Is U.S. Debt Problem Imploding? Lyn Alden On 'Fiscal Spiral', 2024's Best Assets

David Lin
2 Apr 202447:40

Summary

TLDRIn this insightful discussion, Lyn Alden, founder of Linn Alden Investment Strategy, shares her views on the current market trends and asset classes for 2024. Alden expresses bullish sentiments on Bitcoin, gold, and energy, citing fiscal dominance and its impact on asset valuations. She also discusses the potential for inflation, the role of the Federal Reserve, and the structural shifts in the financial system brought about by cryptocurrencies. Alden's perspectives offer a nuanced understanding of the economic landscape and strategic investment insights.

Takeaways

  • πŸ“ˆ The guest, Lyn Alden, is bullish on bitcoin, gold, and energy for the remainder of 2024 due to the fiscal backdrop and its impact on asset classes.
  • πŸ’Ή Large cap growth equities may have valuation concerns, while energy, gold, and bitcoin do not seem overvalued and present attractive opportunities.
  • 🌐 The rise in cryptocurrency hacking incidents highlights the importance of digital privacy and security, which is a key theme in the episode's sponsor segment on NordVPN.
  • πŸ“‰ Current market action shows stocks, gold, and Bitcoin moving up, but there are concerns about overextension of prices and potential economic slowdowns.
  • πŸ”„ The guest expects sector-specific rotations within the market, with some areas showing weakness while others recover, influenced by the purchasing managers' index (PMI).
  • 🏦 Commercial real estate is considered a risky sector to invest in due to the ongoing challenges and potential losses in the market.
  • 🌊 The concept of 'fiscal dominance' is introduced, where fiscal policies have a larger impact on the economy than monetary policies, affecting inflation and investment strategies.
  • πŸ”„ The Federal Reserve's response to inflation is expected to be limited due to high public debt, potentially leading to a focus on curve steepening rather than aggressive rate hikes.
  • πŸ’‘ The guest's book, 'Broken Money', discusses the structural changes in the monetary system, the impact of technology on finance, and the concept of fiscal dominance.
  • 🌐 The guest's website, Linn Alden Investment Strategy, offers resources and research for investors looking to understand and navigate the current financial landscape.

Q & A

  • What is the primary reason for assets continuing to surprise to the upside according to Lyn Alden?

    -The primary reason for assets continuing to surprise to the upside is the fiscal backdrop. In an environment with uncontrolled fiscal spending, assets denominated in a weakening currency perform well in local currency terms, even if they may not be doing great in real terms.

  • Which asset classes is Lyn Alden most bullish on for the remainder of 2024?

    -Lyn Alden is most bullish on Bitcoin, gold, and energy for the remainder of 2024. These assets provide a good focus area due to their potential for growth and their role as alternatives to other investments like tech stocks and treasury bonds.

  • What are Lyn Alden's thoughts on the future of gold, Bitcoin, and stocks for the remainder of 2024 and into next year?

    -Lyn Alden expects gold, Bitcoin, and certain stocks, particularly in the energy sector, to perform well for the remainder of 2024 and into the next year. She believes these assets will continue to be attractive due to their potential for growth and their ability to act as alternatives to more crowded or overvalued assets.

  • Why does Lyn Alden believe inflation may not come down to the Fed's 2% target anytime soon?

    -Lyn Alden believes inflation may not come down to the Fed's 2% target anytime soon due to the current environment of fiscal dominance, where fiscal policies have a more significant impact on the economy than monetary policies. This dynamic makes it difficult for the Fed to control inflation effectively, especially when fiscal deficits are contributing to the inflationary pressure.

  • How does Lyn Alden think the Fed will respond to the new inflationary dynamic?

    -Lyn Alden thinks the Fed might focus on managing expectations and maintaining relatively high interest rates rather than aggressively raising them further. She suggests that the Fed may also try to target curve steepening as a way to moderate government borrowing costs while keeping higher interest rate pressures on the private sector.

  • What does Lyn Alden mean by 'fiscal dominance' and why is it important?

    -Fiscal dominance refers to a situation where fiscal policies, such as taxation and government spending, have a more significant impact on the economy than monetary policies like interest rates. It is important because it changes the effectiveness of central bank tools in controlling inflation and can lead to a new era of economic dynamics, where traditional monetary responses may not be as effective.

  • What is Lyn Alden's view on the current market action for stocks, gold, and Bitcoin?

    -Lyn Alden has observed that stocks, gold, and Bitcoin have all moved up and she believes that this is largely due to the fiscal backdrop and improving liquidity. She also notes that while these assets have shown resilience, they may still experience periods of overbought conditions and subsequent consolidation.

  • How does Lyn Alden perceive the valuation concerns for various assets?

    -Lyn Alden expresses valuation concerns for large-cap growth equities, as they are highly priced relative to their fundamentals. However, she does not have valuation concerns for energy, gold, and Bitcoin, although she advises watching out for periods of euphorically overbought conditions.

  • What are the implications of the fiscal spending as discussed by Lyn Alden?

    -According to Lyn Alden, the implications of the fiscal spending include a continued increase in fiscal deficits, a potential slow-motion train wreck in commercial real estate, and an environment where certain investments become less attractive due to the dominance of fiscal policies. This also impacts the overall investment strategy and the attractiveness of various asset classes.

  • What does Lyn Alden suggest about the sector-specific nature of the market?

    -Lyn Alden suggests that the market's performance is very sector-specific. While some sectors like tech and services have been recovering, others like commercial real estate have been in a depression-like state. She expects a rotation where some of the assets that have been doing well may show weakness, while those that have already gone through a down cycle could recover.

  • How does Lyn Alden view the role of energy in the future economy?

    -Lyn Alden views energy as a critical component of the future economy. She anticipates increasing demand for energy due to technological advancements and the development of data centers. Additionally, she believes that energy supply will remain relatively constrained, leading to a potential rise in energy prices and making energy stocks an attractive investment.

Outlines

00:00

πŸ“ˆ Market Analysis and Asset Outlook

The paragraph discusses the reasons behind the surprising upside performance of certain assets in the context of a weak fiscal backdrop. It highlights the challenges of shorting assets in an emerging market with a weak local currency, which is rapidly increasing in supply. The speaker, Lyn Alden, shares her bullish views on various asset classes for the remainder of 2024 and beyond, including gold, Bitcoin, and energy stocks. She also delves into the potential for inflation to remain above the Federal Reserve's 2% target and how the Fed might respond to new inflationary dynamics. The importance of fiscal dominance in the current economic climate is emphasized, along with the implications of substantial government spending.

05:00

🌐 Global Economic Sectors and Fiscal Policies

This paragraph examines the purchasing managers' index (PMI) and its implications for various industries, noting that certain sectors have experienced recession-like conditions. Lyn Alden discusses the contrasting performance of different business areas, such as commercial real estate and tech sectors, and predicts a sector-specific rotation in the market. She also addresses the concept of risk-on sentiment and fiscal dominance, suggesting that the perception of investable areas may broaden, leading to shifts in market focus.

10:01

πŸ“Š Inflation Trends and Central Bank Policies

The discussion in this paragraph centers around the stabilization of inflation and the potential for it to re-accelerate, with a focus on the role of energy markets. Lyn Alden shares her view that the decade will be more inflationary than the previous one, with inflation coming in waves. She also talks about the Federal Reserve's challenge in managing inflation in the context of fiscal dominance, where fiscal policies have a more significant impact on the economy than monetary policies. The conversation touches on the Fed's likely response to inflation stabilization and the implications for interest rates and bond markets.

