Lyn Alden: Challenge America’s Trade Deficit, Challenge The U.S. Dollar | Alden on China, Gold, and Financial and Economic Impacts of Tariffs
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Just close the f***ing door.

This episode of Monetary Matters is brought to you by VanEck, a global leader in asset management since 1955. You'll be hearing more about VanEck ETFs later on, but for now, let's get into today's interview. Very pleased to welcome back to Monetary Matters, Lynn Alden of Lynn Alden Investment Strategy. Lynn, great to see you. How are you doing? I'm great. Always happy to come on your show. Crazy week in markets. Yeah.

It really is. Lynn, investors around the world are scrambling, reacting to the rapidly changing news flow on the Trump administration's tariffs. And I want to ask you about tariffs. But first, I want you to make a connection, not about global trade imbalances, but about capital imbalances today.

that have been building throughout the world over the past 50 years. And this is something you've been focusing on for many years. So talk about the capital imbalances and connect that to the trade balances, which the Trump tariffs are attempting to balance.

What is the connection there? And also, what are the consequences for capital markets and the dollar? Talking about trade is something I've done for a while just because it's such a structural thing. And it ends up impacting everything. It impacts politics. It impacts markets. It's this huge thing that's been building for a while. And the way that I kind of go about it is trying to identify the root causes of where

some of these imbalances come from. And what I'm not the first to argue, but I've written this in various articles and in my book is the association between having the global reserve currency and structural trade deficits, at least as the way it's currently structured. And the mechanism for that is that to my definition, if you're the world reserve currency, most countries around the world are using your currency in some way. They're holding, uh,

currency or instruments for that currency as reserve assets. They're often using it as a cross-border funding currency. They're using it as the main trading pair for other currencies, and they're denominating a lot of international contracts in that currency. So there's a lot of need for that currency. There's a kind of insatiable demand for it. And particularly those funding, the

the debts all represent inflexible demand for that currency. So some of that usage is voluntary, and other uses of that is involuntary. Unless you want to default, you need to be able to access that currency. So what that means is that compared to other currencies in the world, there's an extra layer of demand for the dollar. Normally, you hold a currency of a country because you want to interact with that economy in some way, whereas the dollar...

countries that have, you know, maybe even minimal trade with the U.S. are not looking for that purpose will hold a lot of dollar assets anyway, just because they need it for all these kind of global requirements. And what that means is that unlike many currencies that will trade on interest rate differentials, trade imbalances, things like that, you

The dollar will trade on those things, but it has this extra structural bid to it. And what that means is that, especially for lower margin things, it's generally less economical to produce them in the U.S., even compared to other developed countries. So it's not just compared to developing ones, even compared to many of our developed peers. It's just harder to manufacture in the U.S. and our import power is.

is very significant. And so basically that's the mechanism that kind of forces open our trade deficit. And so every year we're pouring dollars out into the world so that they can use it as the global reserve currency. And

The imbalance there is that there are some parties that are very boosted by that arrangement. So Washington, D.C. can sanction anyone in the world practically. If you work in Wall Street, you're loving the situation. Tech and healthcare are kind of high margin things that are not really heavily impacted by that. Whereas if you work in industry or in other kind of like heavier industries,

areas, particularly the Rust Belt areas, that's part of why it rusted, you're on the wrong side of that. And so over time, there's been kind of shifting economic realities as well as shifting politics around that kind of accumulating imbalance. President Trump accuses other countries of, quote, cheating at trade. Those are tariff and non-tariff measures. But I think what you're saying is that even if India lowered its tariffs, even if China reduced some of its import controls, that

The Trump administration and the U.S. would still be facing the headwind of the fact that it has the global reserve currency. And as a result of other countries holding the dollar as a reserve asset, the dollar is going to be somewhat artificially strong, which is going to make it a lot less competitive to build things and to be a manufacturer of things in the United States.

Yeah, exactly. And then the additional issue on top of that is there are accumulating layers. So for example, the fact that the US has the highest healthcare costs in the world makes it less competitive to hire people, especially for lower salary work compared to what you get elsewhere. There's also a human capital gap

skill set. So people in China, particularly certain of their manufacturing hubs, have a ton of experience in running manufacturing facilities. And we have a lot less of that in the US. Same thing for skilled electronics and semiconductor workers in Taiwan. Same thing in the US's favor, for example, Silicon Valley is a really big hub for startups and also the various funding networks that help get those startups off the ground. So there are certain hubs in the world that build up expertise. And

The U.S. has a lot of that has fled out of the U.S. So we have both the structural issue as well as some of these more physical or other layers. And the tariffs and the protectionism, while a part of it, I mean, trade deficits can vary in size, but it doesn't really tackle the underlying issue, which is that the trade deficit is the mechanism for how the dollars get out into the world to serve as the global reserve currency.

So if the U.S. administration weakens the U.S. dollar or other countries strengthen their currencies against the dollar, that would make the current terms of trade more stable. Do you think the Trump administration is looking for a weaker dollar? From what I've seen, there's different views within the administration. Trump has talked before in interviews about

not wanting other currencies to be too weak compared to the dollar. So I don't think that they, for optical reasons, would say that they want a weaker dollar. I think they would phrase it as saying that they don't want other currencies to be unfairly priced, which is a euphemism for a weaker dollar. So I think that the majority of people in the administration, particularly Trump,

would want that. But then there are other voices in the administration talking about how to get the world to invest more in U.S. assets. They bring up things like stable coins or they bring up like century bonds. And that somewhat goes against that view. So it's a little bit challenging. But I think, yeah, overall, they'd like a weaker dollar.

So just how connected are the trade imbalance and the capital account balance, the fact that the rest of the world buys tons of US assets and sends the dollars back into the United States, basically through the capital channel? In other words, how much progress do you think the Trump administration can make on the trade front?

without there being a issue with the capital count? In other words, you know, this current situation we have where we import way more than we export and we export dollars and then the rest of the world just invest in U.S. treasury markets, stock market, private equity, private credit. Is that going to be, is that going to unwind a little bit where, you know, if Europe, you

is exporting 20% less to the United States, they're going to invest 20% less into private equity and treasury bonds. And that might have some financial implications. What are your thoughts here? I don't know if it'll be a one-to-one correlation, but they're so intrinsically linked. There are some other mechanisms that they can do with dollars. So for example, China, when they, a

require a lot of dollars, they will often go out and make loans to the rest of the world. So instead of kind of reinvesting in US capital markets, which they do to some extent, they'll also go out and contribute to the dollar funding that we see in the world, which ironically increases future demand for dollars because now all these entities have inflexible contracts that they have to try to pay back.

