Lyn Alden: This Is Market's Biggest Blindspot

Welcome back to the Microscopic Podcast. My name is Alej and I am your host. Today is the 3rd of June, 2026, and I have the honor of sitting again with Lynn Alden, a recurring guest. Welcome back, Lynn.

>> Thanks for having me again. Happy to be here.

>> So, uh, last time we spoke was around a year ago, May 2025. And, um, a lot of things happened as always. And today we'll be exploring the surge in sovereign bond yields across the G7 and what it means for the traditional 60 to 40 portfolio, but also the geopolitical shock waves from the Homus crisis and what this has actually developed into the last weeks and closing oil lanes, revealing fragility on the petro dollar system, but also the historic milestone of gold overtaking US treasuries as the world's top reserve asset and where the derailation stands today in hard numbers. So, we'll also talk obviously about Bitcoin and whether the 4-year cycle still holds and what we can expect after this 47% pullback from its peak.

So, um I'll start first with the bond market. Lynn, if you may, uh I um last year actually we've we've talked um about what it means um in terms of like the the great debasement or the the global um debt crisis that we are in and and how it's accelerating. Um, how would you describe that the situation we're in now? The the UK Gills has just uh approximately approached the 5%. The French OAT is around 63 basis points over the bond. And Japan's 40-year JGB broke 4% in January. So, it's also not a level that we've seen since 2007, uh if I'm if I'm not if I'm not incorrect. And you've said that also last time we spoke that the 40-year bond bull market is structurally over, but we haven't seen a disorderly sovereign de default in a G7 nation yet. What would be the early sign warning signs uh look to you um in this case?

>> Well, the short answer is I don't really expect a disorderly default from a from a G7. Um I I think this is more of a a kind of a slow motion train wreck, which is um there are physical situations. I mean it depends on which country we're talking about but in general their fiscal situations are a problem. They've accumulated a lot of debt uh and then even their ongoing deficits are a problem because they you know the way they've structured uh you know what what they have to pay out uh for like you know kind of usually most countries have a slowing population an aging population uh and a very topheavy entitlement system. Um uh and uh so I I expect them to continue to have major fiscal issues uh with with the US kind of really leading the pack in terms of uh just the the sheer size the deficits relative to the the economy. Um and the the rising bond yields while it is um obviously a problem uh I generally fade the near-term issue a little bit in the sense that when you do get these notably higher bond yields it does bring in new buyers. Um, you know, there are people that that were saying that I I don't really want to buy bond yields at 3% or 4%, but if they're up to 5%. Um, and I'm looking at, you know, equity valuations have soared in many cases and and and they're saying I'm concerned around that and, you know, gold's already soared. Some people are saying, you know, maybe I do want to have treasuries at at 5%. That that actually, you know, I get somewhat of a return there. Um, so I I generally view that the the disorderly part, you know, that that the the massive hiking that the Fed did a few years ago. Um, that was kind of like the the major part of the bond bear market. Of course, when when yields are going up, prices are going down. Uh, now it's more in this kind of sanguin place where it it they're not, you know, falling like prices aren't just collapsing anymore. Uh, but still it's been the case that owning bonds has been worse than owning equities, worse than owning gold, worse than owning most other assets. Um I think around the margins that'll continue. Um uh but you know there there's more of a case for bonds at 5% than there were at at much lower yields. Uh and you know Japan's still kind of the lowest around. They're they're rising back up to a somewhat normal level. And the issue is that just interest expense is going to continue to spiral uh for the US for for Japan and elsewhere. Um the the ones that are perhaps at most risk are Europe because you know with with the US and Japan I mean that the government and the central bank are intertwined. Uh whereas in Europe of course you have sovereign governments that don't have unilateral uh ability to kind of force the hand of the central bank. Uh you have a monetary union. Uh that's where it's potentially messier um and where I'd expect maybe some nonlinear issues uh to to occur. Not not necessarily soon. Um but this is kind of the the the world we live in now of that these these sovereign nations and their bond markets are not nearly as strong and robust uh as they you know they used to be perceived as. And investors are increasingly just saying wait these deficits really are going to continue for forever basically. Uh and um you know and and bonds and currency are going to keep getting debased. Uh so they're going to want to get paid a yield for that.

>> And so if we now um I mean if we look at let's say your dashboard or more let's say what is the risk that you think is most underpriced right now? What is let's say uh the thing that markets are ignoring that keeps you more worried let's say?

Well, in the near term, I would say that the market is still underpricing the the straight who moves crisis. Uh I think it the market's kind of gotten to its head that wait, there wasn't like a major energy crisis yet, per se. So that that then it means it's not going to happen. Um but of course the world is drawing down on on you know strategic stocks uh to kind of keep the the wheels in the cart. Um uh there has been around the margins some demand destruction. Uh some of the chi some of the data out of China is opaque. Uh we don't know what what other kind of refined products reserves they might have that aren't reported that have that have drawn down. Uh and you know if this goes on long enough there's a stage where that energy is still not getting out to the world uh but the major stock piles have already drawn down and therefore and can't really keep drawing down uh anywhere near the rate that they have. Uh that would be concerning. Uh you could you could get an energy price spike and then you could get impairments on corporate margins uh impairments on consumer spending. Uh because of that you you could have certain developing countries run into more acute shortages. Um you know I mean in in Egypt for example throughout April they had an energy curfew. They were fortunately able to lift it uh throughout May and and and you know here into June. Um but there's a there's a chance that something like that would have to come back and other countries would have to do that. And again, that's that's if you know months from now that that that this is still all closed and this is still an issue which which is maybe it'll be resolved, maybe it won't be. Um so I think that's still a somewhat underpriced risk. Um that the market's just kind of calm about it. Um but other than that I mean I I think that the you know the the scenario of kind of fiscally fiscal country like countries running it hot fiscally is very much in play which is equities do better than you think in currency terms but generally do pretty poorly in gold terms. Uh and that's that's been the case we're seeing at so you see people talk about consu you know record low consumer sentiment in the US with record S&P 500. Um, and they say, "Well, where's that disconnect coming from?" And it's it's well, I mean, if you look at many emerging markets when they have a crisis, uh, stocks are doing pretty well in local currency terms, usually even as they're doing poorly in dollar or gold terms. And the US is is kind of in emerging market light. Uh, and so is Japan and so are parts of Europe, which is, you know, when a when a developed country enters fiscal dominance, they get some kind of characteristics of an emerging market. Uh and so it's not surprising that you know in this period of kind of structural currency debasement many of them have decent equity markets uh but but you know poorly in in kind of hard hard money terms and that goes also online like now if we uh take a more of a look about the fiscal situation in the US you've also wrote this in your newsletter in in February and March as well that um that the gradual print is here that's what you said and that there's specific data points or market signals that crossed the line for you. What were the signals?

