'Barbell' Investing Strategies With Jurrien Timmer

Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio on the.

Speaker 2 (00:17):
Latest Masters in Business podcast. An amazing conversation. I sit
down with Uri and Timer. He's the director of Global
Macro at Fidelity. They touch about fifty million separate clients.
What an amazing conversation. Urian has been started out in
fixed income before he became a market technician. Now Global

(00:38):
Macro is his beat, which means he covers everything the
US overseas, equity, bonds, commodities, economic data. I thought this
conversation was fascinating and I think you will also. What
a depth and breadth of knowledge. With no further ado
my conversation with Fidelities Urian timor ur Tim Welcome to Bloomberg.

Speaker 3 (01:01):
Thank you very much, Arry.

Speaker 2 (01:03):
I've been looking forward to this. I'd been consuming your
stuff for it feels like forever. I'm a big fan
of what you do. But before we get to your
work at Fidelity for the past three decades, let's talk
a little bit about your background. You get a bachelor's
and finance from BAPS in college. What was the original
career plan?

Speaker 3 (01:24):
Well, so I was born and raised on the island
of Aruba in nineteen sixty two when Aruba was still
very small and sheltered, and as a Dutch citizen now
also an American citizen. But you know, generally the Dutch
kids would go to Holland to go to higher education.
But I was in love with the American culture. I

(01:46):
met many tourists on the Beach Show, and so I
wanted to go to the States and do the American thing.
And then my father, who was an importer of construction materials, etc.
He had contact in Boston. They said, okay, well you
should send your kid to BABSM because it's small, it
won't be overwhelmed as an international student. And I've always

(02:09):
wanted to be an architect. But then in the last
year before finishing high school, I'm like, I don't think
I'm good enough to be an architect, so let me
do business. And I figured, you know, there's always something
you can do with a business degree, and so I
studied finance with a minor in investments. And then you know,
I graduated with no work permit, right, So I was

(02:31):
in that place where you need to have obviously a
work permit. So back then I don't know if it's
still the case, but back then you got one year
practical training visa and then you had to go, you know,
get a real visa. And so I took literally the
only job that was offered to me in the United States.
So I applied to every Dutch company. I figured, at

(02:52):
least they'll have maybe some sentimental reasons to hire a
Dutch person. I could have worked in Holland, of course,
but I wanted to be in the States. So the
Dutch bank ABN, which later became ab and am Ro,
hired me. I went to New York into their corporate
banking credit program, in which I had zero interest. But

(03:13):
it's like, you know, this is the job.

Speaker 2 (03:15):
But you eventually become pretty senior in the fixed income
group at ABM.

Speaker 3 (03:20):
Yeah, so I was very lucky. And again, you know,
it's sort of if you take the job that's offered
to you and you make the best of it, you know,
you played a hand that's dealt And literally within a
few months, ABN set up a capital markets group because
you know, we were the primary dealer in New York,
together with Lacelle National Bank in Chicago for the HQ

(03:40):
in Amsterdam, which of course, was one of the world's
largest banks at the time and a very large treasury book,
and so I was the person who would execute the
trades for HQ. So I became a client of like
Solomon Brothers and Smith Varney and you know, you know, Goldman, Sachs,
et cetera. And so I got in to the Wall

(04:00):
Street game and I learned everything about fixed income, and
to this day, i'm you know, like, if you're either
a stock market person or a global macro person, having
a foundation in fixed income is so important.

Speaker 2 (04:14):
It's so true. You say that some of my favorite
stock analysts began as bond analysts because they're concerned about
return of capital, not return on capital, and it focuses
them very much on staying away from the speculative nonsense.
And really it's been very consistent over the years. I
have a list of some favorite people in that space. So,

(04:35):
so you start out in fixed income, when did technical
analysis and becoming a CMT arise in your journey.

Speaker 3 (04:43):
So I was at ABMM in New York for ten
years and so i'm you know, I'm there executing trades,
learning about the markets, watching my teller eighth and the
Bloombergs were still there were the quad screens with the
amber right, and you know, I just I've always been
a visual person, and so I started gravitating towards charts.
And you know, charts are kind of the mainstay of

(05:05):
what I do even now forty years later, forty years later.
And I like to write. I think I get that
from my dad, who's a great writer. And so I
always had this kind of urge to put pen to
paper and to show charts. And so I just started
writing a newsletter for the people in my universe at

(05:25):
the time, and you know, it would be like charts
from CQG cut out, taped onto a type report and
then facts to people like that's what the technology was
back then, and so it was al So that's how
it started. And then I ended up, you know, getting
the chart at Market Technician, although that may have been

(05:47):
during the Fidelity years.

Speaker 2 (05:48):
So how did you go from ab and m RO
to Fidelity? When was that?

Speaker 3 (05:52):
So the culture AB and m ROW. Not not to
spill any beans, but this is a long time thirty
years ago, thirty years ago, I didn't like where it
was going. So we ABN had a bank in Chicago,
and they saw what a profit center in New York was,
so they wanted to They wanted me to work for them,
become a commissioned salesman. And I'm like, it's like, not

(06:14):
what I do. And just coincidentally, at that time, Fidelity
came looking around looking for the most obscure job in
the world, a fixed income technical analyst. I mean, talk
about a narrow field, right. So that was in nineteen
ninety four. Around that time, you know, I was kind

(06:34):
of looking around and I had two major career highlights
within six months of each other, because in ninety four
I was approached by Paul Truder Jones's company, really and
so I had a meeting with Paul in his office
downtown New York with his giant Tolerate on the screen,
and we were looking at the bomb chart ninety four
to the bear market and.

Speaker 2 (06:55):
He very famously had called the eighty seven crash before.

Speaker 3 (06:58):
It was like, is that do you think that's a
fourth win? And we were having that conversation that was great,
and then you know, I was approached by Fidelity, and
I ended up going with Fidelity. But the last interview
of that process was with Ned Johnson.

Speaker 2 (07:11):
Oh really, and so I was spent the founder.

Speaker 3 (07:13):
I spent an hour with him in his office talking
about pokers, because I was hired to go into the
chart room. And at Fideliti, nobody got into the chart
room without Ned's blessing, right because.

Speaker 2 (07:24):
And back then were they still doing charts by hand?

Speaker 3 (07:27):
Yep. Amazing and so that so that anyway, so that's
how the fidelity career started, and it was it was
interesting because this is now early ninety five, and of
course ninety four was that bear market. We had the
so called tequila crisis in Mexico, and so the new
mandate from upstairs in ninety five was, we're not making

(07:49):
any duration bets. You just stick to your bottom up.
You know, you look at credits and like, I'm coming
in there as a technician and like, what am I
supposed to do? Now? Is nothing for me to do?
And so at that point I kind of reinvented myself
and became a multi multi asset and I went to
the equity side. And anyway, so that was the one.

Speaker 2 (08:10):
When you say multi asset, I think you're the only
person in all of finance with the title director of
Global Macro Global means around the world macro means thirty
thousand foot view is everything out there in your jurisdiction
pretty much.

Speaker 3 (08:28):
So I don't do security selection. You know, we have
armies of very downs up.

Speaker 2 (08:32):
But you do stocks, bonds, all scrypto, commodities, gold.

Speaker 3 (08:37):
You name it everything, but it's top down.

Speaker 2 (08:39):
As well as economic data, interest rates, employment, etc.

Speaker 3 (08:44):
And that's how I transitioned from being a technical strategist
to being more kind of multidisciplinary because I quickly learned
at Fidelity as I was roaming the halls pitching ideas
to portfolio marriage who generally are fundamentally oriented, right, I'm like,
you know, it's like I'm speaking a different language, right.

(09:06):
So Finelle has always had a lot of technical analysts
and the chart room, but I had to like reinvent
myself again and pivot towards at least speaking their language.
And like, you know, a chart is a chart, right.
It can just be a bar chart of the S
and P, or it could be of the pe ratio
or earnings or monetary policy. So I figured a chart
is a chart. I'm going to like weave a broader

(09:29):
approach to this, and that's where kind of I came
up with the title.

Speaker 2 (09:32):
So whenever I see a technician and a fundamental analyst
having a discussion, somewhere along the line, someone says, look,
I'm a techno analyst. I'm just telling you what's going
on in the battle between supply and demand. It's up
to you to create a narrative around that. You tell
us what's going on. Fundamentally, I don't know, but I

(09:53):
could tell you who's winning the buyers or the sellas.

Speaker 3 (09:56):
So the fundamentals tell you kind of the why, maybe
the what and the why, and the technicals tell you
kind of the when and the how much It helps
give you conviction. And generally speaking, we use technical analysis
like our equity pms do. Like they're obviously going to

(10:16):
have an idea about a company and what their long
term prospects are. But then our technical analysts will will say, okay,
well you've rated this stock a one, meaning strong buy,
but the chart looks like hell, Like you should be
aware that what's in what's happening is not the same
as what should be happening, and maybe it takes time,

(10:37):
but it's like it's a it's a second opinion, which
can be very helpful. And the other way around as well,
Like a chart looks amazing, but it gets a really
poor fundamental ranking. And we also have a quantitative team
that does a quant overlay as well.

Speaker 2 (10:50):
So so we talked about global macro. I'm curious, you're
a Dutch citizen, originally born and raised in Aruba, now
a citizen in the US for the past twenty five years.
How does that international upbringing affect how you see the
entire world of assets.

