Jurrien Timmer Profile picture
Dir. of Global Macro @Fidelity. Student of history, chart maker, cyclist, cook. Helping investors break thru the clutter. Views are mine. https://t.co/9Pn7wGwMzp
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May 20 11 tweets 3 min read
The stock market is trying to find its footing. It continues to be a balancing act between price, earnings, and valuation. So what can we expect? Let’s dive in. 🧵 Image Below, we see the tension between falling valuations and rising earnings, and a price level that far exceeded the projected earnings gains. The reaction can be slow, with price languishing until earnings catch up, or sudden, with price falling to revert down to earnings. /2 Image
May 19 7 tweets 2 min read
Inflation expectations are falling. So how will the Fed react? 🧵 Image As we see above, the 10-year yield rose to 3.20% last week, even as both the 10-year and 5-year 5-year (5y5y) forward TIPS break-even spreads have come down (to 2.68% and 2.35%, respectively). /2
May 16 10 tweets 3 min read
An update on Bitcoin: Let’s take a look at my favorite metrics to see where things stand after last week’s sell-off. /THREAD Image First up is the bitcoin/gold ratio, which I see as a barometer for how this aspiring digital store of value is faring relative to that “original” store of value. /2
May 13 8 tweets 2 min read
Are we there yet? My valuation model based on the 2-year yield (a good proxy for the Fed cycle) suggests that the market may finally have sufficiently derated to reflect our new monetary reality. /THREAD While it can always overshoot, My guess is that the 19% drawdown in the SPX and a 10 point haircut in the trailing P/E might be enough, given that earnings estimates are holding up. /2
May 13 7 tweets 2 min read
With growth stocks under pressure, it begs the question: What will happen to the mega-growth leadership of the past 8 years? Take a look at this chart, and we'll dig in. 🧵 Sam Houston-Read recently updated our Nifty Fifty series, and the chart above shows an updated history through March. The chart suggests that the relative out-performance since 2014 of the 50 largest stocks (in the S&P 500) vs the 450 smallest stocks may have come to an end. /2
May 13 5 tweets 2 min read
Is the secular bull run finished, or just taking a breather? The answer is unknowable in real time, but the historical analog continues to suggest that the secular trend remains intact. 🧵 Based on the previous secular bull markets of 1949-68 and 1982-2000, I think we are the point where the rate of change has peaked, but the level hasn’t. /2
May 11 5 tweets 1 min read
With the fwd P/E down to 17.2x and the 2yr yield now falling slightly to 2.61%, the S&P 500 is only 1 point from what my model suggests could be a new valuation equilibrium. /1 As long as rates don’t resume their uptrend and earnings hold up, perhaps we have seen the worst for this correction. /2
May 10 5 tweets 2 min read
The recent decline in inflation expectations is helping to reset real rates. The nominal 5-year has reached a cycle high of 3.08%, but the 5-year TIPS break-even declined from 3.73% in March to 3.23% last week. That mix drove real rates higher by 100 bps since March. 🧵 This is good news, as it potentially allows the Fed to get to a proper restrictive policy without impacting the bond market much further. Falling inflation expectations will also bring us to the Fed’s finish line faster in its quest to slay the inflation dragon. /2
May 9 4 tweets 1 min read
The long-awaited Fed meeting finally happened, and the 50 bps was delivered as advertised. The forward curve now suggests a 3¼ percent terminal rate in 2023. 🧵 Image When the Fed did not (as some anticipated) hint at a 75 bps hike, the market reacted with a brief rally, which was quickly reversed. That rally seemed silly at the time, and it seems especially silly in hindsight. /2
Apr 26 10 tweets 2 min read
Will Bitcoin become a fixture? Here we see the number of global mobile phone users and global internet users, regressed against the number of BTC addresses. Both analogs support the idea that the Bitcoin (and Ethereum) network has a lot more growing to do. / 🧵 Image However, the different slopes for mobile phones vs internet users presents a challenge for valuing Bitcoin. How do you calculate a present value of future growth when it’s not clear how steep the slope is? /2
Apr 26 19 tweets 4 min read
