In a world of economic uncertainty, where fiscal deficits loom large and tariffs cast shadows over growth, savvy investors like Lynn Alden are navigating the landscape with a three-pillar strategy focused on high-quality equities, hard monies, and cash equivalents. This approach aims to balance growth potential with protection against volatility, offering a roadmap for thriving amid potential deceleration.
Building a Resilient Portfolio
Lynn Alden manages two pools of capital: a macro side emphasizing public markets and a venture side through Ego Death Capital, which recently raised $100 million for Bitcoin-focused investments. The macro strategy revolves around three pillars—high-quality equities, hard monies like Bitcoin and precious metals, and a smaller cash buffer to handle turbulence. This diversified setup protects against fiscal dominance, where large deficits keep the economy running hotter than expected, fading calls for heavy cash positions.
Equities Outlook: Sector-Specific Opportunities
In equities, Alden sees promise in Latin American and Chinese markets, potentially ending their underperformance against the US. Domestically, she favors service-sector stocks, including growth-at-a-reasonable-price options from the Magnificent Seven and value plays in financials, which offer protection from tariffs and economic cycles. Financials, particularly regionals and super-regionals, are viewed as yield plays with growth potential, having weathered recent turbulence and poised for capital returns to shareholders.
Navigating Bonds and the Yield Curve
The yield curve's steepening signals potential economic shifts, with Alden expecting a flatter to upward trajectory over the next 18 months, driven by lower short-end rates amid deceleration. She remains cautious on long-duration bonds, preferring 2- to 5-year Treasuries for some participation in cuts without high risk. Even with Fed rate trims, long-end rates like mortgages may not follow, highlighting the limits of monetary policy in a fiscally dominant era.
For banks, net interest margin expansion seems unlikely, with stagnation priced in; regionals are preferred for their resilience. Innovations like Strategy's preferred shares, backed by Bitcoin and offering yields above Treasuries, introduce intriguing cash-equivalent alternatives. These developments reflect a shift toward assets blending stability with scarcity in uncertain times.
Geopolitical Risks and Energy Plays
Geopolitical tensions in the Middle East pose risks to equities, though Alden avoids defense stocks, opting instead for energy producers as a hedge against oil price spikes. These equities trade at low multiples, pay dividends, and act as perpetual options on disruptions, especially with US shale production stagnating. Amid tepid global demand and policy uncertainties, owning energy assets provides protection without overpredicting crises.
AI's Energy Hunger and Utility Impacts
AI's rise, particularly in data centers, is driving massive energy demand, with projections of double-digit growth over the next decade straining grids and boosting needs for electrical components. Unlike portable AI, which faces efficiency hurdles—human brains run on 20 watts while supercomputers guzzle megawatts—data centers enable white-collar automation, spiking GPU and electricity usage. This contrasts with Bitcoin mining's flexibility in seeking cheap, stranded energy, while AI competes directly with consumer prices, potentially raising costs.
To capitalize, Alden favors natural gas and uranium producers, holding uranium directly for its long-term demand from nuclear power. These plays address AI's structural energy needs without the challenges of mining stocks.
Tariffs: A Drag on Growth
Tariffs remain a concern, with recent deals still imposing high rates and markets underpricing risks despite similarities to April's freak-out levels. Importers front-loaded purchases, buffering initial impacts, but sustained tariffs could trickle into consumer prices, offsetting fiscal stimulus. This creates friction, especially for tariff-heavy sectors, leading to a view of gradual economic deceleration without catastrophe.
GDP prints show noise from import front-running, with final domestic sales decelerating and CEO confidence waning. Alden evaluates sectors individually, noting real estate in recession but priced accordingly, while watching labor markets for potential cracks. Most sectors aren't yet recessed, but yellow flags suggest caution through upcoming seasonality.
Hard Monies in Fiscal Dominance
In hard monies, Alden is bullish on Bitcoin for its growth potential, exceeding $2 trillion and building network effects, while gold faces near-term consolidation but long-term upside. Fiscal dominance—high deficits from entitlements and interest—breaks traditional correlations, like gold's inverse to real rates, as rate hikes now widen deficits more than curb lending. This regime favors scarce assets over bonds, with Bitcoin as a tech-like growth play and gold as a mature store of value.
Bitcoin's cycle shows healthy consolidations, far from past euphoria peaks, with institutional adoption leading. Risks from treasury companies holding Bitcoin exist, but well-managed ones like Strategy mitigate liquidation threats through flexible structures. Overall, Bitcoin benefits from fiscal hot-running, lacking margins or tariff vulnerabilities.
The Path Forward: Malaise Ahead
Fiscal deficits near 7% of GDP amid low unemployment signal a paradigm shift from demographics and higher interest expenses, unlikely to snap back. Assets like Bitcoin, gold, and equities with scarcity or pricing power thrive here, as do firms leveraging debasing currencies against hard assets. A more dovish Fed chair could lower short rates by 2026, but long rates may stay choppy, limiting housing refinances and pressuring consumers alongside tariffs.
This setup points to a rangebound economic period—neither doom nor boom—demanding sector-specific vigilance. Until clearer signs emerge, balancing growth with protection remains key in this fiscally driven landscape.