Lyn Alden
Appearances
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Thanks for having me back. Always happy to be here.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
One of the things I emphasized was the size of fiscal deficits during that time, which were generally stimulative and all else being equal positive for markets in a nominal sense, as well as GDP running nominally on the hot side. And when we enter this year, some of that is slowly changing.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So there's potentially fewer upside surprises in store, more downside uncertainty, things like tariffs, things like... you know, attempting to tackle the fiscal deficit in pretty kind of shock and awe ways at kind of the start of the administration. And so I think it's natural, especially because equities were priced at a pretty high valuation.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Now, in this whole kind of decade-long period, they've been on average a little bit, you know, more highly priced than like very long-term averages. But even given this kind of cyclical ebb and flow of valuations, equity markets were a lot more highly valued than, for example, they were in the beginning of Trump's first term, if you use like a comparable baseline.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So the combination of pretty high valuations, a lot of global capital all stuffed into U.S. markets, overweight U.S. and especially overweight U.S. large cap growth has been very much the consensus play that keeps winning. And I think for the first time in a while, there are some challenges to that. And And so I think the sell-off is natural.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Partly how deep it has to go will depend on policy decisions. There tends to be a somewhat feedback loop there. So don't really mind 5% corrections. We start getting into 10% and people aren't really sure where the end game is. They start making noise and you see kind of rhetoric shift around that. And I think one of the ways to mitigate it was to have a fairly diversified portfolio.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So for a long time, having international exposure was kind of an anchor on a portfolio. Whereas in this particular sell-off, international equities on average did better. It's kind of early rotation potential, as well as owning other types of assets. I mean, gold's poking around its all-time highs.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And so it's kind of funny because when I look at a portfolio, it's like nothing to write home about, like a kind of a week, month-long period or more. But the sentiment on social media, from what I've seen, has been pretty kind of surprised. And I think it's mainly because the things that underperform the most tend to be the consensus.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So some of the large cap growth underperformed the S&P, and then the S&P underperformed global, and that just kind of messed up a lot of people's positioning.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
I wouldn't necessarily have a different reaction, but I think I might come at it from a different time frame or a different perspective. So one of the things I have been writing about for a while is the structural U.S. trade deficits and why they do matter. And I've pointed out that that's pretty tied at the hip with the dollar being the reserve currency.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So basically, compared to most other currencies other than maybe one or two other sizable ones, there's a lot of countries that want to hold U.S. assets or U.S. currency directly. It's basically the biggest, most saleable network effect for money in the world at the current time. And so a lot of international contracts and trade are priced in dollars. A lot of financing is priced in dollars.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So a lot of countries and corporations have dollar-dominated debt. that's not even owed to American entities. It's often owed to European entities or owed to other foreign entities. It's basically cross-border dollar financing. And so that's this really powerful network effect.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And so for most currencies, they tend to trade on things like industry differentials, trade balance differentials, things like that. There's kind of this control loop that happens if a currency gets too expensive, too cheap. The dollar is kind of different because it has this more structural bid
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
on top of the normal things like industry differentials and trade, because basically the whole world needs dollars. And the way that they get dollars is basically we just pour them out like, you know, trillions of dollars over time, generally through structural trade deficits. And the mechanism is that because so many people hold it, they kind of inflate the value of the dollar.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So our import strength gets, you know, stronger. And our ability to export lower margin things shrinks. And so we can be good at tech, healthcare, and finance, but it's hard to be good at manufacturing in that environment. And when you run that policy for decades, you kind of hit more critical parts. You get more deindustrialization.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
You get rising populist politics and changes on the electoral map. So I start from the viewpoint that the trade deficits do matter. And it's not surprising to see that increasingly become a political touchpoint. But I do think that the shock and awe tariff policy is likely to have backlash. I think we're already seeing that. So it's not necessarily to say that I endorse that approach.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And the other thing that I generally point to is if you kind of look at the administration, there's obviously different actors in it. One of the ways to help at least understand the somewhat intellectual framework that they're doing is Stephen Mirren wrote a paper. He's Trump's nominee for his chairman of the Council of Economic Advisors.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
