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'Barbell' Investing Strategies With Jurrien Timmer · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in
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  Speaker 1: Business with Barry Ritholts on Bloomberg Radio on the.
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  Speaker 2: Latest Masters in Business podcast. An amazing conversation. I sit
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  Speaker 2: down with Uri and Timer. He's the director of Global
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  Speaker 2: Macro at Fidelity. They touch about fifty million separate clients.
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  Speaker 2: What an amazing conversation. Urian has been started out in
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  Speaker 2: fixed income before he became a market technician. Now Global
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  Speaker 2: Macro is his beat, which means he covers everything the
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  Speaker 2: US overseas, equity, bonds, commodities, economic data. I thought this
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  Speaker 2: conversation was fascinating and I think you will also. What
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  Speaker 2: a depth and breadth of knowledge. With no further ado
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  Speaker 2: my conversation with Fidelities Urian timor ur Tim Welcome to Bloomberg.
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  Speaker 3: Thank you very much, Arry.
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  Speaker 2: I've been looking forward to this. I'd been consuming your
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  Speaker 2: stuff for it feels like forever. I'm a big fan
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  Speaker 2: of what you do. But before we get to your
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  Speaker 2: work at Fidelity for the past three decades, let's talk
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  Speaker 2: a little bit about your background. You get a bachelor's
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  Speaker 2: and finance from BAPS in college. What was the original
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  Speaker 2: career plan?
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  Speaker 3: Well, so I was born and raised on the island
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  Speaker 3: of Aruba in nineteen sixty two when Aruba was still
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  Speaker 3: very small and sheltered, and as a Dutch citizen now
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  Speaker 3: also an American citizen. But you know, generally the Dutch
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  Speaker 3: kids would go to Holland to go to higher education.
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  Speaker 3: But I was in love with the American culture. I
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  Speaker 3: met many tourists on the Beach Show, and so I
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  Speaker 3: wanted to go to the States and do the American thing.
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  Speaker 3: And then my father, who was an importer of construction materials, etc.
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  Speaker 3: He had contact in Boston. They said, okay, well you
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  Speaker 3: should send your kid to BABSM because it's small, it
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  Speaker 3: won't be overwhelmed as an international student. And I've always
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  Speaker 3: wanted to be an architect. But then in the last
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  Speaker 3: year before finishing high school, I'm like, I don't think
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  Speaker 3: I'm good enough to be an architect, so let me
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  Speaker 3: do business. And I figured, you know, there's always something
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  Speaker 3: you can do with a business degree, and so I
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  Speaker 3: studied finance with a minor in investments. And then you know,
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  Speaker 3: I graduated with no work permit, right, So I was
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  Speaker 3: in that place where you need to have obviously a
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  Speaker 3: work permit. So back then I don't know if it's
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  Speaker 3: still the case, but back then you got one year
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  Speaker 3: practical training visa and then you had to go, you know,
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  Speaker 3: get a real visa. And so I took literally the
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  Speaker 3: only job that was offered to me in the United States.
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  Speaker 3: So I applied to every Dutch company. I figured, at
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  Speaker 3: least they'll have maybe some sentimental reasons to hire a
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  Speaker 3: Dutch person. I could have worked in Holland, of course,
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  Speaker 3: but I wanted to be in the States. So the
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  Speaker 3: Dutch bank ABN, which later became ab and am Ro,
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  Speaker 3: hired me. I went to New York into their corporate
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  Speaker 3: banking credit program, in which I had zero interest. But
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  Speaker 3: it's like, you know, this is the job.
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  Speaker 2: But you eventually become pretty senior in the fixed income
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  Speaker 2: group at ABM.
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  Speaker 3: Yeah, so I was very lucky. And again, you know,
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  Speaker 3: it's sort of if you take the job that's offered
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  Speaker 3: to you and you make the best of it, you know,
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  Speaker 3: you played a hand that's dealt And literally within a
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  Speaker 3: few months, ABN set up a capital markets group because
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  Speaker 3: you know, we were the primary dealer in New York,
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  Speaker 3: together with Lacelle National Bank in Chicago for the HQ
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  Speaker 3: in Amsterdam, which of course, was one of the world's
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  Speaker 3: largest banks at the time and a very large treasury book,
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  Speaker 3: and so I was the person who would execute the
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  Speaker 3: trades for HQ. So I became a client of like
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  Speaker 3: Solomon Brothers and Smith Varney and you know, you know, Goldman, Sachs,
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  Speaker 3: et cetera. And so I got in to the Wall
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  Speaker 3: Street game and I learned everything about fixed income, and
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  Speaker 3: to this day, i'm you know, like, if you're either
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  Speaker 3: a stock market person or a global macro person, having
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  Speaker 3: a foundation in fixed income is so important.
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  Speaker 2: It's so true. You say that some of my favorite
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  Speaker 2: stock analysts began as bond analysts because they're concerned about
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  Speaker 2: return of capital, not return on capital, and it focuses
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  Speaker 2: them very much on staying away from the speculative nonsense.
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  Speaker 2: And really it's been very consistent over the years. I
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  Speaker 2: have a list of some favorite people in that space. So,
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  Speaker 2: so you start out in fixed income, when did technical
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  Speaker 2: analysis and becoming a CMT arise in your journey.
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  Speaker 3: So I was at ABMM in New York for ten
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  Speaker 3: years and so i'm you know, I'm there executing trades,
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  Speaker 3: learning about the markets, watching my teller eighth and the
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  Speaker 3: Bloombergs were still there were the quad screens with the
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  Speaker 3: amber right, and you know, I just I've always been
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  Speaker 3: a visual person, and so I started gravitating towards charts.
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  Speaker 3: And you know, charts are kind of the mainstay of
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  Speaker 3: what I do even now forty years later, forty years later.
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  Speaker 3: And I like to write. I think I get that
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  Speaker 3: from my dad, who's a great writer. And so I
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  Speaker 3: always had this kind of urge to put pen to
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  Speaker 3: paper and to show charts. And so I just started
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  Speaker 3: writing a newsletter for the people in my universe at
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  Speaker 3: the time, and you know, it would be like charts
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  Speaker 3: from CQG cut out, taped onto a type report and
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  Speaker 3: then facts to people like that's what the technology was
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  Speaker 3: back then, and so it was al So that's how
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  Speaker 3: it started. And then I ended up, you know, getting
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  Speaker 3: the chart at Market Technician, although that may have been
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  Speaker 3: during the Fidelity years.
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  Speaker 2: So how did you go from ab and m RO
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  Speaker 2: to Fidelity? When was that?
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  Speaker 3: So the culture AB and m ROW. Not not to
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  Speaker 3: spill any beans, but this is a long time thirty
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  Speaker 3: years ago, thirty years ago, I didn't like where it
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  Speaker 3: was going. So we ABN had a bank in Chicago,
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  Speaker 3: and they saw what a profit center in New York was,
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  Speaker 3: so they wanted to They wanted me to work for them,
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  Speaker 3: become a commissioned salesman. And I'm like, it's like, not
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  Speaker 3: what I do. And just coincidentally, at that time, Fidelity
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  Speaker 3: came looking around looking for the most obscure job in
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  Speaker 3: the world, a fixed income technical analyst. I mean, talk
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  Speaker 3: about a narrow field, right. So that was in nineteen
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  Speaker 3: ninety four. Around that time, you know, I was kind
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  Speaker 3: of looking around and I had two major career highlights
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  Speaker 3: within six months of each other, because in ninety four
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  Speaker 3: I was approached by Paul Truder Jones's company, really and
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  Speaker 3: so I had a meeting with Paul in his office
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  Speaker 3: downtown New York with his giant Tolerate on the screen,
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  Speaker 3: and we were looking at the bomb chart ninety four
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  Speaker 3: to the bear market and.
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  Speaker 2: He very famously had called the eighty seven crash before.
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  Speaker 3: It was like, is that do you think that's a
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  Speaker 3: fourth win? And we were having that conversation that was great,
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  Speaker 3: and then you know, I was approached by Fidelity, and
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  Speaker 3: I ended up going with Fidelity. But the last interview
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  Speaker 3: of that process was with Ned Johnson.
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  Speaker 2: Oh really, and so I was spent the founder.
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  Speaker 3: I spent an hour with him in his office talking
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  Speaker 3: about pokers, because I was hired to go into the
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  Speaker 3: chart room. And at Fideliti, nobody got into the chart
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  Speaker 3: room without Ned's blessing, right because.
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  Speaker 2: And back then were they still doing charts by hand?
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  Speaker 3: Yep. Amazing and so that so that anyway, so that's
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  Speaker 3: how the fidelity career started, and it was it was
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  Speaker 3: interesting because this is now early ninety five, and of
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  Speaker 3: course ninety four was that bear market. We had the
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  Speaker 3: so called tequila crisis in Mexico, and so the new
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  Speaker 3: mandate from upstairs in ninety five was, we're not making
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  Speaker 3: any duration bets. You just stick to your bottom up.
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  Speaker 3: You know, you look at credits and like, I'm coming
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  Speaker 3: in there as a technician and like, what am I
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  Speaker 3: supposed to do? Now? Is nothing for me to do?
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  Speaker 3: And so at that point I kind of reinvented myself
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  Speaker 3: and became a multi multi asset and I went to
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  Speaker 3: the equity side. And anyway, so that was the one.
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  Speaker 2: When you say multi asset, I think you're the only
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  Speaker 2: person in all of finance with the title director of
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  Speaker 2: Global Macro Global means around the world macro means thirty
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  Speaker 2: thousand foot view is everything out there in your jurisdiction
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  Speaker 2: pretty much.
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  Speaker 3: So I don't do security selection. You know, we have
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  Speaker 3: armies of very downs up.
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  Speaker 2: But you do stocks, bonds, all scrypto, commodities, gold.
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  Speaker 3: You name it everything, but it's top down.
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  Speaker 2: As well as economic data, interest rates, employment, etc.
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  Speaker 3: And that's how I transitioned from being a technical strategist
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  Speaker 3: to being more kind of multidisciplinary because I quickly learned
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  Speaker 3: at Fidelity as I was roaming the halls pitching ideas
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  Speaker 3: to portfolio marriage who generally are fundamentally oriented, right, I'm like,
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  Speaker 3: you know, it's like I'm speaking a different language, right.
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  Speaker 3: So Finelle has always had a lot of technical analysts
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  Speaker 3: and the chart room, but I had to like reinvent
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  Speaker 3: myself again and pivot towards at least speaking their language.
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  Speaker 3: And like, you know, a chart is a chart, right.
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  Speaker 3: It can just be a bar chart of the S
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  Speaker 3: and P, or it could be of the pe ratio
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  Speaker 3: or earnings or monetary policy. So I figured a chart
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  Speaker 3: is a chart. I'm going to like weave a broader
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  Speaker 3: approach to this, and that's where kind of I came
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  Speaker 3: up with the title.
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  Speaker 2: So whenever I see a technician and a fundamental analyst
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  Speaker 2: having a discussion, somewhere along the line, someone says, look,
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  Speaker 2: I'm a techno analyst. I'm just telling you what's going
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  Speaker 2: on in the battle between supply and demand. It's up
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  Speaker 2: to you to create a narrative around that. You tell
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  Speaker 2: us what's going on. Fundamentally, I don't know, but I
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  Speaker 2: could tell you who's winning the buyers or the sellas.
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  Speaker 3: So the fundamentals tell you kind of the why, maybe
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  Speaker 3: the what and the why, and the technicals tell you
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  Speaker 3: kind of the when and the how much It helps
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  Speaker 3: give you conviction. And generally speaking, we use technical analysis
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  Speaker 3: like our equity pms do. Like they're obviously going to
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  Speaker 3: have an idea about a company and what their long
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  Speaker 3: term prospects are. But then our technical analysts will will say, okay,
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  Speaker 3: well you've rated this stock a one, meaning strong buy,
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  Speaker 3: but the chart looks like hell, Like you should be
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  Speaker 3: aware that what's in what's happening is not the same
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  Speaker 3: as what should be happening, and maybe it takes time,
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  Speaker 3: but it's like it's a it's a second opinion, which
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  Speaker 3: can be very helpful. And the other way around as well,
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  Speaker 3: Like a chart looks amazing, but it gets a really
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  Speaker 3: poor fundamental ranking. And we also have a quantitative team
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  Speaker 3: that does a quant overlay as well.
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  Speaker 2: So so we talked about global macro. I'm curious, you're
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  Speaker 2: a Dutch citizen, originally born and raised in Aruba, now
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  Speaker 2: a citizen in the US for the past twenty five years.
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  Speaker 2: How does that international upbringing affect how you see the
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  Speaker 2: entire world of assets.
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  Speaker 3: Yeah, it's a great question. I do think that I've
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  Speaker 3: been privileged to grow up in a very diverse environment.
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  Speaker 3: Like if you look at old high school pictures, I'm
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  Speaker 3: like maybe one of two white kids in there. Everyone
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  Speaker 3: else is different shades, but so very very diverse. And
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  Speaker 3: so I think and also just going to different countries
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  Speaker 3: and learning different cultures or being exposed to them, I
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  Speaker 3: think it's helped me, Like I view myself sort of
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  Speaker 3: as a global citizen.
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  Speaker 2: Well, you're a globe trotter. You're you're in the US,
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  Speaker 2: you are in California, you're in New York, Boston, you're
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  Speaker 2: going to where what's your next few stops? London?
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  Speaker 3: I'm flying to London on Saturday. I'll be in Geneva
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  Speaker 3: after that, and then.
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  Speaker 2: We were just in late Geneva a year ago, spectacular.
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  Speaker 3: And then actually we're going to Holland because my parents
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  Speaker 3: are they live in the Hague. They're celebrating their seventieth
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  Speaker 3: wedding out of vers so they're ninety one and ninety seven.
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  Speaker 3: So we got three generations of Timor descending on the
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  Speaker 3: Hague in about a week and a half. And I think,
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  Speaker 3: what I feel at home in almost any place really
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  Speaker 3: in the world. And you know, when it's hard to
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  Speaker 3: understand what someone says because the English is not their
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  Speaker 3: first language, you can kind of like you figure it
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  Speaker 3: out because you just kind of used to this, you know,
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  Speaker 3: this environment where everyone's coming from different places and and
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  Speaker 3: like you know even now, like I run and a
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  Speaker 3: totally separate topic, but I run a food camp at
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  Speaker 3: burning Man and it's a very global camp. We have
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  Speaker 3: ninety people. We're all cooked meals that we gift away
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  Speaker 3: to the artists there. But we have like thirty Brazilians,
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  Speaker 3: and we have like French and Swiss and Mexican people
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  Speaker 3: and obviously Americans and that, like it's it's easy to
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  Speaker 3: do because you're just used to having all these different
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  Speaker 3: cultures in the same space.