Speaker 3 (11:09):
Yeah, it's a great question. I do think that I've
been privileged to grow up in a very diverse environment.
Like if you look at old high school pictures, I'm
like maybe one of two white kids in there. Everyone
else is different shades, but so very very diverse. And

(11:31):
so I think and also just going to different countries
and learning different cultures or being exposed to them, I
think it's helped me, Like I view myself sort of
as a global citizen.

Speaker 2 (11:40):
Well, you're a globe trotter. You're you're in the US,
you are in California, you're in New York, Boston, you're
going to where what's your next few stops? London?

Speaker 3 (11:48):
I'm flying to London on Saturday. I'll be in Geneva
after that, and then.

Speaker 2 (11:53):
We were just in late Geneva a year ago, spectacular.

Speaker 3 (11:57):
And then actually we're going to Holland because my parents
are they live in the Hague. They're celebrating their seventieth
wedding out of vers so they're ninety one and ninety seven.
So we got three generations of Timor descending on the
Hague in about a week and a half. And I think,
what I feel at home in almost any place really

(12:18):
in the world. And you know, when it's hard to
understand what someone says because the English is not their
first language, you can kind of like you figure it
out because you just kind of used to this, you know,
this environment where everyone's coming from different places and and
like you know even now, like I run and a
totally separate topic, but I run a food camp at

(12:41):
burning Man and it's a very global camp. We have
ninety people. We're all cooked meals that we gift away
to the artists there. But we have like thirty Brazilians,
and we have like French and Swiss and Mexican people
and obviously Americans and that, like it's it's easy to
do because you're just used to having all these different

(13:02):
cultures in the same space.

Speaker 2 (13:04):
So I'm kind of fascinated by the new I don't
love the earbuds that not comfortable in my ear, but
the new AI enabled instant translation that is star Trek
next level futuristic. I can see that saying, oh you
want to go to Japan or Korea or China, here
you go knock yourself out. That sort of technological innovation

(13:25):
is that turns that into a must have technology for sure?
How many languages do you speak?

Speaker 3 (13:31):
I speak? Obviously, Dutch is my native language. English. I
used to be totally fluent in Spanish, but I've kind
of lost that. And then of course there is the
world language called Papiamento, which is what they speak in Aruba,
which is essentially kind of a Spanish Portuguese blend. But
if you don't know a word, you can just say

(13:52):
it in Dutch or English and it's completely acceptable.

Speaker 2 (13:56):
Really fascinating. Coming up, we continue our conversation with you
and Temor, director of Global Macro at Fidelity, discussing various
asset classes, equities, bonds, commodities, alternatives. You're listening to Masters
in Business on Bloomberg Radio. I'm Barry Ridults. You're listening

(14:27):
to Masters in Business on Bloomberg Radio. My guest this
week Urian Temor, director of Global Macro at Fidelity. They
touch about sixteen trillion dollars in assets and have discretion
over six point four trillion. So we were talking about
what a globe trotter you are. Let let's trot around

(14:47):
the world and talk about various asset classes. Since you
began your career with bonds, let's let's start with bonds.
How do you see what's been going on with treasury
yields and anticipating not only the twenty five basis cut
point we had in September, but perhaps a couple more
this year and next.

Speaker 3 (15:08):
Yeah, So treasury yields such an interesting market right now.
We've been stuck sort of between four and five percent
for a while for a while, and when we go
above four and a half, it's like nothing good happens,
Like the old fed model from the Greenspan Das comes
lurking back and it starts to wabble the stock market
because the bond yield and the equity yield are about

(15:31):
the same right now, And so that takes you back
to the eighties and and you know, mid nineties and
even the seventies and sixties where bonds to stocks were
positively correlated instead of negatively correlated. That happened that that began,
you know, during the Great Moderation era late nineties until
COVID basically, and so then in twenty twenty two, of

(15:53):
course the correlation flipped back to positive. It was rising
yields that caused the problem in the stock market. And
so there's a whole broader conversation about the sixty forty,
but just dealing with treasuries right now. So as you
get close to five, it really starts to freak the
stock market out, but also the bond buyers start to

(16:13):
emerge because there's value, right, I mean real.

Speaker 2 (16:16):
Real ch yields over two and a half percent inflation.

Speaker 3 (16:19):
The income is back into fixed income, right, but down
at four when you have a growth scare kind of
like I mean, I wouldn't say it's a growth scare, but.

Speaker 2 (16:27):
There's more some nervousness and some life I hate the
word uncertainty, but there's a lack of clarity as to
how all these things taraffs, yield FMC plays out.

Speaker 3 (16:36):
Yeah, so at four, generally I would be a better
seller than a buyer. But this question of you know,
fiscal dominance, you know clearly the administration wants to grow
out of the debt. I think that's the very overt
plan if you've listened to good Bessant.

Speaker 2 (16:55):
Or they're pretty explicit about it.

Speaker 3 (16:57):
And so they're trying to goose the economy and outrun
the debt because everyone knows you can't really cut the
debt very much because too much of the budget is
is not discretionary. And so that's the plan, and I
think it's basically it's a good plan because what are
the alternatives.

Speaker 2 (17:14):
Right raising taxes and spending, which we know what the
odds of that.

Speaker 3 (17:18):
Are, yes, But running kind of that fiscal train means
deficit spending, or at least that's part of it, and
that means more supply, and that could mean hire term
premium for long treasuries and we saw we've seen that,
right the term premium during the qa QE financial repression
days was like minus one fifty, which makes no sense,

(17:38):
right term a risk premium should always be positive, and
now it's plus sixty plus seventy, but historically it's been
plus one hundred and fifty or even more. And so
if the term premium mean reverts back to a normal
level positive level, because deficit spending and debt levels are rising,

(17:59):
you could easily least see a five handle on treasuries,
and a five handle on treasuries are not going to
sit well with equities. Like the equity marketing can go up,
earnings can drive the bus, but the pe gets under
pressure because the risk free acid is now competing with
the risky acid and they're offering the same yield.

Speaker 2 (18:17):
So quick question on that. In the twenty tens, or
at least towards the end of the twenty tens, we
had an inverted yield curve for a while. What's the
impact of that on that term premium or lack thereof.

Speaker 3 (18:29):
Yeah, so we had that very inverted yield curve. Obviously
it shouted recession and it didn't happen. And I think
the reason in hindsight was that the economy is just
less interest rates sensitive than it used to be. Right,
so everyone refired their mortgage in twenty twenty and twenty
one at sub three percent. That's also why the housing
market is frozen. But also if you look at the

(18:52):
big banks, right, why is a yield curve inversion. Typically
bad is because banks net interest margins goes upside down.
They borrow short land long, and so banks stopped lending
and you get a credit crunch and you get a recession.
But in this case, the large banks. You know, if
you notice your your deposit rate at the large megacenter

(19:14):
banks has not really gone up commensurate with the yield
on money market funds, right, So that deposit rate went
up to half a percent and is now coming back
down again. So for a large bank, the yield curve
not only was never inverted, it was extremely steep half
a percent funding. Right, If you're funding your loans on

(19:35):
deposits and you're paying half a percent on those deposits
and you can lend at seven or eight percent, you'll
do that all day long.

Speaker 2 (19:42):
And yet at the same time, we've watched money markets
go five trillion, six trillion, seven trillion. It's become so
easy with your app to move money from Hey, I'm
going from Chase to swab, I'm going from city to Fidelity,
where I'm getting real yield. I wonder how much technology
plays a role in people. It used to be pain

(20:02):
in the neck. I'm getting quarter percent in my checking account.
But do I really want to write a check and
mail it out and wait.

Speaker 3 (20:09):
For the Yeah, So you leave money at the bank
for convenience. You know, you got bills to pay. But
if you have extra cash, you're buying a CD or
money market fund or buying T deal, so what have you.
And it's a lot easier than it used to be.
And so now you've got seven trillion in money market funds,
which a lot of people actually think is money waiting
to be invested in the stock market. But I don't

(20:32):
think there's really a signal there because I think that
money came out of the banks and probably we'll go
back to the bank.

Speaker 2 (20:36):
So some people have said, hey, as soon as the
Fed starts cutting rates, it'll a make the cost of
borrowing cheaper for corporate America as well as American households.
And b is going to scare some of that money away.
And it's got nowhere to go about equity fair narrative
for kind of a lot of wishful thinking.

Speaker 3 (20:56):
It could be a combination of both. But if you
typically look at when money market fund assets swell like
it did during the pandemic, it's money coming out of
the stock market seeking a safe haven, and then when
the stock market recovers, the money goes back in the
stock market. That's not the pattern this year. The money
came out of the banks in part because of like
the Silicon Valley tobaccle.

Speaker 2 (21:18):
Fhoe years, but also five hundred basis points of rate
hikes ex. Twenty twenty two.

Speaker 3 (21:22):
So money markets went from zero to five and a
half and suddenly attracted and deposits went from zero to half.
You know, so money markets yielded ten x the bank deposit,
and so some of that may go to the stock market,
but I think, but it didn't come from the stock market.
Let me put it out.

Speaker 2 (21:37):
So you noted something really interesting. I remember you wrote
in twenty twenty two bonds went from being a port
in the storm to the storm itself. Yes, so normally
we think of money leaving equity and going in the
safe harbor of money markets. Were we seeing money exiting
bonds and going to money markets? Is that what happened?

