FOCUS 2025: State of the market – Jurrien Timmer

[00:00:07.307]

Nice to have you here, Jurrien, in this format too.

[00:00:09.576]

Yes, thank you.

[00:00:10.677]

Now, do you have any idea what time it is?

[00:00:12.212]

No.

[00:00:12.545]

You're a bit jet-lagged, I imagine.

[00:00:16.082]

First of all, congratulations on 30 years.

[00:00:19.119]

What's the highlight? What's one highlight of your 30 years?

[00:00:22.255]

Well, there's many, of course, but the one I always come back to is when

[00:00:26.292]

I was interviewing in early 1995 for

[00:00:31.331]

the most obscure job on the planet which was a technical analyst

[00:00:35.468]

in the fixed income division.

[00:00:38.371]

There's only so many things you can draw on a bond chart but

[00:00:43.543]

I went to work in the chart room and the only way to get to the chart room is

[00:00:46.846]

through Ned Johnson. He was the final interview

[00:00:50.917]

of, whatever, 12 interviews I had.

[00:00:54.988]

It was amazing. We didn't talk about the job, just about the markets, typical

[00:00:59.559]

Ned Johnson sitting in his office.

[00:01:02.762]

Those early days I was already a chartist but I

[00:01:07.200]

really got a crash course in how really to display

[00:01:11.638]

statistical information in charts because I would spend hours

[00:01:15.975]

with him every week just pouring over charts.

[00:01:21.481]

The culture through osmosis really blended

[00:01:25.518]

into me, the Fidelity culture and the culture about displaying

[00:01:29.522]

information. Those were very formative years where

[00:01:34.427]

unbeknownst to Ned he was my mentor.

[00:01:37.764]

That's great, and it all worked out well, you're here 30 years later.

[00:01:40.700]

It's wonderful. Now, you seem to have dusted yourself off well from the playa.

[00:01:44.904]

You were at Burning Man for two weeks, two weeks off the grid.

[00:01:49.342]

There was a lot of prep before that and then you went.

[00:01:52.579]

You are, for lack of a better word, intense

[00:01:56.549]

when it comes to information for all of us.

[00:01:59.018]

There's your posts on LinkedIn, there's your videos weekly,

[00:02:03.389]

there's forums like this and so on. You're travelling the world also speaking

[00:02:06.359]

to investors. And then you disconnect for two weeks.

[00:02:10.296]

What does that help you do when you come back?

[00:02:13.266]

It's great but you secretly hope that not much happens.

[00:02:18.438]

In 2025 that's anything but a given.

[00:02:22.308]

In the early years when I went, I've been going since 2017,

[00:02:26.913]

I was always desperate to kind of be in contact with what we

[00:02:30.917]

call the default world, mostly because my kids were at

[00:02:35.021]

home but now my kids come with me so I just have to worry about a

[00:02:39.125]

call from my parents who are 91 and almost 98.

[00:02:43.730]

These days everyone has a Starlink  so it's easier to stay connected but

[00:02:47.767]

I make a deliberate attempt to be

[00:02:51.771]

disconnected from the markets.

[00:02:54.507]

It's a nice way to have a full reset,

[00:02:58.978]

otherwise it's only kind of a half-hearted reset.

[00:03:04.484]

The whole Burning Man experience helps me get grounded, get

[00:03:09.222]

rooted back into what life is really about, because we can get lost

[00:03:13.426]

in the data and the numbers.

[00:03:16.663]

Neil and Ramona talked about signal-to-noise ratios.

[00:03:20.500]

This is how I reduce the ... or increase the signal- to-noise ratio.

[00:03:24.604]

So it's a refreshing change for you, and it may explain some of the

[00:03:28.575]

more cosmic-looking charts that you come up with, but we can get into that

[00:03:31.544]

later. You're a frequent guest on many different

[00:03:35.615]

publications, different podcasts and so on, as Patrick was talking about, but

[00:03:39.752]

you're also on a podcast/YouTube channel called The Compound

[00:03:44.057]

with Josh Brown and his crew.

[00:03:46.559]

I've seen you on that in many forums.

[00:03:49.262]

Recently Peter Lynch was on that and I hope if you haven't seen that you'll

[00:03:52.732]

look it up. It's 55 minutes and it's well worth it to be reminded of all that

[00:03:57.303]

really fired him up when he was running Magellan for all those years.

[00:04:00.974]

It was great to see him. Actually, did

[00:04:05.612]

you inspire that in some way because you've been on that show and then they had

[00:04:09.115]

the whole forum with Peter.

[00:04:11.517]

I've been on that show. I go, basically, once a year

[00:04:15.622]

and I was supposed to be the duo with Peter.

[00:04:19.726]

Denise was on it as well.

[00:04:21.561]

I was in Europe.

[00:04:23.963]

I was in London and I had to go to a wedding in Geneva and then from there I

[00:04:27.867]

had to go, or had to go, I went to Holland for my parents' 70th wedding

[00:04:31.871]

anniversary.

[00:04:32.505]

You had to go.

[00:04:33.106]

Not many people make 70.

[00:04:35.441]

We had three generations of Timmers there so I could not be in Boston for that.

[00:04:41.381]

It's a great show and I actually just did an hour and a half podcast

[00:04:45.785]

with Barry Ritholtz who is the head of the company that Josh

[00:04:50.023]

Brown works for.

