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Did Another Great Depression Just Trigger? | Lyn Alden
Lyn Alden, as guest on David Lin
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TL;DR
Research summary
▶ Fiscal dominance and the Fed’s limits
The host introduces Alden and asks about recent market moving events. Alden identifies the partial resolution of the Iran conflict and the new Fed chair’s communication, while stressing that the Iran agreement is only a memorandum of understanding and headlines may continue. On bonds, she says long yields reflect several forces, including inflation expectations, the amount of debt supply and whether domestic and international buyers absorb it. She describes her former structural bearish view of bonds, then says she has treated them as a neutral, unimpressive trade for the past year or two and does not try to predict 50 basis point moves. A more hawkish Fed outlook can flatten the curve, but she says conditions can change quickly. Alden argues that in fiscal dominance, when annual deficits exceed net new bank loan creation, rate hikes may constrain bank lending but also increase government interest expense and widen deficits. She defines fiscal dominance as a situation associated with federal debt above roughly 100% of GDP, after decades in which falling rates offset rising debt. Interest expense has now outpaced defense spending, she says, and financial repression such as yield curve control could place debt below inflation but would risk faster currency debasement and higher inflation. In her view, the Fed’s interest rate and balance sheet tools have less impact and its policy options narrow, though banking oversight remains. She describes a two speed economy: mortgage access is practically unaffordable for some young first time buyers without family help, while deficits primarily fund Social Security, Medicare and defense, and wealthy people are doing very well. She says the Fed’s tools were designed for monetary dominance and are less suited to structural deficits.
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The host reads an advertisement for DeleteMe, claiming that it removes personal information from data broker sites and continues scanning during the year. The ad says 204 of the host’s listings had been removed since June 2024 and 335 listings were reviewed in the latest report, and offers new US users 20% off with the stated promo code.
▶ Iran conflict, leverage and oil disruption
Asked about Trump’s claim that reopening the Strait of Hormuz avoided a global economic catastrophe, Alden says the world proved more resilient to the oil disruption than she expected. She attributes the largest offset to China reducing imports and drawing down large, opaque inventories. She says the near term oil situation had not appeared close to an economic disaster, and suggests political considerations, including public opposition to the war, campaign promises and coming midterms, also help explain the US decision to ease out of it; she says Trump has cited the stock market and oil instead. On US leverage over Iran, Alden acknowledges US military and economic leverage, including the killing of Iran’s leadership structure, but says the relative leverage may have been miscalculated. She argues Iran could affect US consumer sentiment through energy prices and midterm politics, use online messaging, and maintain a decentralized leadership and resilient drone and missile capabilities. She says carrier groups are less effective against large numbers of cheaper asymmetric threats, while the US naval blockade was effective at stopping ships. The blockade also impeded oil exports from other countries, including allies. Alden characterizes the outcome as a scramble to return to conditions before the war, or more broadly to the earlier Iran deal, when Iran was not enriching uranium and international inspectors could verify that.
▶ Inflation outlook and possible Fed rate hikes
The host plays Trump’s claim that falling oil prices will bring down prices broadly. Alden says that if the memorandum and ceasefire hold and the Strait reopens, that should put downward pressure on oil and help year over year inflation measures cool. She cautions that other prices tend to be sticky and rarely fall when energy costs retreat; politicians may mean that the rate at which prices rise is slowing rather than prices themselves declining. She says energy was the largest factor in the recent sharp inflation increase, and expects inflation to ease in the second half of the year if the ceasefire continues. She sees no sign of a 2021–22 style breakaway inflation because money supply growth is fairly normal, rather than the roughly 40% year over year M2 increase she cites for that earlier period, but expects inflation to remain sticky above 2%. The host cites a FedWatch estimate of a 90% chance of at least one 25 basis point hike by December. Alden calls that split aggressive and says she would be more neutral between no change and one hike. She notes inflation is above target and recently rising, and says the Fed has emphasized price stability over unemployment, making a hike possible. But she argues that rates may not address inflation from war or fiscal dominance. If oil stops rising and energy flows resume, the Fed could see inflation roll over while rates remain restrictive for housing and avoid an aggressive response. She considers one hike or cut relatively unimportant for many long term equity, gold, real estate or unlevered bond investors, though consequential for leveraged short term bond traders and futures traders.
▶ Great Depression parallels and oil shortage risks
The host asks whether a prolonged Hormuz closure could have caused a US depression and plays Trump’s comparison to Herbert Hoover. Alden says the Great Depression primarily followed a private debt bubble that built up through the 1920s, with high private debt relative to GDP, leveraged banks and stock market speculation. She says agricultural failures such as the Dust Bowl added hardship, and tariffs and anti trade policies did not help, but rejects the idea that a few decisions alone caused the Depression. She describes 2008 as a generational peak in the private debt bubble, with private debt ratios and bank leverage at peaks, followed by a shift toward a public debt bubble and fiscal dominance. She notes differences from the 1930s, including quicker money creation, a different technological environment and no crop failures. She says consumer sentiment during the war reached record lows in the measurement series dating from the 1950s, while concerns about living costs and trust in institutions were also high. Still, she would not say another few months of Hormuz closure would cause what most people would call a US depression. She warns that persistent disruption after US strategic reserves, China’s inventories and commercial inventories were drawn down could risk oil above $150. In that scenario, she sees greater depression risk for frontier and lower income developing countries facing energy shortages; she cites Egypt’s April energy curfew and temporary shutdowns as a possible mini depression. A persistent shortage would be less severe for the US, she says, but could eventually mean $8 gasoline and major economic problems.
