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Summary

“Global Macro Analysis is like four dimensional chess.” says Jurrien Timmer, CMT “It’s intellectually thrilling!” If the recent market environment has been less intellectually thrilling and more emotionally draining, then this episode is for you! Starting from the bond desk at a large Dutch bank nearly forty years ago, Mr. Timmer has learned a few things that will absolutely change the way you think about investing…

As director of Global Macro at Fidelity Investments , Mr. Timmer is part of Fidelity’s Global Asset Allocation (GAA) group, where he specializes in asset allocation and global macro strategy. Additionally, he is responsible for analyzing market trends and synthesizing investment perspectives across Asset Management to generate market strategy insights for the media, as well as for Fidelity’s clients

Enjoy episode #21 with our special guest Jurrien Timmer, CMT!

To better understand the concepts covered, and current market commentary, we recommend reviewing the supplemental resources accompanying this episode using this link https://CMTA.FYI/ftge21

Resources

• https://cmta.dev/presenter/jurrien-timmer/
• https://cmta.dev/video/strategist-panel-discussion-timmer/
• https://twitter.com/TimmerFidelity

Transcript

Tyler Wood, CMT 00:13
Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lundgren and Tyler wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tools. By learning more about their key mentors, early influences and their long careers in financial services Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered and refined the descipline of technical market analysis. Fill the gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you are a professional analyst, portfolio manager or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT Program gain free access to these powerful tools during the course of their study. Learn more at optuma.com. Hello, Dave Lundgren and welcome to Fill the Gap. How are you doing today, my friend?

David Lundgren, CMT, CFA 01:58
I’m doing excellent Tyler, great to see you here on the video. But it was even better to see you recently in New York at the CMT Association board meeting, I haven’t done that in a couple of years. So it’s always great to catch up with you virtually but in person was even more fun to see the rest of the team as well. It was just fantastic.

Tyler Wood, CMT 02:15
Absolutely many exciting things to come for the Association in the months ahead. But today, we’re talking to a former colleague of yours from Fidelity Investments, tell us a little bit about Jurrien Timmer, Dave.

David Lundgren, CMT, CFA 02:28
There’s much to say about Jurrien, you know, he was I think when I think about all of the macro strategists who really influenced my thinking and how to really appreciate and respect how the macro trends in the markets can influence equities specifically, which is what I was focused on then. And now, I would say, you know, you’re in this absolutely at the top of the list, our offices were located right down the hallway from each other at Fidelity, I was here from ’99 to ’02 and he was of course there before then. And since then. So he’s been there quite a while he’s a mainstay strategist there at Fidelity. For me, this particular conversation was especially a joy for me only because it just brought me back to my Fidelity days, and reminded me just as it was at Wellington, just how important and how embedded the technical conversation is, in an amongst these, you know, one of the largest equity managers in the world. You know, that Johnson, of course, was a very heavy user of charts, which we talked about a bit with Jurrien, and just, just to have this conversation with Jurrien, and just to hear and see how these technical concepts, you know, weave their ways in and out of these these various fundamental conversations throughout the hallways of Fidelity. It’s just a really great reminder of how holistic that company is, but also how important technicals can be when you actually really are focused on beating a benchmark.

Tyler Wood, CMT 03:42
Absolutely. I think for me, seeing macro strategists or even economists who rely so heavily on core concepts in the field of technical analysis, like relative strength and inter market analysis, understanding how to organize data in a visual way that helps you communicate these ideas. Jurrien is a quintessential example of one of the great macro strategists of our generation. But also just to think about how so many economists brought our toolkit into the practice of what they do and how they communicate their ideas, which I think is really powerful. This was a fantastic interview, you and I could probably sit for, for weeks on the end picking Jurrien’s brain and diving deep because his encyclopedic knowledge of what’s happening worldwide is, is really quite incredible. For all of our listeners to Fill the Gap. Make sure that you’re marking your calendars for 2023. The 50th anniversary of the CMT association is going to be celebrated here in New York, April 26th to the 28th next year, and folks like Jurrien and many others will be joining us to share thoughts on, on where the markets are at next spring as well as their process and tools. So, Dave, without any further delay, let’s dive into our interview with Jurrien Timmer here on Fill the Gap

David Lundgren, CMT, CFA 05:03
Welcome to Fill the Gap, the official podcast of the CMT Association. My name is Dave Lundgren. And as always, I’m joined by Tyler wood, Managing Director of the CMT Association. This month, Tyler and I are joined in conversation by Jurrien Timmer, a CMT charter holder. Jurrien is the director of global macro at Fidelity Investments in Boston. Now normally at this point, I would run through a quick chronology of our guests career, but in Jurrien case, he has been at Fidelity for nearly 30 years. So I had the good fortune of overlapping with your and during my time at Fidelity, where our offices were located a few spaces away from each other on the perimeter of the infamous Fidelity chart room, which we discussed in last, in our last episode. Now, one thing becomes abundantly clear when, when talking markets and strategy with your he’s a super passionate about the subject, with a most extensive knowledge of the inner and outer workings of markets in the macro drivers. And despite sitting atop the macro perch of one of the largest asset managers in the world, Jurrien maintains a rare level of humility, and is still insatiable appetite for more knowledge. As in he shares his wisdom regularly with all of us via his highly followed social media accounts on LinkedIn, and Twitter. Jurrien Timmer Welcome to Fill the Gap.

Jurrien Timmer, CMT 06:19
Thank you. That was the most, most generous introduction.

David Lundgren, CMT, CFA 06:23
I tried, I meant every word of it. So, in our brief overlap at Fidelity, I learned a tremendous amount from you. And I, you know, it was, it was in that moment, having the good fortune of being able to attend your quarterly macro sessions that you would do there in the chart room, I learned two things from you; the importance of macro and the importance of clothing choice. I remember you would, you would, you would, you would show up very serious conversation with very high intellect very, very deep knowledge of what you were talking about. But there you would stand with your pink pants with dark blue elephants or, or maybe they were whales in a sweater thrown over your shoulders, which I just thought was a great contrast. But I always took it to mean that you were not afraid to make a statement. And you certainly were that way in your, in your macro reviews as well,

Jurrien Timmer, CMT 07:08
My outfits have only gotten louder since then!

David Lundgren, CMT, CFA 07:10
Well, I have to say your sense of fashion has definitely sharpened but it’s also, I always attribute it to your willingness to just stand out from the crowd, which you do in many, in many ways in your life. So we certainly appreciate you taking the time to be with us today. I mean, you’re one of those quote unquote celebrities from social media who probably doesn’t need much of an introduction. But for our purposes, particularly with our listening audience, it might be of particular interest to learn a little bit about your career. And then more importantly, more succinctly, maybe what actually got you to choose to sort of meander down this path of technical analysis, given the choices you had?