15:01

πŸ’° Fiscal Spending and its Macroeconomic Effects

This paragraph explores the concept of fiscal dominance in depth, explaining its impact on the economy and the limitations it places on central banks' ability to control inflation. Lyn Alden discusses the structural shift in the economy due to high public debt and fiscal deficits, and how this has led to a new era of fiscal influence. The conversation also covers the potential consequences of continued fiscal spending and the challenges of managing fiscal policy in a financialized economy with high public debt.

20:03

πŸ“ˆ The Impact of Deficits on Asset Classes

The paragraph examines the relationship between government spending, deficits, and their effects on various asset classes. Lyn Alden argues that while large deficits have historically boosted stock markets, the sustainability of this trend is questioned due to the increasing interest expenses associated with high public debt. She also discusses the potential for inflation to manifest in asset prices and the importance of investing in assets that can provide a positive carry, such as energy stocks, in the face of uncertain inflation outcomes.

25:05

🌟 Energy Sector Outlook and AI's Role

In this paragraph, the focus is on the energy sector, with Lyn Alden expressing a bullish outlook due to increasing demand and constrained supply. She highlights the lack of investment in new production and the potential for energy prices to rise. The discussion also touches on the energy-intensive nature of technological advancements like AI and data centers, and the need for increased electrical grid capacity. Lyn Alden sees energy stocks as attractive investments, given their strong balance sheets and shareholder-friendly policies.

30:05

πŸ’‘ Bitcoin's Role in the Energy Market

This paragraph explores the role of Bitcoin mining in the energy market, particularly its ability to absorb stranded energy and provide flexibility in times of supply and demand fluctuations. Lyn Alden discusses the potential for Bitcoin to become an embedded part of the grid, utilizing excess energy that would otherwise be wasted. The conversation also touches on the World Bank's estimates of natural gas flaring and methane leaks, highlighting the significant amount of untapped energy that could be used for Bitcoin mining.

35:05

πŸ“ˆ Performance of Bitcoin, Gold, and Stocks

The paragraph discusses the performance of Bitcoin, gold, and stocks in relation to fiscal policies and liquidity. Lyn Alden explains that while these assets have been rising, the reasons for their performance are not identical but are influenced by fiscal issues and liquidity. She notes that gold has historically been negatively correlated with real interest rates, but the recent divergence suggests a change in this dynamic. The conversation also includes the impact of Bitcoin ETFs on the price of Bitcoin and the anticipation of the having on the market.

40:05

πŸ“– Lyn Alden's Book: Broken Money

In this final paragraph, Lyn Alden discusses her book, 'Broken Money,' which focuses on the themes of fiscal dominance and the structural changes brought by Bitcoin and stablecoins to the monetary system. The book examines the historical context of money and the evolution of financial systems, particularly the shift from slow transactions and settlements to a modern era of fast transactions and settlements. Lyn Alden emphasizes the long-term implications of these technologies on the global financial landscape and the potential for reduced reliance on middlemen in finance.

Mindmap

Keywords

πŸ’‘Fiscal Backdrop

The fiscal backdrop refers to the government's financial policies and their impact on the economy. In the video, it is mentioned as a significant factor influencing asset performance, particularly in emerging markets where currency weakness can lead to headwinds for shorting assets.

πŸ’‘Asset Classes

Asset classes are categories of investments that are grouped based on their characteristics, such as stocks, bonds, commodities, and real estate. In the video, the guest, Lyn Alden, shares which asset classes she is most bullish on for the remainder of 2024, including Bitcoin, gold, and energy stocks.

πŸ’‘Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. In the video, the discussion around inflation centers on whether it will come down to the Federal Reserve's 2% target and how it impacts various asset classes.

πŸ’‘FED Response

The FED response refers to the actions taken by the Federal Reserve in reaction to changes in the economy, particularly focusing on monetary policy tools like interest rates and quantitative easing. In the video, the guest discusses the FED's potential reactions to inflationary dynamics and fiscal dominance.

πŸ’‘Valuation Concerns

Valuation concerns refer to worries about the current price levels of assets relative to their fundamentals, such as earnings or cash flow. In the video, the guest expresses valuation concerns for certain types of stocks, like large-cap growth equities, but not for assets like energy, gold, and Bitcoin.

πŸ’‘Bitcoin ETF

A Bitcoin ETF (Exchange-Traded Fund) is a financial product that tracks the value of Bitcoin and allows investors to gain exposure to the cryptocurrency without having to buy and hold the actual digital currency. In the video, the approval of a Bitcoin ETF is discussed as a factor that could influence Bitcoin's price and liquidity.

πŸ’‘Commercial Real Estate

Commercial real estate refers to buildings or land used for business purposes, such as offices, retail spaces, or industrial properties. In the video, the guest advises staying away from commercial real estate investments due to an ongoing 'slow-motion train wreck' in the sector.

πŸ’‘Sector-Specific

Sector-specific refers to particular industries or segments of the economy that are being discussed or analyzed. In the video, the guest emphasizes the importance of being sector-specific when discussing market outlooks, as different sectors can experience varying levels of success or challenges.

πŸ’‘Risk-On Sentiment

Risk-on sentiment refers to the attitude of investors who are willing to take on higher levels of risk in the pursuit of higher returns. It is often associated with a bullish market environment. In the video, the guest discusses how the current market sentiment may not be as risk-on as it appears and could change over the course of the year.

πŸ’‘Yield Curve

The yield curve is a graph that plots the interest rates of bonds across different maturities. It is used to analyze the relationship between interest rates and bond terms, and it can provide insights into the health of the economy. In the video, the guest expresses her views on the potential steepening of the yield curve and its implications for fixed income markets.

πŸ’‘Fiscal Dominance

Fiscal dominance is a situation where government fiscal policy, particularly spending and taxation decisions, has a more significant impact on the economy than monetary policy. It often occurs when public debt levels are high, and the central bank's ability to control inflation is limited. In the video, the concept is discussed in the context of its implications for investment strategies and the economy.

Highlights

The fiscal backdrop is a key factor in the surprising upside performance of certain assets.

Inζ–°ε…΄εΈ‚εœΊ, local currency weakness creates headwinds for shorting assets.

Lyn Alden, founder of Linn Alden investment, shares her views on asset classes for the remainder of 2024.

Bitcoin, gold, and energy are the assets Lyn Alden is most bullish on for the near future.

Inflation may not decrease to the Fed's 2% target anytime soon due to fiscal dominance.

The Fed's response to new inflationary dynamics may be limited due to fiscal policies.

Government spending has significant consequences on the economy and asset classes.

Large cap growth equities have valuation concerns, but energy and smaller value spectrum companies do not.

Earnings results have been disappointing, leading to a drop in the stock market indices.

Sector-specific analysis is crucial for understanding market trends and potential slowdowns.

Risk-on sentiment may reverse over the course of the year, affecting market performance.

Fiscal dominance is a key factor in the current investment environment, affecting asset classes and market outlook.

Bitcoin and gold have moved up due to improving liquidity, which is fiscally driven.

The anticipation of Bitcoin ETF and the actual having can impact Bitcoin's price and demand.

Gold's rally is influenced by real interest rates and fiscal dominance, potentially signaling a higher trend in the coming years.

Lyn Alden's book, Broken Money, discusses the failure of the financial system and ways to improve it, focusing on fiscal dominance and the impact of Bitcoin and stablecoins.