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  Speaker 2: So I'm kind of fascinated by the new I don't
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  Speaker 2: love the earbuds that not comfortable in my ear, but
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  Speaker 2: the new AI enabled instant translation that is star Trek
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  Speaker 2: next level futuristic. I can see that saying, oh you
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  Speaker 2: want to go to Japan or Korea or China, here
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  Speaker 2: you go knock yourself out. That sort of technological innovation
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  Speaker 2: is that turns that into a must have technology for sure?
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  Speaker 2: How many languages do you speak?
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  Speaker 3: I speak? Obviously, Dutch is my native language. English. I
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  Speaker 3: used to be totally fluent in Spanish, but I've kind
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  Speaker 3: of lost that. And then of course there is the
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  Speaker 3: world language called Papiamento, which is what they speak in Aruba,
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  Speaker 3: which is essentially kind of a Spanish Portuguese blend. But
• 13:50
  Speaker 3: if you don't know a word, you can just say
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  Speaker 3: it in Dutch or English and it's completely acceptable.
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  Speaker 2: Really fascinating. Coming up, we continue our conversation with you
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  Speaker 2: and Temor, director of Global Macro at Fidelity, discussing various
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  Speaker 2: asset classes, equities, bonds, commodities, alternatives. You're listening to Masters
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  Speaker 2: in Business on Bloomberg Radio. I'm Barry Ridults. You're listening
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  Speaker 2: to Masters in Business on Bloomberg Radio. My guest this
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  Speaker 2: week Urian Temor, director of Global Macro at Fidelity. They
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  Speaker 2: touch about sixteen trillion dollars in assets and have discretion
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  Speaker 2: over six point four trillion. So we were talking about
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  Speaker 2: what a globe trotter you are. Let let's trot around
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  Speaker 2: the world and talk about various asset classes. Since you
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  Speaker 2: began your career with bonds, let's let's start with bonds.
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  Speaker 2: How do you see what's been going on with treasury
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  Speaker 2: yields and anticipating not only the twenty five basis cut
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  Speaker 2: point we had in September, but perhaps a couple more
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  Speaker 2: this year and next.
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  Speaker 3: Yeah, So treasury yields such an interesting market right now.
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  Speaker 3: We've been stuck sort of between four and five percent
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  Speaker 3: for a while for a while, and when we go
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  Speaker 3: above four and a half, it's like nothing good happens,
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  Speaker 3: Like the old fed model from the Greenspan Das comes
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  Speaker 3: lurking back and it starts to wabble the stock market
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  Speaker 3: because the bond yield and the equity yield are about
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  Speaker 3: the same right now, And so that takes you back
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  Speaker 3: to the eighties and and you know, mid nineties and
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  Speaker 3: even the seventies and sixties where bonds to stocks were
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  Speaker 3: positively correlated instead of negatively correlated. That happened that that began,
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  Speaker 3: you know, during the Great Moderation era late nineties until
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  Speaker 3: COVID basically, and so then in twenty twenty two, of
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  Speaker 3: course the correlation flipped back to positive. It was rising
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  Speaker 3: yields that caused the problem in the stock market. And
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  Speaker 3: so there's a whole broader conversation about the sixty forty,
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  Speaker 3: but just dealing with treasuries right now. So as you
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  Speaker 3: get close to five, it really starts to freak the
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  Speaker 3: stock market out, but also the bond buyers start to
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  Speaker 3: emerge because there's value, right, I mean real.
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  Speaker 2: Real ch yields over two and a half percent inflation.
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  Speaker 3: The income is back into fixed income, right, but down
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  Speaker 3: at four when you have a growth scare kind of
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  Speaker 3: like I mean, I wouldn't say it's a growth scare, but.
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  Speaker 2: There's more some nervousness and some life I hate the
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  Speaker 2: word uncertainty, but there's a lack of clarity as to
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  Speaker 2: how all these things taraffs, yield FMC plays out.
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  Speaker 3: Yeah, so at four, generally I would be a better
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  Speaker 3: seller than a buyer. But this question of you know,
• 16:44
  Speaker 3: fiscal dominance, you know clearly the administration wants to grow
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  Speaker 3: out of the debt. I think that's the very overt
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  Speaker 3: plan if you've listened to good Bessant.
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  Speaker 2: Or they're pretty explicit about it.
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  Speaker 3: And so they're trying to goose the economy and outrun
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  Speaker 3: the debt because everyone knows you can't really cut the
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  Speaker 3: debt very much because too much of the budget is
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  Speaker 3: is not discretionary. And so that's the plan, and I
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  Speaker 3: think it's basically it's a good plan because what are
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  Speaker 3: the alternatives.
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  Speaker 2: Right raising taxes and spending, which we know what the
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  Speaker 2: odds of that.
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  Speaker 3: Are, yes, But running kind of that fiscal train means
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  Speaker 3: deficit spending, or at least that's part of it, and
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  Speaker 3: that means more supply, and that could mean hire term
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  Speaker 3: premium for long treasuries and we saw we've seen that,
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  Speaker 3: right the term premium during the qa QE financial repression
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  Speaker 3: days was like minus one fifty, which makes no sense,
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  Speaker 3: right term a risk premium should always be positive, and
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  Speaker 3: now it's plus sixty plus seventy, but historically it's been
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  Speaker 3: plus one hundred and fifty or even more. And so
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  Speaker 3: if the term premium mean reverts back to a normal
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  Speaker 3: level positive level, because deficit spending and debt levels are rising,
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  Speaker 3: you could easily least see a five handle on treasuries,
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  Speaker 3: and a five handle on treasuries are not going to
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  Speaker 3: sit well with equities. Like the equity marketing can go up,
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  Speaker 3: earnings can drive the bus, but the pe gets under
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  Speaker 3: pressure because the risk free acid is now competing with
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  Speaker 3: the risky acid and they're offering the same yield.
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  Speaker 2: So quick question on that. In the twenty tens, or
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  Speaker 2: at least towards the end of the twenty tens, we
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  Speaker 2: had an inverted yield curve for a while. What's the
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  Speaker 2: impact of that on that term premium or lack thereof.
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  Speaker 3: Yeah, so we had that very inverted yield curve. Obviously
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  Speaker 3: it shouted recession and it didn't happen. And I think
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  Speaker 3: the reason in hindsight was that the economy is just
• 18:41
  Speaker 3: less interest rates sensitive than it used to be. Right,
• 18:43
  Speaker 3: so everyone refired their mortgage in twenty twenty and twenty
• 18:46
  Speaker 3: one at sub three percent. That's also why the housing
• 18:49
  Speaker 3: market is frozen. But also if you look at the
• 18:52
  Speaker 3: big banks, right, why is a yield curve inversion. Typically
• 18:55
  Speaker 3: bad is because banks net interest margins goes upside down.
• 19:00
  Speaker 3: They borrow short land long, and so banks stopped lending
• 19:03
  Speaker 3: and you get a credit crunch and you get a recession.
• 19:06
  Speaker 3: But in this case, the large banks. You know, if
• 19:09
  Speaker 3: you notice your your deposit rate at the large megacenter
• 19:14
  Speaker 3: banks has not really gone up commensurate with the yield
• 19:18
  Speaker 3: on money market funds, right, So that deposit rate went
• 19:21
  Speaker 3: up to half a percent and is now coming back
• 19:23
  Speaker 3: down again. So for a large bank, the yield curve
• 19:27
  Speaker 3: not only was never inverted, it was extremely steep half
• 19:31
  Speaker 3: a percent funding. Right, If you're funding your loans on
• 19:35
  Speaker 3: deposits and you're paying half a percent on those deposits
• 19:38
  Speaker 3: and you can lend at seven or eight percent, you'll
• 19:41
  Speaker 3: do that all day long.
• 19:42
  Speaker 2: And yet at the same time, we've watched money markets
• 19:45
  Speaker 2: go five trillion, six trillion, seven trillion. It's become so
• 19:49
  Speaker 2: easy with your app to move money from Hey, I'm
• 19:52
  Speaker 2: going from Chase to swab, I'm going from city to Fidelity,
• 19:56
  Speaker 2: where I'm getting real yield. I wonder how much technology
• 20:00
  Speaker 2: plays a role in people. It used to be pain
• 20:02
  Speaker 2: in the neck. I'm getting quarter percent in my checking account.
• 20:06
  Speaker 2: But do I really want to write a check and
• 20:08
  Speaker 2: mail it out and wait.
• 20:09
  Speaker 3: For the Yeah, So you leave money at the bank
• 20:12
  Speaker 3: for convenience. You know, you got bills to pay. But
• 20:15
  Speaker 3: if you have extra cash, you're buying a CD or
• 20:19
  Speaker 3: money market fund or buying T deal, so what have you.
• 20:22
  Speaker 3: And it's a lot easier than it used to be.
• 20:23
  Speaker 3: And so now you've got seven trillion in money market funds,
• 20:26
  Speaker 3: which a lot of people actually think is money waiting
• 20:28
  Speaker 3: to be invested in the stock market. But I don't
• 20:32
  Speaker 3: think there's really a signal there because I think that
• 20:34
  Speaker 3: money came out of the banks and probably we'll go
• 20:36
  Speaker 3: back to the bank.
• 20:36
  Speaker 2: So some people have said, hey, as soon as the
• 20:39
  Speaker 2: Fed starts cutting rates, it'll a make the cost of
• 20:43
  Speaker 2: borrowing cheaper for corporate America as well as American households.
• 20:47
  Speaker 2: And b is going to scare some of that money away.
• 20:49
  Speaker 2: And it's got nowhere to go about equity fair narrative
• 20:52
  Speaker 2: for kind of a lot of wishful thinking.
• 20:56
  Speaker 3: It could be a combination of both. But if you
• 20:58
  Speaker 3: typically look at when money market fund assets swell like
• 21:02
  Speaker 3: it did during the pandemic, it's money coming out of
• 21:05
  Speaker 3: the stock market seeking a safe haven, and then when
• 21:08
  Speaker 3: the stock market recovers, the money goes back in the
• 21:10
  Speaker 3: stock market. That's not the pattern this year. The money
• 21:13
  Speaker 3: came out of the banks in part because of like
• 21:15
  Speaker 3: the Silicon Valley tobaccle.
• 21:18
  Speaker 2: Fhoe years, but also five hundred basis points of rate
• 21:20
  Speaker 2: hikes ex. Twenty twenty two.
• 21:22
  Speaker 3: So money markets went from zero to five and a
• 21:24
  Speaker 3: half and suddenly attracted and deposits went from zero to half.
• 21:27
  Speaker 3: You know, so money markets yielded ten x the bank deposit,
• 21:31
  Speaker 3: and so some of that may go to the stock market,
• 21:34
  Speaker 3: but I think, but it didn't come from the stock market.
• 21:36
  Speaker 3: Let me put it out.
• 21:37
  Speaker 2: So you noted something really interesting. I remember you wrote
• 21:40
  Speaker 2: in twenty twenty two bonds went from being a port
• 21:44
  Speaker 2: in the storm to the storm itself. Yes, so normally
• 21:49
  Speaker 2: we think of money leaving equity and going in the
• 21:51
  Speaker 2: safe harbor of money markets. Were we seeing money exiting
• 21:55
  Speaker 2: bonds and going to money markets? Is that what happened?
• 21:58
  Speaker 2: Was it a duration play.
• 22:00
  Speaker 3: From among sort of the typical investors. We have not
• 22:04
  Speaker 3: really seen an exodus at all, and I think part
• 22:07
  Speaker 3: of that is just the demographics of you know, the
• 22:10
  Speaker 3: baby boom, solving for income more so than growth. So
• 22:14
  Speaker 3: when you look at fun flows into fixed income, they've
• 22:17
  Speaker 3: remained strong, and they were strong at you know, one percent,
• 22:21
  Speaker 3: and they're strong at four percent. So I think that
• 22:24
  Speaker 3: is more of a structural trend than playing the markets,
• 22:28
  Speaker 3: if you will, Like I think the average investor is
• 22:30
  Speaker 3: not looking at okay, well real rates are now positive,
• 22:33
  Speaker 3: so let me do this. But they're solving for outcomes.
• 22:35
  Speaker 3: They're buying solutions based funds, like like our target date,
• 22:39
  Speaker 3: we'll have a certain amount of fixed.
• 22:41
  Speaker 2: I've just attracted so much money in four o one
• 22:43
  Speaker 2: k's over the past twenty years. It's amazing. So let's
• 22:46
  Speaker 2: talk a little bit about equities. I keep hearing people
• 22:50
  Speaker 2: complain about valuations, but if you stayed out of equities
• 22:54
  Speaker 2: due to elevated valuation, you miss most of this run
• 22:57
  Speaker 2: from the twenty thirteen breakout.
• 23:00
  Speaker 3: Yes, so, so the market obviously is very bifurcated. We
• 23:05
  Speaker 3: got the MAC seven, the cap weighted PE is you know,
• 23:09
  Speaker 3: twenty three twenty four. The equal weighted PE is eighteen.
• 23:13
  Speaker 3: So there's a very large gap there. You know, if
• 23:18
  Speaker 3: you look back at the mid to late nineties, which
• 23:21
  Speaker 3: is a kind of an analogous period to today. Right,
• 23:24
  Speaker 3: we had the ninety four stealth bear market when green
• 23:28
  Speaker 3: Span raised race three hundred basis points. Then he gave
• 23:31
  Speaker 3: back seventy five and we had a huge rally. And
• 23:34
  Speaker 3: it was also the start of the Internet boom, you know,
• 23:37
  Speaker 3: the Netscape IPO and it was like in ninety six.
• 23:40
  Speaker 3: So the post twenty twenty two period very analogous to
• 23:43
  Speaker 3: post nineteen ninety four, you know, soft landing, ease off,
• 23:47
  Speaker 3: the brakes, markets, markets rip, and then the post ninety
• 23:52
  Speaker 3: eight long term capital that you know, twenty two percent decline,
• 23:56
  Speaker 3: very robust recovery, and then green Span eases three times
• 24:00
  Speaker 3: into that recovery. We're seeing the same thing now. We
• 24:03
  Speaker 3: had a twenty one percent tariff tantrum, no recession, you know,
• 24:07
  Speaker 3: the kind of administration backed off very very strong, one
• 24:10
  Speaker 3: of the strongest ever recoveries from a twenty percent decline
• 24:14
  Speaker 3: other than nineteen ninety eight. And then now Powell's easing
• 24:18
  Speaker 3: into that. And so but the point is that that
• 24:20
  Speaker 3: period saw almost NonStop multiple expansion and that's what we've
• 24:26
  Speaker 3: seen since twenty twenty two. And you know, pees are
• 24:31
  Speaker 3: they have they are strong predictors of long term return.
