Reflation Rally or Market Bubble? The Yield Curve Will Show the Way

Published on
February 11th, 2021
61 minutes

Reflation Rally or Market Bubble? The Yield Curve Will Show the Way

Investment Ideas ·
Featuring Lyn Alden and Ed Harrison

Published on: February 11th, 2021 • Duration: 61 minutes

Lyn Alden of Lyn Alden Investment Strategy joins Real Vision managing editor Ed Harrison to explore whether particular assets are in a “bubble,” sharing her views on equities, bonds, commodities, currencies, and cryptocurrencies. Alden argues that the drastic expansion of the monetary base will inevitably find its way into financial assets, if not the real economy. Reflation will boost cyclical value stocks, particularly energy and financials. If inflation triggers a sell-off on the long end of the yield curve, causing it to steepen, banks in particular will benefit. If the Federal Reserve enacts yield curve control, however, then this is environment is most favorable for precious metals. Filmed on February 8, 2021.

Key learnings: Pockets of opportunity exist in cyclical value equities such as financials and energy. How lucrative these opportunities are will depend on the long-end of the yield curve. Alden is constructive on emerging markets and thinks that Asian technology equities are favorable. Alden contends that since the move to digital assets is a strong secular force, Bitcoin and Ethereum are most likely not in a bubble on a long-term time horizon. Her faith in altcoins is less certain as they are more speculative.



  • EH
    Edward H. | Real Vision
    11 February 2021 @ 13:31
    I love Lyn Alden. Interviewing her was pure joy. I hope you all like it too. P.S. - Hopefully, I will get another chance to talk to her about monetary sovereignty and the euro.
    • AD
      Alexander D.
      11 February 2021 @ 21:23
      That term made me laugh when she said it. Not in a bad way but in one of those "Yes, that is a very important thing which some countries in the Euro Zone wish they had." way.
    • PE
      Paul E.
      11 February 2021 @ 21:35
      Liked it a lot and you did another great job Ed! Thanks!
    • tc
      thomas c.
      12 February 2021 @ 11:05
      You were great too.
    • EH
      Edward H. | Real Vision
      12 February 2021 @ 16:25
      thomas c - it's Friday and you made my week! Thank you.
    • LP
      Louis P.
      18 February 2021 @ 01:47
      Thanks for the interview. Both of you know how to discuss those important matters. Your professionalism is appreciated, as always!
  • LS
    Lemony S.
    16 February 2021 @ 22:23
    Ed, are you also in on the idea, like many of us are, that this is a spectrum that starts with deflation (crowding out, defaults, etc) and then pretty rapidly switches to inflation as the common man recognizes that he can't trust institutions like he once did? The advanced have realized this (and perhaps too "early) but the inertia from our economic history and people's desire for their not to be problems with the "system" keep Average Joe from getting punched in the face with the degradation of America - that is, to truly act on it by swooping up REAL assets or commodities.
  • BS
    Benjamin S.
    12 February 2021 @ 23:48
    Nobody tops Lyn Alden.
    • AK
      Andrew K.
      13 February 2021 @ 01:16
      agreed. she's totally awesome. amazing that she has the flexibility to see the deflationary pressures while also having the guts to go in on the reflation trade in short term. you don't have to pay attention to her for long to realize she's usually right
    • LS
      Lemony S.
      16 February 2021 @ 22:18
      I'm fully in the Alden camp (I like to have fun with the fanboys here at RV) after the recent Nic Carter beatdown of Mike Green. It's surprising when such a smart guy gets trounced and it's quite apparent; it should keep us all humble, though, so it's a good thing to see as far as lessons go.
  • DT
    Daniel T.