Jurrien Timmer, CMT 07:47
Yeah, no, it’s a good question. Thank you. So I started in the industry 37 years ago, my first 10, were working for a Dutch bank. I’m a Dutch citizen, dual citizen, I should say. And I started by taking the the only job that was offered, where the employer was willing to give me some help in getting a work permit, which, as a foreign student, graduating from a US college, obviously, is essential. So a Dutch bank was willing to go to bat for me. And that’s literally the reason why I went to New York to work for that bank. And I actually started as a corporate banking trainee. And you know, if there was ever something I had no interest in, it would be that but I figured, let me just take what’s offered. And I’ll figure out the rest later. And as it turned out, a few months after I started, that bank opened up a capital markets division in New York as a primary dealer, because this is a large Dutch institution with, with a large book of treasuries in the US as a primary dealer. And so that’s how I got involved in the markets. And I started as a bond geek, basically, I was, I was in the bond market, I didn’t know anything about charts. And I was executing these trades, and I got, you know, learned about the bond market. This was in the second half of the 80s, of course, the crash of 87 and then early 90s, the Greenspan cycle. And I learned that in order to understand anything about the markets in general, you need to understand how interest rates and the bond market works because even when you look at your valuation in the stock market, you have to figure out what interest rates are doing. So in that, on that purchase, you know, I had like the really old Bloomberg the stack of the four screens with the amber you know, letters, it was like, it was that those were the days right so and then you you’re just watching the markets, right? You’re waiting for trades to come in and then you’re doing what everyone else does, you’re you’re sitting at their trading terms, looking at, at screens and charts and you start getting newsletters and things like that, and, and then it just became a hobby to start plotting this stuff and to start writing about it. So I’ve got kind of, you know, an interest in writing and, and in explaining things visually, which is something that of course, You and I both experienced at Fidelity because our then chairman was a very visual person. That’s why we have a chart room in the first place. And so I got, I got into charting, but it was mostly the bond market. And then in 10 years later, Fidelity came looking for a Chartist in their bond market, in their bond, fixed income division. So I moved over to Fidelity to become a fixed income technical analyst, you know, talk about inside baseball. And I, I quickly learned that I wanted to do more than chart bond yields or bond prices, because there’s, you know, there’s a lot more, a lot more onion to peel than just the bond market. And so I started expanding my skill set to obviously to equities, currencies, commodities, just looking at more holistically what the markets can teach us. And the other thing I learned working at Fidelity, as you will know, Dave, is that, you know, Fidelity has a very rich tradition of having technical analysts there. The chart room, of course, speaks for itself. But most of the money is, is managed by portfolio managers who, who understand technicals and appreciate them, but that’s not their primary driver, right? They look at fundamentals, they look at companies, spot stocks specific, you know, ideas are driven by earnings and market share, and all that kind of stuff. And so I quickly realized that for me to broaden my audience, and I needed to kind of speak the language that most of that audience spoke, and I started quickly expanding my toolkit from just charts, or just technical patterns, to macro fundamentals, so earnings, monetary policy, all that stuff. And at the end of the day, a chart is a chart, right, we’re just, we’re just visually depicting market information. And whether that information is technical or fundamental or quantitative. To me, it’s, it’s neither here nor there. And so that, that kind of was how my career grew. And I started writing more, I started making more charts, I probably have an arsenal of, you know, 1000 plus charts, they’re all in Excel, which people find hard to believe. But you know, you build on that, right? After a couple of decades, you develop a pretty good toolkits, and some of those tools you discard, because they work for one cycle, and then they don’t work anymore, and other, other things you keep growing with. And then with each passing year, you know, you kind of put a little bit more personality on the charts. So to the point where I think someone on Twitter just called me the Picasso of charts that it’s like, it becomes part of your, your self expression, in a way it becomes a creative outlet. So that’s, that’s essentially my career in a nutshell.

David Lundgren, CMT, CFA 12:52
Yeah, you know, I think the whole, one of the things that I think about when I think about the charts that I’ve seen from you over the years is just your, your strong grasp of unique data visualization techniques, which Tyler and I have talked about quite a bit in terms of like, what the sort of the next frontier is for technical analysis, it’s, it’s, it’s we, from the very foundations of, of technical analysis has always been data visualizations, of various forms, whether it, whether it be Point Figure or bar charts, or, or candlesticks. Now we’re talking about

Jurrien Timmer, CMT 13:28
Yeah, and a chart should tell a story, right? I do not like one dimensional charts that has a line of the s&p on it. Like that doesn’t help me. But the chart should kind of make you ask questions, and then it should answer those questions at the same time. And Edward Tufte, he, of course, we all know who he is. he, he literally wrote the book about data visualization. And he was certainly an inspiration during my formative years as a, as a Chartist.

David Lundgren, CMT, CFA 13:55
Right. You know when you, when you think about macro analysis, I’m just I’m curious if there are two or three sort of touch points that you always go back to that, you know, are sort of the auto oil that sort of keeps the gears working in the macro world, so that you need to make sure that these things are, you know, what these two or three things are doing before you even think about looking at other charts? Are there? Is there anything like that? And then, you just interestingly mentioned that there were some things in the past that had worked in prior cycles that, that no longer work, other new things that are working, so maybe you can touch a little bit about like, where do you start from the macro perspective?