• 24:35
  Speaker 3: So if you take a ten year cape ratio and
• 24:39
  Speaker 3: you regress that against ten year forward returns, you see
• 24:42
  Speaker 3: a very high you know, it explains the forward returns
• 24:46
  Speaker 3: very well. But over the near term, a high pe
• 24:51
  Speaker 3: has very little to say about the next year or two.
• 24:54
  Speaker 3: And this is because the market tends to be in
• 24:58
  Speaker 3: a rising trend. Momentum begins, that's momentum, and that's what
• 25:03
  Speaker 3: we're in. So it's it's a you know, it's a
• 25:05
  Speaker 3: tough game to time on the mean reversion of pees,
• 25:11
  Speaker 3: even though we know that historically it's between ten and
• 25:14
  Speaker 3: thirty and it does mean revert, but when the mean
• 25:17
  Speaker 3: reverse reversion starts and from what level, it's very very
• 25:21
  Speaker 3: difficult to do, especially during secular trends, which I think
• 25:24
  Speaker 3: we're very clearly in.
• 25:26
  Speaker 2: So so many different places to go with this. I
• 25:29
  Speaker 2: have a dozen questions. Maybe we'll go a little along
• 25:32
  Speaker 2: the segment and delve deeper into equities. I love the
• 25:36
  Speaker 2: concept of a secular bull market as opposed to a
• 25:40
  Speaker 2: cyclical but I think a lot of people don't really
• 25:43
  Speaker 2: understand the difference. Give us your definition of what is
• 25:47
  Speaker 2: a secular bull market. When this one began and why.
• 25:51
  Speaker 3: Yeah, So we have the market cycle, which is generally
• 25:54
  Speaker 3: driven by the business cycle. So you have a recession
• 25:57
  Speaker 3: and you have the early cycle recovery where things get
• 26:00
  Speaker 3: less bad, and of course the market is always anticipating that, right.
• 26:04
  Speaker 3: The market's always in price discovery, and this is why
• 26:07
  Speaker 3: at bottom's price will lead earnings, which is why the
• 26:10
  Speaker 3: pe always goes up in the first year of a
• 26:13
  Speaker 3: bull market, like it always does. And it doesn't make
• 26:16
  Speaker 3: sense on the surface. People are like, oh, this can't
• 26:18
  Speaker 3: be real. It's all pe driven. Where are the earnings all?
• 26:21
  Speaker 3: The market's just from running the earnings. Yeah, But then
• 26:24
  Speaker 3: there are the secular trends, and you know, if you
• 26:27
  Speaker 3: go back one hundred years, you can see them. You
• 26:31
  Speaker 3: can spot them very easily because the market has a
• 26:34
  Speaker 3: kind of central trend line plus ten percent nomenal plus
• 26:38
  Speaker 3: seven six and three quarters real. And if you run
• 26:41
  Speaker 3: a regression trend line against the total real return of
• 26:45
  Speaker 3: the SMP or some basket of stocks going back one
• 26:48
  Speaker 3: hundred and fifty years, it's like perfect. And then you
• 26:51
  Speaker 3: have the pendulum swinging above it and below it, so you.
• 26:54
  Speaker 2: Have very noisy but still the overall trend is being made.
• 26:57
  Speaker 3: But you have these supercycles where you're outperforming the trend line.
• 27:02
  Speaker 3: So the eighties and nineties was one of those. So
• 27:05
  Speaker 3: instead of a ten percent return, we got eighteen percent
• 27:07
  Speaker 3: returns for like eighteen years, the fifties and sixties, after
• 27:11
  Speaker 3: World War Two, the twenties, that was a truncated one.
• 27:14
  Speaker 3: But from twenty to twenty nine, boy, to that thing go.
• 27:18
  Speaker 3: And since nine is where I put it, other technicians
• 27:21
  Speaker 3: generally disagree with me. They think it was twenty thirteen.
• 27:25
  Speaker 3: When you look at the CAPE model, you look at
• 27:27
  Speaker 3: deviation from trend, you look at the slope of those
• 27:31
  Speaker 3: early trend lines. For me, it's nine, which puts it
• 27:34
  Speaker 3: a sixteen. And of course, and then you have the
• 27:36
  Speaker 3: secular bear markets, right, so the two thousand's was one,
• 27:40
  Speaker 3: the nineteen seventies very famous. Of course, nineteen thirties doesn't
• 27:43
  Speaker 3: mean it market necessarily goes down, but it's underperforming that
• 27:47
  Speaker 3: ten percent trend line, and generally, in real terms, it's
• 27:50
  Speaker 3: probably going down. And so that's kind of how I
• 27:53
  Speaker 3: define the secular trend.
• 27:55
  Speaker 2: So we are in agreement on so much stuff. I'm
• 27:58
  Speaker 2: going to circle back to nine and push back a
• 28:00
  Speaker 2: little bit. But you mentioned that first year, you get
• 28:04
  Speaker 2: a pe spike as the market anticipates improving earnings. One
• 28:08
  Speaker 2: of the things that's kind of fascinating is to see
• 28:12
  Speaker 2: how much of a bull mark it's gains are attributable
• 28:17
  Speaker 2: to not improving fundamentals, but multiple expansion. From eighty two
• 28:21
  Speaker 2: to two thousand, what was it, three quarters of the
• 28:24
  Speaker 2: games where multiple expansion. How much of that is psychology
• 28:28
  Speaker 2: and how much of that is just people getting on
• 28:31
  Speaker 2: board late as the market rallies.
• 28:34
  Speaker 3: It's it's both. But yeah, for instance, eighty two, the
• 28:37
  Speaker 3: PE was like seven, and in two thousand.
• 28:39
  Speaker 2: And what was the yield in eighty two.
• 28:41
  Speaker 3: It is double ditches almost twenty percent competition And then
• 28:45
  Speaker 3: in two thousand, yes, exactly, And in two thousand the
• 28:48
  Speaker 3: PE was thirty five using operating earnings. That was the
• 28:52
  Speaker 3: forward pe. Actually the trailing p was like forty five.
• 28:56
  Speaker 3: So that's a hell of a pendulum swing. Yeah, and
• 28:58
  Speaker 3: you know, obviously nineteen eighty two inflation was very high.
• 29:02
  Speaker 3: They yet the malaise of in the economy, bonds were
• 29:06
  Speaker 3: very competitive. Nobody wanted to pay for earnings.
• 29:10
  Speaker 2: The death of equities the years earlier on death business.
• 29:13
  Speaker 3: Death of equities, Yes, for sure, and then people become
• 29:16
  Speaker 3: more comfortable, and then they go from comfortable to confident,
• 29:20
  Speaker 3: and then it's like, yeah, I'm going to pay I'm
• 29:22
  Speaker 3: going to pay twenty or twenty five times these earnings.
• 29:26
  Speaker 3: And then of course then you have the growth the
• 29:28
  Speaker 3: growth stocks. So the late nineties obviously, where you know,
• 29:31
  Speaker 3: I used to call them the Janus twenty there was
• 29:34
  Speaker 3: a fund that was just the most docks and so.
• 29:36
  Speaker 2: I remember the Ryan net net An exactly.
• 29:40
  Speaker 3: And of course right now it's the mag seven formerly
• 29:42
  Speaker 3: known as the as the Thangs, and those are secular growers, right,
• 29:47
  Speaker 3: And there's a theme, right, it was Internet back then,
• 29:49
  Speaker 3: it's AI now, and people get onto the onto the
• 29:53
  Speaker 3: bandwagon and it's like, yeah, you know, I'll pay thirty
• 29:55
  Speaker 3: five times earnings for a company that is in this
• 29:58
  Speaker 3: space and is going to grow, so their earnings in
• 30:01
  Speaker 3: a secular way, not a cyclical way. And so it's
• 30:05
  Speaker 3: totally plausible and understandable. But at the end it goes
• 30:10
  Speaker 3: too far and I don't think we're anywhere close to that,
• 30:13
  Speaker 3: But then you start looking for signs of frost. But yeah,
• 30:16
  Speaker 3: but that's that's the pensulum swing.
• 30:17
  Speaker 2: So let's talk about nine and why so many of
• 30:21
  Speaker 2: your technical brethrens dated to twenty thirteen, which was when
• 30:26
  Speaker 2: all of the major industries broke out over their prior
• 30:29
  Speaker 2: training range. So the pushback IY here to nine is, well,
• 30:34
  Speaker 2: that's like dating the eighty two to two thousand bull
• 30:37
  Speaker 2: market to the lows in seventy three seventy four, and
• 30:41
  Speaker 2: you're still All you're doing over that period is recovering
• 30:45
  Speaker 2: the selloff twenty thirty. What we were down fifty six
• 30:48
  Speaker 2: to fifty seven percent from October seven to March o nine,
• 30:53
  Speaker 2: and then to get back to where you were in seven,
• 30:56
  Speaker 2: it took till twenty thirteen. So why nine as opposed
• 30:59
  Speaker 2: to thirty?
• 31:00
  Speaker 3: It's totally a legit argument. But I would say a
• 31:06
  Speaker 3: couple of things. One is this is not an exact science, right,
• 31:09
  Speaker 3: There's only been two or three or four secular.
• 31:13
  Speaker 2: Bull markets, right, small data sets.
• 31:15
  Speaker 3: Small data set, it's not a quant model. You have
• 31:19
  Speaker 3: to look at the chart at the slope. So I
• 31:22
  Speaker 3: date the secondar bull market from the fifties. I date
• 31:26
  Speaker 3: at forty nine, even though forty nine was not the low, right.
• 31:29
  Speaker 2: The low was six forty six.
• 31:33
  Speaker 3: But in forty nine something changed and the slope started
• 31:38
  Speaker 3: to you know, like the market found itself and that
• 31:42
  Speaker 3: trajectory started to really compound at double digits and you
• 31:45
  Speaker 3: broke out of that big shelf that was really from
• 31:48
  Speaker 3: twenty nine all the way to forty nine seventies. The
• 31:52
  Speaker 3: low was of course in seventy four October seventy four,
• 31:55
  Speaker 3: after forty eight percent bear market. We had some other
• 31:59
  Speaker 3: little cycles, but then in eighty two it took off.
• 32:02
  Speaker 3: There was a change in the fundamentals. You know, Vulcar
• 32:06
  Speaker 3: broke inflation. So and then you look at the case,
• 32:10
  Speaker 3: so then I get verification from the fundamentals. Then so
• 32:13
  Speaker 3: I look at the charts, and yes, I see the argument,
• 32:17
  Speaker 3: and I agreed it's a good point. But in nine
• 32:22
  Speaker 3: the market just went straight up after a decade of sideways.
• 32:26
  Speaker 3: In eighty two the market went straight up after a
• 32:28
  Speaker 3: decade of sideways. In forty nine, same thing, whether the
• 32:32
  Speaker 3: low was in or not. And of course, in real terms,
• 32:35
  Speaker 3: the eighty two low was below the seventy four low.
• 32:38
  Speaker 2: So course of inflation, you really felt.
• 32:39
  Speaker 3: So I want to get second opinions from the real
• 32:45
  Speaker 3: chart and from the fundamental So the cape model again
• 32:48
  Speaker 3: where you compare the ten year pe to the ten
• 32:50
  Speaker 3: year forward return looks very similar at the nine and
• 32:55
  Speaker 3: not similar at the thirteen when the market already had
• 32:58
  Speaker 3: a lot of momentum. And then the other thing. I
• 33:01
  Speaker 3: look at again that one hundred and fifty year regression
• 33:04
  Speaker 3: trend line of the real SMP, and so at the
• 33:08
  Speaker 3: at secular peaks, the market is about one hundred percent
• 33:13
  Speaker 3: above the trend line, and at secular troughs it's about
• 33:16
  Speaker 3: fifty percent below. So that point was in nine, it
• 33:20
  Speaker 3: was not in thirteen. So I look at like the
• 33:23
  Speaker 3: weight of the evidence from a multitude of indicators, and
• 33:27
  Speaker 3: again it's it's not an exact science. I'm not saying
• 33:30
  Speaker 3: I'm right there wrong, but that's for me. That's where
• 33:33
  Speaker 3: I get.
• 33:34
  Speaker 2: But you've been a whole lot more right than many
• 33:36
  Speaker 2: other pieples.
• 33:37
  Speaker 3: And it's interesting. So in nine, you know, I was
• 33:42
  Speaker 3: actually running a fund back then, kind of a global
• 33:45
  Speaker 3: micro fund, and I was like, the market was so depressed, right,
• 33:50
  Speaker 3: so remember March of nine, Sure of course, and I'm like,
• 33:53
  Speaker 3: you know, I want to be long, but what if
• 33:57
  Speaker 3: I'm wrong? And I'm like, at this point, if I'm wrong.
• 34:00
  Speaker 2: So what you're already down fifty cut in half?
• 34:02
  Speaker 3: Well, but at that point, the whole system is going
• 34:04
  Speaker 3: to collapse. So it's like, why not bet at that point?
• 34:10
  Speaker 3: And so, yeah, when is.
• 34:13
  Speaker 2: Down more than fifty percent in US market, it's not
• 34:16
  Speaker 2: a great entry point. I mean, that's one thing. But
• 34:19
  Speaker 2: I have to ask you a question about nine. So
• 34:23
  Speaker 2: I was looking through some of my old notes as
• 34:25
  Speaker 2: I was preparing for this, and I have I'm curious
• 34:29
  Speaker 2: as to your thoughts on some of the behavioral aspects,
• 34:33
  Speaker 2: including sentiment and bulbear ratios. I wrote something up in
• 34:38
  Speaker 2: October nine calling that recovery the most hated bull market
• 34:44
  Speaker 2: in market history. Markets went straight up. Everybody was miserable.
• 34:49
  Speaker 2: It's a headfake, it's a false breakout. This is all
• 34:52
  Speaker 2: going to be a disaster. And if you listen to
• 34:54
  Speaker 2: those people, you left a ton of money on the table.
• 34:57
  Speaker 2: What's your thought on that extra dam sentiment in one
• 35:01
  Speaker 2: direction or the other, and just what it means when
• 35:04
  Speaker 2: everybody hates a particular asset class.
• 35:06
  Speaker 3: It's obviously an opportunity because that means that everyone is
• 35:09
  Speaker 3: not on the same side of the boat, right And actually,
• 35:13
  Speaker 3: and what I.
• 35:13
  Speaker 2: Want, well, they're all on the room side.
