FidelityConnects: Jurrien Timmer – The global macro view - October 20, 2025

[00:02:40] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. Is this a gilded age of gold and AI as twin investments? Markets last week saw a cooling of some animal spirits due to question marks surrounding U.S.-China trade talks and some U.S. regional banks. The endless but very important question remains about whether AI is in a bubble. That question is answered by our next guest with the comment, the markets look okay. Joining us now to explore the parallels being drawn to past periods of accelerated growth is Fidelity Director of Global Macro, Jurrien Timmer. Warm welcome to you. Happy Monday, Jurrien, how are ya?

[00:03:19] Jurrien Timmer: I'm well, thank you. Just returned back from one of our Fidelity conferences. It was so great to see so many fans from our show. It was very nice to break bread with our neighbours to the north.

[00:03:32] Pamela Ritchie: That's wonderful, the conference in Florida. You're just briefly in Boston because you keep on travelling through the fall as far as we know.

[00:03:42] Jurrien Timmer: I'm off to Chicago this afternoon and then to Toronto actually tomorrow night where I'm doing a few client events on Wednesday and Thursday morning there.

[00:03:52] Pamela Ritchie: Well, lucky us. Okay, we'll get a chance to talk through some of your thoughts on these markets right now. How would you like to sum up last week, because last week had a lot of moving parts, but as you say, this AI bubble question seems to dominate everything still.

[00:04:09] Jurrien Timmer: If we go to slide 1, being at The Breakers, which is a magnificent property from the U.S.'s gilded age. The railroad magnate Flagler built it. It just reminded me that we really have two gilded ages right now. One is sort of the AI boom, is kind of a gilding age of sort, a digital one, at least. The move in gold, which continues today after a sell-off on Friday, is like another gold rush. In a way we have two gold rushes going on. One is for AI dominance. We don't really know who's going to win that race, whether it will even be in the U.S. who wins it. The other one is for gold as a hedge on both fiscal dominance, if you will, and a global realignment of U.S. hegemony.

[00:05:08] What I find really interesting, if we just look back to the beginning of this year and we look at gold and we look at one of the ultimate plays on AI, which is the SPAC Index, these are the special purpose acquisition companies, they were very popular in 2021 when the money was easy. Right now they have been moving because everyone is looking for the next big winner in AI. We know that Nvidia and Google and Meta are all very much in that race but usually the animal spirits will kind of flow into the more speculative areas. Gold and the SPAC Index are almost at the same place even though they could not be more different as asset classes. To me, that's just a really remarkable place to be in our market's history.

[00:06:00] The question is, is gold overdone? We could talk about that. The other one, and I'm getting this one a lot because I've been doing a lot of media interviews with the Wall Street Journal and Bloomberg and other outlets, the question is, are we in a bubble? Is the AI boom turning into a bubble like what we saw back in the late '90s? We've talked about that a lot. We'll unpack this as well. The short answer is not yet.

[00:06:27] Pamela Ritchie: Not yet, and they diversify one another, gold and AI, at least in theory. That's the barbell, isn't it?

[00:06:35] Jurrien Timmer: Yes, they are two different plays on two different things but they happen to be behaving in a similar way. Yes, they would be a good barbell for each other.

[00:06:45] Pamela Ritchie: Let's go through sort of the history of bubbles, which I'm sure you're bringing up with everyone that you're speaking to. You have the actual data and charts and graphs even forming of this. What are you most likely to compare this to? Is it the '90s? I mean, that seems to be the one brought up the most.

[00:07:02] Jurrien Timmer: Let's go to slide 8 first. There's no way around getting to the late '90s if you're going to compare AI. I heard it sum up well by one of our portfolio managers, that AI is the fourth chapter, if you will, in a technological revolution. The first one, of course, was the internet. We've got the late '90s here in front of us, or the mid-'90s to the late 90s. The second was the smartphone. That kind of changed the way we live and consume. Third one is the cloud and now the fourth one is AI. We have to kind of look at the internet bubble because that is the most recent bubble, if you will. I mean, 2021 was a mini-bubble when the money was too easy and interest rates were zero, even though the fiscal impulse was very big. That's not quite the same league as bubbles as what people are talking about today.