Jurrien Timmer, CMT 14:32
i Well, I certainly. So my, my, just to go off to to the fundamental side to go to the dark side for a moment. You know, the discounted cash flow model, which is, you know, very, very fundamental, I think is, is an important lens, even if you’re not purely a fundamentalist to look at the markets through because essentially in a DCF model, you put in a cash flow or projected cashflow in the numerator. And that could be for a stock for the s&p, it could be a company, if you’re a business person, it could be a piece of real estate, right, where you’re the rent that you’re going to get on that property. And that goes in the numerator. And then the interest rate, the cost of capital goes in the denominator. And I mentioned earlier, the importance of understanding how the bond market works. So you discount future cash flows by an interest rate to get to the present value of those cash flows. And when I think about the stock market in particular, but also the bond market, everything ends up flowing through that lens, right? You think about what the Fed is doing and the importance of the Fed, you know, tightening policy right now, you just post that against valuation, the P E ratio, or the equity risk premium, and you look at what, you know, the earnings picture where we are in the earnings cycle, like everything, every element of the markets performance, can be somehow explained or filtered through that, that DCF model. And then, you know, to go over to the technical side, and you know, this from your, your days at Fidelity, one of the things we can do as technicians in a otherwise kind of fundamentally oriented, you know, environment is to have the charts be a sanity check or a second opinion, right? So if, if my DCF model says that the market, that the s&p should go to 5000, or 6000, and the chart looks like crap, you know, like, that should give me some pause, like, what what am I missing? You know, because we know about the efficient market theory or hypothesis, we know that markets are very efficient in pricing in everything that’s known very quickly. But that doesn’t mean the markets always right, right? The market is just incorporating the kind of the collective wisdom of the, of the, of every investor on the planet and the trillions of dollars that those investors manage. And that’s reflected in the price, I believe in the Efficient Market Hypothesis from that perspective. But that doesn’t mean that the collective wisdom is correct, right, the market can be dead wrong, as it as it often is, right? And you can argue that, at major inflection points, the markets always wrong, because otherwise, it wouldn’t be a major inflection point. And so the market could be wrong about where the, how far the Fed needs to push it, or whether the economy is going to push earnings growth, into contraction. And so the charts can, can help us get a sense of, you know, if a chart, if the price pattern of a chart represents the collective consciousness of the market, which I would argue that it does, then that’s a very good form of discipline as an investor or portfolio manager to have. And that’s one of the things we do, or at least my colleagues in the chart room do, and you did as well, is to, you know, to if you have if you follow a stock, and it’s either widely owned by the portfolio managers, and it looks like, you know, like, dogshit, you’re gonna go in front of that portfolio manager saying, like, do you really want to own this? And maybe you do, but maybe the person says, Well, I realized the chart doesn’t look like much, but I think it will change, then that’s fine. But then, but at least it gives you the kind of that second opinion, and that sanity check. And so that’s something that I always look at. So if the narrative in the market is very pessimistic, but the chart looks like a really strong base, then that that gives me something to be excited about. But again, I always weigh that against what the fundamentals are. And like I don’t know any more than anyone else, whether earnings growth is going to be 10, or five, or zero, or whether the Fed goes to three and a half, or four or five, but I know what the market expects the Fed to do. And then, And then what’s priced in, and if too much is priced in, then there’s an opportunity there.

David Lundgren, CMT, CFA 18:58
Yeah, exactly. And I’m glad you wrapped it up that way. Because what I always like to think about is, I personally think like the market is always right, directionally. So whatever direction it’s going in, it’s a, it’s a validated direction, because that’s the markets, it’s the wisdom of the crowd. But there’s no doubt that that direction can sometimes take on a life of its own. And that’s why we have bubbles. That’s why we have crashes. So it goes too far. But the direction is often right. Always right. But it sometimes goes too far. Tyler, you got something.

Tyler Wood, CMT 19:25
Now I was, I was gonna bring it back to the bond trading desk and find out if, if you used technical analysis or any of those concepts in your early days, just thinking about how much time your clients had to prepare their trade idea and their thesis and do their research. And then what did you have 24 hours to, to execute on the bank side? That’s not very effective.

Jurrien Timmer, CMT 19:46
Yeah, I mean, I got into technical analysis by looking by following the bond market. And, you know, again, you’re early 90s, the Greenspan cycle, we had a major bear market in the bond market at the time, and actually it’s funny When I think back about highlights of my career, one of them was when I interviewed at Fidelity in late 94, early 95. And my last interview was with Ned Johnson, which of course, you know, that drives the fear into a person who doesn’t know him yet, right? And it was a great conversation. We just sat in his office for an hour talk markets, like he didn’t ask me about my qualifications, or whatever. But another one that happened shortly before then was actually when I was at this bank looking to leave and I ended up at Fidelity, of course, where I still am. But I had an interview with with Paul Tudor Jones, a very obviously, we all know who he is. And I went to his office downtown on I think it was on Liberty Street if I’m not mistaken. And he had you know, he obviously is a larger than life person still is and certainly was back then. And I sat in his office at this U shaped desk he had and he had this huge Telerate screen remember Telerate?

Tyler Wood, CMT 21:00
Oh yeah!

Jurrien Timmer, CMT 21:01
We Were dating ourselves, you know.

David Lundgren, CMT, CFA 21:02
Now you’re dating yourself.

Jurrien Timmer, CMT 21:05
Yet the long bond on it, and one of the first questions he asked was, is that a fourth wave or a fifth or something else? You know, but it was an Elliott Wave question. And so, so yes, you know, I looked at a lot at Elliot Wave stuff and in the same stuff we look at for for any market, right? overbought, oversold trend exhaustion. divergences, right? I mean, we all know when, when, when, when one market makes a new low, but a related market does not, or, and or a technical indicator, whether its momentum, or breath does not confirm that low, and sentiment is bombed out. Like when all of those things start lining up, you know, you’ve got the potential of a major inflection point. And that’s true in commodities, or bonds, or equities, or any other market.

Tyler Wood, CMT 21:52
I love that you are particular about the checklist of all the items you look at before deciding there’s an inflection point.

Jurrien Timmer, CMT 21:59
And that’s the where experience comes in, right? I mean, I’ve been doing this for a while, as if you guys, but you learn, like you learn from cycles. And you had a question about, you know, sometimes indicators work for one cycle, then they don’t know, time cycles can be very notorious about that, on that, on that matter. And, and but you know, experience helps you, or at least it helps me look at market history and say, Well, you know, this kind of reminds me, like the 94 cycle, and there are elements to this particular cycle for the stock market that are very similar, you know, this is back in the Greenspan days where he raised rates out of the blue. And the two year yield was a very helpful guide to explaining how far that corrective period had to go. It wasn’t really a bear market by traditional measures. We call it a stealth bear market, because we kind of went sideways for a year while the Fed was raising rates, but the two year yields, what was the kind of the proxy for the P E ratio in the stock market? And it’s been the same thing this time. But that’s one example. There are other you know, but then the analog kind of falls apart, because inflation, that was a preemptive strike, this is certainly not a preemptive strike. But then I look at the 1940s. Right, I mean, the World War Two era there lot of similarities between that and COVID. Obviously, COVID is not a world war, but maybe it’s, it’s, it’s a parallel to it. Certainly the fiscal and monetary policy response, the inflation, the supply chain, bottlenecks, you think about it, right, the economy was re-mobilized or mobilized to enter World War II. And then when the GIS came back, that economy was geared to mobilizing for war, not for bringing these people back in, they ought to find jobs, right? And so there are definitely some parallels. You know, I interviewed maybe a month ago, I interviewed Ben Bernanke and I asked him about that. And I was really impressed by the level of detailed knowledge he has of that period in the late 40s. You know, you had the inflation hangover, you had everyone coming back, the economy wasn’t able to meet that it’s very, very similar to today. And by the way, that was a 26% decline, that this was a 25% decline. So So again, you know, their history rhymes, it doesn’t repeat. And but I take different pages from different pieces of history. And that’s how you build kind of a holistic view of this cycle barring from past cycles, because we know market behavior is a subset of human behavior, right? And so that’s why the market does tend to do the same things in different settings in different ways. But it’s still people buying and selling and they rarely make rational decisions at both either the highs or the lows.