[00:04:52.458]

Peter and I go way back.

[00:04:55.161]

He lives a few blocks from me.

[00:04:59.098]

I went to Spain for the FIL Madrid office to do a roadshow

[00:05:03.403]

and there was a super fan there among the clients and

[00:05:07.874]

the guy from the Madrid office says, is there any way you can get Peter

[00:05:11.978]

Lynch to sign One Up On Wall Street for this client.

[00:05:16.215]

So I called him up, I went to his house, he signed the book, we had tea,

[00:05:20.186]

and then I went through to Spain.

[00:05:23.389]

It's funny because back in the '90s when I was just a

[00:05:27.593]

lowly technical analyst I would always prep him for his

[00:05:31.531]

media interviews.

[00:05:35.068]

If he went on Wall Street Week or what have you...

[00:05:38.971]

Louis Rukeyser.

[00:05:41.774]

Yeah, Louis Rukeyser. I would feed him just, okay, there's a bear market every

[00:05:45.345]

so many years, there've been 27 since this date and blah, blah,

[00:05:49.615]

blah. Then as he kind of got into retirement

[00:05:53.720]

he did those less and less but he would still call me and now,

[00:05:58.358]

ironically, I'm kind of the one doing it.

[00:06:01.294]

I don't have his mane of white hair.

[00:06:03.696]

I always liken it when he was kind at the

[00:06:07.834]

end of his active days that if you watch a football

[00:06:11.904]

game you have the announcer in the field, and then you've got the guy in the

[00:06:15.808]

booth feeding statistics, that was me and Peter.

[00:06:19.345]

What's something you learned from him?

[00:06:21.948]

Just the consistency. Well, actually, he had a very clever

[00:06:26.452]

way of doing interviews.

[00:06:28.221]

I'm not saying that like it was an evil

[00:06:32.325]

thing that he was doing but he had such a command of the data that

[00:06:36.295]

if you're doing a four minute interview on TV and you are just bombarding

[00:06:40.733]

people with relevant data no one can come back

[00:06:44.771]

to that. It's very hard to challenge, not that I don't like to get challenged,

[00:06:48.708]

but having the command of the data.

[00:06:52.078]

I do this on Mondays and I'm very fortunate that I

[00:06:56.315]

work with all the folks that you hear about, Ford and Adam and

[00:07:00.987]

DW, DT, they make me very smart, or smarter

[00:07:05.024]

than I otherwise would be. There's always all this stuff hanging around

[00:07:09.195]

in my brain that you wake me up at 03:00 in the morning, put me on the air

[00:07:13.366]

and I can be there.

[00:07:15.935]

I learned that from Peter, to always have command of the data.

[00:07:20.640]

He discussed things that I hadn't even heard him speak about before and then he

[00:07:23.576]

got into those key points that are in One Up On Wall Street, one of which was

[00:07:27.380]

about how consumers will spend hours trying to save $50 on an airline ticket

[00:07:31.484]

but they'll drop 10,000 into the market when they hear a tip on a bus.

[00:07:35.721]

It seems like in the last five years there's more and more lower

[00:07:39.725]

income earners that have come into the market and they're inexperienced at

[00:07:43.596]

this. Does that concern you? Do you have charts on that?

[00:07:45.865]

What are your thoughts on the volatility created by the newer investor,

[00:07:50.136]

if you will.

[00:07:51.537]

I'm not too concerned about it.

[00:07:55.041]

During COVID ... so we've always, not worried but we

[00:07:59.479]

would worry that prior to COVID the young

[00:08:03.549]

generation of investors, people my

[00:08:07.553]

kids age, had kind of apathy towards

[00:08:11.491]

the markets. They were just not interested.

[00:08:14.827]

We all know with investing that it's all about the law of compounding and

[00:08:18.865]

the earlier you start the better off you will end.

[00:08:22.935]

I've had this conversation with my daughter who is a 29-year-old ICU nurse

[00:08:26.906]

in New York. I'm like, put everything away that you can.

[00:08:30.510]

The lack of that interest among the millennials or the Gen Z,

[00:08:35.515]

whatever they're called these days, I think generally was a concern.

[00:08:40.520]

During COVID all of a sudden everyone was stuck at home, no sports

[00:08:44.690]

games to play with, we had the whole Robinhood

[00:08:48.761]

meme stock thing and while that was very speculative and

[00:08:52.732]

it ended badly for many, if you're a young person

[00:08:56.736]

you don't really have a lot of money to spend on that.

[00:08:59.472]

I think in a way it was a good way for younger people just

[00:09:03.709]

to get involved with the markets and then hopefully they mature and they

[00:09:07.780]

realize from trial and error that buying

[00:09:11.784]

on a tip or a rumour is not a sustainable strategy.

[00:09:17.123]

I think there is a benefit to that. There's always going to be speculation and

[00:09:21.494]

when the money is easy, like it was in 2021,

[00:09:26.232]

there's going to be more of it. The cycles come and go

[00:09:31.203]

and it's just part of the markets.

[00:09:32.972]

So you're not concerned with the support within the market from an investment

[00:09:36.409]

standpoint these days.

[00:09:38.077]

No. I think the market is generally supported by

[00:09:42.081]

solid fundamentals, even though the price for every dollar of

[00:09:46.152]

earnings that investors have to pay is high.