He wrote a paper in November of 2024 that talked about realigning global trade. And it kind of laid out, it's kind of like the more intellectual, like if you were a steel man, what they're trying to do, that's the paper to read because that's kind of the,
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
you know, the more intellectual version, which is, okay, he kind of looks at tariffs, he looks at the trade balance, he looks at some of these things I just talked about, then says, okay, which approaches could address that? And then what are the risks of using those approaches? Because he freely admits these are risky tools to be using.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So I think that in the context of understanding some of the voices in the administration to see what they're at least trying to do, I get that. But yeah, I would generally agree with the consensus view that tariffs are more likely to slow down or impair an economy than help it.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
It adds uncertainty and it adds costs. And so around the margins, it can change where those things go. Now, the issue is that tariffs can impact in the very short term. You can just flip a switch and tariffs are on, whereas supply chains take a very long time, especially at scale, to move. And so my original background is engineering.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So I always kind of look at things from a pretty tangible perspective. It's easy to kind of sit in New York or sit in Washington and kind of look at everything, numbers on a chart. But when you actually are moving facilities, moving logistics hubs and things like that, that's actually a really time-consuming thing. So in the near term, it's likely to be inflationary and disruptive.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Longer term, I think the best case scenario is it can kind of signal a priority shift. In that paper, The Economist covers not just the tariff side, but also, ironically, trying to discourage the rest of the world from stashing all their excess value in U.S. financial assets and overvaluing the dollar because of that.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So it's kind of like this one-two punch of trying to make imports more expensive and also trying to discourage excess capital recycling.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So I think it's a potential turning point. And I started writing about that last year before all the terror stuff came into effect. My initial catalyst was the U.S. was entering a rate cutting cycle. And so it'd be the first window since 2019 that that could be a catalyst for some of those capital outflows.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Now, 2019 didn't really end up doing that because within a year, COVID hit and the big US network tech stocks really benefited from that. And also the US did more fiscal and kind of came out a little bit more explosively than the rest of the world, while China and other places were still kind of in contraction mode. And so that didn't work out last time.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And so my kind of framework is this is the next window for it. Now, a window doesn't mean it's going to happen, but it basically means that it's one of the first higher probability areas in a while. The area of my portfolio that has been more challenging has been expecting a little bit more of a rotation earlier. So I've been early on that trade. So I've kind of
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
I'm always a little bit cautious to say, okay, this is the big rotation because I'm mindful of the difficulty of making that call. But I do continue to hold the view that it's more likely than not that this is early sign of a rotation because now there are a number of things there. There's the initial rate-cutting period. Then there's all the tariff uncertainty.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Then there's the fact that I've been emphasizing China because They've been in a balance sheet recession for a while. They're trying to deflate their property market. It kind of deflates bubbles there at kind of a gradual pace. But last year, they started to hit certain pain points on Chinese social media.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
It was starting to come up and then they were starting to hit red lines in the equity market where their kind of priorities shifted. Thank you. Thank you. Thank you.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Thank you. Thank you. Thank you. Thank you.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
,,,,,,, Now, the part that I would see a little bit differently is it's not quite the same as holding five stocks the president's like because Bitcoin doesn't pass the Howey test. So it's effectively a digital commodity. It's an asset without an issuer. And so I do put it more on gold in that case with the caveat that it's still a fairly small asset.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And this does obviously benefit those who hold Bitcoin or they're bullish on Bitcoin. So it does, you know, potentially help certain constituents, not others. And as you point out, many of them did lobby for it.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And so I don't really disagree with that part other than to clarify that I would see a big difference between them doing with Bitcoin versus them doing with crypto XYZ that literally had VCs, founders, a pre-mine, insiders, things like that. It is somewhat different. But at the end of the day, it is basically just an investment decision. If Bitcoin should...