Bitcoin will likely evolve from the early go-go days to a more mature two-way market, driven by network growth and the pace of adoption, less by scarcity (which is written in stone and mostly baked in). So let’s do a deep-dive on historical adoption curves. 🧵 Image The chart above shows various S-curves going back to the early 1800s. Using the Historical Statistics of the United States database and the UN’s World Development Indicators, I found many interesting adoption curves in the US and around the world. /2
Apr 25 5 tweets 1 min read
The sense of urgency about inflation is becoming palpable. Markets and the Fed seem to fear that inflation expectations will become unanchored enough that it will become difficult to put the genie back in the bottle. 🧵 Image Inflationary shocks usually begin as something tangible— supply chain bottlenecks or sanctions, for example. The risk is that it becomes psychological, whereby businesses and employees start demanding more for their products and services, just in case the inflation persists. /2
Apr 20 11 tweets 3 min read
Bitcoin, boring? Gasp! But boring is good if you want institutional adoption. 🧵 Image Is the efficient market hypothesis replacing the go-go price discovery of yesteryear? The chart above shows Bitcoin’s fundamentals. The supply curve is dictated by the S2F model (h/t @100trillionUSD), and the demand curve is driven by network growth (Metcalfe’s Law). /2
Apr 18 4 tweets 1 min read
Financial conditions are tightening again, which is what the Fed wants to see.🧵 Tightening the financial economy is the name of the game for the Fed right now. It aims to slow demand enough to slay the inflation dragon. /2
Apr 15 8 tweets 2 min read
What does gold know? With real rates rising as quickly as they are, the tried-and-true TIPS model suggests that gold should have fallen to 1600 or so. Instead, it is holding in like a champ at around $1950. Why? 🧵 Perhaps gold “knows” that if bond yields keep rising to the point of undermining growth, the Fed will be forced to dust off the 1940’s playbook by continuing/resuming its asset purchases indefinitely, much like the BoJ has been doing for years, and the ECB is hinting at now. /2
Apr 12 11 tweets 3 min read
The stock market seems to be ignoring the Fed, perhaps even more so than first meets the eye. 🧵 If it was anticipating a prolonged, aggressive cycle by the Fed, the cost of capital that makes up the denominator in the discounted cash flow model (DCF) should be rising. But it's not happening so far. And depending on how the ERP is calculated, that disconnect is dramatic./2
Apr 5 9 tweets 3 min read
Is the economy robust enough to withstand the shock therapy the Fed is about to dole out? Last week, in a possible warning sign, the 2y10y yield curve inverted. Look at the chart and let's discuss. 🧵 The market appears to be expecting a repeat of the 1994 Fed cycle. Back then the Greenspan Fed raised the Fed Funds rate 300 bps, and then cut it by 75 bps in 1995. But 1994 was a successful pre-emptive strike against inflation, whereas the current cycle is highly reactive. /2
Mar 30 4 tweets 1 min read
Has the Fed has finally reached the point of expected neutrality? Take a look at this chart and I'll explain. A short 🧵 If we take the forward curve and subtract out the implied forward inflation rate (derived from the TIPS curve), we see that for the first time during this cycle, the expected real funds rate is no longer negative. In other words, neutrality. /2
Mar 29 11 tweets 3 min read
How might the 2022 Fed cycle be similar or different from the 1994 cycle, when the Greenspan Fed shocked the market with repeated unexpected rate hikes? 🧵 Image Today’s forward curve is in stark contrast to 1994. Back then, the Fed kept shocking the market with 50 bps and even 75 bps moves, in an ultimately successful pre-emptive strike against inflation. /2 Image
Mar 28 5 tweets 2 min read
It is highly unusual for the market to expect (as it seems to now) that a Fed tightening cycle will accelerate and reverse so quickly. (See chart.) To me, the risk is that the Fed will have to go even further, and—more importantly—stay there longer. 🧵 The current forward curve (above, dark purple) is in stark contrast to the 1994 cycle (chart below). Back then, the Fed kept shocking the market with 50 bps and even 75 bps moves, in an ultimately successful preemptive strike against inflation. /2
Mar 16 5 tweets 2 min read
What can the 1940s tell us? Perhaps that more correction is coming. Take a look at this chart and I’ll explain. 🧵 Our 2022 high looks like the 1946 high. Above, I show the S&P 500 price analog against inflation, which soared in 1946 and 1947 when WWII ended and price controls were lifted. Based on this model, our current correction may not be over. /2