[00:09:48.588]

That is a hurdle for young investors.

[00:09:50.289]

If you invest now at a 25 P/E,

[00:09:54.493]

that's a higher hurdle than if you start at a 10 P/E.

[00:09:58.431]

But generally younger people are buying on a dollar cost averaging basis so

[00:10:02.001]

they're going to spread that out over time.

[00:10:05.371]

The fundamentals are okay and the pond is much

[00:10:09.442]

bigger now to fish from.

[00:10:11.744]

We've heard this all day about international markets finally being

[00:10:15.748]

competitive so it's a good thing.

[00:10:18.651]

You've studied bubbles all your career.

[00:10:21.921]

A lot of people, anytime you put on the media there's a lot of questions.

[00:10:25.424]

Are we in a bubble, is this '99, 2000?

[00:10:28.427]

A book just came out from someone who's probably interviewed you called 1929.

[00:10:32.698]

The fact that all that's happening, and I think of the chart room with the

[00:10:36.102]

media sentiment piece, the fact that all that's happening, does that mean

[00:10:40.172]

that we're really, we're fine?

[00:10:42.975]

Yes, so there's a bubble in bubble talk right now but I'm

[00:10:47.380]

seeing it. Actually, at 2:00 I'm doing an interview with the Wall Street

[00:10:50.616]

Journal. Last Friday I think I did four different interviews,

[00:10:54.987]

media interviews, and it's all about the stock ...

[00:10:58.691]

the bull market has turned four years old so we just had the three-year

[00:11:02.328]

anniversary of the cyclical bull market and everyone

[00:11:06.298]

wants to know if there's a bubble.

[00:11:08.000]

I did this roundtable event in Atlanta two nights ago

[00:11:12.271]

and it's all everyone talks about.

[00:11:15.641]

Generally speaking, bubbles are not really bubbles until

[00:11:20.079]

no one thinks of it anymore as a bubble.

[00:11:22.548]

What typically happens, and I have studied them all the way back

[00:11:26.886]

to the tulip bubble and the South Sea bubble

[00:11:31.023]

when  Isaac Newton said, this is a bubble, I'm selling everything.

[00:11:35.294]

Then at the end he had FOMO and so he got back in

[00:11:39.331]

and he rode it all the way down.

[00:11:41.267]

That's how bubbles work. Probably people are seeing

[00:11:45.471]

it, they're getting out and then 12 months from now

[00:11:49.542]

when the multiples are 50 instead of 25, that's not a prediction, but if

[00:11:53.679]

that were to happen and they see their neighbour driving a new Mercedes

[00:11:57.983]

they're like, dam, and then they get in and that's the top.

[00:12:02.288]

Bubbles always run longer than people think.

[00:12:05.624]

Certainly, that was the case in the late '90s.

[00:12:08.661]

I don't think this is a bubble yet.

[00:12:10.963]

It's getting frothy. If you think about the late '90s ...

[00:12:16.969]

actually, one of my favourite analogs these days is

[00:12:21.240]

that 1990s analog where in 1994

[00:12:25.811]

Alan Greenspan raised rates 300 basis points, created one

[00:12:29.749]

of the worst bond bear markets in history at the time.

[00:12:34.353]

The stock market stalled out, it kind of went nowhere for a year,

[00:12:38.290]

and then he achieved the coveted soft landing.

[00:12:43.162]

Markets ripped, he cut rates a couple of times.

[00:12:46.165]

To me that's a parallel to 2022. That was a bear market.

[00:12:49.735]

It was a worse bear market than '94 but it was one of the worst bond bear

[00:12:53.439]

markets. It was an equity bear market, it was entirely driven by rising rates.

[00:12:58.010]

There was no recession, no earnings decline.

[00:12:59.912]

Once that heavy hand or foot was lifted

[00:13:04.083]

off the brake pedal the market ripped and

[00:13:08.320]

then Powell cut rates a few times in 2024.

[00:13:13.192]

Back then in '98 we had long term capital which

[00:13:17.296]

was a systemic crisis but not an economic one.

[00:13:21.500]

Market fell 22%, came back very, very fast,

[00:13:26.405]

Greenspan cut rates three times even though the market was having a lot of

[00:13:30.009]

momentum, making new highs.

[00:13:32.011]

That ended up being the internet bubble.

[00:13:35.881]

That was five, six years after the

[00:13:40.186]

internet boom started. That started with Netscape going public in

[00:13:44.390]

'96. You can argue the AI boom started with

[00:13:48.427]

ChatGPT in 2022 so we're only '25.

[00:13:53.265]

The '98 parallel to 2025, the tariff tantrum,

[00:13:57.369]

21% decline, very quick recovery.

[00:14:02.241]

Powell just eased, is likely going to ease several more times.

[00:14:08.347]

It's hard to not see the parallel there.

[00:14:13.385]

I think right now the Mag Seven is driving the train.

[00:14:17.590]

It's almost entirely supported by earnings.

[00:14:20.292]

If you go back since 2022, the

[00:14:24.930]

Mag Seven is up 4X, their earnings are up 3X, the rest is multiple expansion.

[00:14:29.869]

They're trading at a 35 P/E and they've got a lot of good things going for them

[00:14:34.173]

so I do think it's early but that doesn't mean it won't happen.