(21:58):
Was it a duration play.

Speaker 3 (22:00):
From among sort of the typical investors. We have not
really seen an exodus at all, and I think part
of that is just the demographics of you know, the
baby boom, solving for income more so than growth. So
when you look at fun flows into fixed income, they've
remained strong, and they were strong at you know, one percent,

(22:21):
and they're strong at four percent. So I think that
is more of a structural trend than playing the markets,
if you will, Like I think the average investor is
not looking at okay, well real rates are now positive,
so let me do this. But they're solving for outcomes.
They're buying solutions based funds, like like our target date,
we'll have a certain amount of fixed.

Speaker 2 (22:41):
I've just attracted so much money in four o one
k's over the past twenty years. It's amazing. So let's
talk a little bit about equities. I keep hearing people
complain about valuations, but if you stayed out of equities
due to elevated valuation, you miss most of this run
from the twenty thirteen breakout.

Speaker 3 (23:00):
Yes, so, so the market obviously is very bifurcated. We
got the MAC seven, the cap weighted PE is you know,
twenty three twenty four. The equal weighted PE is eighteen.
So there's a very large gap there. You know, if
you look back at the mid to late nineties, which

(23:21):
is a kind of an analogous period to today. Right,
we had the ninety four stealth bear market when green
Span raised race three hundred basis points. Then he gave
back seventy five and we had a huge rally. And
it was also the start of the Internet boom, you know,
the Netscape IPO and it was like in ninety six.
So the post twenty twenty two period very analogous to

(23:43):
post nineteen ninety four, you know, soft landing, ease off,
the brakes, markets, markets rip, and then the post ninety
eight long term capital that you know, twenty two percent decline,
very robust recovery, and then green Span eases three times
into that recovery. We're seeing the same thing now. We
had a twenty one percent tariff tantrum, no recession, you know,

(24:07):
the kind of administration backed off very very strong, one
of the strongest ever recoveries from a twenty percent decline
other than nineteen ninety eight. And then now Powell's easing
into that. And so but the point is that that
period saw almost NonStop multiple expansion and that's what we've
seen since twenty twenty two. And you know, pees are

(24:31):
they have they are strong predictors of long term return.
So if you take a ten year cape ratio and
you regress that against ten year forward returns, you see
a very high you know, it explains the forward returns
very well. But over the near term, a high pe
has very little to say about the next year or two.

(24:54):
And this is because the market tends to be in
a rising trend. Momentum begins, that's momentum, and that's what
we're in. So it's it's a you know, it's a
tough game to time on the mean reversion of pees,
even though we know that historically it's between ten and
thirty and it does mean revert, but when the mean

(25:17):
reverse reversion starts and from what level, it's very very
difficult to do, especially during secular trends, which I think
we're very clearly in.

Speaker 2 (25:26):
So so many different places to go with this. I
have a dozen questions. Maybe we'll go a little along
the segment and delve deeper into equities. I love the
concept of a secular bull market as opposed to a
cyclical but I think a lot of people don't really
understand the difference. Give us your definition of what is

(25:47):
a secular bull market. When this one began and why.

Speaker 3 (25:51):
Yeah, So we have the market cycle, which is generally
driven by the business cycle. So you have a recession
and you have the early cycle recovery where things get
less bad, and of course the market is always anticipating that, right.
The market's always in price discovery, and this is why
at bottom's price will lead earnings, which is why the
pe always goes up in the first year of a

(26:13):
bull market, like it always does. And it doesn't make
sense on the surface. People are like, oh, this can't
be real. It's all pe driven. Where are the earnings all?
The market's just from running the earnings. Yeah, But then
there are the secular trends, and you know, if you
go back one hundred years, you can see them. You
can spot them very easily because the market has a

(26:34):
kind of central trend line plus ten percent nomenal plus
seven six and three quarters real. And if you run
a regression trend line against the total real return of
the SMP or some basket of stocks going back one
hundred and fifty years, it's like perfect. And then you
have the pendulum swinging above it and below it, so you.

Speaker 2 (26:54):
Have very noisy but still the overall trend is being made.

Speaker 3 (26:57):
But you have these supercycles where you're outperforming the trend line.
So the eighties and nineties was one of those. So
instead of a ten percent return, we got eighteen percent
returns for like eighteen years, the fifties and sixties, after
World War Two, the twenties, that was a truncated one.
But from twenty to twenty nine, boy, to that thing go.

(27:18):
And since nine is where I put it, other technicians
generally disagree with me. They think it was twenty thirteen.
When you look at the CAPE model, you look at
deviation from trend, you look at the slope of those
early trend lines. For me, it's nine, which puts it
a sixteen. And of course, and then you have the
secular bear markets, right, so the two thousand's was one,

(27:40):
the nineteen seventies very famous. Of course, nineteen thirties doesn't
mean it market necessarily goes down, but it's underperforming that
ten percent trend line, and generally, in real terms, it's
probably going down. And so that's kind of how I
define the secular trend.

Speaker 2 (27:55):
So we are in agreement on so much stuff. I'm
going to circle back to nine and push back a
little bit. But you mentioned that first year, you get
a pe spike as the market anticipates improving earnings. One
of the things that's kind of fascinating is to see
how much of a bull mark it's gains are attributable

(28:17):
to not improving fundamentals, but multiple expansion. From eighty two
to two thousand, what was it, three quarters of the
games where multiple expansion. How much of that is psychology
and how much of that is just people getting on
board late as the market rallies.

Speaker 3 (28:34):
It's it's both. But yeah, for instance, eighty two, the
PE was like seven, and in two thousand.

Speaker 2 (28:39):
And what was the yield in eighty two.

Speaker 3 (28:41):
It is double ditches almost twenty percent competition And then
in two thousand, yes, exactly, And in two thousand the
PE was thirty five using operating earnings. That was the
forward pe. Actually the trailing p was like forty five.
So that's a hell of a pendulum swing. Yeah, and
you know, obviously nineteen eighty two inflation was very high.

(29:02):
They yet the malaise of in the economy, bonds were
very competitive. Nobody wanted to pay for earnings.

Speaker 2 (29:10):
The death of equities the years earlier on death business.

Speaker 3 (29:13):
Death of equities, Yes, for sure, and then people become
more comfortable, and then they go from comfortable to confident,
and then it's like, yeah, I'm going to pay I'm
going to pay twenty or twenty five times these earnings.
And then of course then you have the growth the
growth stocks. So the late nineties obviously, where you know,
I used to call them the Janus twenty there was

(29:34):
a fund that was just the most docks and so.

Speaker 2 (29:36):
I remember the Ryan net net An exactly.

Speaker 3 (29:40):
And of course right now it's the mag seven formerly
known as the as the Thangs, and those are secular growers, right,
And there's a theme, right, it was Internet back then,
it's AI now, and people get onto the onto the
bandwagon and it's like, yeah, you know, I'll pay thirty
five times earnings for a company that is in this
space and is going to grow, so their earnings in

(30:01):
a secular way, not a cyclical way. And so it's
totally plausible and understandable. But at the end it goes
too far and I don't think we're anywhere close to that,
But then you start looking for signs of frost. But yeah,
but that's that's the pensulum swing.

Speaker 2 (30:17):
So let's talk about nine and why so many of
your technical brethrens dated to twenty thirteen, which was when
all of the major industries broke out over their prior
training range. So the pushback IY here to nine is, well,
that's like dating the eighty two to two thousand bull
market to the lows in seventy three seventy four, and

(30:41):
you're still All you're doing over that period is recovering
the selloff twenty thirty. What we were down fifty six
to fifty seven percent from October seven to March o nine,
and then to get back to where you were in seven,
it took till twenty thirteen. So why nine as opposed
to thirty?

Speaker 3 (31:00):
It's totally a legit argument. But I would say a
couple of things. One is this is not an exact science, right,
There's only been two or three or four secular.

Speaker 2 (31:13):
Bull markets, right, small data sets.

Speaker 3 (31:15):
Small data set, it's not a quant model. You have
to look at the chart at the slope. So I
date the secondar bull market from the fifties. I date
at forty nine, even though forty nine was not the low, right.

Speaker 2 (31:29):
The low was six forty six.

Speaker 3 (31:33):
But in forty nine something changed and the slope started
to you know, like the market found itself and that
trajectory started to really compound at double digits and you
broke out of that big shelf that was really from
twenty nine all the way to forty nine seventies. The
low was of course in seventy four October seventy four,

(31:55):
after forty eight percent bear market. We had some other
little cycles, but then in eighty two it took off.
There was a change in the fundamentals. You know, Vulcar
broke inflation. So and then you look at the case,
so then I get verification from the fundamentals. Then so
I look at the charts, and yes, I see the argument,

(32:17):
and I agreed it's a good point. But in nine
the market just went straight up after a decade of sideways.
In eighty two the market went straight up after a
decade of sideways. In forty nine, same thing, whether the
low was in or not. And of course, in real terms,
the eighty two low was below the seventy four low.

Speaker 2 (32:38):
So course of inflation, you really felt.