And so we could see a shift in where some of those dollars go. We could see the trade deficit narrow to some degree. You could potentially reduce the trade deficit by 10%, 20%, maybe even 30%. So there'd be fewer dollars going out there. The risk would be that less of that would pour back into US markets, which would give us a weaker asset price performance.

which the Trump administration would not necessarily want, although they've signaled that that's a lower priority for them in this administration compared to the prior one. Besson's comments the other day were that for the next four years, it's Main Street's turn, not Wall Street. I just think that the challenge is that without addressing the core issue, it's going to be very hard to serve on a lot of those promises. The trade issue is one where because I've analyzed it for a number of years, I've been kind of

saying that something eventually has to be done about it. So I think the administration's right to prioritize it. I think that that was a mandate from the election. I think that's part of why the blue wall fell and became a red wall, essentially, in this election. So I fully get why they're tackling it. I just think that there's challenges there because they have to kind of go after some

structural setups that have been in place for longer than either of us have been alive. What are the consequences you think of these tariffs? It seems like the stock market really does not like the high tariffs at all. Evidence of immediately after President Trump announced them in April 2nd, the stock market crashed and it continued to crash until President Trump announced on April 9th that the tariffs were actually going to be reduced to 10% for 90 days for all countries except China, where it would

and tariffs on China are going to be increased to 124%. And the market had one of the biggest stock market rallies in history for a one day rally. So do you view it kind of as many of the stock market does in terms of that high tariffs

not going to have adverse economic consequences for the economy and profits? And the lower the tariffs, the better? Do you buy that they will be inflationary? Do you think that they will cause overall trade volumes to go down? So actually, it'll be more stagflationary than inflationary? Do you think that the goals of the Trump administration, both to raise revenue as well as to stimulate manufacturing in America, how successful do you think that

will be. One of the issues is there's a time mismatch. So the consequences of the tariffs hit right away, whereas some of the things that you're trying to structurally change can take years or in some cases decades, but at least they start taking years from the beginning. So in order to bring a lot of that back to the US, you have to build more manufacturing facilities. You have to have tons of automation or skilled workers to run them. You generally have to have more energy infrastructure

which is often overlooked, which is that even if you run everything with robots and you don't even need people, you still need energy. And that's especially true for heavy industry like steelmaking, which is a priority for the administration. So you've got to rebuild or shift over energy assets, manufacturing facilities, the know-how that comes with it, reorganize all those supply chains. That's a multi-year thing. I mean, you're basically trying to increase your industrial base by a set of trillion dollar assets or more.

And the other aspect is that the approach is kind of like if you're on a highway and you just pull the e-brake. If the whole world needs dollars and you want to quickly as possible stop the flow of dollars out into the world, then the system's going to seize up and it's going to have consequences both abroad, but then a lot of those consequences ripple back into the US. So if all these entities in the world have dollar liabilities, for example, and most of that's not even owed to US entities, it's often owed to other international entities.

Well, a lot of them also have U.S. assets. It's not always the same entities, but a lot of times it is the same entities, or at least in the same country. And so they can sell U.S. assets to get the dollars that they need to meet their liabilities if their main source of getting those dollars is reduced or shut off. But so then you can get a liquid...

downward moves in US assets. And it could even be a situation like we saw during this sell-off where bonds aren't even necessarily a safe haven that they've historically been because instead of a shift from stocks to bonds, it's an outright capital outflow, something you typically see in emerging markets when they have issues. So you get this kind of like emerging market light

behavior in U.S. markets. So I think, yeah, U.S. markets are affected. And then because the U.S. is so financialized, generally speaking, our tail can wag the dog, which is that if you get weak markets for a while, that can actually impact the U.S. economy. And then in addition, of course, the tariffs themselves. If you have small businesses that are suddenly, you know, their imported goods are tariffed, so they're paying more on the expense side, they can only

push out prices so much so quickly. So their margins are squeezed and they don't necessarily, they can't just flick a switch and say, well, we'll make that in the US now because the capacity at scale doesn't necessarily exist. Maybe around the margins, if you're making shirts in one country, you can make shirts in the US, but everyone can't do that because the infrastructure is not there and it takes time to do that over. So I do think that at

at major scale, particularly like the ones we've seen on China currently are the ones that were threatened to the rest of the world, that of course can have really big impacts. And how does this impact your views of the long-term debt cycle? Remind folks what that long-term debt cycle is, your views on it, and

What role do tariffs play in them, both in reordering global trade, but also reordering global capital flows? So the long-term debt cycle kind of looks, especially in the US, but other developed countries, kind of looks to see how these really long-term debt accumulations build up and then get

And the short version is that, generally speaking, debt accumulates in the private sector, eventually has a major crisis. And then there's kind of a shift where the sovereign level kind of bails it out. And a lot of that debt ends up on the sovereign level. And then there's really nowhere to go other than default or inflated away, which is like a gradual kind of purchasing power default.

And so they're currently in the phase where they've already had the private debt bubble peak, in my view, that was back in the global financial crisis. We're now, you know, over 15 years into basically that that's now on the sovereign level. They're running structurally big fiscal deficits, partially because of demographics reasons, partially because interest expense is no longer being offset by ever, you know, ever falling rates. And so these are issues now. The

The Gordian Knot, the thing that makes it so challenging to get out of that kind of fiscal tailspin is that even if you do try austerity measures, which I'm not convinced that they're able to do yet, but even because the campaign promises were to protect Medicare, protect for

Social Security, if anything, boost military spending. Those are the really big buckets of where money goes. And so the other mechanism is to try to raise taxes. The downside is that if you do it in a way that affects the market and the market goes flat to down for a year or more, that can ricochet back into weaker tax receipts.

And that's not true for every economy in the world. There are many other economies that are less financialized than the U.S. And so there are examples of, say, Germany or Canada being able to reduce their public debt burdens from similar levels that the U.S. finds itself now. But the difference was that at the time they did it, they were less financialized economies. And even today, they still are to some degree. Whereas the U.S., if they try these austerity measures, which can include cutting spending or a massive tax increase, which is what the tariffs are,

then that can have near-term effects on reducing the deficit. But then the year later, you get kind of a hangover from that because a lot of the compensation that's happening because of rising equity prices, of course, capital gains, other mechanisms are impaired. And so it takes a pretty big restructuring to actually tackle it, which is why I keep saying nothing stops this train, which is basically to say that from here into the 2030s,

I view very low probability that they're going to meaningfully reduce the fiscal deficit because that's kind of where they are in the long-term debt cycle. And the number of things they have to untie in order to address that are pretty significant. Hey, Monetary Matters listeners, tariffs are shaking global markets and gold is responding, hitting all-time highs as market uncertainty fuels a surge in demand for physical gold.

The VanEck Merck Gold ETF, ticker OUNZ, is the only ETF that lets investors convert their shares into physical gold delivered directly to you. Now that's a standout feature. Visit vanek.com slash OUNZ Jack to learn more about OUNZ today. Please click the link in the description to view the OUNZ prospectus. Thanks for listening. Let's get back to today's interview.

President Trump's Treasury Secretary Scott Besson and the National Economic Chair Stephen Moran, they have both made the argument that in a trade war, the deficit country has an advantage. So the US has a trade deficit with China. China has a trade surplus with the United States. That US has an advantage because we import way more than we export. So us erecting a tariff wall will hurt China way more than China could hurt us.