[00:08:03] If we go to this chart, we just overlay the mid-'90s. The mid-'90s when Greenspan raised rates we had a big bond bear market. The stock market sort of languished for a year and then Greenspan delivered the soft landing, gave back some rate cuts and the market soared higher. That's very similar to 2022 when Powell raised rates, one of the worst bond bearer markets, and then soft landing, gave back some rate cuts, the market soared. To me the mid-'90s and this current bull market have a lot in common. In 1995 we had the Netscape IPO. In 2022 we have the launch of ChatGPT, and a lot of people think that that's sort of what really was the official, official, unofficial launch of the AI era.

[00:08:59] If we fast forward and we go to the 1998 long term capital management decline, that was an exogenous shock that produced a 22% decline in the S&P, very short-lived, markets came roaring back. On top of that Greenspan put some fuel on the fire by cutting rates three times. Then we got into the silly season of the dot-com bubble, we had pets.com and all that stuff. Then we got to 2000 and the NASDAQ was trading at 100 P/E and all of that stuff. You could make the argument that the tariff tantrum back in April has some similarities there because that too was not quite an exogenous shock but it was a shock. It was a 21% decline. It was short-lived, it recovered, the market recovered very, very quickly. Powell just cut rates three weeks ago or so and now we're kind of in this sort of frothy AI market. You could argue, and we see this with the dark blue line overlaid, that this really is kind of similar to late '98, '99. I think this is where people are coming from when they ask about the bubble.

[00:10:14] If we just fast forward to slide 9 for a second I'll just iterate this a little bit more. Kind of the poster children, if you will, I mean, obviously, we have the Mag Seven, they are very powerful, Apple is soaring today. There's no question that the Mag Seven are supported by very bullish fundamentals. Just since that cyclical bull market low in 2022 the Mag Seven  has gone up fourfold. Its earnings have gone up threefold and that means that part of the move is P/E but it's not the biggest part. That part is still pretty solid. If you were at the conference and you heard Will Danoff speak, they're still pretty constructive on those big names. Where you want to look for the froth, if there is any, is in these non-profitable tech stocks, which is in this chart, as well as the SPAC Index.

[00:11:12] I did a fun little experiment over the weekend. If we go to slide 10 and if we say, okay, if the internet boom started with the Netscape IPO, that was in August 9th, 1995, and that is the same point as the ChatGPT launch on November 30th, 2022, and you track those two on the same scale, so they are apples and apples, you can see that we haven't really done anything yet. Even though these stocks have doubled they went really into silly season back in 1999 and early 2000. That is kind of my sense as to where we are. Again, I'm not saying we're going into a bubble but the fact that so many people are talking about a bubble tells me that maybe it's still early if we even go there.

[00:12:09] It's worth remembering that bubbles have a certain personality, if you will. At the beginning of a bubble everyone sees it, people say, okay, I'm taking my chips off the table, this is crazy, it's a bubble, and then the bubble just goes and it goes and goes and goes because bubbles are irrational things. Then the people that sold early get back in and that's the top and then they ride it all the way down. I mean, it's not funny, it's not at all, but that's typically how the sentiment goes. The fact that we're all declaring it a bubble ready to burst tells me that there's time.

[00:12:46] Pamela Ritchie: And that what we're in actually is a good old bull market.

[00:12:51] Jurrien Timmer: Yes, exactly.

[00:12:53] Pamela Ritchie: Fascinating. Would you say when we're looking at the other parts of the market, I mean, which part of the gold story is explained by concerns about a bubble in the markets right now? There's a retail story to it but there's also a government story, a central bank story to the gold piece right now. Which pieces are allocated to sort of offset a bubble and how much is that worth?

[00:13:20] Jurrien Timmer: It's a great question. Let's go to slide 15 and we'll unpack the gold thesis here. My sense is that gold is a play on two different things. One of them is U.S. fiscal dominance, meaning Trump administration is going to try to outgrow the debt by, ironically, issuing a lot more debt but they're trying to, basically, spend their way out of debt. That sounds ironic, it probably is. In order to do that they need to keep interest rates low. It would require below market interest rates. Then you get into this era like we had in the 1940s and the way Japan has had in recent years where you have financial repression. The Fed or other central banks push rates lower than where the economics would justify and then gold comes in as a store of value because if a central bank pushes rates below the inflation rate, for instance, then you get the reason to have a store of value.

[00:14:31] Actually, let's go to slide 2 for a second just to kind of highlight that. The 10-year yield is in the bar chart there. The grey line is the Fed funds rate, the dotted line is the forward curve and the market is expecting the Fed to go to three, which is basically what the Fed thinks is a neutral rate. If you look at the Fed's summary of economic projections they have  long term inflation at 2, it's not 2 but they think it's going to go to 2, plus 100 basis points in terms of the natural rate, that gets you to a long run neutral rate of 3%. My sense is that inflation's not going to go to 2, it's probably going to be closer to 3, and so therefore neutral rate is probably closer to 4 than to 3. That's just my view.