Speaker 3 (32:39):
So I want to get second opinions from the real
chart and from the fundamental So the cape model again
where you compare the ten year pe to the ten
year forward return looks very similar at the nine and
not similar at the thirteen when the market already had
a lot of momentum. And then the other thing. I

(33:01):
look at again that one hundred and fifty year regression
trend line of the real SMP, and so at the
at secular peaks, the market is about one hundred percent
above the trend line, and at secular troughs it's about
fifty percent below. So that point was in nine, it
was not in thirteen. So I look at like the

(33:23):
weight of the evidence from a multitude of indicators, and
again it's it's not an exact science. I'm not saying
I'm right there wrong, but that's for me. That's where
I get.

Speaker 2 (33:34):
But you've been a whole lot more right than many
other pieples.

Speaker 3 (33:37):
And it's interesting. So in nine, you know, I was
actually running a fund back then, kind of a global
micro fund, and I was like, the market was so depressed, right,
so remember March of nine, Sure of course, and I'm like,
you know, I want to be long, but what if
I'm wrong? And I'm like, at this point, if I'm wrong.

Speaker 2 (34:00):
So what you're already down fifty cut in half?

Speaker 3 (34:02):
Well, but at that point, the whole system is going
to collapse. So it's like, why not bet at that point?
And so, yeah, when is.

Speaker 2 (34:13):
Down more than fifty percent in US market, it's not
a great entry point. I mean, that's one thing. But
I have to ask you a question about nine. So
I was looking through some of my old notes as
I was preparing for this, and I have I'm curious
as to your thoughts on some of the behavioral aspects,
including sentiment and bulbear ratios. I wrote something up in

(34:38):
October nine calling that recovery the most hated bull market
in market history. Markets went straight up. Everybody was miserable.
It's a headfake, it's a false breakout. This is all
going to be a disaster. And if you listen to
those people, you left a ton of money on the table.
What's your thought on that extra dam sentiment in one

(35:01):
direction or the other, and just what it means when
everybody hates a particular asset class.

Speaker 3 (35:06):
It's obviously an opportunity because that means that everyone is
not on the same side of the boat, right And actually,
and what I.

Speaker 2 (35:13):
Want, well, they're all on the room side.

Speaker 3 (35:16):
But before I answered the rest of that, I want
what I was going to say earlier was when you
run the regression of the nine to present SMP, either
in real or nominal terms, and you run the same
regression from eighty two to two thousand, from forty nine
to sixty eight, it's exactly the same slope. And so

(35:37):
if in O nine I got bullish and in thirteen,
I'm like, yeah, now we've taken out the high. So
now we can say this bull market is confirmed. So
the thirteen for me is not the start, but it's confirmation.
But if I had looked at nothing else for the last,
for the next, you know, twelve years today, I would

(35:58):
be within ten percent of that slope having materialized. And
so again you're never going to do that on a
secular chart. You want to have weight of the evidence.
But it shows you how powerful that context can be
to just look at those different time frames and see
where they are, because it will keep you on the

(36:19):
right side of the market.

Speaker 2 (36:20):
So last question on equities, given the forty nine to
sixty six rally, eighty two to two thousand and then
the nine forward, how much legs does this secular bull
market have? Can can this go another five, six, seven years?
And the other related question is how much of a

(36:42):
reset does that giant fiscal stimulus of twenty twenty one
twenty two build into into markets.

Speaker 3 (36:51):
It's it's a great question. And so on the surface
of it, we're sixteen years in the last two were
eighteen years, but again sample size of two, like, you
can't go with that, right, But the CAPE model, again
which has been a very good long term model in
terms of the ten year Kagar for the Market, suggests

(37:13):
that the so the PE, the growth rate in the
PE peaked in nineteen for obvious reasons because it's a
ten year model. So nine rolls off and then you know,
you have that peak, and we've been holding steady at
around you know, fourteen fifteen percent ten year cagers. That
actually has another peak in about like twenty twenty six,

(37:34):
seven eight. My guess is that that acceleration will be
an AI bubble, or it could be where it's just
like you know, the AI boom, the mag seven, like
all of a sudden, everyone's buying companies with no earnings
because they're promising to be the next.

Speaker 2 (37:48):
Killer app and that sort of things.

Speaker 3 (37:51):
Yes, and my guess is that if we are heading
into a fiscally dominant era or we're in it already.
So we had five billion of helicopter money in twenty twenty,
we now have another five trillion dollar fiscal bill. If
the next Fed post Powell is going to be just
more doubvish than the economics suggest in order to fund

(38:15):
that help fund that debt, then you could see inflation
be structurally higher than two percent, maybe three to four.
And if that, and if the ten year yield at
that point goes to a five handle because the term
premium is back, you can easily see a scenario where
in a few years that FED model principle of rising

(38:36):
yiels bringing down the pe is going to be the
thing that flattens that secular slope. That doesn't mean like
a two thousands like bear market. It doesn't have to
mean that, but it could just be a flattening. Instead
of running at two x the ten year rate of change,
maybe you're at half x or something like that.

Speaker 2 (38:55):
So generally speaking, when you see an elevated cape, it's
not a signal. It's really a signal lower your future
return expectations. Thing is going to be a little more,
a little less easy sledding.

Speaker 3 (39:07):
Yes, I think the next ten years will be less
less robust than the last, but it doesn't mean they
have to be negative at all.

Speaker 2 (39:14):
You mentioned the eighties into the nineties in the post
World War two era. It's kind of fascinated to look
at rolling fifteen year periods. The fifteen years following nine
is the third best fifteen year period in history. It's
really amazing. Coming up, we continue our conversation with Urian Timmor,
director of Global Macro at Fidelity, talking about crypto, gold,

(39:39):
commodity alternatives, and the state of the economy. I'm Barry Rihults.
You're listening to Masters in Business on Bloomberg Radio. I'm

(40:01):
Barry Rdults. You're listening to Masters in Business on Bloomberg Radio.
My extra special guests this week is uriean Temor. He
is the director of Global Macro at Fidelity Investments, the
giant firm helping to manage over sixteen trillion dollars in
client assets. So let's talk a little bit about the

(40:21):
current environment. You look at more than just stocks and bonds.
You look at a lot of economic data as well
and chart that. So how do you think where we
are in the current economic cycle? How do you describe
our location in the business cycle.

Speaker 3 (40:39):
So generally speaking, the economy remains pretty solid. People are employed,
their wages are exceeding the inflation rate. At this point,
debt levels are not high, at least as a percent
of GDP. Right, So the household debt to GDP ratio
peaked during a financial.

Speaker 2 (40:58):
Crisis, pretty modest.

Speaker 3 (41:00):
It's yeah, it was one hundred percent of GDP. It's
now seventy. So there's a debt issue on the government's
balance sheet, but not in the household or even the
corporate balance sheet.

Speaker 2 (41:09):
Even the government side. Isn't our debt to GDP ratio
like half of Japan something like that.

Speaker 3 (41:15):
So about one hundred and twenty percent if it's just
the federal debt. If you add all other debt, it's
about two hundred and fifty. But it's comparable to other regions.
But certainly Japan gets the prize, and China as well,
just in terms of the growth rate of the debt.

Speaker 2 (41:32):
China, oh, okay, not total, but yeah, China has been
growing debt and the Chinese provinces have been growing debt
at yeah.

Speaker 3 (41:38):
And the Chinese numbers, of course, are can be a
little vague because the federal debt in China is not high,
but they have the four big policy banks that are
essentially providing liquidity, and so you have to add that,
and so China and Japan are the worst offenders. The
US is is on par with most kind of European

(41:58):
and other countries. But so anyway, so the economy looks
pretty good. But you know, one of the things that
COVID did was it sort of up ended a lot
of the things we think about when we look at
the at the economic cycle, at the business cycle. So
you know, of course we know what happened. The economy froze,

(42:19):
people got laid off, and then at least in the US,
the economy came back really fast, faster than in other places.
And the labor wasn't there right Baby boomers had checked out,
they left the labor force. Of course, the borders were closed,
and I remember, like I was doing a lot of
flying back to la at the time because I was
hiding in Santa Barbara because the office was closed. And

(42:42):
it's like like the counter at Jet Blue in Boston
was like they just did not have enough people. People
were coming back, like everyone was like, Okay, we're back,
but there wasn't The supply chains weren't there, and so
we had this very tight labor market that of course
we would hear about all the time here from the
jolt support to job openings for every job seeker, that

(43:05):
sort of thing, and that has been worked off over
the last few years. I think that was the goal
of the tightening policy, or part of the goal. So
when you look at the JOLT support or you look
at the U three jobless rate relative to NAHRUD, the
non accelerating rate of employment, everything is in balance, like
it's right at that zero line.

Speaker 2 (43:25):
So they supply is that why we've kind of been
hanging around four to three four to two unemployment.

Speaker 3 (43:30):
So no one's hiring, but not many people are looking for.

Speaker 2 (43:33):
Jobs and not a lot of people getting laid off.

Speaker 3 (43:35):
No, And so there's balance, right the job seekers versus
the job providers. But you look at that chart over
fifty years and you can see that there's a pendulum
swing of that business cycle. So we went from very
tight to neutral, and you know, like the inclination is
to look at that and it's like, well, every other
time that's happened. The next phase is contraction, and I

(43:59):
think that's what the market is saying. That's I think
what where the Fed's coming from now that they did
the twenty five. They're looking at the jobs dated, They're
looking at the revision, right the jobs report revisions eleven
thousand jobs, and they're like, Okay, you know, we should
we should build in some some cushion for that. And

(44:19):
so I think that's generally the vibe. But other than that, uh,
you know, we have a whole economics team that looks
at the business cycle and we're not really seeing a
lot of red flags other than that yellow flag.