>> Right. So there's a obviously a long period of time where the Federal Reserve was reducing its balance sheet. Uh now they still had the stated goal of wanting to maintain ample reserves in the system. Uh ever since kind of the the aftermath of the global financial crisis, uh US banks and and really global banks operate on a higher standing reserve system. So before the global financial crisis uh in the US and many other countries it got to the point where banks had like 3% of their assets in cash. Uh the rest was all loans and securities. Uh and then basically that means that there's very little cash that kind of bounces around the banking system to wherever it's needed. Uh and there's really no margin of safety. Um and now they operate at this that higher standing reserve level. Uh something closer to say 10%. Uh depends on on you know if they've just done QE or they've just done QT but it's at a much higher standing level. So banks have just more baseline liquidity uh and they're regulated to have uh more baseline liquidity. Uh and so the Federal Reserve was drawing down its balance sheet but they weren't going to go below uh the level to which banks wouldn't really be able to function in their current regulatory kind of you know environment. And in late 2025 um they hit the point where they were kind of running into that wall. Uh uh and so you started to see um you know securitized rates were elevated relative to indust on reserve balances. Uh there started to be usage of the Fed's repo facility. Uh basically various signs of liquidity shortages. Uh and so the Fed's standing facilities were the first line. and they kicked in and just kind of made that those liquidity shortages not be a crisis. Um, and then they pivoted away from balance sheet reduction toward balance sheet increases uh at a at a pretty moderate pace and and and in the you know the shorter end of the bond curve uh but really with no end in sight. I mean they their kind of stated uh position was that they were going to keep doing indefinitely. Now that was the prior chairman. We have a new chairman uh that is more focused on um balance sheet reduction. Uh but much like how the current treasury secretary uh during the prior Treasury Secretary's reign uh he kept criticizing how the the Treasury Secretary was relying on too much T bill issuance and that they should extend the average bond duration and then he's you know he's been running the Treasury for uh a year and a half now and hasn't hasn't turned out the turned out the debt. He's doing the same thing that he criticized the prior Treasury Secretary for doing. I expect we'll probably see something like that with the Fed, which is it's easier to talk about balance sheet reduction than it is to reduce the balance sheet. Um uh but basically uh the gradual print is the the view that you know we're back at this period of kind of broad money supply growth and then even base money supply growth. Uh and it's not the sensationalist talk of of you know massive multi-trillion dollar print is just around the corner uh or hyperinflation or anything like that. Uh but it is this this higher baseline environment with the awkward thing being that that you know the US and and many other countries still have above target inflation while they're expanding their balance sheet. Uh and so uh it's it's it's part of this kind of ongoing fiscal dominance uh that that countries find themselves in.

>> And now we add this deadly combo of what we just mentioned earlier which is the closure of the street of Hormuz. I think we're around 94 days um into that closure of the street of Hormuz with deals being uh going on and off basis. It's a bit of a pure taco type of um mechanism where um there's a deal and then there's no deal and then there's deal and so on so forth. So there's a lot of volatility in the markets and we can see this also in the price of oil but not just oil and all kinds of other commodities. So I I would really really be curious uh to also have your in-depth analysis because you cover energy markets since I I've started following you since years and you've also advised people to position accordingly to those in those assets for many years as well. So people who listen to you did very well I think recently um how would you then um u take maybe a scenario case where for now this the scenario is that the the straight of for still remains closed. what does the consequences on a let's say short to medium-term basis look like globally and what are the ripple effects of that on the global economy right I mean we've also already seen the stress in the bond market but what else can we expect

Well so on average when you have fiscal dominance when you have money supply growth uh it's all easier uh for for policy makers and and for the public uh if you have uh productivity growth if you have disinflation from better technology abundant uh energy and materials and all of that because you have, you know, all that inflationary money supply growth, but then it's offset by just things are getting more organized and there's abundance of of the things we need. When you have that money supply growth, but then you also have shortages in the things you need, that's when you tend to feel that inflation more and it shows up more in in actual price increases. Um, and you know, for for a while the the world was in a state of of energy over supply. Um uh just because you know US shale oil came online very rapidly uh for a number of years uh and that kind of threw a wrench into OPEC uh and then OPEC would would you know try to curtail some of their potential supply mainly Saudi Arabia um uh and the straight of her kind of comes along and and you know challenges that whole that whole notion um and so uh you know at the in the near term I don't think anything major because I mean it's already reflected in higher energy prices that leads to a little bit of demand destruction, that leads to a little bit more of that kind of risk premium put into energy. Uh I I continue to be long energy securities. Uh many of them have good balance sheets. Um you know, they they could make money at $80 oil. They make even more money at say $120 oil if it goes if it goes there and stays there or higher. um uh and they often move inversely to other types of equities uh because they can benefit from some of the chaos that other equities are punished by and sometimes vice versa. Uh the longer this goes on as I mentioned the risk becomes that you know there there were existing stockpiles there you know all all the tankers around the oceans had existing oil in them uh and other products in them. Uh some countries like the US and China uh have strategic reserves. Some countries mandate uh the private sector maintain reserves like Japan has you know certain mandates on how many months of of just kind of usage that they that they need to have available. Uh and the you know the longer this goes on some of those existing uh formal or informal just stockpiles diminish uh and and that diminishing stockpile you know that offsets obviously the the lack of kind of new production that's coming out of the straight. Uh but once those stock piles are drawn down you don't have that offset anymore. Uh and so if we reach a point where, you know, those reserves aren't going down anymore, uh but there's still not product coming out of the straight, uh you could get another wave higher in in prices and potentially another wave of shortages, energy curfews, uh and things like that. Um and you know, I I don't think it affects like the the best performing stocks out there. They're going to trade on their own merits. Uh you know uh people I remember they were like looking at South Korea and they're saying well they uh import a lot of energy so maybe their stock is going to their stock market's going to suffer but their stock market is mainly a handful of of of tech stocks that are that are completely decoupled from whatever happens to Korea's economy specifically. Uh so it it doesn't always show up in stock prices per se. Uh but it's not an accident that we have record low consumer sentiment in the US. Uh people are already pained by these these higher energy prices. Uh given everything else uh and if we have another wave higher uh in but in developed and especially in developing countries uh people are going to be squeezed and there's going to be less offset um so I I'm in no position to uh try to estimate when the trade's going to open uh like you mentioned there's a deal there's no deal there's a deal there's no deal it's all headline risk so I don't try to predict the odds that that things are going to still be closed in in another 94 days uh but we can kind of map out that should they still be closed Um there there is a risk of of you know another leg higher in prices and and shortages

