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July 25, 2022 | The Sherman Show

TSS Episode 120: Lyn Alden on Allocating for an Inflationary Decade

Lyn Alden, founder of investment research firm Lyn Alden Investment Strategy, appears as a guest on The Sherman Show, recorded July 19, 2022, with Jeffrey Sherman and Samuel Lau. The hosts and Ms. Alden begin (0:51) with her career, which began as an engineer working in automation and aeronautics, where she developed an approach to systems analysis that carries into her work providing independent investment research for retail and institutional clients. Turning to her read of today’s macroeconomic environment (5:03), Ms. Alden says, “If you were to look at one chart for macro, it would probably be the Purchasing Managers Index. PMI cycles: You have this roughly three-year sine wave, and ever since 2021, we’ve been in a pretty clear economic deceleration.” This cyclical downturn (6:13), however, has thrown investors a “curve ball” not experienced since the 1970s: “an inflationary decelerating environment – basically, stagflation.”

Looking beyond low unemployment rates, Ms. Alden makes a case that that the U.S. has probably already entered some degree of recession. While wages have been rising at the highest pace in decades, she notes (9:24) that wage growth is “actually farther below the inflation rate than normal. In some sense, people got a pay cut in real terms.” Imagining “a different world where all those wages were higher but fewer people were employed,” she notes the existence of “different release valves for weak labor.”

Asked for her medium-to-long-term view, Ms. Alden replies (12:48), “This is on average going to be a more inflationary decade than the previous decade. But just like other inflationary decades, I think there will be higher periods and lower periods, there will be recessions, contractions, maybe more disinflationary periods, within that structurally inflationary decade.” Much of the world, she believes (17:43), has entered “a long repricing cycle.” Citing debt-to-GDP ratios of 250% in Japan, 150% in Italy and 130% in the U.S., she says, “Those bonds don’t get realistically paid back fully in real terms over the next, call it, 15 years.”

About the Hosts

About the Hosts

  • Jeffrey Sherman, CFA

    Jeffrey Sherman, CFA

    As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.

  • Samuel Lau

    Macro-Asset Allocation

    Samuel Lau

    Macro-Asset Allocation

    Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.