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

Lyn Alden cautions that the Iran ceasefire framework leaves major unresolved details including 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 characterizes the agreement as largely an attempt to reconstruct the 2015 to 2018 nuclear deal the US previously exited, and expects the headline to persist for weeks to months rather than representing a clean resolution.

WTI crude dropped roughly 885 basis points to 69.28, with the August contract trading just below its 200-day moving average at 69.92. Gold fell roughly 900 basis points back toward the 4,000 level, and the US dollar index rallied 210 basis points to 101.54, decisively breaking above a 15-month trade range. Alden attributed the absence of severe oil spikes during the conflict to large strategic and commercial reserve drawdowns, and recommends countries that drew down reserves use current low prices to refill storage. She said current oil price levels represent a near-term rational equilibrium if the strait stays open.

On the Fed, Alden said new chair Warsh historically leaned hawkish but has made arguments for a more dovish take on rates by citing AI and productivity gains, and believes the Fed took a vague hawkish tone partly to avoid appearing as a puppet of a president known for favoring rate cuts. The dot plot under Warsh signals a rate hike may be in the future rather than the aggressive cuts many anticipated. Alden expects the Fed to look through energy-driven inflation and said if the conflict stays mostly resolved and oil stays in a comfortable range, the Fed may shift to more patient language as inflation rolls over.

Alden's base case is a gradual money printing scenario rather than a large crisis-driven QE event, and said most balance sheet reduction options on the table are liquidity neutral because the Fed will not allow a dysfunctional Treasury or repo market. She does not believe Treasury Secretary Bessent's forecast of deficits returning to 4 percent of GDP is achievable, predicting deficits will remain in the mid to high single digits. She said demographics is the primary reason the US now runs deficits far above the old 3 percent threshold, and that a key reason bearish investors have underestimated markets for five-plus years is that they underweight the power of fiscal deficits. In a high fiscal deficit environment, owning high-quality equities and scarce assets is difficult to stand against as a structural position.

Stablecoin market cap grew from roughly 30 billion dollars in January 2021 to approximately 300 billion dollars and Alden predicts it will eventually exceed one trillion dollars. She said if stablecoins add one trillion dollars in market cap, the fresh Treasury demand component would cover roughly three to six months of US deficits at current rates, making stablecoins a marginal extension of the dollar's runway rather than a permanent fix. The depth of liquidity in the US Treasury market is the key reason the dollar has maintained reserve currency status, and stablecoins contribute to that liquidity network effect without being a magical solution.

Alden said the AI-driven capex cycle has legs supported by breakout earnings from Micron with RAM demand expected to remain high for at least several quarters. She is more bullish on hard-to-replicate bottlenecks within the AI buildout than on AI model companies themselves, arguing that AI models carry low economic moats because customers face minimal switching costs when a better model appears. She agrees with Erik Townsend that a much larger boom-bust cycle in AI equities is probable, noting Nvidia has already experienced multiple corrections of a third or more before resuming its climb, and views a pullback as healthy while warning that inflating the bubble further only worsens the eventual bust. SpaceX trades at over 100 times price-to-sales and Alden takes the under on any meaningful number of orbital data centers existing within ten years, citing launch costs and the impossibility of on-site maintenance.

Patrick Ceresna identifies electricity as the next major bottleneck in the AI buildout after chips and selects natural gas as his trade of the week. He prefers UNL, which holds laddered exposure across the futures curve, over UNG, which suffers from negative roll yield particularly when the curve is in contango rolling into winter series. He is also examining bull call spreads on the December 2026 natural gas futures contract, which he describes as basing along yearly lows, as a way to build convex upside with defined risk. On gold, if the 4,000 level gives way the next major target is the 50 percent retracement of the entire two-year bull market, which falls closer to 3,600.