David Lundgren, CMT, CFA 24:55
Well said, you know, you being a macro strategist, with a global perspective, touching on all asset classes and you have a very in depth knowledge of cryptocurrencies and blockchain, etc, as well. So we have a lot to talk about. And I know you have somewhat of a hard stop today. So why don’t we? Why don’t we just jump right into where we are in the markets today? Because I think the sort of intro to this discussion really highlights some critical points that we’re dealing with today as investors, and that is probably at the sort of overarching level is, are we in some sort of a regime transition? And if we are, what tools that have worked in a deflationary environment, it’s just not going to work going forward? What tools have worked through deflation, but will still be valid going forward, perhaps at this discounted cash flow that, you know, the time value of money seems to always be relevant no matter what. So maybe let’s start with this. So equities, do you think equities have bottomed, in this cycle?

Jurrien Timmer, CMT 25:48
I think they have. But at the same time, I think we’re lacking a compelling bullish catalysts not that there ever is one at the bottom. Right?

David Lundgren, CMT, CFA 25:56
Eaxctly!

Jurrien Timmer, CMT 25:57
And maybe, maybe there is, but you don’t most people don’t see it. You know, I’ve, I’ve been, you know, so we have to, you know, it’s good to distinguish between the market cycle and the secular trend in this for this conversation. And it’s my view that we’ve been in a new secular or in a secular bull market since the ’09 low right. And when the 2000s was a was, a period of secular kind of a lost decade, just like the 70s were I mean, inflation was different, of course, but but since 2013, when the s&p for the first time made a new all time high, following the 2000, and a 2007 peaks. I became a secular bull. And my thesis has been that that’s driven by demographics, you know aging baby boomer solving for income, at a time when there is no income to be gotten from the bond market. You know, it’s part of the Great Moderation of story. And so, and part of it is financial engineering, right? It’s declining interest rates, low tax rates, lots of share buybacks, financial engineering, and in that sense, and that’s produced outsized valuations, right, if you think about what companies do, you know, what they earn is one thing, their profit margin is another thing. But how much of those earnings they return to shareholders via dividends, and or buybacks is a very important component. And it’s one where the US kind of crushes the rest of the world because the rest of the world like Japan, Europe, and other countries, other regions don’t have this kind of buyback shareholder mentality. So in the US, you know, 80% of earnings are returned to shareholders via buybacks and dividends. The rest of the world is about 50 or 60%, that 80% commands a premium, because if you’re a shareholder, if you’re an investor, you get more your earnings back, you’re gonna pay more for that, right, you’re gonna pay more for each dollar of earnings when, when that happens. So those, those elements have all been part of the secular thesis and declining interest rates and by and you know, which which implies low inflation, and a low volatility of inflation is part of that story. So if we are in a turning into, turning a page to a higher structural inflation regime, you know, that makes you wonder about this whole, this whole driver, the set of drivers for the secular bull market, I am not ready to conclude that the bond market or bond yields have ended their 40 year secular downtrend. I do think I don’t think we’re going to make lower lows, it’s hard to do with the 10 year reaching point 3% back in 2020. But if there’s one area where mean reversion has paid off, it’s in long yields, right? If you look at a chart of 40 year chart of yields, every time you’ve, if you do like a Bollinger band or something like that, through it every time you reach so many standard deviations above that falling trendline. It’s, it’s paid you to buy why bonds and do the opposite on the other side of that. And so I’m not ready to to conclude that that for decades, run off mean reversion is coming to an end. But but you know, it could right and from what we, from what I can see, it’s hard to imagine inflation. I think inflation has peaked for this cycle. But that doesn’t mean it’s gonna go back to 2% by next year. I think mathematically is very hard for that to happen. That puts the Fed in play, right? Because then all of a sudden the Fed puts is maybe more out of the money than it used to be write it over the past since the financial crisis whenever there was anything wrong with the market, the Fed could just go full on and ease as much as it, as it could to help financial conditions recover. Because inflation was not an issue inflation was MIA was below the Feds target of 2% you know for 15 years. That dynamic seems to have changed now. Right? And even if we go from 9% down to 4 which is a huge improvement, that would still be foreign not to, right? So that’s still an environment where the Fed can’t really respond in the same way that it has over the past decade and a half since the great recession. So that so there are a lot of ways you can you can think of that maybe the next 5 or 10 years are going to be different from that perspective, and maybe this secular bull market, which historically has lasted about, you know, 18 years or so, this one is shorter, right? Oh, 09 to 22 that’s only 13 years, maybe that’s all there is to it, maybe, maybe we’re kind of in a more mature phase of that secular bull market than then I thought we were and you know, this is one caveat, of course, for technical analysis, like when you think about secular trends, and you look at past secular bull markets, you know, 80s, and 90s is one of them. 50s. and 60s is another one, the 20s is a third one. Yeah, that’s a sample size of three, over 150 years, like you, you can’t like a quant would laugh you out of the room if you built a model on that. So we can learn from history, but there is a limit to what we can do. And the secular bull market may have ended in January. And you know, and there would be still be nothing wrong with the examples from the past, it’s just that you can only do so much with it. So, So I’m a little bit on the fence as to whether the secular bull market is still intact? I think it is. And one of the characteristics of secular bull markets is not that there aren’t recessions and bear markets there are they’re basically almost as many, but they tend to be shorter, faster and the recovery tends to be much quicker. I think about the 2018 decline in the fourth quarter, think about the pandemic declined 35% in five weeks, it was reversed in no time, right? That those are hallmarks of secular bull markets. And if it turns out that we recover all of the losses, so far removed, covered half of the losses from January to June, maybe, maybe that it’s still alive. And you know, we have the 1% tax potentially coming on share buybacks on unknown what kind of effect that’s going to have on the financial engineering leg of this stool. But you know, the proof is in the price action. And that, of course, is technical analysis one on one, it’s like, you don’t necessarily need to know why things are happening. You just look at the charts, because the charts is, like I said, is the collective consciousness of every person who is interested in markets. And if, if this thing recovers, if it continues to recover as quickly as it has so far, then that would be, you know, anecdotal evidence that the bull markets still intact. But in terms of the cyclical picture, you know, I look at all the technical stuff, I look at breath, look at retracements and things like that. And it’s interesting, how little we can actually tell, like, so we’ve recovered, we’ve recovered half of the decline. We’re up 17%, from the low percentage of stocks above the 50 day moving average is that 90, 92%. It was at 2% just in the middle of June, right? That’s a pretty rapid recovery. When I stack up bear market rallies going back 100 years versus new cyclical bull markets. The only chart where I can see a distinction in terms of how do I know which one it is, is not from breath or the magnitude of the, of the advance because it’s very hard to know in real time whether something is a bear market rally or a new bull market. The only hints that I think that I can find is that bear market rallies almost never retraced more than half of the decline. And right now we have retraced half of the decline. So if we continue to build on this rally, despite the fact that momentum is overbought, like the stochastics are overbought, the breadth numbers, which I just mentioned are are overbought. If we continue to build on this, despite all that happening, then the only conclusion I can draw is that it’s a new cyclical bull market because Brent overbought in a bull market is a sign of strength, overbought in a bear market is assigned to get the hell out. And that 50% retracement is I think is the key. So we’re kind of at a fork in the road here that will prove probably to be quite actionable.