▶ 2026 allocation and gold
Asked about asset allocation for 2026 after the ceasefire and a more hawkish Fed signal, Alden says her strategic approach is broadly unchanged: high quality equities that are not in a bubble, including growth at a reasonable price and sometimes value. She maintains a strategic gold position but says she is not jumping into gold as a trade after its rapid two year rise. A more hawkish Fed perception contributed to a gold selloff, and she thinks gold needs to find a bottom and build a new base. She rejects the view that it must give back all gains from 2024 and 2025, while saying much of the trade’s asymmetry has been removed. Alden describes gold as moving relatively independently of other assets. In her view, precious metals generally do well under fiscal dominance, but gold had become stretched after a rapid rise; at around 5,000 an ounce, she considered it no longer cheap and roughly at fair value. Tactically, she wants to see a base before strongly advocating another purchase.
▶ Bitcoin, crypto and investor flows
Alden says Bitcoin is in a low sentiment area and is not benefiting from a hawkish Fed, but she does not treat its weakness as a clear signal of broader risk aversion. She says the wider crypto sector, apart from Bitcoin and stablecoins, has less lasting substance than proponents expected, citing what she sees as fake decentralization and regulatory arbitrage. She identifies stablecoins, tokenized gold and equities, and other real world assets as areas she considers viable, while saying DeFi, NFTs and ICOs have not become as large a market as expected; she notes DeFi total value locked did not regain its 2021 peak. Concerns about leveraged Bitcoin treasury companies are sometimes overstated, she says, but leverage and risk management merit attention. She also says capital has shifted toward AI, including chip stocks and hyperscalers, putting pressure on Bitcoin and crypto. In her assessment Bitcoin’s fundamentals remain good and several historical measures, such as market cap relative to on chain cost basis and sentiment indicators, are near the low end of their ranges. She agrees that some digital asset investors have rotated toward AI, while emphasizing that AI has attracted many pools of capital beyond crypto investors.
▶ AI valuations, spending and risks
Asked how to assess whether AI is in a bubble, Alden compares it with gold’s rapid rise: an asset may not be overvalued but can move too quickly and then correct from a higher base. She considers much of AI technology real and productive, while warning that technological shifts can be overbuilt or overvalued. She uses fiber optic cable companies that went bankrupt as an example of infrastructure investment that was needed but whose builders may have overestimated how quickly demand would arrive. She calls SpaceX at 100 times revenue excessive and says hyperscalers face real risk because many are free cash flow negative. She says leading AI models are VC funded and highly unprofitable, with subsidized usage making current demand appear stronger than it may be at sustainable prices; she compares that dynamic with Uber’s early underpricing and later demand slowdown as prices became more balanced. Alden thinks parts of the AI trade are ahead of themselves and heated, while she is relatively more bullish on chip stocks because she expects persistent increases in GPU and RAM use compared with five years earlier. She says she looks for companies that sell off or consolidate while continuing to produce strong numbers.
▶ Science fiction, AI’s future and closing
The host asks about Alden’s science fiction book, *The Stuttgart Incident*. Alden says she had the story in mind for a long time and wrote it as technology began catching up to elements in the book, to avoid it becoming historical fiction. She says the book aims to entertain and make readers think, while making directionally plausible predictions. Its future includes more popular virtual or augmented reality, AI as a common part of life, and people continuing to work, often with AI. Alden’s outlook is less utopian: she expects AI to become highly productive but eventually encounter limits, comparing this with aerospace progress from the Wright brothers to Apollo followed by slower incremental gains. She suggests AI could similarly deliver a major initial leap, then reach a softer ceiling as low hanging fruit is exhausted, computing progress slows, or language models remain limited compared with a conscious brain; in that scenario, AI remains valuable but not invincible. The host and Alden briefly discuss the book’s plot as a future detective story involving a search for a terrorist. Alden directs listeners to lynnalden.com, and the interview closes with thanks and a request to like and subscribe.