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
over the coming five, 10 years, go up five or 10x in price, then they have effectively made a good investment decision. Whereas if it stagnates, if it goes down, then it will have been a waste.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Now, I think at the scale that they're doing it on, it probably gets disproportionate attention in the sense that, you know, they're not saying, hey, we want to go out and accumulate trillions of dollars with this. They're basically saying the, you know, the couple hundred billion we have, which is, you know, month or two of fiscal deficits and a pretty small fraction of the gold reserve.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So it's kind of, you know, I think there is controversy to it, but I kind of put it on small enough potatoes that, you know. It is what it is, and it's a little bit different than a security.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So I haven't made any major decisions, but the parts of the portfolio that are working or not working are certainly changing. So it used to be that the U.S. growth stocks were great. Obviously, Bitcoin and MicroStrategy were great. The gold slice has been, you know, I purposely was kind of a bond bearer and wanted some of that slice in gold, which has been a good decision.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
The part that I mentioned before, the anchor, has been the international equities. And to a lesser extent, the U.S. kind of dividend stocks. The U.S. stocks are doing pretty good, but they're not the MAG-7, for example. And the recent rotation is basically saying that there might be some current wake-up on overvaluation among U.S. growth and a little bit of wake-up on opportunities elsewhere.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And one thing I'd like to point out is that it's not just tech. Everybody focuses on, obviously, that tech is popular and expensive. But I've been highlighting the fact that Costco has been trading at 60 times earnings. And it's a 45-year-old retailer. I'm not even sure exactly what date, but it's a four or five decade old retailer. It's a great company. I mean, their growth numbers are good.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
I'm very bullish on the underlying company, just not at 60 times earnings. And so there's actually a lot of things like that that are just priced, maybe not that extreme, but there's a lot of things that are just priced pretty expensively. And so I think we're entering the period where that starts to matter.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
But because I have been concerned for that for a while, I'm already positioned for some of that. And the caveat that is that during, you know, where only U.S. growth mattered, the equity side had a little bit of anchor on it, which lately has turned into a little bit of a booster. And so it's not that I'm making changes, it's that I'm noting things that are happening.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
And I think my biggest question now is to see if this has follow through. because I mentioned that the rotation has been a very hard call to make. I think this has likes to it, but I do want to see continued evidence that it has likes to it.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
I think I would look for areas of overvaluation, things that you're not comfortable with, and reduce those overweight positions. The S&P 500 is very concentrated. The NASDAQ 100 is very concentrated. I do still think there's pockets of value in the U.S., just generally not in the big U.S. growth. And I also differentiate on a company-by-company basis.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Apple is a case that I've not been bullish on that for a while just because it's kind of a value stock that's priced like a growth stock. Um, and that, that's been the challenge. Um, when you look internationally, there are pockets, you know, like, and it's funny cause some of them have the same issues. Like, uh, Brazil has had some friction lately because of its, of its budget deficits.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Um, but the budget deficits have not really been that different than the U S and it's just a matter of whether or not there's external demand for the currency and the assets or not. Um, But I generally, I find I've been less bearish on Brazil than it seems like the average consensus investor was, especially given some of the valuations and opportunities there.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
Like I said, I have been bullish on China with the caveat that there's a small percentage that something geopolitically happens and it entirely messes up that side of the portfolio. Kind of like what we saw with Russia, for example. And so it's like, 90% chance, I was like, these are undervalued, super cheap. you know, they actually became more shareholder friendly.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
So for some of the big Chinese tech stocks were like initiating dividends or buying back shares when they were super cheaply priced. And I mean, that's kind of a change in that space. So more shareholder friendly policies. I do think that there are a lot of pockets out there that are quite interesting. And Europe, I have historically found a little bit less compelling.
Prof G Markets
Searching For Value Outside the U.S. — ft. Lyn Alden
But, you know, when it's been dead money for a while and you do have marginal fiscal waking up It's nice to own some of that, at least compared to American dividend stocks. You can look around and say, are there ways I can diversify my value or dividend exposure?