>> and this obviously has repercussions also on other assets on uh on also commodities as I mentioned also earlier on but the cost of food right as well um Japan I've also come seen a chart come across as well recently that also had like a low um hitting a low point in terms of imports of oil that also reaching a critical point for their own industry as well that dropped about 20% in the last weeks. Um but just in general um what are let's say the implications now from the fact that on OPEC side the UAE for example uh left after after 60 years being part of the OPEC um built um like also as part of this alliance um what do you make out of out of this and the impact it has on oil?

Well, UAE's been trying to uh they've had a goal of growing their production for a long time. OPEC has been some of a constraint on that. Um so they've kind of finally uh broken away. Uh that'll leave that'll leave the remaining OPEC as increasingly kind of uh Saudi Arabia centered. Um uh and they're the major swing producer. Um I mean in general uh you know like cartels are unsustainable. Uh that was a particularly you know it's been a particularly long lasting and effective one uh and I don't think it's going away but I think it is diminishing uh over time first with the rise of US shale uh and then of course uh you know with with members leaving and things like that um all else being equal uh you know a diminished OPEC uh is is you know negative for prices because it means that there's less organization to to take a certain amount of oil off the market to to keep prices up at a certain level. there's a little bit more more kind of free-for-all competition. Uh but in in general, I don't you know, I think we're getting past the point where there's tons to spare capacity. We don't have just US shale uh production just keep linearly rising like it was before. Uh we're back toward a more equilibrium stage uh and a handful of million barrels of oil uh per day uh really matter. Um, so I I do think that that over the long run is a bearish force, but that's up against the fact that there's the bullish force of US shale oils no longer rising. Obviously, then the more immediate one is the straight if that's open or closed. I mean, that that affects everything else. But say let's let's get past that. Let's say it reopens at some point. It's really about that dynamic between US shale and existing OPEC production. Um, and I, you know, it's not that I expect major spikes anytime soon other than the straight. Uh, but I do think that, uh, you know, energy is not going to be as abundant, say 5 years, like in terms of over supply, 5 years from now, as it was, uh, in in say the late 2010s, the early 2020s, um, uh, you know, outside of the the the, you know, the Russian invasion of Ukraine when he had that brief, uh, energy spike. Um the the good thing about food shortages I mean so most food prices is still below that 2022 peak and that's because when when Russia invaded Ukraine I mean that's also a big bread basket area. So let alone all the potential oil disruption that that came from that and and and energy disruption for Europe uh like LG uh and and natural gas in general. Um that was also a big disruption for food. So uh right now we have a slower disruption for food in the sense that you know a lot of fertilizer and fertilizer components are you know tied to the strait uh but it's not quite that immediate impact that we saw in 2022. Uh I mean in Egypt for example like things always ripple farther than you think like Egypt had a basically a food price crisis uh in 2022 and it was in large part because they get a lot of their grain from Ukraine. Uh a and so at least this isn't quite causing uh those types of issues yet. Uh so there's more time for economies and supply chains to adjust. It's kind of like a a train wreck that everyone kind of sees coming uh far out and therefore they can they can kind of prepare for it more so than they could in 2022. Um but uh basically it does put upward pressure on food prices which is less relevant for the the developed world. I mean it is relevant uh when people's grocery bills go up. Um but people aren't going to really go hung hungry for the most part. Uh the the bigger risk there is for developing countries where you have you know maybe onetenth of the GDP per capita 1/5if of the GDP per capita. There's a bigger ratio of income spent on food and there's more risk of people literally just being without calories uh because uh prices have gone up and shortages have gone up. Uh I don't expect in the near term but it is a risk to keep watching should the straight remain uh closed for for an indefinite period of time.

>> And now I'd like to tie this back to stocks, energy and AI. So we've seen um uh I think like it's was quite an impressive rise of the the Cosby the South Korean stock market that grew I think about 80% year to date and that's mainly due to the booming AI semiconductor sector and a lot of yeah record foreign inflows going into uh that index um and then the energy part right we've we just you just mentioned that we will enter a time and we've already entered a time of um less and less energy G being available. So that's not even about price here. It's about quantity of what we can even supply and produce. Um but in the meantime, we've seen also uh um record levels in the NASDAQ. Um uh also all kinds of AI stocks have reached tremendous levels over their valuations. How do you reconcile then all those components together? And isn't there like a like a mismatch, a huge gap that the markets are just not seeing it or is it uh Yeah. What what are your take on that?

