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#61 Surviving Stagflation | Lyn Alden on learning from the past to better invest for the future

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In the series finale on surviving stagflation, Terry chats with Lyn Alden. Lyn is a global thought leader, sought after speaker and consultant on macro investing strategy. Her extensive research has also led her to become one of the most trusted voices from the ‘traditional finance’ space on crypto currency. She has advised governments, investment banks and institutional investors on all of the above, and the articles she publishes are devoured by tens of thousands of investors all of the world. 

In this conversation, Terry tap into Lyns best thinking in an effort to answer one simple question. Does the environment we find ourselves in change the way we should think about investing? And if so, how?

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Hey it’s Terry. And if you’ve been following along with our most recent episodes, you’ll know that we’ve been discussing how stagnating economies and rampant inflation or stagflation impacts our personal finances. One thing we haven’t touched on is investing during stagflationary periods. 

Now talking about this intelligently requires a solid understanding of the fundamentals of sound investment As well as deep domain expertise in how the global financial system And that’s, what’s called macroeconomics. Neither Ryan or myself would claim to be experts in both these fields. And so that’s why in this episode, I’m speaking with Lynn Elden. Lynn is a global thought leader sought after speaker and consultant on macro investing strategy. 

Her extensive research has also led her to become one of the most trusted voices from the traditional finance space on cryptocurrency. She is advised governments, investment banks, and institutional investors on all of the above and the article she publishes. At a valid by tens of thousands of investors all over the world every single month. 

And in this conversation I tap into Lynn’s best thinking in an effort to answer one simple question. Does the environment we find ourselves in change the way we should think about investing. And if so, how. And Lynn holds nothing back and she details exactly how and why the game has changed, who the winners and losers a likely 

And what we can learn from monetary history to guide our investment decisions about the future. And I have to say, Lynn is an absolute master of her craft and one of the sharpest minds on the planet when it comes to this subject At times this does mean she gets a little bit technical, but I do my best to summarize and simplify what she’s saying without losing the substance. 

And rhino recorded an episode off the back of this to debrief the big ideas and break down some of the concepts we discuss even further. So don’t worry if you don’t get absolutely everything. She says, just understanding the general gist of what she’s saying will put you well beyond most. 

And the bottom line is if you want to know how the rules of the game have changed and how to Invest your time here now to figure out how best to invest 

Terry: Lynn, thank you so much for coming on the show. 

Lyn: Thanks for having you. Happy to be. 

Terry: The reason I wanted to get you on is because from my perspective, having I guess broadly kind of looked at this area and trying to understand the investment side of things and, and even macro, you struck me as someone who’s has got a really unique skill and perspective and you kind of combine a worm’s eye view with a bird’s eye view.

And then you also understand history cuz you reference that, a lot. So I thought you would be perfect to have on the show to be able to get some guidance on how do we position ourselves over the coming decade if we’re young investors trying to make our way forward. so thank you so much for coming on, but I’d love to start from the start. give us a bit of a backstory on you. Like where do you come from, where did you grow up? 

Lyn: Yeah, so I grew, I grew up around the Philadelphia region, so East Coast, United States. Uh, and you know, I I, I’ve told my story a couple times, which is that I went through a period of poverty as a child. and I think that instilled a pretty strong saving and investing mindset in me. Uh, then grew up in a, in a trailer park and eventually went to university and then, you know, uh, uh, got outta that kind of, um, uh, type of situation.

And so, One thing I try to do is, you know, my, my, my first quote unquote career was, uh, engineer. And so I, I worked as an engineer, electrical engineer, then I shifted into engineering management, uh, you know, uh, multidisciplinary engineering teams, running the finance for an engineering facility. And on the side, I, I always was writing about equities, uh, investing, uh, and just kind of kept that, uh, uh, kind of, um, lifelong interest alive and eventually, uh, You know, I, I started Lin Alden investment strategy and that that grew so much that I kind of was forced to leave my engineering job and focus on this other opportunity full time.

And so what I do is I provide macro research and, uh, individual investment research for, uh, both institutional and retail investors. And the way I like to phrase it is I like to try to do institutional quality research, but in plain English, Uh, which is how, how that both retail investors and institutional investors get to get value from it in different ways.

 I try to be broad, but there’s areas that I, I avoid cuz I have no idea. I have no edge there. Like things like, you know, biotech for example, I have zero edge there. Whereas I tend to focus on, currencies, monetary fiscal policy, the history of such things, energy, commodities, industrials, things that are a little bit more maybe in engineering wheelhouse. Uh, and less so in than in, in some other areas. 

Terry: And that’s what I think is really interesting is that background of engineering and finance. Um, and that early interest cuz you started investing when you were in high school, is that right? 

Lyn: Yeah, equities, uh, in high school and actually like, you know, uh, saving cash and precious metals when I was like a, you know, child. so it kind of like, I, I started one spot, went up to equities And went from there.

Terry: And then I also read you retired at 33, you were financially independent then. So how does the retirement sort of fit in with more writing and researching and publishing your thoughts? 

Lyn: Well, so one, I mean, you know, I had that whole engineering career and I saved on the side and I had a side business, which was, which was writing about, investments. And so eventually I was financially flexible enough where, You know, you have a, a, a very long runway of, of just, you know, you have cash flows coming in from investments.

Uh, you know, I kept my expenses pretty tight, and also I had, I had a big opportunity to pursue more of this self work, right? So, uh, you know, um, so I, I generally try to structure my, my business around, uh, you know, things that I find passionate, things that I want to do, right? So it’s, it’s trying to avoid things I don’t like to do and try to find things where I, I feel like I’m providing value, which for me is mostly in the form of writing or, or, you know, speaking, right?

So it is kind of analyzing, well, it’s a combination of researching and then trying to help articulate what it is that I’ve, what I’ve researched. And I, I find a lot of value in that, especially because this is a very turbulent time. and I, I, I think that, that it helps people to have, you know, steady voices or, you know, I, you know, everybody, everybody says objective.

I mean, some people are more objective than others. Everybody strives. No one, no one’s perfectly objective. but I try to build a reputation around being objective so that, you know, people that are very different from each other can still hopefully get value from what I’m saying. And so that’s, that’s something I found, um, interesting. 

Terry: Yeah. And I would say that’s very unique to you. There’s so many voices out there, but it’s so inherent. The, the level of, I dunno if the word’s bias, but we kind of have a point of view that’s, I guess overly simplistic. Whereas I, I think you, you leave things open enough to be able to have, as you said, people with very different opinions take on your perspective. Like, what’s your secret for that? Cause I, I think it’s very very unique. 

Lyn: Well, some of it’s intentional is just try not to put too many things that don’t need to be like, you know, I try not to touch too much on politics unless this specifically relates to investment, for example, to the extent that I focus on politics, it’s used something around corruption or money. Right?

and, you know, I, the, the, to the extent that I reveal a bias, I’m, I, I’m proud of this bias. It’s things like, I’m a proponent of human rights and freedom around the world. Uh, and that of course can be different things for different people. But, you know, basically means, you know, the think of like, you know, the Bill of Rights type of things.

You know, freedom of speech, freedom of expression, freedom to be who you are, freedom to transact, um, and freedom of movement, right? So, I, you know, I’m. I don’t try to be, pretend to be completely middle in every issue, but I say, Okay, you know, here’s a pretty simple set of things I’m working from. And then let’s, let’s try to tackle hard issues, right?

So the energy situation’s hard, the inflation situation’s hard. I always consciously try to steel man the opposing view. So if I’m arguing for inflation, I’m like, Okay, let’s, let’s listen to the, you know, the biggest experts on deflation. and then I’ll, let’s also try to articulate, you know, what is the case for deflation?

Here it is. And then why, Why do I disagree? And I’ll do that with, with other things. You know, if I’m bullish on something, I’m like, Okay, well let’s look at the risks. Let’s, let’s try to steal man, the, the bear case for this. Um, and I think that by just trying to do that consciously, it. 

Terry: Definitely. And I did see a tweet of yours, I don’t know how long this was, maybe a month or so ago. You, you sort of laid it out actually. You had a bit of a framework and you said you should think about creating like a hierarchy of what your values are and then I guess tackle your issues from there. Is that right? Can you explain more around what you were saying 

Lyn: Yeah. So a lot of people when they, when they respond to, uh, economic issues, political issues, ethical dilemmas, it’s always like, you know, you’re starting from scratch almost. Like you’re just kind of judging things on an issue by issue basis. And it’s generally more efficient to have a, a more conscious framework, right?