I actually find that argument quite convincing on an economic channel. But what about the financial channel where China is funneling masses of amounts of money into the investment markets? And it could take one to two years for the US tariffs to hurt China economically, but China could hurt the United States financially in a matter of days. And perhaps we saw that with the treasury market seize up on

April 9th, it definitely could just be purely domestic hedge funds. I don't know. But what are your views on who has an advantage in the trade war between the US and China, the US being the deficit country, China being the surplus country, and the fact of China's financial advantage with the US's economic advantage?

So first, I would kind of break it up by size, which is to say that in that hypothetical example, if we pick off a smaller country, especially one that's particularly reliant on U.S. trade, then we, of course, would have a massive advantage in how we deal with them in negotiations. Like Mexico would be an example. Whereas when you have a rival power,

where you can't just flip to another country. Like if we don't get coffee from country XYZ because we're angry at them now, we're in a trade war, we can get coffee from another country. There's no one country that we're just devastated if we can't get coffee from them. There are some other sources. Whereas you can't just say teleport China's industrial base

anywhere else overnight. And so you can hurt them, but you can't replace them quickly with anyone else. So basically, it's like that problem of if you owe your bank $100, it's your problem. If you owe them a billion dollars, it's the bank's problem. It's kind of like that with economic size, I would say, in terms of these industrial bases, supply chains, energy infrastructure,

and all that stuff we previously discussed. And then as you point out, there's an additional layer on top of that, which is to say that even if that struggle is in the US's favor, which I'm not sure it would be, but let's say it was, then the extra layer is, yeah, there's also the financial capacity, which is that these countries, many cases are creditor nations. They've gotten those assets from decades or years or decades of structural trade surpluses. So they have a lot of financial assets that they can wield.

And so, like we saw, even when stocks were going down, bonds were not going up. And it's a key kind of goal of the administration is to try to get the 10-year lower on a sustained basis and to get some of this interest expense under control. And so because we have these structural fiscal deficits, that gives us a vulnerability to

on the economic side as well. So yeah, our financial markets are one of our Achilles heels that especially really big creditor nations can go after. And that's, I mean, I think we're seeing that, I think the administration is aware of that in the sense that that's why they're trying to build a coalition against China. One-on-one, it's not a bet you generally want to take, whereas if you can make it 10 versus one or build an economic block around them,

I'm not sure how successful that would be either, but I can see why they're trying it. And what does the U.S. want from China? Does it want it to strengthen the Chinese yuan against the dollar so that the U.S. is more competitive? I think we've also seen conflicting goals there, which is to say that some people are saying that, you know, Besant's going to break the

PBOC, the Bank of England, for example, which basically be in that case a weaker currency, but that would only add fuel to the fire of how competitive that they are. I think if you

take the smartest people in the administration and kind of get their honest views. My assumption is that they'd want something like a Mar-a-Lago Accord. I'd basically come in and say, look, let's deescalate, but you have to strengthen your currency somewhat. And we want to have, you know, more neutral terms to kind of at least slow down some of these trade deficits and start the process of trying to balance this out better. Yeah.

I think the e-brake solution of trying to stop those deficits overnight is just implausible. But I think that if they were to kind of maybe steelman what they're trying to do in a four-year term for their legacy and potentially future terms is to at least start the process of rebalancing global trade. Because it's inherently a long process, but this is the opening volley of negotiation and, you know,

we'll see how it goes. I'm not a political analyst, I'm more of a macro analyst. And so I can only rely on others to know the motivations other than just seeing the actions myself. And I apologize if I'm asking you to repeat yourself, but just the impacts of tariffs, do you think that they will be more inflationary or stagflationary? And we've had a huge

huge, diverse array of opinions on how these tariffs are going to impact the US economy and the global economy. Definitely to the negative side, but for example, Goldman put out a recession call. Jamie Dimon, Larry Fink said the US economy is looking like it's headed towards a recession because of these tariffs. But then President Trump announced on Truth Social that the rest of the world would pay only 10% tariffs for 90 days.

And those, I mean, Goldman literally withdrew its recession call very, very shortly after it made the recession call. So just how are you thinking about the economic scenarios? What would the economic picture look like if those reciprocal tariffs hadn't been lowered to 10% for a 90-day reprieve? And if we get what we currently have right now, which is 10% tariff on all countries that aren't China and a 125% tariff on China, just what kind of economic outcomes are we looking at?

So even this de-escalation is still a multi-hundred billion dollar annual tax increase that hits right away and can cause distress in pockets of the market. So I think we're seeing some price action today that is indicative that maybe we're not out of the woods financially or economically just because there's been some degree of de-escalation. I think that the prior uncertainty and the prior levels would have

And of course, they've been even more impactful. As for whether they're inflationary or disinflationary, I would start with the premise that sustained higher inflation pretty much requires money supply growth in order to get that. So money supply growth doesn't necessarily lead to price increases because it could all be offset by productivity gains. So if you double the money supply, but you get way more efficient at making everything, you could have many things not go up in price.

But in general, one of the necessary inputs for structural price increases is money supply growth, because otherwise it's got to come from somewhere else. And so I think that the opening volley here is some prices, especially ones that are now associated with China, are likely inflationary.

Other products could be disinflationary because you can slow down the economy. And so the things that people need and they can't get elsewhere can go up in price. Other things they don't need or can get elsewhere can go down in price because demand is weaker. And then you can also get disinflation in asset prices, basically weaker asset price returns to fuel some of those consumptive patterns. And so I think it's the type of recession that if you get it,

Whether it's inflationary would partially depend on what's happening on the fiscal side, partially what's happening on the Fed side. So if they go back to QE, increasing their balance sheet to support some of those fiscal deficits and the bond market in particular, if that were to happen, then that's how you get a stagflationary scenario, in my view, that you basically have higher tariffs on goods, less supply chains and disarray combined with large monetized fiscal deficits. We're not there yet, but that's a scenario that's certainly on my radar.

Lynn, just help me understand how things could play out with these very high levels of tariffs on China. To me, it seems like these tariff levels on China have to go down. Otherwise, there will be severe consequences. For example, Apple, you have been not exactly super bullish on Apple for pretty much as long as I've known you. Apple is...