Speaker 2 (44:30):
If you how closely does the market cycle track the
business cycle? Because you know, I've heard it said so
many times the market is not the economy and vice versa.
And the old joke is the stock market is forecast
nine to the last four recessions. How do you see
that overlay?

Speaker 3 (44:49):
There is of course a connection, right you look at
GDP growth and inventories. I mean, it's less about that
now than it was decades ago, the impact of monetary policy.
But you know, the markets are not the economy. There
is a reflection because if the economy grows, earnings are
going to grow, and then uh, you know, the market's

(45:09):
going to go up because price follows earnings. But there's
a sentiment equation in the stock market that of course
you don't have so much in the in the economic cycle,
and and you have the timing right, so the market
is always going to anticipate future changes.

Speaker 2 (45:25):
So if you have a chart showing market's bottom eight
months below profits, so you can that's a huge lead
time eight months.

Speaker 3 (45:33):
So you can be one hundred percent correct about the
economic cycle and be one hundred percent wrong about the
market because if it's already been reflected, and if it's
already has even over earned against that future signal, then
you're buying yesterday's news. But yeah, so the market generally
at bottoms will bottom two three quarters before earnings. That

(45:57):
happened during COVID, And I remember like it was yesterday,
because during COVID, you know, the market felt thirty five
percent February and March, then like late March at bottomed,
and I think and I think my June it was
at new.

Speaker 2 (46:10):
Highs and sixty for the year from the lows, and
people like.

Speaker 3 (46:15):
The economists had a cover saying this is divorced from
reality and everyone and so it's my job a to
have people not sell in the first place, to be
to be the long term investor. You know, the way
I always describe it is you're getting a really juicy
ten to eleven percent returned by investing in stocks. But
the price of admission is you got to endure some

(46:38):
volatility and if you can't stand the price, then you
don't get the reward.

Speaker 2 (46:42):
How do you explain to clients? And I got a
million calls, man, this market has become disconnected from reality.
What's your explanation to that?

Speaker 3 (46:51):
So that's what what happened. Happened after the financial crisis.
So price bottoms, the market bets on recovery, and it
could be wrong, right prices recovery doesn't mean the market
knows everything. And that's one thing where I sometimes disagree
with technicians who say market's always right. Well, the market's
not always right, but the market's always right in discounting
everything that's knowable. So it's right in that, But it

(47:13):
doesn't mean that that what it's discounting can't change, right,
And we saw this during the tariff tantrum in April.
Market was pricing in a left tail that never arrived
and now and then it had to unprice it. So
but so the market looks ahead and the market bottomed
in March of nine. Earnings didn't bottom until the third

(47:34):
or fourth quarter. Same thing during COVID March bottomed in
March of twenty twenty, earnings recovered third or fourth quarter.
And so you have so you can't look at the
news and say, how can the market be here when
the earnings or like people are dying.

Speaker 2 (47:49):
So how did you explain this to clients? I'm curious.

Speaker 3 (47:52):
I explained it exactly that way, that the price always
leads and you can't look at it in sort of
a linear way. Have to just you have to know
that at inflection points, the price action is going to
make no sense. And this is why people sell at
bottoms and buy a tops because they are they're trying

(48:15):
to understand the narrative, and the narrative is not the
one that is ruling the roost at the time.

Speaker 2 (48:21):
One of the things that we found was useful was
explaining to clients that their life experience isn't market cap
weighted when you look at what's driving the big indexes.
It was back then it was the fang. Now we
call it the magnificent seven. But we did a calculation
and found out that if all the airlines, all the hotels,
all the local retailers, like just a run of the

(48:43):
worst businesses during the pandemic, if they just disappeared tomorrow,
was six percent of the S and P five hundred
and you know, or Apple or Microsoft. It's like, it's
amazing how our daily experience is so from what markets
are like.

Speaker 3 (49:01):
And we had that during Brexit in twenty sixteen. I mean,
that was constantly the headlines, what about Brexit? Why is
the US market ignoring it? Well, because it's so realm
because the UK is three percent of SMP revenues, that's why.

Speaker 2 (49:16):
So that raises really interesting question about the US versus
the rest of the world in terms of economic activities.
So the S and P five hundred just gets just
about half of its revenue from overseas. For most of
the past fifteen years, the US side of consumer spending,

(49:36):
business spending, government spending has been very supportive of the
domestic side of the S and P five hundred. Kind
of feels like that shifting a little bit. We're seeing
a little slow down on consumer spending, a little slow
down on economic activity here as Europe and Asia seem
to be starting to finding their footing after bad ten years.

(49:58):
Can we just pass off the without the SMP stumbling?
Is that? Is that possible?

Speaker 3 (50:04):
It's possible, and it's actually happening right now. And this
is one of the areas that I'm most excited about
right now, is that this US bull market has become
a global bullmarket. You look at EM stocks, Chinese stocks, Europe, Japan,
and it's very exciting because you know, for many years,
right the US exceptionalism train has been running since twenty

(50:25):
fourteen fifteen, and the rest of the world was always
so tempting with its lower valuation. And I've had conversations,
you know, with our asset allocation pms for years saying
like yeah, I can, I can buy EPHO or EM
at fourteen times like Chief for a reason, though it's
Chief for a reason. The market's very efficient, but for

(50:50):
the but so the catalyst. So you need a catalyst
to make the mean reversion invaluation to trigger that. And
the catalyst is always going to be related to earnings.
Like if you look at the real to performance US
versus non US over the past ten years, it's exactly
the same as the reld of earning slide like it's
the same thing. So you need something to change on

(51:11):
the earning side, and that's changing. So we have, of
course a very concentrated market in the US and that
does pose risks, right, I mean, if those seven stocks
go down, guess what the SMP is going to go down.
Even if seventy percent of the stocks in the SMP
are going up. If you're an indexer, are you buying
an et an sby? You're not going to feel those

(51:33):
gains because those top seven stocks are taking the index down.
And so it was so for the last year or
so it was a question of how do you diversify
against concentration risk? Do you go down cap do you
buy the Russell two thousand? But now the answer is
easier because now you have a catalyst, a fundamental catalyst
that is causing the mean reversion to happen between US

(51:56):
and non US stocks. And where that's coming is that
So I'm a big fan of the discount cashlow model,
the DCF, which looks at not so much earnings but
the payout of earnings. So if you have earnings growth
at ten percent and seventy percent of those earnings are
being returned to shareholders as dividends or buybacks. The payout

(52:18):
is that seventy percent, and the payout ratio is seventy percent.
And for the US, it's always been a very dominating
scenario where the payout in the US is very strong
because of all the share buybacks we have here.

Speaker 2 (52:31):
Where are we today with that? Are we still seeing
the same sort of share buybacks because it seems like
we haven't been hearing a lot of announcements, but that
doesn't mean it's not happen.

Speaker 3 (52:40):
We don't hear a lot, but the buybacks are at
record HIGHS three hundred billion over the last twelve months,
and the payout ratio is seventy five percent for the
S and P. But guess what the payout for IFA,
which is non US developed stocks, the payout ratio is
also seventy five percent. It always used to be lower

(53:00):
because they don't do buybacks over there, they do dividends.
But now they're doing more buybacks, and the growth rate
in the payout itself over the last five years is
now higher in EFA than in the US, So you're
getting equal or superior or at least competitive fundamentals at
at a fraction of devaluation and that that is a

(53:22):
good that's a good deal. And so that's so finally
that that part is working where the pond that we're
fishing from is now broader, and for me, it kind
of it's it's a Barbell strategy. I don't want to
be short the Max seven because they can get bigger
and you don't want to miss out on that. But
rather than going down cap in the US, do a

(53:44):
barbelle of Max seven and non US stocks. Then you
can play the dollar with dollar weekening story. You can
get equally good fundamentals for a fifteen pe instead of
a twenty four pe. And to me, that's that's that's
a good that's a good thing right now.

Speaker 2 (54:00):
So the last two things I want to talk to
you about in terms of the current environment are inflation
and sentiment. And I'm not sure how much of this
is related. You know, when we see the Michigan sentiment data,
it seems to be so awful and it just doesn't
feel like, is this really worse than the financial crisis,

(54:20):
worse than COVID, worse than the dot com implosion in
nine to eleven or worse than the eighty seven crash.
If you follow the sentiment data, it's saying, yes, just
doesn't feel that way.

Speaker 3 (54:31):
No, it doesn't. And I think the sentiment data, obviously,
they're very bifurcated by political belief right, you know, And I've.

Speaker 2 (54:40):
Seen those charts are really useful.

Speaker 3 (54:42):
And I spend time on both coasts, and you know,
I was in at a dinner party in Montecito, California
a few weeks ago, and people were like, how can
everything look so good when we're like at the end
of the world type of thing? And then I'll be,
you know, in some other place and It'll be the
total opposite. But I think a lot of the sentiment

(55:02):
data are still driven by the inflation data. Like obviously
the inflation rate has come down to two point eight percent.

Speaker 2 (55:10):
But everything remains more expensive that that.

