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Jurrien Timmer Profile picture
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12 Oct, 4 tweets, 1 min read
Price follows earnings, except at the tails. Very negative earnings growth tends to produce positive returns (red dots below on the left), because this usually occurs at market bottoms. This chart illustrates earnings growth (horizonal) and the S&P 500 return (vertical). (THREAD)
On the other hand, very positive earnings growth does not seem to be correlated (see the pink dots on the right in the chart above). /2
Historically, when earnings growth is above 30%, the regression line for earnings vs. price is flat as a pancake. Investors don’t reward extremely high earnings growth because it tends to be unsustainable. That's what happened in 2018 following the tax cuts. /3
While earnings growth may yet surprise to the upside, I doubt it will be by the 30 percentage points of the past two quarters. /END

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Jurrien Timmer Profile picture
13 Oct
The market is in mid-cycle and is following a typical pattern. This chart shows earnings growth in light blue and P/E growth in pink. The blue bars extend into 2022 because they include current estimates. (THREAD) Image
See the pattern? First, the market bottoms, then earnings typically bottom a few quarters later. In between those two inflection points is a big expansion in the P/E multiple. /2
From there, the P/E ratio peaks on a rate-of-change basis, then earnings growth goes positive, then the change in the P/E ratio turns negative, and then earnings growth peaks. /3
Read 5 tweets
Jurrien Timmer Profile picture
11 Oct
Gaining ground: Bitcoin is back up to around $55k, which is still $10k below its all-time high of $64,870 but marks a significant improvement from the summer lows of $30k. What’s interesting here? (THREAD)
This rally has come with little fanfare & doesn’t seem driven by momentum chasers. As we see, the percentage of coins held by short-term “tourists” is down to just 15%, below levels seen at bottoms. This tells me there could be room to run if momentum chasers pile in. /2
In terms of price momentum, Bitcoin’s move doesn’t seem excessive. Below, the bitcoin/gold ratio along with its de-trended Bollinger Bands, measuring the number of standard deviations from its trend. /3
Read 5 tweets
Jurrien Timmer Profile picture
8 Oct
Where are we headed on the correlation between stocks and bonds? With some renewed upward pressure on bond yields, there's a tug-of-war between nominal R-star (The Fed’s published R* rate plus the current 2-year inflation rate) and monetary velocity. (THREAD)
As you can see above, the 10-year yield is somewhere in between those two. Will monetary velocity pick up and follow nominal R* higher, or will the current inflation spike be transitory and bring nominal R-Star back down? It’s one of the existential questions of the day. /2
My guess is that yields will rise cyclically, but remain in a secular down-trend, driven mostly by demographics. But I do think that inflation will be somewhat higher over the next 10 years than it has been over the past decade, driven by wages and housing. /3
Read 7 tweets
Jurrien Timmer Profile picture
29 Sep
Time to debunk that laziest of bubble arguments: the market-cap-to-GDP ratio.
It's severely lacking as a valuation metric. The ratio doesn't consider interest rates, which are at multi-year lows. It also does not consider operating margins, which are at multi-year highs. /2
Most importantly, comparing the S&P 500 to US GDP does not account for the fact that US large caps have become more and more global over the years. So let’s fix it. /3
Read 6 tweets
Jurrien Timmer Profile picture
29 Sep
When gauging supply and demand for shares in the stock market—which determines price—it's important to consider mergers & acquisitions (M&A) since the shares of companies being acquired are removed from circulation. (THREAD)
When we account for M&As, the difference between supply of shares and demand for them becomes very lopsided. The chart below shows the 12-month rolling sum. /2
The chart below shows the cumulative supply and demand since 1982. I view the early 1980s as the start of the modern financial era, so that seems like a good place to start. /3
Read 9 tweets
Jurrien Timmer Profile picture
24 Sep
What’s a bitcoin worth? There are many opinions on the matter, ranging from zero to millions. While many of us tend to focus on price, whether it’s for stocks or bitcoin, what really matters is valuation. (THREAD)
Whether the S&P 500 index trades at 4,000 or 3,000 is meaningless without knowing anything about its valuation. The same applies to bitcoin. What’s the significance of 50k or 10k or 100k if we don’t know what the value is? /2
How do we value a new and aspiring asset class? It’s difficult to do, which is why price discovery tends to be volatile. In my past work, I have focused on the supply dynamics (via the stock-to-flow model) as well as the demand side (its exponentially growing network). /3
Read 15 tweets

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