>> I would say there's a gap, but not necessarily a huge gap. I mean, it I I think um you know, we see like the hockey stick usage of data center energy, but that's still not a big percentage of total energy uh demand. Uh it's basically one industry that used to use pretty little and now uses a more meaningful amount. Um but in the grand scheme of things, that's a moderate energy increase. Um uh and you know that can that doesn't have to come from you know oil and gas although it can it can also come from nuclear uh uh and other sources. So the the world has the resources to to fix this. I mean sometimes when you have something really fast happen uh you know bottlenecks inevitably occur uh and and prices spike and that that results on more things coming along to to address the shortages. Um uh and so I think that that that you know while there will be individual little mini crises along the way I I think that that the market can meet the demand for it uh in multiple ways. I mean for a while um you know US uh gas has been abundant and we didn't really have the export capacity to send it out to to Europe or Japan and now there's more use for it domestically uh by you know generating electricity with it. Um, and you know, I think that the the it's the when talking about South Korea, I mean, that's really driven by two stocks. It was Samsung and SKH Highix who were responsible for the vast majority of that rise and that's really one product, RAM. Um, so of course the early stage of AI was GPUs, uh, just a much higher demand for GPUs. As AI kind of evolved from not just chat bots but to agents, uh, there's more persistence of memory there. So, they need a lot more RAM. So that's when we saw this like massive increase in in RAM usage and certain other types of chips. Uh that's where South Korea really benefited. We have you know there's there's only three companies in the world that produce you know 90 plus% of the world's RAM. Two of them are in South Korea, one of them is in the US. Uh I I think that's generally sustainable in the sense that you know those stocks will be volatile. Uh there still will be cycles with them. Uh but their price rise generally made sense. It was generally in line with earnings and revenue growth. Um uh because there really is demand for their products. Um and you know, while some of these stocks will get ahead of themselves, uh I I you know, I have more concern around like the unprofitable AI models themselves and their you know, their their trillion dollar valuations more so than the hyperscalers and and more so than the the the chip producers. Um but basically I you know a lot of it despite the speed being surprising does make sense. Um, and you know, sometimes bubbles, uh, it's not that they fall back down, but they just start going sideways for a long period of time. And that can certainly happen to to many of these, uh, industries as they kind of already front run a lot of what's going to happen for for the next few years.

>> So you well that that that case of bubble, I guess you mentioned the EI bubble. um a lot of charts coming across. I can see like people like putting um on top of each other like the the com bubble with what we see in AI and saying, "Oh, see how it's fitting." Um and then recently Michael Bur just said that Elon Musk and Nvidia's deal is built on fake numbers. I'm not sure if you've seen a few threads about that and more so that he calls this a bit of a entire structure of Fugazi where um he's alleging that billions of dollars in Nvidia chips are being hidden off balance sheets and that yeah um retirement funds American retirees are unowning funding this whole thing. Uh what do you think of of all that? Do you think um Michael Bur has a good point in that?

>> Well, I think around the margins some of that is certainly true. Uh you know he takes the more bearish case than I do personally. Um but you know when you're talking about trillion dollar companies there's not a lot of margin of error. Uh they have to put really big numbers in order to not kind of falling back down to to earth. Uh the one of the the the challenges here is when you look around and say well who's making money right so um the chip producers are making money for the most part. Uh the AI companies are losing money. They're still they're still venture funded. So it's still all this money is flowing in and funding a lot of this not out of the cash flows but out of the expectation that there will be cash flows. And of course the challenge there when a company's in growth phase is they purposely underpric their product. You know they basically the business of selling $20 bills for $10 and they're saying look how big the numbers are. Look how many people want our product. And it's like well sure you're if you're selling $20 bills for $10 you're going to have a lot of demand. The question is, how long can you keep doing that? How long can you keep convincing investors to give you money? And sometimes they they nail that transition. They they get really big, they get really branding, they get the economies of scale, and then they're able to raise prices up to what they're kind of supposed to be. Uh the challenge there is that once you kind of normalize prices, um you generally get slower growth because then you're you're no longer selling $20 bills for $10. There's less just outright demand for your like, you know, purposely underpriced product cuz it's not it's not underpriced anymore. And then it starts to reflect reality. So for a while now AI has been subsidized by these uh external investors uh where you get you know as a as a business user as a personal user you get quite a lot of of functionality for what is a pretty low price uh you know compared to everything else that you you pay things for and eventually that that price goes up to kind of reflect how much it actually costs to deliver that that service. Uh and then speaking of that, you have the hyperscalers. Uh you know, they uh for in in the 2010s, the really big internet companies, um even though their their capex numbers on paper were large in the absolute sense just because they're such big companies, they were pretty small as a share of revenue and as a share of market cap. So they they were highly profitable. They didn't have to in reinvest a ton of it. They were able to just, you know, stockpile huge uh cash balances. they able to keep buying their own stock back year after year. Um and but going forward they have to redeploy pretty much everything they're earning into their data center built out into their uh chip acquisition. Uh many of them are not anticipated to have free cash flows for the next 2 3 years. Uh uh some of them have obviously turn to the bond market or turn to equity issuance rather than share reduction uh to to fund a lot of this. So, you know, they're not yet making money off of this. I mean, they are making like Google's, you know, reporting really great kind of like cloud revenues from this. I mean, they're they're reporting revenues from this, but they're not really reporting profits from this yet because they have to re they have to reinvest that revenue that they're making. So, the users are benefiting from an underpriced AI product. The the chip producers are benefiting from just profitable growth. Uh whereas the AI companies and the hyperscalers are not yet profitable. Their their revenue numbers are great. Uh their valuation numbers are great. Um but the question is can can you know in order for this to be sustainable in the long run they also have to make money uh and they generally will make money at higher prices which will generally slow down growth. Um, so it's not that I think the whole thing is fugazi per se, but that, you know, whenever you have a just a rapidly changing situation, whether it's the build out of the railroads in the 1800s, whether it's electrification, uh, whether it's it's, you know, the rise of of, you know, uh, uh, you know, the computer industry, whether it's the rise of the internet, whether it's the rise of the mobile internet, whether it's the rise of, in this case, AI, um, things will get ahead of themselves from time to time and there will be like, you know, partial bubbles along the way, but at the end of the day, there's there's, you know, there's something real and new here. It is worth trillions. How many trillions is up for debate, but it is worth trillions. Uh, and then the question is where where does that go? I I generally think that the the economic moat is not really in the AI models themselves. Uh, there's pretty low switching costs that people can do once, you know, once one is better than another, they can just switch to the other one. So they have they have to just constantly redeploy their their wealth into kind of keeping their model as good as possible. Uh I think that chip producers do have pretty good economic modes. It's not easy just to come up with another, you know, GPU company or another RAM company or another company that makes the equipment that is used to make the GPUs and and the RAM and everything like that. That that is a pretty um constrained area. Um uh but you know I I think in general you know a lot of drill some pockets are excessive.