Transcripts

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overall the reason that those assets

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continue to surprise to the upside is

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because of that fiscal backdrop you know

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if you were trying to short Assets in an

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Emerging Market in the local currency

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you're going to continually get

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headwinds from the fact that that

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currency is so weak right it's just it's

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just that currency is going up in Supply

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so quickly that the assets that you're

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denominating them in might not be doing

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great in real terms but they're

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certainly doing fine in that local

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currency term fan favor Lyn Alden

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founder of Linn Alden investment

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strategy returns to the show to share

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with us the asset classes that she's

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most bullish on for the remainder of

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2024 what she thinks will happen to Gold

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Bitcoin and stocks for the remainder of

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the year and into next year why she

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thinks inflation may not come down to

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the fed's 2% Target anytime soon how the

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FED will likely respond to this new

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inflationary Dynamic and why fiscal

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dominance is so important right now and

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we'll discuss exactly what this means

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and why the government is spending so

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much money and the consequences of all

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this fiscal spending first a from our

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description down below to learn more Lyn

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welcome back to the show always good to

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see you always happy to be back on

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thanks for having me felt like yesterday

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when we last spoke but really it was

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November so lots has happened since 4

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months ago I like to start with current

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market action stocks gold and Bitcoin

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have all moved up I think investors

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would first and foremost like to ask you

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which assets you think would be um

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something that should be overweighted

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for the remainder of the year um so for

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this year I mean I I'm bullish on

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bitcoin gold energy uh that's kind of

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the big areas of focus uh for me at this

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time uh you know a lot bitcoin's already

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had a lot of powerful price action

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obviously earlier this year um so I

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think now it's consolidating a little

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bit but you know over this year and next

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year I I'm bullish on all those assets

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that I mentioned uh and of course it

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depends on what their Capital mandate is

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so you know energy is cheap and

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profitable and has good balance sheets

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generally um gold and Bitcoin are kind

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of um alternatives to treasury bonds or

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alternatives to tech stocks for example

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they can they can fit in a portfolio in

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that context um and so those are kind of

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the assets that I I find attractive at

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the current time would you say that

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valuation are a concern for you at

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current levels for all these

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assets uh so I think that um large cap

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uh growth equities have valuation

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concerns so for example large profitable

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tech companies even companies like

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Costco for example they're very highly

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priced relative to their fundamentals

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relative to their growth um basically

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it's not a problem necessarily with the

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companies themselves I mean Costco is

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doing amazing it's just that investors

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are are really crowded and really kind

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of piling into them so I do have

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valuations concerns uh for those um I

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don't really have valuation concerns for

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energy uh for certain ends of the value

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Spectrum for some of these smaller

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companies um nor do I have valuation

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concerns for gold and Bitcoin inste it's

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just a matter of that sometimes they can

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get um euphorically overbought in the

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intermediate sense um so that that's

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something I look out for um but other

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than that I think that those errors are

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still not very crowded in terms of

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overall investor portfolio positioning

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just today as we're speaking on Tuesday

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uh this week earnings are starting to

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come in um some of the results have been

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disappointing indeed the Dow is dropping

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uh stocks are dropping today as we speak

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uh the S&P is down 1% the nasdaq's down

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1.3% the Dow's down 400 points um some

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have told me that weak earnings are to

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be expected as we head into what may be

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an economic slowdown or some sort of

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contraction do you agree with that view

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so I think you have to be sector

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specific I think that's been the

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challenge so over the past

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call it 18 months you know we've had a

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we've had a PMI a purchasing managers

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index below 50 for like a year and a

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half um and so that's already been

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recession like conditions for certain

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industries and of course commercial real

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estate's been in a depression like um uh

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context whereas uh some of the more

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service oriented um business out there

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Tech there's other areas that have been

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in recovery mode um and so I I think

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that some of that could rotate in the

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sense that some of the things that have

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been doing really really well um could

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increasingly show some weakness uh ahead

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whereas some of the things that have

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already gone through that down cycle and

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if anything I I think some of them are

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recovering I expect probably Higher pmis

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by the end of this year than than we

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started the year at um and I think some

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of those more cyclical things could

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follow that so I think that that that

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question of slowdown versus not slow

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down is is very sector specific I think

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instead it's more of a rotation a re

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acceleration some of those things even

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as some of those those bigger Tech

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things um you know do slow down I think

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the slow down may or may not affect

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sentiment what do you think do you think

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risk on sentiment which has obviously

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been the case for the last 6 months

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could reverse over the course of the

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year uh so I I do but I think that even

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some of the action we've seen is

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indicative of not super bullish

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sentiment you know people don't pile

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into cost 50 times earnings necessarily

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purely out of bullishness some of that

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is because it's it's actually a form of

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defensiveness it's saying you know I

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don't really want to own bonds per se I

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want to buy a really Blue Chip company

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and I'll crowd into that rather than

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owning any of the things that are more

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cyclical the energy names the banks uh

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you know that's the the the capital

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flight out of there I think has been

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indicative of riskof behavior um and so

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I don't I don't view that the current

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period we've been in as super risk on um

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and instead it's more indicative of

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fiscal dominance

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um indicative of how many other areas

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are perceived as not investable um and I

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I think what we could see is a

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broadening out of what is perceived as

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investable right so some some of those

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some of the risk uh sentiment could

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actually increase for some of the things

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that have been considered too risky

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whereas some of those things that people

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crowded into um I think people could get

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quite concerned with the level of

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valuation there relative to the growth

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numbers that are coming in um you know

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if you've seen for example apple and

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Tesla just not putting up amazing

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numbers and the problem is that

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investors had

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overpaid uh for relatively spectacular

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results that they're not they're not

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getting in the fundamental data yeah so

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sector specific then well the obvious

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followup question is which sectors are

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you most bullish on and least bullish on

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uh so I generally like um Industrials I

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like um energy energy I think is the the

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more attractive risk reward and I think

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with financials um as long as you kind

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of avoid the commercial real estate

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concentration I think most of that is is

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at the current time um I I think those

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are I think even like for example the

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Midstream energy sector for example

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that's been showing signs of breaking

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out it's it's it's kind of new uh post-

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pandemic highs let's call it uh and they

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pay you very high yields while you own

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them as well um and so I I think that

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there are a bunch of investable areas um

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and that the market has largely not

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wanted to touch those and that those are

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even at the current time presenting

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opportunity now when you get kind of

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overall riskof sentiment bad days you

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can get Capital pulling out of those as

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well um but basically by being cheap and

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having good fundamentals they they

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somewhat limit the downside um and then

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they pay to own them so even if the

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upside takes longer to come to fruition

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it's still a positive carry asset for

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many of these while while you own it uh

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you mentioned commercial real estate

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something we should stay away from uh

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even today in April 2024 why is that

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well so it's I think it if if someone is

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a professional commercial real estate

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investor I think that there are going to

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be opportunities right there's obviously

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going to be bargain hunting like super

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cheap opportunities um but in general I

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think we're seeing just an ongoing slow

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motion train wreck in commercial real

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estate um I think there are more losses

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coming I think that lenders that are

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heavily Expos their commercial real

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estate or likely continue having problem

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um I would say a lot of that's already

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priced in a lot of that you know a lot

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of those things are already super cheap

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Capital it's a it's a it's a very

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wellknown theme at this point that

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commercial real estates in trouble um

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and I think that you know a theme I've

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been making is that so many people keep

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saying that commercial real estate is

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going to drive the next recession

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whereas what I've been pointing out is

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even even the bearish assumptions are

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looking at say like 1.5 trillion in

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equity wiped out of commercial real

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estate um whereas if you look at fiscal

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deficits you know they're over one and a

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half trillion per year um and overall

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household net worth is something like

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like 140 trillion and and rising at

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all-time highs right so there are these