    14 February 2021 @ 01:05
    After watching a ton of interviews, listening to podcasts from both the inflation and the deflation camp I have the sense that none of them are right in a way. Deflationists point to economic metrics or fundamentals that don’t seem to matter in today’s markets if any holes are papered with money and the new entrants like retail and passive make the disconnect between markets and reality bigger than ever. On the other hand inflationists point to the signs of higher expectations and a potential triggers and factors for higher inflation readings. Although it is rarely specified which inflation metric is referenced, sometimes it sounds like a boogeyman. I think people rarely accept the fact that inflation is really hard to forecast and historically only a few have good track records in doing it.. it seems everyone is good in explaining the past as a consequence of rational connections like a linear model but completely opposite views seem to coexist this time with data backing both views. I have the impression that both sides are wrong in their own way as the answer is not black and white, but rather grey. I think where inflationists are wrong is that they expect inflation to rise very soon even when there are clear factors working against it. Roger Very well articulated this question in his recent breakdown asking whether it is all just positioning and a view is already somewhat priced in? Equally, pointing to the economy, fundamentals and rational reasoning and narrative at a time when this doesn’t seem to matter is equally in a disconnect with what is happening on markets. To me it seems that this surreal market environment can continue for quite some time if the key actors all have interest in keeping the ball rolling and I think this means that fundamentals and market prices can stay disconnected for quite some time. Don’t get me wrong, I do think inflation is coming at some point and it may cause a mess on markets and more importantly in the social fabric that we have never seen in our lives.. this is because central banks gave up their ability to defend against inflation if it comes.. it is inevitable that the system will break because we are pushing its limits harder than ever. But because these are unchartered territories the way we expect it to break and play out may not be the way it turns out in my opinion.. Nonetheless, this madness will remain with us for much longer, so let’s push crypto to the moon with our diamond hands, give up on dollar targets significantly weaker than where we are now, let’s sit on our hands & accumulate gold & silver even if it takes years for this to play out and finally let’s embrace that the passive/retail crowd is here with us and can push things to extremes we have never seen before. PS good luck to everyone trying to find where this ends..
    • DT
      Daniel T.
      14 February 2021 @ 01:09
      Btw I absolutely love interviews with Lyn, one of the least biased analysts out there and great job Ed with keeping an open mind. I’d love to hear your thoughts on the above..
    • TW
      Todd W.
      14 February 2021 @ 04:41
      I think the deflationists focus on the debt and how the banking system/ reserve currency system function as while inflationist focus on potential changes to supply chains/ the potential to actually use a money printer. Inflations have been wrong for 50 years. Deflationists seem to admit that if there was a fundamental change like reduction in globalism or monetization of debt you could see more than cyclical inflation.
    • LS
      Lemony S.
      16 February 2021 @ 22:16
      Yes Daniel, it turns out that inflation/deflation is personal more than anything, but you are right that the aggregate is waiting for the shoe to drop either way. That's why, and you state this quite rightly and clearly, BTC is the answer and let the other stressors (which will come simultaneous or in step wise fashion from "outside" the system) just work themselves out. Big picture, deflation until inflation is THE answer, and who knows precisely when --- but I'm guessing within a 4-5 year time frame as the events tick and then unfold Todd suggests as much above. The generational divide and insistence on maintaining debt until it presses out all confidence, regardless of how much technological deflation has helped. The jump in tech deflation can't come quickly enough to outpace the inflation coming, regardless of what futurists claim in their religion.
  • SK
    Shiva K.
    11 February 2021 @ 18:22
    How could someone buy Bitcoin and at the same time, think she is qualified to talk about valuation of stocks? Lyn is hoping, she just have to appear confident for everyone to give a pass to her BS.
    • BW
      Brett W.
      11 February 2021 @ 20:22
      Paul Tudor Jones has exposure to BTC, is he qualified to talk about the value of stocks?
    • PE
      Paul E.
      11 February 2021 @ 20:55
      There are many people who have bought bitcoin and are also qualified to discuss stock valuations.
    • RP
      Richard P.
      11 February 2021 @ 21:02
      🤦🏼‍♂️ know it all 15 year old daughter needs a pal. You in?
    • JS
      Jason S.
      11 February 2021 @ 21:11
      Why are you on this platform if that’s your belief?!?
    • GA
      Gerald A.
      11 February 2021 @ 22:17
      On her website, Lyn has two several thousand word deep dives in Bitcoin, one in 2017, when she decided not to buy, and from early 2020, when she decided to buy. They are two of the best overviews of Bitcoin that one find on the internet. She has just done one on Ethereum, where she has decided not to buy. Perhaps you might want to read what she has written on the topic before jumping too conclusions about what she is qualified to talk about. Her blog and newletter are arguably the best free research available on the internet.
    • WG
      Wade G.
      11 February 2021 @ 23:19
      Concur with Gerald about Lyn's written work. I find her treatment of a range of topics lucid and very useful. I appreciate and applaud her work.
    • MR
      Michael R.
      12 February 2021 @ 02:06
      Macro thinkers deal with a spectrum of products. Their job is to come up with a mix that deals with the whole spectrum of possibilities.
    • tc
      thomas c.
      12 February 2021 @ 11:04
      I have been a subscriber to her paid service for about a year and her picks have been excellent. She finds the riight value stocks at the right time and price. Stanley Druckenmiller holds bitcoin. Do you think he is qualified to talk about stock valuations? Rethink it a little bit.
    • Hv
      Hannah v.