I think they make, let's say, 80% of their stuff in China. I just checked their annual report. Their quarterly revenue is about $90, $100 billion. Their inventory is only $6 billion. So it's not like they have a trillion dollars worth of iPhones just sitting around in California. There's a constant change and turnover, and they make these things in China. So I

tariffs on China stay at 125%, I could see a few outcomes. I could see the price of iPhones going to $1,500, $2,000. I could see Apple's profits going way, way, way down. I could see the price of phones go to $2,000 and just no one really buys them, a stagflationary scenario. Or I guess the most positive outcome for

economics and markets of Apple kind of, quote unquote, cheats and actually builds in China, but then sent it to Vietnam for processing. And suddenly it's an import from Vietnam. It's not an import from China. That would be a positive outcome for markets and the economy, perhaps. But from the Trump administration, that would be viewed as a very negative thing. So is there a more positive outcome that I'm missing here? Help me understand. Maybe I'm just looking at things through too negative a lens. But how are you thinking about this? So I agree with you. I think that in this case, the the

most positive scenarios are either that these tariffs lower and that this is basically a strong negotiation tactic and that they come to some degree of accord and bring tariffs down to, I don't know, 10% or whatever the other number might be, or that they route around through other countries and that the Trump administration might not go too hard against that because they still get the optical win and they're not hurting the economy as

bad as if they're trying to also block all those routing countries. So that's, I think, a choice the administration would have to make. And the reason that that routing still matters is that that can impact Chinese profit margins in addition to U.S. profit margins. So it's not like that completely negates the tariffs because it adds expense to all the logistics

of what's happening with all that routing. We generally saw a lot of that play out with Russia and oil sanctions, which is to say that their oil still largely got to market, but it had to go through these other routes, which digs into how much profit per barrel Russia would get per barrel.

you know, per barrel. And you'd see a similar phenomenon with China. And to your point, I mean, so Apple, one of the reasons I've been bearish on it is because they're basically growing like a value stock, but their price is a growth stock with this added tail risk of having such a hard to rebuild and replicate the supply chain and industrial base in China.

So, you know, it's not like a completely risk-free investment. And now we're kind of seeing that called out a little bit. So, yeah, I think it's bearish in the near term for U.S. consumers unless these are reversed. That's why I think the market, you know, we're having this conversation on Thursday. The market is not having a great day. And I think it's because it increasingly realizes that we're not out of the woods, that this is still –

on its surface, a multi-hundred billion dollar incident tax increase with some potential mitigations like routing around or people hoping that the tariffs go down. But it's not as though there's fast ways to just say, well, we can't get iPhones in China anymore, so we'll get them from somewhere else. That's a multi-year process. So some combination of Apple consumers

some of the Chinese suppliers all kind of take a shared hit. We don't know the exact ratios of what they're going to be. And those ratios can shift over time. So maybe the first quarter Apple takes the hit and then they start rolling out price increases if they see these aren't going to go away. So there's kind of a multi-phase approach here, which rapidly changes because if we get a headline tomorrow saying,

that we don't have 100% tariffs on China, then that negates a lot of what I just said. Right. And perhaps we do get a deal. I think that more positive outcomes are definitely possible if we get a deal and those tariffs are lowered. Linh, just how much of do you think the US stock market

are companies that have heavy exposure to producing in China, not even selling to China, but producing in China. So I wouldn't have a percentage number offhand, but I would generally argue that it's whatever the case that I would think is probably higher, because even if companies don't have direct exposure, they can still have indirect exposure.

So for example, Tesla can build cars in the US, but a lot of their components internally, some of them would still be made potentially in China and elsewhere. That's one example. Maybe they circumvent it better than most. But if you look at a lot of companies that have any sort of physical presence, so software obviously is maybe more protected, but any sort of physically made goods, either as a retailer or as a producer, even if the final product is assembled somewhere else, they generally still have Chinese components.

And so I think most of them would not be impacted as much as a company like Apple. That's kind of one of the worst case scenarios in this case, but there are others as well. So it's a pretty big impact. And then the other issue is that even companies that have very little impact, direct exposure to China, they can still be impacted by the associating potential economic slowdown.

So if companies are impaired and consumers are impaired, they could spend less on something else that might not have any direct Chinese exposure, but they just have the indirect fallout of a weaker consumer or a weaker stock market broadly. Thanks for your detailed view on how that impacts U.S. economy and U.S. markets. What about China? How are China going to be affected by 125% or perhaps lower?

tariffs from the U.S. on Chinese imports into the U.S., as well as Chinese financial markets? Well, so I think one point to highlight is that even though the numbers for how much China exports to the U.S. in a given year are big, it's hundreds of billions of dollars.

It's a fairly small percentage of the trillions of total exports they do for the world. One thing I've highlighted in the past is that in literally about a four-year period, China became the world's biggest auto exporter in terms of the number of cars. They surpassed Germany. They surpassed Japan. And if anyone looks at the chart, it was basically flat for years and years and years. And then they just hockey sticked up.

because they finally got all the pieces together and the quality level and the kind of infrastructure together. And now they're a car making machine. Every year when I go to Egypt, I see more Chinese cars on the road than before. And they're kind of going through the same cycle that say Hyundai did, which is at first they're known as cheaper, less lower quality cars, which a lot of consumers need, especially in emerging markets. But then over time, as that skill set and iteration goes up, the quality improves as well. So they become, you know,

mid-quality affordable vehicles. And that's kind of the phase that they've entered. So I would say that the risk to China is that they have been so reliant on their exports. So as they've gone through a big balance sheet, real estate recession, arguably depression, basically, on one side of their economy, their release valve has been that their export, their industrial sector is still an absolute powerhouse. So this certainly clips them. Obviously,

some of their companies would take hits on either volumes or margins. They wouldn't be the only ones taking the hit. That would be shared by some combination of US consumers and US companies as well. But it does impact some of them. The issue is just that they can route that to other parts of the globe. And that's actually why I think that now they're focusing on a coalition tactic because the US is actually a fairly small share of Chinese exports. So there's a much bigger...

puzzle at play if they want to actually negatively impact China to a bigger degree than these tariffs alone would. And Lin, when we did our first Monetary Matters interview in the fall of 2024, you had a bullish view on Chinese stocks. But how are Chinese stocks, how has your outlook affected

How is your outlook on Chinese equities affected by the US having a 125% tariff on China? I think a lot of things are paused right now until we get more clarity. So I'm not really going out to sell them, but I do think that the rally certainly paused until there's more clarity because they still can take a hit. Now, when you look at a Chinese index, a lot of that is...

not even necessarily manufacturing stocks. I mean, some of it is, a big chunk of it is, but the biggest companies are often not manufacturers. And then it's mitigated by the fact that they also sell globally. Now,

Ironically, one of the bigger impacts on China, if this is sustained at the degree that it is, is the second order. Kind of like how US companies that maybe have no China's exposure can still face a hit because of a weaker consumer. China can take a hit because if this does slow down global growth, so if it impacts other countries, then China's other trading partners might come in with lower import volumes from China.

And so you can actually say trade between China and country XYZ indirectly just because everything's slower now. And so oil's priced in a slower global growth market, at least for now. And so that's where like kind of everyone can suffer to some extent. I mean, no one's really immune from this if this does slow down global trade. And I think at the current,

current numbers of tariffs, that's a pretty high likelihood of happening. Lynn, how are you just experiencing this time of tremendous change? A lot of months, the end of the month is pretty similar to the beginning of the month. That is not true as we record this now. How are you grappling with this very new environment that

has changed rapidly over the past week and probably almost definitely will change rapidly again. And what advice do you have to our listeners here on how to make sense, but keep track of things, but also maybe not go crazy? Yeah, I joked on Monday morning that this was a crazy week in markets, and it's only Monday morning, and it's already been a crazy week. It's continued to be crazy since then. Part of it is

preparation through, I mean, this is like why I wrote all these articles, why I wrote a book, because I try to identify these trends. They're always surprising when they hit, right? So a lot of times you think something will be a gradual shift and then instead it's like a shock and awe, everything at once. So if you would have asked me in November 2024, do you think we'll have 100% tariffs on China in a few months? I would say it's possible. It's not my base case. So we've kind of unlocked some of the tail risks. I think part of the

The way that I generally approach it is by being diversified enough so that you take a hit on a week like this, but your portfolio is not devastated. I would generally warn people against using leverage or having a volatility exposure that is above their own personal risk or mental health tolerance to just be able to go through it like that. And then focusing that not everything is the market. I think basically the challenge here is that now we're in a headline driven market.