[00:14:38.310]

Hello, investors. We'll be back to the show in just a moment.

[00:14:41.513]

I wanted to share that here at Fidelity, we value your opinion.

[00:14:45.084]

Please take a few minutes to help us shape the future of Fidelity Connects

[00:14:47.386]

podcasts. Complete our listener survey by visiting fidelity.ca/survey,

[00:14:52.491]

and you could win one of our branded tumblers.

[00:14:54.460]

Periodic draws ending by March 30th, 2026.

[00:14:57.529]

And don't forget to listen to Fidelity Connects, the Upside, and French

[00:15:01.133]

DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

[00:15:05.170]

else you get your podcasts. Now back to today's show.

[00:15:09.375]

But you're also seeing breadth in the leadership now, aren't you?

[00:15:12.478]

In one of your recent pieces you talked about how these start very narrow and

[00:15:15.781]

now there's quite a bit of breadth in leadership in the market.

[00:15:19.685]

In many ways this bull market, which is now three years old,

[00:15:24.490]

has been kind of the reverse of the typical bull market.

[00:15:27.860]

A typical bull market starts at the depths of a recession, the

[00:15:31.797]

Fed is cutting rates, earnings are falling, the market goes from getting,

[00:15:35.834]

I think DT mentioned this, it went from getting more bad to

[00:15:39.905]

less bad. I forget who it was who said that.

[00:15:42.808]

That is the early cycle phase of a bull market and usually

[00:15:46.812]

the cats and dogs of the market, the small-cap stocks trading at

[00:15:50.849]

$8 a share or what have you, those come back the

[00:15:54.920]

biggest because they fell the most.

[00:15:56.622]

They were the most cyclical, had the weakest balance sheet so those come

[00:16:00.826]

roaring back. So the market starts very broad and then

[00:16:04.830]

as you get closer to the end, three, four years later, market's very

[00:16:08.834]

narrow. It's only the blue chip quality stocks hanging in there.

[00:16:12.938]

This one started the opposite way.

[00:16:15.007]

It started with the Mag Seven ...

[00:16:17.509]

I'm not saying it's ending with the Mag Seven but it's still the Mag Seven on a

[00:16:21.380]

relative basis but in an absolute basis about two-thirds

[00:16:25.718]

of stocks in the S&P are above their 200-day moving average,

[00:16:30.022]

which shows decent breadth, but the big growers are

[00:16:34.226]

so far ahead of the rest of the market that they just can't keep up.

[00:16:38.364]

It's one thing if you're behind a couple hundred basis points and then you've

[00:16:42.201]

got wind in your sail and you catch up but when you're behind

[00:16:46.372]

01,000 or more basis points it's hard to do.

[00:16:48.474]

Question's just come in, what's your favourite technical indicator?

[00:16:54.646]

I would say that breadth is something that I look for, percentage

[00:16:59.485]

of stocks above their 20-day, 50-day, 200-day.

[00:17:04.056]

It allows you to see oversold moments in the

[00:17:08.027]

market. We just had the sell-off a couple of days ago

[00:17:12.431]

and the percentage of socks above their 50-day went down to 38,

[00:17:16.769]

it's not really that oversold but it was also a one-day thing and it

[00:17:20.806]

recovered quickly. At major oversold extremes those numbers will

[00:17:24.843]

go to 0 or 2% or something in the single digits and

[00:17:28.947]

you look at new highs versus new lows.

[00:17:32.217]

I remember during COVID, March 23,

[00:17:36.722]

2020, the new highs to new

[00:17:40.659]

lows ratio, or the spread, went to a level that

[00:17:45.197]

outside of the Great Depression was only seen maybe three or four times.

[00:17:49.668]

Those are times when you can come with real conviction and say,

[00:17:53.906]

look, maybe it's like the 1930s but if it's not

[00:17:58.343]

you're not going to get a better opportunity than this to

[00:18:02.281]

buy low.

[00:18:03.882]

That's one of the things I try to do with our audiences on Mondays

[00:18:07.886]

and also my colleagues over in Boston and in Toronto and

[00:18:11.857]

elsewhere is to try to give empirically based

[00:18:16.161]

technical advice on markets,

[00:18:20.833]

pricing and structure so that there is a sense of confidence

[00:18:25.037]

when decisions are made because, again, the signal-to-noise ratio these days is

[00:18:29.341]

pretty low.

[00:18:30.342]

Let's talk about the team. You are part of the Global Asset Allocation Group.

[00:18:34.146]

Not everybody knows that. They would think that you're part of QRI or something

[00:18:37.116]

more cosmic.

[00:18:38.884]

How do you work with the GAA team on a daily basis?

[00:18:43.288]

They are wonderful, extremely smart people

[00:18:47.259]

but the best part, I find, and that's true for Fidelity at large,

[00:18:51.463]

is that there's a great amount of humility, which

[00:18:55.434]

is so important. I learned that from Ned, we'll see Will later,

[00:19:00.005]

he's like the most humble person I've met but yet he's brilliant, runs 300

[00:19:04.109]

billion. To me that is a real sign of

[00:19:08.580]

talent and just character.

[00:19:12.451]

I sit with Ford and Adam and David and David and

[00:19:16.889]

people from SAI and other areas, they

[00:19:23.195]

make me smart.