      14 February 2021 @ 20:07
      I’m guessing you’ve not spent a lot of time listening/reading Lyn’s material.
  • MC
    Mark C.
    14 February 2021 @ 18:12
    Always enjoy her perspective..great interview.
  • PC
    Peter C.
    12 February 2021 @ 00:04
    Lynn is our new GOAT. Despite challenges like her poverty background, her youth / limited experience,...
    • AB
      Alastair B.
      12 February 2021 @ 04:07
    • MD
      Mike D.
      14 February 2021 @ 04:01
      Like the best interviewers (hello Grant Williams), Ed consistently creates momentum in his interviews. It’s a subtle skill that the best make look easy... but it’s not easy. It requires a constant push-pull between interviewer and subject, involving agreement, challenge, redirection as well as knowing when to just sit back, shut up and let that subject roll. Thanks for always bringing the momentum, Ed, for always making those on-the-fly twists and pivots look so agreeable and effortless.
  • BT
    Billy T.
    12 February 2021 @ 16:03
    Was "Is this a bubble" ever answered? I dont think I caught it.
    • DT
      Daniel T.
      13 February 2021 @ 23:44
      Oh no!
  • VK
    Viresh K.
    13 February 2021 @ 20:38
    I think it's wrong to think about these growth names as simply "long duration" or based on low rates. In 2017 to mid 2018 rates went up 150bps - 200bps and growth continued to do well. It's not about rates per se. You could argue lower rates mean people are willing to pay a larger multiple, but even that isn't really giving a fair picture in my view. A lot of these names really do have the potential to be leading companies. Examples include Sea, Cloudflare, Crowdstrike, Data Dog, Roku, Elastic, Mango DB etc. They're all in the "non profitable tech" index but all do very different things, are growing high double digits and are expected to do so for maybe a decade! Just think about 20% growth for 10 years. It's crazy growth and its very hard to price. Macro people keep getting this wrong as they aren't really close to these companies or themes.
  • JJ
    Jimmi J.
    13 February 2021 @ 19:56
    Love you Lyn, thanks for sharing of your wisdom.
  • AN
    Anna N.
    13 February 2021 @ 11:50
    Lyn is amazing, very smart, I'm a keen reader of her webpage, she is an excellent writer and very generous with her readers. I'm not a native speaker, and I need to listen to her simultaneously looking at the transcript and to read the transcript again to understand all the points she is making, when she speaks. Unfortunately for me, she is using too much slang for the non-native speaker. I'm a great admirer of Real Vision and if you guys really want to get the information across to all of your audience, please make sure your guests are aware that you have international audience. Your founder's Raoul talk with Kiril Sokoloff is an iconic example of a crystal clear and concise dialogue of two people not hiding behind the words. Thank you in advance!
  • JY
    Jim Y.
    12 February 2021 @ 00:08
    One week Ed is talking to Jeff Snider and agreeing that central banking is a fairy tale, YCC is never coming and it's all expectations management policy. Next week he's talking to inflationists like Lyn agreeing with the narratives Jeff had rejected last week haha
    • EH
      Edward H. | Real Vision
      12 February 2021 @ 00:10
      I try not to ‘agree’ with guests. It’s not my place to have a view as the interviewer
    • PP
      PERCY P.
      12 February 2021 @ 00:56
      It's ok to call out the conflicts of different viewpoints so people are aware of the clash between the Jeff vs. Lyn, but I think it would be more constructive to disclose your opinion or position, or simply paste a link here if you already wrote it down elsewhere. For example: What's your take on where different duration yields, as well as different inflation indexes, are headed assuming if you haven't watch Jeff or Lyn? (....) assuming if you have only watched Jeff? (....) assuming if you have only watched Lyn?
    • EH
      Edward H. | Real Vision
      12 February 2021 @ 16:30
      Percy, I tend toward the deflationist camp tbh. However, I want to keep an open mind. A lot of people I respect or on the other side of this. Then there is the view that Peter Boockvar espouses that it's not embedded inflation that matters as much as large price level changes even if they're ephemeral because of the impact on inflation expectations and yields. I am watching curve steepness as a result. I think a quick or a large move would derail long duration plays but don't know how quick or how high you have to go for that to take effect. Also, note that HY is trading at average yields below 4%. You can't get that kind of yield when the 10-year is rising without spread tightening. Something will break eventually.
    • PP
      PERCY P.