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Pockets that can do really badly and

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that you know if you're if you're

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exposed to a bank that has a

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disproportion amount of lending to

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commercial real estate for example there

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still could be more shoes to drop there

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but that if you're in areas that are not

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really in that area if you're in energy

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if you're in other types of Finance if

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you're in um you know other Assets in

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general even certain Emerging Markets um

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those can can I think continue to re

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accelerate out of their kind of pandemic

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lows uh while these other things

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continue to suffer because we're in this

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environment of kind of structural fiscal

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dominance you know it's very hard to

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have a uh recession when you're pre-

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stimulating to the tune of you know one

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and a half or two trillion dollars a

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year in fiscal deficits and it doesn't

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mean that's not necessarily a good thing

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um but that's just it's a different

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reality on the ground a lot of it is

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kind of like an Emerging Market where

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you have to separate nominal

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expectations from real expectations

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because you have that underlying kind of

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fiscal unsustainable backdrop and that

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just changes what investments make sense

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uh in a nominal sense I do want to come

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uh come back to your fiscal um dominance

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Theory uh as well as some of the asset

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classes that you mentioned in particular

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uh specifically uh but first let's sum

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up your overall Market Outlook before we

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move on to that so bottom line are you

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expecting some form of a broad Market in

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equities at least correction later on

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this year whether it be a result of an

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overextension of prices or a result of

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um some sort of

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recession uh so I I'm not the answer is

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I'm not sure but I would say that I

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would expect some rotation which is to

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say that to to the extent that I want to

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protect myself from that risk I would

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not want to own the over owned things or

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at least I would not want to be

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overweight the things that other people

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are overweight I would either want to

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avoid them or downweight them compared

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to other things that people have already

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written off that that people are not

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crowded into because even if we do get

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that correction I'm not sure that it

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would impact those other assets I'm I'm

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referring to okay and uh speaking of

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rotation are you expecting any more

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Capital to rotate into the fixed income

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Market in other words um how do you

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think interest rates uh will affect uh

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the broad fixed income or Bond um

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portfolio so I'm I'm neutral on those I

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I do eventually expect to see curve

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steepening either because the front

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end's cut or because the long end Rises

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a little bit or a mix of both and so the

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overall risk reward of the long end is

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is still not super attractive to me um

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to the extent that I like bonds I either

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like t- bills or I like intermediate

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term tips for example um I don't

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particularly like the long duration

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bonds which is not to say that I don't

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think that they will you know it's not

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that I even if they squeak out gains for

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the year for example there are much

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other there much better other assets

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that I'd prefer to own from a risk

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reward standpoint I refer I prefer to

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own things that I view as asymmetric

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meaning that the downside is relatively

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contained um whereas the upside has a

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lot of room to go where and I don't view

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the bond market in that situation I

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wouldn't be surprised if we see yields

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higher or lower um by the end of this

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year but it it doesn't feel like it's

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weighted toward a a kind of a strong

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long outcome so it's just an era that I

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kind of put into the too hard pile and

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say that it's just it's not a lot of

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opportunity for the amount of risk I

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take on so if you expect the yield curve

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to steepen I'm assuming then you expect

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the long end of the curve to continue

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going up even if the FED cuts which

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would bring down the uh short end of the

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curve is that correct yeah or or it

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stays sideways while while the FED cuts

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the short end there's a couple different

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yeah ways and magnitudes that could

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happen and to the extent that long end

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yields stay higher than expected that

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could put pressure on some of those

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highly valued equities that we just

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talked about right so I think the Bond

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markets already um a little worried

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about re accelerating inflation but we

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haven't really seen that in the large

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cap equities yet um I think that they've

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still discounted the possibility of

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reaccelerating inflation and so some of

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that's potentially not priced in um and

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so th those crowded areas might not they

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might be they might correct or at least

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stagnate for a period of time if they

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come to fully realize that that the long

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end yields are maybe not going down as

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quickly as some investors expect are we

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having reaccelerating inflation Lynn uh

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I mean the latest CPI numbers have not

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Fallen at all since the previous months

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um however they haven't um substantially

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re accelerated at least on paper yet so

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please elaborate on what you mean by

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that so I I think we're seeing

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stabilization of inflation and the and

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the the step before re acceleration is

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stabilization so if it if it's not going

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down that's that's a sign of a potential

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bottom um and you know one of my themes

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for a while is that this decade will be

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more inflationary than the past decade

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but it won't be a straight line it'll

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come in waves as most inflationary

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decades do and that those ways will

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generally be correlated with um economic

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acceleration or deceleration especially

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some of the more energy intensive areas

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and so for example uh you know pmis like

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we just talked about have been falling

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in for a while they they then have been

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stabilizing for a while and they're

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they're actually showing earlier signs

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of of recovery and reacceleration and I

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I think inflation could follow that with

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somewhat of a lag I do think if we see a

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continued PMI Up Cycle um that could

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come with a little bit of inflation so

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it's not like I'm forecasting inflation

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to quickly retest the highs we saw you

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know a couple years ago but I do think

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that the fed's it's going to be sticky

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it's going to be basically inflation's

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not going to go down to the fed's Target

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as quickly as they'd want it to um and

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that inflation I think is going to hover

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3% or higher most likely um and and I

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think the key thing to watch to see if

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it can go much higher than that is

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energy um you know I I expect rent

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inflation to kind of stabilize not

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really Trend lower but not necessarily

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explode higher either because there's a

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lot of Supply coming online but it's

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really the energy markets that I think

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um are worth watching to see if we end

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up having above like inflation that's

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even above kind of current levels that

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are already elevated relative to targets

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so the FED how would they respond to

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this stabilization of inflation you

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think I think neutrally I I think that

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they they already kind of realized that

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um their tools are not

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necessarily um well positioned to deal

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with this so when I talk about fiscal

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dominance what I refer to is when we

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look over the let's call it I did charts

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on this

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like for example the past 70 years if

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you look at where most um credit

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creation happens right mostly it's in

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the private sector so for example if you

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sum up net new bank loans and net new

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corporate bond issuance in a given year

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that sum is usually bigger than annual

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fiscal deficits um so that that's kind

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of private sector Main Street um credit

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financing um and for the most part

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that's bigger than annual fiscal

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deficits but one thing we've seen in in

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recent years is that fiscal deficits are

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bigger than those combined right so

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there there's more kind of you know

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nominal power coming from the public

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sector than the private sector and that

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has a couple implications basically the

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fed's main tools are around modulating

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the speed of things like bank loans and

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and credit issuance if they want to try

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to slow down inflation they try to raise

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rates or do quantitative tightening to

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try to slow down that private sector

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activity until they get you know either

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recession or a near recession

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and the problem is that in the current

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ERA because the the deficits are mainly

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you know it's mainly a fiscal driven

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large deficit phenomenon that's where

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the inflation's coming from there's only

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so much that they can slow down that

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private sector and a problem is that you

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know back in the 70s for example or the

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early 80s when they wanted to try to

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control inflation they had very low

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public debt and so if they raised rates

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they could slow down that private sector

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credit creation and that would have a

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bigger negative impact than any sort

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sort of increased public interest

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expense they would have from those

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policies but if you fast forward to the

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current time instead of 30% at the GDP

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there's 120% at the GDP and so when they

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raise rates Super High um it does slow

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down that private sector credit creation

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moderately but then it completely blows

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out the public um interest expense and

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overall fiscal deficits by an even

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larger number and so they're they're not

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really able to slow it down to the

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extent that they would be able to if

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they were in a lower public debt

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environment and where most of this was

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coming from that private sector so it's