[00:19:25.230]

They may not have the answers but they ask questions that make me like, okay.

[00:19:30.269]

They know I publish every Sunday and it's like, Jurrien, have you looked at

[00:19:34.273]

this, can you do this?

[00:19:36.542]

Sometimes some of my best ideas come out of that.

[00:19:40.312]

I started in the chart room and in 2005 I

[00:19:44.316]

was plucked out of the chart room and put in asset allocation.

[00:19:47.286]

Of course, I ran the Global Strategies Fund for

[00:19:51.256]

seven years, did okay but it was at a time of the financial

[00:19:55.394]

crisis and it was just hard to get traction.

[00:19:58.497]

We are in a scale business so we all decided that

[00:20:02.834]

I'm better off representing the company on

[00:20:06.905]

the air and on Zoom, or before Zoom at that time.

[00:20:11.543]

It's a great group of people and

[00:20:16.081]

I'm blessed to work with very smart, objective, humble

[00:20:20.219]

people.

[00:20:20.485]

Excellent. You've put together a deck of, I don't know, 40 or 50

[00:20:24.556]

slides for this season, and we're not going to go through them in the interest

[00:20:27.192]

of time but I'm sure you have a few that we could call up that you'd like to

[00:20:30.929]

run the audience through.

[00:20:35.834]

These are animal spirits, if you will.

[00:20:38.837]

This is the Goldman Sachs Nonprofitable Tech Index.

[00:20:43.709]

You can see on the left there that was the 2021 sort of

[00:20:48.313]

Fed-induced asset bubble.

[00:20:50.616]

Again, when money is easy and rates are low,

[00:20:54.620]

or too low, speculation inevitably happens.

[00:20:58.423]

Every bubble ...

[00:21:01.293]

and that was sort of a mini bubble ...

[00:21:03.061]

every bubble that burst ultimately comes down to too much leverage

[00:21:07.266]

on illiquid assets with a duration mismatch of where you

[00:21:11.436]

borrow and where that cost of capital goes.

[00:21:16.074]

That was 2021.

[00:21:18.043]

Those stocks fell 70%, lay dormant for

[00:21:22.648]

several years and now are waking up.

[00:21:26.084]

You asked about an AI bubble, that is sort of my exhibit

[00:21:30.255]

A of saying, okay, are we about to

[00:21:34.760]

enter silly season on speculation?

[00:21:39.364]

So that says no.

[00:21:41.233]

It says it's starting.

[00:21:45.971]

Next slide.

[00:21:49.474]

Fiscal dominance, one of my favourite topics, and David Wolf talked

[00:21:53.712]

about this earlier, we're

[00:21:58.050]

obviously in a highly politicized environment, politicized Fed.

[00:22:02.721]

We all know about politics in Washington.

[00:22:05.524]

You all have been in the crosshairs of that, unfortunately.

[00:22:10.862]

I think the Trump administration is making a

[00:22:14.900]

deliberate attempt to grow out of the debt.

[00:22:19.304]

It's hard to argue with that because there's too much debt all over the world,

[00:22:23.675]

Canada, UK, Europe, China, Japan, and in many cases

[00:22:28.780]

the growth rate in the economy, the speed limit, if you will, is very low

[00:22:32.384]

because of ageing demographics

[00:22:36.955]

so you end up with this debt burden where your debt-to-GDP is 100+% and

[00:22:42.794]

you're just borrowing to kind of stay afloat.

[00:22:46.198]

Earlier in the year the topic, of course,

[00:22:50.435]

politically was, well, we're going to cut all the waste.

[00:22:53.305]

They sent Elon Musk to Washington, he was going to cut two trillion, he got

[00:22:57.342]

maybe a tenth of that and he found out the hard way that

[00:23:01.747]

nothing stops this train. There's not enough discretionary spending

[00:23:05.951]

to cut. It's all entitlements and defence and debt service.

[00:23:11.523]

If you can't cut your way out, and obviously you're not going to default your

[00:23:15.360]

way out, then the only options are to grow or to devalue

[00:23:19.765]

your way out either through currency or through negative real

[00:23:23.802]

rates or both.

[00:23:26.238]

Right now the gamble is, and it's a high stakes gamble,

[00:23:30.475]

is they're going to try to grow their way out.

[00:23:33.111]

That's what the one Big Beautiful Bill was about.

[00:23:37.182]

It creates a risk, of course, and that is that the bond market doesn't like it.

[00:23:40.852]

The bond vigilantes start selling.

[00:23:43.054]

You heard this morning that they don't own any Treasuries, that

[00:23:47.893]

could be par for the course, and then rates will rise.

[00:23:52.631]

If you have a politicized Fed where the Fed cuts rates lower

[00:23:57.135]

than what is economically justified then inflation will

[00:24:01.106]

pick up and the yield curve will, what we call, bear steepen.

[00:24:05.844]

Then the Fed would have to come back in and do yield curve control like the

[00:24:08.947]

Bank of Japan did and what the Fed did back in the 1940s.

[00:24:13.385]

The easy way to kind of track that, in this chart you

[00:24:17.355]

see the blue line is the 5-year rate of change

[00:24:21.560]

in nominal GDP.

[00:24:23.562]

The green line is my estimate of where the 10-year yield should be and

[00:24:27.599]

is going.