Full transcript
[00:30] for you that may or may not move markets into the remainder of remainder of this year? We'll start here. >> Well, I don't think they'll be shocking answers. I think the uh kind of the the partial resolution uh to uh the the conflict with Iran uh I I think is obviously a key one as well as the uh new Fed chair and kind of communication uh that they've done going forward. Um so, yeah, I think those are probably the largest things. Uh and the reason I say of course uh you know, kind of the partial resolution is is that I mean,
[01:00] it's only a memorandum of understanding. So, I think there's we're still going to have headlines in the coming weeks and months. Uh but but it's at least uh headed a much uh at the moment more positive direction than it has been for for many months. >> The economists I spoke to this week um pretty much pretty much unanimously all projected higher interest rates in the long end of the curve as well as the short end uh to varying varying degrees uh because of the new Fed chair and because of inflation expectations and because people were expecting the
[01:30] Federal Reserve now to raise interest rates this year rather than cut. So, my question is even if monetary policy didn't change from the last year, would interest rates on the long end still go up because the deficit has increased and so the debt has widened as well? >> Uh I think there's it's a more complicated than that. I think there's a lot of moving parts on the long end of the curve. There's obviously expectations around uh what inflation's it's to be. Uh there's sheer of supply hitting the market compared to, you know, what, you know, is is that that
[02:02] existing balance sheets are willing to buy. There's even geopolitical decisions sometimes like are our international buyers on strike or are they accumulating? Um and I I you know, I for from 2019 until, you know, a year or two ago I was kind of on the record of being a pretty structural bond bear. Uh meaning that either combination of higher yields meaning bond prices down or even just sideways yield and not really keeping up with the basement. Um but once we got to like a a year or two ago, I I view them more as kind of a a neutral unimpressive
[02:33] trade, which is that I I don't try to anticipate, you know, 50 basis move 50 basis points moves in either direction for the long end. I mean, in general if the market expects that the Fed's going to be a little bit more hawkish than they did a week ago, it makes sense that you've seen some curve flattening, which is that of course they're they're a little bit more hawkish on the short end and they're a little bit more comfortable with the long end. But these these things can change very quickly and I think one of the key factors that I think the market still doesn't fully
[03:03] appreciate because the market is so trained to think that the the solution to inflation is is always higher rates. That's kind of the main lesson from the 70s or at least like that's the biggest takeaway from the from the 70s early 80s. And but that's that was in an era where most that money creation was from bank lending. Uh and interest rates are very powerful tool for for curtailing or and sometimes accelerating bank lending. But when you're in fiscal dominance, you
[03:33] know, when when when when fiscal deficits in a given year are bigger than net new bank loan creation, uh interest rates don't do quite as much for that because every time they raise interest rates, while they could put some downward pressure on bank lending, they actually blow out the fiscal deficit even more. >> [snorts] >> Um and so they're in a very it's a challenging position to be in if you're the Fed, uh, because as as the chairman pointed out, their their current levels are already restrictive on housing. Uh, and yet we still have above target inflation, uh, and it's it's not it's
[04:05] because it's not really bank lending. >> Just summarize for us one more time, please. What does fiscal dominance mean in this context? In an era of fiscal dominance, what role does a central bank play? >> Right. So, basically fiscal dominance it it can it can take a few different forms, but it's essentially when you get over like 100% uh, federal debt to GDP, you've got a very big stock of existing debt. Uh, and if you you know, we the US went had a yeah, kind of 40-year period of of rising debt to GDP.
[04:35] Uh, but it was offset by structurally declining interest rates until we hit roughly zero. Uh, and now that we're trending, you know, sideways in interest rates, uh, and we still have the the high debt to GDP, we no longer have that interest rate offset. Uh, and so now interest expense has outpaced defense spending. Uh, and there's there's really no clear resolution to this. It's just like it's going to be an ongoing large part of the of the federal uh, uh, uh, deficit going forward. And there are techniques to deal with it
[05:05] including financial repression. You know, you can do yield curve control and submerge the whole uh, all the debt below um, inflation, uh, but then you have generally accelerated currency debasement and the higher levels of inflation. Uh, and so that the the answer to the second question is what is the role of the central bank? Uh, their role is diminished, right? So, it it it in the say the 70s uh, and 80s we can call that a period of monetary dominance. So, you had low debt to GDP. Uh, deficits while they were there, uh,
[05:36] especially in the in the 80s, um, you know, they they just weren't the driving force on money creation, uh, as as it is now. Um, and so going forward, the Federal Reserve, uh, you know, they have they still have all their major roles in in bank regulation, basically oversight of the banking system. I mean, that that remains unchanged. Uh but, their two primary tools of industry rate uh decisions, as well as balance sheet decisions, uh basically become less impactful. Uh and
[06:07] their and their option space like narrows uh because instead of saying, "Okay, high inflation cuz banks are lending too much, let's raise rates." Uh you know, it's clean. But, if you have, "Hey, inflation's up because we're running structural big deficits, and you know, we had a war, so like energy was elevated for a while." And you say, "Well, let's raise interest rates in response to that." What exactly are you doing? Because you're not you're not I mean, the government's not going to spend less. If that If anything, they're going to spend more because you just increased their interest expense. Um and you're still having the similar
[06:38] effect of of on bank lending, which is, you know, the marginal uh borrower might be more conservative because interest interest rates are going up. Um uh but, that's already not really the core issue anyway. And that's how you get this kind of two-speed economy where um you know, if someone's like a a young family looking to buy their first home with a mortgage uh without help from from say their their parents, uh they're in a world hurt right now. Uh it's it's practically unaffordable. Uh whereas uh
