MacroVoices #538 Lyn Alden: Is The War Really Over and What’s Next For Markets?

Lyn Alden cautioned that the Iran ceasefire is far from settled, with the memorandum of understanding leaving unresolved the fate of enriched uranium, on-site inspectors, enforcement mechanisms, and whether Iran can toll the Strait of Hormuz after a 60-day period. She noted the agreement largely reconstructs the 2015 to 2018 nuclear deal the US previously exited, and she expects the headline to run for weeks if not months despite market perception that the conflict is completely over.

WTI dropped roughly 885 basis points to 69.28, falling back to approximately pre-crisis levels in both flat price and time spreads, with large strategic and commercial reserve drawdowns during the crisis helping prevent the severe price spikes many analysts feared. Alden said current near-term oil prices are rational if the strait stays open but could climb again quickly if it closes, and she believes buyers who emptied reserves should use current prices to refill commercial and strategic storage. Gold declined roughly 900 basis points back toward the 4,000 level, entering a corrective phase with lower highs and lower lows, and the next major technical magnet if 4,000 gives way is the 50 percent retracement of the two-year bull market near 3,600.

The US dollar index rallied 210 basis points to 101.54, decisively breaking a 15-month trade range, which Alden attributed primarily to repricing of rate hike odds following trailing inflation data and a somewhat hawkish Fed tone rather than to the Iran safety trade unwinding. She noted that capital continues to flow into US equity markets on the AI trade, further supporting the dollar, but warned that a continued dollar rally would pressure both international and US economies, likely causing the dollar to flatline again. She also flagged that the DXY is heavily euro-weighted, making dollar versus Chinese yuan or emerging market currencies more informative pairs to watch.

New Fed Chair Warsh has presided over one meeting and the dot plot leans toward a future hike rather than the aggressive cuts many expected. Alden noted Warsh had to maintain a hawkish but vague tone to preserve credibility and avoid appearing as a puppet of a president known for favoring rate cuts. She characterized most balance sheet options under review by a Fed task force as liquidity neutral, and said allowing banks to hold more Treasuries through capital requirement deregulation would be similar to QE in its pro-liquidity effect.

Treasury Secretary Bessant forecast deficits returning to 4 percent of GDP by end of the current administration, but Alden takes the over, expecting deficits to remain in the mid to high single digits as a share of GDP for any time horizon she monitors. She cited demographics as the primary structural driver and argued that fiscal policy is more powerful than most market participants expect, with large ongoing deficits being a hard force to stand in front of when owning high-quality assets. She said bears have underestimated markets over the past five-plus years largely because they missed the fiscal side of the equation, and that the consequences of US fiscal imbalances are already visible as a K-shaped economy driven by AI capex and fiscal deficits, with large deficits directed more at consumption and existing wealth holders than at productive investment being a driver of political polarization and rising populism.

Alden first wrote bullishly on stablecoins in January 2021 when their market cap was approximately 30 billion dollars and the market cap is now approximately 300 billion dollars. She predicts it will eventually exceed one trillion dollars, and noted that if 500 to 750 billion of that increment represents fresh Treasury demand, it covers roughly three to five months of US deficits, extending the runway for the dollar and Treasuries around the margins but not permanently fixing the deficit problem.

On AI equities, Alden expects a much larger version of the pullback Nvidia has already experienced multiple times, where the stock was cut by a third or more before recovering, and sees that pattern as a preview of a bigger potential bust in AI equities broadly. She is skeptical of AI model companies specifically because switching costs for customers are low when a better model emerges, and says she is more bullish on actual bottlenecks in the AI stack that are harder to reproduce. She flagged that most hyperscalers have already gone free cash flow negative and have aggressively issued bonds to fund the buildout, and that advanced nuclear investments by AI companies will take roughly ten years to materialize, leaving a significant unresolved gap between near-term AI energy demand and available supply. Patrick Ceresna identified electricity as the next major bottleneck beyond chips and selected long natural gas as his trade of the week, preferring UNL over UNG to avoid negative roll yield drag, and also looking at December 2026 natural gas futures as a vehicle for bull call spreads with defined risk.