[00:15:22] Then you have kind of the case that the Trump administration is making via its people on the Fed, namely Stephen Miran  did a speech recently laying out his thesis that a neutral rate really is closer to 2% because of various challenges about the neutral rate, et cetera. You have this spread of 2 to 4 with the Fed in the middle and I think that's where the battle lines are going to be drawn. If the Trump administration is able to kind of tilt the Fed to be more friendly toward this policy you could argue that you're going to have 2% short rates. If inflation is 3%, which is what we think it will be, then you have negative real rates. The bond market wouldn't like that, the back end would steepen and then you would need some sort of quantitative easing, and that would bring in gold. That's basically the gold thesis.

[00:16:22] If we go to slide 19 you can see it laid out here in terms of this wager that the administration is taking on trying to outgrow the debt. The blue line in this chart is the 5-year growth rate in nominal GDP and potential GDP. These are projections by the Congressional Budget Office. What you see is that rate of growth will end up at around 4 1/2 and then it's a question of where are yields going to be? Are they going to below 4? Well then that's great. Your growth rate is above your funding rate and your debt is sustainable. But if the term premium comes in or the Fed is too easy and the bond market, the bond vigilantes protest you could be at yields of 5 or 6% in which case your debt becomes unsustainable. This is what gold is a play on in one respect.

[00:17:20] It's interesting, if we go to slide 21, historically when you have these periods of either rampant monetary inflation like the '70s or financial repression in the '40s or '30s even the value of above ground gold, the gold that has been mined, takes market share from the money supply. You can see that in the bottom panel. In the early '80s the value of gold was 140% of the value of the money supply, in the 1930s was 123% and guess what, right now it's 133%. If this was just a play on U.S. fiscal dominance you could actually argue that gold is a little extended here, that it's sort of done what it needs to do.

[00:18:12] That brings in the other kind of bullish thesis for gold, and that is that the deck chairs are being rearranged globally away from a unipolar world where the U.S. dollar is the dominant reserve and we go to a multipolar world where China is ascendant, is much more competitive, is trying to move away from the dollar standard and more towards gold. That gets you into a whole other playbook. If we go to slide 23, it's interesting, if we use the same chart we just showed but we now look at the global money supply instead of the U.S. money supply ... and there's not a lot of history for the global money supply, it only goes back a couple of decades ... but that's the black line at the top. Global money supply is $115 trillion. It's many times bigger, obviously, than the U.S. money supply, and as a share of the global supply, gold and Bitcoin, I've added them together here, is only about 26%. In this chart you can see that there is maybe significantly more room. That's how I kind of view the whole gold thesis in terms of what it's all about.

[00:19:31] Pamela Ritchie: If you tie together, for instance, one of the analogies that you're looking at, the long term capital management implosion, it was quite quickly associated with a currency crisis, the Asian currency moment. Between perhaps the U.S. currency becoming less dominant, a more multipolar world, do you see currency cracks in there?

[00:19:57] Jurrien Timmer: It's possible. If we go to slide 20 you can see here the nominal effective exchange rate index, this is from J.P. Morgan, for all the major currencies. You can that Switzerland reigns supreme. Switzerland actually this year cut rates to zero only because they want to stop the flows coming into its currency. The Swiss franc is too strong.

[00:20:24] Pamela Ritchie: Hot money.

[00:20:25] Jurrien Timmer: Yes. The dollar is right there in second place. The dollar has been very strong for many, many years so this notion of fiscal dominance where the dollar's being debased, essentially, through negative interest rates, if that indeed happens, you could argue that the dollar would be less supreme than it has been, especially if there is a switch away from dollars as reserves, which we clearly see happening in China. Not only is the Chinese government buying gold and selling dollars but Chinese consumers are buying gold because they are oversaving. The real estate market is in the dumps so the Chinese consumer has a very high savings rate and there's not a lot of places to go. Bond yields in China are very, very low even though its debt-to-GDP is very high. They're buying bonds and gold and other things.