[07:10] the deficits are primarily going to Social Security, Medicare, defense. Um obviously, wealthy individuals are doing very good. And so, you get this really polarized economy. And and the answer is that the the the Fed's not really designed for fiscal dominance. Uh not like this this is kind of the breakdown scenario. Not in the acute sense, but in just in terms of of policy effectiveness, fiscal dominance like the tools are are are geared toward areas of monetary dominance. >> Before I continue with the video, let me tell you about a very important topic,
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[08:40] scan the QR code here, and use my promo code davidlin at checkout. New users who use my code will get 20% off of all US plans. Take your privacy seriously before somebody else does. Recent news now. At the G7 G7 summit earlier this week, uh the signing of a peace deal with Iran was uh concluded for now. Uh temporary peace. We'll see what happens in a few months. But uh
[09:10] Trump argued that uh the reopening of the Strait of Hormuz may have prevented a major global economic shock, called it a catastrophe that was avoided. How accurate is this statement? >> Well, I think in the longer term that's relevant. Um I mean, we've already seen some shocks. I think many people, including me, have been surprised at how resilient the world has been to a closure of that much um uh oil hitting the market. Uh the biggest factor ended up being that China was a lot more flexible than many people thought in
[09:40] terms of, uh, uh, greatly reducing their imports, uh, being willing to draw down their, uh, large and opaque, uh, uh, inventories. Uh, and that was a a much bigger offset. Um, and I think another thing that surprised people is that, you know, energy's been kind of choppy for a while. And so, it's interesting that that, um, uh, President Trump kind of cited that now, um, because I don't think that we were that we were like near-term, uh, compared to any sort of like, you know, economic disaster from oil. Um, I I think the the the more
[10:12] kind of pressing one is just optics of the situation. Uh, probably a uh, a political kind of somewhat separation between the US and Israel's interests on this and kind of increasing realization of that. Uh, it's been a very unpopular war from the start, uh, in in terms of polls compared to most other wars when they begin. Uh, it goes against campaign promises. We have midterms coming up. Uh, so, I you know, I but there's some of those reasons he he can't realistically cite. So, I I think he has to point to other ones and he's pointed
[10:43] to the stock market, he's pointed to oil. Um, and and so, I think that's, yeah, there's a there's a lot of reasons for him to have eased out of the war and and he, you know, he'll cite the subset that I is is less damaging. >> Okay. The uh, I'll play for you a short clip and uh, and we'll we'll evaluate this together here. This is, uh, Trump's speaking at the G7 Summit. >> 300%? They have no money. We have tremendous leverage. We have the leverage of the economy as an example.
[11:15] We'll get that done. That's That's a small one and we'll work with Israel and get it done. But, uh, I'd like to do it I mean, you have people living there. Buildings are being dropped on top of them or right alongside of them, a billion dollars worth of bombs on Iran. The blockade was so incredible, the naval blockade, the admiral, the whole thing, not one ship got through. That meant no money
[11:46] got through. They would die. They had no money. They have inflation that's 250 or 300%. They have no money. We have tremendous leverage. We have the leverage of the economy as an example. >> Here he's talking about leverage against Iran. What leverage did he the US actually possess against the Iranians in this particular case? >> Well, largely what he said. I mean, we we do have we obviously, you know, the US killed their leadership structure. So, we had you have military leverage as well as
[12:17] you know, economic leverage. The I think the the challenge is I think they miscalculated the relative leverage. Because, you know, they their leverage against us is not as direct. I mean, they can't just blow up our cities. But, they they they can affect his midterms, for example. They can affect consumer sentiment in the US with higher energy prices. They can you know, they can they can they've been putting out like memes. They have they have a a cultural leverage and and kind of um things they can do online. About kind of
[12:48] the just the reasons for the war and why we're there and who's, you know, all all of that. And so, I think that that unlike Venezuela, which was obviously a very swift operation, I think built US confidence that they could just kind of do this to any country, Iran demonstrated that they have a really kind of deep decentralized bench of leaders that can that can come back up after other top ones are taken out. They've shown that their um technology is pretty resilient. You know, their their ability to do drones and missiles and to avoid having their
[13:20] capabilities disrupted to do that. It just kind of shows that the cost uh the US on this is very significant. And and partly is I mean technology changes over time for the better part of the past century the the the carrier group has been the primary form of power projection. I mean aside from nukes, when you actually need targeted power projection anywhere in the world, the carrier group uh is the main uh force of that. Uh but they don't work that well against asymmetrical cheap threats like tons of drones, tons of tons of missiles.
[13:51] Um and of course the US naval blockade was effective. I mean no no nothing people doubted that the largest navy in the world could could block um that area uh because they don't have to be close to it. They can stay farther back and if they just identify ships that come out of it, they can they can stop them later. Uh so that the US navy in many ways had to stay far away for safety. But yeah, they can still do a blockade, but by doing so I mean that the bigger issue is Iran was blocking other countries uh from exporting their oil. And ironically the US blockade was also blocking other
[14:23] countries including allies from uh getting oil through. Um so a a lot of this is just like a scramble almost to get back to where things were before the war began or kind of more broadly back to the the previous I Iran deal uh which is when uh I Iran was was not enriching uh uranium and it was allowing um you know international inspectors to come in and verify that they weren't. Um and that's a lot of it is is a is a you know nearly decade now almost trying to get back to what was already working.
