FidelityConnects: Jurrien Timmer – The global macro view November 24, 2025

00:01.001 --> 00:06.573

<b>Subtitles are AI Generated</b>

 

00:07.040 --> 00:08.775

Hello, and welcome to Fidelity Connects.

 

00:08.775 --> 00:12.879

I'm Pamela Ritchie. Equity markets are recovering after indigestion

 

00:12.879 --> 00:14.981

took over through last week.

 

00:14.981 --> 00:19.085

The question of whether a slowing equity market can make it a stronger

 

00:19.085 --> 00:21.388

equity market is being asked.

 

00:21.388 --> 00:25.358

Perhaps this is a useful shift in the narrative away from zero-sum

 

00:25.358 --> 00:29.596

talk. Will the next few weeks of greater government data releases in

 

00:29.596 --> 00:34.200

the U.S. and the annual dance, if you will, before a year-end Fed decision

 

00:34.200 --> 00:37.670

allow for markets to calmly march forward?

 

00:37.670 --> 00:41.775

Here to help us understand where a 5% drawdown in equity market lands

 

00:41.775 --> 00:45.712

us as we approach the final month of the year is Fidelity's

 

00:45.712 --> 00:48.214

Director of Global Macro, Jurrien Timmer.

 

00:48.214 --> 00:50.483

A delight to see you. We're seeing you from across the pond.

 

00:50.483 --> 00:52.819

Thank you for joining us, Jurrien.

 

00:52.819 --> 00:55.155

Yes, thank you. I'm at my parent's house.

 

00:55.155 --> 00:59.259

We're here for the Thanksgiving holidays and fingers crossed

 

00:59.259 --> 01:03.563

that the Wi-Fi holds up because it's sort of peak internet hours

 

01:03.563 --> 01:06.966

here at 5:30 in the afternoon.

 

01:06.966 --> 01:10.403

Well, we're delighted to have you and if it happens to go to audio or something

 

01:10.403 --> 01:13.640

like that we will roll with it. That is absolutely fine.

 

01:13.640 --> 01:16.776

We'll invite everyone to send questions in for Jurrien over the next little

 

01:16.776 --> 01:20.880

while. I was struck, certainly, by the discussion of what we saw last

 

01:20.880 --> 01:23.750

week, what we might be landing in this week.

 

01:23.750 --> 01:28.221

You've been pointing to some time that you're not so uncomfortable, actually,

 

01:28.221 --> 01:33.660

with a little bit of a pullback. That's what we've gotten.

 

01:33.660 --> 01:37.730

It sounds a little backwards but we've

 

01:37.730 --> 01:42.068

been looking at analogs to the internet bubble back 25

 

01:42.068 --> 01:46.539

years ago and will the AI boom become a bubble,

 

01:46.539 --> 01:50.643

the action in sort of the non-profitable tech, the other cats

 

01:50.643 --> 01:54.614

and dogs of companies that promise a lot of great

 

01:54.614 --> 01:58.952

things but don't really have earnings, or in some case even revenues to

 

01:58.952 --> 02:03.389

back it up, but it's sort of trust me, we'll create something.

 

02:03.389 --> 02:07.193

A lot of those stocks, of course, went to the moon, we can pull up slide 8,

 

02:07.193 --> 02:11.364

those stocks have been coming back down

 

02:11.364 --> 02:15.568

to earth. Again, we're looking at Bitcoin miners

 

02:15.568 --> 02:19.706

which kind of became a hyperscaler theme, the meme stocks,

 

02:19.706 --> 02:24.244

non-profitable tech like nuclear names, anything that was even remotely

 

02:24.244 --> 02:28.348

related to anything AI, they've

 

02:28.348 --> 02:32.485

been coming down as investors

 

02:32.485 --> 02:36.723

have started to question sort of the circularity of

 

02:36.723 --> 02:40.660

what some of what we're seeing, the big providers of

 

02:40.660 --> 02:45.498

... the picks and shovels, if you will, financing its

 

02:45.498 --> 02:49.602

buyers even though those buyers don't necessarily have

 

02:49.602 --> 02:52.939

any customers for their product.

 

02:52.939 --> 02:56.209

It's sort of a build it and they will come.

 

02:56.209 --> 02:58.077

Of course, we've seen that before.

 

02:58.111 --> 03:02.015

Cisco did that back in the internet bubble days.

 

03:02.015 --> 03:06.352

I think as we've seen some of these hyperscalers borrow

 

03:06.352 --> 03:10.356

a ton of money in the bond market in the last few

 

03:10.356 --> 03:14.460

days and weeks I think the markets are sobering up a little bit that

 

03:14.460 --> 03:18.431

some of the pie in the sky stuff that we're seeing really needs to

 

03:18.431 --> 03:20.133

be backed up.

 

03:20.133 --> 03:24.137

As painful it is for anyone who is in those stocks I think it's

 

03:24.137 --> 03:26.005

actually very healthy.

 

03:26.005 --> 03:29.342

I mean, I don't want to be the one that says corrections are healthy because

 

03:29.342 --> 03:33.279

they're always healthy until they actually happen to you.

 

03:33.279 --> 03:37.350

I would rather have a shaking of the tree now, if

 

03:37.350 --> 03:41.621

you will, that kind of shakes out the weak handed longs, the paper

 

03:41.621 --> 03:45.558

hands as we call it in crypto, now than have it

 

03:45.558 --> 03:50.063

just be uninterrupted and ends up in a parabolic move later.

