MacroVoices #299 Lyn Alden: Revisiting Inflation/Deflation Signals

Episode Summary

Executive Summary: Macro Voices episode 299 centers on the macro inflation debate: Eric Townsend and Lynn Alden argue that the 2020s look more like the 1940s than the 1970s, with fiscal-driven money creation, financial repression, and persistent shortages in energy and commodities likely to keep inflation above bond yields. The show also reviews market action in equities, the dollar, crude, gold, and rates, with a broadly constructive view on real assets and a cautious one on bonds.

Main Topics: Inflation regime: 1940s vs. 1970s (Priority: 5/5): Lynn Alden argues the current cycle is better compared with the 1940s—high debt, wartime-style fiscal finance, and financial repression—than the 1970s, because inflation is being driven more by fiscal spending and monetization than by bank lending alone. Bond market as an inflation signal (Priority: 5/5): Alden questions whether Treasury yields can reliably forecast inflation when the Fed and Treasury are heavily involved in market functioning, though she still sees bonds as tactically informative around growth/slowdown inflections. Energy and commodity scarcity (Priority: 5/5): Both the opening market wrap and Alden’s interview frame oil, copper, nickel, and other commodities as key inflation inputs, with underinvestment and ESG pressure setting up potential supply shocks in the 2020s. Federal Reserve, fiscal policy, and financial repression (Priority: 5/5): The discussion emphasizes that central bank independence is limited when debt is high and that the Fed is likely to remain behind the curve, using jawboning and gradual tightening while avoiding market dysfunction. Portfolio positioning for a secular inflation decade (Priority: 4/5): Alden recommends a diversified real-asset tilt: energy, commodities, Bitcoin, precious metals, real estate, and select equities, while expecting bonds and cash to lose purchasing power over time. Cross-asset market technicals (Priority: 3/5): The hosts review near-term price action across S&P 500, dollar, crude oil, gold, Bitcoin, uranium, and Treasury yields, highlighting breakouts, consolidations, and potential support/resistance levels.

Key Arguments: The 2020s are more likely to resemble the 1940s than the 1970s because inflation is being fueled by fiscal deficits, monetization, and financial repression rather than a simple repeat of the 1970s bank-lending cycle. Bond yields are not a consistently reliable forward-looking inflation signal when central bank balance sheets and Treasury financing heavily influence market prices. Money supply growth matters, but it is not sufficient by itself; inflation is most persistent when money growth collides with real-world constraints such as labor, commodities, energy, or supply chains. QE alone mostly affects reserves; fiscal stimulus is what more directly raises broad money and consumer spending power. Oil and other energy inputs remain critical to the inflation outlook, and underinvestment in fossil fuel supply creates the conditions for future price shocks. The Fed is likely to tighten slowly and stay structurally behind inflation because high debt levels limit how far rates can rise without causing financial stress. Real assets should outperform nominal bonds and cash over a secular inflation regime, but the path will be uneven with periodic countertrend corrections. Bitcoin is presented as a scarce asset with long-run appreciation potential, though Alden still favors diversification across several inflation hedges.

Data Points: Episode: 299 - Macro Voices episode number referenced at the start of the show Recording date: Wednesday, November 24th, 2021 - Episode was recorded a day early before Thanksgiving SP 500 recent behavior: 5-6 trading sessions of chopping/consolidation - Opening market wrap on equities Dollar index level: Above 96, approaching 97 - Eric and Patrick discuss the dollar breakout SPR release: Up to 50 million barrels initially, later up to 70 million barrels - Biden administration announcement discussed in crude oil segment US crude inventories: +1 million barrels - EIA inventory data cited in the oil discussion Cushing crude inventories: +787,000 barrels - EIA data during weekly oil wrap Gasoline inventories: -603,000 barrels - EIA data during weekly oil wrap Distillate inventories: -2 million barrels - EIA data during weekly oil wrap US oil production: 11.5 million barrels/day - Production recovered from 11.4 million barrels/day last week Gold level: Below 1,800 - Gold retracement after prior breakout Gold invalidation level: Below roughly 1,760 on a close - Alden’s technical line for a false breakout in gold 10-year Treasury yield: Around 1.65% - Opening market wrap on rates Interest-rate threshold: Above 1.75% - Level Eric said would make the bond move more interesting Fed share of Treasury issuance: Roughly 30% of 30-year Treasury issuance (as cited by listeners/hosts) - Used to question the reliability of bond-market price discovery Fed Treasury holdings in the 1940s: Increased about tenfold between 1942 and 1945 - Alden’s historical comparison 1940s inflation pace: About 5% to 6% average CPI growth - Alden’s estimate of wartime inflation 1940s price level increase: About 80% to 90% - Alden’s point that prices stayed permanently higher after spikes Best-case oil support: Around $80 - Patrick’s crude technical level Crude downside target: Around $72.88 / low $70s - Eric’s downside reference if the correction continues Bitcoin support zone: Approximately $50,000 to $55,000 - Patrick’s chart-based support area

Pivotal Quotes: "I think that we are finally seeing that upside breakout that would tend to confirm the Brent Johnson, Jeff Snyder view... the final days of the dollar's dominance ... will be defined by dollar scarcity as opposed to a collapse in dollar price." — Eric Townsend: Opening discussion on the dollar index and the implications of the recent breakout "I am more in the inflationist camp and have been for the past couple years. And I don't view bond markets as being a particularly reliable signal about forward inflation expectations overall." — Lynn Alden: Early in the interview, Alden frames her disagreement with Jeff Snyder "I think that the 2020s are shaping up, at least in this regard, to be more like the 40s, where you're going to probably see ongoing disconnect between inflation and bond yields." — Lynn Alden: Alden’s core thesis comparing the current decade to the 1940s

Implications: Listeners should expect a potentially inflationary decade marked by tight commodities, periodic policy-driven volatility, and weak real returns for bonds and cash. Portfolio emphasis shifts toward scarce real assets, with timing and diversification still crucial.