Speaker 3 (55:12):
You know, that COVID spike, you know, that has not
been unwound, and one of and that's one of the
things I worry about because not not to make a
comparison to the nineteen seventies, which obviously was the great
inflation long term, but during the fifties and sixties, inflation
was super low two percent, and then you to the
second half of the sixties, it started to creep up

(55:34):
and then it came back down. But in order to
for the average to be at two percent, if you
go to six percent, you then need to go below
too for the average to be two and we haven't
done that. We went from two to nine to two
point eight, and we're we never went below too. And
if we, for some reason get another upswing and we're

(55:57):
at three and four like that, five, your number is
now going to be at four or five percent. And
I think that's what's driving a lot of it is
it certainly did during COVID, and it's things like food,
right so you know, like the.

Speaker 2 (56:10):
Top beef prices are up. Egg prices have come back down,
but beef prices have run away.

Speaker 3 (56:15):
So I think a lot of it has to do
with that, because you know, people are employed, wages are
are competitive right now, you know, employment rates four point
three percent. But I think it's just that that cost
of living. It just kind of like grinds and it's
been grinding for five years now.

Speaker 2 (56:33):
So let's talk about that two percent target. You know,
in the twenty tens, an era of concerns about deflation
and monetary stimulus. Two percent seemed like a reasonable number.
Is that still a reasonable number? Now? That and that
was an upside target, right, You are at one percent
aiming for two. Now we're at two and a half three,

(56:55):
aiming back at two. Maybe in an era of fiscal stimulus,
two and a half three percent makes more sense. I mean,
I'm not a monetariust, but I don't know why the
whole world changes except for our inflation.

Speaker 3 (57:08):
Yeah, there's nothing magical about two. Like if you go
back one hundred and fifty years, again, the average inflation
rate is like three percent two point eight. If you
look at a distribution of equity pees and the inflation rate,
the sweet spot is sort of one to four. So

(57:29):
whether you're at three or two, like for the stock market,
doesn't matter, like ten, ten to two.

Speaker 2 (57:34):
Like that, that that matters.

Speaker 3 (57:37):
And that distribution is interesting because obviously the higher the
inflation rate goes, the lower the pe, which makes perfect
sense because the inflation goes up, bond you'lls go up.
Then the safe asset is very competitive with the risky asset.
So why take the risk.

Speaker 2 (57:52):
Plus the cost of capitals up?

Speaker 3 (57:55):
If you go to the left tail deflation. There is
really no correlation. Nobody likes deflation. So from that angle,
two and a half is not a problem. Even three
is not a problem. I think the Fed worries that
if they were to ever admit that, you know, inflation
expectations could get unanchored. But they went to the AIIT thing, right,

(58:18):
the average inflation targeting, and actually that actually prevented them
from raising rates when they should have back in twenty
twenty one and two.

Speaker 2 (58:28):
They relate to the party to raise and they seem
like they will relate to the party to cut it.

Speaker 3 (58:32):
Yeah, so their policy was we need to see the
whites in the eyes of inflation before we raised rates,
and by the time the whites of the eyes were visible,
it was like too late. You know, inflation was at
five going to nine. But so you know, it's a
nuanced thing. But again, three percent is not going to
be the end of the world. It just means bombs

(58:54):
have a term premium and stock market is still fine.
Maybe the pe is like seventeen and seid of nineteen,
but like you know, if earnings are doing the heavy lifting,
it doesn't matter. But again it's like, what will it
take for the Fed to actually say that, or will
they ever say it, or will we just have a
post Powell FED that says, you know, instead of neutral

(59:15):
being inflation plus one hundred, neutral is inflation. And you know,
so there are three instead of four or something.

Speaker 2 (59:22):
So I see your charts everywhere. Not only are they
all over social media, but you do regular chart packs.
I love your monthly chart pack. I'm gonna flip open
my laptop and let's look at some of your favorite
charts and I'll make these available on YouTube and on
the website when this posts. Let's start with market cycles,

(59:45):
and what we see going back to around our birth
date is just a series of long bull markets followed
by shorter, shallower bear markets. Tell us about out this
market cycle chart and what are the different shading means
in blue and red? What's the significance of that?

Speaker 3 (01:00:07):
Yeah, So the shadings are is the valuation the five
year cape ratio.

Speaker 2 (01:00:13):
When it has to get priced, it turns red, it
turns red.

Speaker 3 (01:00:15):
Yeah, And so what the top part of the chart
shows are the market cycles. So the green are you know,
the bull markets, of course, cyclical bull markets. The red
are the bear markets. And you can see as we
as we talked about earlier, they're really it's pretty rare
for a fifty percent draw down. There's only been really
a couple of them. And so what this shows is
that the current bull market, as strange as it or

(01:00:37):
as unusual as it has felt for many people, actually
is pretty garden variety, right. Eighty eight percent gain over
thirty five months, so it's pretty pretty average. But then
when you look at the bottom panel, it shows the
relative the percentage of stocks out performing the index, and
now you see something pretty unusual, some we've only seen

(01:01:01):
a few times in history, and that is, of course
the concentration effect of the mag seven than before that
the thanks and it is the market is as concentrated
as it was in the late nineties and the early
to mid seventies, which was the original nifty to fifties period.
And so you know, for an indexer, I guess it

(01:01:24):
doesn't matter. For an active manager, active investor, it does,
But even for an indexer it does because the largest
stocks are getting bid up, whether they deserve it or not.
Of course they're large because they deserve to be generally,
but it shows you how narrow the market has been
during this cycle. And so it's it's just a way
of describing kind of where we are. So you get

(01:01:46):
the cyclical on the top and the bottom speaks more
to the secular.

Speaker 2 (01:01:49):
Huh. Really interesting. So let's talk about debt dynamics, which
shows the change in federal debt versus what.

Speaker 3 (01:01:58):
So what this charge show and it's a very simple chart,
but I think it speaks volumes. Is that during COVID
we kind of, I think, entered the fiscal lead dominant
era where debt financing or deficit spending becomes a very
major tool, which is definitely different from the financial crisis,
when we actually had austerity. After the financial crisis with

(01:02:21):
the Tea party movement, now we have the opposite. And
in the initial years after that fiscal expansion started, the
FED was actually doing a lot of the heavy lifting
by putting those bonds, or not those bonds, but putting
bonds on its balance sheet, so you could see the
rise in debt is largely accommodated by an expanding balance sheet.

(01:02:44):
Since that time, since twenty twenty two, the fed's gone
into quantitative tightening mode where it's drinking its balance sheet,
but the debt just keeps going up. So the debt
is now up about fourteen trillion in the last five years,
and only about two and a half of that is
sort of been absorbed by the FED. So I put
two and two together and say, Okay, if that purple

(01:03:06):
eye at the top just keeps going up, who's going
to buy this? Right? Who's going to buy the debt?
And will the FED be forced back into playing a
bigger role in kind of mopping up that supply? And
that's the fiscal dominance.

Speaker 2 (01:03:22):
Then that's a little bit of modern monetary theory, is
that the FED can just buy up all the debt
and there's no constraints whatsoever. SOMA stands for.

Speaker 3 (01:03:30):
What system open market account.

Speaker 2 (01:03:32):
So that's what the FED has on its balance sheet.
So that went up since the financial crisis, and it's
come down since twenty eight.

Speaker 3 (01:03:39):
It's the part of the Fed's balance sheet that is
sort of the quy part, if you will.

Speaker 2 (01:03:44):
So let's talk a little bit about equity, supply and demand.
What are we looking at this chart back to nineteen
eighty six? Is this simply liquidity driven or what's going
on here? So?

Speaker 3 (01:03:55):
I think this is and not a lot of people
talk about this, but I think This is one of
the fundamental drivers of the current secular bullmarket era. And
so you can see on the chart I started the
clock at the bottom in O nine, which again I
believe is the start of the secular bullmarket. And I
look at just the supply and demand of equities just

(01:04:19):
from within the corporate America structure, so not investor flows,
but how much were there in IPOs and secondary issues
and it's a couple of trillion. How much was share
buybacks and how much was M and A and share
buybacks and M and A have something in common in
that it's corporates buying shares of other corporates and those

(01:04:40):
shares get retired, right, So that's the demand for shares.
And what you see is if you look at the
supply demand ratio like it's very unbalanced, like it's the
demand far exceeds the supply. And to me, this has
been one of the important drivers for driving returns in
the secular bowl market. And there's no signs that this

(01:05:02):
is this is letting up. And so when when when
we think about what inning is the secular bull market in,
when is it going to end? And why? This is
one of the things I look at It's just you know,
when when you're retiring far more shares and you're issuing,
it's like the you know, markets are going to go up,
all else being equal.

Speaker 2 (01:05:19):
What's so surprising about this is how relatively insignificant the
retail flows us there. It's it's just the opposite of
how so many people describe it. Coming up, we continue
our conversation with Urie and Timor, director of Global Macro
at Fidelity, discussing various asset classes equities, bonds, commodities, alternatives.

(01:05:42):
You're listening to Masters in Business on Bloomberg Radio. I'm
Barry Redult. You're listening to Masters in Business on Bloomberg Radio.

(01:06:03):
My extra special guest this week is Urian Timor. He
is the director of Global Macro at Fidelity Investments, the
giant firm helping to manage over sixteen trillion dollars in
client assets. Let's talk about US fundamentals versus EFA fundamentals.
So this looks at various market data, buybacks, dividends, et cetera.

(01:06:28):
Tell us what this jart is showing us.