• 35:16
  Speaker 3: But before I answered the rest of that, I want
• 35:18
  Speaker 3: what I was going to say earlier was when you
• 35:21
  Speaker 3: run the regression of the nine to present SMP, either
• 35:25
  Speaker 3: in real or nominal terms, and you run the same
• 35:29
  Speaker 3: regression from eighty two to two thousand, from forty nine
• 35:33
  Speaker 3: to sixty eight, it's exactly the same slope. And so
• 35:37
  Speaker 3: if in O nine I got bullish and in thirteen,
• 35:40
  Speaker 3: I'm like, yeah, now we've taken out the high. So
• 35:43
  Speaker 3: now we can say this bull market is confirmed. So
• 35:46
  Speaker 3: the thirteen for me is not the start, but it's confirmation.
• 35:50
  Speaker 3: But if I had looked at nothing else for the last,
• 35:54
  Speaker 3: for the next, you know, twelve years today, I would
• 35:58
  Speaker 3: be within ten percent of that slope having materialized. And
• 36:03
  Speaker 3: so again you're never going to do that on a
• 36:06
  Speaker 3: secular chart. You want to have weight of the evidence.
• 36:09
  Speaker 3: But it shows you how powerful that context can be
• 36:13
  Speaker 3: to just look at those different time frames and see
• 36:17
  Speaker 3: where they are, because it will keep you on the
• 36:19
  Speaker 3: right side of the market.
• 36:20
  Speaker 2: So last question on equities, given the forty nine to
• 36:26
  Speaker 2: sixty six rally, eighty two to two thousand and then
• 36:29
  Speaker 2: the nine forward, how much legs does this secular bull
• 36:35
  Speaker 2: market have? Can can this go another five, six, seven years?
• 36:40
  Speaker 2: And the other related question is how much of a
• 36:42
  Speaker 2: reset does that giant fiscal stimulus of twenty twenty one
• 36:47
  Speaker 2: twenty two build into into markets.
• 36:51
  Speaker 3: It's it's a great question. And so on the surface
• 36:54
  Speaker 3: of it, we're sixteen years in the last two were
• 36:57
  Speaker 3: eighteen years, but again sample size of two, like, you
• 37:01
  Speaker 3: can't go with that, right, But the CAPE model, again
• 37:05
  Speaker 3: which has been a very good long term model in
• 37:09
  Speaker 3: terms of the ten year Kagar for the Market, suggests
• 37:13
  Speaker 3: that the so the PE, the growth rate in the
• 37:17
  Speaker 3: PE peaked in nineteen for obvious reasons because it's a
• 37:21
  Speaker 3: ten year model. So nine rolls off and then you know,
• 37:24
  Speaker 3: you have that peak, and we've been holding steady at
• 37:26
  Speaker 3: around you know, fourteen fifteen percent ten year cagers. That
• 37:31
  Speaker 3: actually has another peak in about like twenty twenty six,
• 37:34
  Speaker 3: seven eight. My guess is that that acceleration will be
• 37:39
  Speaker 3: an AI bubble, or it could be where it's just
• 37:42
  Speaker 3: like you know, the AI boom, the mag seven, like
• 37:44
  Speaker 3: all of a sudden, everyone's buying companies with no earnings
• 37:47
  Speaker 3: because they're promising to be the next.
• 37:48
  Speaker 2: Killer app and that sort of things.
• 37:51
  Speaker 3: Yes, and my guess is that if we are heading
• 37:55
  Speaker 3: into a fiscally dominant era or we're in it already.
• 37:58
  Speaker 3: So we had five billion of helicopter money in twenty twenty,
• 38:03
  Speaker 3: we now have another five trillion dollar fiscal bill. If
• 38:06
  Speaker 3: the next Fed post Powell is going to be just
• 38:10
  Speaker 3: more doubvish than the economics suggest in order to fund
• 38:15
  Speaker 3: that help fund that debt, then you could see inflation
• 38:19
  Speaker 3: be structurally higher than two percent, maybe three to four.
• 38:23
  Speaker 3: And if that, and if the ten year yield at
• 38:26
  Speaker 3: that point goes to a five handle because the term
• 38:28
  Speaker 3: premium is back, you can easily see a scenario where
• 38:32
  Speaker 3: in a few years that FED model principle of rising
• 38:36
  Speaker 3: yiels bringing down the pe is going to be the
• 38:41
  Speaker 3: thing that flattens that secular slope. That doesn't mean like
• 38:44
  Speaker 3: a two thousands like bear market. It doesn't have to
• 38:47
  Speaker 3: mean that, but it could just be a flattening. Instead
• 38:49
  Speaker 3: of running at two x the ten year rate of change,
• 38:53
  Speaker 3: maybe you're at half x or something like that.
• 38:55
  Speaker 2: So generally speaking, when you see an elevated cape, it's
• 38:59
  Speaker 2: not a signal. It's really a signal lower your future
• 39:03
  Speaker 2: return expectations. Thing is going to be a little more,
• 39:05
  Speaker 2: a little less easy sledding.
• 39:07
  Speaker 3: Yes, I think the next ten years will be less
• 39:09
  Speaker 3: less robust than the last, but it doesn't mean they
• 39:12
  Speaker 3: have to be negative at all.
• 39:14
  Speaker 2: You mentioned the eighties into the nineties in the post
• 39:17
  Speaker 2: World War two era. It's kind of fascinated to look
• 39:20
  Speaker 2: at rolling fifteen year periods. The fifteen years following nine
• 39:25
  Speaker 2: is the third best fifteen year period in history. It's
• 39:28
  Speaker 2: really amazing. Coming up, we continue our conversation with Urian Timmor,
• 39:33
  Speaker 2: director of Global Macro at Fidelity, talking about crypto, gold,
• 39:39
  Speaker 2: commodity alternatives, and the state of the economy. I'm Barry Rihults.
• 39:44
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm
• 40:01
  Speaker 2: Barry Rdults. You're listening to Masters in Business on Bloomberg Radio.
• 40:04
  Speaker 2: My extra special guests this week is uriean Temor. He
• 40:08
  Speaker 2: is the director of Global Macro at Fidelity Investments, the
• 40:12
  Speaker 2: giant firm helping to manage over sixteen trillion dollars in
• 40:18
  Speaker 2: client assets. So let's talk a little bit about the
• 40:21
  Speaker 2: current environment. You look at more than just stocks and bonds.
• 40:26
  Speaker 2: You look at a lot of economic data as well
• 40:29
  Speaker 2: and chart that. So how do you think where we
• 40:33
  Speaker 2: are in the current economic cycle? How do you describe
• 40:36
  Speaker 2: our location in the business cycle.
• 40:39
  Speaker 3: So generally speaking, the economy remains pretty solid. People are employed,
• 40:46
  Speaker 3: their wages are exceeding the inflation rate. At this point,
• 40:51
  Speaker 3: debt levels are not high, at least as a percent
• 40:53
  Speaker 3: of GDP. Right, So the household debt to GDP ratio
• 40:57
  Speaker 3: peaked during a financial.
• 40:58
  Speaker 2: Crisis, pretty modest.
• 41:00
  Speaker 3: It's yeah, it was one hundred percent of GDP. It's
• 41:02
  Speaker 3: now seventy. So there's a debt issue on the government's
• 41:05
  Speaker 3: balance sheet, but not in the household or even the
• 41:08
  Speaker 3: corporate balance sheet.
• 41:09
  Speaker 2: Even the government side. Isn't our debt to GDP ratio
• 41:13
  Speaker 2: like half of Japan something like that.
• 41:15
  Speaker 3: So about one hundred and twenty percent if it's just
• 41:18
  Speaker 3: the federal debt. If you add all other debt, it's
• 41:22
  Speaker 3: about two hundred and fifty. But it's comparable to other regions.
• 41:27
  Speaker 3: But certainly Japan gets the prize, and China as well,
• 41:30
  Speaker 3: just in terms of the growth rate of the debt.
• 41:32
  Speaker 2: China, oh, okay, not total, but yeah, China has been
• 41:34
  Speaker 2: growing debt and the Chinese provinces have been growing debt
• 41:37
  Speaker 2: at yeah.
• 41:38
  Speaker 3: And the Chinese numbers, of course, are can be a
• 41:41
  Speaker 3: little vague because the federal debt in China is not high,
• 41:45
  Speaker 3: but they have the four big policy banks that are
• 41:48
  Speaker 3: essentially providing liquidity, and so you have to add that,
• 41:51
  Speaker 3: and so China and Japan are the worst offenders. The
• 41:54
  Speaker 3: US is is on par with most kind of European
• 41:58
  Speaker 3: and other countries. But so anyway, so the economy looks
• 42:04
  Speaker 3: pretty good. But you know, one of the things that
• 42:07
  Speaker 3: COVID did was it sort of up ended a lot
• 42:10
  Speaker 3: of the things we think about when we look at
• 42:13
  Speaker 3: the at the economic cycle, at the business cycle. So
• 42:16
  Speaker 3: you know, of course we know what happened. The economy froze,
• 42:19
  Speaker 3: people got laid off, and then at least in the US,
• 42:22
  Speaker 3: the economy came back really fast, faster than in other places.
• 42:27
  Speaker 3: And the labor wasn't there right Baby boomers had checked out,
• 42:30
  Speaker 3: they left the labor force. Of course, the borders were closed,
• 42:33
  Speaker 3: and I remember, like I was doing a lot of
• 42:35
  Speaker 3: flying back to la at the time because I was
• 42:38
  Speaker 3: hiding in Santa Barbara because the office was closed. And
• 42:42
  Speaker 3: it's like like the counter at Jet Blue in Boston
• 42:46
  Speaker 3: was like they just did not have enough people. People
• 42:50
  Speaker 3: were coming back, like everyone was like, Okay, we're back,
• 42:53
  Speaker 3: but there wasn't The supply chains weren't there, and so
• 42:57
  Speaker 3: we had this very tight labor market that of course
• 43:00
  Speaker 3: we would hear about all the time here from the
• 43:01
  Speaker 3: jolt support to job openings for every job seeker, that
• 43:05
  Speaker 3: sort of thing, and that has been worked off over
• 43:08
  Speaker 3: the last few years. I think that was the goal
• 43:10
  Speaker 3: of the tightening policy, or part of the goal. So
• 43:13
  Speaker 3: when you look at the JOLT support or you look
• 43:15
  Speaker 3: at the U three jobless rate relative to NAHRUD, the
• 43:19
  Speaker 3: non accelerating rate of employment, everything is in balance, like
• 43:23
  Speaker 3: it's right at that zero line.
• 43:25
  Speaker 2: So they supply is that why we've kind of been
• 43:27
  Speaker 2: hanging around four to three four to two unemployment.
• 43:30
  Speaker 3: So no one's hiring, but not many people are looking for.
• 43:33
  Speaker 2: Jobs and not a lot of people getting laid off.
• 43:35
  Speaker 3: No, And so there's balance, right the job seekers versus
• 43:39
  Speaker 3: the job providers. But you look at that chart over
• 43:43
  Speaker 3: fifty years and you can see that there's a pendulum
• 43:46
  Speaker 3: swing of that business cycle. So we went from very
• 43:49
  Speaker 3: tight to neutral, and you know, like the inclination is
• 43:53
  Speaker 3: to look at that and it's like, well, every other
• 43:55
  Speaker 3: time that's happened. The next phase is contraction, and I
• 43:59
  Speaker 3: think that's what the market is saying. That's I think
• 44:01
  Speaker 3: what where the Fed's coming from now that they did
• 44:04
  Speaker 3: the twenty five. They're looking at the jobs dated, They're
• 44:08
  Speaker 3: looking at the revision, right the jobs report revisions eleven
• 44:13
  Speaker 3: thousand jobs, and they're like, Okay, you know, we should
• 44:16
  Speaker 3: we should build in some some cushion for that. And
• 44:19
  Speaker 3: so I think that's generally the vibe. But other than that, uh,
• 44:23
  Speaker 3: you know, we have a whole economics team that looks
• 44:25
  Speaker 3: at the business cycle and we're not really seeing a
• 44:28
  Speaker 3: lot of red flags other than that yellow flag.
• 44:30
  Speaker 2: If you how closely does the market cycle track the
• 44:34
  Speaker 2: business cycle? Because you know, I've heard it said so
• 44:37
  Speaker 2: many times the market is not the economy and vice versa.
• 44:40
  Speaker 2: And the old joke is the stock market is forecast
• 44:43
  Speaker 2: nine to the last four recessions. How do you see
• 44:47
  Speaker 2: that overlay?
• 44:49
  Speaker 3: There is of course a connection, right you look at
• 44:52
  Speaker 3: GDP growth and inventories. I mean, it's less about that
• 44:55
  Speaker 3: now than it was decades ago, the impact of monetary policy.
• 45:00
  Speaker 3: But you know, the markets are not the economy. There
• 45:03
  Speaker 3: is a reflection because if the economy grows, earnings are
• 45:06
  Speaker 3: going to grow, and then uh, you know, the market's
• 45:09
  Speaker 3: going to go up because price follows earnings. But there's
• 45:12
  Speaker 3: a sentiment equation in the stock market that of course
• 45:16
  Speaker 3: you don't have so much in the in the economic cycle,
• 45:19
  Speaker 3: and and you have the timing right, so the market
• 45:23
  Speaker 3: is always going to anticipate future changes.
• 45:25
  Speaker 2: So if you have a chart showing market's bottom eight
• 45:28
  Speaker 2: months below profits, so you can that's a huge lead
• 45:32
  Speaker 2: time eight months.
• 45:33
  Speaker 3: So you can be one hundred percent correct about the
• 45:36
  Speaker 3: economic cycle and be one hundred percent wrong about the
• 45:40
  Speaker 3: market because if it's already been reflected, and if it's
• 45:44
  Speaker 3: already has even over earned against that future signal, then
• 45:48
  Speaker 3: you're buying yesterday's news. But yeah, so the market generally
• 45:53
  Speaker 3: at bottoms will bottom two three quarters before earnings. That
• 45:57
  Speaker 3: happened during COVID, And I remember like it was yesterday,
• 46:00
  Speaker 3: because during COVID, you know, the market felt thirty five
• 46:03
  Speaker 3: percent February and March, then like late March at bottomed,
• 46:07
  Speaker 3: and I think and I think my June it was
• 46:10
  Speaker 3: at new.
• 46:10
  Speaker 2: Highs and sixty for the year from the lows, and
• 46:15
  Speaker 2: people like.
• 46:15
  Speaker 3: The economists had a cover saying this is divorced from
• 46:18
  Speaker 3: reality and everyone and so it's my job a to
• 46:22
  Speaker 3: have people not sell in the first place, to be
• 46:25
  Speaker 3: to be the long term investor. You know, the way
• 46:27
  Speaker 3: I always describe it is you're getting a really juicy
• 46:31
  Speaker 3: ten to eleven percent returned by investing in stocks. But
• 46:34
  Speaker 3: the price of admission is you got to endure some
• 46:38
  Speaker 3: volatility and if you can't stand the price, then you
• 46:41
  Speaker 3: don't get the reward.