So for the last two years, we were in more of a trending market where things like analyzing liquidity and things like that could give you somewhat of a reliable predictor of likely what's going to happen with asset prices in the months ahead. Whereas now we're in a headline driven market. So any view you have, you potentially have to just readjust right away. Like you mentioned all the investment banks coming out with the recession warnings and then having to pull them back like the next day. And so there's a lot of, you have to kind of focus on if else thinking, which is if this, then that, but

this could rapidly change. And so if that, then this other thing. So it becomes a very kind of decision point headline driven market. And I think focusing on the big picture helps, which is to say that

There are certain breakpoints that you can watch that help determine whether pain points are being reached or whether there's still more pain ahead. I think we're in probably a choppy market for a time. I'm not super bullish, but there are pockets that I think can be bullish. There's also strategies people can employ to make use of volatility. In some of my research, I've been highlighting selling options.

to basically have a little bit more of an income-driven strategy if we're indeed stuck in a market that's not kind of going structurally upward for a year, two years, or maybe longer. It's a really good point about volatility. If volatility was 15 going into this, just made that number up, and now it's 60, so it's four times higher.

people's risk exposure is four times higher, and that's what they'll experience in their portfolio. So if they want the same risk exposure of how much their market portfolio goes up or down, they should cut their holdings and de-gross by one-fourth of what they own. So that's a really good point about the volatility. Lynn, something that's interesting to me, and I'm sure is interesting to you, is the assets that have held up quite well. Gold has held up

quite well, making an all-time high at or around the time President Trump announced those reciprocal tariffs in early April. Bitcoin is down, but it's down a little over 20%, whereas the Nasdaq is also down 20%. So to me, people say Bitcoin was trading like a triple levered Nasdaq product. And I actually agree with that. I think it was, but it hasn't so far because it was trading as a triple levered Nasdaq, it would be way down.

down way more than 20%. So what are your thoughts on gold and Bitcoin here, both tactically, but also how they're impacted by the changes to trade and capital flows? Well, yeah, the advantage that they both have, that they both share is that they're global assets. So if you do get, you know, capital repatriation, so capital coming out of the US, that can hurt US stocks, but doesn't necessarily hurt gold or Bitcoin to the same degree.

And the correlation with the NASDAQ, I've done a lot of research on this. And I think the shared correlation that they had is that they were both heavily correlated with liquidity for a number of years, especially in kind of the 2020 afterward environment. So prior to then, Bitcoin had less correlation with the NASDAQ or the S&P. And starting in 2020, that correlation went up because these big macro forces were just much larger pieces of many asset price swings.

And a scenario where Bitcoin can decouple from the NASDAQ is one where you have tariff-driven stagflation. If the margins of those NASDAQ companies themselves are what's challenged, and yet if liquidity is not heavily impaired, if the Fed goes back to not doing QT anymore and doing some QE and the deficits remain very large, you can get an environment where liquidity is not that bad.

But margins are impacted, earnings aren't going up or aren't going up to the same degree. They're starting for a pretty expensive valuation level. And so you can have a couple of years of poor stock price performance while more liquidity driven assets like gold or Bitcoin that don't have margins to worry about can still do okay. And so gold's had a really strong period.

I'm always, the value investor in me is always a little bit wary when something goes up that much, but I continue to hold as a slice of my portfolio instead of bonds. That's one of the things I've tried to focus on is that I use cash equivalents or gold as some of the more defensive sides of my portfolio rather than traditionally using long duration bonds as many would. And then I treat Bitcoin as a similar exposure that I would in an equity. So whatever

percentage of equity I take out and put in Bitcoin instead. But I've been very satisfied with that approach. Well, that approach over the past year in terms of replacing bonds with gold has definitely worked out. So congratulations on that. But Lynn, if there's a strongly negative economic outcome as a result of tariffs, people are not buying iPhones or there are not enough iPhones.

Are you telling me that in that environment, you still think yields will go up? In other words, they won't be a risk-off hedge as they often are. And we should say yesterday, there was a quite seismic move in the US treasury market with the 30-year in pre-market, I think going to as much as 5%. So when you have the stock market crashing and the bond market is crashing too, that is certainly not a good thing. And perhaps that is what was in the calculation of President Trump's

pivot to lower tariff rates? I think the way I would describe it is I'm not necessarily would have the view that bond yields would keep going up, but rather that probably at minimum, they wouldn't go down as much as people think in an otherwise recession or economic problem scenario. So they don't necessarily provide the ballast that investors would want.

And then that view can be exacerbated by hard to predict things like China purposely selling treasuries as one of the tools in their arsenal. So there's bullying outcomes there for whether certain events happen that could make yields go up a lot more than we think. But the base case would just be that yields are not giving the offset.

So they're not making things more affordable for people. They're not lowering government interest expense. They're not helping with discounted cash flow calculations. So if bond yields go down, at least you can say, well, maybe equity valuations are allowed to be a little bit higher now. But if bond yields aren't going down, you don't have that offset. They impact mortgage rates indirectly. So

You do get less refinancing potential, which has an impact on the economy. And so I think that that's kind of the base scenario is choppy range bound in yields with

with potential for disruption should certain events occur, certain kind of intentional events, and depending on how the Fed responds to those attempts if they happen. And Lin, how are you thinking about countries that aren't the United States or China? I know the US stock market is down. Europe is down less. China, as we record, is down less. I know you've got baskets of stocks tucked all the way around the world from Brazil to Singapore and Indonesian bank stocks.

How are those financial markets faring as well as how do you think this new global trade order that President Trump is attempting to create is going to affect other countries? And are you viewing them through the lens of trade surplus equals good, trade deficit equals bad? For example, the UK has actually a trade deficit with the United States. So its tariff is only 10%. And it didn't have any reciprocal tariffs. And same with Argentina. And

I believe Australia as well. So how is that impacting your view on other countries as someone who is a truly global investor?

