about that. So we'll see the longevity of the tariffs and if they have to re uh configure them in some way. Uh of course around the margins therefore it is a reduction in the deficit. Um but as I mentioned before it's you know something like a $400 billion reduction uh in a $2 trillion deficit. So it it it doesn't really um reduce the deficit
[38:22] meaningfully. It just kind of slows down the the growth of that deficit uh while also you know burdening the the entities that are on the wrong side of it. And that's part of how you have this kind of twospeed economy. Um because you have some entities that are, you know, they're on the receiving side of fiscal uh spending. Uh and you have other ones that are either squeezed by tight monetary policy or they're squeezed by tariffs in some way. Um so far there's no major um you know shift toward like you know building manufacturing facilities here. When you look at overall manufacturing spending uh it's not really higher you know currently
[38:53] than it was a year ago. Uh, and so it pretty much everything is driven by AI capex uh, spending, not really that kind of manufacturing shift. Uh, and so right now it's basically a kind of a tax increase that doesn't really have any major offsets. >> Yeah, Lyn, our time always goes so darn fast, but I I I got to ask you about private credit because signs are of stress are starting to emerge. I mean, margins are collapsing, banks are undercutting direct lenders, and the sector is far larger and more interconnected than in previous cycles. So, I mean, are we sleepwalking into a credit event in in private markets? is
[39:23] is is private credit maybe an underpriced risk of 2026 in your thoughts? >> It's a good question. I would separate kind of two concepts here. One is I do think that private credit is at risk. I would be nervous if I was a private credit investor. Um you know there's been rather kind of high degrees of speculation there. Basically as banks have been quite heavily regulated. Uh a lot of this kind of you know a little bit more aggressive lending has happened in this you know private credit shadow banking industry. Um now but the other concept I would separate is that the
[39:54] overall size of the private credit market despite being bigger than it was years ago is still fairly small when you look at the kind of the whole economic pie. Uh in addition banks generally have you know decent safeguards against taking too much hit on their capital. Uh so a lot of things that private credit is lending against there's there's you know pretty substantial um you know buffers for collateral and things like that. So the private credit funds would have to generally take very big hits before you know any material amount of that would spill into banks. Uh and then
[40:24] banks also have a pretty large buffer of capital. Uh so I don't really see this spilling into like a macro impact on the banking system or the broader economy uh too much other than you know we are talking about a multiundred billion dollar industry um uh that you know could could run into frictions uh and obviously hurt the areas that it that it that it's impacted by. So that is kind of one potential headwind against the wealth effect is if you have, you know, large institutions and wealthy investors taking hits on their private credit portfolios. Um overall kind of
[40:55] illquidity there. Um yeah, I don't I don't really view that as spilling into the broader thing. I think that that overall probably tariffs are a bigger factor because we're talking about you know 400 billion in in annualized new taxes uh as well as you know kind of some of these Fed moves and and potentially other fiscal things. That's kind of where my primary focus is on with with the the private credit situation being something I'm observing but wouldn't really place in my top three. >> Okay. All right. Well, then let's talk positioning in that kind of macro setup. I mean, you trimmed high growth names
[41:25] like TSMC and AMD rotated into companies like PayPal and andure. I mean, is is this that simply kind of valuation discipline or is it a defensive shift ahead of what you expect to be a slower 2026? >> Yeah, it's mostly a valuation shift. Uh basically I'm bullish on on revenues of those types of companies, but they had doubled in a very quick period of time. Uh which is great when you're long. And so it was it was me kind of locking in some of those profits. The same thing with Alphabet. Uh it got rather extended. Uh you know, there was the
[41:55] while where people worried it was going to get disrupted by AI. It turns out it's also one of the beneficiaries of AI. So I've been long that. But you know, as it kind of quickly doubles, I'm more nervous about valuations and overall capex spending. So for me it was just a slight rotation out of these high-f flyers into some of these more conservatively priced names uh for a fairly small percent of the portfolio. Um but basically yeah I do think investors maybe want to be a little bit concerned around concentration risk next year. Uh which is different than saying I'm outright bearish on those assets just that I want to do some risk
[42:25] management. >> Yeah. Well said. And what's the closest thing I mean what are you watching closes that kind of people miss? I mean what's what's the one word for 2026 that could like define the year you know? Uh the one risk I would say is probably AI capex that you know the the the stock market is really kind of held up by these big mega caps. Uh they've been relying for a long time on high ROI. Uh so they they make a lot of money with kind of moderate uh you know outlays to
[42:57] to data centers and things like that. It's very software based, very kind of focused on network effects. Uh they were able therefore to uh put a lot of that capital towards share buybacks. Uh and now that era is kind of behind us. Uh now it takes a lot more spending uh to maintain the leads that they have. Uh so potentially less money going into buybacks. Uh and just overall kind of that that flywheel is a little bit more uh likely to be impaired in the years ahead which >> is not necessarily a bad thing when you have that kind of concentration and constant buybacks. Uh but it is a
[43:28] changing market condition that I think investors should have to be aware of. >> Yeah. Yeah. What a year it's been, huh? like looking back at last January, there's a lot of these that we couldn't anticipate kind of covering throughout the year. Anything surprised you the most? >> Uh not any one thing. I think just the magnitude of certain things. Like I said, you know, I I was I'm I was and still am a gold bull, >> but I would not have kind of hoped it would hit 4,000 uh this year uh maybe in the years ahead. So, I was glad to see that kind of do better than I expected. Uh same thing with the rest rest of the precious metals complex kind of finally
[43:59] catching up uh over time. So, that that's been nice to see. Um uh we've seen kind of outperformance of certain uh international segments. Some of them did even better than I would have guessed like like Brazil for example. >> Um and so overall it's mostly just a you know a little bit surprise of magnitude. When things change they tend to change even quicker than you think even if you're kind of expecting some of those changes. >> Yeah. Well said. All right Lyn Alden. Always insightful. Always generous with your clarity and your time. We appreciate it. Thank you for being here today with us. >> Thank you. >> Thanks Lynn. All right. If you found
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