>> So do you then uh think like that it will take some time then until like this AI bubble like really pops is it the bubble in the first place? you mentioned yes but um maybe like some clarification on that and compared to also like the the US stock valuations in general on the broadest uh sense uh AI stocks have been kind of driven drive been driving the US stock in the last two years um and yeah has been like the big moat uh in that growth as well uh so what what is let's say your analysis on that

>> Well, I think that the likely scenario is that the bubble pop pop pops not in terms of direction but in terms of time. Meaning that instead of, you know, a lot of these uh AI companies giving back all the gains they've made over the past year or two, uh I think they just will in general stop making the types of gains that they have been, they could give up some of their gains and then go sideways for a few years as the market kind of absorbs uh some of what has happened here. Um, you know, when you look at like RAM companies, um you know, back when when you know, like um Micron was was under $500 a share, it had already risen a ton. And I had written at the time like you know this this thing really could keep rising. I mean all this is number like the numbers are real. Uh so it's not that I viewed that as a bubble per se and event you know now it's getting a little bit excessive but again it was a lot a lot of that was driven by actual numbers. The ironic thing is I mean some of the the bubbles show up in places that are not even tech like Costco is trading at 50 times earnings. You know uh and so that's that's in some cases more of a bubble than the really genuine rise in in certain chip uh companies that are actually experiencing that explosive revenue and profits growth that kind of justifies the stock price increase. Um so yeah my my overall base case is that um over say the next five years the excessive returns we've seen in say South Korea or certain parts of the US market will slow down uh might give some of those back but they won't just you know completely revert to to where they were kind of before the the rise of AI and before the the higher demand for GPUs and RAM uh and data centers uh and everything like that.

And so now I would like to discuss Bitcoin. Um Bitcoin has been yeah as I mentioned before like seen about 50% from its from its peak. um and has been kind of going uh sideways since a few months especially now since the hummus the straight of Homus crisis the Iran war uh which a lot of people would have expected it's actually quite a a good let's say um performance considering it's a it's a risk on asset but um it there's a bit of a divide right between the correlation between the US stock market and let's say risk assets and um Bitcoin and Bitcoin hasn't been following that trend um what is your 360 now analysis of Bitcoin's performance in the last year and where do you see it headed?

>> Well, the short answer is I mean Bitcoin has this volatile track record. It has higher highs and higher lows along the way, but it has these really big wash outs. Um, historically it's pretty correlated with liquidity. Um, at least 83% of the time it's correlated with kind of overall kind of macro liquidity. About 17% of the time it's not. Right now it's kind of in in a period where it's not. Um, in addition, I mean, for a long time, Bitcoin was the fastest horse really uh that that you could invest in. It was kind of the best performer. Uh, and the rise of AI companies has challenged that because there are other places to put capital uh that can give you a 10x return or that have given investors a 10x return. Uh, and so people say, well, why why would I hold Bitcoin when I can, you know, hold a chip stock or something like that. Uh, and of course the the advantage of Bitcoin is that uh it gives you what a stock does not which is that you can self-custody it uh like gold uh and uh you know with advantages or disadvantages versus gold. I mean gold's obviously got the longer term track record. Uh the challenge of course is that it's uh not as mobile uh without you know relying on custody. Uh you know I use the example that I I live part of the year in the US. I live part of the year in Egypt. Uh if I have self-custodial gold, I mean, there's going to be a time where I I travel and it's just it's out of my personal possession at that point. Whereas you can set up Bitcoin in a multi-signature way so that if you travel the world, you still have ways to to access uh self-custodial uh value that you can you can send around. Um and so there is a use case there. Uh and but I think from a price standpoint, from a pure investor standpoint of just buying it and holding it and not really using it, um you know, when people can buy uh you know, uh Bitcoin treasury companies, they can buy Bitcoin ETFs, they can buy Bitcoin on exchange, um there's they're comparing that price action to AI uh and and I think AI the rise of AI is kind of sucking a lot of the attention out of it. Uh now eventually when that stops rising like we talked before you when that kind of say trends sideways for a period of time uh and Bitcoin is washed out I I think it can reattract some of that capital. The other big factor is that uh you know I've been bearish on the broad crypto space for for many years. I've been bullish on Bitcoin and stable coins but but bearish on virtually every other project uh in the space and a lot of that is really uh shaking out now. Uh there there's you know right now just kind of the overall use case of broad crypto is very stagnant um I think a lot of investors are kind of realizing there's no there there um and a lot of that capital is intertwined so as capital gets out of that broad crypto space it naturally uh in near-term hurts Bitcoin as well um but I think when when the dust kind of shakes out bitcoin and stable coins you know there there's actually there there uh and it's natural for kind of kind of some of the air to come out of that broader crypto space uh and it's healthy in the long run even though it can be kind of painful in in the near term.

>> Do you also believe then still that the the 4year cycle that's also been as you mentioned before you mentioned liquidity before it's also been linked a lot to the liquidity cycles. Do you think that it's still a relevant model at all or that it's still on track to actually fulfill that that let's say that uh way of uh behaving?