[14:55] >> Okay, here's another uh clip. This one's uh key here regarding inflation. >> How do you see this agreement further affecting energy prices in the US and the US economy in the long term? And uh secondly, Mr. President, how do you think Vice President J.D. Vance did on The View yesterday? >> Well, first of all, thank you for the word plummeting because that's what's happening. Oil prices are plummeting. And uh that means oil prices are going to come down. You know, if you make donuts, you have a heating, you have a stove, and you have to buy the
[15:25] the heat you need, the gas or the electricity or whatever you're using. And when oil prices come down, oil is the biggest thing. Oil is you get oil prices coming down, and they're going to come down, and we're hitting into threes now for gasoline, and that'll come down a lot lower. So, I was in Iowa just before this started, and I was saying to myself, I can't believe we're doing so well, but I have to go and we have to put out this fire in Iran because I don't want them using a nuclear weapon. They would have used a nuclear weapon. 100% they would have used it. >> Uh we'll stop here. Uh
[15:56] notwithstanding the nuclear weapons comment, let's talk about the inflation part. Uh his thesis that oil is coming down, and therefore the rest of inflation will come down. That's a subject of great academic debate. What's your opinion on that? >> Well, a couple things. One is so if we're assuming if um the memo- memorandum of understanding and a ceasefire remain in effect. So, if if the in the street does open, uh you know, for the most part, uh that should be a a a kind of a bearish force on oil, which is good for the world. Um uh and
[16:27] uh even just not having oil rise anymore, if it just stays where it is and just chops around, at least it's not rising uh in in that environment. Um and that allows kind of month over month, year over year uh measures of what's going on to to cool down. Now, whether that will lower other prices, uh that that's more contestable. I mean, obviously, you know, commodities are very volatile. Other prices tend to be more kind of they ratchet up, but they rarely ratchet back down unless it's like a super deflationary area like technology, like, you know, like electronics and stuff. Uh but most
[16:58] prices, they slowly ratchet up, uh not as not usually as quickly as as oil and gas, but they they ratchet up including in response to higher energy prices. And then if the if the prices come back down, usually those prices are are stickier. Uh and generally, when people talk, you know, when especially when politicians talk about um prices coming down, they really mean the the rate of change of prices going up is reducing. Uh, and so I I do think that I mean that the the obviously the the sharp increase in inflation we've had,
[17:29] there's been a couple of reasons for it, but energy's been by far the biggest factor. Uh, and I do think again as long as the ceasefire continues, that that should ease in the back half of this year. That we no longer have that kind of rising inflation uh, that we that we saw uh, in the past few months. And there's really no signs that we're we're we kind of have a breakaway inflation like we saw in in 2021, 2022, because we don't have the money supply growth uh, of that era. We still have money supply growth, we don't have like the you know, the 40% year-over-year uh, increase in in M2
[17:59] that then trickled over next several years out into the economy, out into prices. Uh, we we have kind of a a fairly normal rate of money supply growth at the moment. Uh, and so I think inflation's still probably going to be stickier above 2%, uh, but I I I think it could be correct that it it it goes kind of sideways to down uh, in the coming months. >> Does the market share that view, Lynn? Uh, looking ahead, the CME FedWatch tool is projecting a near 85% Oh, it's 90% now. 90% chance today of at least one 25
[18:30] basis point rate hike by December. So, 10% chance rates stay the where they are, 90% chance they raise rates. Uh, if inflation expectations are to curb a little bit somewhat like you said later in the year, why are expectations for rate hike um, higher and higher throughout the rest of the year? >> Well, you'd have to ask all those that are making that that case. I think um, I would say that well, a chance of a rate hike is pretty meaningful this year. Uh, I I think 90/10 is a pretty
[19:00] aggressive uh, position on that. I I'd be I'd be a little bit more split on neutral to to you know, one one hike. Uh, and of course the two conflicting issues there, one is that because inflation is above target um and it's been rising recently uh and and you know the Fed made it clear that they are you know they want to they're emphasizing the price stability side of their mandate not the not the unemployment side at the moment uh that they do uh have you know kind of an interest in in potentially raising rates to try to bring down inflation.
[19:32] Now again from our earlier kind of talking points I mean in in when when you have a war or you have fiscal dominance interest rates are not necessarily the tool that that fixes that but it's a tool that they have so if you have a hammer you you use the hammer even if it's not the best tool. Um uh but they've also like in the in the Fed chairs uh you know recent um uh Q&A you talked about how they they care about trending numbers. Uh so uh in a month or two if we start see this current inflation wave crest because if
[20:02] oil prices stop going up if if this trade in in just for the most part peace in that region allows energy to flow um uh they can the Fed could conceivably say well okay inflation's above target uh we're still restrictive on housing at current rate levels uh and it's it's inflation's rolling over so we're not going to be super aggressive. Um now again one one uh hike in either you know either a one one hike or one cut is not that big of a of a driving force and I just think that it's it's for me
[20:32] it's almost irrelevant. I mean obviously that it obviously impacts if you're a leveraged short-term bond trader uh and things like that or you know trading interest rate futures or things like that it's obviously very relevant uh but if you're an equity investor or gold investor or you know real estate investor um you know even just a unlevered bond investor like you know if if you're doing things like that um you know 25 basis points is not a a massive thing to focus on in my opinion. >> Mhm. Do you think the US would have gone into a depression have the Strait of
[21:02] Hormuz remained closed? Take a listen to this clip. >> traitors will still away. So rather than possibly going into a depression, rather [snorts] than having your favorite president be Herbert Hoover, I was always the one I didn't want to be. I wouldn't have preferred Nixon. I wouldn't have preferred near and plenty I wouldn't prefer, but the one I always thought of Herbert Hoover. And he caused it. He raised taxes
[21:32] too fast and he raised interest rates too fast all at the same time. And it caused the Great Depression. >> Okay, two points there actually I want to make. The fact the idea that had the Iran deal not been made the economy would have gone through a depression. Then he referenced Herbert Hoover, who a lot of people associate with Smoot-Hawley. And that some according to some economists arguably caused the Great Depression. Then now he's arguing he raised interest rates and taxes too quickly. Uh what
[22:02] what actually caused the 1930s Great Depression? And can the same parallels be applicable today? >> Uh well, I mean you you could have a whole show on that. What what caused the Great Depression? I mean there's like two there's tomes written on that. Um the the short ans- the short answer is um that was the the it was it was a private debt bubble, right? I mean it goes it goes back to World War I and before because you had, you know, all this money creation, all these kind of broken gold pegs, attempt to get back on gold pegs even though money supply was