Speaker 3 (01:06:29):
Yes, So we were talking about earlier about there finally
being a catalyst for non US stocks to compete with
the with the MAC seven driven US stock market and
so on the left, I show the earnings line for
the SMP the payout so that the share of earnings
being returned quote unquote to shareholders shareholder yield as dividends

(01:06:51):
and buybacks. And then at the bottom you see the
payout ratio again either as dividends in the yellow buybacks
in the purple, and you can see the payout has
risen very nicely, almost a double since five years ago.
Payout ratio is about seventy five percent, so very bullish
fundamentals like you. You know, those fundamentals deserve a high

(01:07:15):
pe right because not only is the earnings growing, but
they're being returned to shareholders, which of course is worth
more than if you're not getting them back. It's just
the present value of future cash flows. But what's changed
just in the last few years is that for IFA
again which is the MSCI Non US Developed Index, you

(01:07:36):
see an even better growth rate in the payout and
you see a more than double yeah, and you see
an equally robust payout ratio again of about seventy five percent.
So the rest of the world is really competitive now,
despite the fact that this is such a Max seven
heavy market, and so this is just a very exciting
time because you can actually you don't have to make

(01:07:59):
that make or break binary decision like you're either in
these big stocks or you're left behind. There are other
places to get those returns down.

Speaker 2 (01:08:07):
What's so fascinating about this chart is how inverted the
ratio of buybacks to dividends is. In the US forty
five percent a shareholder yield as buybacks thirty percent or
divinends that flips. In Europe it's forty seven percent, or
divinends only twenty seven percent or buybacks or I should say, epha,
not just Europe, although a lot of it seems to

(01:08:28):
be concentrated in Europe. How much of that is just
driven by tax policy and regulations.

Speaker 3 (01:08:36):
I think it's largely culture. It's just you know, and
Europe is more of a value market, right so it's
really like the banks are really running the show right now,
and so the US it's more the growthy stocks, so
they don't want to so, you know, dividends are kind
of like a sacred contract, if you will, like it
takes a lot for dividends to be cut. So I

(01:08:58):
think Europe and Japan is just generally been more of
a value driven and the culture has been more Okay,
we're going to earn so much and you're going to
get that back as dividends. But especially the Japanese and
also the Europeans are getting much more with the shareholder
culture now in terms of unlocking value and returning those

(01:09:19):
as buyback. So it's they're getting there. They're starting to
play the game.

Speaker 2 (01:09:24):
Last few questions before we get to our favorite questions.
You have a section in the chart book about the
post sixty forty world. I've heard people say the old
sixty forty is now fifty thirty twenty or fifty thirty ten,
five five tell us what you think of as the

(01:09:46):
post sixty forty world.

Speaker 3 (01:09:48):
So I look at it. I call it the sixty
twenty twenty. So the sixty forty paradigm worked like a
charm right from the late nineties until the early twenty twenties.
And you know, sixty percent s and p forty percent
Bloomberg AG so the investment grade bond index and you

(01:10:08):
got a nine percent CAGAR against the nine percent vault,
and like, what's not the like about that? Right during
that time, inflation was like two and a half, so
you've got a very attractive real return with really moderate volatility.
But the whole premise of that paradigm was that the
forty was insurance against the sixty. So the sixty, of

(01:10:31):
course is always the anchor, that's where the compounding is,
and the forty would be your port in the storm.
I think that's now changed. So twenty twenty two obviously
was a return to the old FED model days where
rising yields uh take you know, take take the mojo
out of the stock market. To put it mildly, the

(01:10:52):
good news is that bonds, of course now are a
viable asset. They generate a positive real yield, but their
correlation is now positive against equities instead of negative. So
when I think about the post sixty to forty world,
I'm less worried about the sixty, Like we can add
more international in the sixty, and like we were just discussing,

(01:11:13):
but what do we do about the forty? If the
forty can be the cause of problems rather than the
solution to problems, and especially if we end up with
a higher term premium, then bonds are not going to
be as safe as they used to be. So then
I get into kind of okay, I'm going to take
some share from the bonds. It doesn't have to be
twenty like. Again, this is not investment advice, but back

(01:11:36):
at the envelope stuff, and you know, maybe some cash
strategies are more competitive if we're not going to go
back to the zero interest rate days, which I don't
think we are. Gold are the proven anti bond over history, right.
They don't produce a cash.

Speaker 2 (01:11:51):
Flow thirty seven hundred bucks as we speak.

Speaker 3 (01:11:53):
But when bonds do poorly, gold really shines no pun intended.
And then you got to throw bitcoin in there is
kind of the wanna be exponential gold. And then other
strategies like alternatives, right, managed futures, equity, long short, private credit,
you know, all of those kind of alpha rather than

(01:12:14):
beta strategies you have.

Speaker 2 (01:12:15):
You have tips in there as well.

Speaker 3 (01:12:17):
Yeah, tips high yield. Uh. You know markets or asset
classes that are not negatively correlated, but they're not positively
correlated as well. So when you look at kind of
the sharp ratios versus the correlation not just to the sixty,
but especially to the forty, right, because I want to
hedge more against the forty than the sixties.

Speaker 2 (01:12:38):
I was going to say, this doesn't look like a
yield chase, This looks like a diversifier. Is that the thinking?

Speaker 3 (01:12:43):
Yeah? Yeah, And actually, if you go down one chart,
I think, yeah, right there, look at that. So I
want high sharp ratios or high sortino ratios, and and
and assets that are uncorrelated. Then you get into you
get into the BCom commodities, you get into gold. Bitcoin
is not quite uncorrelated, but all the old strategies are uncorrelated.

(01:13:06):
And so to me that is sort of the next
sixty forty.

Speaker 2 (01:13:11):
Really really fascinating. Last question before we get to our favorites.
You look at so many charts each week. You identify
trends before a lot of people do. What are investors
not talking about but perhaps should be? What topics? Assets, geographies,
data points? What do you think is getting overlooked? But
it's really worth investors time to pay attention.

Speaker 3 (01:13:33):
To one ass a class, and we just talked about
it that I think generally is seen as a side
show the way bitcoin used to be. It's no longer
a side show. For sure is actually gold because.

Speaker 2 (01:13:47):
For even at thirty seven hundred bucks, it's well, people
still think of it as a sideshow.

Speaker 3 (01:13:53):
I think institutions do. Right, So regular retail investors as
I call them, you know, you can buy gold or
some other gold etf and like you know, I own
it in my portfolio, and so there, I think. There
it's part of the conversation. But when you think about
like large endowments, institutional investors, even mutual funds, like you

(01:14:15):
need a special wrapper in your mutual fund to own
physical gold, like you need to go to the SEC
and get approval, and so you know, gold has been
sort of dormant for so long until recently that is like, yeah,
I don't really want to go through this trouble to
buy something that doesn't have a cash flow, can't be valued,
requires special regulatory approvals, and then all of a sudden

(01:14:37):
it starts to run like it is now everybody. And
so so I think that's the story. So in ironically,
because bitcoin as has obviously come well after gold as
a kind of a store value hard money asset. In
a way, gold is kind of like where bitcoin was
ten years ago or five years ago, where okay, Bitcoin's interesting,

(01:15:00):
but I don't understand it. I don't feel like spending
one hundred hours on this. It's a bubble, it's a scam,
it's a pet rock. And gold is like if it
keeps going the way it is, and I suspect it will,
like the endowments are like okay, Like people are asking
me about this. I need to like really like figure
out how do we not how do we buy it?

(01:15:21):
You can buy it, of course, but it's always been
a dismissed asset. Let me put it that way.

Speaker 2 (01:15:27):
Among I mean, that's what I grew up with. It
was kind of mocked by the equity people. Depends on
the length of the chart you look at. You could
show a trailing multi decade period where gold has outperformed
the S and P. So if you look at gold
as in a secular bull market, I'm not asking for
a forecast, but what's within the range of possible numbers

(01:15:50):
gold could run to from thirty seven hundred up from
the low two thousands in early what do we peak
in like twenty fourteen and then twenty nineteen.

Speaker 3 (01:16:00):
Something and it was like two hundred and sixty that
I remember.

Speaker 2 (01:16:04):
In the nineteen y when GLD first came out, I
want to say gold was about four to thirty four
forty I remember talking about it on TV and getting
laughed at by it ankers.

Speaker 3 (01:16:13):
So I once saw a chart that actually Paul Too
or Jones created a streaking of fall where he compared
the above ground value of gold or the value of
above ground gold and compared it to the value of
M two, and they're.

Speaker 2 (01:16:32):
Trying to track each other.

Speaker 3 (01:16:34):
The chart concluded that when the money supply grows too fast,
gold takes market share. So hard money takes market share
from soft money, from fiat money, and at certain extremes,
like in the seventies and other periods of thirties gold
the value gold would go all the way up or

(01:16:54):
beyond the value of M two. And so right now
M two is about twenty three trillion gold plus bitcoin
is also about twenty three trillion, So in that sense,
it's come a long way to take that market share.
And now it's a question of does M two, either
globally or in the US continue to grow at an

(01:17:17):
above average pace. So the average pace is about six
percent nominal, about two three percent real. So I do
think a lot of the gains are in already, but
it will it will naturally overshoot, as these cycles always do.
So That's kind of how I would how I would
measure it. So if the money supply goes the thirty
trillion gold and bitcoin could be thirty five trillion, and

(01:17:40):
obviously gold is a large part of that, Bitcoin is
about two trillion, and then you convert that to a price.
But that's kind of how I think about the valuation
signe really fascinating.