• 46:42
  Speaker 2: How do you explain to clients? And I got a
• 46:45
  Speaker 2: million calls, man, this market has become disconnected from reality.
• 46:50
  Speaker 2: What's your explanation to that?
• 46:51
  Speaker 3: So that's what what happened. Happened after the financial crisis.
• 46:55
  Speaker 3: So price bottoms, the market bets on recovery, and it
• 46:58
  Speaker 3: could be wrong, right prices recovery doesn't mean the market
• 47:01
  Speaker 3: knows everything. And that's one thing where I sometimes disagree
• 47:04
  Speaker 3: with technicians who say market's always right. Well, the market's
• 47:07
  Speaker 3: not always right, but the market's always right in discounting
• 47:10
  Speaker 3: everything that's knowable. So it's right in that, But it
• 47:13
  Speaker 3: doesn't mean that that what it's discounting can't change, right,
• 47:17
  Speaker 3: And we saw this during the tariff tantrum in April.
• 47:20
  Speaker 3: Market was pricing in a left tail that never arrived
• 47:23
  Speaker 3: and now and then it had to unprice it. So
• 47:26
  Speaker 3: but so the market looks ahead and the market bottomed
• 47:29
  Speaker 3: in March of nine. Earnings didn't bottom until the third
• 47:34
  Speaker 3: or fourth quarter. Same thing during COVID March bottomed in
• 47:37
  Speaker 3: March of twenty twenty, earnings recovered third or fourth quarter.
• 47:41
  Speaker 3: And so you have so you can't look at the
• 47:45
  Speaker 3: news and say, how can the market be here when
• 47:47
  Speaker 3: the earnings or like people are dying.
• 47:49
  Speaker 2: So how did you explain this to clients? I'm curious.
• 47:52
  Speaker 3: I explained it exactly that way, that the price always
• 47:55
  Speaker 3: leads and you can't look at it in sort of
• 47:58
  Speaker 3: a linear way. Have to just you have to know
• 48:03
  Speaker 3: that at inflection points, the price action is going to
• 48:09
  Speaker 3: make no sense. And this is why people sell at
• 48:12
  Speaker 3: bottoms and buy a tops because they are they're trying
• 48:15
  Speaker 3: to understand the narrative, and the narrative is not the
• 48:18
  Speaker 3: one that is ruling the roost at the time.
• 48:21
  Speaker 2: One of the things that we found was useful was
• 48:24
  Speaker 2: explaining to clients that their life experience isn't market cap
• 48:28
  Speaker 2: weighted when you look at what's driving the big indexes.
• 48:32
  Speaker 2: It was back then it was the fang. Now we
• 48:34
  Speaker 2: call it the magnificent seven. But we did a calculation
• 48:37
  Speaker 2: and found out that if all the airlines, all the hotels,
• 48:40
  Speaker 2: all the local retailers, like just a run of the
• 48:43
  Speaker 2: worst businesses during the pandemic, if they just disappeared tomorrow,
• 48:48
  Speaker 2: was six percent of the S and P five hundred
• 48:52
  Speaker 2: and you know, or Apple or Microsoft. It's like, it's
• 48:55
  Speaker 2: amazing how our daily experience is so from what markets
• 49:01
  Speaker 2: are like.
• 49:01
  Speaker 3: And we had that during Brexit in twenty sixteen. I mean,
• 49:04
  Speaker 3: that was constantly the headlines, what about Brexit? Why is
• 49:07
  Speaker 3: the US market ignoring it? Well, because it's so realm
• 49:11
  Speaker 3: because the UK is three percent of SMP revenues, that's why.
• 49:16
  Speaker 2: So that raises really interesting question about the US versus
• 49:22
  Speaker 2: the rest of the world in terms of economic activities.
• 49:25
  Speaker 2: So the S and P five hundred just gets just
• 49:27
  Speaker 2: about half of its revenue from overseas. For most of
• 49:32
  Speaker 2: the past fifteen years, the US side of consumer spending,
• 49:36
  Speaker 2: business spending, government spending has been very supportive of the
• 49:41
  Speaker 2: domestic side of the S and P five hundred. Kind
• 49:43
  Speaker 2: of feels like that shifting a little bit. We're seeing
• 49:46
  Speaker 2: a little slow down on consumer spending, a little slow
• 49:49
  Speaker 2: down on economic activity here as Europe and Asia seem
• 49:54
  Speaker 2: to be starting to finding their footing after bad ten years.
• 49:58
  Speaker 2: Can we just pass off the without the SMP stumbling?
• 50:02
  Speaker 2: Is that? Is that possible?
• 50:04
  Speaker 3: It's possible, and it's actually happening right now. And this
• 50:07
  Speaker 3: is one of the areas that I'm most excited about
• 50:09
  Speaker 3: right now, is that this US bull market has become
• 50:13
  Speaker 3: a global bullmarket. You look at EM stocks, Chinese stocks, Europe, Japan,
• 50:19
  Speaker 3: and it's very exciting because you know, for many years,
• 50:22
  Speaker 3: right the US exceptionalism train has been running since twenty
• 50:25
  Speaker 3: fourteen fifteen, and the rest of the world was always
• 50:30
  Speaker 3: so tempting with its lower valuation. And I've had conversations,
• 50:35
  Speaker 3: you know, with our asset allocation pms for years saying
• 50:39
  Speaker 3: like yeah, I can, I can buy EPHO or EM
• 50:41
  Speaker 3: at fourteen times like Chief for a reason, though it's
• 50:45
  Speaker 3: Chief for a reason. The market's very efficient, but for
• 50:50
  Speaker 3: the but so the catalyst. So you need a catalyst
• 50:53
  Speaker 3: to make the mean reversion invaluation to trigger that. And
• 50:57
  Speaker 3: the catalyst is always going to be related to earnings.
• 51:00
  Speaker 3: Like if you look at the real to performance US
• 51:02
  Speaker 3: versus non US over the past ten years, it's exactly
• 51:06
  Speaker 3: the same as the reld of earning slide like it's
• 51:08
  Speaker 3: the same thing. So you need something to change on
• 51:11
  Speaker 3: the earning side, and that's changing. So we have, of
• 51:14
  Speaker 3: course a very concentrated market in the US and that
• 51:17
  Speaker 3: does pose risks, right, I mean, if those seven stocks
• 51:21
  Speaker 3: go down, guess what the SMP is going to go down.
• 51:24
  Speaker 3: Even if seventy percent of the stocks in the SMP
• 51:27
  Speaker 3: are going up. If you're an indexer, are you buying
• 51:30
  Speaker 3: an et an sby? You're not going to feel those
• 51:33
  Speaker 3: gains because those top seven stocks are taking the index down.
• 51:38
  Speaker 3: And so it was so for the last year or
• 51:40
  Speaker 3: so it was a question of how do you diversify
• 51:43
  Speaker 3: against concentration risk? Do you go down cap do you
• 51:46
  Speaker 3: buy the Russell two thousand? But now the answer is
• 51:49
  Speaker 3: easier because now you have a catalyst, a fundamental catalyst
• 51:53
  Speaker 3: that is causing the mean reversion to happen between US
• 51:56
  Speaker 3: and non US stocks. And where that's coming is that
• 52:01
  Speaker 3: So I'm a big fan of the discount cashlow model,
• 52:04
  Speaker 3: the DCF, which looks at not so much earnings but
• 52:07
  Speaker 3: the payout of earnings. So if you have earnings growth
• 52:10
  Speaker 3: at ten percent and seventy percent of those earnings are
• 52:14
  Speaker 3: being returned to shareholders as dividends or buybacks. The payout
• 52:18
  Speaker 3: is that seventy percent, and the payout ratio is seventy percent.
• 52:22
  Speaker 3: And for the US, it's always been a very dominating
• 52:25
  Speaker 3: scenario where the payout in the US is very strong
• 52:29
  Speaker 3: because of all the share buybacks we have here.
• 52:31
  Speaker 2: Where are we today with that? Are we still seeing
• 52:34
  Speaker 2: the same sort of share buybacks because it seems like
• 52:36
  Speaker 2: we haven't been hearing a lot of announcements, but that
• 52:39
  Speaker 2: doesn't mean it's not happen.
• 52:40
  Speaker 3: We don't hear a lot, but the buybacks are at
• 52:43
  Speaker 3: record HIGHS three hundred billion over the last twelve months,
• 52:47
  Speaker 3: and the payout ratio is seventy five percent for the
• 52:50
  Speaker 3: S and P. But guess what the payout for IFA,
• 52:54
  Speaker 3: which is non US developed stocks, the payout ratio is
• 52:58
  Speaker 3: also seventy five percent. It always used to be lower
• 53:00
  Speaker 3: because they don't do buybacks over there, they do dividends.
• 53:03
  Speaker 3: But now they're doing more buybacks, and the growth rate
• 53:07
  Speaker 3: in the payout itself over the last five years is
• 53:10
  Speaker 3: now higher in EFA than in the US, So you're
• 53:13
  Speaker 3: getting equal or superior or at least competitive fundamentals at
• 53:19
  Speaker 3: at a fraction of devaluation and that that is a
• 53:22
  Speaker 3: good that's a good deal. And so that's so finally
• 53:25
  Speaker 3: that that part is working where the pond that we're
• 53:29
  Speaker 3: fishing from is now broader, and for me, it kind
• 53:31
  Speaker 3: of it's it's a Barbell strategy. I don't want to
• 53:35
  Speaker 3: be short the Max seven because they can get bigger
• 53:37
  Speaker 3: and you don't want to miss out on that. But
• 53:39
  Speaker 3: rather than going down cap in the US, do a
• 53:44
  Speaker 3: barbelle of Max seven and non US stocks. Then you
• 53:48
  Speaker 3: can play the dollar with dollar weekening story. You can
• 53:51
  Speaker 3: get equally good fundamentals for a fifteen pe instead of
• 53:55
  Speaker 3: a twenty four pe. And to me, that's that's that's
• 53:58
  Speaker 3: a good that's a good thing right now.
• 54:00
  Speaker 2: So the last two things I want to talk to
• 54:02
  Speaker 2: you about in terms of the current environment are inflation
• 54:06
  Speaker 2: and sentiment. And I'm not sure how much of this
• 54:09
  Speaker 2: is related. You know, when we see the Michigan sentiment data,
• 54:13
  Speaker 2: it seems to be so awful and it just doesn't
• 54:16
  Speaker 2: feel like, is this really worse than the financial crisis,
• 54:20
  Speaker 2: worse than COVID, worse than the dot com implosion in
• 54:23
  Speaker 2: nine to eleven or worse than the eighty seven crash.
• 54:26
  Speaker 2: If you follow the sentiment data, it's saying, yes, just
• 54:30
  Speaker 2: doesn't feel that way.
• 54:31
  Speaker 3: No, it doesn't. And I think the sentiment data, obviously,
• 54:35
  Speaker 3: they're very bifurcated by political belief right, you know, And I've.
• 54:40
  Speaker 2: Seen those charts are really useful.
• 54:42
  Speaker 3: And I spend time on both coasts, and you know,
• 54:44
  Speaker 3: I was in at a dinner party in Montecito, California
• 54:48
  Speaker 3: a few weeks ago, and people were like, how can
• 54:51
  Speaker 3: everything look so good when we're like at the end
• 54:54
  Speaker 3: of the world type of thing? And then I'll be,
• 54:57
  Speaker 3: you know, in some other place and It'll be the
• 54:59
  Speaker 3: total opposite. But I think a lot of the sentiment
• 55:02
  Speaker 3: data are still driven by the inflation data. Like obviously
• 55:06
  Speaker 3: the inflation rate has come down to two point eight percent.
• 55:10
  Speaker 2: But everything remains more expensive that that.
• 55:12
  Speaker 3: You know, that COVID spike, you know, that has not
• 55:15
  Speaker 3: been unwound, and one of and that's one of the
• 55:17
  Speaker 3: things I worry about because not not to make a
• 55:20
  Speaker 3: comparison to the nineteen seventies, which obviously was the great
• 55:24
  Speaker 3: inflation long term, but during the fifties and sixties, inflation
• 55:28
  Speaker 3: was super low two percent, and then you to the
• 55:31
  Speaker 3: second half of the sixties, it started to creep up
• 55:34
  Speaker 3: and then it came back down. But in order to
• 55:37
  Speaker 3: for the average to be at two percent, if you
• 55:40
  Speaker 3: go to six percent, you then need to go below
• 55:42
  Speaker 3: too for the average to be two and we haven't
• 55:45
  Speaker 3: done that. We went from two to nine to two
• 55:49
  Speaker 3: point eight, and we're we never went below too. And
• 55:53
  Speaker 3: if we, for some reason get another upswing and we're
• 55:57
  Speaker 3: at three and four like that, five, your number is
• 56:00
  Speaker 3: now going to be at four or five percent. And
• 56:03
  Speaker 3: I think that's what's driving a lot of it is
• 56:05
  Speaker 3: it certainly did during COVID, and it's things like food,
• 56:08
  Speaker 3: right so you know, like the.
• 56:10
  Speaker 2: Top beef prices are up. Egg prices have come back down,
• 56:13
  Speaker 2: but beef prices have run away.
• 56:15
  Speaker 3: So I think a lot of it has to do
• 56:17
  Speaker 3: with that, because you know, people are employed, wages are
• 56:20
  Speaker 3: are competitive right now, you know, employment rates four point
• 56:25
  Speaker 3: three percent. But I think it's just that that cost
• 56:28
  Speaker 3: of living. It just kind of like grinds and it's
• 56:32
  Speaker 3: been grinding for five years now.
• 56:33
  Speaker 2: So let's talk about that two percent target. You know,
• 56:37
  Speaker 2: in the twenty tens, an era of concerns about deflation
• 56:43
  Speaker 2: and monetary stimulus. Two percent seemed like a reasonable number.
• 56:46
  Speaker 2: Is that still a reasonable number? Now? That and that
• 56:49
  Speaker 2: was an upside target, right, You are at one percent
• 56:52
  Speaker 2: aiming for two. Now we're at two and a half three,
• 56:55
  Speaker 2: aiming back at two. Maybe in an era of fiscal stimulus,
• 57:00
  Speaker 2: two and a half three percent makes more sense. I mean,
• 57:02
  Speaker 2: I'm not a monetariust, but I don't know why the
• 57:05
  Speaker 2: whole world changes except for our inflation.