Well, I think that the starting point is that if this does, and I think it will, if sustained, slow down global growth, then it can impact everyone or, you know, not everyone, but a very high percentage of these countries. Because even if their trade itself is not the issue, just less global economic activity can still impact them. And supply chains are complex. I mean, things can route through multiple countries and still end up impacting them.

certain pockets are more protected than others. One of the defense is simply that even if they're impacted just as much, if the starting valuations are less extreme, if they're starting at pretty reasonable or in some cases undervalued valuations, and there's not a lot of global capital stuffed into some of those markets, then there's less capital to flee and get scared and go elsewhere. So one of the issues in the US is not necessarily that we're uniquely impacted, even though we could be. It's that

were heavily impacted while valuations are high. So if Apple was trading more like a value stock rather than a gross

growth stock, the impact might be less severe on it. Maybe that's an extreme example because they're heavily impacted either way. But if you take a typical equity that might not otherwise be directly caught up in the trade war, it was trading at 15 times earnings. It's a lot less risky than if it was trading at 45 times earnings with a similar growth profile. And I think that's one of the biggest protections you see in other countries, which is that in many cases, their starting valuations were not as high. So when you have a bad day in the markets, it

often ripples everywhere. So there's really no avoiding that per se. But when you look back over a six-month period or 12-month period, always having somewhat of a mind toward valuations at least helps protect in some of the scenarios. Valuations are those things where they don't really matter until they matter. And these types of events are when they do start to matter.

Yeah. We talked about valuation as a defensive tool. I'm thinking about Costco, which many people view as a defensive company. God rest in peace, Charlie Munger, legendary investor. I love Charlie Munger. But that company is still at a price to earnings ratio of 50 and people view it as defensive. That's the thing. A defensive company is not necessarily a defensive stock. I think investors have to keep that in mind. Costco

stock could get cut in half while the company continues doing great. And I'm bullish on Costco, the company. I'm just not bullish on Costco, the stock, because I'd love to own it at 25 times earnings. I don't really want to own it at 50 times earnings. And that's the risk.

I want to ask you about, I guess the word for it is elasticities in terms of how much do you think these tariffs are going to actually cause companies to either stop producing it entirely or move to new countries, which would be very, very costly, either to move to India or to move to the United States. And I guess I'll say a lot of businesses like shipbuilding or maybe oil, they are very cyclical businesses. And

The reason that they're so cyclical is because when prices are high, they build so much and so much of them. And then when they go low, they cut on supply, but they don't supply that much. And that's why in some cases, it's basically impossible to turn off an oil well. I believe that's the case. That's what I've heard. So do you think some companies are just going to stop producing entirely, try and move, or just continue to sell at a loss and hope that the tariff rates come down on a hope and a prayer?

I think in the initial period, so a few months, a lot of companies probably have a wait and see approach because if you don't even know what tariffs are going to be in three months, if you're a small business and you're saying, well, we're impacted, but maybe tomorrow the terms on those tariffs will change. We don't necessarily want to make giant business decisions for things that could change next week. So I think the initial impact is kind of just uncertainty. And uncertainty is in itself somewhat bearish because if you're uncertain, you're

you just kind of take more conservative options for now. Just kind of keep the base cases as going and try not, you're not going to lean in generally. If many companies start to view these as sustained, if this is a new normal, yeah, I think over time you'll see elasticity, which is moving supply chains elsewhere, sometimes to the US, sometimes to other countries, which does come at expense, does come at often rising consumer prices or a slowing economy. Many of them are

multi-year processes because if you want to, for example, massively increase U.S. steel production, that takes a lot of energy as well. The same shipbuilding, that's a very heavy industry. You need a lot of skilled labor as well. You know,

robots can only get you so far, especially with something like building ships in the current era. And so that goes back to my prior point that the tariffs are impacting immediately, but some of the solutions or routing around those tariffs can take years or in some more extreme cases, decades to fully change or move things. But at least years is the starting point for how often it typically takes to move

the equivalent of a multi-trillion dollar industrial base somewhere else. And Lin, when the White House officials or usually Republican senators are asked on television, won't these tariffs have a negative impact? The response is usually, well, there are going to be lots of positive things as well, such as tax cuts and deregulation. Just how positive do you think they will be for the U.S. economy? And describe the stimulus do you think they might be able to impart and then compare that to the potential downside of tariffs?

I think that will depend on the magnitude. Based on the current numbers, these tariffs are a multi-hundred billion dollar tax increase. And a lot of the proposals that they're looking at for tax cuts are not of the same scale. And we'll see what ends up being able to get through Congress. But the starting point is that unless these tariffs come down, it's still a net tightening of the fiscal stimulus situation. And so I would say...

So optically, that makes sense for them to take that approach because on one hand, because this is still in the negotiation phase, they want, everyone wants to appear as strong as possible. So China wants to appear strong. The U.S. wants to appear strong. If you're the political party in power, you want to give a sense of calm. You want to say that you want to give the indication this is under control. This is well planned. And, you know, it very well might be based on later accords that could deescalate this. But the current approach

situation as of this recording, is it's pretty hard to offset the sheer level of tariffs that have now come into play. And, Lynn, let's say that these tariffs had a zero economic impact, fundamental, negative, or positive on the economy.

I still think there could be a negative impact from the financial shock that the stocks and credit markets have had over the past week. You've seen IPOs being pulled. You've seen loan issuance and bond issuance really grind to a halt. Just how the tightening of financial conditions, do you think it's at the level that it will impact the economy? And describe your views there.

I think to some degree. So uncertainty is itself bearish because if you're uncertain, you lean out of risk rather than into risk. So you delay things, you pull things, you make those types of decisions. Now, we've not seen, say, a massive increase in the 10-year yield or anything like that. So it's not like everything tightened that much, but you don't really have any sort of loosening to offset this so far. And so if you do get higher uncertainty, currently what is a big tax increase overall, that

in itself is somewhat bearish. And the issue is mainly that there's not that many offsets. So it's not like this unsurvivable hit. It's just that compared to many other big hits of the past, there's not that many other parts of a portfolio or other parts of the economy that are able to kind of offset that. So base case is slower economic growth, potentially recession. I think it's too early to make that call. Unless, again, it's headline driven. So that could just be completely reversed next week.

And but basically, as long as we're in this current state, some degree of caution is warranted. And that's why an approach, my approach to markets is really to kind of try to sell some of the volatility to look for things I'd want to buy at or around these levels, but I'm not jumping in right away because I want to see more policy certainty.

Yeah. And on selling volatility, Lynn, I trust that you are going to be selling volatility in an intelligent risk-controlled way. And I have confidence that what people can find on your website and what you've written about it can also do that if they actually follow you. But I want to be careful to folks at home that if the front month VIX futures at 32 and the market is realizing a volatility of 70, that just be careful out there and that people can

lose a lot of money selling volatility. Just how are you doing that? Are you selling, you'll put spreads, call spreads? Tell us about your methodology there and how you try and have it be a safe risk-controlled way rather than a way where your losses could be unlimited. Yeah, I do it in an unlevered way. And I do it kind of in the framework of a long-term investor, which is that I sell cash-secured puts

or in some cases covered calls, but in this market, it's a lot of cash-secured puts, which is to say there are certain stocks I'd be happy to own, maybe not at these current price levels. And so I'm willing to sell a cash-secured put at a price that might be 10%, 20% lower, collect what is a pretty big premium in a volatile market, and then not really care about the outcome. If the stock goes down and gets...

gets put to me, I view it as kind of buying the dip in a stock that I like and that I've done analysis on. I'm happy with those valuations and the risk with it. Or the market stays up or rips and I still collect the premium. And I'm like, well, so I didn't buy the dip on that company, but I got paid to...

take on the potential obligation to buy that. So, yeah, when I do selling volatility, it's not those big like levered speculative types of selling vol where you're fine every day and then it's like the turkey at Thanksgiving where you just get wrecked all at once. I do it in an unlevered way for the purpose of reducing risk rather than maximizing profit.