      12 February 2021 @ 23:59
      @Edward H. That's awkward, my original reply was intended for Jim but RV is making it indistinguishable (maybe a feature to enhance on the comment board). I am on the deflation camp looking at the US credit card and personal loan debt level, as well as the 30 year fixed mortgage. Domestically I would like to see 30 year fixed and 10 year Treasury re synchronized to declare blue sky. I share your view that it would be very bad if rising 10 year yield and declining HY rate collide into each other. The rise of 10 year yield did slow down these past several days so the self correction mechanism may be in action. I share your view that the trend of 10 year yield need to take a break now and goes sideway for several weeks to ease off some of the red flags. My understanding is that despite US being less active in global trade, if US consumers are not expanding their economic activities (consuming foreign goods), the decrease of outflow of USD would have to be compensated by foreign banks' expansionary action, but foreign banks are only supposed to be willing to create Eurodollar loans if they know somewhat for sure that they are able to suck up the milkshake from US consumers' outflow. Unless CBDC of other countries are already working great between Europe/Asia/Africa/Russia avoiding Eurodollar loan creation. I understand this is a very Eurodollar centric view and hence very arrogance. I wouldn't questions the foreign economic data presented by Lyn or her bullish case for emerging market but I reserve my doubts on trades between foreign countries bypassing Eurodollar. Perhaps countries can unwind some of their US Treasury holdings to raise dollar funding to facilitate trades should it become necessary but that seems counterproductive as that would bid up strength of dollar. I only started macro 14 months ago as my hobby and I hope I didn't write anything incorrect that may mislead others. Things in my mind about future interviews are: is it possible to present the trend, or have a breakdown of global loan creation outside of Eurodollar system. Are there any correlation between Eurodollar dynamics vs. global trade volume? For countries that claim to emphasize domestic consumption/services, as well as the deglobalization narrative, how are they doing so far and what does that do to their currency exchange rate.
  • AK
    Andrew K.
    12 February 2021 @ 23:24
    Here's what I need to know: do primary dealers get to do some funny warehouse accounting and credit themselves with infinite money at auctions, knowing that they will flip it all to the fed? If so, then the fed is already effectively directly monetizing the debt.
  • BM
    Bolan M.
    11 February 2021 @ 22:23
    I’m genuinely curious how Lyn can be positioned for reflation in energy and financials with the massive amount of debt in the system. Unless it just a trade to take advantage of positioning ahead of the reflation narrative investors. The Fed won’t let interest rates go beyond a certain point and cap interest rates. Additionally, people are trying to repair their balance sheets like Richard Koo talks about so people aren’t borrowing. The savings rate is much higher than the past and will most likely stay elevated for some time due to the traumatic events that happened in 2020. David Rosenberg has done great work on this. Furthermore, technology is making things much less expensive. Jeff Booth and Raoul talk about this extensively. Europe is going into a double dip recession and they can’t stimulate due to the fiscal countries in the EU. The wealth gap is even wider now in the US. Japan and China are exporting deflation. I have a hard time seeing inflation or reflation given these factors. I’m open to opposing perspectives though. What does everyone else think?
    • WG
      Wade G.
      11 February 2021 @ 23:12
      I think part of its is base effects, especially the set up with depressed capex in energy, and stupid low prices; possible Dem policy that curtails production but (at least in short/med term) increases demand; the presumption that the US doesn't turn back down deeply in some sort of covid-variant redux; generally expanded fiscal stimulus well supported by accommodative monetary; on the margin, reversing global trade removes a deflationary force; any friction due to supply chain disruption, continuing pandemic problems elsewhere restricting supplies (think chips; more such problems and their ripple effects). I don't know. I'm with Booth generally on tech impact on deflation, and demographics are still bad, but reversing globalization while juicing the economy with fiscal this time, not just monetary, I could see velocity pick up and all the sudden, things don't feel so deflationary. Harshly enforced negative real yields, if that's what we get for any length of time and magnitude, combined w/ some aggressive fiscal? Hedgeye says quad 2, gdp and inflation both increasing. I buy it, right here and now. And assume its quad 3 or 4 next.
    • MH
      Madhushanka H.
      12 February 2021 @ 06:39
      You have a valid point, but that argument is true for US. What about the dollar?. If i understood her correctly, she is talking about globally synchronized reflation, not particular to US and her outlook is beyond 2021. Most of the financials and energy she is talking are globally focused that benefit from weaker dollar moving forward. Some of those jurisdictions have higher rates than US. I dont think she is bearish on some of the technology names in US which have healthy balance sheets. But, In a weaker dollar regime, ex- US will outperform some of those overvalued tech names on relative basis as they were beaten down for a long period.
    • BM
      Bolan M.