 

03:50.063 --> 03:54.000

Because I can tell you, bubbles, once they burst, we saw this

 

03:54.000 --> 03:57.870

in 2000, it leaves a lot of scar tissue behind.

 

03:57.870 --> 04:01.808

I'd rather have an occasional reset on the way

 

04:01.808 --> 04:05.812

to a sustainable boom than having it all sort

 

04:05.812 --> 04:07.647

of end in tears now.

 

04:07.647 --> 04:11.451

Who knows, maybe we were never gonna have a bubble, maybe we won't, maybe it's

 

04:11.451 --> 04:15.588

not even a boom but I would prefer this over

 

04:15.588 --> 04:17.023

the alternative.

 

04:17.023 --> 04:21.027

It's so fascinating. In terms of liquidity coming out of

 

04:21.060 --> 04:25.431

the market, for instance, or shaking out some leverage,

 

04:25.431 --> 04:29.435

liquidity, those are all, you know, L words that go along

 

04:29.435 --> 04:32.305

with sort of bubbles and so on, what did we see there?

 

04:32.305 --> 04:36.576

I mean, is there sort of a calmer, less liquidity sloshing

 

04:36.576 --> 04:38.745

around? Just a little bit, I mean, we're not talking a ton here.

 

04:38.745 --> 04:41.814

Is that good too?

 

04:41.814 --> 04:45.752

If we go to slide 1 we can see the degree to which some

 

04:45.752 --> 04:51.124

of these more speculative corners of the market have come down.

 

04:51.124 --> 04:53.626

I think part of it is year end.

 

04:53.626 --> 04:57.764

I mean, we're not at year end yet but it's been a pretty momentous ride

 

04:57.764 --> 05:01.734

this year. We're still up double digits in the S&P and that's

 

05:01.734 --> 05:07.273

despite a 21% decline in March and April.

 

05:07.273 --> 05:11.444

Again, I think investors are looking at the returns,

 

05:11.444 --> 05:15.882

they're looking at the uninterrupted course

 

05:15.882 --> 05:20.453

of this AI narrative and may be wondering, okay,

 

05:20.453 --> 05:23.856

what is going to be the killer app at the end of the day that's going to pay

 

05:23.856 --> 05:27.627

for all of these hundreds of billions of capex spending?

 

05:27.660 --> 05:32.131

I think these are all the right questions to ask because I would rather have a

 

05:32.131 --> 05:36.669

10-year boom than a one-year bubble. I think we all would.

 

05:36.669 --> 05:39.072

I think there's a number of factors going on.

 

05:39.072 --> 05:41.674

Of course, the Fed is also in play.

 

05:41.674 --> 05:45.978

I think that's maybe a little bit overplayed,

 

05:45.978 --> 05:50.016

and we'll talk about the Fed, but all of a sudden that December rate

 

05:50.016 --> 05:54.420

cut that we all thought was a given is now anything

 

05:54.420 --> 05:57.223

but a given. Again, we'll talk about the Fed in a moment.

 

05:57.223 --> 06:01.227

It's hard to believe that that's really a reason why

 

06:01.227 --> 06:05.398

all of this stuff all of a sudden is happening but it was maybe icing

 

06:05.398 --> 06:08.768

on the cake for investors saying, you know what, it's been a hell of a ride,

 

06:08.768 --> 06:12.972

maybe we could ride it all the way into Christmas but

 

06:12.972 --> 06:15.875

why don't we take some chips off the table now?

 

06:15.875 --> 06:20.179

I think part of it is what's going on.

 

06:20.179 --> 06:24.517

The question is, obviously, how much further it will go.

 

06:24.517 --> 06:28.888

S&P is down 5% from the high which history shows is

 

06:28.888 --> 06:32.024

really mostly a nothing burger if that's where it stays.

 

06:32.024 --> 06:35.762

I mean, the market is down that much almost any time.

 

06:35.762 --> 06:39.899

Even a 10% to 15% correction is relatively common, it

 

06:39.899 --> 06:44.237

happens usually once a year. Of course, we had one already this year.

 

06:44.237 --> 06:48.374

If we go to slide two, you look at the Mag Seven, it's still

 

06:48.374 --> 06:50.443

kind of in that range.

 

06:50.443 --> 06:54.414

Again, it has been a meteoric ride since that April 8th

 

06:54.414 --> 07:00.319

low. It can only go up so much at a time.

 

07:00.319 --> 07:04.257

One thing we're seeing actually is that even though we think it's just the

 

07:04.257 --> 07:08.461

speculative corners of the market or even the AI names, and we saw

 

07:08.461 --> 07:12.398

the Nvidia earnings release which was gangbusters

 

07:12.398 --> 07:16.436

but then that reversal, but it actually is happening under the

 

07:16.436 --> 07:20.606

surface as well. You can see in the bottom panel here that only

 

07:20.606 --> 07:24.911

a minority of stocks are now above their 50-day moving average.

 

07:24.911 --> 07:28.981

It's not quite oversold enough to say, okay, wow, that probably

 

07:28.981 --> 07:33.286

is a bottom. Maybe we'll go back and forth a little bit further.