I I don't think the four-year cycle is really functionally relevant anymore. Uh it still I think has some um kind of mental uh relevance and that people if if people expect something they can kind of be a self-fulfilling prophecy. Uh but I think for the past cycle or two it's not really mattered. So earlier on the four-year cycle was really relevant because you had less coins on the market, you had more coins coming out with each block. And so a a having uh you know that that's what happens every four years roughly a havinging. So there's there's you know half as many coins being introduced into the market per block. Uh that really matters. You know if you have a monetary network with say a 12% inflation supply inflation rate and it gets cut to 6%. That's a really big deal. Uh but a after multiple havingss, Bitcoin now has a supply like annual percentage supply growth of less than 1%. Uh and the vast majority of of kind of you know marginal buying and selling of coins prices are mostly set by how much uh longerterm holders are selling and at what prices versus how much new demands coming in. That factor is 10 times bigger than you know how many coins are hitting the market with every block um uh just because that number is so small now. So when you when you have a a say a 8% annual supply growth and you you know eventually have a having you cut that down to 4%. You know that's that's less relevant than uh you know is is 5% of you know long-term held coins coming to market uh because you know the the owners are concentrated. and they want to kind of cash out. That's a much bigger factor than the havoc. So, uh I don't really view the four-year cycle as relevant. I still think liquidity is still relevant. Um I I think um you know the performance of of precious metals and AI are relevant because obviously precious metals compete with Bitcoin on kind of the hard money front. So if if those are rising a ton, it challenges Bitcoin in terms of competition. Uh but then also at you know tech stocks kind of challenge Bitcoin because Bitcoin is is tech to some degree. Uh so when you have kind of that that fastest horse being AI that also challenges Bitcoin. Uh but you know at the end of the day it's it's you know I think the four-year cycle is less relevant. Uh and it's really just about the

The usefulness of the network and the network effects that that the that the system still has.

Okay. That's I mean pretty clear. Um and so would you then say that in general also like the the the neutral settlement layer that Bitcoin is supposed to serve. Um had kind of an opportunity during this uh now coming back to the Homus uh Hamus straight uh the straight of Hamus crisis where the Iranian regime was saying that it would accept um payments in crypto but also Bitcoin. Um did you see any of that in in terms of proof or any potential of that being even the case? I also know that on the other side though the US uh treasury had sanctioned specific Bitcoin addresses before and making it then also um on the Bitcoin front as well more uh um well less sanction resistant as well. Um do you have any insights on that?

Well, one is that a lot of times you'll see headlines like the Treasury seizes crypto and people are like look they seize Bitcoin and it's like no no they said crypto. Uh so a lot of times I mean that that's kind of the risk of stable coins uh is that especially stable coins can just be you know you can they're a centralized issuer so you can just go to centralized issuer and say hey freeze these tokens we've identified that you know these are held by Iran or North Korea or whatever and they can be frozen. Uh Bitcoin while it you know around the margins it can be taken. I mean, if you if you find a way to get someone's private keys, if if someone stores their private keys online, uh, or you're you're able to enter their place and and take them, uh, you can seize Bitcoin. But much like seizing a nation's gold or an individual's, you know, gold, it it there's, you know, there's there's a cost of doing that. Either either war in terms of a country or uh arrest or intrusion as far as an individual. Um, and so, uh, you know, without the private keys, you can't get someone's Bitcoin. Uh, and some of the headlines, I think, confuse that for for some people that aren't kind of just well-versed on how the cryptography works and how the system works. Um, and there is a difference between how Bitcoin, you know, potentially can be seized versus how stable coins and certain other cryptos, uh, can be seized.

Uh, there, you know, there was some evidence that that Iran did turn to, you know, Bitcoin payments. Um uh you know the question is what you know once they get the payments what can they do with the Bitcoin? They can't just go on to Coinbase and say hey we're Iran uh we want to go ahead and and sell our Bitcoin for uh you know dollars. Uh that that's where that that off-ramp uh runs into issues. Now Bitcoin is a global market uh and it's not just like you know it's not like a stock where it might trade primarily on one exchange. Um, Bitcoin is this decentralized thing that can trade on multiple exchanges. There are gradual ways that Iran can offload uh, you know, their their Bitcoin for other types of value. Uh, but there are frictions with it. Uh, generally speaking, the bigger the network gets and the more trading hubs there are for it, the easier it gets to offload it, right? So, um, the less kind of dollar-centric it becomes, uh, it'd be easier for regimes like that to to offload it. Um uh but at the current time I mean I think that they have to be mindful of size uh that they can offload some uh but they can't just you know get any amount of Bitcoin that they can and then just turn around and and get dollars or or you know yuan or gold uh for it uh easily.

H but what I meant maybe I'm not sure I was if I was clear enough by sanction is blacklisting certain addresses doing blockchain block data analysis I mean blockchain analysis look at the blocks and trace it back to certain addresses and then block certain uh bridges just like you mentioned exchanges or mixers or all kinds of other avenues where those uh bitcoins can be then processed and then also punishing let's say the the I don't know like the the actual actors the companies that then dealt with the Iranian regime and then so on so forth having then tinted Bitcoin and and whatnot to be able to actually then close off the the scope of possibilities to even transact in in Bitcoin and as you also mentioned in in stable coins and um I think also recently Scott Bessent mentioned that they were all freezing or even quote unquote grabbing uh wallets from the Iranian regime that were dealing with stable coins and uh this kind of a good bridge for my next question is how far do you think that um the strategy that the US government is pursuing since a few years now of saying no to CBDC but yes to stable coin and and kind of using that as as a well I call this a Trojan horse like to CBDC in some some form um to export the dollar on a global basis and to create infrastructure around this uh in order to also um on the other side still create more demand for US treasuries um through like the creation of the synthetic dollar um did did you like have some thoughts about this or like how how do you see this play out in in general?

Yeah, I'm bullish on stable coins. I, you know, I've been bullish since, uh, several years ago the market cap was like 30 billion and now it's, you know, 300 billion round numbers. Uh, and, you know, I think eventually that they'll get into the, you know, the over a trillion. Uh, maybe maybe eventually into the multiple trillions. Um, so I I think that there's a lot of demand there. The ironic thing is that the US doesn't really have to do much. They just have to not stop it. Uh, so the US could, if they wanted to, kill most dollar stable coins by saying, "Hey, if you if you issue a stable coin, you're sanctioned. We don't want stable coins." So they could do that but simply by not doing that uh there's a growth of uh stable coin demand that is is pretty organic.