      12 February 2021 @ 20:03
      I enjoy the thoughts Wade & Madhushanka. I'll have to think on it more. Maybe with the factors causing deflation and the factors causing inflation they will cancel out or cause slight deflation or inflation either way.
  • Bg
    Brendan g.
    12 February 2021 @ 02:55
    Lyn is amazing.
    • SW
      Scott W.
      12 February 2021 @ 14:52
      Brilliant. And generous. Her free materials are better than many paid.
  • SB
    Sean B.
    11 February 2021 @ 13:14
    Thanks Lyn, incredible explanations. I highly recommend her papers on her website, convinced me to throw away my 6 year plan and max out my 401k contribution now.
    • GS
      George S.
      11 February 2021 @ 16:15
      Thanks Sean. Can you pls share links?
    • NT
      Ngu T.
      11 February 2021 @ 17:24
      @George S.
    • LL
      Lexi L.
      11 February 2021 @ 19:10
      Hi George, Lyn Alden Strategy. She has a very inexpensive paid subscription, worth every dollar. She also has a newsletter you can sign up for, see the site above for information.
    • CO
      Craig O.
      11 February 2021 @ 20:10
      Her service is hands down the best value I've ever gotten in paid investment advice (including Real Vision 🙂)
    • KL
      Kerrie L.
      12 February 2021 @ 04:29
      Can your summarize what you mean?
  • CP
    Chamil P.
    12 February 2021 @ 04:01
    One company working on the Bitcoin lightning network helped Russel Okung get paid in Bitcoin. Very interesting development in the space of Bitcoin actually being usable for faster and smaller payments.,was%20founded%20by%20Jack%20Mallers.
  • MR
    Michael R.
    12 February 2021 @ 00:34
    Great session. It looked like Ed loved it and hope the next session occurs soon. I will listen again but the one thing that I wonder if it cold have been done deeper is the thought of areas of Crypto that opportunistically can outperform lagecy Wall Street or Finance things. The obvious one is the whole Gamestop debacle and hom architecturally, that could not happen in the Crypto world. Because Lyn dives so deep, it would be a good area to get her thoughts on that and other areas of the Crypto world that solve WS weaknesses.
  • GW
    Greg W.
    12 February 2021 @ 00:30
    Thanks Lyn and Ed. Great interview. Lyn you are very generous with your time and the community deeply appreciates it. Love the headphones! I hope you land that plane :)
  • NL
    Nikola L.
    11 February 2021 @ 23:03
    Lyn is very optimistic on the virus and hope she is right as I am in Ed’s camp at the moment. But my view changes as my intel changes.
  • MB
    Mark B.
    11 February 2021 @ 23:02
    Excellent interview! Both Lyn and Ed are pure content. They are all about providing value to the viewer.
  • JL
    Jonathan L.
    11 February 2021 @ 22:41
    Great video!
  • DJ
    Dennis J.
    11 February 2021 @ 21:03
    Lyn has such a pragmatic approach. Forrest through the trees.
  • SS
    Stephen S.
    11 February 2021 @ 19:13
    That’s an intense headset she has there.
  • dw
    douglas w.
    11 February 2021 @ 18:27
    I like Ed and Lyn together. Their views on the market every month or so is an awesome addition!
  • JN
    Jason N.
    11 February 2021 @ 05:47
    When Lyn Talks you Must Listen!
    • OM
      Owen M.
      11 February 2021 @ 16:57
  • MF
    Matt F.
    11 February 2021 @ 15:27
    super, what are the japanese trading firms that have commodity exposure? GLENCORE is great for this theme as well
  • AC
    Andrea C.
    11 February 2021 @ 07:59
    it would have been good to pick her brain about the roll off of TGA account and its implications wrt yields curve both for short term and long term. According to BBG the 2Y has just printed at 0.0972% below 10bps which according to Raoul is a critical threshold to keep an eye on towards market negative rates in US
    • MK
      Marko K.
      11 February 2021 @ 14:34
      still, curve is steepen-ing... with 10y at 1,14% and rising while 2Y being stucked at arr 0,10%. Its based on real yields that is market calculates that inflation will be quite on a rise lets say after few years.... controlling the yields is the name here IMO.... with FED refusing short term rates to go higher in order to stimulate effectively.for now. IMO
  • AR
    Anik R.
    11 February 2021 @ 12:18
  • PP
    PERCY P.
    11 February 2021 @ 07:58
    She may not have the highest ROI but it's almost impossible for her to train wreck her portfolio. Her portfolio exposure, research and monitoring of data are so board and comprehensive. I am not sure if I am feeling envy or jealousy at the moment.