 

07:33.286 --> 07:36.189

Again, that's really not terrible.

 

07:36.189 --> 07:40.760

If you look at that chart, or let's say go to slide 3, you look the S&P

 

07:40.760 --> 07:44.630

cap-weighted index, which is the one with the blue line, versus the

 

07:44.630 --> 07:48.968

equal-weighted, which is the one with the purple line, it's been

 

07:48.968 --> 07:53.139

quite a ride for the last, what is that, seven, eight months.

 

07:53.139 --> 07:57.143

In a way we're having reverse seasonals right now because usually the

 

07:57.143 --> 08:01.180

summer is weak, you get a bottom in early October and then you've got

 

08:01.180 --> 08:05.251

the Santa rally. We've actually had a positive

 

08:05.251 --> 08:09.989

summer and now we're have weakness in late November.

 

08:09.989 --> 08:14.460

Again, seasonals only work all else being equal and certainly in

 

08:14.460 --> 08:17.430

2025 nothing else is equal these days.

 

08:17.430 --> 08:21.534

It's been a fascinating year. I'm fascinated to see how you and others

 

08:21.534 --> 08:25.304

will write the history books on this one.

 

08:25.304 --> 08:29.509

You've mentioned, I think, before in some notes that within the

 

08:29.509 --> 08:33.880

discussion of is AI overdone a piece of it is

 

08:33.880 --> 08:37.917

does the world need AI to make us all much more

 

08:37.917 --> 08:41.854

productive or else the debt is going to be

 

08:41.854 --> 08:46.292

an issue? There's sort of a leap there and I'd love you to

 

08:46.292 --> 08:49.428

bridge it for us, if you don't mind.

 

08:49.428 --> 08:53.666

There's a lot riding on the AI boom, not

 

08:53.666 --> 08:55.401

only the stocks in question.

 

08:55.401 --> 09:00.439

Again, Nvidia, at least was last week a $5 trillion company,

 

09:00.439 --> 09:04.377

the Mag Seven are almost 40% of the S&P,

 

09:04.377 --> 09:08.381

a lot of concentration risk, and that risk is great when it's going

 

09:08.381 --> 09:12.318

well but it's not so great when it doesn't.

 

09:12.318 --> 09:14.053

A lot in the stock market, at least the U.S.

 

09:14.053 --> 09:17.557

stock market, is riding on the AI boom.

 

09:17.557 --> 09:21.427

Geopolitically there's a lot riding because it is kind of like an arms race

 

09:21.427 --> 09:23.963

between the U.S. and China.

 

09:23.963 --> 09:28.534

Both countries want to get to that dominance point

 

09:28.534 --> 09:32.104

as fast as possible.

 

09:32.104 --> 09:36.175

Like you said, there's a larger narrative as well and that is that the world is

 

09:36.175 --> 09:40.313

being, or most of the developed world is being strangled by

 

09:40.313 --> 09:44.250

an ever larger debt burden. Canada, the U.S.,

 

09:44.250 --> 09:48.387

the UK, Europe, China, Japan, you have debt-to-GDP

 

09:48.387 --> 09:53.426

levels, including government, corporate and household,

 

09:53.426 --> 09:58.130

that in many places is exceeding 300%.

 

09:58.130 --> 10:02.068

With demographics ageing, and I'm seeing it here in Holland even with

 

10:02.068 --> 10:06.005

my own parents this week, where is the growth

 

10:06.005 --> 10:10.242

going to come from, because the speed limit, the non-inflationary

 

10:10.242 --> 10:14.280

speed limit for the economy is essentially growth in the labour force plus

 

10:14.280 --> 10:16.649

growth in productivity.

 

10:16.649 --> 10:20.653

We have ageing populations in many places in

 

10:20.653 --> 10:24.757

the world. There's now a backlash against immigration, certainly in the U.S.,

 

10:24.757 --> 10:28.728

probably you have a little bit of that in Canada, in Europe, of course,

 

10:28.728 --> 10:32.498

with refugees, that's been at play as well.

 

10:32.498 --> 10:36.769

If you're not gonna naturally boost the speed limit by having just

 

10:36.769 --> 10:41.474

more people working then you need to do it through

 

10:41.474 --> 10:43.509

productivity.

 

10:43.509 --> 10:46.112

AI is the great promise on that.

 

10:46.112 --> 10:50.016

The way people are describing AI, at

 

10:50.016 --> 10:54.387

least the proponents of how it could work well, is that

 

10:54.387 --> 10:58.658

essentially the hyperscalers are creating running

 

10:58.658 --> 11:02.628

water, the way people did centuries ago, or

 

11:02.628 --> 11:06.899

like electricity or infrastructure, they're laying the pipes for

 

11:06.899 --> 11:10.936

a new economy to function on and that new economy

 

11:10.936 --> 11:14.974

is beyond, obviously, ChatGPT, that only gets you so far,

 

11:14.974 --> 11:19.311

but really a whole new way of creating efficiencies

 

11:19.311 --> 11:20.713

in business.

 

11:20.713 --> 11:24.950

If that does create a productivity boom then

 

11:24.950 --> 11:28.954

that would be the great hope to lift that non-inflationary speed limit,

 

11:28.954 --> 11:32.958

because right now the speed limit is pretty low, which doesn't

 

11:32.958 --> 11:36.996

mean it can't be exceeded but if

 

11:36.996 --> 11:39.298

it does you create inflation.