• 57:08
  Speaker 3: Yeah, there's nothing magical about two. Like if you go
• 57:13
  Speaker 3: back one hundred and fifty years, again, the average inflation
• 57:17
  Speaker 3: rate is like three percent two point eight. If you
• 57:20
  Speaker 3: look at a distribution of equity pees and the inflation rate,
• 57:25
  Speaker 3: the sweet spot is sort of one to four. So
• 57:29
  Speaker 3: whether you're at three or two, like for the stock market,
• 57:31
  Speaker 3: doesn't matter, like ten, ten to two.
• 57:34
  Speaker 2: Like that, that that matters.
• 57:37
  Speaker 3: And that distribution is interesting because obviously the higher the
• 57:42
  Speaker 3: inflation rate goes, the lower the pe, which makes perfect
• 57:45
  Speaker 3: sense because the inflation goes up, bond you'lls go up.
• 57:47
  Speaker 3: Then the safe asset is very competitive with the risky asset.
• 57:51
  Speaker 3: So why take the risk.
• 57:52
  Speaker 2: Plus the cost of capitals up?
• 57:55
  Speaker 3: If you go to the left tail deflation. There is
• 57:57
  Speaker 3: really no correlation. Nobody likes deflation. So from that angle,
• 58:04
  Speaker 3: two and a half is not a problem. Even three
• 58:07
  Speaker 3: is not a problem. I think the Fed worries that
• 58:10
  Speaker 3: if they were to ever admit that, you know, inflation
• 58:14
  Speaker 3: expectations could get unanchored. But they went to the AIIT thing, right,
• 58:18
  Speaker 3: the average inflation targeting, and actually that actually prevented them
• 58:23
  Speaker 3: from raising rates when they should have back in twenty
• 58:27
  Speaker 3: twenty one and two.
• 58:28
  Speaker 2: They relate to the party to raise and they seem
• 58:30
  Speaker 2: like they will relate to the party to cut it.
• 58:32
  Speaker 3: Yeah, so their policy was we need to see the
• 58:34
  Speaker 3: whites in the eyes of inflation before we raised rates,
• 58:39
  Speaker 3: and by the time the whites of the eyes were visible,
• 58:42
  Speaker 3: it was like too late. You know, inflation was at
• 58:44
  Speaker 3: five going to nine. But so you know, it's a
• 58:48
  Speaker 3: nuanced thing. But again, three percent is not going to
• 58:52
  Speaker 3: be the end of the world. It just means bombs
• 58:54
  Speaker 3: have a term premium and stock market is still fine.
• 58:58
  Speaker 3: Maybe the pe is like seventeen and seid of nineteen,
• 59:00
  Speaker 3: but like you know, if earnings are doing the heavy lifting,
• 59:03
  Speaker 3: it doesn't matter. But again it's like, what will it
• 59:05
  Speaker 3: take for the Fed to actually say that, or will
• 59:10
  Speaker 3: they ever say it, or will we just have a
• 59:11
  Speaker 3: post Powell FED that says, you know, instead of neutral
• 59:15
  Speaker 3: being inflation plus one hundred, neutral is inflation. And you know,
• 59:19
  Speaker 3: so there are three instead of four or something.
• 59:22
  Speaker 2: So I see your charts everywhere. Not only are they
• 59:25
  Speaker 2: all over social media, but you do regular chart packs.
• 59:28
  Speaker 2: I love your monthly chart pack. I'm gonna flip open
• 59:32
  Speaker 2: my laptop and let's look at some of your favorite
• 59:36
  Speaker 2: charts and I'll make these available on YouTube and on
• 59:40
  Speaker 2: the website when this posts. Let's start with market cycles,
• 59:45
  Speaker 2: and what we see going back to around our birth
• 59:49
  Speaker 2: date is just a series of long bull markets followed
• 59:55
  Speaker 2: by shorter, shallower bear markets. Tell us about out this
• 1:00:01
  Speaker 2: market cycle chart and what are the different shading means
• 1:00:04
  Speaker 2: in blue and red? What's the significance of that?
• 1:00:07
  Speaker 3: Yeah, So the shadings are is the valuation the five
• 1:00:12
  Speaker 3: year cape ratio.
• 1:00:13
  Speaker 2: When it has to get priced, it turns red, it
• 1:00:15
  Speaker 2: turns red.
• 1:00:15
  Speaker 3: Yeah, And so what the top part of the chart
• 1:00:17
  Speaker 3: shows are the market cycles. So the green are you know,
• 1:00:21
  Speaker 3: the bull markets, of course, cyclical bull markets. The red
• 1:00:23
  Speaker 3: are the bear markets. And you can see as we
• 1:00:26
  Speaker 3: as we talked about earlier, they're really it's pretty rare
• 1:00:29
  Speaker 3: for a fifty percent draw down. There's only been really
• 1:00:31
  Speaker 3: a couple of them. And so what this shows is
• 1:00:34
  Speaker 3: that the current bull market, as strange as it or
• 1:00:37
  Speaker 3: as unusual as it has felt for many people, actually
• 1:00:40
  Speaker 3: is pretty garden variety, right. Eighty eight percent gain over
• 1:00:46
  Speaker 3: thirty five months, so it's pretty pretty average. But then
• 1:00:49
  Speaker 3: when you look at the bottom panel, it shows the
• 1:00:52
  Speaker 3: relative the percentage of stocks out performing the index, and
• 1:00:57
  Speaker 3: now you see something pretty unusual, some we've only seen
• 1:01:01
  Speaker 3: a few times in history, and that is, of course
• 1:01:04
  Speaker 3: the concentration effect of the mag seven than before that
• 1:01:07
  Speaker 3: the thanks and it is the market is as concentrated
• 1:01:11
  Speaker 3: as it was in the late nineties and the early
• 1:01:14
  Speaker 3: to mid seventies, which was the original nifty to fifties period.
• 1:01:19
  Speaker 3: And so you know, for an indexer, I guess it
• 1:01:24
  Speaker 3: doesn't matter. For an active manager, active investor, it does,
• 1:01:27
  Speaker 3: But even for an indexer it does because the largest
• 1:01:30
  Speaker 3: stocks are getting bid up, whether they deserve it or not.
• 1:01:33
  Speaker 3: Of course they're large because they deserve to be generally,
• 1:01:35
  Speaker 3: but it shows you how narrow the market has been
• 1:01:39
  Speaker 3: during this cycle. And so it's it's just a way
• 1:01:43
  Speaker 3: of describing kind of where we are. So you get
• 1:01:46
  Speaker 3: the cyclical on the top and the bottom speaks more
• 1:01:48
  Speaker 3: to the secular.
• 1:01:49
  Speaker 2: Huh. Really interesting. So let's talk about debt dynamics, which
• 1:01:53
  Speaker 2: shows the change in federal debt versus what.
• 1:01:58
  Speaker 3: So what this charge show and it's a very simple chart,
• 1:02:02
  Speaker 3: but I think it speaks volumes. Is that during COVID
• 1:02:06
  Speaker 3: we kind of, I think, entered the fiscal lead dominant
• 1:02:09
  Speaker 3: era where debt financing or deficit spending becomes a very
• 1:02:14
  Speaker 3: major tool, which is definitely different from the financial crisis,
• 1:02:18
  Speaker 3: when we actually had austerity. After the financial crisis with
• 1:02:21
  Speaker 3: the Tea party movement, now we have the opposite. And
• 1:02:25
  Speaker 3: in the initial years after that fiscal expansion started, the
• 1:02:30
  Speaker 3: FED was actually doing a lot of the heavy lifting
• 1:02:32
  Speaker 3: by putting those bonds, or not those bonds, but putting
• 1:02:36
  Speaker 3: bonds on its balance sheet, so you could see the
• 1:02:38
  Speaker 3: rise in debt is largely accommodated by an expanding balance sheet.
• 1:02:44
  Speaker 3: Since that time, since twenty twenty two, the fed's gone
• 1:02:46
  Speaker 3: into quantitative tightening mode where it's drinking its balance sheet,
• 1:02:50
  Speaker 3: but the debt just keeps going up. So the debt
• 1:02:52
  Speaker 3: is now up about fourteen trillion in the last five years,
• 1:02:57
  Speaker 3: and only about two and a half of that is
• 1:02:59
  Speaker 3: sort of been absorbed by the FED. So I put
• 1:03:03
  Speaker 3: two and two together and say, Okay, if that purple
• 1:03:06
  Speaker 3: eye at the top just keeps going up, who's going
• 1:03:09
  Speaker 3: to buy this? Right? Who's going to buy the debt?
• 1:03:12
  Speaker 3: And will the FED be forced back into playing a
• 1:03:17
  Speaker 3: bigger role in kind of mopping up that supply? And
• 1:03:20
  Speaker 3: that's the fiscal dominance.
• 1:03:22
  Speaker 2: Then that's a little bit of modern monetary theory, is
• 1:03:25
  Speaker 2: that the FED can just buy up all the debt
• 1:03:27
  Speaker 2: and there's no constraints whatsoever. SOMA stands for.
• 1:03:30
  Speaker 3: What system open market account.
• 1:03:32
  Speaker 2: So that's what the FED has on its balance sheet.
• 1:03:35
  Speaker 2: So that went up since the financial crisis, and it's
• 1:03:38
  Speaker 2: come down since twenty eight.
• 1:03:39
  Speaker 3: It's the part of the Fed's balance sheet that is
• 1:03:42
  Speaker 3: sort of the quy part, if you will.
• 1:03:44
  Speaker 2: So let's talk a little bit about equity, supply and demand.
• 1:03:47
  Speaker 2: What are we looking at this chart back to nineteen
• 1:03:49
  Speaker 2: eighty six? Is this simply liquidity driven or what's going
• 1:03:54
  Speaker 2: on here? So?
• 1:03:55
  Speaker 3: I think this is and not a lot of people
• 1:03:58
  Speaker 3: talk about this, but I think This is one of
• 1:04:00
  Speaker 3: the fundamental drivers of the current secular bullmarket era. And
• 1:04:06
  Speaker 3: so you can see on the chart I started the
• 1:04:09
  Speaker 3: clock at the bottom in O nine, which again I
• 1:04:12
  Speaker 3: believe is the start of the secular bullmarket. And I
• 1:04:15
  Speaker 3: look at just the supply and demand of equities just
• 1:04:19
  Speaker 3: from within the corporate America structure, so not investor flows,
• 1:04:24
  Speaker 3: but how much were there in IPOs and secondary issues
• 1:04:28
  Speaker 3: and it's a couple of trillion. How much was share
• 1:04:31
  Speaker 3: buybacks and how much was M and A and share
• 1:04:34
  Speaker 3: buybacks and M and A have something in common in
• 1:04:36
  Speaker 3: that it's corporates buying shares of other corporates and those
• 1:04:40
  Speaker 3: shares get retired, right, So that's the demand for shares.
• 1:04:44
  Speaker 3: And what you see is if you look at the
• 1:04:46
  Speaker 3: supply demand ratio like it's very unbalanced, like it's the
• 1:04:51
  Speaker 3: demand far exceeds the supply. And to me, this has
• 1:04:54
  Speaker 3: been one of the important drivers for driving returns in
• 1:04:59
  Speaker 3: the secular bowl market. And there's no signs that this
• 1:05:02
  Speaker 3: is this is letting up. And so when when when
• 1:05:05
  Speaker 3: we think about what inning is the secular bull market in,
• 1:05:08
  Speaker 3: when is it going to end? And why? This is
• 1:05:10
  Speaker 3: one of the things I look at It's just you know,
• 1:05:12
  Speaker 3: when when you're retiring far more shares and you're issuing,
• 1:05:16
  Speaker 3: it's like the you know, markets are going to go up,
• 1:05:18
  Speaker 3: all else being equal.
• 1:05:19
  Speaker 2: What's so surprising about this is how relatively insignificant the
• 1:05:24
  Speaker 2: retail flows us there. It's it's just the opposite of
• 1:05:27
  Speaker 2: how so many people describe it. Coming up, we continue
• 1:05:31
  Speaker 2: our conversation with Urie and Timor, director of Global Macro
• 1:05:35
  Speaker 2: at Fidelity, discussing various asset classes equities, bonds, commodities, alternatives.
• 1:05:42
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm
• 1:05:59
  Speaker 2: Barry Redult. You're listening to Masters in Business on Bloomberg Radio.
• 1:06:03
  Speaker 2: My extra special guest this week is Urian Timor. He
• 1:06:06
  Speaker 2: is the director of Global Macro at Fidelity Investments, the
• 1:06:11
  Speaker 2: giant firm helping to manage over sixteen trillion dollars in
• 1:06:16
  Speaker 2: client assets. Let's talk about US fundamentals versus EFA fundamentals.
• 1:06:22
  Speaker 2: So this looks at various market data, buybacks, dividends, et cetera.
• 1:06:28
  Speaker 2: Tell us what this jart is showing us.
• 1:06:29
  Speaker 3: Yes, So we were talking about earlier about there finally
• 1:06:32
  Speaker 3: being a catalyst for non US stocks to compete with
• 1:06:36
  Speaker 3: the with the MAC seven driven US stock market and
• 1:06:39
  Speaker 3: so on the left, I show the earnings line for
• 1:06:42
  Speaker 3: the SMP the payout so that the share of earnings
• 1:06:46
  Speaker 3: being returned quote unquote to shareholders shareholder yield as dividends
• 1:06:51
  Speaker 3: and buybacks. And then at the bottom you see the
• 1:06:55
  Speaker 3: payout ratio again either as dividends in the yellow buybacks
• 1:06:59
  Speaker 3: in the purple, and you can see the payout has
• 1:07:02
  Speaker 3: risen very nicely, almost a double since five years ago.
• 1:07:07
  Speaker 3: Payout ratio is about seventy five percent, so very bullish
• 1:07:10
  Speaker 3: fundamentals like you. You know, those fundamentals deserve a high
• 1:07:15
  Speaker 3: pe right because not only is the earnings growing, but
• 1:07:19
  Speaker 3: they're being returned to shareholders, which of course is worth
• 1:07:22
  Speaker 3: more than if you're not getting them back. It's just
• 1:07:25
  Speaker 3: the present value of future cash flows. But what's changed
• 1:07:28
  Speaker 3: just in the last few years is that for IFA
• 1:07:31
  Speaker 3: again which is the MSCI Non US Developed Index, you
• 1:07:36
  Speaker 3: see an even better growth rate in the payout and
• 1:07:39
  Speaker 3: you see a more than double yeah, and you see
• 1:07:41
  Speaker 3: an equally robust payout ratio again of about seventy five percent.