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really about not having the right tools

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to to address it directly and I think

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that you know they're they've been kind

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of been acknowledging that um even just

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not directly so I think what you would

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generally see is they'd probably stick

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at relatively High indust rate levels

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they probably would not aggressively

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raise them more um they might focus more

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on curve steepening because that's a

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that's a way to you know moderate cost

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for the government uh while keeping

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higher industry pressures on the private

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sector you know mortgage rates and and

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corporate bond rates and things like

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that so I do think that they might start

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start targeting curve steepening um but

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I think it's mostly about just

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expectation management I think they're

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going to be relatively

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neutral even if inflation re accelerates

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and I think it's going to be an ongoing

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kind of narrative issue for them suppose

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energy moves up um and accelerates there

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and brings inflation up with it do you

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think the Fed May respond by raising

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rates again so it's possible um my base

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case is they would first focus on higher

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for longer rather than raising rates um

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because I actually think that the

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raising rates Beyond a certain point can

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actually be stimulatory that's that's

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the challenge you face in a fiscal

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dominant environment so if if most of

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the if most of the money creation was

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happening because of the private sector

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then higher rates would generally be uh

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not stimulatory the opposite it would be

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depression

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but because a lot of this is fiscal

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driven and that's interest rate it's not

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sensitive to interest rate the spending

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the taxation it's largely not sensitive

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to interest rates and so by raising

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rates they actually just increase the

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deficit more and that's where a lot of

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the stimulus is is coming from um and so

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you know they might turn to Rising rates

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but I think it would be ineffective if

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they did uh instead they probably will

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just kind of keep it high and we'll see

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if they try to rotate the yield curve to

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be steeper that that might be one of the

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one of the more optimal approaches um

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but really it's it's I'm less concerned

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with what the fed's going to do because

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I don't think they're in the driver's

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seat um I think the fiscal side's more

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in the driver's seat and I think that

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the fed's going to kind of move around

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whatever the fiscal side's doing let's

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talk about uh this fiscal dominance that

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you're referencing so uh first of all

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what do you mean by that exactly and why

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do you think there's so much fiscal

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spending or just spending overall from

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Congress right now so for the first one

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fiscal dominance is basically when you

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know B like so monetary policies things

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like indust rates or central bank

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balance sheet fiscal policy is like

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taxing and spending Decisions by the

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government and fiscal dominance is when

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that latter has a much bigger impact on

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the economy than the former and more

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specifically it's when the former whose

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tools are meant to control inflation are

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no longer able to control inflation

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because most of their tools are geared

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toward the private sector whereas much

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of this is happening from that fiscal

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side from the public sector and Central

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Bank tools don't really address the

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fiscal side um another way of putting it

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is that in in an era where there's no

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fiscal dominance higher indust rates

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should lower inflation because you're

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you're you're softening private sector

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credit creation and you're strengthening

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the currency from the perspective of

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forign investors um but in a in a a a

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high public debt fiscal dominance regime

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higher indust rates are not always

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negative for inflation because although

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they do put downward pressure on some of

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the those private sector things they put

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upward pressure on the fiscal deficit

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due to higher interest expense and

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that's that's partially what's fueling

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inflation in the first place that

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interest expense by the government is

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someone else's income right so for

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example if I use myself as example I

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have I have a fixed lockin mortgage and

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I have money markets if they increase

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interest rates they increase my income

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which I can spend right and I'm not the

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only one like that there's many

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corporations in that position there are

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many um uh households in that position

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ironically um and so if the private

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sector termed out their debt and the

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government has

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not and specifically that those levels

play22:33

are very high that's where it start to

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get a a feedback loop that is not in

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line with what the past 40 years have

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been and to answer your second question

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why why are they spending so much I

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would say I mean a lot of it's locked in

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it's demographics it's it's polit it's

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it's a gridlocked congress it's it's

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military spending it's geopolitical it's

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all the above but I think the broader

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more structural thing is that over the

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past 4 years there's been constant

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deficits uh for the most part um Rising

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debt to GDP but that's been offs set by

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40 Years of declining interest rates and

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so interest expense was never really a

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problem if you double your debt but you

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cut your your interest rate in half then

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your debt servicing costs are not really

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a problem right and so it's been 40

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Years of that math happening and the

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problem is that if you um are are

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continuing to rise public debts and

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deficits but your interest rates go all

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the way to zero and bounce off zero and

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then start going sideways to up you no

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longer have that offset anymore and so I

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think that's the that's the bigger

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factor for what's happening is that that

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the the kind of the natural conclusion

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of Decades of you know deficits and and

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debt accumulation is that we kind of

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enter this new period where interest

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expense starts to actually matter and

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they start to enter this kind of

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long-term fiscal spiral which again

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doesn't mean anything major happens this

play23:55

year but it means that this this overall

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kind of f schoal train is just is not

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going to stop anytime soon and it's it's

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this new background structure that as

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investors uh or any of us operating in

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the economy have to contend with that

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it's a it's a different background

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structure than than the prior decade

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I've noticed just by looking at the

play24:15

chart that uh the federal Surplus or

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deficit in this case the deficit as a

play24:20

percentage of GDP has continuously widen

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over the last 40 years like you've like

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you've mentioned Lynn but has

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accelerated in its widen since 2008 and

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so if you just look at the charts well

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you would say to yourself since 2008 the

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American Stock Market um has seen the

play24:37

longest bull Rally or Market in history

play24:41

correlation causation who knows but

play24:44

certainly a deficit doesn't hurt the

play24:46

stock markets in fact a whing deficit

play24:48

has boosted the stock markets so just on

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the surface and I may make the argument

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that as an investor I may want the

play24:55

government to spend more money money

play24:57

stimulate more widen the deficit because

play25:00

that's good for assets and nominal

play25:02

values of assets would you agree or

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disagree I mean from an investor

play25:06

standpoint probably especially in

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nominal terms I mean in Emerging Markets

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when they go through issues usually

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things go up in their local currency

play25:13

term even if they do poorly in dollar or

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gold terms and I think what we're

play25:17

generally seeing is the some of these

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developed markets especially the US have

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certain Emerging Market characteristics

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just to a less extreme degree um and so

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the the you know if if I I had a view

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that they were going to dramatically cut

play25:31

the deficit tomorrow um then I would

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invest differently I would own things

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like I would own more uh bonds for

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example um I would own more of those

play25:40

types of assets and I would own less

play25:43

equities and less of these other real

play25:45

assets um so but because I don't expect

play25:48

them to do that um I invest the way that

play25:50

I do so yeah you could say it's it's

play25:52

bullish on the assets that I want to own

play25:53

if those deficits continue but that's

play25:55

why I'm invested them in the first place

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it's a high it's a higher nominal regime

play26:00

overall um and it it can sometimes lead

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to a higher real regime if if you know

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you're kind of sucking monetary Capital

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out of other countries like you know