[22:32] growing. And then, you know, obviously with international commerce between Europe and the US. Um we had that boom in the '20s in the US. Um and it it it you know, throughout that decade we got very high private debt levels relative to GDP. Uh banks are very levered. Um there's a ton of speculation in the stock market. Uh and it all popped. Uh and then there's other factors like um uh um you know, the Dust Bowl. Like literally bad agricultural practices. It's way easier
[23:03] to go through a Great Depression leverage-wise if you don't also have agricultural failures and things like that. And and you know, just kind of that that extra misery. But basically the the primarily the issue was that that that private debt bubble. And then yeah, when you add on to it a president that was kind of focusing on tariffs and kind of just generally anti-trade types of policies, I would say certainly didn't help the situation. I wouldn't say that you know, that handful of things just kind of like like things were fine and
[23:33] then he did those things and it caused the Great Depression is not how I would characterize it. I think that the leverage and the speculation in the years leading up to it was the biggest factor. But then it was all these attempts on, you know, what do you do once the once that starts to pop. Um Now, bringing that to the present, uh when it comes to depression, I mean, by by some metrics, I would say that 2008 was our like 1929 scenario. That was our That was our our generational peak in the private debt bubble. So, private debt relative to
[24:04] GDP, private debt relative to money supply, the ratio of how leveraged banks are, all that peaked in that 2008-2009 period. We we've kind of rotated more from a private debt bubble toward a public debt bubble. That That's kind of where we we've kind of started shifting toward fiscal dominance. Um now, of course, it's it's we went through it in an environment that was not as deflationary because they were much quicker on the money printing trigger. And we're obviously we're in a different technological environment, no crop
[24:34] failures. It's easier to go through a Great Depression when you have you know, computers and and things like that. So, it it it it was a different environment, but it was it was similar in that we hit zero interest rates, we hit a private debt bubble, and then we had just years of debasement and rotation toward toward the public debt. So, the long-term debt cycle that I've talked about before. And then so, would would this have caused a great depression? Well, by some metrics, I mean, for example, consumer sentiment during the war, US consumer sentiment was literally record
[25:04] lows. I mean, it's been measured since the '50s and it hit record lows. And people can talk about whether it's still an accurate measurement or not, but the way that they measure it, it hit record lows. Um, you know, we have obviously very high uh public concerns around cost of living around just kind of the expectations that the next 5 or 10 years are going to be better than they are now or the expectations that things will be better for the children than they are for them. Uh a lot of that is or distrust in trust in media, trust in government, trust in,
[25:35] you know, all the kind of institutions. That's all very low. So, a lot of that is kind of in in that kind of depressionary type of thing that inclu- you know, economically depression. Um I I wouldn't go so far as to say that the straight remaining closed for another few months would cause a what what many people would look at as a US depression. Um uh I I do think that it would have been ongoing issues once we can no longer draw down US strategic reserves, once China had gotten pretty low in their drawdowns, once commercial inventories
[26:05] are pretty drawn down. Uh that's that's when you start to risk like, you know, $150 plus oil scenarios. Um the countries I think that would have potential depressions in that scenario are uh the kind of the frontier markets, the the lower income developing countries uh that are more likely to face energy shortages uh if that happens. I mean, for example, Egypt in April had to do an energy curfew. Um probably if you look at some economic figures there, they had almost like a mini depression because they you literally were were shutting down parts of the economy for
[26:35] uh every day. Uh and it but it, you know, because it was short-lived, it was you could bounce back from it. But if you've got a more persistent shortage, uh that would be an issue for many countries. Uh less so for the US, but again, long enough, you you yeah, you could have $8 gas prices and uh a very big economic problems. >> Okay. So, Lynn, ultimately, the assets that will perform well and not perform well in this kind of fiscal dominance environment, in particular, after a ceasefire has been reached and after the
[27:05] FOMC has shown signs and signaled that they're willing to tighten monetary policy even further. Uh, your your your take on asset allocation for 2026. >> Uh, I could roughly the same as it has been. I think I have a strategic allocation, which is just high-quality equities. Uh, basically equities that are not in a bubble. Um, you know, growth at a reasonable price, sometimes value. Um, uh, you know, I think gold, you know, gold obviously took a hit whenever you have a the market perceived that the Fed's
[27:35] going to be a little little bit more hawkish, you generally get a little bit, uh, of a sell-off in gold. The issue there is that gold had a really, really powerful 2-year run. Uh, so I do think that it has to like build a new base. Like, you know, some bears would say gold's going to round trip, you know, all of its gains from 2024, 2025. I wouldn't be in that camp. Um, but it it did rise really quickly. A lot of the asymmetry was taken out of the trade, and I think it has to kind of find a bottom and and build a new base. Um, so I'm not jumping into gold as a
[28:06] trade, even though you still have a just a permanent strategic position in it. Uh, so, you know, for me, a lot of the interest right now is in equities. Um, I I think Bitcoin's still in a very kind of low sentiment area. Uh, it's not getting any favors at the moment from hawkish Fed, similar to, um, gold. Um, but once that starts kind of forming a bottom and a longer base, I think that's a an interesting kind of 2-year trade or or longer. Um, but for a lot of investors, I think the the core of a portfolio makes sense to be, uh, equities. >> Let's just go over each asset asset by
[28:37] asset. Let's just go over and analyze each asset by asset. Gold has come down significantly from its highs. Is that an indicator for future market movement with the rest of the assets, Or is gold moving independently, do you think? >> Look, I would characterize it as relatively independently. I mean, kind of like how it's 2-year um burst upward was independent from from any other types of assets, at least in terms of magnitude. Um you know, I I think there's there's been a there's been geopolitical reasons for it. Uh it's you know, in fiscal dominance, generally precious metals do pretty
[29:07] well. Um but again, it just it got over its skis. Um you know, a good asset can get over its skis when you have like, you know, relative strength index uh uh sentiment levels and things like that getting really high. Um it's generally going to go in the other direction. Uh and again, I you know, some people would say, "Okay, it's dramatically overvalued here." I I wouldn't go that far when it got, you know, when it got up to like 5,000 an ounce. Uh for me it was just it was no longer cheap. Um you know, and uh it was, you know, kind of back up to something that looks like fair value.