Thank you for that. Lynn, as we sit here today, financial commentators and historians, obvious times that stand out, the 1997 financial crisis, the dot-com crash, the 2008 great financial crisis, the March 2020 COVID crash. Do you think 5, 10, 20 years from now, people will remember that?

April 2nd, Liberation Day, both in a financial sense in terms of how it impacted the financial markets, but also in the economic sense of reordering global trade? It depends on how long it's sustained. I mean, if a lot of this reverses in a month or two, then maybe it wouldn't be very heavily remembered. It's kind of like how many people remember the December 2018 market turmoil. It's not high on the list. I mean, macro people would

would know that reference, but it'd be less known among the general public. Whereas my base case, this is a pretty big shift because that's why I've been writing about trade deficits for years. I think they are reaching a point where they have become a sustained accumulated issue. And I think this administration is pretty serious on trying to reverse them and even subsequent administrations might be as well. And so I think that we've kind of stretched the rubber band about as far as it can go in terms of how much global capital stuffed into U.S. markets is

how significant these structural trade deficits have gotten as well. And so I do think this will be kind of looked at as a somewhat transition point for some of that being restructured, rebalanced with turmoil along the way. So yeah, base case is probably a pretty memorable event for markets.

Thank you. And just to put a point on it, you do think that the tariffs could succeed in lowering the trade deficit. And if you do believe that, that also mechanically means that less capital is going to be flooding into U.S. markets as well. And also maybe that the dollar will weaken, yes? Yes, in the longer run. I think that if you do tax it somewhere else, if you raise tariffs and keep them up,

and they're transparent enough so companies know how to actually build and invest to take them into account, then over time they can impact the trade deficit.

The main issue is going after kind of the dollar as the global reserve currency. I think one of the most effective strategies for trying to reduce the trade deficit would be, if anything, to encourage a multipolar currency world, which is to say, you know, maybe not all these global financing contracts have to be in dollars. Maybe if China's making them, they should be making them in Chinese currency.

And that can be part of an accord, for example. And so basically you can have the Chinese currency be more used in the Eastern part of the world. You can have the dollar obviously be used in our part of the world and the Euro in their part of the world. And you can have a somewhat more multipolar world that puts less of the imbalances on just one country. But the issue is that generally speaking, if the goal is to have everything all at once, like you don't want to give up anything about the dollar, but you also want to fix the trade deficits, then you risk...

losing both or not really gaining ground on either of them. So I think that there's going to be tough decisions ahead on trade-offs. This imbalance has benefited some and harmed others. And so the short version is that if you were to swing the pendulum back the other way, there are people benefiting from that, but then there are people who are hurt from it.

And many of them will fight back. They'll call their politicians and say, this is hurting me. I'm going to change who I lobby, for example. Those changes tend to take time. So longer term, I think that the US can work on its trade deficit.

but it's inherently a very multi-year thing. What you just described is basically the Triffin dilemma, which I know is something you've thought about a while. Yeah, there's a different version of the Triffin dilemma. Originally, the release valve was gold kept flowing out of the country until we got so low on it that they defaulted on the promise to back the dollar by gold. The current iteration of the Triffin dilemma is that the things that flow out of our country is our industrial base. Our trade deficit is the offset for the global reserve currency,

And so they kind of go together. And I think that that's not been sufficiently acknowledged by market participants, potentially by politicians. But I think that that will probably become clearer in time. But at least that's where right now the focus is on tariffs. But I think the longer term focus is more on

asset structuring. And for example, Stephen Mirren, his paper has talked about that. So there are people in the administration that have discussed that issue to some degree. And it's just, I don't think it's consensus yet. In your book, Broken Money, which people should definitely check out. And actually, I reread chapter 13, where you talk about this specifically. You make comparisons to the Roman Empire and as well as the British Empire, where the empire grows so large that the commitments become

so big that basically it becomes too unwieldy and your monetary debasement is a result. Where do you think we end up with that? Some people who say that the dollar is going to end say,

oh, the Euro is going to take over as the global currency hegemon, or it's going to be the Yuan. I think you have a slightly different conclusion. So tell us about that. And also, where do these Trump tariffs go in there? Do they slow the move towards the future you envision, or do they accelerate it? My general base case is that as we look out years and decades, we'll see an increasingly multipolar world, which is to say that we would have exited kind of the post-World War II period of

of having one major power, especially after the fall of Soviet Union, we've had several decades of basically one hyper power and then the rest of the world around it. I think as you've seen the rise of China and India and these other parts of the world, I think the economic

value of the world is a little bit more spread out. The geopolitical and military power is a little bit more spread out. And then by extension, the currency component can be a little bit more spread out. And there are a couple of forms that that can take. Like I said before, for example, China's currency could be more used in their part of the world

with their trading partners and their financial partners more heavily, that's certainly a solution that could occur. I mean, if you do result in reducing the trade deficit and there's fewer dollars going out into the world, then there has to be kind of weaker demand for dollar eventually.

Now, the order of operations can be rough and that can give you market sell-offs. But as you do that on a sustained, longer-term basis, like that's the question looking out that far, it kind of forces the rest of the world to use other assets. In addition, we've seen somewhat of a return to gold as a preferred asset among sovereign entities. That process actually started in 2009. So if you look at, say, gold tonnage of central banks,

They were structurally decreasing for decades. And then right around 2009, they started structurally, you know, gradually going back up. And then with the Russian invasion of Ukraine and the sanctions and stuff, there's been a little bit of an uptick since then. And so I think that that's a continued answer. And then, you know, we'll see what happens with Bitcoin in 10 plus years and see how big or...

if it's big or if it's been disrupted in some way. But that's another global reserve asset. And it's got its own payment settlement network attached to it as well. So it kind of answers the problem of gold, which is that gold's historically been slow. So you can use it as an asset, but you generally also want faster assets. And so Bitcoin's one of the solutions. But I think there's that combination of multipolar world,

and bigger reliance on neutral reserve assets is the long-term outcome here. And that's not necessarily bad for the US. That's bad for certain parties in the US. That's bad if your role in the US political circles or New York circles, if you want to have financial and geopolitical dominance of the world, it's not great for those parts of the US. But for the more industrial parts of the US, the average American, if that transition is handled skillfully,

that can be beneficial to parts of the US. And one of the points I made in the book is that when empires get overstretched,

there's kind of two ways to pull back. One is like intentionally, where you kind of maximize, you kind of minimize the harm of pulling back. And the other one would be like, you're refusing to pull back. So you're going to fight every battle on the border you possibly can until you've drained all your treasure and blood. And so how optimistic the outcome ends up being is, I think, based on a series of decisions among politicians, the public about, you know, how do you want to

to balance things as gracefully as possible. And Lynn, it's shocking. You're Lynn Alden, and you're here on Monetary Matters. No one's even mentioned the word Federal Reserve yet. How do you think the Federal Reserve manages? On the one hand, tariffs could be inflationary. On the other hand, they could cause a recession. If they cause inflation, you want to keep interest rates where they are, maybe even raise interest rates. If they cause a recession, you want to cut interest rates and rapidly. How do you think the Federal Reserve is thinking about this?