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places in Europe or places in Asia for

play26:13

example if the US is running this

play26:14

Playbook but investors are still fueling

play26:17

it because they don't they don't they

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don't know where else to invest the the

play26:20

risk comes when they do feel like they

play26:22

have Alternatives and this spending

play26:23

still locked in and so if you get a

play26:25

repudiation of the bonds while this is

play26:28

still happening they don't really have a

play26:29

way to slow it down that's where you

play26:31

could get more obvious inflation risks

play26:34

or things like that so it's one of those

play26:36

things where in the early stages it does

play26:39

feel pretty good and it's the later

play26:41

stages where yeah you really get the

play26:43

consequences from doing that um but yeah

play26:46

I do think that overall um you know

play26:49

investment dists have to take into

play26:50

account the deficit and and part of why

play26:52

I'm long certain assets is because of

play26:54

that and the last point I would make is

play26:55

that the challenge when they get to

play26:57

these high debt levels in this

play26:58

financialized of an economy is that even

play27:01

if they try to do austerity even if they

play27:03

try to say raise taxes and cut spending

play27:06

um that would be be for a period of time

play27:09

but then the problem is that tax

play27:11

receipts are so heavily correlated to

play27:14

asset prices now because you become so

play27:16

financialized that by by cutting that

play27:18

You' likely depress asset prices for a

play27:21

period of time which would then

play27:22

ironically increase the deficit again um

play27:25

and so it's actually a very hard tail

play27:27

spin get out of fiscally when you have

play27:30

the combination of this High public debt

play27:32

built on this financialized of an

play27:34

economy if you had one of the other it's

play27:36

easier to do if you have a financialized

play27:37

economy but not highly indebted one you

play27:39

can start to Def financialized gradually

play27:42

um if you have a highly inded public

play27:45

sector but it's built on a non-f

play27:46

financialized economy then then

play27:48

austerity might give you options to deal

play27:50

with that um but if you have that

play27:52

combination uh that's super hard to work

play27:55

with especially when you you're you're

play27:56

trying to work with it with a with a

play27:57

gridlock Congress um there's really not

play28:01

that many outcomes I see that that

play28:03

change that which is which is why I

play28:04

invest structurally the way that I do

play28:07

okay uh is there a goldilock scenario in

play28:09

which the government spends money and

play28:11

perhaps widens the deficit but we don't

play28:13

get inflation to run out of control in

play28:15

other words mmt um in a scenario in

play28:19

which we have stimulus which would be

play28:20

good for Equity markets in nominal terms

play28:24

but we don't get runaway inflation could

play28:26

that happen so that would happen in in

play28:29

the context where energy is abundant

play28:31

right so a lot of new energy Supply is

play28:33

coming online uh to kind of keep up with

play28:35

that uh and two you have um deflationary

play28:39

offsets from things like AI or other

play28:41

Tech so for example if you ran very very

play28:43

large deficits um but those uh for

play28:46

example if you're if you ran very large

play28:47

deficits but you used it to you know go

play28:50

get copper mines and and build nuclear

play28:52

plants and and data centers and and

play28:54

things that were highly productive um

play28:56

you know it might or might not be as I

play28:58

as the private sector but at least would

play29:00

it would you You' bring new Supply

play29:01

online at the same time as you're

play29:03

debasing your currency so you can you

play29:04

can minimize how much uh on on a you

play29:07

know kind of a per currency basis these

play29:09

things are getting more expensive if at

play29:10

all um the problem comes in when you

play29:12

when you run this big fiscal deficit but

play29:14

it doesn't go toward increasing the

play29:16

supply of goods and services it goes

play29:18

more toward consumption or more toward

play29:20

locked in demographics or towards war or

play29:22

things like that they're not really kind

play29:23

of fueling that real GDP growth um and

play29:27

so it it to the extent that AI or energy

play29:32

abundance helps keep CPI down then it

play29:36

but you're still running these big

play29:37

deficits then that inflation will

play29:38

generally show up in asset prices it'll

play29:40

show up in things like gold and Bitcoin

play29:42

and high quality equities and high

play29:44

quality real estate that's that's where

play29:46

that inflation will show up whereas if

play29:48

it's if you do get energy bottlenecks or

play29:51

AI does not um offset things as quickly

play29:55

as some people expect then it's then

play29:57

more of that would show up in CPI uh and

play30:00

you'd be a little bit more careful of

play30:01

some of those um you know High multiple

play30:05

growth equities for example so if you're

play30:06

if you're not sure about the two this

play30:09

kind of the ratio of where that

play30:10

inflation will end up then one thing you

play30:12

can do is kind of invest in the middle

play30:15

which is to say own things like gold and

play30:17

Bitcoin and you know energy stocks for

play30:20

example and and and kind of high quality

play30:22

assets like that but still still be

play30:23

cautious around the most highly valued

play30:26

growth equities that that might get

play30:28

punished if some of that inflation does

play30:30

show up in in the CPI so let's talk

play30:33

about energy first because you've

play30:34

mentioned that several times throughout

play30:36

the interview why is that you think

play30:38

energy will um will uh will go up well

play30:41

in other words why are you bullish on

play30:42

energy this year so I I think that

play30:46

overall we've got increasing demand for

play30:49

energy um Supply is not terrible but

play30:52

it's still relatively tight uh companies

play30:54

are not heavily incentivized to invest

play30:56

in new production

play30:58

um and so um I think that overall Supply

play31:02

is going to be kind of relatively con

play31:05

constrained I think that um Shale oil is

play31:07

going to grow more slowly in the coming

play31:10

years than it did over the past decade

play31:12

um and that there's be there's going to

play31:14

be a price increase to bring in more

play31:16

cacks to kind of bring in new Supply and

play31:18

kind of incentivize that longer term

play31:20

development of these energy resources I

play31:22

also think that um you know over the

play31:25

past o over the past 15 years the type

play31:28

of tech we've had has been relatively

play31:30

disinflationary so for example mobile

play31:32

devices um social media these are not

play31:35

particularly energy intensive things if

play31:37

anything they they dematerialize a lot

play31:39

of the other things we have to use

play31:41

whereas Outsourcing a lot of high

play31:43

computation thinking so making making

play31:46

art making videos uh you know making

play31:49

complex decisions that's actually pretty

play31:51

energy intensive when we kind of put

play31:53

that into the tech sphere uh it's more

play31:55

of a combined software and Hardware

play31:58

situation so I do think that we're going

play32:00

to see more energy demand out of things

play32:02

like data centers um and then that's

play32:04

going to be challenging to meet and then

play32:05

you need to do things like you need to

play32:07

increase the electrical grid capacity

play32:09

which is ironically an energy intensive

play32:11

thing to do uh a materially intensive

play32:13

thing to do um and so I think that the

play32:16

overall long-term demand is still up

play32:19

Supply is mixed um and you know we've

play32:22

generally seen energy kind of diff oil

play32:24

prices and gasoline prices kind of

play32:26

bounced off their lows a couple times

play32:28

and head it up I think you know my guess

play32:30

is that the lows are in maybe we retest

play32:32

them again but overall I think there's

play32:33

more upside potential than downside

play32:35

potential but then the second part of

play32:37

the investment thesis is that even if

play32:39

Energy prices don't go up as quickly as

play32:41

I think they will in the years ahead and

play32:43

they're on the the more bare side of

play32:45

kind of like sideways Trend a lot of

play32:47

those companies are cheaply priced even

play32:50

for current Energy prices and have good

play32:53

balance sheets and spend most of their

play32:57

capital on returning it to shareholders

play32:59

um so they kind of keep keep their

play33:01

current situation but they're not

play33:02

aggressively trying to expand and

play33:04