[00:24:30.068]

If the blue line is above the green line your debt is sustainable, you're

[00:24:33.872]

growing faster than your cost of funding.

[00:24:37.642]

If that were to change then you either need to increase your growth

[00:24:41.913]

or you need to repress the cost of funding.

[00:24:46.585]

Maybe the AI boom bails us all out.

[00:24:49.187]

Maybe the one Big Beautiful Bill creates that entrepreneurial

[00:24:53.391]

spirit that boosts growth.

[00:24:56.027]

But if that is not happening and you're not importing

[00:25:00.298]

people through immigration then that speed limit is going to stay low

[00:25:04.469]

and then you need to lower rates and that gets you into

[00:25:08.807]

the Fed and its independence and that's a whole other can

[00:25:13.078]

of worms, of course.

[00:25:14.012]

Indeed. Could I tangent off of that government debt slide to

[00:25:17.983]

consumer debt? I'm curious if you're concerned about where consumers sit today,

[00:25:21.853]

in particular in the United States.

[00:25:23.755]

I ask that because I was reading recently about the buy now, pay later programs

[00:25:27.859]

that people get into.

[00:25:29.628]

There's a slogan, it's like eating a jug of ice cream today and then dividing

[00:25:33.198]

the calories over six or so weeks.

[00:25:36.234]

There are people leasing lifestyles today.

[00:25:38.770]

They're just trying to go beyond where they should and they're defaulting.

[00:25:42.107]

Is that something that you see ramping up?

[00:25:45.510]

I've never thought of amortizing calories, that's an interesting concept.

[00:25:49.915]

Not my word.

[00:25:53.318]

The good news is that household debt-to-GDP peaked

[00:25:57.956]

in 2008 at 100% of GDP, today it's

[00:26:01.927]

about 70%. This was, of course, financial crisis, the housing crisis

[00:26:05.931]

in the US, everyone overextended on rising home values,

[00:26:10.201]

they not only had a mortgage but they took out lines of credit,

[00:26:14.239]

in some cases used that equity to

[00:26:18.176]

buy other homes. We had kind of the no-doc mortgages,

[00:26:22.247]

that whole sort of bubble-like situation

[00:26:26.585]

in mortgage underwriting.

[00:26:29.120]

That has greatly improved because back then the government essentially took

[00:26:33.091]

over the debt. I mean, not literally, but government debt

[00:26:37.562]

started going up so there was like a transfer, if you will, of the debt burden

[00:26:41.766]

from the private sector to the public.

[00:26:44.803]

That hasn't really changed.

[00:26:47.806]

Household debt-to-GDP is 70%.

[00:26:50.408]

Generally speaking, I think the consumer is

[00:26:54.713]

not overextended, they're employed.

[00:26:57.649]

Wages are somewhat keeping up with inflation.

[00:27:01.319]

Home values are fairly high so people have equity in their homes.

[00:27:05.090]

The underwriting standards are not too loose.

[00:27:07.692]

There's always going to be people that overextend themselves.

[00:27:10.662]

Obviously, with the wealth inequality that we have

[00:27:14.866]

it's a risk because the lower, let's say half or even more than

[00:27:18.937]

half, are living paycheque to paycheque.

[00:27:22.073]

With COVID we had that kind of revenge spending, revenge travel.

[00:27:26.244]

People got stimulus checks.

[00:27:28.613]

That's, obviously, going to end badly for some.

[00:27:32.017]

The underpinnings of the labour market, even though not many companies are

[00:27:36.321]

hiring they're also not firing.

[00:27:38.890]

At least you have a low starting point of debt-to-GDP and you

[00:27:42.994]

have, essentially a fully employed population so I'm not

[00:27:47.332]

overly concerned, but there's always going to be those excesses.

[00:27:50.268]

Thank you. Next slide.

[00:27:53.738]

Secular bull market.

[00:27:56.708]

Many technicians disagree with me as to the start of this one but

[00:28:00.812]

in my view the current secular regime started in 2009

[00:28:05.550]

and this one compares the current one in the grey line to the one from

[00:28:09.888]

1982 to 2000, the one from 1949 to 1968,

[00:28:14.426]

and the short but sweet one from 1921

[00:28:18.797]

to 1929.

[00:28:21.566]

What I find amazing is how

[00:28:26.304]

similar the trend lines are for all of them.

[00:28:32.410]

The question is, we're now year four in a cyclical bull market, we have

[00:28:36.614]

the AI sentiment really running the

[00:28:41.286]

show here, and we're in what I would think is sort of the eighth

[00:28:45.390]

inning of a secular bull market, it makes me wonder if we're going to

[00:28:49.327]

end up with a whimper like we did in the late '60s or

[00:28:53.631]

with a bang like we did in the late '90s.

[00:28:56.901]

There are interesting cases for each.

[00:29:00.138]

Ramona was talking about glamour, '68 peak was the glamour

[00:29:04.175]

stock peak.

[00:29:06.478]

Any company with the word tronics in it went to a 50

[00:29:10.582]

multiple. Then we had a recession in 1970.

[00:29:15.019]

The retail trading public sort of disappeared

[00:29:19.224]

and the market was in the hands of institutions.

[00:29:21.960]

They only wanted to buy the blue chips.

[00:29:23.862]

Those were the Nifty Fifty.