about this? The first answer I would say is that the reason we're focusing less on the Federal Reserve is because we're in more of a fiscal dominant environment. So this is an environment where fiscal decisions matter way more. That includes the fiscal deficits, and it also includes things like tariff decisions, because that's a revenue source. That's ultimately kind of a fiscal in addition to a geopolitical thing. And so those parts are just way bigger than the Fed at the current time.

To your point, I mean, if the worst case scenario for a central bank is stagflation because it goes against their mandates, I think generally speaking, there's a difference for the rest of Powell's term and then whoever is his replacement later. I do think that if this is sustained, we could see the central bank lose some of its independence over time, become a little bit more beholden. I don't think we're there yet. I don't think we're there this year, for example.

The thing I focus on more than interest rates is to some extent the balance sheet, because there are certain involuntary actions the Fed kind of has to do on occasion, which is if the U.S. Treasury market were to become truly broken like it was in, for example, March 2020, they have little choice other than to step in and provide liquidity.

even if inflation is still above their target. And so that's where you get, that's kind of an implicit loss of central bank independence because they're not really being told what to do, but they have certain mandates that are so important, like protecting banks, protecting the repo market, protecting the treasury market. They don't really care about 20% stock declines, but they do care about a completely liquid, messy, off-the-run treasury market, for example. And so I think gradually,

They'll go towards stopping quantitative tightening and net go back to gradual balance sheet increases. That could take the form of mortgage-backed securities continue to be rolled off over time and then offset by a similar or greater amount of treasury purchases. I think one of the interesting points to watch will be, so right now, the treasury general account is emptying. When they get to a point where they want to refill that, there's potentially some hard decisions to make both by the treasury and the Fed.

And so that'll be where a lot of my attention is to see how they're navigating that, because I think that that's where they might have to provide liquidity, even if they don't potentially want to because of prices still growing at a faster rate than their base case. If they get an outright recession, I think, of course, the Fed would cut interest rates. My base case is probably to see rates a little bit lower a year from now. But because we're in such a headline-driven market, it's hard to make any sort of

prediction like that with confidence. Lin, my final question for you is a lot of times in macro, things like tectonic plates move much less dramatically and much more slowly than analysts and prognosticators often estimate. An example would be the decline in the dollar. People said, oh, the rest of the world will stop using the dollar. What has actually happened is the

the rest of the world has continued to buy dollar assets, but just as a percentage of global reserves, dollars have gone down slightly and they haven't been replaced by one currency. They've been replaced by the Norwegian krona going from 0.1% to 0.6%. I'm just making up numbers as well as gold. So that is in the background. But do you think that we actually could see

a true dramatic dumping of the dollars, not just that China is going to, the marginal reserves are now going less into dollars than they were, but actually the rest of the world selling assets and selling dollar assets and truly there being kind of a run on the global dollar. It sounds a little bit unthinkable to say, so maybe it's a low probability, but do you think the probability is now elevated because of the current tariff actions?

I would assign it as a low but elevated probability, which is to say that in an administration like this, where they're kind of more, they're directly trying to tackle a multi-decade problem and willing to use some shock and all tactics, that also means the rest of the world can use some shock and all tactics.

The part that makes it hard to happen all at once is that a lot of the demand for dollars is inflexible. It's over $13 trillion of dollars-nominated debts around the world. All of that is inflexible demand for dollars. Technically, that's more than base dollars exist. It's not as much as broad dollars, but it's more than base dollars exist.

And so you have this kind of insatiable demand for dollars that is very hard to replace overnight. I mean, there's only several trillion dollars worth of treasuries in foreign central banks. And so if they were to reduce that by a third or a half, I mean, we are talking a multi-trillion dollar hit, but it's not as massive as some of these other numbers that are out there. So the kind of the

All those assets in the world are held not just at the sovereign level, but also the private fund level. So that's a pretty decentralized set of decisions. And then because of those liabilities, a lot of that's locked in. And so due to the strength of the network effect, I think that the overwhelming base case is that it's a gradual process with potential shocks along the way. So if we get a 20% down month in the dollar due to some geopolitical event,

that still counts as gradual in the grand scheme of things. And the dollar has gone through three major cycles in the past 50 plus years, ever since it's been on this floating exchange rate environment. So we can certainly get like a third down leg in the dollar. And that still wouldn't be necessarily structurally different than the past 50 years. That would just be like another decade long leg in what has been this whole process. So I think we'd have to separate what can happen in a month

what can happen in five or 10 years versus how might things be structurally different looking out years and decades. And I think we're at the early phase of some of those really big structural things shifting.

That's a really good point that the level of the dollar isn't the same as the relevance of the dollar. The dollar could weaken dramatically, but still be the global reserve currency. Lin, my final question, I promise, you often have a view of favoring foreign non-US stocks over US stocks. At this juncture, do you still have that view? And is that view even accelerated? You actually even prefer foreign markets over US stocks even more than in the past?

With a three to five year view, yes. Because of some of the turmoil in US markets, I wouldn't be surprised when you have counter moves. So I wouldn't be surprised to see US stocks outperform global for the next month or two. I wouldn't really have a view on that. I would defer to traders that are looking at a lot more signals than I am on something like that. But due to the risk of capital flows shifting more structurally, and due to where valuations are starting, and due to the policy shift that we're seeing in our country,

I am generally somewhat more bullish on foreign markets in aggregate, or at the very least, I'd want to have a slice of them in a portfolio to diversify my risk of having, say, a five-plus-year dead period in the market. If you're spread out a little bit, you reduce the chance of a dead period.

Lynn, it's been such a pleasure getting a chance to hear your thoughts at this very rare time where a lot is happening. People can find you on Twitter at Lynn Alden. Contact your website is lynnalden.com. And your book, Broken Money, is a must read. It has received so much praise. And I think it's really inspiring.

really educated a lot of people. So if you haven't checked it out, I think people, people definitely should. A reminder to everyone to subscribe to our YouTube channel, something like 70 or 80% of people who watch our YouTube videos. And, you know, thankfully I'm, we're lucky that we have people watching. So we appreciate that, but are not subscribed to the channel. So please subscribe to the channel. And of course, leave a rating review on Apple podcast, Spotify, or whatever podcast platforms you use. Thank you everyone for listening. And thanks again, Lynn. Thank you.

Thank you. Just close this f***ing door.