DoubleLine Podcasts

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.”

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