Speaker 2 (01:17:51):
Tell us about your mentors who helped shape your career.

Speaker 3 (01:17:56):
Definitely Net Johnson, because when I came in to Fideli
in ninety five, I'd been in you know, in New
York for ten years, didn't really have mentors, and so he,
you know, Fideli has a very strong corporate culture, let's
put it that way, and especially around uh, you know,

(01:18:20):
the way we approach long term investments. We're obviously a
long term investor, but so he he was like the
last person I spoke to before I got hired. And
then in those formative years, I worked in the chart
room and I would spend hours per week with with Ned,
like he would just come down really and uh and
hours per week and we would just pour over charts,

(01:18:41):
like we have these huge charts on the wall Florida ceiling.
You know, like forty foot wide, like a daily chart
of the of whatever the dow and it would be
computer generated. But then because we don't want to print
a whole new forty foot sheet every week, just you
fill it in by hand, and and you know, just
the oral tradition, the oral history. So he was looking

(01:19:04):
at the chart and none he was say okay, well
like and he would go from right to left and
say okay, you know then and we'd end up like
in nineteen sixty eight and he's telling me about the
glamour stocks and this and that, and I'm like, wow,
this is like gold right, like you don't you know,
And so he would have this encyclopedic memory. But also

(01:19:24):
just the way the information was displayed semilog skills. The
chart room has like museum quality lighting, how you display,
how you visualize you know, data, And so that he
instilled that culture, you know, we call it kaizen kind
of just gradually improving and having you know, compounding isn't

(01:19:47):
just for investing, right, it's just in our day to
day stuff. You do something consistently right, it's going to
make an impact. And when I look back at my
forty years and I'm not going anywhere. But like to
me that that Kaisen has has really played a role
in my relationships in my work, and and I think

(01:20:08):
a lot of that just came from him.

Speaker 2 (01:20:10):
Really really interesting. Let's talk about books. What are some
of your favorites? What are you reading now?

Speaker 3 (01:20:16):
So, I I hate to admit it, but i don't
read a lot of finance books because I'm very interested
in having.

Speaker 2 (01:20:24):
Balanced between right and left. Bright I've all read Reminiscence
of a Stock Operator. I'm more curious as to what
else you're reading.

Speaker 3 (01:20:32):
I will say that during COVID I read, uh, this
huge tomb called The History of the Federal Reserve by
Alan Meltzer. Because you know, I've looked at so many charts,
you've read the reports of like you know, financials, but
I went like that book. It was like this blow

(01:20:54):
by blow using the FED minutes and all these you know,
correspondence to see how the FED handled the financial repression
of the forties. And so that was fascinating. Although most
people would say, well that sounds really boring, but as
a as a consumer of the data, just to see, okay,

(01:21:14):
you know, like wherever it was at the FED would
go to the Treasury, and they were playing games like
the Treasury would issue bonds below market and then the
auction would fill and then knowing that the FED would
have to mop up the supply. Like all of that
stuff was just really really fascinating. And you know, and
we see the interference with politics and money monetary policy today,

(01:21:37):
but it's nothing new. Like in the sixties, both Nixon
and Kennedy were equally guilty.

Speaker 2 (01:21:41):
It seems a little more overt it's public today. It
used to be sort of cloak room sort of thing.

Speaker 3 (01:21:47):
Yes, So that was one but the most interesting recent
book I've read was it's called rock Me on the Water,
and it's a book about music, TV and movies during
the early seventies and how la was like the epicenter
of American culture. So you had like the Laurel Canyon

(01:22:10):
folks of modern musicians, and he had these groundbreaking TV shows,
right because we were coming out of the straight jacket
of the sixties conformists, like no one dared to make
a show that that like challenged the status quo. And
then you had like Mash and you know, Mary Tyler
Moore owned the Family, and then the movies like Taxi Driver,

(01:22:32):
and as a you know, as a I think I'm
kind of gen X but on the border of gen
X and baby boom. Yeah. And so growing up, you know,
formative years in the seventies in Aruba, but consuming American
pop culture, right, we would sit down every night watching like,
you know, Wide World of Sports and Mary Tyler Moore

(01:22:52):
and and although show Rocked Me on the Water, Rocked
Me on the Water, and it's just like, so it's
fascinating to read about the things that we lived through
as kids, as teenagers.

Speaker 2 (01:23:03):
But then like, yeah, you know that was so amazing.
Let's talk about streaming. What are you watching or listening
to right now?

Speaker 3 (01:23:12):
We are binge watching The Bear. So I'm a I'm
an avid cook, you know, like I said, I run
a food camp at burning Man and that's that's and
we tend to be late to shows. And then we
we just watched like.

Speaker 2 (01:23:25):
Four seasons cook worked in restaurants. It just rings so true.
I got to ask you a crazy question. You're a cook,
What pots do you like? What knives do you like?

Speaker 3 (01:23:41):
I use the all clad I have. I have two places.
I have a gas stove in Santa Barbara and an
induction stove in Boston.

Speaker 2 (01:23:50):
You know, I came this close to putting an induction
stove in my primary residence, but we had just gotten gas,
and so of course we ran with gas.

Speaker 3 (01:24:00):
Yeah. I will run with gas anytime. Induction is good.
It's very precise, yes, but I like the organic, kind
of tactile dimension of gas. But so all clad and
the German knives, what's it called Gusdorff, I forget, And

(01:24:22):
my go to knife is a tenant chef's knife, not
the really high one, but the medium one. So the
medium one is thick enough to like smash on garlic,
but not so thick that you don't feel connected, you
don't have the road field of the knife on the
cutting board.

Speaker 2 (01:24:39):
So so I'm jonesing for this shun knife. I keep
seeing and they're just exorbitant. And we gave someone a
gift of the Stanley Tucci healthy nonstick, supposedly the old
nonstick is not good, and she loves it. She's been

(01:24:59):
wo baiting going out and getting a set for it.
Like it's rare you give someone a gift and they're like,
oh my god, this is amazing. The only to choose
one of my heroes really have you watched this show
in Italy? I had to stop because it just makes
me want to eat even after dinner. You want to go,
you want to go eat that.

Speaker 3 (01:25:16):
That's my my guilty pleasure. On TikTok's Little Food Clips.
And I don't even have to have the sound on.
It's just, you know, because I kind of know what
works with recipes, so I don't need a recipe, but
I just need someone to visualize an approach. And so
a lot of the things I cook today are from TikTok.

Speaker 2 (01:25:36):
Oh, no kidding, Oh that's amazing. All right? Our final
two questions, what sort of advice would you give a
recent college grad interested in a career in technical analysis,
fixed income or just investing?

Speaker 3 (01:25:51):
Generally, be open minded, be humble. You know the true
heroes of mine in our business, including that job. You
know he's no longer with us, of course? Was that
just humility? Right? I'll talk to Will dan Off, who
runs three hundred billion.

Speaker 2 (01:26:07):
I love Will.

Speaker 3 (01:26:08):
He's the humblest guy you'll ez you'll ever meet, And
there's no room for big egos, like no matter how
important you are, like I have no time for that, right,
So stay humble, don't figure out. Don't think you've or
you've figured it all out when at the age of
twenty five, you know, be a learner and be ready
to reinvent yourself. I've had to do it a number

(01:26:29):
of times at Fidelity, either as planned or as not planned,
and you just got to roll with the punches. And
like I said, the first job I had I was
like the last job I was interested, but I took
it because it was the only job.

Speaker 2 (01:26:42):
You know, And our final question, what do you know
about the world of investing today? You wish you knew
forty years ago or so when you were first getting started.

Speaker 3 (01:26:52):
That markets go through cycles and it always comes back,
not always quickly, but you know, every time the market
was down twenty plus percent, it's like the end of
the world, and it's like totally different from every other time,
and this is like such a crisis. But then you know,
I've now been through like twelve bear markets in my

(01:27:13):
career and it's like, yeah, whatever, like nothing shocks me anymore.
Of course, I'm maybe in a better place because I've
earned my wealth. I'm not still building it, but it's
just you know, take take take a step back, look
at the bigger picture, make sure your portfolio is where
it should be in terms of risk and goals. And

(01:27:33):
don't be your own worst enemy by selling at the bottom.
You know, call someone like have them talk you off
the ledge first.

Speaker 2 (01:27:40):
You know, thank you Urian for being so generous with
your time. We have been speaking with Urian Timor, Director
of Global Macro at Fidelity Investments. If you enjoy this conversation,
well check out any of the five hundred and sixty
three we've done over the past eleven and a half years.
You can find those that Bloomberg iTunes, Spotify, YouTube, or

(01:28:03):
wherever you get your favorite podcasts. Be sure to check
out my new book How Not to Invest The ideas,
numbers and behavior that destroy wealth and how to avoid
them How Not to Invest at your favorite bookstore. I'd
be remiss if I did not thank the Crack team
that helps put these conversations together each week. Alexis Noriega

(01:28:24):
and Anna Luke are my producers. Sean Russo is my researcher.
Sage Bauman is the head of podcasts. I'm Barry Ridholts.
You're listening to Masters in Business on Bloomberg Radio.

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