instead they you know they buy back

play33:06

shares they pay dividends they they

play33:07

improve their balance sheet you know

play33:09

they they decrease their net debt um and

play33:12

so that's basically a positive carry

play33:16

Outlook which is to say that even in a

play33:17

middle of the road scenario I think

play33:19

those Investments are still attractive

play33:21

compared to things like t- bills

play33:22

basically compared to um you know mon

play33:25

monetary Alternatives which which forms

play33:28

of energy will likely benefit the most

play33:30

from the rise of AI and the KN for more

play33:33

energy so I would say across the board

play33:36

oil gas and and uranium um basically um

play33:39

I think that um with those types of

play33:42

things variable energy sources don't

play33:45

necessarily cut it uh you need

play33:47

consistent energy sources and you need

play33:49

an uh an uptick in overall grid capacity

play33:52

which uses a lot of materials and is

play33:54

built by machines using hydrocarbons um

play33:57

and so I I think it's I think it's an

play33:59

all the above situation I think we'll

play34:00

see we will see you know more solar and

play34:03

wind coming online but I think it's

play34:05

those more um uh in control or base loow

play34:08

types of energy sources that will also

play34:10

continue to be in demand so I I think

play34:12

across the board higher energy across

play34:14

the board I I've heard the possibility

play34:17

of Bitcoin mining producing energy that

play34:20

could be sold to the grid is that

play34:22

something that you're looking for well

play34:24

so what what Bitcoin mining does is it

play34:26

soaks up stranded energy so um when we

play34:29

you know the supply of the grid is

play34:32

fluctuating right it's some some if it's

play34:33

solar and wind it's obviously

play34:35

fluctuating based on on those conditions

play34:37

if it's Hydro it's fluctuating based on

play34:39

on rain uh if it's nuclear it's always

play34:42

on so either way you have this kind of

play34:43

always on or or fluctuating supply of

play34:46

electricity and then on the demand side

play34:48

you also have fluctuating demand so

play34:50

during the day there different Cycles um

play34:53

and then during the seasons there

play34:54

different levels of temperature and

play34:55

things like that and the problem is that

play34:57

grids have to be designed for like the

play34:59

hottest day of the year like when

play35:01

everybody has their air conditions on

play35:02

when everybody's using Peak electricity

play35:05

they have to designed for that day to

play35:07

hopefully not have brown outs which

play35:08

means they have to overbuild for every

play35:10

other day and so you have this kind of

play35:12

you have these kind of two side waves of

play35:14

supply and demand electricity and

play35:17

they're always dealing with like a

play35:18

potential mismatch and so sometimes

play35:20

they're shutting off energy sources

play35:22

sometimes they're you know they're

play35:23

sometimes they're having brown outs it

play35:25

depends on the grid we're talking about

play35:26

and one thing that coin mining is is

play35:28

it's a very flexible demand source so

play35:32

you know they you know when energy

play35:34

pricing is cheap they can be operating

play35:35

at full speed but then as soon as energy

play35:38

pricing gets expensive either because

play35:40

some Supply went offline or because

play35:42

there's been a surge in demand they can

play35:44

throttle back their demand because

play35:46

they're in the the most flexible

play35:47

position to do that obviously if you're

play35:49

a hospital you can't just you can't you

play35:51

know change electricity based on pricing

play35:53

and even if you're even if you're doing

play35:55

something like you're a manufacturer or

play35:56

you're running an office you know you

play35:57

can't it's it's it's it's much more

play35:59

disruptive to change your electricity

play36:02

consumption based on grid pricing or

play36:03

grid shortages compared to if you're a

play36:05

Bitcoin minor and you structure your

play36:07

contract to say look we're going to get

play36:09

the lowest cost but we're going to be

play36:11

the first in line to turn off whenever

play36:13

there's a issue and that's how they

play36:14

structure that or they sell it back to

play36:16

the grid there's also things like you

play36:18

know the World Bank estimates um you

play36:20

know if look at their estimates for how

play36:21

much natural gas is just flared into the

play36:23

atmosphere every year uh it's something

play36:26

like an amount of energy that can power

play36:28

the Bitcoin Network eight times over um

play36:31

or or how much methane leaks out from

play36:33

landfills into the atmosphere right so

play36:36

basically there's just there's a a

play36:38

unfathomable amount of of distrained

play36:40

energy out there and over time Bitcoin

play36:44

kind of fills in those gaps it takes a

play36:45

couple Cycles to do so but we've already

play36:47

been seeing it do that and I think that

play36:49

trend is going to continue I think it

play36:50

just becomes an embedded part of the

play36:53

grid and that anytime you have any sort

play36:55

of variable power or fluctuating demand

play36:58

relative to steady power um you're

play37:01

leaving money in the table if you're not

play37:03

if if you're you know if you're not

play37:05

using some of that to mine Bitcoin

play37:07

because if you're getting zero zero or

play37:09

negative cost NE I mean negative revenue

play37:11

for your energy then you're leaving

play37:13

money on the table on that note let's

play37:16

finish up on the Bitcoin and gold price

play37:18

uh first of all do you think Bitcoin and

play37:19

gold moved up for more or less the same

play37:21

reason this year I generally think so I

play37:24

think we've generally seen improving

play37:26

liquidity a lot of its fiscal driven um

play37:29

and and so I do think that they you know

play37:31

they've resisted the fact that yields

play37:33

are higher right so normally when you

play37:35

see yields and especially real yields

play37:37

this High you should see gold a lot

play37:39

lower than it is um and so I think that

play37:42

gold investors have been sniffing out

play37:43

some of those fiscal problems that I've

play37:45

been talking about uh and in addition

play37:47

because of you know kind of uh Decisions

play37:50

by central banks to diversify their

play37:52

Reserve Holdings and have more gold in

play37:54

their portfolios that's been another

play37:55

huge Factor as well so especially from

play37:58

that foreign component um there's been a

play38:00

lot of demand and so you know bitcoin's

play38:02

obviously had somewhat similar Catalyst

play38:05

it's heavily tied to liquidity it's had

play38:06

Catalyst from the ETFs and things like

play38:08

that as well so the two the reasons that

play38:11

both of them are rising I don't think

play38:12

are perfectly um overlapping but I do

play38:15

think that they are following liquidity

play38:17

and which is large a fiscal driven

play38:19

phenomenon if you were to add stocks to

play38:23

that equation so stocks Bitcoin and gold

play38:25

have all been rising to new highs this

play38:27

year here uh would you look at that and

play38:30

actually be concerned at the current

play38:32

economic environment and say well maybe

play38:35

this is not sustainable uh because this

play38:37

is not something we see very often to

play38:39

have you know counter assets rising in

play38:41

tandem does that thought ever occur to

play38:44

you yes but that's that's generally what

play38:46

you see in Emerging Markets when they

play38:48

have fiscal problems or currency

play38:50

problems it's just it's just not to the

play38:51

same magnitude you see in those

play38:53

environments so it's a it's a byproduct

play38:55

of fiscal problems not yeah I think what

play38:58

we're seeing is the denominators going

play39:00

down more so than some of those assets

play39:02

are going up outside of the big bubble

play39:04

ones um and you know I would be

play39:06

concerned about some of the major stock

play39:08

indices because of how concentrated they

play39:10

are into some of the most expensive

play39:12

growth names um and so I expect the

play39:14

fundamentals of a lot of those growth

play39:16

names that probably do pretty well it's

play39:17

just the the question of how much you

play39:19

pay for them and how much of of us

play39:21

household net worth is already stuffed

play39:23

into equities um so I do have concerns

play39:26

about them all to rise together um but I

play39:29

think that overall the reason that those

play39:32

assets continue to surprise to the

play39:34

upside is because of that fiscal

play39:36

backdrop you know if you were trying to

play39:38

short Assets in an Emerging Market in

play39:40

the local currency you're going to

play39:42

continually get headwinds from the fact

play39:43

that that currency is so weak right it's

play39:45

just it's just that currency is going up