Uh uh, you know, if you kind of look at the the world uh I mean Africa has something like 40 currencies. Uh Latin America has something like 30 currencies. There's there's plenty of currencies in in in Southeast Asia. All of these are frictions. All of these are border frictions. Um uh and stable coins are a very efficient way to to transmit value and to hold short-term value, assuming you're not a sanctioned entity, assuming you're not in Iran or North Korea where like, you know, the US uh and and the stable coin issuers can can shut you off from it. If you're just someone in Argentina or someone in Nigeria or someone in, you know, Malaysia, um, uh, they're a very effective tool to access a less inflationary currency than generally their local currency. Uh, and to pretty seamlessly store and transmit near-term value. It does get to base over time. Uh, you're basically holding dollars without yield. Uh, so you're holding something that, you know, the supply of it is growing by 7% a year and you're not you're not getting paid. The the stable coin issuer is getting paid.

Um uh and, you know, I I think that again we have to keep numbers in mind. So if if we go from let's say 300 billion in market cap to 1.3 trillion. So let's say we add a trillion in in market cap that'll take time. Uh and that's 6 months of US deficits. That's 6 months of of treasury issuance. So the the sheer numbers of how many treasuries are out there how many treasures are going to continue coming to market versus you know stable coin demand. uh it's it's a relevant factor uh but it's not as though it's a magic fix for the fiscal dominance that the US finds itself in uh and the the major cost is that people that that choose to hold stable coins for more than just working capital are getting debased. I mean, again, they're holding something that that grows in supply by, you know, dollars grow by 7% a year on average, and they're not getting paid a yield in in the way that they if they held treasuries directly. Um, uh, and of course, they're not holding something that's that's, you know, kind of dilution resistant like gold or or Bitcoin or, you know, high quality equities or real estate.

M and do you then still see this as a as a let's say a form for the dollar then to be able to compete again like against now gold in that sense because gold has overtaken US treasuries as um as official central bank reserve since more than a year. I've seen it's a bit of weird thing. I'm not sure what you think about that like this ECB report now steers up again this this fact that has been like that actually like surpassed that level. gold has surpassed that level of um I think 22% or something and now it's around 30% of shares of foreign reserves um more than a year ago but now it's a news again um and um it's kind of like this battle of who is going to either stay the the global reserve asset or not or is it just a shift then in the the the composition of having the the global reserve asset just being gold as an anchor and then uh having the currency still being the dollars just to do transactions and the denomination uh how do you see then this evolve over time now

Yes, like you pointed out I mean that that that switchover happened last year uh where gold you know overtook treasuries uh the reason it's getting a little bit of renewed headlines is because the ECB says it so when an official source says it it gets kind of renewed interest among kind of the the public that watches that um and I I do think that's a it's a really relevant trend because for I mean for obviously For a long time, gold was the primary reserve asset. Uh, you know, really starting from the treasuries and onward. Uh, the the treasury became kind of the the major kind of reserve asset. And it really kind of peaked in say the 2000s like like you you had kind of the UK infamously dumping some of its gold at at the bottom. Um and so the combination of poor price uh performance of gold and um just diminishing tonnage held by central banks uh while they were holding more and more treasuries that was kind of the peak of treasuries versus gold. Uh and really since then especially since 2009 there's been this gradual shift back to where central banks are gradually increasing their tonnage of gold. Uh and when you have combine that with price increases of gold uh doing way way better than treasuries uh that combination of higher tonnage and price has made it so that gold is now a larger reserve asset than than treasuries once again for the for the long for the first time in quite a while. And I think that's a durable trend. I think it's going to continue to be the case and I think over time it'll even grind higher um and kind of reassert itself as a kind of a dominant reserve asset.

Uh as far as kind of reserve currency status. The the tricky thing there is although it's you know it's it's labeled reserve asset it kind of refers to central bank reserves it's really kind of four major functions of a reserve currency uh at least as we kind of modern uh think of them. So one is as that reserve asset. Another one is that it serves as the most liquid trading pair uh for most currencies. So when you have over 100 currencies in the world, the the number of combinations between any given currency, there's there's just countless combinations and most of those are not liquid. So if you want to exchange Egyptian pounds for Korean Won, there's not really a liquid market for that. Uh and so what you generally do is you trade one currency for the dollar and you trade the dollar for that other currency. So it kind of serves as the bridge for almost every other trading pair except for a handful of others that might have liquidity. It's basically on it's on the it's on one side of the transaction for 90% of uh exchange transactions. That's another really big use case. Um another big one is uh cross-border funding. So if a company in Brazil wants to borrow money uh you know they they can borrow their local currency but many emerging markets uh it's it's you know there's a limit to how much they can borrow in their own currency from say foreign investors. They might want just a sounder ledger. So they'll lend in dollars. Um and that's a you know that that kind of cross-border debt uh and that cross-border financing activity is another key function of the reserve currency status and that's that's still with dollar that's not with gold. Uh and then the the fourth one would be unit of account. So, you know, energy contracts and just in general international contracts are often priced and defined in dollars uh as kind of just the the most liquid shared ledger for for you know international um you know relations to to happen in. Uh and so all that all of that is a powerful intertwined network effect that I think is going to persist for for quite a while. uh even as gold starts you know kind of reasserting itself as the kind of the primary um you know reserve asset again something that stores its value better uh than the treasury especially as we enter this ongoing fiscal dominance you get more and more treasury debasement and and dollar debasement uh while gold is still pretty supply constrained uh of course the other tricky thing is that um the dollar while it's it's not really kind of rising in prominence anymore it is around the margins eating into the euro's market. Uh so it's like the the euro is underperforming the dollar in terms of uh kind of globalizing itself as an asset. Um and so you have on one hand gold taking market share from the dollar as a reserve holding, but the dollar is still kind of holding up because it's it's kind of it's it's beating up like it's it's weaker uh competition, which in this case is is the euro. Um so I I I mean it depends on which factor you look at all the different functions of the dollar that I mentioned. I think most of them are going to keep persisting for quite a while even as even as the store value function is increasingly gold.

And now to tie this back um also Tether has been the biggest purchaser of gold uh in 2025. I mean they had obviously not much or close to zero anyways but they've even bought more than the central bank of Poland which was already very aggressively buying uh gold. Uh, and this is a crypto company we're talking about that also until then was collaterizing its own um mechanism or just backing off its balance sheet with Bitcoin. So, why do you how is your interpretation of uh of this move from Tether?