[29:38] Uh but it had gotten there so quickly that that there's risk there. So, I I I think that most likely, uh you know, gold's going to trade how gold's going to trade, which is, you know, it's going to I think it's going to wander around. And from a tactical standpoint, I want to see it kind of put in a base before I'd be pounding the table on on buying it again. >> Bitcoin, you're still doing work with Bitcoin. Uh Bitcoin also has fallen out of favor, not just in terms of price, but also in terms of market sentiment and investor sentiment. Um surely you've noticed that as well. Uh >> Yeah. >> Again, Bitcoin moving independently or
[30:09] indicative of broader risk-off sentiment ahead? >> Uh I'm I'm not sure I would put it in in in indicative. I think basically uh a lot of the I think there's two big factors. One is that the broader crypto space, which I'm I'm pretty structurally bearish on outside of Bitcoin and stablecoins. I think it's finally just seen throughout the market that narrative doesn't have as much legs as people thought it did. Um uh a lot of it was kind of fake decentralization. A lot of it was regulatory arbitrage. Uh and that there's really not a lot of there there
[30:39] outside of, you know, hard money, uh you know, stable coins, tokenized gold, tokenized equities. I mean, the you know, real world assets. That's still fine. But generally these other crypto things, you know, DeFi, NFTs, ICOs, that kind of thing, is just in general, it's it's not as big of a market as people thought. So, I think that that that industry's kind of gradually stagnating. It really hasn't stagnated since 2021. Like DeFi total locked value never really took out its 2021 peak, for example. So, I think I think that
[31:11] Bitcoin has that whole kind of broader thing weighing down on it. And then obviously there's been concerns around some of these levered Bitcoin treasury companies, which sometimes I think are overdone, but some of those are valid concerns. I mean, anytime you have leverage, I think it is is worth paying attention to and you know, how they're managing risk. And then the other factor is that a lot of investors that kind of viewed Bitcoin or broadly crypto as the fastest horse in the race have shifted toward AI. So, just the the sharp rise in chip stocks, in hyperscalers, obviously the
[31:43] SpaceX IPO, that's pulled a lot of capital that is otherwise, you know, maybe seeking, you know, kind of viewing Bitcoin and crypto as tech has been pulled in that direction. So, until that kind of cools off a little bit, I think Bitcoin could be some pressured. But I think Bitcoin's fundamentals are still good and it's kind of in the bottom, you know, 10, 15% of its kind of historical There's different ways to measure value for it. For example, market cap compared to on-chain cost basis and things like that, other sentiment indicators. It's it's kind of near the lower end of
[32:13] a lot of its historical indicators. >> Do you think [snorts] the same investor base that flowed into crypto has now rotated into the AI space? >> I think partially, yeah. I think I mean, but I think obviously AI has sucked in a lot of pools of capital. I think that there It's not like just just the crypto space went into AI. It's like a lot of pools of capital went into AI. And I would say, yeah, a lot of a lot of investors that were excited by digital assets throughout the 2010s and early 2020s you know there's a new set of tools to
[32:44] either build on or invest in so do yeah a lot of it has kind of rotated in that direction which I think is healthy because again I think that the broader crypto space I just think there's limits there to what it can do. >> Okay so when someone asks well is AI in a bubble right now and should we stay away from that? That's a very loaded question that has a lot of moving parts. How would you go about tackling that question? Like what's the thought process in evaluating if if an entire sector by the way Elon Musk himself
[33:15] >> [snorts] >> is now worth about the same as Canada I believe. No half of Canada SpaceX at some point was worth Canada's GDP. So an entire sector that is several times the GDP of many G7 nations around the world is that in a bubble? How does how does one go about answering that question? >> I think ironically the answer could be similar to gold which is so gold had that crazy two-year run and the question was is it a bubble and I would say well I wouldn't call it overvalued I just think it got here kind of too quickly
[33:45] for for comfort and so it's likely to crack from a higher base and then you know it can it can recover from there. I think AI similar which is that I mean I think a lot of the tech is real. I think it is a pretty big productivity gain in a lot of cases any sort of technological shift often has waves of getting over built or overvalued. You know the famously the companies that you know laid laid the fiber optic cables like go bankrupt right? I mean it's not that we didn't need those it's
[34:15] great they did that but it was very expensive and they kind of overestimated how much front running would happen how much growth would would occur. So I mean I do think that's you know when SpaceX trades at a hundred times revenue it's excessive. I think the there is real risk with the hyperscalers uh because they're a lot of them are free cash flow negative now. Um the primary AI models, you know, Open AI and Anthropic and all of this, they are VC funded.