David Lundgren, CMT, CFA 34:24
I’d be curious on your thoughts regarding it, because I think this might in turn help inform or at least give us things to watch out for in terms of whether or not we’re in a secular bull market still or not. And that is or do you subscribe to the view that we like Jeremy Grantham might say that we just went through this bubble of everything type of a situation where when you look back at every secular bear market, a bull market that’s ever happened and terminated, they’ve all terminated in a bubble in when you look back at what happened in 2001, I mean, you could make the case that equities were in a bubble. I mean, we have more stocks trading above 15 times price to sales ratio in the s&p than we had in 99 and 2000. We have, you know, real estate being purchased in the metaverse for a million dollars, which, which, which had the very sad seem to be a pretty good parallel to tulip mania, you know, at least tulips. They at least existed in real time. And you get you hold them in your hands. This this case here was it was all digital, you couldn’t make but people were throwing millions of dollars at these things that we had, you know, bonds around the world went to a negative interest rate, which I mean, if that’s not a bubble, I don’t know what is, you know, is it conceivable that we actually did just go through this bubble of everything, and that’s in our rearview mirror and when you have bubbles of that magnitude in your rearview mirror, what comes forward after that is a decade of stagflation and stagg you know, sideways markets at best.

Jurrien Timmer, CMT 35:53
Yeah, I think it’s a very good observation. And, you know, that deals actually, with a fundamental way of looking at that is with, with the shiller cape, right? The cyclically adjusted P E, which is the P E ratio using 10 year average earnings. That Shiller cape is very predictive in in predicting forward 10 year returns. So the P E does tells you nothing about the next year or the next two years. But it tells you a lot about the next 10 years. And so from that perspective, the the highs in 2020 were instructive in that we did reach, you know, very high valuation levels. And you know, if you think about it this way, you buy a bond and you hold to maturity, your return is the yield that you’re buying, when you get the bond, right. So if you’re buying a bond at 2.78%, and you never sell it, that’s your return. Same with the P E ratio, right? If you’re paying 30 times earnings for stock, the hurdle rate to actually get a return is very high, because you’re paying a lot for each dollar of earnings. So when you think about bubbles, it’s always about valuation. It’s not about price. But of course, they’re highly related, of course. So when I think about this cycle, there certainly were elements of a bubble, you look at the mean stocks, non profitable growth stocks, you know, those peaked in February of 2021, and fell 50%, to the June lows.

David Lundgren, CMT, CFA 37:24
Atleast.

Jurrien Timmer, CMT 37:25
And if and, yeah, at least some of them did more, but I look at the different Goldman Sachs indices and down 50%, they’ve retraced about 24% of that decline. So they’re up a lot, but they’ve only retraced a small portion of that decline. And those stocks should remain broken, right, because as you know, the leadership of the last move is rarely the leadership of the next move. You look at rates at bond yields. And certainly, you know, the financial repression, it’s not an overt repression, like the Fed has not kept interest rates, like it did in the 1940s. But of course, we had 120 billion a month of QE during the pandemic period, and that only just recently ended. That’s a form of financial repression, right? So, that push real rates using the tips market down to minus 2% levels, and of course, using the CPI far lower than that. And again, per the DCF model that we discussed earlier, you plug in an artificially repressed discount rate into the DCF model, you’re gonna get artificially elevated valuations, right? If you’re, if you’re discounting a cash flow stream, by an artificially low rate, you’re gonna get an artificially high present value. And and I actually model this so back, maybe a year ago, you could clearly see that if yields were 100 basis points too low, lower than they should have been, which you can demonstrate by just regressing, like the Fed’s balance sheet against yields and things like that. You plug that into a DCF. And that made a difference of five PE points, like the market, the market was trading at 25 times earnings a year ago, two years ago, a year ago, actually, when it should have been 20 times earnings. And I think that’s a useful exercise because you know, when you go on Twitter or you look at people’s newsletters, and technicians are not I’m not isolating technicians. This is this applies equally to all all market pundits, but people like to be dramatic and they like to say, you know, and, you know, GMO, as you mentioned, good Jeremy Grantham, you know, everything is in a bubble. Okay, well quantify that like, like, show me exactly how that is and that’s what I tried to do by saying, Okay, if interest rates are 100 basis points lower than they should have been. You put that into a DCF it gives you a PE that’s 25% higher than it should be. There’s your your asset price inflation. Now is 25% a bubble or is it just an overvalued ration, I don’t really care like they like, to me, that’s not usually useful distinction. But a lot of that has been corrected, right? I mean, when the Fed went from kind of permanently at zero, or at least that was the expectation, to now saying we’re gonna go to three and a half or maybe higher. The bond market, as you know, had a massive sell off the first six months of this year were is something we haven’t seen in decades, where bond prices went down along with stock prices, usually one goes up while the other goes down. So a lot of this dislocation that was driven by the Fed, has been, has been resolved. And so if it was a bubble, I think the bubble has burst, and we’re back towards some sort of balance. But if the market keeps running here, without the help from earnings, then it’s by definition, all valuation, that maybe we go right back to where we were, you know, a year ago, where you had all markets kind of financially repressed to be overvalued both the bond side and the stock side. And so that’s kind of how I see it. That would imply then that if that’s the case, your ladder description of the environment, which is valuation keeps a cap on things, because, because of the regime that we’ve transitioned to that doesn’t preclude cyclical bull and bear markets from happening, but it might put a cap on that secular outlook in the sense that, you know, if rates have gone sideways, you said rates are probably done going down, but they’re not going to go up to that and play somewhere between that to put words in your mouth, but let’s just say it’s between one and a half and 3%, we just kind of find a range. And then for the next several years, that could be the driver of the the impending cyclical bull and bear market that we foresee. But you also mentioned a couple of things that I think can come together to help maybe bring some clarity as well. One is, we could say that there was a bubble, in meme stocks and in parts of technology, etc. That’s all been washed out. And so that that adds to the idea that perhaps the downside is less of a risk than it was before because the bubble has been taken care of. But you also mentioned that what led in previous bull markets tip does not typically lead in the next bull market. So does that imply that whatever cyclical bull market we have that lies before us, it’s not to be expected to be led by tech? And if so, what, what would you think? Yeah, so when you look at long term history, so I look at, you know, 150 years worth of real returns for the s&p and I look at 10 year CAGR compound annual growth rates of different ratios, right stocks to commodities, bonds to stocks, growth, to value, small to large, US to non US. There’s a supercycle there, you can clearly see when you do a 10 year rate of change, you can see it and growth to value large, small US to non US, stocks to commodities. They’re all at that point where both from a timing and a price point of view should be peaking. And again, that’s a 10 year rate of fame. That’s a long time, you can see a lot of different things happening in that in that time. But it’s I think it’s interesting, because if interest rates have bottomed for the secular trend, which I think is kind of you know, that’s not a controversial opinion to have, because they went almost to zero. And now we have your high inflation and even though the inflation rates probably going to come down, it may not come down back to the Feds target. And that’s going to remove the Fed put to some degree. So you put those things all together, you know, the 1% tax on buybacks, maybe that affects financial engineering. It’s not a stretch to see that even if the market goes to new highs, which is not, which is not a controversial opinion to have, because if earnings don’t fall out of bed, which, during periods of inflation, they rarely do right earnings generally hold up because they’re a nominal concept companies sell into the nominal economy, not into the real economy, right? But if that discount rate stops being a tailwind, maybe it doesn’t become a headwind, but it stops being a tailwind. And that’s going to put a cap on valuations. And one thing we can learn from periods of inflation, is that valuations always get cut, right? The earnings don’t really skip a beat. But investors are smart enough not to pay for those earnings, because they because it’s a money illusion, basically. And so when I combined that, with these charts, showing these 10 year rates of change, and I look at demographics, right, the percentage of the US population over 65, those are all kind of peaking in the next you know, few years and that tells me that it will be value that’s going to run the market in the coming years. And that would also argue that again, maybe the bull market is not dead. But you know, part of the bull market the secular bull market story since 2014 has been you know, the fang stocks, you know, the mega cap growers and that growth was justified right I’ve looked at at the nifty 50 stocks, either in the late 90s, or the early 70s and again the last 10 years, the early 70s, in the late 90s, those, those ultra large cap growers, which some of them were tech, others were other companies, at least back in the 70s. When they really ran away from the market, it was mostly valuation. And of course, and that’s what a bubble is, it’s always about valuation. This run has been fully justified by relative earnings. So the prices run, but the valuation has not. So I don’t think that, you know, Apple and Google and those companies not, not to mention specifics, because I don’t do individual stocks. But those mega cap growers have had an incredible run. But they’re not in a bubble, the non profitable tech, the mean stocks were in a bubble because they don’t have any earnings. That’s why they called non profitable growth stocks. Those were in a bubble, and those I don’t think are coming back anytime soon. But you know, I think Apple is like 7%, from its high, you know. So if there’s not a bubble there, then maybe that that doesn’t change the picture. But based on long term charts, I think it’s going to be value, real assets over financial assets. And that, by definition implies that inflation is going to be a structural phenomenon, and not just a cyclical one, because those are the sectors and styles that work with inflation.

David Lundgren, CMT, CFA 46:24
When you look at the last 20 years, I think at least 15, if not 20 years, one of the drivers of why these mega cap growth companies did so well was because there was a dearth of growth anywhere else. I mean, you know, we can say that the USL performed over the past whatever it is 15 years. But if we’re really being honest, what actually happened is in technology outperformed over the last 15 years in the US is the best ecosystem of technology on the planet that’s why the USL performed. And so on top of that you had declining rates and discounted cash flow has exploded because of that. So therefore, this is where we are today. So I get all that if it’s changing, I can accept that it’s changing. And trust me, if the charts change, I will go with that. And I’m starting to see some of it. But I always just from a pure intellectual perspective, just curious. It’s my belief that value never actually works. What works is that catalysts happen in the economy to unlock the fundamental opportunity and potential of those companies that are otherwise deemed to be value. And when that happens, they become growth. So if I’m thinking about all the potential sea change of environment that you’re describing, like, I’m thinking Europe starts to outperform because it’s, it’s cheap. It’s mostly industrial, and financials and all these other things. Would that not apply for that to happen? Although we’re seeing inflation, would that imply that the real growth has to also come with that so that it’s because growth has to unlock value? It’s not just going to unlock because growth is doing poorly, you know, growth stocks, you know, value doesn’t do well, just because growth is doing poorly. In fact, from a relative perspective, growth stocks do poorly because value finally works. And we know why it hasn’t worked for the last 10 or 15 years. What about the macro economy that you see going forward actually justifies fundamentally value working and ultimately becoming growth stocks?

Jurrien Timmer, CMT 48:07
Yeah, no, it’s a great question. And it’s a good long term philosophical question, you know, you most of the world is kind of trapped in a slowing demographics, malaise or secular stagnation, you know, to use a common term for that. And the secular growers obviously, worked very well for that, because there was little growth to be found elsewhere. And without any inflation, there was no pricing power in the rest of the economy. We’re seeing that change. Now, of course, energy, you know, its earnings estimates are up 150%. But it’s only 4% of the market, right. So it doesn’t matter as much. And in Europe, you know, it’s a lot of banks, and you have low interest rates, and you have problems in the periphery, if the same thing in Japan. So part of it is just sector composition, as you know, the US is much more grossie. And they both devalue trade is the same trade as the US versus non US trade, because it’s all about these very large cap companies doing very well. And they’ve built such powerful mode. So you think about the network, you know, and we can we can talk about that with crypto, because that’s about networks as well. But once your network gets so powerful, that it becomes impenetrable, you’re pretty much golden. But you know, what we saw in the first six months of this year is that these long duration stocks as we call them, right, so these are companies where you are paying for a very long visible stream of earnings, which in cyclicals and in value stocks by definition you don’t have because they’re cyclical. But the caveat is that when you price a long duration stock, the discount rate, the interest rate matters a lot because you plug that into the DCF you know 100 basis point change in the discount rate for a high PE stock has a bigger impact than 100 basis points for a low PE stock. And so that’s why a lot of these companies got severely derailed even though their earnings were you didn’t necessarily skip the beat and so, so the growth, you know, story does hinge on the interest rate story to some degree. I mean, we’re all going to have iPhones until till the day we die probably. But that doesn’t mean that Apple deserves a higher multiple than it gets now. And so it does come down to devaluation. And, you know, energy is only 4% of the market today. But back in the early 80s, it was any energy and materials for 27% of the s&p 500. So, so there’s another element to that, but I like your way of thinking about how value stocks basically become gross stocks once you have more visibility on the runway. And of course, the Dollar plays a role in that as well. And the Dollar is to some degree driven by the policy divergence, right? The Fed has been very relatively proactive in terms of raising rates. I mean, it was still way behind the curve, right. I mean, it still had committed a policy error by not, you know, ending QE earlier. And that’s neither here nor there now because it’s in the past. But, you know, the ECB cannot raise rates as much as the Fed can because if it does, Italian spreads are gonna blow out. And the Bank of Japan is not only not raising rates, it’s, it’s doubling and tripling down on yield curve control to, to defend its, its JGB market. And so that divergence between the US tightening and the rest of the world, either not tightening us as much, or easing, that’s what drives the Dollar, we had the same thing happened in 2015, into early 2016. So once the market gets clarity on the end of this Fed cycle, which might be a recession, forcing the end, or it might be inflation falling rapidly enough that the Fed doesn’t have to go much above what we call the neutral rate or the natural rate, then I think the Dollar can start to come down or at least stop going up. And then non US markets at least have a fighting chance because they won’t have that currency translation, working against them.

Tyler Wood, CMT 51:58
Right. Jurrien, you mentioned earlier that the leadership and the new phase of the secular bull market often doesn’t reflect leaders going into periods of downdraft. And so on a relative basis just even this summer, June and July, we saw healthcare outperform the s&p and in terms of sector allocation, right now, industrials, are outperforming on a relative basis, would you see more of that being driven by technological innovations in those sectors that maybe weren’t always known as, as technology leaders, and I’m thinking about automation and robotics and things like John Deere and Caterpillar. And then within the healthcare side, we’ve talked about that global war against the Coronavirus and all the new developments in gene therapy or new technologies in terms of vaccine creation and the amount just invested in healthcare technology. Do you see those as the big drivers? Or do you think the industrial sector and maybe even healthcare are being driven by maybe inter market elements, like industrials being driven by the fact that commodities are so much higher now and there’s profitability to be captured?

Jurrien Timmer, CMT 53:02
I think it’s, it’s a combination of both I mean, biotech healthcare, I think I would view that as part of the mega cap growth leadership. I mean, biotechs are not mega cap, by definition. But, you know, there’s parts of the consumer sector, you know, Amazon’s considered a consumer stock part of the biotech side, that’s all these these long duration growth stories, that and I don’t think that’s going away. Maybe the valuation piece has has peaked, but, but on the on the value side, you mentioned, industrials, you know, we have a, we have a pretty significant geopolitical pivot going on, you know, reversing potentially the kind of the 20, or the two decades long period of globalization, right. So I mean, this is part of the Biden policy is to reassure supply chains. I mean, we all learned during the pandemic that wait a minute, all of our medical stuff is built in China, like Hello, you know, national security, you know, that sort of thing. And so I think there’s a push underway, and we see that in semiconductor chips already happening, to bring that back. And I think if the geopolitical if that uni polar power structure we’ve had for so many decades where the US was, in charge fractures to a multipolar system where obviously China becomes a bigger player. And the result of that is that the arbitrage of labor and capital that was part of globalization reverses. And it happens, obviously, in a more modern way, right? If a company race resource, their supply chain, if an industrial company resources, its supply chain back into the US, there’s going to be a lot of robotics and automation involved. And if that creates a longer view on the visibility of profit margins, and therefore profits, and if that makes those companies less cyclical, because they’re going to be less vulnerable to the whims of globalisation, then I could see companies like that catching a premium valuation wise that maybe they didn’t get in the past. And so, and that’s well beyond just, you know, if you’re an energy company and the price of oil is here, you’re gonna make so much money. But part of it is also, that especially in the energy side, you know, we have this whole ESG movement, which I think is here to say, but energy companies, you know, have gone through enough boom and bust cycles. And, you know, we’ve lived through a lot of them, where the shareholders, the investors in those companies are telling these energy companies, especially the energy service companies, is they stopped drilling for new oil, every time oil goes up $10 like to stop it. You know, exercise, capital discipline, if you’re running rising oil prices, that’s great, you’re going to earn more, give me some money back as a dividend and call it a day, don’t, don’t start throwing a bunch of capital after it. And so between that and the ESG movement, which of course is also, I don’t want to say punishing, but it’s a disincentive to drill more holes in the ground as well, that I think will actually help the energy and material sector from a long term perspective as well. So maybe that feeds into kind of the secular story as well.

David Lundgren, CMT, CFA 56:16
You’re in I know what we’re bumping up against time. And I’m curious if we have time for one quick moment to share your thoughts on crypto and blockchain and then we’ll, we’ll let you go. So yeah, can you can you help like I just Just this morning, just in preparation for for asking you this question. I just as I always do. I said, What’s the difference between Bitcoin and blockchain? And it’s always people are excited about crypto. But what they end up talking about is blockchain because that’s actually what matters. So crypto is just one way to use blockchain. And then so then it becomes a question of whether or not there’s any value to crypto. Is it possible that it was just the easiest thing that we could do most immediately with Blockchain? And it’s, and it shows you how it works, but it actually has no end use case. And it was a very famous strategist at, at a very large mutual fund company, who’s the macro strategist who has a CMT charter once said, things may be very scarce, but if they have no use case, there’s there is no value. So you may throw some light.

Jurrien Timmer, CMT 57:11
know, it’s a great question. So what’s unique about the digital asset space is that it is all about the blockchain. I mean, that that, that is a game changer. You’re cutting out the intermediaries and having that distributed ledger. That that’s, that’s a pretty powerful innovation that’s going to be with us and and it’s going to grow and expand the crypto the tokens, right? Whether it’s Bitcoin or some other token is is the way and I don’t know how exactly how to explain this, but many blockchains have a token. And that’s how you add value to the blockchain. So you know, when the internet was developed, there was no token right? You could buy a company that was developing their product on the internet, but you could not buy the IT TP you know, protocol. In blockchain, you can, right? You have Aetherium, you have Bitcoin, you have other tokens that are a direct monetization of that blockchain. And so for me, it comes down to the network effect, right, we talked about Apple, like Apple has a gigantic network that’s impenetrable. If I develop a better iPhone tomorrow, I’m never going to take market share away from Apple because their, their moat is too strong. And I think Bitcoin and Aetherium are in that same position where you look at historical Eskers adoption curves, Aetherium and Bitcoin are far and away, you know, the largest and they have that first mover advantage. And I think that those trends are now established enough that they’re not going to go away and regulation is not going to make it go away, regulation will actually help it because it will legitimize the space, it will give institutions a better sense of what were the guardrails are, so that there are some protection there. And it really just comes down at that point to the valuation. Again, it’s always about valuation, more so than price. And Bitcoins prices back to the 2020 levels, but Bitcoins valuation, which I determine or define as the price to network ratio, so the price per millions of addresses, is back to 2014 levels. So from that perspective, Bitcoin is cheap. And if you think or if you believe, and this has to be part of your thesis, if you’re going to believe that and if not, then you’re not going to be interested in the space. But if you think that Bitcoin or Aetherium network continues to grow in line with historical Eskers, whether it was internet adoption, or mobile phone adoption, or anything else, historically, and if that continues to grow up into the right, then there is a play there, right? And then it’s just a question of where how fast that net network grows. If it grows slower than we think it does, and the price is already above it, then yeah, Bitcoins to sell. But if Bitcoin at 24,000 is below that curve and it grows, it continues to grow, then it’s a buy. And it becomes like a growth stock in that sense, right? If you’re in a technology company, and that technology company’s network is growing, and the price is below that projected network, it doesn’t lend itself to a DCF. Because there are no cash flows and Bitcoin. But it’s the same idea, right, you’re projecting a growth rate. And then you’re comparing where the price is today versus that projected growth rate. And you know, Metcalfe’s law is what we look at in crypto. And it says that if the network grows, the valuation will grow exponentially to that network, which is exactly what’s happened to Apple, and other other tech companies. So that’s how I think of it but the token is inseparable from the blockchain, because the token is the way to participate in the blockchain. And that’s what’s unique about crypto versus internet, you know, two decades ago,

David Lundgren, CMT, CFA 1:00:55
And the you know, the S curve that you mentioned, is that’s a critical input to the thought process for growth investing. I mean, if you can capture one of those S curves, it’s invaluable. It’ll make your career. And so..

Jurrien Timmer, CMT 1:01:05
All of our slope of that S curve going forward, that’s what’s gonna drive the value for Bitcoin. I think.

David Lundgren, CMT, CFA 1:01:11
I understand the S curve of telephones back in the day, televisions, PC, real radio. All that right.

Jurrien Timmer, CMT 1:01:19
Flight while are all S curves.

David Lundgren, CMT, CFA 1:01:22
What’s easy to grasp in those S curves is the use case of those things that are being mapped to that curve. I still don’t understand what the use case is of Bitcoin, not blockchain. I totally get that like, that’s actually going to transform the economy in ways that we don’t even know yet, much like the Internet has transformed our economy today, today in ways that we couldn’t imagine 20 years ago, what’s the actual use case of digital currency? Is it a currency? Or is it something else? And why is it on that? So?

Jurrien Timmer, CMT 1:01:53
I think it’s a it’s a commodity currency. And you know, I don’t subscribe to the Bitcoin maximalist notion that it’s going to replace the Dollar, I think that’s all nonsense, you know, if anything, it will solidify the Dollars status as reserve currency. And I think the key missing link, there are not the missing link. But the key link is not so much Bitcoin, but the stable coin market, not like tether which is very shaky, or sketchy, but like circle, others that are basically like money market funds for their collateralized money market funds, they will soon be regulated, I think that’s the first regulation that’s going to come. And that’s going to make the Dollar more portable, as a digital currency around the world, whether, whether or not the Fed comes out with a digital Dollar or not, it almost doesn’t have to, because so the stable coin, ecosystem will drive that. And then Bitcoin will be the transaction layer. And, you know, Bitcoin, of course, is very volatile, it doesn’t make it useful, you know, to go buy your coffee, but it is useful and being used for large, large transfers of assets, especially if you’re in a regime that’s not as friendly or stable as the US is right? You go to Nigeria or other other countries. And, you know, again, the size of the network plays a role here, right? And the second, the L two layers, right? So think about the payment layers on top of the L one bitcoin layer, you think about strike lightning, things like that, if the ecosystem gets big enough, and enough people own Bitcoin and own stable coins, and they start transacting with each other, but keeping their money within that Bitcoin ecosystem, the volatility angle doesn’t matter anymore, right? The volatility only matters when you go from Bitcoin back into Fiat, and from Fiat back into Bitcoin. So, again, the promise of the potential of a large network effect well I think, will correct you know, some of those challenges that that Bitcoin has, but I think of it as a commodity currency, it has elements of gold, you know, at least potential I think of it as the precocious younger sibling of gold, striving to be like gold, you know, but it’s, it hasn’t grown up quite enough yet. And so part of it, I think, is an aspiring store of value part of it as an aspiring payment system that has not succeeded yet as that because it’s too volatile. But you know, as the network grows, I think it will probably get closer to achieving both of those and then the stable coin ecosystem will, will be a very important part of that.

Tyler Wood, CMT 1:04:28
Fantastic! Jurrien, you finished your CMT exam. You took them in 1992 1993 and wrapped up in 1996. Clearly, you were not learning about Bitcoin and altcoins at that time, what what spurs your interest these days, where do you keep learning and refining your toolkit?

Jurrien Timmer, CMT 1:04:48
It’s all macro all the time. Even with something like Bitcoin. It’s very micro, but it’s also macro because the macro creates the narrative you know, and the macro two years ago, was the The opposite of what it is today in terms of, you know, money printing till the cows come home, you know, you look at M2 to growth, all that stuff, all of that is now on the other side of that, but it’s doesn’t make it any less compelling. So, to me macro is and that’s ultimately what I do is macro and you know, the technicals as part of that fundamentals are part of that any asset classes is fair game as far as I’m concerned. But to me, it’s a never ending puzzle. It’s a tremendous intellectual stimulating exercise, it’s like four dimensional chess, you know. And if I didn’t do it for a living, I would do it as a hobby. So I think it’s a great thing to be involved with. And if I can impart some of my accumulated experience over the last four decades into sound bites that help our clients or people on Twitter, make more informed decisions, then I think we all win, you know, whether they’re Lions of Schwab or Fidelity, I really don’t care if they can make better decisions, you know, I’m never gonna have answers, easy answers. There are no easy answers. But I can share pieces of the puzzle of what I’ve learned. And if people can use that to make better decisions about their life savings, and in this country in the US, it’s a DIY system, right? We have to save for our own retirement. We don’t have some pension plan to do it for us, then I think if we can make sound investment decisions, then we all win. So that’s ultimately what keeps me going on a daily basis.

Tyler Wood, CMT 1:06:33
What a, what a worthwhile pursuit. Jurrien, thank you so much for taking time with us today. I know. You’ve got many, many meetings to get to. Thank you very much for all of your insight and wisdom. We didn’t even get to talk about you know, a cookbook that you need to write and, you know, cycling memoirs are what you’re gonna do at Burning Man, but

Jurrien Timmer, CMT 1:06:50
I’m going to be doing some Tik Tok videos for Fidelity while I’m cooking and talking markets and we’re going to call them “chopping and charts.” So stay chopping and charts.

Tyler Wood, CMT 1:07:00
Oh boy. That’s awesome. Appreciate your time today and we’ll see you again really soon.

Jurrien Timmer, CMT 1:07:04
Awesome.

Tyler Wood, CMT 1:07:05
Thank you, be well. Fill the Gap is brought to you with support from Optuma. In addition to candidates study of the official CMT curriculum, Optuma provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules, ranging from 15 to 45 minutes, depending on the complexity and length of the topics being covered. Learn more at optuma.com. Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lungren and Tyler wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tools. By learning more about their key mentors early influences and their long careers in financial services Filled the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street who discovered, engineered and refine the design of technical markets.