So to study some degree of philosophy doesn’t mean you’d be, have to be a philosophy major, but to study, you know, the different ways of, you know, coming to conclusions. So for example, there’s ends justifying means, and then there’s another framework which is more rules based. There’s another framework which is more virtue ethics, right?

So start with with integrity and then, and go from there. And then you get to things like, like hierarchy, right? So, you know, there’s always the, in politics, kind of the biggest question is individual verse to collective, right? And so It helps basically to have a framework for what things are inviable, right?

So I would put something like freedom of expression, freedom of speech in something that, there’s almost nothing that would override it other than, you know, the classic example of screaming fire in a shouted, you know, in a theater or giving death threats that are very specific or clearly obvious, intentional libel, you know, there.

But there’s basically freedom of speech would be an example of at the, at the very top of the hierarchy of things that almost anything else is gonna be below that. So almost no, almost no bad how bad speech is. It doesn’t mean you can cross that line because even if you think that that intense the world might be better without that speech, you have to then question, when we give the power to censor that. What happens in 15 years when someone else is in power and they use it against you? Right. So whenever you’re thinking about doing something, always imagine the table’s turned. and so I I, so you can go down from there. You build a hierarchy. Okay? What is, what is nearly inva like, uh, inviable and then what is step below that?

What is like, almost always important, but there are exceptions. And then what is blow that which is like, say highly flexible. And I think that that allows, that hierarchy allows you to make decisions, in environments like today that are very complex and that there’s a lot of moving parts to be aware of. Not thi not all things can be broken down as simply as many people would like to believe. And it’s also an environment where, and this, this goes back to my study of history, that you have these periods of rising populism, right? So the 1930s, uh, and then here in the, in the 2020, well, the 2010s, uh, going into the 2020s, and it’s a powder cake, right?

And so it, it’s really important to be able to, instead of demonize your opposition or, straw man them. So basically, you know, make the weakest form of their argument and then, you know, criticize that. Instead, it’s, it’s trying to understand, you know, say, Okay, there are intelligent people on the other side.

Why would intelligent people think that thing that I disagree with? And then be able to articulate it, emphasize with them, and then be able to explain why you see things differently. And, and sometimes the key thing is that you might even agree with a lot of what they’re saying, but your hierarchy’s different.

Uh, and you can, you can articulate that. And so I think that that’s, it’s just a useful framework for something. And I think we’re in an environment where, You wanna be able to communicate and you wanna have moderation between extremes. because this is a, it’s a, it’s a challenging time. 

Terry: That’s a really, really, Good idea. I think what I visualize as you were describing that is almost like a pyramid. And at the bottom of this pyramid, you’ve got issues, but they can exist on sliders. So they’re flexible. And as you go up the pyramid, the sliders are less flexible to the top, where they’re not flexible at all.

and you’re kind of arguing and understanding from that perspective. And I think hopefully if you are at the top, you are arguing around things most people, if not everyone can agree upon. And then where the sliders are that you’re trying to understand from the other person’s perspective. Is that does that 

Lyn: That, that’s exactly how it describe. And I mean, sometimes you, you’d be surprised at how fundamental some disagreements can be. I mean, there, there are a lot of countries in the world and a lot of people that, you know, they outright say, No, we don’t want free. And they’re not even, not even just people in the government.

There are people in, in the population that say, No, I don’t want that type of of speech to be allowed. Right. And it’s never, they almost never want their own speech restricted. They want their opposition restricted. So, sometimes you find instances where you’re actually almost dia automatically opposed to them.

And then at that point, say you’re in some instance where you’re discussing or debating with them, that becomes more about debating to the audience, right? You’re not trying to convince that person. You’re trying to show why your absolute axiom is better than theirs and that theirs is, you know, Uh, whereas if your, if your disagreement is further down on the hierarchy, that’s where there’s a lot more ability to convince each other or to come to an agreement or to, you know, at least make it so that both sides understand the other side and, you know, can get a beer together and maybe still disagree because it’s, you’re not like diametrically opposed.

And I think, I think if people build those hierarchies, it’s, it’s easy to figure out where. They have Venn diagrams, you know, Venn diagram of where they, they match up. And I think people have a lot more in common, you know, than otherwise, as long as they don’t have conflicts among like their foundational principles. 

Terry: Yeah, it, What’s your view on, like, is it even worth pursuing an argument with someone at the top there where you are diametrically opposed? Or is it just, is it more just worth saying, Hey, we just, we just agree to disagree?

Lyn: Well, I mean, in politics, that’s the thing. I mean, some, at some point you’re always impacted if someone wants to impose their top of line thing on you that, you know, that’s, we have a problem. but like I said, at that point it’d be less, you know, you could still try to convince them. Maybe you, maybe, you know, some people do switch diametrically in, in their lifetimes.

but I think it, it is at that point, it’s more about trying to convince, you know, uh, third parties that are maybe, that haven’t articulated it well or haven’t thought, thought it through. And you’re trying to show why, why, why you think your axiom’s better than that other person’s. and so it’s less about trying to convince that other.

Terry: Definitely. It’s a really good framework I think. let’s talk more a little bit about your methodology now. So you talk a bit about having what your edge is. And you kind of mentioned that earlier on you got these kind of background in engineering, so it gives you kind of a first principle’s understanding of things then traditional finance, but you also have this overlay of, of macro. So how does all that fit together and how did that come together? 

Lyn: So a lot of it, So my background is, is, you know, my, the, the latest stage of my engineering career was focused on systems engineering, which is basically, you know, a lot of the systems we interact with are more complex than any one human mind can figure out. And so it’s about, Designing and then managing a complex system, uh, they have to kind of break into parts, understand where the bottlenecks are, and know how to delegate.

And when you approach it, you have to be able to break it again into parts and then say, Okay, how does this affect this other thing? And can you kind of map out this like set of feedback loops for how it’s going to function. And I basically apply systems analysis to the macro environment because if you, if you take a step back, the global financial system is an engineered.

Uh, it’s not, it’s not wires and screws, but it’s, it’s banking regulations. It’s banking technologies, it’s it’s structures. It’s, it’s, you know, this is a human design system that is understandable. It’s complex, and you can understand the feedback loops if you put time into it. Uh, and because it affects so many lives, and because I, I, the way I phrase it is, we’re in a macro heavy environment. whereas in, you know, say the nineties was a less macro heavy environment, that was more of, uh, you know, buy equities and chill, right? Uh, where whereas, 

you know, this, this environment, post global financial crisis and especially, you know, the late 2010s going into here, the 2020s, it’s a very macro heavy environment of currencies and commodities and, and crazy yields. And then, you know, then there’s a human element, the rising populism, these tensions that happen, things like that. And so, I basically, my, my process is fundamentally it’s long term, right? So I take a three to five year plus view and say, Okay, what is attractively valued? What do I wanna own long. And that’s like my fundamental thing.

Uh, I have low turnover investing. what is, you know, I don’t care about what happens next week in the markets I have, I care about what happens over the next five, 10 years. Um, I, I like, I like to say three to five years cause that’s more, you know, but I like to, you know, generally you can extend it from there. but at the same time there is, for example, the purching managers index cycle. So it’s a measure of economic acceleration or deceleration and rate of change terms. And that’s roughly a three year cycle. So you often have like 18 months of increasing, 18 months of decreasing. and you, you know, so I try to position or at least make, people aware of the more tactical things that are happening over, say, a year or a year and a half, even though I’m saying okay, that, that’s the more tactical overlay on top of this more fundamental thing, which is macro and valuations and, and, and kinda long term trends. 

Terry: What do you say to people who, I mean, I was educated this way as well, where it’s like, basically, you know what, macroeconomics is a waste of time and nobody can predict all this stuff. There’s too many variables. It’s, it’s naval gazing. and you should just focus on what’s directly in front of you and what’s concrete. how do you address that? Because I completely agree that it has changed and shifted, and if you don’t understand how the winds have chains are shifting, you’re in trouble. But what’s your response? 

Lyn: So in much of the rest of the, much of the developed world, the past 40 years have been a structurally distance place in environment with industry rates that started at a very high level and then just gradually went down and down and down and down. And so you pretty much had things going one direction.

right? real estate stock prices up depending on your country, you know, a big basket of of assets just go straight up. It rates keep going down, which allows more and more debt and credit accumulation, which, which is what pushes all that up. And so if you just kind of said, I don’t care about macro, I just wanna, you know, just buy and hold for decades, that can work well.

