Fed’s Rate Cuts to Trigger Significant Capital Rotation from U.S. & Into These Markets – Lyn Alden

Summary

In this financial discussion, Lynn Olden, founder of Lyn Oldman Investment Strategy, shares her insights on the US economy and the Federal Reserve's upcoming rate cuts. She anticipates a limited impact on the US economy and suggests potential capital shifts from US equities to other markets. Olden also discusses the implications of fiscal dominance and the role of Bitcoin as an emerging asset in a diversified portfolio, expecting Bitcoin to hit six figures within the next 18 months, contingent on global liquidity trends.

Takeaways

• 🌐 The current global capital situation in US Equity markets is reminiscent of the dot-com bubble, with a potential for significant capital rotation if rate cuts occur.
• 💰 There are concerns about the accuracy and reliability of economic data and models, which are crucial for the Federal Reserve's decision-making process.
• 📉 The base case for the next 18 months is bullish on Bitcoin, anticipating that it will continue to rise in value, potentially reaching six figures.
• 🇺🇸 The US economy may be desensitized to interest rate cuts in the next business cycle, suggesting that such measures may have a limited impact.
• 🤔 There's skepticism about the effectiveness of central bank interest rate management and the potential for it to contribute to economic booms and busts.
• 📊 A major downward revision of job numbers by the Bureau of Labor Statistics has raised questions about the reliability of economic data used by the Federal Reserve.
• 📈 The market expects a rate cut from the Federal Reserve, with a high probability of it happening in September, but the impact on the economy may be muted.
• 💡 There's a potential for capital to rotate out of large-cap US equities and into other parts of the US and global markets, including Emerging Markets.
• 🌍 The discussion highlights the possibility of a shift in global capital allocation, with Emerging Markets being a potential beneficiary if capital moves away from the US.
• 💼 The founder of Lyn Oldman investment strategy, Lynn Olden, emphasizes the importance of being diversified and open-minded in the current challenging market environment.

Q & A

What is the current situation of global capital in US Equity markets?

There is a significant amount of global capital in US Equity markets, similar to the dot-com bubble period. This could potentially lead to foreign equity holders pulling out if rate cuts occur, setting up a scenario for capital rotations out of large cap US equities.

What is the potential impact of rate cuts on foreign equity holders in the US market?

If rate cuts occur without a significant economic downturn, foreign equity holders might see reduced returns due to a weaker dollar, which could trigger a pullout from the US market, leading to capital reallocations globally.

What does the speaker base their bullish outlook on Bitcoin over the next 18 months on?

The speaker bases their bullish outlook on Bitcoin on the expectation of continued global liquidity, as well as Bitcoin-specific indicators such as market capitalization relative to realized capitalization, and the absence of significant selling pressure from long-term holders.

How does the speaker view the effectiveness of the Federal Reserve's rate cuts on the US economy?

The speaker believes that the rate cuts by the Federal Reserve will have a limited impact on the US economy, suggesting that the economy may be desensitized to interest rate cuts in the next business cycle.

What is the significance of the Bureau of Labor Statistics revising down the total number of jobs created?

The revision signifies a significant downward adjustment, the largest since 2009, indicating that the labor market is not as robust as previously thought, which may influence the Federal Reserve's decision on interest rates.

What are the implications of the Federal Reserve's focus shifting more towards the job market and less on inflation?

The shift indicates that the Federal Reserve is more concerned about the rising unemployment rate and potential further softening of the labor market than about inflation falling to its target, which could lead to a rate cut to stimulate the job market.

What does the speaker suggest about the potential for capital rotations in the market?

The speaker suggests that there could be significant capital rotations out of large cap US low volatility equities and into other parts of the US market and global markets, especially if rate cuts lead to a weaker dollar and reduced returns for foreign investors.

What is the speaker's view on the potential impact of rate cuts on gold and Bitcoin?

The speaker does not provide a specific outlook on gold and Bitcoin in response to rate cuts but implies that assets like gold and Bitcoin, which are considered hard assets or alternative stores of value, could benefit from increased market uncertainty and currency debasement concerns.

How does the speaker describe the current state of the US economy in relation to fiscal dominance?

The speaker describes the US economy as being in a state of fiscal dominance where large government debts and deficits are reducing the impact of monetary policy, leading to higher average inflation and shallower business cycles.

What is the speaker's perspective on the role of the Federal Reserve in the current economic climate?

The speaker is critical of the Federal Reserve's role, suggesting that its actions may contribute to economic booms and busts and that its interest rate management may be too late or too early, depending on the situation.