Well, yeah, they've had a couple phases because they they've also added Bitcoin to the balance sheet. They've added gold. Now yet there's yeah you can separate kind of two there's like their one is like they they have to back up their products with the associated product. So whether it's you know uh uh uh dollar stable coins or they they do have that gold basically effectively a gold stable coin. So Tether and Paxos you know for for example have gold stable coins. Um so they have to back up uh you know their their units with the amount of treasuries or um gold uh you know to to have that. And then you know then there's a question of with their excess you know with their retained earnings uh you know their their surplus what do they want to store it in naturally they want to store it in something scarcer than dollars. Um, so they they benefit tremendously from their stable coin business because all the stable coin holders are getting paid zero. Uh, while you know, Tether's able to hold treasuries and other types of dollar assets and they're getting to they they get to, you know, benefit from all that interest expense with with pretty low operational expenses to maintain their product. Um, but when it comes to their retained earnings, they say, "Okay, we're making billions of dollars. So the main things they can do with it, they can hold Bitcoin and gold uh you know scarce monies. Um, you know the the people there are are bitcoin bulls and they are gold bulls and then they also go out and make equity investments. Uh because equity is a you know type of scarce value as well. Uh so it makes perfect sense that they that they put their retained earnings into something that is scarcer than dollars.

And as to conclude um now assets uh I would like to know from you uh which are the assets that you you see uh have more upside potential now in the coming uh quarters two quarters by the end of uh of this year. Um you've mentioned in your uh newsletter the last newsletter that you flagged silver and Brazilian equities as being very underappreciated plays. Um why those and is there any other as well that you're having a a close look?

Yeah. Well, silver had a big price run. Uh, so I I still hold silver, but I'm less um bullish on silver at higher prices than I was at at at lower prices. Uh I I'm still bullish on Latin American financials. Uh I I do think that as we enter this ongoing US fiscal dominance, um you know, the the emerging markets that have dollar liabilities uh are will generally get an uplift from their weakening dollar liabilities. Um many of them like for example Brazil their central bank has been very hawkish uh really really high real rates uh and I think you know eventually they'll be able to reduce those and kind of you know benefit Brazil's economy in the process um and just in general there's like a lot of the foreign capital is just not there anymore. It it it's gradually been coming back a little bit because those things are not underperforming the way that they were throughout the the 2010s and the early 2020s. Uh but they're at this kind of inflection point where you know it is funny during the 2025 year the year of kind of trade wars if you went up to most people and said you know what you know what one of one of the best performing assets this year was Colombian and Brazilian banks like nobody would would have guessed that but it's just basically they were left for dead uh you know global capital had totally come out uh and now just by not going out anymore and just around the margins a little bit coming back in um it's kind of booming.

And and just like uh we talked about how bubbles can, you know, kind of occasionally form. I mean, sometimes these things will do so well in a given 6 months or a given year that they need a breather from time to time. But I still think the multi-year runway for say Latin America financials and certain emerging market, you know, equities in general has a pretty long runningway ahead uh for for for many years. There's obviously there's there's geopolitical risk, there's domestic risk. Um but I think that there is a lot of opportunity uh in those names. Uh I I think you know Bitcoin in the 60 plus thousand range uh is cheap. Um you know I don't necessarily have a bullish 3 or 6 month view. I'm I'm not bearish on it in that time frame but I I can't really tell you what it's going to do in say a 3 to six month period. Uh but looking back 5 years from now I think that the 60s is is an attractive you know buying range. Uh, uh, I, you know, I think that while gold got ahead of itself, uh, I don't think it got overvalued. Um, so, you know, gold's in a consolidation, I think eventually it it, you know, probably consolidates for quite a while, but then breaks up rather than down. Um, I'm still bullish on energy companies in general. Uh even again, I mean, if you if you get an announcement tomorrow, hey, the straits open, we have total peace in the Middle East, uh and energy flows again, then sure, energy energy stocks probably don't have a great year. Uh but I still view them as an important part of a portfolio because you have these um fortress balance sheets that make money um uh and uh they will often move in a different way than many other equities uh which is valuable for a portfolio. Uh, and so I do expect decent performance out of them, especially when you include dividends that they pay over a multi-year time frame. Um, uh, and so, yeah, I think there's plenty of opportunities out there. Not everything's a bubble. Some things are cheap. Um, it's generally things that have some risk. Uh, but when you when you have a handful of pockets of those, I mean, if if three out of five or four out of five work out and one or two out of five don't work out, you you've at least spread your risk out uh accordingly.

M and you've mentioned I mean when I mentioned silver that was from last year obviously not not from from recently from last year's conversation. Um do you still see that uh there's a up I mean you've you just mentioned you less bullish on that you still see silver but maybe also uh mining stocks as a great upside potential.

Yeah, I mean silver did tremendously over the past year. Uh but because silver because mining stock and everything did so well I'm less bullish going forward. Uh it's not that I'm bearish, it's just that that I view the asymmetry as gone. Meaning that, you know, when when silver was like $18 an ounce, uh but then even when it was in the high 20s or or 30 an ounce, um you know, it's like it's like there's not much downside really. Uh but it's like it could easily triple, right? And that's the kind of numbers that we we got. Um, and you know, when gold was under 2,000 an ounce, it's like, you know, I can't really like the the like there's not really any strong reason for why it could go lower meaningfully, but there's nothing stopping it from doubling or tripling. Um, uh, but as you get that doubling or tripling or, you know, depending on which metal we're talking about, um, it's it's a little bit more of like it's less asymmetric. Like I wouldn't be shocked by a 30% draw down in silver, nor would I be surprised by another 50% increase in silver. It just it's just that it's it's more of that kind of volatile trading range where I feel like I have less of a conviction on what it's going to do in a given say three-year period. Uh and same thing for mining stocks. Um uh so uh yeah, I generally at the moment I'm leaving those markets for for others. Uh I'm still a long-term holder of gold, silver, and platinum. Um but I'm just I'm less uh kind of viewing them as a trading opportunity uh per se.

All right, Lynn, thanks a lot for your valuable knowledge as always. Hey, hey, hey.