[00:21:24] The currency aspect of the dollar becoming less supreme is certainly part of this conversation. If we go to slide 22, the other kind of side to that is debt. Debt levels across around the world are very high. Japan still gets the prize as one of the worst. You see Canada's way up there at 313%. That's not just government debt, that's government, household, corporate. The U.S. is, actually, relatively okay at 250%. Look at China, that's just been a straight line up, that's at 292%. The U.S. has always benefited from being, what we call, the cleanest dirty shirt, if you will. The notion is that if the U.S. is going to kind of use the printing press to try to spend its way out of debt then maybe that cleanest dirty shirt is just another dirty shirt and therefore the U.S. doesn't really earn that much of a supremacy premium anymore. I think that's all part of this thesis that's driving gold higher.

[00:22:34] Pamela Ritchie: There's a couple of questions rolling in about gold, or tied to gold, so I'll just put these to you to sort of continue on. Are there more opportunities for other types of precious metals beyond gold, I guess based on a similar reason for gold's rise, and then the other is the tariff situation tied to the surge in gold.

[00:22:55] Jurrien Timmer: Certainly other metals, other precious metals, are in play. Silver has had a meteoric rise. There's apparently some shenanigans about short squeezes and this and that. That's kind of silver for you. Silver has a meteoric rise. The gold miners are different asset class, those are equities. Canadians are very familiar with them. Many of those miners are priced for $3,000 gold but gold is at $4,400. You could argue the gold miners are still cheap and it's sort of a leverage play on the price of gold. Again, to me that's a different asset class so I want to be careful not to conflate equities and metals. If we look at slide 18, for instance, we see the leaderboard here.

[00:23:50] These are 5-year Sortino ratios. A Sortino ratio is like a Sharpe ratio but instead of calculating a risk-adjusted return by using the volatility as the denominator the Sortino uses only the negative volatility with the argument that nobody minds positive volatility, only the negative one. You can see that looking at the 5-year Sortino, so 5-year return over 5- year of negative volatility, you see gold is now at the top, Bitcoin is pretty close to it, and gold and Bitcoin, basically, have been stealing the show for a number of years now. Tong term Treasuries, LT at the bottom, are the worst offender. Everything else is sort of in the middle. Certainly, gold and bitcoin have earned their stripes as either realized stores of value or aspirational stores of value. I think those are two pretty good bookends for that bucket. All the other stuff, uranium, silver, titanium are sort of along for the ride. Gold and Bitcoin have a lot of liquidity so those would still be my first choices.

[00:25:08] Pamela Ritchie: In terms of the portfolio construction element within it, I mean, you hear anecdotally that people have just replaced bonds with gold. I don't know to what extent that's true but there you're showing us long term Treasuries and sort of where their place in the pecking order is. Is there a reason to be concerned about the bond market, about growth and just concerns about the bubble that gets talked about? How's the bond market reacting to that? Does it seem fine?

[00:25:40] Jurrien Timmer: The bond market seems to be asleep right now. We can go back to slide 3 for a moment. Obviously, the bond market is concerned about a growth shock. We know that the labour data has been soft. I mean, it hasn't been terrible. There aren't many indications that we see here in our economics team that a recession is a high risk, or even a medium risk. Clearly, the data have been softer than expected. We had that large downgrade in the non-farm payrolls a few months ago. The JOLTS data shows that the demand for labour and the supply of labour is perfectly in balance right now. Companies aren't hiring but they're not really firing either.

[00:26:26]  I think the bond market, again, at 3.99 today, the yield is pretty low considering the kind of fiscal cliff we're heading towards with deficits running 6% of GDP as far as the eye can see. The bond vigilantes are kind of taking a nap here. You can see from that chart that whenever the 10-year yield goes below 4%  it doesn't stay there very long. It's like holding a beachball under water. My sense is that we'll see the same thing but I think the bond market is somewhat complacent here about the fiscal side. Maybe they have just a lot of faith in Scott Bessent that he will pull a rabbit out of a hat in terms of how he's going to finance the debt. Maybe all through T-bills instead of through long term treasuries. Janet Yellen did the same thing back in 2023. So we'll see.

[00:27:26] To me the risk-reward, if bonds are in a range of 4% to 5% right now, which they have been for several years now, at 4 I don't see a lot of value. At 5 the buyers definitely come in but at 4 I don't really think there's a lot going on here that's interesting. When you have a regime like we've had since 2022 where bond yields become positively correlated to equities instead of negatively correlated, and the bond market does poorly, as it did in '22, that's when gold really kind of takes the baton from bonds as the diversifier of choice, if you will. I think that's why we're seeing that pivot on that periodic table between gold and bonds.