[34:46] They're they're highly unprofitable. So, they're they're subsidizing usage of them, meaning that, you know, the demand we see in AI now is partially because they're making it cheaper than it really is because they're, you know, they're trying to get growth. Which which it makes sense when you're in that growth arc, but it also it's kind of like how Uber was growing very quickly cuz it was underpriced, but once they started pricing it at a more balanced level, demand kind of eventually slowed down. So, I I do think that parts of AI are way ahead of
[35:17] themselves. I've been a little bit more bullish on the chip stocks than others than like other parts of the AI trade. Um because I do think, for example, we are going to just persistently use way more GPUs than we did 5 years ago. We are going to persistently use way more RAM than we did 5 years ago. Uh but again, things can move a little bit too quickly. So, I think I think the AI trade is heated. I think parts of it are bubbly and like like SpaceX. Um but, you know, whenever it does kind of cool off or consolidate for a period of time, I always kind of go fishing in that market
[35:47] and say, "Okay, what is kind of sold off but but it's still doing great numbers." >> Okay. Is this part of the plot of your new sci-fi book, by the way, that I believe is out, The Stuttgart Incident? Um people should should note that Lynn is a talented fiction writer as well. We'll close off here. Yeah, this this book examines the future. Yes. >> Yeah, people should check it out. And I would say that one of the reasons I I wrote it cuz I had that story in my head for a long time.
[36:17] And I mean, AI exists in the book and basically technology was kind of catching up to to some of the technological stuff in the book. So, I was like, if I don't get this out now, it it it risks becoming historical fiction. Uh so, uh yeah, it was a fun project to work on and then people seem to like it. >> Um how do you envision, and this is I guess where the the writing of science fiction um gives us a lot of flexibility to use
[36:47] your imagination. How do you envision the world to look like in 50 years uh with the advent of AI and the advancements in robotics? >> Um yeah, it's a it's a good question. I think when I write the book, it's like the first part is just to entertain uh and make people think. And and the second one is, you know, as as a former engineer, I do try to get predictions at least directionally uh and you know, kind of make me some sense. Uh the book kind of assumes that that VR, virtual reality, eventually gets a little bit more popular.
[37:17] Uh that that's been a slow technology to take off. It It's They kind of even remark in the book that it took a long time to take off, but they they finally kind of figured it out. Um I I think that just AI and some extent robotics is just a little It's just kind of a background prevalence in the in the book. So, in the book, people do still have jobs. Uh they still work. Uh but generally, most a lot of people's work involves working with AIs as well. Um When you say virtual reality, do you mean, sorry to interrupt, do you mean um like physically in a VR space with a
[37:49] headset or in a hologram, or do you just mean interacting digitally like you and I are now? >> Uh the the former. Like Ready Player One. I mean, not that extreme, but like basically, yeah, that that there's more visual technologies either in terms of augmented reality or or virtual reality that are just around the margins more popular than they are now. Um Uh but yeah, that that's kind of the ubiquitous of AI uh just just kind of as as part of our our lives. Um the book does take a I guess some might call it bearish take. I mean, it's it's less bullish than like
[38:19] the the utopias, which is that um they it kind of assumes that AI does run into certain limits at certain points. Even some characters articulate why. So, AI becomes incredibly productive, but kind of like how aerospace, you know, the aerospace industry, we went from Wright brothers to the Apollo program in the course of one human lifetime. And then we kind of stalled. Like we don't really have faster commercial flight than we had 50 years ago. You know, until until the cool stuff at SpaceX, we're not we're not, you know,
[38:49] doing as much in space as we were decades ago. We kind of we kind of flatlined. We ran into certain ceilings and our our improvements were more incremental. You know, we added wingtips to commercial planes, which which gave them more fuel efficiency. We Most of the changes were in their electronics, not their actual aerospace aspects. And I think AI probably goes through a similar dynamic, which is you have this kind of takeoff scenario. Does radically more productive, more useful, changes the way we do things much like aviation did.
[39:19] But then it kind of hits a not a hard ceiling, but like a softer ceiling where a lot of low-hanging fruit is picked now. Combination of Moore's law, combination of, you know, what a large language model can do, you know, compared to a a conscious brain. And that it it becomes a valuable, but not invincible tool. >> Okay, excellent. Well, I look forward to reading that. I I I like sci-fi and I like your work, so curious to see what the uh uh the characters are up to and if the terrorist is caught.
[39:50] >> Won't spoil that surprise. It's about It's about I think it's a detective in the future looking for a terrorist, I believe. That's the summary I read on your webpage. So, that sounds that sounds pretty interesting. Um and I Okay, thank you very much. Where else can we learn from you, Lynn, and study your work? >> lynnalden.com. Thanks for having me. >> Okay. lynnalden.com. We'll put the link down below and her X as well. Put that Thank you very much, Lynn. We'll speak again soon. Take care for now. >> Bye. >> Thank you for watching. don't forget to like and subscribe.