• 1:07:45
  Speaker 3: So the rest of the world is really competitive now,
• 1:07:49
  Speaker 3: despite the fact that this is such a Max seven
• 1:07:51
  Speaker 3: heavy market, and so this is just a very exciting
• 1:07:55
  Speaker 3: time because you can actually you don't have to make
• 1:07:59
  Speaker 3: that make or break binary decision like you're either in
• 1:08:02
  Speaker 3: these big stocks or you're left behind. There are other
• 1:08:05
  Speaker 3: places to get those returns down.
• 1:08:07
  Speaker 2: What's so fascinating about this chart is how inverted the
• 1:08:12
  Speaker 2: ratio of buybacks to dividends is. In the US forty
• 1:08:15
  Speaker 2: five percent a shareholder yield as buybacks thirty percent or
• 1:08:18
  Speaker 2: divinends that flips. In Europe it's forty seven percent, or
• 1:08:22
  Speaker 2: divinends only twenty seven percent or buybacks or I should say, epha,
• 1:08:26
  Speaker 2: not just Europe, although a lot of it seems to
• 1:08:28
  Speaker 2: be concentrated in Europe. How much of that is just
• 1:08:32
  Speaker 2: driven by tax policy and regulations.
• 1:08:36
  Speaker 3: I think it's largely culture. It's just you know, and
• 1:08:39
  Speaker 3: Europe is more of a value market, right so it's
• 1:08:43
  Speaker 3: really like the banks are really running the show right now,
• 1:08:47
  Speaker 3: and so the US it's more the growthy stocks, so
• 1:08:50
  Speaker 3: they don't want to so, you know, dividends are kind
• 1:08:52
  Speaker 3: of like a sacred contract, if you will, like it
• 1:08:54
  Speaker 3: takes a lot for dividends to be cut. So I
• 1:08:58
  Speaker 3: think Europe and Japan is just generally been more of
• 1:09:01
  Speaker 3: a value driven and the culture has been more Okay,
• 1:09:04
  Speaker 3: we're going to earn so much and you're going to
• 1:09:06
  Speaker 3: get that back as dividends. But especially the Japanese and
• 1:09:09
  Speaker 3: also the Europeans are getting much more with the shareholder
• 1:09:14
  Speaker 3: culture now in terms of unlocking value and returning those
• 1:09:19
  Speaker 3: as buyback. So it's they're getting there. They're starting to
• 1:09:23
  Speaker 3: play the game.
• 1:09:24
  Speaker 2: Last few questions before we get to our favorite questions.
• 1:09:29
  Speaker 2: You have a section in the chart book about the
• 1:09:32
  Speaker 2: post sixty forty world. I've heard people say the old
• 1:09:37
  Speaker 2: sixty forty is now fifty thirty twenty or fifty thirty ten,
• 1:09:42
  Speaker 2: five five tell us what you think of as the
• 1:09:46
  Speaker 2: post sixty forty world.
• 1:09:48
  Speaker 3: So I look at it. I call it the sixty
• 1:09:50
  Speaker 3: twenty twenty. So the sixty forty paradigm worked like a
• 1:09:56
  Speaker 3: charm right from the late nineties until the early twenty twenties.
• 1:10:01
  Speaker 3: And you know, sixty percent s and p forty percent
• 1:10:04
  Speaker 3: Bloomberg AG so the investment grade bond index and you
• 1:10:08
  Speaker 3: got a nine percent CAGAR against the nine percent vault,
• 1:10:13
  Speaker 3: and like, what's not the like about that? Right during
• 1:10:15
  Speaker 3: that time, inflation was like two and a half, so
• 1:10:17
  Speaker 3: you've got a very attractive real return with really moderate volatility.
• 1:10:23
  Speaker 3: But the whole premise of that paradigm was that the
• 1:10:27
  Speaker 3: forty was insurance against the sixty. So the sixty, of
• 1:10:31
  Speaker 3: course is always the anchor, that's where the compounding is,
• 1:10:35
  Speaker 3: and the forty would be your port in the storm.
• 1:10:39
  Speaker 3: I think that's now changed. So twenty twenty two obviously
• 1:10:42
  Speaker 3: was a return to the old FED model days where
• 1:10:45
  Speaker 3: rising yields uh take you know, take take the mojo
• 1:10:49
  Speaker 3: out of the stock market. To put it mildly, the
• 1:10:52
  Speaker 3: good news is that bonds, of course now are a
• 1:10:55
  Speaker 3: viable asset. They generate a positive real yield, but their
• 1:11:00
  Speaker 3: correlation is now positive against equities instead of negative. So
• 1:11:04
  Speaker 3: when I think about the post sixty to forty world,
• 1:11:07
  Speaker 3: I'm less worried about the sixty, Like we can add
• 1:11:10
  Speaker 3: more international in the sixty, and like we were just discussing,
• 1:11:13
  Speaker 3: but what do we do about the forty? If the
• 1:11:16
  Speaker 3: forty can be the cause of problems rather than the
• 1:11:18
  Speaker 3: solution to problems, and especially if we end up with
• 1:11:22
  Speaker 3: a higher term premium, then bonds are not going to
• 1:11:26
  Speaker 3: be as safe as they used to be. So then
• 1:11:29
  Speaker 3: I get into kind of okay, I'm going to take
• 1:11:31
  Speaker 3: some share from the bonds. It doesn't have to be
• 1:11:33
  Speaker 3: twenty like. Again, this is not investment advice, but back
• 1:11:36
  Speaker 3: at the envelope stuff, and you know, maybe some cash
• 1:11:40
  Speaker 3: strategies are more competitive if we're not going to go
• 1:11:42
  Speaker 3: back to the zero interest rate days, which I don't
• 1:11:45
  Speaker 3: think we are. Gold are the proven anti bond over history, right.
• 1:11:50
  Speaker 3: They don't produce a cash.
• 1:11:51
  Speaker 2: Flow thirty seven hundred bucks as we speak.
• 1:11:53
  Speaker 3: But when bonds do poorly, gold really shines no pun intended.
• 1:11:58
  Speaker 3: And then you got to throw bitcoin in there is
• 1:12:00
  Speaker 3: kind of the wanna be exponential gold. And then other
• 1:12:04
  Speaker 3: strategies like alternatives, right, managed futures, equity, long short, private credit,
• 1:12:11
  Speaker 3: you know, all of those kind of alpha rather than
• 1:12:14
  Speaker 3: beta strategies you have.
• 1:12:15
  Speaker 2: You have tips in there as well.
• 1:12:17
  Speaker 3: Yeah, tips high yield. Uh. You know markets or asset
• 1:12:22
  Speaker 3: classes that are not negatively correlated, but they're not positively
• 1:12:26
  Speaker 3: correlated as well. So when you look at kind of
• 1:12:29
  Speaker 3: the sharp ratios versus the correlation not just to the sixty,
• 1:12:34
  Speaker 3: but especially to the forty, right, because I want to
• 1:12:36
  Speaker 3: hedge more against the forty than the sixties.
• 1:12:38
  Speaker 2: I was going to say, this doesn't look like a
• 1:12:40
  Speaker 2: yield chase, This looks like a diversifier. Is that the thinking?
• 1:12:43
  Speaker 3: Yeah? Yeah, And actually, if you go down one chart,
• 1:12:46
  Speaker 3: I think, yeah, right there, look at that. So I
• 1:12:49
  Speaker 3: want high sharp ratios or high sortino ratios, and and
• 1:12:54
  Speaker 3: and assets that are uncorrelated. Then you get into you
• 1:12:57
  Speaker 3: get into the BCom commodities, you get into gold. Bitcoin
• 1:13:01
  Speaker 3: is not quite uncorrelated, but all the old strategies are uncorrelated.
• 1:13:06
  Speaker 3: And so to me that is sort of the next
• 1:13:09
  Speaker 3: sixty forty.
• 1:13:11
  Speaker 2: Really really fascinating. Last question before we get to our favorites.
• 1:13:15
  Speaker 2: You look at so many charts each week. You identify
• 1:13:18
  Speaker 2: trends before a lot of people do. What are investors
• 1:13:22
  Speaker 2: not talking about but perhaps should be? What topics? Assets, geographies,
• 1:13:27
  Speaker 2: data points? What do you think is getting overlooked? But
• 1:13:30
  Speaker 2: it's really worth investors time to pay attention.
• 1:13:33
  Speaker 3: To one ass a class, and we just talked about
• 1:13:36
  Speaker 3: it that I think generally is seen as a side
• 1:13:40
  Speaker 3: show the way bitcoin used to be. It's no longer
• 1:13:44
  Speaker 3: a side show. For sure is actually gold because.
• 1:13:47
  Speaker 2: For even at thirty seven hundred bucks, it's well, people
• 1:13:51
  Speaker 2: still think of it as a sideshow.
• 1:13:53
  Speaker 3: I think institutions do. Right, So regular retail investors as
• 1:13:58
  Speaker 3: I call them, you know, you can buy gold or
• 1:14:01
  Speaker 3: some other gold etf and like you know, I own
• 1:14:03
  Speaker 3: it in my portfolio, and so there, I think. There
• 1:14:06
  Speaker 3: it's part of the conversation. But when you think about
• 1:14:09
  Speaker 3: like large endowments, institutional investors, even mutual funds, like you
• 1:14:15
  Speaker 3: need a special wrapper in your mutual fund to own
• 1:14:18
  Speaker 3: physical gold, like you need to go to the SEC
• 1:14:20
  Speaker 3: and get approval, and so you know, gold has been
• 1:14:24
  Speaker 3: sort of dormant for so long until recently that is like, yeah,
• 1:14:28
  Speaker 3: I don't really want to go through this trouble to
• 1:14:30
  Speaker 3: buy something that doesn't have a cash flow, can't be valued,
• 1:14:33
  Speaker 3: requires special regulatory approvals, and then all of a sudden
• 1:14:37
  Speaker 3: it starts to run like it is now everybody. And
• 1:14:41
  Speaker 3: so so I think that's the story. So in ironically,
• 1:14:45
  Speaker 3: because bitcoin as has obviously come well after gold as
• 1:14:49
  Speaker 3: a kind of a store value hard money asset. In
• 1:14:53
  Speaker 3: a way, gold is kind of like where bitcoin was
• 1:14:56
  Speaker 3: ten years ago or five years ago, where okay, Bitcoin's interesting,
• 1:15:00
  Speaker 3: but I don't understand it. I don't feel like spending
• 1:15:02
  Speaker 3: one hundred hours on this. It's a bubble, it's a scam,
• 1:15:05
  Speaker 3: it's a pet rock. And gold is like if it
• 1:15:08
  Speaker 3: keeps going the way it is, and I suspect it will,
• 1:15:11
  Speaker 3: like the endowments are like okay, Like people are asking
• 1:15:16
  Speaker 3: me about this. I need to like really like figure
• 1:15:19
  Speaker 3: out how do we not how do we buy it?
• 1:15:21
  Speaker 3: You can buy it, of course, but it's always been
• 1:15:24
  Speaker 3: a dismissed asset. Let me put it that way.
• 1:15:27
  Speaker 2: Among I mean, that's what I grew up with. It
• 1:15:29
  Speaker 2: was kind of mocked by the equity people. Depends on
• 1:15:32
  Speaker 2: the length of the chart you look at. You could
• 1:15:34
  Speaker 2: show a trailing multi decade period where gold has outperformed
• 1:15:39
  Speaker 2: the S and P. So if you look at gold
• 1:15:42
  Speaker 2: as in a secular bull market, I'm not asking for
• 1:15:46
  Speaker 2: a forecast, but what's within the range of possible numbers
• 1:15:50
  Speaker 2: gold could run to from thirty seven hundred up from
• 1:15:53
  Speaker 2: the low two thousands in early what do we peak
• 1:15:57
  Speaker 2: in like twenty fourteen and then twenty nineteen.
• 1:16:00
  Speaker 3: Something and it was like two hundred and sixty that
• 1:16:03
  Speaker 3: I remember.
• 1:16:04
  Speaker 2: In the nineteen y when GLD first came out, I
• 1:16:07
  Speaker 2: want to say gold was about four to thirty four
• 1:16:09
  Speaker 2: forty I remember talking about it on TV and getting
• 1:16:12
  Speaker 2: laughed at by it ankers.
• 1:16:13
  Speaker 3: So I once saw a chart that actually Paul Too
• 1:16:16
  Speaker 3: or Jones created a streaking of fall where he compared
• 1:16:20
  Speaker 3: the above ground value of gold or the value of
• 1:16:25
  Speaker 3: above ground gold and compared it to the value of
• 1:16:30
  Speaker 3: M two, and they're.
• 1:16:32
  Speaker 2: Trying to track each other.
• 1:16:34
  Speaker 3: The chart concluded that when the money supply grows too fast,
• 1:16:39
  Speaker 3: gold takes market share. So hard money takes market share
• 1:16:43
  Speaker 3: from soft money, from fiat money, and at certain extremes,
• 1:16:47
  Speaker 3: like in the seventies and other periods of thirties gold
• 1:16:51
  Speaker 3: the value gold would go all the way up or
• 1:16:54
  Speaker 3: beyond the value of M two. And so right now
• 1:16:57
  Speaker 3: M two is about twenty three trillion gold plus bitcoin
• 1:17:03
  Speaker 3: is also about twenty three trillion, So in that sense,
• 1:17:06
  Speaker 3: it's come a long way to take that market share.
• 1:17:11
  Speaker 3: And now it's a question of does M two, either
• 1:17:14
  Speaker 3: globally or in the US continue to grow at an
• 1:17:17
  Speaker 3: above average pace. So the average pace is about six
• 1:17:20
  Speaker 3: percent nominal, about two three percent real. So I do
• 1:17:24
  Speaker 3: think a lot of the gains are in already, but
• 1:17:29
  Speaker 3: it will it will naturally overshoot, as these cycles always do.
• 1:17:32
  Speaker 3: So That's kind of how I would how I would
• 1:17:35
  Speaker 3: measure it. So if the money supply goes the thirty
• 1:17:37
  Speaker 3: trillion gold and bitcoin could be thirty five trillion, and
• 1:17:40
  Speaker 3: obviously gold is a large part of that, Bitcoin is
• 1:17:43
  Speaker 3: about two trillion, and then you convert that to a price.
• 1:17:46
  Speaker 3: But that's kind of how I think about the valuation
• 1:17:49
  Speaker 3: signe really fascinating.
• 1:17:51
  Speaker 2: Tell us about your mentors who helped shape your career.