[00:28:17] Pamela Ritchie: It's just too recent, the memories are too ... the wounds are not yet closed on that one so it's still very much there. I just wanted to ask you about Scott Bessent, Treasury head. We used to talk about the Fed being at investor's back, is that what you think bond investors are betting? You mentioned it's been done before but is he sort of the singular person in this moment?

[00:28:42] Jurrien Timmer: I think so. Powell, of course, his term ends in May of next year. We don't know who's going to replace him. It's not easy to flip the Fed, if you want to put it in those terms. You need to get enough people on the Fed that are kind of cut from the same cloth as a Stephen Miran, for instance, or a Waller. It's not going to be easy to flip the Fed and have it be fully compliant in terms of engaging in financial repression to help the fiscal side, the Treasury fund deficits at cheap rates. What Yellen did in 2023 was an interesting example of kind of like fiscal QE, if you will. The Fed was shrinking its balance sheet. The 10-year yield had moved to 5% in October of 2023.

[00:29:40] What Janet Yellen did was said, okay we're not issuing any long bonds, we are just going to issue T-bills. That really supported the long end of the curve because there wasn't really much more supply coming. She could easily do that because there was a couple of trillion dollars sitting at the Fed in terms of reverse repos that money market funds like ours would buy. That was an easy arbitrage for her to make because those money market funds would just buy bills instead of repos and that absorbed the supply of T-bills. I don't know what Bessent is going to do now because the repos are gone so it really would just be a lot more T-Bills.

[00:30:21] But T-Bills you can manage. T-bills can be managed because they roll over very quickly, of course. Money markets do have a natural appetite for them. I think the bond market knows that Bessent is very savvy. He's a hedge funder, he's very connected on Wall Street and that he will probably figure something out.

[00:30:50] Pamela Ritchie: Okay, so bottom line for investors right now with worries, just climb that wall?

[00:30:59] Jurrien Timmer: We're in earnings season. We had a few cracks in the surface with these lenders and smaller banks and things like that but the earnings are underpinning this bull market. Slide 6 shows that. The valuation side which was so dominant back in '23 and '24 has taken a backseat, which is nice to see. You want earnings to be driving the bus and earnings are growing at 11%. We'll see what earnings season delivers but my guess is it will end up as a double-digit quarter. The P/Es are not cheap, 22 times forward earnings for the S&P cap-weighted, 20 times for the equal-weighted. The Mag Seven is driving the bus, they're trading at a 35 times P/E but their earnings are booming. Obviously, these are huge companies with very large moats that are not going to be penetrated very easily.

[00:31:55] I think the bull market goes on. We're now in the early parts of year four of the cyclical bull market. I think that's where we are. Whether it turns into a bubble or not or whether that bubble will just be confined to specific pockets of the market kind of as a sideshow but not something that becomes systemically a crisis, we'll just have to see. For now the bull market is alive and it's global. Global markets are very competitive, they're well valued and they are participating in this bull market.

[00:32:30] Pamela Ritchie: It is fantastic to get your perspective. Thank you, Jurrien Timmer, for setting us up for this week, all these investors. We wish you safe travels. See you in Toronto.

[00:32:38] Jurrien Timmer: Thank you very much. Have a good week.

[00:32:40] Pamela Ritchie: Yeah, you too. Jurrien Timmer joining us from Boston today. Coming up tomorrow portfolio manager, Joe Overdevest, he'll be discussing the key headlines and also themes impacting global natural resource markets including how Canadian energy companies are harnessing the power of AI. Joe's also going to offer an update on Fidelity Global Natural Resources Fund. Tomorrow's webcast will be available with live French audio interpretation so do join us in either official language.

[00:33:06] On Wednesday, first at 10:30 Eastern ETF strategist, Sébastien Faucher, he will unpack this month's top ETF trends, strategies, market insights. This webcast will be presented en français. That is at 10:30 on Wednesday, Eastern time. Then at 11:30, regular time for Fidelity Connects, Eastern, ETF strategist, Vince Kraljevic, he will be sharing the latest ETF monthly playbook including an update on the All-in-Ones. The flows story is incredible. You want to tune in for this one to hear this. This will be presented en anglais, we'll be speaking in English on that one.

[00:33:41] On Thursday, Fidelity Director of Quantitative Market Strategy, Denise Chisholm, drops by to discuss her latest research on the importance of sector starting points, and even more important she's going to argue sector end points and what they ultimately signal and mean for the investment story. Thanks for joining us here today to kick off your week. I'm Pamela Ritchie.