 

11:39.298 --> 11:43.269

If you create the non-inflationary speed limit then you have a lot more room

 

11:43.269 --> 11:47.873

to grow without the Fed or the Bank of Canada or other central banks

 

11:47.873 --> 11:50.876

raining on the parade, if you will.

 

11:50.876 --> 11:55.181

Then you can really grow your way out of debt, or at least keep

 

11:55.181 --> 11:57.483

pace with it.

 

11:57.483 --> 12:01.954

There's a lot riding on this both at the micro, the macro and the

 

12:01.954 --> 12:04.657

super macro level.

 

12:04.657 --> 12:08.961

I speak to my colleagues over here in Boston who are

 

12:08.961 --> 12:11.831

very involved in the AI space and,

 

12:11.831 --> 12:15.634

but we don't really know how this cookie is going to crumble.

 

12:15.634 --> 12:19.772

We don't know what the apps are going to be but right

 

12:19.772 --> 12:21.741

now they're laying the groundwork.

 

12:21.741 --> 12:25.377

It's the picks and shovels are creating the infrastructure.

 

12:25.377 --> 12:29.448

It costs a lot of money because all of whatever it is that we're going to be

 

12:29.448 --> 12:33.886

doing it's going to be very power hungry and that requires

 

12:33.886 --> 12:37.690

electricity which requires a lot of investment.

 

12:37.690 --> 12:41.694

You could have all the hopes being fulfilled but at the

 

12:41.694 --> 12:45.631

same time that doesn't mean that the companies that are building this

 

12:45.631 --> 12:50.569

system are actually going to reap the benefit.

 

12:50.569 --> 12:54.774

The depreciation schedule of all this capex may not be in line

 

12:54.774 --> 12:58.210

with when the promise comes to fruition.

 

12:58.210 --> 13:02.648

I think for the market that's where we are right now in terms of

 

13:02.648 --> 13:06.752

trying to figure out what the end game is even if everyone agrees that the

 

13:06.752 --> 13:10.589

endgame for you and me and for society are going to be good.

 

13:10.589 --> 13:13.793

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

 

13:13.793 --> 13:17.129

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

 

13:17.129 --> 13:20.166

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

 

13:20.166 --> 13:24.637

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

 

13:24.637 --> 13:27.006

and you could win one of our branded tumblers.

 

13:27.006 --> 13:30.309

Periodic draws ending by March 30th, 2026.

 

13:30.309 --> 13:33.913

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

 

13:33.913 --> 13:37.950

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

 

13:37.950 --> 13:41.620

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

 

13:41.620 --> 13:44.523

You've done lots of work on Bitcoin.

 

13:44.523 --> 13:46.192

We've seen Bitcoin slide.

 

13:46.192 --> 13:49.895

It's part of the market narrative, certainly from the last week.

 

13:49.895 --> 13:54.133

With everything that you're describing and in terms of economies becoming much

 

13:54.133 --> 13:58.337

more productive there's also the issuance of stablecoins, all

 

13:58.337 --> 14:02.174

kinds of coins, of course, have been issued, but this idea that governments

 

14:02.174 --> 14:06.378

themselves, in terms to be able to control a central bank digital

 

14:06.378 --> 14:10.449

asset, either replacing their own dollars, shekels,

 

14:10.449 --> 14:14.854

whatever it is, but that will lead to faster

 

14:14.854 --> 14:18.691

processing of everything. There's a productivity in just sort of the transition

 

14:18.691 --> 14:21.927

of money. It leads to the financial sector, certainly.

 

14:21.927 --> 14:25.397

Can you just comment on that? I mean, we've seen central banks recently

 

14:25.397 --> 14:28.334

starting to announce the fact they're going down this road, some faster than

 

14:28.334 --> 14:32.304

others but we're going down the road.

 

14:32.304 --> 14:35.407

We had the Genius Act in the U.S.

 

14:35.407 --> 14:38.043

last year, I guess it was last year--

 

14:38.043 --> 14:40.179

In the summer, yeah.

 

14:40.179 --> 14:43.649

--that really legitimizes stablecoins.

 

14:43.649 --> 14:47.753

The angle from the Treasury department run by

 

14:47.753 --> 14:51.690

Scott Bessent I think, undoubtedly, is if we can get a

 

14:51.690 --> 14:55.527

lot of stablecoins out there that means they all have to buy a lot of

 

14:55.527 --> 15:00.065

Treasuries as the backup for the value.

 

15:00.065 --> 15:04.570

It's interesting because the Genius Act forbids

 

15:04.570 --> 15:08.807

the stablecoins from paying an

 

15:08.807 --> 15:12.745

interest rate. For the stablecoins

 

15:12.745 --> 15:16.882

themselves, and we saw the Circle IPO was incredibly

 

15:16.882 --> 15:21.020

successful, these companies essentially have a licence to mint money.

 

15:21.020 --> 15:25.090

If they can earn 4% by having Treasury bills backing

 

15:25.090 --> 15:29.061

up their stablecoins and they're not allowed by law to pay interest

 

15:29.061 --> 15:32.031

on them  then that's a pretty lucrative deal.