[00:29:25.930]

That was the first era of the Nifty Fifty, the late '90s

[00:29:30.268]

was the second era.

[00:29:32.103]

The top 50 companies of the S&P from '98 to 2000,

[00:29:36.674]

the P/E went from 20 to 40 while the rest of the

[00:29:40.645]

market went from 20 to 20.

[00:29:42.814]

That was like a bubble in big growth companies.

[00:29:47.352]

We're seeing, obviously, elements of that.

[00:29:51.222]

I wonder what is going to be the end game with the caveat that

[00:29:55.160]

it's a sample size of three. This one could go for 25

[00:29:59.497]

years, who knows?

[00:30:02.267]

I look at the historical context and try to

[00:30:06.871]

make sense of it knowing that history doesn't repeat but it sure does rhyme

[00:30:10.975]

and this one is rhyming with the '90s.

[00:30:13.545]

And is there a fourth chart? There is, fourth and fifth.

[00:30:18.149]

Lots of discussion today about international stocks.

[00:30:21.119]

I'm very excited about this.

[00:30:23.888]

I've had many, many conversations over the years with my colleagues

[00:30:27.959]

in Global Asset Allocation about diversifying from

[00:30:32.163]

U.S. stocks to international because the valuations

[00:30:36.234]

were so attractive, are still so attractive.

[00:30:39.370]

At the peak of the U.S.

[00:30:41.639]

relative to international boom just earlier this year

[00:30:46.477]

the U.S. was trading at a 65% premium to non-U.S.

[00:30:50.515]

stocks. That's now down to about 45%.

[00:30:54.586]

What 's exciting to me is that when you look fundamentally at valuation,

[00:31:00.091]

you look at a discounted cash flow model, you look at earnings growth, you

[00:31:04.262]

look at the growth of what we call the payout, so dividends and buybacks,

[00:31:08.032]

that's the share of earnings that get returned to

[00:31:12.003]

shareholders, and you look at the payout ratio, the percentage of

[00:31:16.374]

payout to earnings.

[00:31:18.176]

What we're seeing now for the first time in a long, long time is

[00:31:22.146]

that the U.S. fundamentals are great, the payout ratio is 75%,

[00:31:26.985]

you can see the orange line is earnings, the grey line is the payout, they're

[00:31:30.989]

both growing very nicely.

[00:31:33.491]

But you look the EAFE, which is non-U.S.

[00:31:35.927]

developed stocks, they have now the same payout ratio, although

[00:31:40.064]

two-thirds of the payout is dividends and one-third is buybacks as opposed to

[00:31:44.002]

the opposite in the U.S., but the payout is actually growing

[00:31:48.106]

faster than in the U.S.

[00:31:50.775]

That seems hard to believe because the U.S.

[00:31:53.878]

is all growthy and has all this dynamism which Europe

[00:31:57.916]

and Japan don't.

[00:31:59.784]

As I think Patrice was saying earlier, they're

[00:32:04.222]

unlocking shareholder value, they're much better, more savvy at unlocking

[00:32:08.459]

shareholder value.

[00:32:10.094]

European banks which were trading at half times book are now buying

[00:32:14.232]

back shares to unlock that value.

[00:32:16.668]

Even though the top line growth is not as compelling the payout,

[00:32:20.872]

the share of those earnings returned to shareholders, is now really

[00:32:25.476]

competitive. Now you have global equities, especially developed

[00:32:29.781]

in my view, EM stocks tend to not buy back shares, they tend to

[00:32:33.851]

be dilutive, but developed stocks are

[00:32:37.822]

competitive in their fundamentals but they're trading at a 16

[00:32:42.026]

multiple relative to a 25 multiple.

[00:32:45.463]

I think that's a great thing because we obviously have concentration risk

[00:32:49.400]

in the U.S. market. Seven stocks are 36% of the index.

[00:32:54.005]

There is alpha to be had now internationally.

[00:32:57.375]

To me, a barbell of cap-heavy S&P

[00:33:01.879]

and non-U.S. stocks is something that is now available that

[00:33:06.117]

wasn't available even a year ago.

[00:33:09.087]

It's a bigger pond to fish from which is good for everyone.

[00:33:13.491]

Let's transition to a question that's just come in about capitalization.

[00:33:16.728]

Is there more strength in small and micro-caps now?

[00:33:22.033]

There is a lot of strength in small-caps.

[00:33:24.202]

If you look at the Russell 2000 it's really

[00:33:28.406]

caught up, but why has it caught up?

[00:33:31.109]

It's because of the non-profitable stocks, that was the

[00:33:35.113]

first chart that I showed.

[00:33:37.749]

I think it's a hard game.

[00:33:42.153]

If you're relatively benchmarked, which of course we all are at

[00:33:46.257]

Fidelity, how do you mitigate the concentration risk?

[00:33:50.228]

Do you sell the Mag Seven and go micro or small-cap?

[00:33:55.133]

Maybe, but that's a very binary thing because if you

[00:33:59.070]

miss out on the Mag Seven you're missing out.

[00:34:02.807]

My approach is to paint with

[00:34:06.778]

a broader brush and go international because you're going to get a lot of the

[00:34:10.415]

same attributes of this small value type of style box

[00:34:15.219]

but you're doing it in a different market where you don't have to make the

[00:34:18.956]

binary choice, and you can expose yourself to currency.