play39:47

at Supply so quickly that the assets

play39:50

you're denominating them in might not be

play39:52

doing great in real terms but they're

play39:54

certainly doing fine in that local

play39:56

currency terms and you know we're not

play39:58

anywhere near that level but it's

play40:01

directionally a similar problem when you

play40:02

have this kind of un unrestrained fiscal

play40:05

spiral that's kind of just slow motion

play40:07

background situation that just changes

play40:09

how some of these assets are priced and

play40:11

it doesn't mean you can buy things at

play40:13

any price but it means that when in

play40:15

doubt the the answer is that scarce

play40:18

assets will go up in price relative to

play40:20

currency units the Bitcoin having that

play40:22

was not something you brought up was

play40:23

that an part of the equation at all the

play40:25

anticipation of the having or even

play40:28

uh going back to early January when the

play40:30

Bitcoin ETF was approved how much of uh

play40:33

how much of a factor did those um did

play40:36

those events play I think those are both

play40:38

factors I think the ETF unlocks there's

play40:41

there's pools of capital that are very

play40:43

big that have not been able to access

play40:44

Bitcoin um and and so those pools of

play40:47

capital can increasingly access Bitcoin

play40:49

and so that's kind of pan up demand for

play40:52

exposure to the network uh that they now

play40:54

have exposure to or at least and they

play40:56

don't even all have yet sometimes it

play40:58

takes months for those things to still

play40:59

get approval to start moving in and

play41:01

start to become normalized in those

play41:03

environments so I think I think that is

play41:04

a a a contributor to price um the having

play41:09

uh certainly in a sentiment sense can

play41:10

raise expectations um I think that

play41:13

overall liquidity is a much bigger

play41:15

impact on bitcoin price during bull

play41:17

market than the having itself um because

play41:20

you know if you if you do the math for

play41:22

how much Supply the having takes off the

play41:24

market per day it's relatively small

play41:27

compared to what you can get from ETF

play41:29

inflows or relatively small compared to

play41:31

what you can get in one way kind of net

play41:33

exchange volume in a given day um and so

play41:36

the overall changes in external demand

play41:39

for Bitcoin play a bigger role than just

play41:41

the havs during bull markets I think

play41:43

where the havs really matter the most is

play41:46

during bare markets they play a pivotal

play41:48

role in why each cycle gets higher highs

play41:51

and higher lows than the one before it

play41:53

but in terms of the timing of bull

play41:54

market specifically I generally Point

play41:57

more more toward liquidity and less so

play41:59

toward the having even though the having

play42:01

is a very relevant kind of longer term

play42:03

factor and so putting everything

play42:05

together do you anticipate Bitcoin to

play42:06

continue to outperform the other assets

play42:09

this year so for this year I'm less I'm

play42:12

less certain I prefer a two-year view on

play42:14

bitcoin so I think that bitcoin's likely

play42:16

going to do well over the next call it

play42:18

two years um it get it can get through

play42:21

periods where it's overbought right

play42:23

where where you could you could have a

play42:25

pretty poor three-month period with

play42:27

Bitcoin and it could underperform almost

play42:29

everything um and then it could have

play42:30

another 3 to six months of just of

play42:32

spectacular gains um and so um my view

play42:36

is generally looking back from late 2025

play42:39

I'd be surprised if Bitcoin was not

play42:41

higher than it is now notably uh and and

play42:44

that probably outperformed other kind of

play42:46

large large cap things you can own um

play42:49

but you have to account for the

play42:50

volatility and you have to kind of be

play42:52

prepared for that really uneven path to

play42:55

get there okay and on gold um similar

play42:58

question on gold we've seen that gold

play43:01

and the real interest rates have been

play43:03

negatively correlated throughout history

play43:05

obviously recently in recent months

play43:07

there's been a huge Divergence and so

play43:09

how how sustainable do you think this

play43:11

gold rally given this historical

play43:13

correlation has broken down so I I think

play43:16

that because we're now in this kind of

play43:18

fiscal dominance regime higher interest

play43:20

rates fuel the deficit even more um

play43:24

which which potentially fuels gold um I

play43:26

think you know you could get liquidity

play43:29

like temporary liquidity shocks if for

play43:31

example um you run these big deficits

play43:33

the FED tries not to monetize them uh

play43:36

and you get kind of um like a temporary

play43:38

liquidity problem in Treasure markets

play43:41

that could certainly contribute to a

play43:42

gold selloff uh temporarily um but I do

play43:45

think the the the breakout has likes to

play43:47

it um I think that the breakout is is

play43:50

real I think that it's it's based on

play43:52

fundamentals I think that there's a a

play43:54

good reason that a lot of foreign

play43:55

investors want to own gold more so than

play43:58

treasuries um and that they want to

play44:00

basically have a better ratio of gold to

play44:02

treasuries um and I think that that's

play44:05

that's probably going to be a longer

play44:06

term story uh and I have no view on what

play44:09

gold does and say a three-month period

play44:12

um but I do think it it's it's now that

play44:14

it's broken out I think that's a very

play44:16

strong sign that I think it's probably

play44:17

headed higher in the next few years okay

play44:20

and before we go tell us about your book

play44:22

a little bit um broken money came out um

play44:25

late last year congratulations um which

play44:28

theme or themes of the book would you

play44:30

say are most relevant u in today's

play44:34

economic

play44:35

environment I would say two I would say

play44:37

one of them does focus on this fiscal

play44:39

dominance uh topic that I I've talked a

play44:41

lot about here uh if you're confused by

play44:44

by about some of the things I said as it

play44:46

relates to fiscal dominance some of the

play44:47

chapters in the book for example lay out

play44:49

specifically what I mean and how those

play44:52

um situations materialize over time um

play44:55

so kind of that that long-term cycle of

play44:58

of how fiia currencies work is a big

play45:00

theme I think the other big theme um

play45:03

touches on bitcoin and stable coins in

play45:06

the sense that they show the structural

play45:08

change that they brought to the monetary

play45:09

system so what the book does is it

play45:11

focuses on the past present and future

play45:12

money through the lens of technology and

play45:16

a a common theme you see in the book is

play45:18

that almost every friction in money for

play45:20

centuries has been solved by another

play45:22

layer of centralization so when people

play45:24

wanted to send money to each other

play45:25

faster they would they would tie into a

play45:27

bank and use that as the middleman if

play45:28

banks wanted to send money to each other

play45:30

they would tie into a central bank if

play45:32

central banks want to tie into each

play45:33

other they tie into even bigger Central

play45:35

Bank like you know back in in 1800s it

play45:37

would have been the UK now it's the US

play45:40

um and and so you kind of have like just

play45:42

centralization all the way down and what

play45:44

basically the way to describe that is

play45:46

ever since the telegraph was widely

play45:48

deployed in called the 1860s you've had

play45:51

this environment where before then

play45:53

transactions were slow and settlements

play45:56

were slow and so middlemen could only

play45:58

really do so much whereas in the post

play46:00

Telegraph environment you can send

play46:02

information around the world and now you

play46:05

have fast transactions but you're still

play46:07

an environment of slow settlements you

play46:09

know things like gold um you know that

play46:11

that's like a slow form of settlement in

play46:13

a in a telecom era and what Bitcoin and

play46:16

stable coins do is now you have fast

play46:19

settlement and fast transactions and so

play46:22

the the power of middlemen potentially

play46:25

diminishes back down to where was

play46:27

ironically before the telegraph except

play46:30

now the whole thing's faster um and so I

play46:32

think that that's a that's a macro theme

play46:35

that's relevant as we see the current

play46:37

environment of 160 different currency

play46:40

monopolies all trying to compete with

play46:42

each other they've all been riant on

play46:44

having pretty closed Capital borders and

play46:46

these Technologies just break those

play46:48

borders open allow people to bypass them