 

15:32.031 --> 15:36.335

My guess is that the stablecoins obviously make the

 

15:36.335 --> 15:39.338

financial system run a lot smoother.

 

15:39.338 --> 15:41.907

They're disintermediating the banks.

 

15:41.907 --> 15:45.878

If I'm sending money to Holland or somewhere else, if you

 

15:45.878 --> 15:49.848

send that through Zwift I think three or four different banks touch that.

 

15:49.848 --> 15:51.583

Of course, there's an expense.

 

15:51.583 --> 15:56.555

The promise with stablecoins is that could become much more frictionless.

 

15:56.555 --> 16:00.893

Stablecoins themselves, I don't think are going to be a

 

16:00.893 --> 16:02.995

store of value just because they don't pay interest.

 

16:02.995 --> 16:06.966

You're not going to trust a stablecoin more than you

 

16:06.966 --> 16:11.103

would the Treasury or bank deposits,

 

16:11.103 --> 16:15.074

which are, of course, insured, because those stablecoins own the same bills

 

16:15.074 --> 16:19.178

that you could buy directly from the Treasury or a money market fund and

 

16:19.178 --> 16:21.080

get actually a nice interest rate.

 

16:21.080 --> 16:24.683

I don't think they're going to totally disrupt the system.

 

16:24.683 --> 16:29.088

They could steal some market share from banks just for convenience

 

16:29.088 --> 16:34.159

cash where you're not really concerned about what kind of interest rates it

 

16:34.159 --> 16:38.130

yields but certainly it's a game changer and in a

 

16:38.130 --> 16:40.599

way it extends the reach of the U.S.

 

16:40.599 --> 16:41.867

dollar.

 

16:41.867 --> 16:46.171

In that sense rather than kind of disrupting

 

16:46.171 --> 16:50.509

the dollar's reserve status, which is what Bitcoin and stablecoins were

 

16:50.509 --> 16:54.446

seen as doing a few years ago, I think if anything

 

16:54.446 --> 16:58.417

they will further the reach of the

 

16:58.417 --> 17:02.554

U.S. dollar  which might mitigate some of the stories about fiscal dominance

 

17:02.554 --> 17:04.990

and what that does to the dollar.

 

17:04.990 --> 17:09.128

You mentioned Bitcoin, slide 14, you can

 

17:09.128 --> 17:13.232

see Bitcoin has really had quite a run lower here.

 

17:13.232 --> 17:17.202

It peaked at 125,000 just in October and we

 

17:17.202 --> 17:19.872

got to 80,000 last week.

 

17:19.872 --> 17:24.209

We're higher now, I think we're about $86,000.

 

17:24.209 --> 17:26.211

The question is why is that happening?

 

17:26.211 --> 17:28.447

I think there's a couple of reasons.

 

17:28.447 --> 17:32.985

Ironically, maybe stablecoins have slightly

 

17:32.985 --> 17:36.588

diminished the need for Bitcoin because now you can have--

 

17:36.588 --> 17:38.023

That's what I was wondering.

 

17:38.023 --> 17:40.359

--electronic money.

 

17:40.359 --> 17:43.996

Bitcoin was never going to be a great medium of exchange just because it's too

 

17:43.996 --> 17:45.731

scarce, it's too volatile.

 

17:45.731 --> 17:49.401

Then there are some questions about what we call these Bitcoin treasury

 

17:49.401 --> 17:53.372

companies like MicroStrategy that really have

 

17:53.372 --> 17:57.342

not been buying as much and their stocks

 

17:57.342 --> 17:59.144

are actually quite down.

 

17:59.144 --> 18:03.382

What we've been seeing is some whales, these very big

 

18:03.382 --> 18:07.419

OG type of holders essentially taking profits,

 

18:07.419 --> 18:11.790

which you can't argue with, I mean, they've been owning them since Bitcoin

 

18:11.790 --> 18:13.725

was a penny.

 

18:13.725 --> 18:17.863

While they were doing that a few months ago these Treasury operations were

 

18:17.863 --> 18:22.968

taking that supply and adding it to their portfolio.

 

18:22.968 --> 18:25.637

That's not happening right now.

 

18:25.637 --> 18:29.808

As we've said many times Bitcoin is like Dr. Jekyll and Mr. Hyde.

 

18:29.808 --> 18:34.780

It can be boring gold one moment and it can be the Nasdaq the next moment.

 

18:34.780 --> 18:38.984

Right now you have the global money supply is robust

 

18:38.984 --> 18:41.420

but it's not growing very fast.

 

18:41.420 --> 18:45.357

At the same time you have the stock market

 

18:45.357 --> 18:49.394

now wobbling and these high momentum leverage plays

 

18:49.394 --> 18:53.699

wobbling as well and Bitcoin is kind of like falling

 

18:53.699 --> 18:57.136

in cahoots with those groups.

 

18:57.136 --> 18:59.004

I think it's a correction.

 

18:59.004 --> 19:00.739

I don't think it is much more than that.

 

19:00.739 --> 19:04.843

Bitcoin is volatile, of course, we know that but it's sort of getting caught up

 

19:04.843 --> 19:08.046

in the storm of the non-profitable tech.

 

19:08.046 --> 19:12.217

If we pull up slide 9 we can just pivot to that for a moment and just

 

19:12.217 --> 19:15.420

you to what degree those have now sold off.