[00:34:24.128]

Again, the weaker dollar outlook from the panel

[00:34:28.132]

earlier is one that I agree with.

[00:34:30.668]

It gives you a little bit more, I think, room to express

[00:34:34.739]

views.

[00:34:35.873]

We just have a few minutes left, I've got to ask you about Bitcoin.

[00:34:38.876]

Has there been a disconnection in the last little while with the NASDAQ in

[00:34:42.380]

particular?

[00:34:44.816]

My analogy for gold in Bitcoin is, you know, gold is boring, it's

[00:34:48.753]

store of value. Well, it is not boring lately.

[00:34:52.423]

Bitcoin is like Dr. Jekyll and Mr. Hyde, it can act like gold one day

[00:34:56.327]

and act like the NASDAQ on steroids the next day.

[00:34:59.597]

If you invite gold to the party they're going to have one glass of wine and

[00:35:02.667]

leave at 9:00. With Bitcoin you don't know what's going to happen.

[00:35:06.571]

I view gold and Bitcoin as different players

[00:35:10.775]

on the same team, and they take turns.

[00:35:13.544]

Ironically, gold and Bitcoin have a negative correlation to each other which is

[00:35:17.348]

something I never would have guessed.

[00:35:20.618]

Gold is running right now.

[00:35:22.854]

It's in part the fiscal dominance theme that

[00:35:27.458]

the two Davids talked about. In part it's geopolitics about China

[00:35:32.029]

exerting its dominance while also hedging its

[00:35:36.234]

risks against what it probably would call the weaponization of

[00:35:40.204]

dollar reserves.

[00:35:41.706]

There's two secular themes going on that

[00:35:45.676]

are kind of independent from each other.

[00:35:48.913]

Bitcoin gets plagued by too much leverage or a flash crash,

[00:35:53.251]

which is what it just had.

[00:35:55.219]

I think they're both players on the team.

[00:35:57.655]

For me, the ratio is 4:01, that's not investment

[00:36:01.993]

advice, 4 gold, 1 Bitcoin, they equalize

[00:36:06.097]

the volatility, that equalizes the volatility so, to me, if you want

[00:36:10.034]

a store of value, hard money bucket in a portfolio that's kind

[00:36:14.071]

of the bucket for me.

[00:36:15.306]

I've got five questions about you, four or five.

[00:36:18.142]

Oh, no.

[00:36:18.676]

Favourite podcast.

[00:36:21.145]

I have to say Compound and Friends. They really do a great job, not the one

[00:36:24.782]

that I'm on but just in general.

[00:36:27.618]

Where would you want to live for a year?

[00:36:30.955]

Santa Barbara.

[00:36:33.624]

Last movie watched.

[00:36:36.427]

One Battle After Another, the new Paul Thomas Anderson movie.

[00:36:40.031]

Best ice cream?

[00:36:42.833]

Vanilla topped with Fruity Pebbles.

[00:36:44.769]

It's got to have Fruity Pebbles.

[00:36:51.242]

Fruity Pebbles, that stuff will kill you. Quiet environment for doing your work

[00:36:52.944]

or a bit of noise?

[00:36:55.346]

Every Sunday when I write I put my father's

[00:37:01.219]

50-year-old vinyl records of Bach on and

[00:37:05.323]

that is how I work.

[00:37:07.258]

Excellent. You are someone who continuously educates us.

[00:37:11.229]

We appreciate that. We didn't cover a lot of areas today but you can see

[00:37:15.299]

Jurrien every week and read his stuff, follow him on LinkedIn.

[00:37:17.902]

Thank you very much for joining us today.

[00:37:20.271]

Thanks for watching or listening to the Fidelity Connects

[00:37:24.208]

podcast. Now if you haven't done so already, please subscribe to Fidelity

[00:37:28.346]

Connects on your podcast platform of choice.

[00:37:31.148]

And if you like what you're hearing, please leave a review or a five-star

[00:37:33.985]

rating. Fidelity Mutual Funds and ETFs are available by working with

[00:37:37.955]

a financial advisor or through an online brokerage account.

[00:37:41.325]

Visit fidelity.ca/howtobuy for more information.

[00:37:45.029]

While on Fidelity.ca, you can also find more information on future live

[00:37:48.866]

webcasts. And don't forget to follow Fidelity Canada on YouTube, LinkedIn,

[00:37:53.004]

and Instagram.

[00:37:55.006]

We'll end today's show with a short disclaimer.

[00:37:57.875]

The views and opinions expressed on this podcast are those of the participants,

[00:38:01.712]

and do not necessarily reflect those of Fidelity Investments Canada ULC or

[00:38:05.650]

its affiliates. This podcast is for informational purposes only, and should not

[00:38:09.654]

be construed as investment, tax, or legal advice.

[00:38:12.189]

It is not an offer to sell or buy.

[00:38:14.492]

Or an endorsement, recommendation, or sponsorship of any entity or securities

[00:38:18.829]

cited. Read a fund's prospectus before investing, funds are not guaranteed.

[00:38:23.634]

Their values change frequently, and past performance may not be repeated.

[00:38:27.204]

Fees, expenses, and commissions are all associated with fund investments.

[00:38:31.042]

Thanks again. We'll see you next time.