Fiscal Dominance Is Threatening the U.S. Today

Episode #361 | May 13, 2024

Episode #361 | May 13, 2024

Fiscal Dominance Is Threatening the U.S. Today

In This Episode

On this week's Stansberry Investor Hour, Dan and Corey welcome Lyn Alden to the show. Lyn is an independent analyst, bestselling author, and founder of Lyn Alden Investment Strategy – an investment research service for both retail and institutional investors. She specializes in making complicated financial topics and strategies easy to understand for everyday folks.

Lyn kicks things off by describing how her background in engineering has influenced her macroeconomic investing style. She explains why she became so interested in macroeconomics in the first place and why 2017 was a turning point for the U.S. economy. Lyn also talks about fiscal dominance – or when fiscal deficits and federal debts are large enough that they start reducing a central bank's options. She puts this in the historical context of the 1970s and clarifies why inflation and interest rates are so complexly intertwined today...

High interest rates are not really going to change what the deficits are doing. And when you increase interest rates at a time when you have 100% debt to GDP held by the public, you actually increase those deficits even more than the rate that you slow down bank lending.

Next, Lyn shares her outlook for the U.S. economy, including higher-than-baseline inflation for the foreseeable future and the country being in a similar situation to emerging markets. She discusses areas of the market where fiscal dominance has been appearing over the past few years, why the U.S. may experience the same economic troubles that Japan is facing right now, and the divergence between sectors going through recessions versus those that benefit from deficits. When speaking about the 2010s teaching investors the wrong lesson, she notes...

The idea that interest rates can be zero, you can pay any valuation for equities, and the deficits don't really matter... that was [the idea that] things are invincible basically. That was the zeitgeist in the late 2010s. It's like, "Look, we even got through the global financial crisis. You can print your way out of anything without consequence."

Lastly, Lyn cautions listeners against using the traditional 60/40 portfolio in inflationary environments like today's and instead urges them to prioritize energy, precious metals, and hard assets. She also breaks down why she finds Latin America so attractive today (particularly Brazil, Colombia, and Mexico) and gives an in-depth explanation of how technology impacts money.

Dan and Corey close things out by discussing the backlash to Argentine President Javier Milei's economic shake-up, including his devaluing the peso against the U.S. dollar and laying off thousands of government workers. Plus, they share their thoughts on the latest speculative meme craze – closed-end fund Destiny Tech100 (DXYZ) – and what it means for the broader market. Dan comments...

We're less than 1% away from new highs in the S&P 500 and Nasdaq [Composite Index]... We're back in mega-bubble land. We're back in meme-stock-type action in DXYZ here. And we sort of know how it's going to end.