The problem is when you have a major transition point where you go from, you know, 20% interest rates down to 0% interest rates over a 40 year period, and now you’re, you know, you’re sideways to up Now, in addition, I think the, the commodity cycle’s very important, is roughly a 15 year CapEx cycle. So you go through these structural periods of undersupply, then oversupply and undersupply and oversupply, that that is a huge fact, uh, impact on things like inflation.

Uh, and then when you combine those two, when you ha when you hit the end of like a 40 year disinflationary cycle, Then you kind of chop along and then you run into a CapEx undersupply energy commodity cycle. So more inflationary. and then you also get to the end of kinda a globalization trend, which is, you know, that was aary force.

It becomes inflationary. It’s like, you could ignore macro, but macro’s not gonna ignore you. and so, I mean, you know, how many people, like I started writing about inflation, Uh, you know, I started getting people to think about it in 2019 when, you know, the magazine covers were saying inflation’s dead.

and then once we actually got the catalyst in 2020, I was like, No, no, this is, this is different than we were used to. And now we’re sitting here with like, you know, 40 or high inflation in much the world. and, you know, and so. I I just think that, that we, you have to, a lot of people get confused then, and then they get, and then it goes back to that rising populism.

They don’t know what if you don’t have any idea what’s happening or, or you just kind of wanna ignore macro. It’s gonna seem like a random set of surprises. You know, people will say this, this is unprecedented. And it’s like, well, it’s not unprecedented. If you studied monetary history of the forties, for example, and, and, and has some semblance of what was gonna happen, doesn’t mean you predict everything.

I mean, things happen that I don’t expect. sometimes even I predict something that’s unusual and then it sounds extreme and then a more extreme outcome happens, right? I was a bond bear, but bonds did even worse than I thought. Right? So that’s, it’s, it’s like funny, I wasn’t bearish enough on the thing I was bearish on compared to the average investor.

and so there, there are always surprises. You can’t predict things perfectly, but I think you should ha, I think you should be somewhat macro aware, especially when you’re at major kind of generational transition points in, in how, you know, the global financial systems. It, it changes over time and there are these kind of break points where, where changes happen more quickly. 

Terry: A hundred percent. I was just saying this the other day, uh, like literally we’re in an environment where the decision of one man with a small group of people in a room impacts the globe. And so I’m sort of like, if you are ignorant to that, like it’s just you, it’s really gonna hurt you . Um, and it’s, that’s the way it is.

And uh, the analogy that come up for me as you were describing that and explaining it was, um, we’ve been playing on one game board and then the game board’s been shifted out with a new set of rules. And a lot of people are still playing by the old set of rules thinking that, you know, that nothing’s changed.

And, and that’s, that is a recipe for a disaster because as you said, you’ll be doing things and going, Why isn’t that getting me the results I want, Why, why am I in trouble now? and it is because that game board’s been shifted out. So let’s talk more a little bit about the role of history there. You touched on it. Why is it so important to go back and understand monetary history? 

Lyn: So that ties into the long term debt cycle, uh, which was originally put on my radar by Ray Dalio, a well known hedge fund investor. And I don’t agree with all of his work, but I think that this, this particular, observation and, and quantification of his was very powerful, which is we can take the idea of a short term credit cycle.

So three to three to 10 year business cycle, you know, expansion, contraction, expansion, contraction. And what you get is you get hire and higher debt during the expansion hired at higher debt to gdp, then it’s hit by in shock or the central bank kills it. Something happens. You have a contraction, you have a de-leveraging, you have a recession.

and at that point, positive, it just come in, uh, and they try to rein, inflate it. They say, Okay, we’re gonna cut interest rates. We’re gonna do some sort of like fiscal policy to try to try to soften the blow here. So they try to get. Back up. And so when you string multiple of these credit cycles together, instead of looking like a side wave of debt and economic growth, it looks more like an upward side wave where you get higher and higher highs and higher lows in terms of debt, relative to gdp.

And you get lower and lower interest rates, uh, you know, higher highs, higher lows. It keeps, keeps grinding lower. And that’s what allows and encourages that higher level of debt accumulation and a debt servicing. And that works until you run into zero or a little bit below zero. And then there’s not really much you can do with interest rates and debts are now at super high levels.

So when you start running into economic shocks, what do you do? And historically that’s, yeah, that’s what Dalia would call a long term debt cycle. And usually that resolves differently than other cycles, which is ma generally through a long period of currency valuation. Basically, instead of, instead of deleveraging from the top, you deleverage the denominator, right?

So you, you, you, you increase the amount of units so that you know, instead of decreasing the debt, you, you decrease the debt to GDP by increasing nominal GDP a lot because of the currency devaluation. And so we can also think of it as like a one two punch between a private debt bubble and, and a public debt bubble.

So for example, and I look a lot at, I look at global history, but I, I specialize in, in US financial history, which is still relevant because it’s currently the global reserve currency to the, you know, and to combine with China to the, you know, the two biggest economies that, that influence the rest of the world, economically.

And so, you know, in the 1920s, you. Tons and tons and tons of debt, uh, speculation growth. and then that, uh, you know, that popped that, that ran into the, you know, this huge de-leveraging event. And then that was a, that was a private debt bubble. And when it collapsed, it was disinflationary. Uh, even though that there was currency devaluation, like, you know, gold pegs, you know, being ruined and, you know, there’s fiscal responses that was mostly offsetting a very deflationary outcome.

And so you didn’t really have high inflation. You just had a, a very disinflationary de-leveraging ugly environment. And then that, that bred resentment bred populism, kind of grinded through it. And that populism actually is what a lot, many cases led to World War ii. Uh, it was kinda like World War I, in some cases, never really ended.

And then, so we went into that whole period, and the forties were a very inflationary decade because over time what we did was we put that private debt onto the sovereign debt, right? So we built up all the sovereign debt, many countries, uh, and. Ran massive fiscal deficits that were then monetized by the central bank.

Central banks held in straights below the inflation rate. So you, you devalued a lot of currency, you had a lot of money, supply growth. And then that eventually, of course, resolved itself. Uh, it was not good for bond holders or cash holders. Obviously wasn’t good for soldiers and in many cases, civilians.

but that eventually ended. And what I’ve been making in the case now is that in many ways, two thousands were like the 1920s we had, we had, we kind of rampant speculation. Uh uh, basically you hit a private debt bubble peak. So record private debt to GDP in the United States and, and a number of other countries, not every country.

Then you had a big collapse in the global financial crisis. Then you had, you know, various policymaker responses. But those are mostly just offsetting some of this deleveraging that was happening. You did not have a big increase in money supply, broad money supply. You did not have a lot of inflation. And that kind of just grinded sideways for a while.

You get rising populism. Uh, in many parts of the world, you know, we have, you have kind of cracks in the way that the system’s designed globally. And when that kind of fractured system ran into covid, uh, you know, uh, and, and rising geopolitical tensions, uh, you had these huge fiscal responses that were monetized and you’re, again, we’re getting a very inflation environment.

And I’ve argued that 2020s are a lot like the 1940s. Uh, and there are charts that I’ve shown that show these kind of eerie similarities. Um, and so that’s how I’ve been interpreting this environment, which is more of like a wartime finance. You know, public debt bubble. So now all the debts on the, on the sovereign, well not all the debt, but there’s a lot of debt on the sovereign level for most countries.

Australia is like an exception, but you know, if, look at the, at most European countries, you look at Canada, you look at, uh, the United States mostly what we’ve done is we’ve taken debt outta the private sector. We’re not, we just stopped growing in the private sector. Many cases still usually high in the private sector, but we, we kind of put a lid on it.

Now we put all extra debt on the sovereign level, and that’s where they, that’s more inflationary. That’s when you’re kind of monetizing fiscal deficits, you’re increasing the money supply. Uh, and then of course you run into a period of undersupply and energy. Then you add war to the mix. So you further add frictions.

You also kind of reverse some of these globalization trends we’ve been doing. So we had, you know, 3, 3, 4 decades of opening up of China, opening up of Eastern Europe, opening up of all these, these regions of capital. And, you know, especially for China, that’s in many cases behind us now, we’ve already globalized.

And so there’s, there’s, we, we used to hold down domestic wages by hiring Chinese people instead. and that’s really, that’s not really, uh, there’s not like, you know, they, they’re kind of hitting a demographics peak. There’s rising geopolitical tensions. And so some of that is kind of ricocheting back in the developed world in terms of, of wage pressures that can’t be held down anymore. And so I think we’re at a, just a more inflationary and stag inflationary type of environment in general. 

Terry: There’s so much you said there that I wanna unpack. part of it is how you said central banks monetize fiscal kind of deficits. Can you explain a little bit more about that mechanism? Cause I think it’s quite important for people to understand how, I guess, the, the, the financing changes in those periods. 

Lyn: Right. So if, if you go back as a counterexample to the global financial crisis, right? So banking system collapses. the Fed does a lot of qe. now people, some people at the time thought that’d be hyperinflationary, uh, but it wasn’t because if you’re an everyday worker, are you getting more money in your checking in savings account to spend?

No. Right. So why would, there’s not more money chasing fewer goods. Uh, instead of what they’re doing is they’re, they’re creating new bank reserves and they’re buying treasuries and mortgage backed securities. And that they’re, essentially what they’re doing is they’re recapitalizing the banking system.

you know, you had a very big ratio of broad money, which is all the credit money that banks. You know, your, your, your deposit at the bank is a claim on, on credit, essentially. And what they’re doing is they’re increasing the, the monetary base so that the ratio between broad money and the monetary base is not as crazy as it was.

Right. So that’s a, that’s a bank recapitalization. It’s kind of anti deflationary. It’s anti collapse, but it’s not acutely inflationary. 

Terry: It’s not in the real economy. 

Lyn: Yeah. Yeah. And of course there were, you know, there were some fiscal programs in different countries, you know, like we, we gave out, you know, these little like tax credits for cars and like, you know, try ways to try to kickstart the economy and kind of offset that.

But it wasn’t like a huge, uh, impact. now what makes this different is it’s not just QE to recapitalize banks. They would into. Well capitalized, at least in, in, in say, North America. Europe’s a little bit of a different story, but you know, a lot of banks went into this situation well capitalized. And so the QE was to monetize large fiscal deficits, helicopter money.

So, so you know, send out loans to businesses that you forgive, send out stimulus checks, send out energy credits, send out childcare tax credits, bail out certain, uh, uh, key corporations, uh, you know, different countries handled it differently. and, but there’s a lot of money that’s going out and that’s where actually the, the typical person does have more money in their bank account and they spend some of it.

And so you have a demand surge for a number of things, especially cuz you have a rotation of the type of things you can and can’t buy during a, you know, lockdowns and travel restrictions and that sort of, And then you add, you know, you, so you have a, a big increase in the broad money supply, which is very different, right?

So broad money’s generally created in one of two ways. Either banks are lending new money into existence, they’re, they’re multiplying the money, or you’re running very, very large fiscal deficits, right? Uh, and then you’re monetizing that so you know, it’s not being sucked outta the private sector through bond issuance. Uh, instead that bonds being issued and the central bank is buying them with just new based money creation. 

Uh, and so That’s that monetization. So money’s being directed into the economy and it’s not being pulled out of any, you know, private sector area. So just it’s a net ad and that’s, that’s what makes that it’s fiscal plus QE is a lot more inflationary than qE on its 

Terry: yep. And I think that’s the really important point to get is that’s where we’ve are, that’s where we’ve just been, and that’s why we’re seeing all the problems we have because of exactly what you’ve said, but also that also underlying, uh, structural problems with supply in energy and a bunch of other things because of, uh, of covid.

So that’s that kind of perfect storm. Um, and it does remind me, we had Jeff Brel on the show when he talked about, he kind of gave the analogy of the monopoly. And saying, Oh, you’re struggling to get around the board. I’m gonna give you a little bit more money, and you just struggle to get around the board again. And so it’s, we just, we just keep it going. But what ends up happening is there’s more money chasing the same amount of lots, and so the prices of everything goes up and that’s why things are getting harder. Is that a fair kind of summary of what we’re saying? 

Lyn: Yeah. And then the challenge there is that when they hand out the money, it’s not even right. And so in the United States, for example, we did PPP loans where a small business could collect a, a loan that’s forgiven. It sounds like a good idea. And of course, you know, you don’t want your local restaurant to go out of business cuz they were forced to lock down.

The problem of course, is that there’s like asset managers and law firms, they’re like, Oh, let me get in on this. Right? And so they were in trouble to begin with. And then you basically give a wealthy person a million dollars that’s forgiven. And then, you know, the down the street you give like, you know, marry the school teacher, you know, a thousand dollars stimulus check, and then another, you know, $600 stimulus check and you give her some tax credits and, you know, she gets like several thousand dollars. But the, the lawyer down the street or the asset manager CEO that wasn’t gonna lay off anybody anyway, got like a million dollars. 

And, you know, so all of that is inflationary pressure, but people get diluted at different rates. and so, most people get more money, the money, more money chasing, you know, few or similar amounts of goods.

so some things are in short supply, like cars, other things we still have a decent amount of, but there’s, you know, basically more money chasing fewer goods and prices go up. You know, some people are net advantaged because they got so much money handed to them that even after the dilution, they still have a bigger share than they had before.

Other people did not get much, and yet they still got diluted. Right? And so that’s, that’s the challenge, that it’s almost impossible to do that in an ethical and, and organized and fair way. And that goes, that goes to the idea of the continuing effect, that the close you are to the money, you know, you, you generally get it first and more advantageously.

And if you’re on the periphery, you’re less likely to, to get the most favorable terms. Uh, so I think that’s, that’s the, and that, that contributes to that populism And that that challenge. 

Terry: Yeah. And that’s, um, I guess that’s why it’s so important to understand history because of what you say. We’ve seen all this before. When we get to these stages in that long term debt cycle, populism does rise because it isn’t fair the way that it’s created. And people don’t know exactly what’s going on, but they have a sense that something’s not right.

and I think this is where something I do agree with Rayon is, um, he says when people care more about the causes than they do about the system, than the systems in jeopardy, and you know, we talked about that kind of changing world order and I see that every day now. Everyone’s got a cause.

Everyone’s got something. They think’s the most important thing. Everybody’s outraged about something, but it, the root cause of all of it. This game that we’re playing isn’t fair. I’m seeing people. Where people are, has nothing to do with the value they’ve created. it’s everything to do with how close they are to that printer as you’ve described.

And I think people as a sense, as a collective can, can feel that they just can’t put their finger on it. And that’s why we have all these causes, that are, that are coming at us every day. It’s 

Lyn: Yeah, we’re, we’re basically all using as, as a society, we’re using like a shared ledger, a shared game board, and people near the top of that can change the ledger, can change the game board in a way that favors them. And so, for example, in the US global financial crisis, you had the whole, you know, housing blew up, banking blues blows up.

Homeowners did not really get built out, but people got million dollar bonuses at banks that were failing and they were given loans. Right when they needed it. Right. When all liquidity dries up, all assets get super cheap. Certain, certain banks get big loans that they can then go out and, take advantage of that situation.

Right? And so, that’s kind of the, this unfair, flexible game board. And you give people on both in a, in a given country’s political spectrum, are people on the, both the right and the left and all the different, all the different parts of that whole political quadrant that people fall into. They all, they all experience it in different ways.

They express it in different ways, but very few people are like, No. Yeah, this is a great system. I love it. It’s, it’s working great. You know, it’s like everybody has different things they’re most enraged about, but I think, uh, there’s an underlying, you know, humans have a pretty innate sense of fairness that I think has been violated over the past, call it 15 years or more. 

Terry: Yeah, Yeah, that’s pretty shocking too, to see that all these, uh, public employees selling their shares before interest rates start to rise and just, you know, timing things Exactly right. , 

Lyn: Yeah. 

Terry: um, where when, uh, you know, they’re not supposed to be using that information in that way. 

 let, let’s talk about, I guess, so demographics is part of this too, right?

So it’s debt and demographics as this kind of contributing factor. what’s your view on, I guess, that concept of forth turning and like where we are generationally and how much of an impact that has, with regards to what we’re likely to see going forward? 

Lyn: So I think, you know, fourth herding is when basically all the institutions that were built over the prior. It’s called 80 years. Uh, so I describe that the fourth hering is like the qualitative aspect of what’s happening and the long term debt cycle is like the quantitative debt thing that’s happening.

Right? And so, um, when you look at the, we already talked about the debt part, but the, the qualitative part, the rising populism because system’s no longer working. And a lot of that ties into the fact that during the prior fourth turning, which was the forties, uh, you know, thirties and forties, that’s when a lot of the institutions that we, that we know today were, were built essentially, or you know, in that kind of era.

so, you know, that’s where the global financial system was, was structured. That’s where, you know, we had the, a birth lot of these organi organizations, you’re the rise of, of media as we know it, right? These like, you know, the establishment media. Uh, and so you have these kind of systems that were built for a different.

And over the course of time, just entropy takes its toll. Corruption takes its toll. Just things that, that, that we’re we’re at one point energized and excited, started to become stagnant incumbents. Right? And that, that happens in, in industry too. and so both government industry, this is happening. And so we’re kind of at a, at an era where people feel like the institutions are not serving.

And I would say that’s largely true. And so they’re kind of building new institutions and those conflict with some of the old ones at the, at the same time as you go, go back to those macro things I talked about, which is super high debt. And then you’re running into, you know, scarcities. And the challenge with demographics is that, you know, for example, you know, I, I keep using United States example, but you know, our social security program, when they invented that, you had something like, you know, 20 workers paying into it for every one person who’s retired.

And then now it’s like, you know, three workers paying into it for everyone that’s retired. And so it’s a much more top heavy system, especially if you’re one of these young people and you’re like, well, social security might not even be around for me, and yet I’m putting like, you know, this huge chunk of my paycheck into it for, for people that gave themselves promises they didn’t fully pay for.

Uh, and so, you know, that. And that, that’s another way to phrase it, is when one country ages, that’s disinflationary for that country. So if Japan, for example, is one of the oldest countries in the world, if they age, that’s very disinflationary. If the whole world ages, that’s actually inflationary because there’s not enough workers to support all the demand that exists for things.

Right. And I think that’s what, that’s where I disagree with some of the Disinflationary folks that they, they look at demographics, Look how disinflationary that is. I’m like, well, yeah, in, in isolation. But when the whole world kind of reaches that top heavy state, that’s challenging. Un unless we get, say, robots automation advanced enough to, you know, replace our labor problems, which could happen at one point, but it’s not around the corner. you know, so you have kind of labor shortages in some areas, uh, and you have a very kind of age and top heavy population. Even china’s getting to that point now. 

Terry: mm Yeah, it’s, uh, it is an interesting period, and it seems to be that, as you’ve said, like when you look back and you understand this, it’s important to understand how humans behave and respond, but it’s also important to understand how policy makers. Respond, and as you’ve said, currency devaluation or continue putting more money into supply tends to be the way that we deleverage.

and is this the way you think it’s gonna play out as well? Like they, we’ve got to so much levels of debt that the only way we can handle it is to devalue the currency, and do that at the expense of people who are in cash and cash instruments. 

Lyn: I think over the long term, I, I think right now the Federal Reserves trying their best to fight back. you know, we have something called the Taylor Rule, which is basically, you know, you take these inputs and that determines what your in rate should be, you know, as an, and, and, you know, it’s generally higher than the inflation rate, right?

So if inflation’s 8%. Taylor rule, and, and you’ve taken a couple of the variables, like what is nominal GDP doing? Right? And you should have like, you know, 8.5% interest rates, let’s call it. Right? So it’s like, if you’re serious about tackling inflation, why not jack rates up to eight, 9%? And of course the answer is, it, it would blow up the world, right?

And so, you know, what, what would federal interest expense look like when you have 130% debt to GDP and you’re paying eight, 8% interest on it? Uh, what would, what would mortgages look like? What would corporate debt look like when they all, when they, you know, they all got suckered into borrowing at super low interest rates and then, and then interest rates get, you know, quadrupled or Quin toppled, and then, you know, they start refinancing their bonds that mature and they, they’re, that’s all, Now they’re insolvent, right?

And so, so they, they do have pressures on, on how much they can tighten, bef, you know, before it causes acute problems. That, that is Jillian number that’s below the prevailing inflation rate. Maybe you get above it for periods of time, but then that, that becomes unsustainable when you have that super high debt to GDP ratio.

And so something breaks and then they, you know, they Rey it again. And we keep, we keep going. And so I, I, I do think we’re in an environment where, you know, there are periods of high, but you can get disinflationary periods within inflationary decade, and you can have, you can have, uh, you know, periods of fighting back, right?

So I’ve described it as like, uh, Empire Strikes back, right? So there’s Star Wars, you know, you, you kill the Death Star. but then the, the second movie is, you know, Darth Vader Strikes Back, right? So we have this big inflationary impulse, and now, you know, the Fed and others are trying to get their grips on it.

They’re like, We’re not, we’re not gonna let this run away from us. But my view is that they can tighten it, but they can’t normalize, They can’t just get back to a normal period, put all, all this Pandora’s box back together and go from there. I think that we’re going through these. Kind of more violent cycles, in terms of policy, in terms of inflation, in terms of shocks to the system. And I think this is gonna be a longer run story, at least until we get, we fix some of the energy situations more, more soundly, uh, and we, we kind of, um, rebuild our systems so that we’re not expecting just continual globalization. 

Terry: Mm. It feels like it’s all about credibility. Like they’ve lost a lot of credibility even in Australia here. So we got, everyone was told, um, you know, we won’t be raising rates till 2024, at least. Inflation is transitory. This is not a problem. and raising those rates, again, again, I feel like it’s just, it’s a way to keep themselves relevant.

Basically. like, um, saying, you know, we’re, we’re here, we’re making these moves, but as you say, if you were really serious about inflation, then your interest rate would be at or above what the actual CPI rate is, and it cannot get there. It can’t get there in Australia, like we see this, we see guys cash flows all the time.

If, if the federal funds rate was exceeding cpi, all, most of our people would be insolvent, um, very, very quickly. And so just, it’s. It’s never gonna happen. It can’t happen to that level, as you said, for any period of time. They might try it for a period, but as you say, it will cause a lot of havoc. and it’ll be a short, short term live thing.

And then we’ll go back to, the game that we always play, which just reify things, keep the can down the road and, but how much longer can we do this, Lynn? it feels like we are right at the end of this because currencies have lost so much value over the last a hundred 

Lyn: Yeah, I think, but I think this decade is where a lot of things come to head, right? So, um, you know, like in the forties, you, you, you got down to a much lower debt of gps, not because you deleverage, but because you, you know, uh, changed the dominator quite a bit. Uh, and I think, you know, when we’re looking back here in say, 2032, you know, I think it’s gonna have been a wild ride, especially for currencies.

that, that’s kind of my expectation. And, and part of that comes down to what happens with energy, right? And so, you know, can we get, can the world get back to a state of abundant and cheap energy, or is that gonna be a constant struggle? And, you know, there’s basically those wrong moves and there’s right moves and, you know, I think that goes back to the hierarchy of, of values I talked about, right?

So, and that, that’s where some of those debates have to happen. And, you know, uh, so I, I think that throughout the point, If they, if the Fed, for example, fails to tighten enough to get inflation under control, um, or if they brief to get it under control and then they pause and then inflation shoots back up again. That’s kind of a checkmate scenario, right? So we’ve already, you know, Japan’s in Checkmate, right? So they’re doing yield curve control, uh, when they’re faced with high inflation ECBs, you know, they have, they’re facing double digit inflation, but they’re still buying Southern European debt because they have to, to keep spreads under control.

We, we had to see the Bank of England come in and buy bonds, with 10% inflation, which not, that wasn’t their intention. and the fed’s the one that’s still holding the line, uh, as well as some others. Uh, Bank of Canada is pretty tight. Uh, I haven’t, I haven’t checked Australia’s rates lately. Uh, you know, but there are a number of, of countries that are holding the line, and especially the Fed is the biggest.

I mean, if they get to a point where they, they can’t keep tightening, but inflation’s still hot, that’s kind of a regime change. And I think that, that, you know, is a, is kind of a final blow to credibility. And, you know, you probably would have some pretty big. Bids for other assets that also, you know, we’re seeing kind of shifts due politically.

You know, Saudi Arabia wants to join the, the bricks nations, for example. Um, and I think that, you know, overall geopolitics and alliances could look a lot different 10 years from now than they look like today. And that can have implications for inflation and, you know, energy secure city or abundance and things like that. 

Terry: Yeah, well it’s, I can speak for Australia around like where things are at and our reserve bank just slowed down. It’s, it’s rate r 

Lyn: Oh, that’s right. Yeah. Now I remember they, they did a, was it a 25 basis point hike? They, they decided to pause. 

Terry: yeah. And I think that’s just, it’s indicative of, I guess the difference here is, um, you know, we are a lot more sensitive to interest rate rises because, most of our debt’s at the private level, it’s in corporations, it’s in household debt, mortgages. Yeah. And the majority of it Yeah. Is, is variable. So we’re really sensitive to it.

Um, and I think that’s why it’s, it’s different for us. but you know, our treasurer just said as well, the hard thing here is that. , if we don’t raise it, the same rates that America does, um, it’s actually more expensive for us to import the goods, which is inflation unit of itself as well. So we’re kind of, we’re kind of stuck there, because of this, and it’s hard to know how things are gonna play out, but what, what would your advice be for the average working person, young, professional, with a, you know, a 10 year time horizon for decisions? How would you protect yourself firstly, and then also how could you prosper and profit from this period of change and transition? 

Lyn: so I think one is, well, one is make sure your professions like, you know, in long term demand. And, and, you know, I think the average person, the key is not to, you know, focus on your portfolio. Second, the first is focusing on your skill sets, uh, and, and doing the best at what you do, right? And so, and that can be regardless of what you’re doing, you wanna be that.

You wanna just be positioned for it and be really good at it so that you’re always in demand to, to earn value. Uh, I think that’s number one. Number two, with your portfolio. 

I think you wanna do a, a, a review of assets that you could own and say what is scarce and what is not really scarce. So you don’t own the things that are not scarce, or at least you know, you underweight them, you’re careful with them.

And then with things that are scarce, you then do evaluation check and you say, Okay, what is maybe in a bubble, right? It could be scarce, but maybe it just went up 10 x maybe it’s, doesn’t matter if it’s scarce, maybe it’s just too, it’s too over own, for example. So you filter out some of that and you say, Okay, what is both scarce and in a reasonable valuation? 

And I think a lot of things you’ll find are things that did not particularly do well the last decade. I mean, if you look at like the US energy sector, you know, it’s been like sideways for like, you know, 15 years while, you know, fang stocks just, just sword, right? And so, and they’re cheap and they have decent balance sheets and I think their product’s gonna be in demand and expensive for quite a while.

and. So I, you know, I ideally find infrastructure interesting, right? Because all the replacement values are now much higher because of inflation. Labor’s, labor’s more expensive too. These are very labor intensive and capital intensive and materials intensive things that exist. And now the replacement costs are higher. So I like hard assets, 

you know, pipelines and, and other things like that. I also like commodity producers. Uh, I lean towards energy, uh, but also I like copper. I’m just careful about copper on the down cycles, right? So I’m a little bit more, little bit more nimble in my copper positions. But I like copper.

I like diversified materials. Uh, and then I like just different types of dividend producing things. So I, I, you know, in this kind of defensive environment, things like healthcare stocks, for example, I’ve been emphasizing, and then I think you. Depending on, on where you live, uh, you know, real estate, it’s more challenging, obvious in Australia because of the, the valuations.

That’s an example. Something that’s, you know, got scarcity to it. But the valuations are very high countries like Australia or Canada or China. and then there’s things like gold or Bitcoin, which are basically scarce money. So you can print in any number of dollars or SIE dollars or euros or yen or uh, rupees.

but, you know, gold is something that’s created very slowly. Same with Bitcoin. And so I think, I think non-zero allocations to, you know, kind of these, you know, depending on how, how much someone understands them and what their age is and what their allocation is, you know, non-zero exposure to, to harder monies is I think a good way to round out some of those other things that, that focus on cash flows.

Also think that, you know, some of, some select emerging market allocations are interesting. Things like Brazil or India over the next 10 years, uh, I think 

are promising. And you have to be careful about position sizing. 

Terry: So a lot of that, a lot of that comes with the assumption that, you wanna be more, I guess, active, or involved in those decisions. If you were shifting more towards the passive end of the spectrum, cuz you wanna really just focus mostly on your career, how would you, I guess, expose yourself in that way or change your exposure in a way that doesn’t require you to be, continuously looking at what you need to, you know, researching down to the depths, of all these things. Is there an easier way to do 

Lyn: Yeah, so some of that I would put into ETF form, right? So I’d have some sort of like ETF exposure to global energy producers or global commodity producers. that’s kind of an inflation hedge against maybe some of your other assets that, you know, would prefer to be disinflationary. cuz they want lower and shades, they want be able to grow.

you know, you could, you could set aside some gold Bitcoin, not think. , you know, as long as your position sizes are fair, uh, and you can own their ETFs that, you know, you can focus on, say dividend paying companies, for example. Um, you know, and I, so I think, I think that there are ways to do that, that are low turnover and relatively simple.

and then of course, if someone has expertise, they can overweight that area that they’re interested in. Right? So, for example, with me, I, I don’t really know about biotech. If I’m gonna touch it, I’ll touch it with an etf. whereas, you know, I wanna get more into some of these other things that I’ve talked about, right?

So I, I’m more hands on in some areas that I feel like I know what I’m doing and I’m hands off in, in areas where I’ve, I have no edge. 

Terry: let’s just dive in on Bitcoin here for a second. you were someone that I learned a lot from around Bitcoin and probably one of the more objective voices in this space that made me really take it seriously. What is it about Bitcoin that you.

Lyn: So, for a number of years, people were trying to make a digital. Uh, basically to, to create scarcity in a digital realm, which is a, which is all about nons scarcity. I mean, you can copy a file endlessly to with no cost. Um, and so there are a number of advancements like hash cash by Adam back, which is, you know, kinda the mention of proof of work. Uh, how finnie, uh, put that into a thing where you could kind of mint like a digital collectible. Uh, the problem was, it was, it was reliant on a centralized server. There were other things like chal and e cash. There was e gold, which basically allowed you to own grams of gold that you could also trade. Or the other people that was shut down.

It was centralized. So there’s all these kind of like, these centralized attempts to either create online currency that’s backed by something, or online currency that’s backed by energy, and they’re just kind of inherently scarce. And the problem is they were all centralized. And in 2008, Uhhi, Aoto took a lot of these pieces and said, Hey, you’ve all done great work.

I’ve fixed, you know, I’ve got that final piece, which is how to do this decentralized. There’s no central server. Uh, it’s a, it’s a blockchain with a bunch of peers and using combination of proof of work and timestamping and difficult adjustments to make this shared. That anyone with an internet connection can access globally.

and it’s a ledger that is very hard to change. it takes a lot of energy to, uh, you know, interact to, to basically append new transactions onto it. And that, that energy is important because that’s what keeps it fair. That’s what keeps it from being, you know, uh, you know, reversed and, and, and censored and messed with.

And then also by running your own node, which takes, you know, almost no energy, just, you know, you know, basic, basic hardware, basic internet connection. You can verify your own transactions, You can transact privately, and there’s really no centralized third party that can stop you from transacting. And so what, essentially what it does is it creates this, it’s like decentralized money in a.

So instead of on Google servers, it’s, it’s on everyone’s, it’s on, you know, the node network, right? It, it’s, it’s, there’s no centralized third party, but it’s still cloud-like. And so for example, you know, previously if you wanted to send money long distances, you had to go through your banking system and then the central banking system, uh, to reach the target.

So it was, it was a permissioned closed system. And what this does is this is, okay, now it’s peer to peer, right? So anyone with an internet connection can send money to anyone else with an internet connection. and it, it goes through this, this more decentralized collection of minors and nodes rather than a centralized entity that is like, you know, a human in the middle saying no.

and so as long as the incentives of that network remain intact, now you have peer to peer money. And then by extension you also have cu self custodial savings, that are non-physical. And so, for example, you can save in gold, but for example, You know, and I, I’ve worked with human rights activists and things like that.

I’ve met them. I, I’ve heard the stories. Like I went to the Oslo Freedom Forum, for example, uh, in Norway. And half the, right now, half the world lives under authoritarianism, right? Uh, different, different degrees of authoritarianism. And, you know, a lot of them wanna live in free countries or where they wanna build a transact or they wanna build able to, you know, do something online that they can get paid for.

You know, maybe they wanna do graphic design for someone in another country and they wanna get paid for that. Right? And there’s not a lot, not a lot of opportunities in their countries. Well, something like Bitcoin gives them a tool. Uh, it’d also say, you know, protests in some countries then get their bank account frozen.

Uh, happen in, in Nigeria, for example, they’re protesting police violence, bank account, shut down, turn a 

Bitcoin, and, you know, and also there’s also other tools like stablecoin. they’re more centralized, but for, for some applications, they also provide, uh, you know, tools to people in these types of situations because it’s centralized.

But the central hub is outside of their country, which, which gives 

it your separation. But bringing it back to Bitcoin, you know, you can, for example, I can memorize 12 words and I can go through an airport, fly anywhere in the world. Anywhere, internet connection and, and you know, basic stuff like that. And I can restitute my ability to access my Bitcoin. So, you know, I can’t bring a limited goal to an airport. I can’t bring a limited cash to an airport. Uh, you know, my stocks are, are custodians in a broker, there’s all sorts of regulations, you know, But the Bitcoin, uh, it’s portable value. It’s, it’s my keys to this decentralized ledger. Um, and so, and it’s, you know, it’s the most secure.

It’s the most decentralized. That’s kind of, that’s, that’s where it stands. And then people are building on top of it to make it easier to access, to make layers on top of it that allow to be faster and more scalable. then you have all these other, you know, kind of competitors you can call them, right?

And so there’s, there’s, you have to analyze market share and trade offs and understand the, the, you know, the trade offs that those other things they’re making. and it’s a, it’s, it’s hard because it’s new and it’s somewhat technical, but I like to say that it, if anyone looked underneath the current global financial system, uh, it’s, it’s a lot more complex than Bitcoin. 

and so, you know, and it’s, most of it’s abstracted. You just have dollars in your account. You send dollars, you know, most people, it’s distracted from them. and so Bitcoin and many for many users is like that, where it’s, you know, the details are abstracted and then the more you wanna learn about it and maybe master a little bit more, you can go ahead and kind of go down that rabbit hole. And then you have a set of tools. that you know is, is now interesting because now you’re accessing a global network of peer-to-peer transfers And self custodial savings. 

Terry: Yeah. And it’s interesting, isn’t it? Like in the physical world, everything’s moving away. Cooperation and collaboration towards conflict. But in the digital world, the Bitcoin side of things is actually moving more towards cooperation, collaboration, um, around this network and the growth of this network because it is something that, demands that. and it’s the only way that it works. 

Lyn: Yeah, and there are, I mean, there are more people have like phones than they have bank accounts in the world. Uh, you know, we’re in our country a lot, you know, we all have bank accounts, but in, in a lot of the world you have phone but no bank account. And now those money can get payment. Those people can get payment.

From each other or from someone in, in another country, right? So there’s even services, like you can pay, you know, Bitcoin over lightning to people that are willing to do microtasks, that are generally in developing countries. And you’re just kind of not getting anyone’s permission. You’re just kind of going around the system, peer to peer.

and it, and it provides opportunity to people, to, to, to work online. Um, and so it’s, I think it’s really interesting. I’m glad that people put the technical pieces together to make this possible. And then now it’s up to people to see how far they can run with it, um, and, and what they can make of it,

Terry: Yeah. And you know what’s interesting is when you say that, uh, you know, no one, you don’t need anyone’s permission. It, it’s, it all sounds interesting, but when you actually do it, so when I took my Bitcoin off the exchange in a cold storage, uh, it was very different experience. It was a very, like, I really had to come and sit and think about what just happened.

because there was a fundamental shift in how money went from somebody else somewhere to me. and once you do understand the complexity of the current system and then you understand Bitcoin, you go, that’s like a step change that really won’t be understood for another probably 30, 40 years. Cuz it’s huge in terms of the difference between how that might, how that value moves from one place to, to the next.

who’s involved and what they’re doing. I, I kind of compared it to like, I mean, I don’t know if it’s the same, but I thought, you know, if you’ve been, if you’ve been using oil, um, and then all of a sudden you started using electricity, you were using a light switch, you were like, Wow, That’s wild 

Lyn: That’s pretty much, Yeah, we just, Yeah, Bitcoin is like the electricity to a world that was previously like whale oil for candles. And you know, one thing I like to, I to point out is that, you know, most people are familiar with, um, error 4 0 4 online. You know, you, you try to go web webpage, it doesn’t exist.

And it’s like Air 4 0 4 not found, there’s an error 4 0 2 that fewer people know about is actually earlier in the, in the error list, which is basically payment required, right? So you go and it says payment required and it’s mostly unused when they made it, and this was made in like the late eighties, early nineties, that was just reserved.

They were like, they were assuming that there’d be some sort of e cash that can go there, right? And, and you know, it was just mostly not. And it’s like, well, you know, in 2008 and 2009, we, we finally got kind of a workable, decentralized e cash, right? And, and, or at least like a settlement that then e cash can build on top of.

and that’s, that’s, that’s where in now where before you could pay online, but you’re still going through the banking rails. It’s just like a, it’s just like a beach head for banks to be able to, to, you know, run online. Run online. Whereas with this is a step change, which is just, it goes around the banking system and it’s, it’s, it’s just internet native money 

or even like, you can even broadcast transaction over radio technically. I mean, it’s just, it, it’s non-bank money. 

Terry: yeah. And, and I, This is where I think another one of rage is insights is instructive for me is, is like on the longer term timeframes, life supports what supports life, and I think about what’s good for humanity, not just a few individuals. Generally. That’s what prevails in the long run. Not necessarily in the short term, but in the long run.

and so that’s why I, I’m kind of interested in it as well. Um, as you said, you don’t know how it’s gonna play out, but I know what I’m voting for and it’s not a system where a few people win it, everybody else’s expense. 

Lyn: Yeah, I, I think basically a more transparent, open network opens source. I think we’re, you know, we’re in a world that’s moving towards open source, open, you know, emails like a protocol that anyone in in the world can u where anyone in the world can use, bad people can use it, good people can use it.

Everybody has email as long as they have, you know, basic, internet connection, things like that. And bitcoin’s like that, right? So it’s, technology can be used for good or bad. Most people are good. They’ll use it for good. and it’s one of those things where, you know, a lot of people in developed worlds are like, you know, this is like a solution without a problem, or, you know, and it’s like, well talk to someone in Argentina.

Or, or talk to some, talk to some of my Lebanese readers who, you know, they, they just had like their savings eviscerated. you know, even, even in some of these countries, you try to hold dollars, for example, and the bank system’s like, Oh, I see you have dollars there. I’m gonna go ahead and take those and give you the local currency at the exchange rate that we choose. Sorry. and so is, is it shocking that people turn to like Tether or Bitcoin where they, you know, it’s either decentralizing Bitcoin or it’s centralized, but at least outside of their country, like Tether and then they say, you know, I don’t trust this system. You, I don’t trust this.

Like, their fiat currency is a ledger that their government and their central bank is managing, and especially the long tail of currencies. So let’s say, let’s even take out the top 10. The long tail of currencies

are just like sad stories over and over again. And it’s like, there’s not savings vehicles. And so, you know, Bitcoin kind of starts from there. It’s like global money for. And for them it also, like I said, the stablecoin give like dollar, you know, people that want dollars now, more access to dollars that, you know, it doesn’t sound like, you know, if you’re in a developed country, you’re like, why?

You know, why is that a big deal? But if you’re in Argentina, you know why it’s a big deal. 

Um, or Turkey or or Lebanon or whatever. And so, you know, or, or like, you know, someone who, you know, was a woman in Afghanistan and, and left the country and was able to take her Bitcoin with her, whereas she would not have been able to take other types of valuables with.

And that’s, you know, that’s, that’s a human rights issue. 

Um, and so I’m, I’m bullish on that. I’m bullish on what it means to have an open network that doesn’t care what your nationality is. It doesn’t care what your race is. It doesn’t care what your, what your gender is. It doesn’t care if you’re right or left or young or old.

It doesn’t care. It just, it doesn’t, there’s no, the system doesn’t even know. It just is a system. It’s just like email. Uh, and so as long as you have that kind of basic tech integration, you’re good to go. And so I think I, I, that’s the world I’d

like to see more of.

Terry: Me, Me too. I know we’re coming to the end of our time here. I’ve just got one more question for you around how Bitcoin and the energy industry are starting to converge. I saw a tweet of yours recently, and I can’t remember the exact words, but it was along the lines of, it’s gonna be awkward when these environmentalists who are supposedly so antico Bitcoin realized that, bitcoin’s becoming, carbon negative. I dunno if that’s exactly right, but she, Can you explain more of what you kind of meant by that? 

Lyn: So a couple things. One is that even under the current environment, I mean, Bitcoin uses something like 0.1% of global energy. It’s less than like, you know, tumble dryers, for example. 

And yet it, it just provides all of the, the, you know, what I just previously described, that kind of global permissionless money, which, 

you know, for, for, Yeah. That’s the benefits. So I, I consider as is it’s already good. Now what’s interesting is that, you know, Bitcoin is, the miners are hyper competitive. It’s a very commoditized industry, and so they have to find the absolute cheapest energy. And the cheapest energy is stranded energy, right? So, so Bitcoin miners don’t go to.

Midtown Manhattan instead of a mining operation there. Right. Because that’s where, that’s not where cheap electricity is. That’s where there’s a lot of demand for electricity. They go, they find stranded energy, this like, you know, hydro dam that’s like, you know, it’s being underutilized. So a lot of the electricity’s being curtailed right, or things like that.

They, they go and find these like unused energy and they say, Hey, instead of getting zero for that electricity, let me pay you 2 cents a kilowatt hour. Right? And so it’s basically this like, you know, almost like, uh, you, you drop breadcrumbs on the ground and then ants come and get those breadcrumbs, right?

That’s what bitcoin of miners are trying to do with energy. So even the energy they use is mostly non-rival wasted energy. And basically the observation is getting even more so. So, you know, in the, in the early stage of the industry, it was like, you know, you still kind of maybe build a facility out in, in the rural area.

You, you wanna tap into the grid. But there are now increasing ones where you can go and like there, you know, landfills for example, are releasing methane. They’re just releasing methane. It’s more potent greenhouse gas than co2. You also have oil wells where they, they get a little bit of natural gas with the well, and it’s not enough to make a pipeline, so they just burn it.

They just flare it away. And the problem is, you know, landfill gas, it’s just methane leaking into the atmosphere. It’s very CO2 intensive, it’s very, uh, greenhouse gas intensive. And then when you flare natural gas, it’s not a hundred percent. Some of it leaks into the atmosphere as methane. Um, and what Bitcoin miners can come and do and say, Hey, we can, you know, we can buy that.

We can, we can, you know, we can build a system, we can turn that methane into electricity and then we can burn it and it actually turns it into co2, which is less greenhouse gas intensive. And so there’s calculations that show something like 3% of the Bitcoin network were to start using this landfill mine, and there’s already a decent chunk of it.

Using that, that straight and natural gas, you can have the whole network be ironically greenhouse gas negative, where you know they’re taking out enough methane. To offset the rest of the CO2 emissions. And so that the whole network is, is, you know, a mission free. And we’re at least a mission on, on net negative that basically there’s methane that would otherwise be getting the atmosphere that is now not, and instead it’s being converted less intense CO2 only because Bitcoin monitors are willing to go out and do it and pay for it.

And so I think that we’re gonna see more integration between bitcoin miners and stranded energy. any ones that are not integrated are probably gonna have trouble staying in, in profit because they’re, you know, if you’re paying almost anything above zero for electricity as a Bitcoin minor, you’re doing it wrong, uh, in the long run.

And so I, I think that’s the way to think about it. so, and you know, I think it’s really interesting opportunity. There’s also, the more renewables are, you know, the more variable energy sources you add to the grid, The more kind of curtailed energy you, you tend to 

have. and so we see that a lot in the United States. In, in, in Texas, you know, we have a lot of solar and wind and you have a lot of like, negative energy pricing. and that’s where something like a, a, a flexible demand source that, you know, can kind of go out to onsite and co-locate with that and pay you, uh, you know, 1 cent, a kilowatt hour, 2 cent, a kilowatt hour, uh, to, to soak up that extra electricity, you know, comes in handy. And so I think that’s, I think that’s, that merger between bitcoin miners and energy producers is probably gonna continue. 

Terry: Yeah, and I think it’s just where people really don’t, don’t understand it. They think that Bitcoin is using the energy that other people need to be using, and it just, as you say, they can’t afford to, If you’re paying more than two or 3 cents a kilowatt hour, you’re not profitable as a minor. And so it’s better for you to not Mine is that.

Lyn: Yeah, I mean it, the economics change over time, but right now it’s particularly hard. 

Basically the more profitable it is, the more miners come on. And yet the, the same number of Bitcoin are generated every 10 minutes. So the more miners come on, the less Bitcoin each minor gets. Uh, and so they, you better be hyper competitive, especially in a bear market.

and there’s always cases, there’s always, you know, it’s a big, in a industry, there’s always a case where like, you know, Bitcoin minor came to town, bills went up, or you know, but it’s like that’s a self corrective thing that doesn’t just stay there forever. I mean, the min’s not just gonna stay there.

Uh, that, that’s basically, especially in the early stages, you had some sloppy minors, but over the longer time, the efficiency, the industry gets more and more efficient and you have a case where, you know miners are adapt. Going out and picking out this stranded super cheap energy that, that no one else is able to monetize because they don’t have the combination of flexibility.

you know, they, data centers, for example, need high up time and high bandwidth. whereas a Bitcoin minor can have low up time and low bandwidth, they just need a basic internet connection. They can shut off during certain hours of the day. because, you know, as long as the whole Bitcoin network doesn’t shut off, it’s fine. Doesn’t matter if, you know, there’s like, you know, parts of it that are shutting off and parts of it are turning on around the world. and so I, yeah, I think that’s a, it’s a unique energy buyer that we haven’t really seen before and it enables, you know, certain things. 

Terry: How are institutions getting this so wrong at the moment? I dunno if you’ve been following the green piece. I guess it’s, I don’t know what you’d call it. Um, and it, it’s almost like an attack, where they’re kind of sort of suggesting, you know, Bitcoin is really, really bad. it’s kind of, you know, a net negative for humanity. what, what’s happening here, because I also saw a report from the White House. It was on the whole pretty poorly research than understood. 

Lyn: Well, so one of it is, so Greenpeace, it’s public, it’s publicly disclosed that they receive money from the former Ripple ceo, right? So you have other cryptos that are then using that as an attack vector on Bitcoin. So that’s, you’re immediately biased. number two is a lot of people, you know, They didn’t like Bitcoin.

They were like, Look at all these libertarians back in the day. And you know, now it’s, now it’s a much more politically diverse group of users. In the early days it was, you know, you had a little bit more libertarian minded in there and it’s like, you know, they were like, We don’t like this. Like tech bro Bitcoin guys, you know, And like the bank system obviously didn’t like it. You know, like peer to peer money. That’s, you know, who wants that? we, we we Certainly 

don’t. Yeah. And so, and and, and you know, governments don’t love it. They want to, you know, if anything they wanna, they wanna have more control, more transparency over blocking transactions or allowing certain transactions.

They don’t want this like kind of free peer-to-peer nature. So then you, you tack on, you know, it’s only used by terrorists. It’s only used for drugs or whatever the case may be. same thing happened for pager technology. So pagers, back in the day before cell phones were common, people had pagers, right?

So you can get alerts, when, when you were trying, someone was trying to reach you. And it’s funny cuz the two groups that used them were like, say doctors and drug dealers. , right? so so criminals are early Dodge resist technology. Uh, it doesn’t mean the technology’s bad. Uh, but also there, you know, there also there was valuable technology people that had highly high, highly time sensitive, you know, professions needed pagers.

and so I think, you know, Bitcoin was like that where, you know, first was used by WikiLeaks when they got the platform from PayPal. then it was used by people that wanna buy drugs online. And then, you know, a lot of that was centralized and attacked and cleaned up. And then it’s like, well, we still have this peer to peer money. And, you know, then it’s like, well, human rights activists are like, Hey, wait a second, this is interesting. This is, uh, you know, and then like, uh, you know, people that are about inflation or are living in, in perpetually inflationary countries, were like, Hey, this is, this is

interesting. Right? You know, maybe it’s not just drugs online. and so I, I think that a lot of, a lot of these institutions established opinions without understanding or in an earlier era, and then they can’t change, they’re stuck. 

Um, and so, 

uh, in 

the, or. 

Yeah. Or they have 

interests that are, that are, not aligned.

Terry: yeah. 

That makes sense. Lynn, thank you so much. This has been really thoughtful, really insightful, and it is just so rare to find someone who is that thoughtful, but knowledgeable and at the same time, objective. where can people learn more about you? and from you? 

Lyn: Uh, so I’m at Uh, people can find my work there. Also active on Twitter at Lindon contact

and uh, you know, people are

welcome and thanks for having 

Terry: And I think, nah, no problems at all. I’m gonna have a link to all of the work that, um, that I’ve, all the, the work that I’ve found you really instructive and. and insightful and, and useful in my sort of journey around the macro side of things and also learning and understanding more about Bitcoin. Uh, and if you’re listening to this, I would highly encourage you to read those articles.

Lynn publishes them for free. absolutely prolific. I need to ask you more questions about how you get all this stuff done, Lynn, because I’m looking through your website going, Is this, it actually blows my mind. but thanks again so much for coming on. Really, really do appreciate it. And, um, hope to talk to you again soon.

Lyn: Thank you.