 

19:15.420 --> 19:19.525

They more than doubled in the span of eight,

 

19:19.525 --> 19:22.995

nine months and we're now getting back closer to support.

 

19:22.995 --> 19:27.399

So these are the non-profitable tech stocks and the next chart, slide 10,

 

19:27.399 --> 19:31.336

are the meme stocks. These are thematic baskets from

 

19:31.336 --> 19:35.874

Goldman Sachs and you can see how much closer we're getting, slide

 

19:35.874 --> 19:39.811

10 are the meme stocks, that we

 

19:39.811 --> 19:44.349

are getting closer to that support line which I think will probably hold.

 

19:44.349 --> 19:49.488

Yeah, the next slide. We'll just take a quick look at that, if that's

 

19:49.488 --> 19:51.790

okay. I'll ask you another question in between.

 

19:51.790 --> 19:56.128

The discussion of what is safe and the

 

19:56.128 --> 20:00.432

memories, I guess, of fixed income and equities going down

 

20:00.432 --> 20:04.770

the chute at the same time in 2022, it's a different story.

 

20:04.770 --> 20:07.806

There's some worries that that correlation is still there but, in fact, bonds

 

20:07.806 --> 20:12.044

are doing exactly what they're meant to do at this point, aren't they?

 

20:12.044 --> 20:15.080

We can go to slide 11.

 

20:15.080 --> 20:19.251

Frankly, I'm pleasantly surprised how well behaved

 

20:19.251 --> 20:22.421

the bond market has been this year.

 

20:22.421 --> 20:26.358

You remember earlier back in February, March, early

 

20:26.358 --> 20:31.563

April when we had the tariff tantrum the dollar was going down,

 

20:31.563 --> 20:35.567

Treasury yields were going up, so the two best known safe

 

20:35.567 --> 20:40.105

havens other than gold were not being very safe.

 

20:40.105 --> 20:43.976

That was really one of the questions of fiscal dominance and will foreign

 

20:43.976 --> 20:48.513

investors continue to support our bond market were really

 

20:48.513 --> 20:52.618

very prominent. Things have really quieted down.

 

20:52.618 --> 20:56.822

The 10-year yield is around 410, 415, very, very

 

20:56.822 --> 20:59.758

quiet. The Fed has delivered two rate cuts.

 

20:59.758 --> 21:03.895

Even if they don't go in December they are now fairly close into the

 

21:03.895 --> 21:08.100

neutral zone that the Fed really should not be seen as a burden

 

21:08.100 --> 21:11.036

on the financial system.

 

21:11.036 --> 21:13.905

The Fed ended quantitative tightening as well.

 

21:13.905 --> 21:18.110

What we're seeing with this 5% decline and, again, it's only 5%, it's

 

21:18.110 --> 21:22.447

sort of a rounding error in the grand scheme of things but it's not caused

 

21:22.447 --> 21:28.086

by the bond market, which is a nice change because really since 2022

 

21:28.086 --> 21:32.057

most routes in the stock market were caused by rising yields, and that

 

21:32.057 --> 21:33.725

is not happening.

 

21:33.725 --> 21:37.763

In the top part here, the top panel, I show the drawdown in the stock

 

21:37.763 --> 21:41.767

market, which is the orange line, the drawdown in the bond market,

 

21:41.767 --> 21:45.704

which is the grey line, and you can see the bond market is not in any kind of

 

21:45.704 --> 21:49.875

drawdown so that shows you that the 60 and the 40 are

 

21:49.875 --> 21:54.112

currently not correlated. In the bottom panel I show the

 

21:54.112 --> 21:57.849

12-month correlation and the 5-year correlation.

 

21:57.849 --> 22:01.853

You can see that back in 2019 stocks and bonds

 

22:01.853 --> 22:05.824

were steeply negatively correlated and then by late

 

22:05.824 --> 22:10.162

2022 they were steeply, positively correlated.

 

22:10.162 --> 22:14.166

Right now the 5-year correlation is positive because you're looking

 

22:14.166 --> 22:18.103

back five years and that 2019 data has fallen off

 

22:18.103 --> 22:20.906

so you have really just that positive period.

 

22:20.906 --> 22:25.177

But if you look at the 12-month correlation it's slightly positive

 

22:25.177 --> 22:29.514

but I would say bonds at this point have become an uncorrelated asset,

 

22:29.514 --> 22:31.483

and that's what we wanna see, right?

 

22:31.483 --> 22:35.554

We wanna have diversifiers in a portfolio and if

 

22:35.587 --> 22:39.791

bonds are not gonna be negatively correlated at least they should be as

 

22:39.791 --> 22:42.627

uncorrelated as possible and not positively correlated.

 

22:42.627 --> 22:46.598

Right now they are uncorrelated and that means we can

 

22:46.598 --> 22:50.869

own bonds, get a positive real yield and not worry

 

22:50.869 --> 22:54.673

that bonds and stocks necessarily are going to go down at the same time, which

 

22:54.673 --> 22:58.944

doesn't mean they won't in the future but at least right now they're providing

 

22:58.977 --> 23:00.145

some ballast here.

 

23:00.145 --> 23:02.647

That's great. There's a couple of questions that are rolling in.

 

23:02.647 --> 23:06.685

One is just putting the number of options that expired last week

 

23:06.685 --> 23:11.556

into context and what that contributed possibly to

 

23:11.556 --> 23:16.795

last week's roiling volatility.

 

23:16.795 --> 23:21.433

Slide 6 actually shows the call-put ratio.

 

23:21.433 --> 23:24.770

You can see that that has come way down.

 

23:24.770 --> 23:28.740

So the average of the call-put ratios, the number of calls

 

23:28.740 --> 23:32.577

versus puts outstanding on the S&P, is about 1 1/4.

 

23:32.577 --> 23:37.015

It's not 1 just because generally the market goes up so generally there

 

23:37.015 --> 23:40.285

are more calls out there than puts.

 

23:40.285 --> 23:45.157

We went from a ratio of 1.7, 1.5

 

23:45.157 --> 23:49.261

to now 1.17 which is not what we saw in April

 

23:49.261 --> 23:51.730

where it was well below 1.

 

23:51.730 --> 23:56.601

But it shows that excess

 

23:56.601 --> 24:01.072

demand or excess froth, if you will,

 

24:01.072 --> 24:04.976

has quickly come down, which you would expect, of course, because, again, some

 

24:04.976 --> 24:08.947

of these speculative names are way down from their highs.

 

24:08.947 --> 24:11.416

So you would except to see this.

 

24:11.416 --> 24:15.353

To me, it sounds harsh because a

 

24:15.353 --> 24:19.391

lot of people may have been playing in those names, but to me this

 

24:19.391 --> 24:23.662

is like a palate cleanser that if this really is a transformative

 

24:23.662 --> 24:27.732

boom that we're in we don't want it to end anytime before

 

24:27.732 --> 24:32.671

it needs to just because stocks were driven to

 

24:32.671 --> 24:35.807

unrealistic levels and then the bubble implode.

 

24:35.807 --> 24:39.344

I think for the long term this a good thing.

 

24:39.344 --> 24:43.415

As always, diversified, long term

 

24:43.415 --> 24:47.385

investors should take advantage of moments

 

24:47.385 --> 24:51.523

of volatility and rebalance, just as they should when the market goes up

 

24:51.523 --> 24:53.258

a lot or goes down a lot.

 

24:53.258 --> 24:57.329

This is a good opportunity to sit down with your advisors, well,

 

24:57.329 --> 25:01.366

you are advisors on this call, but to sit down with your clients and say,

 

25:01.366 --> 25:04.135

okay, where do you want to be? Where should you be?

 

25:04.135 --> 25:07.405

Where are you? Are you over your skis, are you under your skies?

 

25:07.405 --> 25:11.743

Again, international stocks I think are

 

25:11.743 --> 25:16.214

a very nice way to play, to diversify

 

25:16.214 --> 25:19.384

against concentration risk in the U.S.

 

25:19.417 --> 25:23.288

which, of course, has been somewhat top-heavy.

 

25:23.288 --> 25:27.292

Thank you. It's a great segue, as some people say, segue to ask

 

25:27.292 --> 25:29.594

you about share buybacks.

 

25:29.594 --> 25:33.832

Share buybacks in Europe have kind of traditionally not been there

 

25:33.832 --> 25:36.067

in Europe. I mean, they are more now.

 

25:36.067 --> 25:40.105

But this question of share buybacks, is there lots of room to do all kinds

 

25:40.105 --> 25:43.141

of share buybacks when you're dumping all your free cash flow and everything

 

25:43.141 --> 25:47.078

you got as a company into expanding capex

 

25:47.078 --> 25:49.447

for AI to make sure you're not left behind?

 

25:49.447 --> 25:53.985

Do you have money left to buy up, hoover up your shares?

 

25:53.985 --> 25:58.189

It's a great question and definitely something that I'm wondering

 

25:58.189 --> 26:02.127

about. It's hard to find historical data to

 

26:02.127 --> 26:06.097

really explore that question because buybacks were not really

 

26:06.097 --> 26:08.333

a thing back during the internet bubble.

 

26:08.333 --> 26:13.438

The buyback era kind of began in the mid-2000s and

 

26:13.438 --> 26:15.874

has been a very prominent feature for the U.S.

 

26:15.874 --> 26:20.011

market ever since. But you do wonder that if there's so

 

26:20.011 --> 26:24.549

much capex going on ... I think the

 

26:24.549 --> 26:28.787

capex bill this year is like $600 billion just for these hyperscalers,

 

26:28.787 --> 26:31.056

gigantic numbers.

 

26:31.056 --> 26:35.093

Does that diminish the excess free cash flow

 

26:35.093 --> 26:39.064

which will then impede their ability to buy

 

26:39.064 --> 26:43.435

back a lot of shares and essentially monetize their

 

26:43.435 --> 26:47.105

shareholders. I think that's a very legitimate question.

 

26:47.105 --> 26:52.143

Maybe the shareholders, the investors look through that

 

26:52.143 --> 26:56.548

but the math in the discounted cash flow model is

 

26:56.548 --> 27:01.252

pretty clear. You have dividends, you have buybacks, that's called the payout.

 

27:01.252 --> 27:05.924

The payout ratio is the share of that payout versus earnings.

 

27:05.924 --> 27:09.928

In the U.S. that payout ratio used to be almost like 90%, now it's

 

27:09.928 --> 27:13.898

about 75% of which two-thirds is

 

27:13.898 --> 27:17.435

buybacks and one third is dividends.

 

27:17.435 --> 27:21.539

In Europe and Japan the payout ratio is now the

 

27:21.539 --> 27:25.443

same. It's very competitive which is one reason I like Europe and Japan so

 

27:25.443 --> 27:27.779

much. The composition is different.

 

27:27.779 --> 27:31.149

It's one third buybacks, two-thirds dividends.

 

27:31.149 --> 27:35.186

To me, if the buyback story, it's not gonna

 

27:35.186 --> 27:40.558

end but if it goes down that should in theory

 

27:40.558 --> 27:45.196

lower valuations for the companies who are engaged in them at

 

27:45.196 --> 27:46.865

the same time that non-U.S.

 

27:46.865 --> 27:50.869

stocks, especially developed stocks, are now much more competitive.

 

27:50.869 --> 27:53.038

Their payout is growing as much as the U.S.

 

27:53.038 --> 27:57.042

and the payout ratio is as high as in

 

27:57.042 --> 28:00.912

the U.S. but they're trading at 16 times earnings, the U.S.

 

28:00.912 --> 28:05.316

is trading at 25 times earnings. That to me could be another catalyst

 

28:05.316 --> 28:09.120

where the relative, the comparative advantage, if you will, of non-U.S.

 

28:09.154 --> 28:13.158

stocks finally starts to take hold.

 

28:13.158 --> 28:17.495

This is fascinating. Just as a final wrap-up, you sort of gave us context

 

28:17.495 --> 28:19.597

about last week and where we go.

 

28:19.597 --> 28:23.401

What would you set us up for this week, maybe longer than this week but just

 

28:23.401 --> 28:26.671

sort of short term.

 

28:26.671 --> 28:30.842

We'll go to slide 5. I would just remind everyone that

 

28:30.842 --> 28:33.111

markets are volatile. They've gone up a lot.

 

28:33.111 --> 28:37.382

The market has doubled in three years, three plus years.

 

28:37.382 --> 28:42.287

It has gone up almost tenfold since the secular bull market began.

 

28:42.287 --> 28:45.857

We're now talking about whether or not this is going to end in a bubble.

 

28:45.857 --> 28:50.061

I'm not saying that we are but even if you were convinced

 

28:50.061 --> 28:54.099

that it is, if you look at the analog in this chart of the

 

28:54.099 --> 28:58.636

current cycle and the period from 1998 to 2000

 

28:58.636 --> 29:02.674

you can see how many large drawdowns there

 

29:02.674 --> 29:06.878

were of 10% or more on the way to new all-time

 

29:06.878 --> 29:11.082

highs. Again, I don't want to overplay this analog but

 

29:11.082 --> 29:15.120

when the stakes are high and expectations are high and the valuations

 

29:15.120 --> 29:19.891

are high to match that and we're a

 

29:19.891 --> 29:24.329

very long way into a very big bull market people

 

29:24.329 --> 29:28.500

are gonna cash in their chips and they may be wrong.

 

29:28.500 --> 29:31.536

You're gonna see periods like this where all of a sudden the market goes down

 

29:31.536 --> 29:35.640

for no reason. It's a good time to kind of reassert where

 

29:35.640 --> 29:38.576

are the fundamentals, where are they earnings, what am I willing to pay for

 

29:38.576 --> 29:43.281

those earnings through a P/E and what parts of the world provide

 

29:43.281 --> 29:47.352

a good hedge against a very concentrated

 

29:47.352 --> 29:48.987

U.S. market.

 

29:48.987 --> 29:51.156

Fascinating. We are so grateful for your time.

 

29:51.156 --> 29:54.125

Jurrien Timmer, thank you for joining us. We wish your family very well during

 

29:54.125 --> 29:56.194

this week of Thanksgiving and just being together.

 

29:56.194 --> 29:57.862

We'll see you next week.

 

29:57.862 --> 30:00.765

Thanks for watching or listening to the Fidelity Connects

 

30:00.765 --> 30:05.069

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

 

30:05.069 --> 30:08.439

Connects on your podcast platform of choice.

 

30:08.439 --> 30:11.276

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

 

30:11.276 --> 30:15.246

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

 

30:15.246 --> 30:18.616

a financial advisor or through an online brokerage account.

 

30:18.616 --> 30:22.320

Visit fidelity.ca/howtobuy for more information.

 

30:22.320 --> 30:26.157

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

 

30:26.157 --> 30:30.295

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

 

30:30.295 --> 30:31.596

and Instagram.

 

30:31.596 --> 30:34.465

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

 

30:34.465 --> 30:38.303

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

 

30:38.303 --> 30:42.240

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

 

30:42.240 --> 30:46.244

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

 

30:46.244 --> 30:48.780

be construed as investment, tax, or legal advice.

 

30:48.780 --> 30:51.082

It is not an offer to sell or buy.

 

30:51.082 --> 30:55.420

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

 

30:55.420 --> 31:00.225

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

 

31:00.225 --> 31:03.795

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

 

31:03.795 --> 31:06.130

Fees, expenses, and commissions are all associated

 

31:06.130 --> 31:07.932

with fund investments.

 

31:07.932 --> 31:10.535

Thanks again. We'll see you next time.