• 1:17:56
  Speaker 3: Definitely Net Johnson, because when I came in to Fideli
• 1:18:02
  Speaker 3: in ninety five, I'd been in you know, in New
• 1:18:04
  Speaker 3: York for ten years, didn't really have mentors, and so he,
• 1:18:12
  Speaker 3: you know, Fideli has a very strong corporate culture, let's
• 1:18:15
  Speaker 3: put it that way, and especially around uh, you know,
• 1:18:20
  Speaker 3: the way we approach long term investments. We're obviously a
• 1:18:23
  Speaker 3: long term investor, but so he he was like the
• 1:18:26
  Speaker 3: last person I spoke to before I got hired. And
• 1:18:29
  Speaker 3: then in those formative years, I worked in the chart
• 1:18:32
  Speaker 3: room and I would spend hours per week with with Ned,
• 1:18:35
  Speaker 3: like he would just come down really and uh and
• 1:18:38
  Speaker 3: hours per week and we would just pour over charts,
• 1:18:41
  Speaker 3: like we have these huge charts on the wall Florida ceiling.
• 1:18:44
  Speaker 3: You know, like forty foot wide, like a daily chart
• 1:18:47
  Speaker 3: of the of whatever the dow and it would be
• 1:18:52
  Speaker 3: computer generated. But then because we don't want to print
• 1:18:55
  Speaker 3: a whole new forty foot sheet every week, just you
• 1:18:57
  Speaker 3: fill it in by hand, and and you know, just
• 1:19:00
  Speaker 3: the oral tradition, the oral history. So he was looking
• 1:19:04
  Speaker 3: at the chart and none he was say okay, well
• 1:19:06
  Speaker 3: like and he would go from right to left and
• 1:19:09
  Speaker 3: say okay, you know then and we'd end up like
• 1:19:12
  Speaker 3: in nineteen sixty eight and he's telling me about the
• 1:19:14
  Speaker 3: glamour stocks and this and that, and I'm like, wow,
• 1:19:17
  Speaker 3: this is like gold right, like you don't you know,
• 1:19:20
  Speaker 3: And so he would have this encyclopedic memory. But also
• 1:19:24
  Speaker 3: just the way the information was displayed semilog skills. The
• 1:19:30
  Speaker 3: chart room has like museum quality lighting, how you display,
• 1:19:34
  Speaker 3: how you visualize you know, data, And so that he
• 1:19:39
  Speaker 3: instilled that culture, you know, we call it kaizen kind
• 1:19:43
  Speaker 3: of just gradually improving and having you know, compounding isn't
• 1:19:47
  Speaker 3: just for investing, right, it's just in our day to
• 1:19:50
  Speaker 3: day stuff. You do something consistently right, it's going to
• 1:19:54
  Speaker 3: make an impact. And when I look back at my
• 1:19:56
  Speaker 3: forty years and I'm not going anywhere. But like to
• 1:19:59
  Speaker 3: me that that Kaisen has has really played a role
• 1:20:03
  Speaker 3: in my relationships in my work, and and I think
• 1:20:08
  Speaker 3: a lot of that just came from him.
• 1:20:10
  Speaker 2: Really really interesting. Let's talk about books. What are some
• 1:20:13
  Speaker 2: of your favorites? What are you reading now?
• 1:20:16
  Speaker 3: So, I I hate to admit it, but i don't
• 1:20:19
  Speaker 3: read a lot of finance books because I'm very interested
• 1:20:22
  Speaker 3: in having.
• 1:20:24
  Speaker 2: Balanced between right and left. Bright I've all read Reminiscence
• 1:20:28
  Speaker 2: of a Stock Operator. I'm more curious as to what
• 1:20:31
  Speaker 2: else you're reading.
• 1:20:32
  Speaker 3: I will say that during COVID I read, uh, this
• 1:20:38
  Speaker 3: huge tomb called The History of the Federal Reserve by
• 1:20:41
  Speaker 3: Alan Meltzer. Because you know, I've looked at so many charts,
• 1:20:45
  Speaker 3: you've read the reports of like you know, financials, but
• 1:20:50
  Speaker 3: I went like that book. It was like this blow
• 1:20:54
  Speaker 3: by blow using the FED minutes and all these you know,
• 1:20:58
  Speaker 3: correspondence to see how the FED handled the financial repression
• 1:21:02
  Speaker 3: of the forties. And so that was fascinating. Although most
• 1:21:06
  Speaker 3: people would say, well that sounds really boring, but as
• 1:21:09
  Speaker 3: a as a consumer of the data, just to see, okay,
• 1:21:14
  Speaker 3: you know, like wherever it was at the FED would
• 1:21:16
  Speaker 3: go to the Treasury, and they were playing games like
• 1:21:19
  Speaker 3: the Treasury would issue bonds below market and then the
• 1:21:22
  Speaker 3: auction would fill and then knowing that the FED would
• 1:21:25
  Speaker 3: have to mop up the supply. Like all of that
• 1:21:27
  Speaker 3: stuff was just really really fascinating. And you know, and
• 1:21:30
  Speaker 3: we see the interference with politics and money monetary policy today,
• 1:21:37
  Speaker 3: but it's nothing new. Like in the sixties, both Nixon
• 1:21:39
  Speaker 3: and Kennedy were equally guilty.
• 1:21:41
  Speaker 2: It seems a little more overt it's public today. It
• 1:21:44
  Speaker 2: used to be sort of cloak room sort of thing.
• 1:21:47
  Speaker 3: Yes, So that was one but the most interesting recent
• 1:21:52
  Speaker 3: book I've read was it's called rock Me on the Water,
• 1:21:56
  Speaker 3: and it's a book about music, TV and movies during
• 1:22:01
  Speaker 3: the early seventies and how la was like the epicenter
• 1:22:06
  Speaker 3: of American culture. So you had like the Laurel Canyon
• 1:22:10
  Speaker 3: folks of modern musicians, and he had these groundbreaking TV shows,
• 1:22:15
  Speaker 3: right because we were coming out of the straight jacket
• 1:22:17
  Speaker 3: of the sixties conformists, like no one dared to make
• 1:22:20
  Speaker 3: a show that that like challenged the status quo. And
• 1:22:24
  Speaker 3: then you had like Mash and you know, Mary Tyler
• 1:22:27
  Speaker 3: Moore owned the Family, and then the movies like Taxi Driver,
• 1:22:32
  Speaker 3: and as a you know, as a I think I'm
• 1:22:35
  Speaker 3: kind of gen X but on the border of gen
• 1:22:37
  Speaker 3: X and baby boom. Yeah. And so growing up, you know,
• 1:22:42
  Speaker 3: formative years in the seventies in Aruba, but consuming American
• 1:22:46
  Speaker 3: pop culture, right, we would sit down every night watching like,
• 1:22:49
  Speaker 3: you know, Wide World of Sports and Mary Tyler Moore
• 1:22:52
  Speaker 3: and and although show Rocked Me on the Water, Rocked
• 1:22:55
  Speaker 3: Me on the Water, and it's just like, so it's
• 1:22:58
  Speaker 3: fascinating to read about the things that we lived through
• 1:23:02
  Speaker 3: as kids, as teenagers.
• 1:23:03
  Speaker 2: But then like, yeah, you know that was so amazing.
• 1:23:08
  Speaker 2: Let's talk about streaming. What are you watching or listening
• 1:23:11
  Speaker 2: to right now?
• 1:23:12
  Speaker 3: We are binge watching The Bear. So I'm a I'm
• 1:23:16
  Speaker 3: an avid cook, you know, like I said, I run
• 1:23:18
  Speaker 3: a food camp at burning Man and that's that's and
• 1:23:22
  Speaker 3: we tend to be late to shows. And then we
• 1:23:24
  Speaker 3: we just watched like.
• 1:23:25
  Speaker 2: Four seasons cook worked in restaurants. It just rings so true.
• 1:23:34
  Speaker 2: I got to ask you a crazy question. You're a cook,
• 1:23:38
  Speaker 2: What pots do you like? What knives do you like?
• 1:23:41
  Speaker 3: I use the all clad I have. I have two places.
• 1:23:46
  Speaker 3: I have a gas stove in Santa Barbara and an
• 1:23:49
  Speaker 3: induction stove in Boston.
• 1:23:50
  Speaker 2: You know, I came this close to putting an induction
• 1:23:53
  Speaker 2: stove in my primary residence, but we had just gotten gas,
• 1:23:58
  Speaker 2: and so of course we ran with gas.
• 1:24:00
  Speaker 3: Yeah. I will run with gas anytime. Induction is good.
• 1:24:03
  Speaker 3: It's very precise, yes, but I like the organic, kind
• 1:24:09
  Speaker 3: of tactile dimension of gas. But so all clad and
• 1:24:15
  Speaker 3: the German knives, what's it called Gusdorff, I forget, And
• 1:24:22
  Speaker 3: my go to knife is a tenant chef's knife, not
• 1:24:26
  Speaker 3: the really high one, but the medium one. So the
• 1:24:28
  Speaker 3: medium one is thick enough to like smash on garlic,
• 1:24:33
  Speaker 3: but not so thick that you don't feel connected, you
• 1:24:35
  Speaker 3: don't have the road field of the knife on the
• 1:24:38
  Speaker 3: cutting board.
• 1:24:39
  Speaker 2: So so I'm jonesing for this shun knife. I keep
• 1:24:44
  Speaker 2: seeing and they're just exorbitant. And we gave someone a
• 1:24:49
  Speaker 2: gift of the Stanley Tucci healthy nonstick, supposedly the old
• 1:24:56
  Speaker 2: nonstick is not good, and she loves it. She's been
• 1:24:59
  Speaker 2: wo baiting going out and getting a set for it.
• 1:25:02
  Speaker 2: Like it's rare you give someone a gift and they're like,
• 1:25:04
  Speaker 2: oh my god, this is amazing. The only to choose
• 1:25:06
  Speaker 2: one of my heroes really have you watched this show
• 1:25:09
  Speaker 2: in Italy? I had to stop because it just makes
• 1:25:12
  Speaker 2: me want to eat even after dinner. You want to go,
• 1:25:15
  Speaker 2: you want to go eat that.
• 1:25:16
  Speaker 3: That's my my guilty pleasure. On TikTok's Little Food Clips.
• 1:25:21
  Speaker 3: And I don't even have to have the sound on.
• 1:25:23
  Speaker 3: It's just, you know, because I kind of know what
• 1:25:26
  Speaker 3: works with recipes, so I don't need a recipe, but
• 1:25:29
  Speaker 3: I just need someone to visualize an approach. And so
• 1:25:33
  Speaker 3: a lot of the things I cook today are from TikTok.
• 1:25:36
  Speaker 2: Oh, no kidding, Oh that's amazing. All right? Our final
• 1:25:39
  Speaker 2: two questions, what sort of advice would you give a
• 1:25:43
  Speaker 2: recent college grad interested in a career in technical analysis,
• 1:25:48
  Speaker 2: fixed income or just investing?
• 1:25:51
  Speaker 3: Generally, be open minded, be humble. You know the true
• 1:25:57
  Speaker 3: heroes of mine in our business, including that job. You
• 1:26:00
  Speaker 3: know he's no longer with us, of course? Was that
• 1:26:03
  Speaker 3: just humility? Right? I'll talk to Will dan Off, who
• 1:26:06
  Speaker 3: runs three hundred billion.
• 1:26:07
  Speaker 2: I love Will.
• 1:26:08
  Speaker 3: He's the humblest guy you'll ez you'll ever meet, And
• 1:26:12
  Speaker 3: there's no room for big egos, like no matter how
• 1:26:15
  Speaker 3: important you are, like I have no time for that, right,
• 1:26:17
  Speaker 3: So stay humble, don't figure out. Don't think you've or
• 1:26:21
  Speaker 3: you've figured it all out when at the age of
• 1:26:23
  Speaker 3: twenty five, you know, be a learner and be ready
• 1:26:26
  Speaker 3: to reinvent yourself. I've had to do it a number
• 1:26:29
  Speaker 3: of times at Fidelity, either as planned or as not planned,
• 1:26:33
  Speaker 3: and you just got to roll with the punches. And
• 1:26:36
  Speaker 3: like I said, the first job I had I was
• 1:26:39
  Speaker 3: like the last job I was interested, but I took
• 1:26:41
  Speaker 3: it because it was the only job.
• 1:26:42
  Speaker 2: You know, And our final question, what do you know
• 1:26:45
  Speaker 2: about the world of investing today? You wish you knew
• 1:26:48
  Speaker 2: forty years ago or so when you were first getting started.
• 1:26:52
  Speaker 3: That markets go through cycles and it always comes back,
• 1:26:56
  Speaker 3: not always quickly, but you know, every time the market
• 1:27:00
  Speaker 3: was down twenty plus percent, it's like the end of
• 1:27:02
  Speaker 3: the world, and it's like totally different from every other time,
• 1:27:06
  Speaker 3: and this is like such a crisis. But then you know,
• 1:27:10
  Speaker 3: I've now been through like twelve bear markets in my
• 1:27:13
  Speaker 3: career and it's like, yeah, whatever, like nothing shocks me anymore.
• 1:27:16
  Speaker 3: Of course, I'm maybe in a better place because I've
• 1:27:19
  Speaker 3: earned my wealth. I'm not still building it, but it's
• 1:27:24
  Speaker 3: just you know, take take take a step back, look
• 1:27:27
  Speaker 3: at the bigger picture, make sure your portfolio is where
• 1:27:30
  Speaker 3: it should be in terms of risk and goals. And
• 1:27:33
  Speaker 3: don't be your own worst enemy by selling at the bottom.
• 1:27:36
  Speaker 3: You know, call someone like have them talk you off
• 1:27:39
  Speaker 3: the ledge first.
• 1:27:40
  Speaker 2: You know, thank you Urian for being so generous with
• 1:27:43
  Speaker 2: your time. We have been speaking with Urian Timor, Director
• 1:27:47
  Speaker 2: of Global Macro at Fidelity Investments. If you enjoy this conversation,
• 1:27:52
  Speaker 2: well check out any of the five hundred and sixty
• 1:27:54
  Speaker 2: three we've done over the past eleven and a half years.
• 1:27:58
  Speaker 2: You can find those that Bloomberg iTunes, Spotify, YouTube, or
• 1:28:03
  Speaker 2: wherever you get your favorite podcasts. Be sure to check
• 1:28:06
  Speaker 2: out my new book How Not to Invest The ideas,
• 1:28:09
  Speaker 2: numbers and behavior that destroy wealth and how to avoid
• 1:28:13
  Speaker 2: them How Not to Invest at your favorite bookstore. I'd
• 1:28:17
  Speaker 2: be remiss if I did not thank the Crack team
• 1:28:19
  Speaker 2: that helps put these conversations together each week. Alexis Noriega
• 1:28:24
  Speaker 2: and Anna Luke are my producers. Sean Russo is my researcher.
• 1:28:28
  Speaker 2: Sage Bauman is the head of podcasts. I'm Barry Ridholts.
• 1:28:33
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio.