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Jurrien Timmer Profile picture
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21 Apr, 5 tweets, 2 min read
With mega-cap stocks regaining leadership in recent weeks, the rotation into small caps and value appears to have been put on hold. Does that mean the grand reopening has been fully discounted? THREAD/1
As we consider the data, it’s worth remembering that getting the cycle right is not just about knowing what comes next. Equally important is knowing what’s reflected in the price. /2
This shows the year over year change in the style performance. The bottom panel shows the NY Fed’s weekly economic index, which has done a complete round trip from lockdown to reopen. The re-open trade a few months ago seems to have been perfectly discounted. /3
So what now? I don’t know, but I think a lot of positive economic news is now reflected in the market. I flew to California a few days ago. When I was there in February, the town where I stayed seemed empty. Now it’s the opposite, just like the Fed’s weekly economic index. /4
See here how the recovery is shaping up. Jobless claims are way down, earnings are headed up, and the Fed's economic index, as mentioned, is spiking. So the second derivative for bond yields, inflation break-evens, and sector/style rotations may be peaking here. /END

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Jurrien Timmer Profile picture
22 Apr
Peak reopening? If the acceleration rate of the economy's reopening has peaked, it makes sense for the style rotation of stocks to take a rest, and for bonds to find a bid. Lately, 10-year Treasuries are down 18 basis points from their high of 1.75%. THREAD/1 Image
With upward momentum for yields broken, German and Japanese investors may feel more comfortable nibbling at U.S. bonds and hedging them back into euros and yen. It’s a far cry from 2019 when these investors had to give up yield to buy treasuries on a hedged basis. /2 Image
Will yields eventually resume their uptrend and head to 2% and beyond? It’s possible, especially if you expect that inflation will eventually be making a secular comeback. The chart below of the money supply certainly seems to suggest it. /3 Image
Read 4 tweets
Jurrien Timmer Profile picture
20 Apr
Where are we in the long wave of style rotation? Based on the secular bull market analog of 1949-68 and 1982-2000, I think we have reached the moment of “peak rate of change.” The market should continue to climb but at a diminishing rate of change. THREAD/1
This chart shows the secular bull market analog in the upper left corner, and the 10-year compounded annual growth rate in the bottom left. The upper right is the ratio of stocks vs commodities, and below that growth vs value. Below that, inflation. /2 Image
In terms of style rotation, the current cycle may be more of a “rising tide lifts all boats” dynamic rather than the zero-sum days of the early 2000s. /3
Read 4 tweets
Jurrien Timmer Profile picture
20 Apr
Large-cap growth stocks took the lead in recent weeks, propelling the S&P 500 to new highs. So let’s take a look at the “nifty fifty” largest stocks. Here, the relative return of the 50 largest vs. the next 450 (monthly data) since 1962. (THREAD/1)
Over the very long term, mega caps tend to lag the market, presumably because they tend to be rather boring quality stocks with high P/Es and steady but unexciting earnings growth. But, interspersed along that declining trendline are a few notable eras of mega-cap leadership. /2
The mega-cap growth period since 2014 is the 3rd such regime in six decades, with the previous two consisting of the original Nifty Fifty era of the early 1970s & the boom/bubble in tech stocks during the late 1990s. /3
Read 14 tweets
Jurrien Timmer Profile picture
14 Apr
Bitcoin vs Gold: Let’s take my hypothetical exercise () one step further by bringing gold into the mix. (THREAD)
Let’s take the above models and convert them into projected market values. The gray line shows the market cap of above-ground gold. We only have data through 2020, but I took the liberty of extrapolating this series using two simple assumptions. /2
The first is that gold production continues at the same rate of 100 million oz, as it has done in recent years. The second is that the price of gold will advance by the same 8% CAGR that it has since it started to trade freely in the early 1970s. /3
Read 9 tweets
Jurrien Timmer Profile picture
13 Apr
It was four months ago that I first wrote about bitcoin, and a lot has happened (and a lot has been learned) since then. So here is a refresh of my take on the topic. (THREAD)
In my view, there are at least two dimensions to what makes bitcoin unique: an asymptotic supply curve and an exponential demand curve. At the intersection of the two lies a parabolic price discovery curve for this unique asset class. /2
The supply curve is best described by the stock-to-flow (S2F) model, originated by @100trillionUSD. The higher the S2F, the higher the valuation. From what I understand, the S2F model is basically a power regression between bitcoin’s price and it’s inflation rate. /3
Read 14 tweets
Jurrien Timmer Profile picture
2 Apr
Here are nominal returns for various investments during key periods of history. Note the 1940s' big returns for small caps and value. Bonds were repressed back then, with a cash-like return for a cash-like volatility. Could this be part of the Fed’s playbook in years ahead? Image
For clarification, I picked the 5 regimes for specific reasons to highlight possible analogs to today’s markets. 2009-2021 is the current post-GFC “monetary inflation” regime, which, in my opinion, is also a secular bull market that may have a ways further to go. (1/4)
1982-2000 was the previous secular bull market, driven in part by disinflation. 1949-1968 was the secular bull market before that, driven by post-depression/WWII productivity and demographics. (2/4)
Read 5 tweets

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